##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549





FORM 10-K

(Mark One)



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2010



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
|- | ---------------------------------------------------------------------

For the transition period from                      to

Commission File No. 0-28882





WORLD HEART
CORPORATION







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 52-2247240                          
|(State or other Jurisdiction of
Incorporation or Organization) |  | (I.R.S. Employer Identification No.)
|4750 Wiley Post Way, Suite 120
Salt Lake City, Utah USA        |  | 84116                               
|(Address of Principal Executive Office)                        |  | (Zip Code)                          

(801) 355-6255

(Registrants Telephone Number)

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



|                               |  |                                          
|------------------------------ |  | -----------------------------------------
|Title of each class            |  | Name of each exchange on which registered
|Common Stock, $0.001 par value |  | NASDAQ Capital Market                    

Securities registered pursuant to Section 12(g) of the Exchange Act:

None





Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ̈    No  x

Indicate by check mark if the registrant is not required to file reports pursuant
to Section 13 or 15(d) of the Exchange Act.    Yes   ̈    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the preceding 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  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files).    Yes   ̈    No   ̈

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and
will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                                                                          |  |                                       
|------------------------------------------------------------------------- |  | --------------------------------------
|Large Accelerated filer   ̈                                                |  | Accelerated filer                   
 ̈
|Non-Accelerated filer     ̈ (Do not check if a smaller reporting 
company) |  | Smaller reporting company  x          

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

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, as of June 30, 2010 was $7,431,635. Shares of voting stock held by each executive officer and director have been excluded from this calculation. This determination of affiliate status is not necessarily a conclusive
determination for other purposes.

The number of common shares outstanding as of March 30, 2011 was 26,682,332.





DOCUMENTS INCORPORATED BY REFERENCE

The information called for by Part III of this form 10-K is incorporated by reference to the definitive proxy statement for the annual meeting of stockholders of the Company, which will be
filed no later than 120 days after December 31, 2010.









---

##### Table of Contents

TABLE OF CONTENTS



|                     |  |                                                                                                               |     |  |    | 
|-------------------- |  | ------------------------------------------------------------------------------------------------------------- | --- |  | -- | 
|PART I               |  |                                                                                                               |     | 
|Item 1.              |  | Business                                                                                                      |     |  | 1  | 
|Item 1A.             |  | Risk Factors                                                                                                  |     |  | 11 | 
|Item 2.              |  | Properties                                                                                                    |     |  | 19 | 
|Item 3.              |  | Legal Proceedings                                                                                             |     |  | 20 | 
|Item 4.              |  | [Removed and Reserved]                                                                                        |     |  | 20 | 
|                     | 
|PART II              |  |                                                                                                               |     | 
|Item 5.              |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
 Securities |     |  | 21 | 
|Item 6.              |  | Selected Financial Data                                                                                       |     |  | 21 | 
|Item 7.              |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations                         |     |  | 22 | 
|Item 8.              |  | Financial Statements                                                                                          |     |  | 36 | 
|Item 9.              |  | Change In and Disagreements with Accountants on Accounting and Financial
Disclosure                           |     |  | 37 | 
|Item 9A.             |  | Controls and Procedures                                                                                       |     |  | 37 | 
|Item 9B.             |  | Other Information                                                                                             |     |  | 38 | 
|                     | 
|PART III             |  |                                                                                                               |     | 
|Item 10.             |  | Directors, Executive Officers and Corporate Governance                                                        |     |  | 39 | 
|Item 11.             |  | Executive Compensation                                                                                        |     |  | 39 | 
|Item 12.             |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters                |     |  | 39 | 
|Item 13.             |  | Certain Relationships and Related Transactions, and Director Independence                                     |     |  | 39 | 
|Item 14.             |  | Principal Accountant Fees and Services                                                                        |     |  | 39 | 
|                     | 
|PART IV              |  |                                                                                                               |     | 
|Item 15.             |  | Exhibits and Financial Statement Schedules                                                                    |     |  | 40 | 
|SIGNATURES           |  |                                                                                                               | 45  | 
|EXHIBIT INDEX        |  |                                                                                                               | 46  | 
|FINANCIAL STATEMENTS |  |                                                                                                               | F-1 | 



---

##### Table of Contents

PART I



|Item 1. | Business.
|------- | ---------

SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K 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). All
statements other than statements of historical fact are forward-looking statements for purposes of these provisions, including statements regarding our Levacor® Ventricular Assist Device (VAD) Bridge-to-Transplant (BTT) clinical study or any delays in such study; our expectations with respect to future development plans for
our next-generation product candidates, the minimally invasive VAD and PediaFlow VAD; the timing and scope of pre-clinical testing and clinical studies; our ability to secure additional funding or 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:



| |  |  | clinical study outcomes, including delays in our clinical studies and our ability to solve the design issues;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | costs and delays associated with clinical studies for our products and next-generation product candidates, including the Levacor VAD (Levacor VAD or
Levacor), the minimally invasive VAD and the PediaFlow VAD;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our need for additional significant financings in the future;
| | - |  | -------------------------------------------------------------



| |  |  | our ability to manufacture, sell and market our products;
| | - |  | ---------------------------------------------------------



| |  |  | decisions, and the timing of decisions, made by health regulatory agencies regarding approval of our products;
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | competition from other products and therapies for heart failure;
| | - |  | ----------------------------------------------------------------



| |  |  | continued slower than anticipated Destination Therapy adoption rate for VADs;
| | - |  | -----------------------------------------------------------------------------



| |  |  | limitations on third-party reimbursements;
| | - |  | ------------------------------------------



| |  |  | our ability to obtain and enforce in a timely manner patent and other intellectual property protection for our technology and products;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to avoid, either by product design, licensing arrangement or otherwise, infringement of third parties intellectual property;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to enter into corporate alliances or other strategic relationships relating to the development and commercialization of our technology and
products;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to remain listed on the NASDAQ Capital Market; and
| | - |  | --------------------------------------------------------------



| |  |  | other factors we discuss under the heading RISK FACTORS.
| | - |  | ----------------------------------------------------------

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.



1



---

##### Table of Contents

CORPORATE STRUCTURE

World Heart Corporation, (Corporation, Company) 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. On January 1, 2010 WorldHeart changed its jurisdiction of incorporation from the federal jurisdiction of Canada to
the state of Delaware in the United States through a plan of arrangement. Our head office is located at 4750 Wiley Post Way, Suite 120, Salt Lake City, Utah, USA, 84116 and our head office telephone number is 801-355-6255. We also have
administrative office space at 333 Hegenberger Road, Suite 410, Oakland, California, USA 94621.

Intercorporate Relationships

World Hearts Inc. (WHI) is a 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 primarily responsible for current and next-generation product development, including product development work on our Levacor VAD, our
minimally invasive VAD and our PediaFlowVAD.

World Heart B.V. (WHBV) is a wholly-owned subsidiary, incorporated under
the laws of the Netherlands on March 5, 2004. On October 30, 2007 ownership of WHBV was transferred from World Heart Corporation to World Hearts Inc. WHBV has been responsible historically for European clinical trials and European
commercialization of product candidates and devices. WHBV has limited activities currently.

7210914 Canada Inc. is a
wholly-owned subsidiary, incorporated under the laws of Canada in 2009. 7210914 Canada maintains certain Canadian intellectual property.

BUSINESS OF WORLDHEART

The
Corporation

Our business is focused on the development and sale of VADs, particularly our Levacor VAD. 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. The Levacor VAD uses a magnetically-levitated rotor resulting in no
moving parts subject to wear, which is expected to provide multi-year support. In August 2009, we received conditional approval of our Investigational Device Exemption (IDE) from the U.S. Food and Drug Administration (FDA) to begin a BTT clinical
study of the Levacor VAD. In January 2010, we received unconditional IDE approval from the FDA for the BTT study. Enrollment in the BTT study will involve approximately 160 subjects. The follow-up period for subjects in the BTT study
is six months with the end points of heart transplant, six-month survival on device or device removal for recovery and survival to 60 days after device removal. To date, we have enrolled fifteen subjects in the BTT study and we have activated nine
clinical centers as study sites. In July 2010, the FDA approved the expansion of the BTT study by ten additional centers, for a total of 20 centers. In February 2011, the company decided to pause enrollment in the BTT study while three
refinements are made to its Levacor VAD based on initial clinical experience. These refinements include the projection of the inflow cannula into the ventricle, the elimination of a false alarm that has led to controller exchanges and the
optimization of surface finishing/coating manufacturing processes. Although we expect that the design modifications will be technically completed by the end of April 2011, in light of ongoing communications with the FDA, the timeline for
implementation of these refinements is dependent on review and approval by the FDA which is uncertain.

VADs are used for
treatment of patients with severe heart failure including patients whose hearts are irreversibly damaged and cannot be treated effectively by medical or surgical means other than transplant. BTT 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



2



---

##### Table of Contents

support for a patient not currently eligible for a natural heart transplant. Bridge-to-Recovery involves the use of VADs to restore a patients cardiac function helping the natural heart to
recover and thereby allowing removal of the VAD.

In addition, we, in conjunction with a consortium consisting of the
University of Pittsburgh, Childrens Hospital of Pittsburgh, Carnegie Mellon University and LaunchPoint Technologies, Inc. (LaunchPoint) have been developing a small, magnetically levitated, rotary pediatric VAD (PediaFlow VAD). The
PediaFlow VAD is intended for use in newborns and infants and has been primarily funded by the National Institutes of Health (NIH). In February 2011, the FDA granted Humanitarian Use Device (HUD) designation for the PediaFlow VAD. The HUD
designation is given to devices that are intended to benefit patients with conditions that effect fewer than 4,000 patients per year. Under the HUD designation, manufacturers are required to demonstrate safety and the probable benefit of their
device.

The technology embodied in the PediaFlow VAD has provided the foundation for our third product candidate, a small,
minimally invasive VAD. The minimally invasive VAD is aimed at providing partial to full circulatory support for adults in both early-stage and late-stage heart failure. We expect to be in clinical trials with the minimally invasive VAD in 2014,
contingent on our ability to obtain future financing and our ability to satisfactorily complete all regulatory requirements. We are exploring various strategic options to accelerate our development of the minimally invasive VAD.

Three-Year History

On
February 9, 2011, we announced a pause in our enrollment in the Levacor VAD BTT study pending completion of certain device refinements based on initial clinical experience and FDA review and approval of these refinements. At this time we do not
know when we will reinitiate enrollment.

On December 6, 2010, we announced preliminary results of an
investigator-initiated biomarker study comparing the Levacor VAD to the commercially available VAD. Preliminary clinical data suggests that the Levacor VAD does not cause acquired von Willebrand Factor (vWF) deficiency, a condition that is linked to
serious bleeding disorders and that has been associated with the use of current VADs.

On October 19, 2010, we completed
a private placement of common stock and warrants to purchase common stock. Gross proceeds from the offering were approximately $25.3 million. We issued an aggregate of 11,850,118 newly-issued shares of common stock at an issue price of $2.135
per share. Additionally, we issued warrants to purchase up to 11,850,118 additional shares of common stock at an exercise price of $2.31 per share.

On February 4, 2010, we announced that we were part of a consortium awarded a $5.6 million, 4-year contract by the NIH to further develop the PediaFlow VAD to clinical trial readiness. The
PediaFlow VAD has evolved through design and development with funding from a previous NIH contract, and supplemental funding and technology contributions from WorldHeart. This device is now approximately the size of an AA battery and was evaluated
in a multi-month animal experiment in 2009 and 2010.

On January 26, 2010, we completed a private placement of common
stock and warrants to purchase common stock. Net proceeds from the offering were approximately $7.0 million. We issued an aggregate of 1,418,726 newly-issued shares of common stock at an issue price of $5.15 per share and warrants to purchase
up to 2,837,452 additional shares of common stock at an exercise price of $4.90 per share.

On January 8, 2010, we
announced that we had received unconditional approval from the FDA for the BTT clinical study of the Levacor VAD. Study enrollment will encompass 160 subjects, a reduction from the approximately 200 subjects of the original statistical plan. The
primary study endpoint comprises survival to heart transplant, six month survival on the device or device removal for recovery and survival to 60 days after device removal.



3



---

##### Table of Contents

On January 4, 2010, we announced that effective January 1, 2010, World Heart
Corporation changed its jurisdiction of incorporation from the federal jurisdiction of Canada to the state of Delaware in the United States through a planned arrangement.

On August 20, 2009, we announced that we had received FDA conditional approval to begin a BTT clinical study of the Levacor at ten U.S. centers.

On October 27, 2008, we announced that we effected a reverse stock split on the basis of thirty pre-consolidated common shares for
one post-consolidated common share. The effect of the reverse stock split has been retroactively applied throughout the financial statements contained herein.

On August 21, 2008, we announced that we were embarking on a phased consolidation into a primary facility at our current location in Salt Lake City, Utah.

On June 20, 2008, we entered into a $30.0 million private placement transaction and recapitalization. Simultaneously with the
closing of the recapitalization, Abiomed Inc. (Abiomed) entered into a Termination and Release Letter Agreement dated July 31, 2008 with us. Under the terms of the Termination and Release Letter Agreement, we converted the full amount of
principal and interest owed on the $5,000,000, 8% Secured Convertible Promissory Note (Abiomed Note) into 2,866,667 of our common shares (Conversion).

On June 12, 2008, we announced that we would voluntarily delist our common shares from the Toronto Stock Exchange. Our business moved primarily to the United States in 2005 and as of June 2008
approximately 80% of the stock trades occurred on the NASDAQ Capital Market. At the end of the day on June 13, 2008, our common shares were delisted from the Toronto Stock Exchange. Our common shares continue to be listed on the NASDAQ Capital
Market.

Our Products

Our products in development include the Levacor VAD, the minimally invasive VAD for adults and the PediaFlow VAD for pediatrics. Specifically:



| |  |  | The Levacor VAD is a small, fourth-generation, magnetically levitated, centrifugal, rotary VAD. Although IDE approval for the Bridge-to-Transplant
study of this device occurred in January 2010, in February 2011, we announced a pause in enrollment in the BTT study until certain device refinements based on initial clinical experience are complete and the FDA reviews and approves these
refinements. To date we have enrolled fifteen subjects in the BTT study.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The minimally invasive VAD is based on the technology incorporated in the PediaFlow VAD, as well as internal and external design features from the
Levacor VAD. It is intended to provide partial to full circulatory support in adult patients in both an earlier stage of heart failure than currently used VADs as well as late-stage heart failure patients.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The PediaFlow VAD is a small, magnetically levitated, axial rotary VAD intended for use in infants and is currently under development by a consortium,
including us. Development is funded primarily by the NIH, under a contract awarded to the University of Pittsburgh, with supplemental funding and technology contributions from us.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

LevacorVAD

We have been developing the Levacor VAD, a fourth-generation, rotary blood pump intended for a range of circulatory support indications, since the acquisition of MedQuest in 2005. Unlike earlier
generation rotary pumps with blood-lubricated bearings, the fourth generation Levacor VAD is a compact, bearingless, magnetically-levitated, centrifugal pump with an impeller that is completely magnetically levitated. Full



4



---

##### Table of Contents

magnetic levitation eliminates the wear of 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 enhanced simplicity.

We have received unconditional approval from the FDA to conduct a BTT clinical study with the Levacor VAD and we have enrolled fifteen
subjects in this clinical study. To date, nine clinical centers have received Institutional Review Board (IRB) approval, have been fully trained, and have executed all associated research and business agreements. In February 2011, the company
decided to pause enrollment in the BTT study while three refinements are made to its Levacor VAD based on initial clinical experience. These refinements are the projection of the inflow cannula into the ventricle, the elimination of a false alarm
that has led to controller exchanges and the optimization of surface finishing/coating manufacturing processes. Although we expect that the design modifications will be technically ready by the end of April 2011, in light of ongoing communications
with the FDA, the timeline for implementation of these refinements is dependent on review and approval by the FDA which is uncertain.

Additionally, in conjunction with continued development of the Levacor VAD, we are sponsoring and participating in an independently led biocompatibility assessment of mechanical circulatory support
devices sub-study (Biomarker Study). Preliminary Biomarker Study results were presented in December 2010. Preliminary clinical data suggests that the Levacor VAD does not cause acquired von Willebrand Factor (vWF) deficiency, a condition that
is linked to serious bleeding disorders and that has been associated with the use of the current commercially available VAD.

Minimally Invasive VAD

The minimally invasive VAD is a miniature maglev rotary pump, intended to provide partial to full circulatory support in adult patients in both an earlier stage of heart failure than currently used VADs
as well as late-stage heart failure patients. Its small size is anticipated to allow placement through minimally invasive techniques, reducing the trauma associated with surgically placed devices. The minimally invasive VAD design is based on the
PediaFlow VAD as well as our intellectual property from the Levacor VAD, including internal and external design features. We expect to be in adult clinical trials with the minimally invasive VAD in 2014, contingent on our ability to obtain future
financing and our ability to satisfactorily complete all regulatory requirements. We are exploring various strategic options to accelerate our development of the minimally invasive VAD.

PediaFlow VAD

The PediaFlow VAD is a small, magnetically levitated, axial rotary VAD intended for use in newborns and infants. It is currently under development by a consortium, consisting of WorldHeart, the University
of Pittsburgh, Childrens Hospital of Pittsburgh, Carnegie Mellon and LaunchPoint. Development is primarily being funded by the NIH under two contracts awarded to the University of Pittsburgh, one in 2002 and the second in 2010. The PediaFlow
is based on the proprietary maglev technology incorporated in the Levacor VAD. Prototype devices have been successfully tested in acute and chronic animal implants. In February 2011, the FDA granted Humanitarian Use Device (HUD) designation for the
PediaFlow VAD. The HUD designation is given to devices that are intended to benefit patients with conditions that effect fewer than 4,000 patients per year. Under the HUD designation, manufacturers are required to demonstrate safety and the probable
benefit of their device.

Research and Development Expenditures

Our research and development expenditures were $8.1 million, $10.4 million and $9.2 million for the years ended December 31,
2010, 2009 and 2008, respectively, primarily related to the Levacor VAD.



5



---

##### Table of Contents

Third-party Reimbursement for VADs

In the United States, hospitals and doctors generally rely on third-party payers, such as Medicare, Medicaid, private health insurance
plans and self funded employers to pay or reimburse for all or part of the cost of medical devices and the related surgical procedures. In the United States, heart failure represents Medicares greatest area of spending.

In 2011, the Center for Medicare and Medicaid Services, or CMS, established reimbursement rates for the treatment of patients with LVADS,
with major complications and comorbidities (MS-DRG 1) and without major complications and comorbidities (MS-DRG 2). Most patients that receive LVADs and all patients that receive heart transplants are eligible for MD-DRG 1 reimbursement. Using the
2011 published payment rates, the national average Medicare payment to CMS-certified centers for MS-DRG 1 procedures is approximately $150,000. Actual payments are subject to other variables such as center geography and patient circumstances. In
addition, when LVAD patients are discharged from the hospital and then readmitted for transplantation, hospitals may qualify for two separate MS-DRG 1 or MS-DRG 2 payments.

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

Current Treatment Methods for End-Stage Heart Failure

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:



| |  |  | Medication.Pharmaceutical drugs are the first line of defense against heart failure. However, in spite of many advances, drug therapies are
currently able to provide only limited benefit in advanced heart failure patients. Drug therapies usually do not, in all cases, treat the underlying disorder and, thus, can only slow progression of the disease. Moreover, a number of heart failure
patients may be resistant to treatment with drug therapies, and often such therapies have adverse side effects.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Heart Transplantation.Heart transplantation is currently the intervention of choice for patients with end-stage heart failure. However, the
availability of donor organs, as well as other major limitations, has limited the number of transplants worldwide to about 3,750 per year and about 2,350 in the United States according to the International Society for Heart & Lung
Transplantation (ISHLT) and the United Network for Organ Sharing (UNOS). The ISHLTs data for worldwide use is reportedly conservative, as ISHLT only reports data submitted by transplanting centers. Limited availability of and waiting times for
suitable donor hearts adversely impact the utility of heart transplantation.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Surgical Repair and Cardiac Resynchronization.Surgical repair (reshaping) of the left ventricle and valve replacements are also utilized in
some patients as heart failure treatments. Cardiac resynchronization therapy is increasingly being used in New York Heart Association (NYHA) Class III patients (the NYHA classification is a measure of the degree of heart failure with
Class IV patients representing the most advanced heart failure classification) but is not effective for many patients who subsequently become candidates for VAD support.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Artificial Heart Technology.Both VADs and total artificial hearts (each a form of mechanical circulatory support) have been shown to be viable
treatments for end-stage heart failure. These devices have saved thousands of lives during temporary use as a BTT and have selectively been used for Bridge-to-Recovery or as an alternative to transplantation. Adoption rates for long-term use are
continuing to increase, although at a slower rate than anticipated.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



6



---

##### Table of Contents

Advantages of VADs

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 21,000 patients have been supported by VADs.

The following advantages over other
treatments generally apply to VADs that are currently approved and in use. 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 VAD:



| |  |  | Supply.As a manufactured device, VADs are generally available as and when needed, including on an emergency basis, to treat advanced heart
failure patients.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reduced Hospitalization.Unlike transplant patients, VAD patients go to surgery without a protracted wait for a donor organ, and in the case of
implantable VADs, patients may be able to leave the hospital after a relatively short recovery period.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Improved Patient Health and Quality of Life.After VAD implantation, blood circulation is usually improved and most patients experience improved
levels of health, as shown in a number of clinical studies. The quality of life for most VAD recipients has been shown to improve and most experience symptomatic relief. There is typically an improvement in NYHA classification for most recipients.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reduction in Medication Use.Unlike transplants, VADs typically do not cause rejection responses and, as a result, VAD patients typically do not
need the administration of immuno-suppressive medication. Accordingly, patients are not subject to the risks and costs associated with long-term administration of these medications.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Natural Heart Recovery.Unlike total artificial heart systems, VADs leave the natural heart intact and assist it when it is unable to provide
sufficient cardiac function to maintain blood circulation. The first two Levacor VAD patients in the feasibility study were successfully weaned from the device.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

There are also limitations and risks associated with VADs. Implanted and externally placed VADs require external power sources
(batteries) and controllers. Furthermore, as with other implanted cardiovascular devices, there is the risk of adverse events such as bleeding, stroke, infection and device malfunction.

Marketing, Manufacturing and Distribution Strategy

We manufacture,
distribute and service our clinical products out of our Salt Lake City, Utah facility. We have two field based members, one Oakland clinical team member, and three Salt Lake City clinical team members that support our clinical trials and
distribution of clinical products.

Intellectual Property

We hold numerous patents and licenses to patents related to the Levacor VAD and other potential future products. We have ownership of eight United States patents related to the Levacor VAD implantable
blood pump technology, either as sole owner or with exclusive licenses from the co-owners. These patents have five to 14 years remaining life before expiration. A subset of these patents has also been filed and granted in the major European
countries, in Canada and in Australia. We hold exclusive licenses to four additional patents, with remaining lives of five years. In addition, two patents related to control of rotary blood pumps, with six years remaining life, are non-exclusively
licensed. Additional patents are pending.

We hold a number of registered trademarks and service marks, including WorldHeart.
The Levacor trademark was registered by the U.S. Patent and Trademark Office (USPTO) on August 3, 2010. A trademark application is pending for PediaFlow.



7



---

##### Table of Contents

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.

Licenses related to the Levacor VAD include an exclusive license from the University of Utah to four issued patents for which we have no future obligations, an exclusive royalty-based license to four
patents from the University of Virginia, an exclusive royalty-based license from the University of Pittsburgh, an exclusive royalty-based license from Carnegie Mellon University, an exclusive royalty-based assignment agreement with LaunchPoint, and
an exclusive royalty-based license with Vertellus UK Limited for a proprietary compound. We also have a royalty-based agreement with The Heart Lung Institute, LLC, which funded early research of the Levacor VAD.

We have a royalty-based agreement with Technology Partnerships Canada (TPC) which is a result of shared funding program initiated in
2002. Through December 31, 2005, we claimed funding in the amount of approximately $6.6 million. Effective January 1, 2004, repayment is in the form of royalties payments 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. On October 12, 2010, under the TPC Agreement, TPC and WorldHeart agreed to offset royalties owed by us to TPC totaling $91,000 against receivables owed by TPC to
us.

For additional description of our license and royalty agreements, refer to Note 12 of the financial statements.

Competition

Overview

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 us.

At present, there is only one company that has developed implantable, adult VADs that are currently on the market
and approved for BTT and DT in the United States: Thoratec Corporation (Thoratec). Thoratec has two left ventricular assist device models of its HeartMate that have been approved in the United States for commercial sale. One is pulsatile driven
(Heartmate XVE LVAS) and the other is rotary driven (HeartMate II LVAS). In April 2008, Thoratec received FDA approval of its rotary Heartmate II LVAS for BTT and in January 2010 received FDA approval of its Heartmate II LVAS for Destination
Therapy.

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. In the United States, several companies including HeartWare International Inc.
(HeartWare), Jarvik Heart, Inc., Terumo Heart Inc., CircuLite, Inc. and Evaheart Medical USA, Inc. have products in clinical trials aimed at the BTT indication. In Europe and certain other countries outside North America, several
companies including Berlin Heart, Medos Medizentechnik AG, Micromed Inc., Jarvik Heart, Inc., Terumo Heart Inc., CircuLite, Inc. and HeartWare provide VADs commercially or for clinical trials.



8



---

##### Table of Contents

Future Product Competition

Rotary Flow VADs

There are a number of rotary flow
VADs in varying stages of development. Thoratec is commercializing the Heartmate II, a second generation axial rotary pump that has been approved by the FDA for BTT and for DT. HeartWare has completed its BTT clinical trial and filed a Pre-Market
Approval (PMA) with its third generation rotary device called HeartWare HVAD in December 2010. Additionally the HeartWare HVAD is currently in a DT clinical trial. Another rotary device, which had been undergoing U.S. 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 to the MicroMed
VAD. The Incor rotary pump from Berlin Heart is approved for use in Europe.

We believe that the Levacor VAD we are developing
is a technologically advanced, fourth-generation, rotary pump. 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. The Levacor
VAD is the only fourth-generation, bearingless, centrifugal pump in a clinical trial.

Government Regulations

Overview

Most countries, including the United States 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 the EC and in other countries.
The approval process for our Levacor and subsequent products will be expensive and time consuming.

United States
Regulation

In the United States, the FDA regulates the clinical development, manufacture, distribution, import, export,
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 Levacor VAD and other such devices are regulated as Class III medical devices that are
subject to tracking. Human clinical trials are conducted pursuant to an IDE in the United States, the results of which must demonstrate, to the satisfaction of the FDA, the safety and efficacy of the device. Human clinical trials of medical devices
are also required to be approved by each study sites Institutional Review Board and listed in a clinical trials registry such as www.clinicaltrials.gov.

On January 8, 2010 we announced that we had received unconditional approval from the FDA for the BTT clinical study using the Levacor VAD. Study enrollment will encompass 160 subjects. The primary
study endpoint comprises survival to heart transplant or device removal for recovery and survival to 60 days after device removal, or six month survival on the device.

Before commercial distribution of our devices is permitted in the United States, an application for a PMA must be approved by the FDA, which often convenes an Advisory Panel comprised of specialists in
the clinical field to provide advice on the approvability of particular devices.

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. Adverse event reports must be timely submitted to the FDA. Failure to comply with these requirements could result in enforcement action, including seizure,
injunction, prosecution, civil penalties, recall and suspension of FDA approval.



9



---

##### Table of Contents

Regulatory Requirements in Other Countries

It is also our intention to market the Levacor VAD and subsequent products in the EC and other countries. We will be required to meet the
applicable medical devices requirements 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 are developed and published by
the ISO. ISO certification is essential to enter 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. Subject to availability of funding, we intend to apply for CE marking, an international symbol of quality and
compliance, for the Levacor VAD and our subsequent products.

Other Regulatory Requirements

We are also subject to various United States federal, state and local laws and regulations relating to such matters as health care fraud
and abuse prevention, safe working conditions, laboratory and manufacturing practices, and the use, handling and disposal of hazardous or potentially hazardous substances used in connection with our 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 costs to comply with environmental health and safety regulations in the future.

Our Employees

At March 15, 2011, we had 65 full time employees. We
have 54 employees located in Salt Lake City, Utah, and 9 employees located in Oakland, California, and 2 field based employees located throughout the United States. Approximately 90% of our employees are involved with research, development,
manufacturing, quality, clinical affairs and regulatory, and 10% are in finance, human resources 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 Salt Lake City, Utah. None of our employees are subject to a collective bargaining agreement nor have we experienced any work stoppages.



10



---

##### Table of Contents

|Item IA. | RISK FACTORS
|-------- | ------------

You should
carefully consider the following risk factors in evaluating WorldHeart and our common shares. 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

RISK FACTORS

An investment in our common stock is highly risky. You should carefully consider the following risks, as well as the other information
contained or incorporated by reference in this prospectus, before you decide whether to buy our common stock. We believe the risks and uncertainties described below are the most significant risks we face. If any of the following events actually
occurs, our business, business prospects, financial condition, cash flow and results of operations would likely be materially and adversely affected. In these circumstances, the trading price of our common stock would likely decline, and you could
lose all or part of your investment.

We have identified the following risks and uncertainties that may have a material adverse effect
on our business, financial condition or results of operations. The risks described below are not the only ones we face. Additional risks not presently known to us or that we currently believe are immaterial may also significantly impair our business
operations.

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 VAD and other technologies, requires a commitment of substantial funds to conduct the costly and time-consuming research and clinical trials necessary for such development and regulatory approval. 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 (including our lead Levacor VAD program) 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 and
August 2008, we embarked on significant restructuring and cost reduction 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 cessation of operations. We believe that cash on hand, will be sufficient to support our planned operations through the end of 2011. We are continuing to explore strategic and financing alternatives, including equity financing transactions and
corporate collaborations. 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. There can be no assurance
that we will be able to obtain any sources of financing on acceptable terms, or at all. If we are unsuccessful in raising additional capital from any of these sources, we may need to defer, reduce or eliminate certain planned expenditures. If we are
not able to reduce or defer our expenditures, secure additional sources of revenue or otherwise secure additional funding, we may be unable to continue as a going concern, and we may be forced to restructure or significantly curtail our operations,
file for bankruptcy or cease operations.



11



---

##### Table of Contents

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
through December 31, 2010, we have incurred cumulative losses of approximately $353.2 million, a significant portion of which relates to the costs of internally developed and acquired technologies. Our research and development expenses have
increased over the past years, primarily due to our investment in the development programs for the Levacor VAD device. 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 current and 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 complete our BTT study or obtain
regulatory approvals, which will prevent us from selling our products and generating revenue.

Most countries,
including the United States 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 Europe 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 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.

Although we received IDE approval for our BTT clinical study in January 2010, in February 2011 we paused enrollment to make three device
refinements based on initial clinical experience and the timeline for restarting the study is uncertain. During our BTT clinical trial, we have experienced unanticipated device issues or clinical outcomes, which caused us to delay our clinical
trial. As a result of our device issues or unanticipated clinical outcomes, the FDA may impose additional conditions or restrictions that could also delay or stop our clinical trial. Any such delays or additional restrictions could impact
our ability to reinitiate or complete our BTT study and ultimately submit and receive a PMA or could cause material delay in the time to approval, which in turn would have a material adverse impact on our business.

The FDA or any other regulatory authority may not 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 products in the United States, Europe 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 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 or cause us to change strategic direction.

Our clinical trials may be subject to costly delays.

In order to
conduct clinical studies, we must generally receive an IDE approval for each indication from the FDA. Although we received IDE approval for our BTT clinical study in January 2010, in February 2011, we paused enrollment to make the three device
refinements based on initial clinical experience and the timeline for restarting the study is uncertain. The completion of any of our clinical studies may be delayed or halted for numerous reasons, including:



| |  |  | subjects may not enroll in clinical trials at the rate we expect and/or subjects may be lost to follow-up;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | subjects may experience adverse side effects or events related or unrelated to our products;
| | - |  | --------------------------------------------------------------------------------------------



12



---

##### Table of Contents

| |  |  | clinical investigator experience may compel us to make device refinements to optimize the investigational device as each trial progresses, which may
lead us to pause enrollment, as we did in February 2011, while such refinements are implemented;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | third-party clinical investigators may not perform our clinical trials on our anticipated schedule or consistent with the clinical trial protocol and
practices or other third-party organizations may not perform data collection and analysis in a timely or accurate manner;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | after making design refinements, the FDA may need to review and approve them before we can reinitiate our BTT clinical trial;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | defects in our devices, product recalls, safety alerts or advisory notices;
| | - |  | ---------------------------------------------------------------------------



| |  |  | vendor supply issues, manufacturing delays, or technical challenges in the production of devices;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | the interim results of any of our clinical studies may be inconclusive or negative; and
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | regulatory inspections of our clinical study centers or manufacturing facilities may require us to undertake corrective action or suspend or terminate
our clinical trials if investigators find us non-compliant with regulatory requirements.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In
February 2011, we announced a pause in enrollment based on initial clinical experience in our Levacor VAD BTT clinical study pending implementation of certain device refinements and FDA review and approval. These device refinements include: the
projection of the inflow cannula into the ventricle; the elimination of a false alarm that has led to controller exchanges; and, the optimization of surface finishing/coating manufacturing processes. The timeline for restarting our BTT clinical
study is uncertain.

If we were to experience other device issues or unanticipated clinical outcomes, the FDA might impose
additional conditions or restrictions that could also delay or stop our clinical trial. Any such delays or additional restrictions could impact our ability to get our products approved or could cause material delay in the time period for approval
which, in turn, would have a material adverse impact on our business or cause us to change strategic direction.

Clinical trials are long, expensive and uncertain processes; if the data collected from pre-clinical and clinical trials of our
product candidates is not sufficient to support approval by the FDA, our profitability and stock price could be adversely affected.

Before we receive regulatory approval for the commercial sale of our devices, our devices are subject to extensive pre-clinical testing and clinical trials to demonstrate their safety and efficacy.
Clinical trials are long, expensive and uncertain processes. Clinical trials may not be commenced or completed on schedule, and the FDA may not ultimately approve our product candidates for commercial sale.

Further, even if the results of our pre-clinical studies or clinical trials are initially positive, it is possible that results seen in
clinical trials will not continue with longer-term treatment. The clinical trials of any of our devices, including the Levacor VAD, could be unsuccessful, which would prevent us from commercializing the device. Our failure to develop safe,
commercially viable devices would substantially impair our ability to generate revenues and sustain our operations and would materially harm our business and adversely affect our stock price.

We are dependent on a limited number of products.

Our recent revenues have resulted primarily from sales of the Levacor VAD and related equipment in conjunction with our BTT clinical trial. In February 2011, we paused enrollment in our BTT clinical
study, and the timeline for restarting the study is uncertain. Therefore, we may not attain any revenue as a result of the Levacor VAD sales in the foreseeable future. Our future financial performance depends primarily on our ability



13



---

##### Table of Contents

to realign our resources to focus on the development, regulatory approval, introduction, customer acceptance and sales and marketing of the Levacor 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 VAD, minimally invasive VAD and PediaFlow VAD. 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 or cause us to change strategic direction.

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.

Our next-generation Levacor VAD 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 DT market opportunity for VADs is significant, adoption rates have continued to be slower than anticipated.

We have a limited number of technical support personnel compared with other medical device companies in our industry segment, 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 capability 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 safer, 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 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.



14



---

##### Table of Contents

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 for 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 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. We could encounter legal and financial difficulties in enforcing our licenses and patent rights against alleged infringers. The medical device industry and
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.

Our products and product candidates may infringe the intellectual property rights of others, which could increase our costs and negatively affect our profitability.

Our success also depends on avoiding infringement of the proprietary technologies of others. In particular, there may be certain issued
patents and patent applications claiming subject matter that we or our collaborators may be required to license in order to research, develop or commercialize at least some of our product candidates, including the Levacor VAD and the minimally
invasive VAD. In addition, third parties may assert infringement or other intellectual property claims against us based on our patents or other intellectual property rights. An adverse outcome in these proceedings could subject us to significant
liabilities to third parties, require



15



---

##### Table of Contents

disputed rights to be licensed from third parties or require us to cease or modify our use of the technology. If we are required to license such technology, we cannot assure you that a license
under such patents and patent applications will be available on acceptable terms or at all. Further, we may incur substantial costs defending ourselves in lawsuits against charges of patent infringement or other unlawful use of anothers
proprietary technology.

We are exposed to product liability claims.

Our business exposes us to an inherent risk of potential product liability claims related to Levacor 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 vendors, 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 vendors,
unanticipated technological problems and delays. From time to time, we have experienced manufacturing challenges and delays, and we may experience manufacturing challenges and delays in the future. For example, we are currently making certain device
refinements which have caused us to pause enrollment in our BTT study. Any such challenges or delays, if significant, could negatively affect our ability to develop and deliver our products in a timely manner, which could have a material adverse
effect on our business, including clinical trial enrollment, financial condition and results of operations. In addition, 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 or adverse effect on our business, financial condition and results of operation. Furthermore, any of our own manufacturing
problems or those of the third-party vendors we rely on could result in potential defects in our products, exposing us to product liability, claims and product recalls, safety alerts or advisory notices.

We often depend on single-source third-party vendors for several of the components used in our products. We do not have agreements with
many of such single-source vendors 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 vendors to provide adequate inventories
of these components on a timely basis and on favorable terms. These vendors also produce components for certain of our competitors, as well as other large customers, and there can be no assurance that such companies 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 vendors 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 vendors or substantial price increases imposed by these vendors, in the absence
of readily available alternative sources of supply, would have a material adverse effect on us. Failure or delay by such vendors 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 basis, which could have a material adverse effect on our business, financial condition and results of operations.



16



---

##### Table of Contents

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, cost reduction and consolidation efforts in August 2008 may make it
more difficult for us to attract and retain qualified personnel.

If we fail to maintain an effective system of internal
control over financial reporting, we may not be able to accurately report our financial results, and current and potential stockholders may lose confidence in our financial reporting.

We are required by the Sarbanes Oxley Act of 2002 to establish and maintain adequate internal control over financial reporting that
provides reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. We are likewise required, on an annual basis, to evaluate the
effectiveness of our internal controls and to disclose on a quarterly basis any material changes in those internal controls.

As described in Item 9A  Controls and Procedures elsewhere in this Annual Report on Form 10-K, we identified a
material weakness in our internal control over financial reporting with regard to having sufficient technical resources to appropriately analyze and account for complex derivative instruments, specifically with regard to our interpretation of
Accounting Standards Codification (ASC) 480, Distinguishing Liabilities from Equity, as it relates to the initial classification of warrants as equity instruments in our October 2010 private placement of common stock and warrants (October
Offering). During the audit, we determined that we should have accounted for these warrants as liabilities instead of equity. Given this material weakness, management concluded that we did not maintain effective internal control over financial
reporting as of December 31, 2010.

In light of the material weakness described above, we performed additional analysis
and other post-closing procedures to ensure our financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, we believe that the financial statements included in this report fairly present, in all
material respects, our financial condition, results of operations and cash flows for the periods presented.

To remediate this
issue, we plan to devote resources to the improvement of our internal control over financial reporting, in particular over handling of complex derivative accounting issues. As the Company enters into transactions that involve complex accounting
issues, it will consult with third party professionals with expertise in these matters as necessary to insure appropriate accounting treatment for such transactions. The elements of our remediation plan can only be accomplished over time and we can
offer no assurance that these initiatives will ultimately have the intended effects. Any failure to maintain such internal controls could adversely impact our ability to report our financial results on a timely and accurate basis. If our financial
statements are not accurate, investors may not have a complete understanding of our operations or may lose confidence in our reported financial information. Likewise, if our financial statements are not filed on a timely basis as required by the SEC
and NASDAQ, we could face severe consequences from those authorities. In either case, it could result in a material adverse effect on our business or have a negative effect on the trading price of our common stock. We can give no assurance that the
measures we have taken and plan to take in the future will remediate the material weakness identified or that any additional material weaknesses or restatements of our financial statements will not arise in the future due to a failure to implement
and maintain adequate internal control over financial reporting or circumvention of those controls.

The value of our
warrants outstanding from the October Offering is subject to potentially material increases and decreases based on fluctuations in the price of our common stock.

In October 2010, we completed a private placement of common stock and warrants to purchase common stock. Gross proceeds from the October Offering were approximately $25.3 million. We issued an aggregate
of 11,850,118 newly-issued shares of common stock at an issue price of $2.135 per share. Additionally we issued warrants to purchase up to 11,850,118 additional shares of common stock at an exercise price of $2.31 per share.



17



---

##### Table of Contents

We account for the warrants as a derivative instrument, and changes in the fair value of the
warrants are included under other income (expense) in the Companys statements of operations for each reporting period. At December 31, 2010, the aggregate fair value of the warrant liability included in the Companys consolidated
balance sheet was $13.6 million. We use the Black-Scholes option pricing model to determine the fair value of the warrants. As a result, the option-pricing model requires the input of several assumptions, including the stock price volatility, share
price and risk free interest rate. Changes in these assumptions can materially affect the fair value estimate. While the liability may only result from a change of control, we could, at that point in time, ultimately incur amounts significantly
different than the carrying value.

Risk Factors Relating to Our Common Stock

Our stock price has been and will continue to be volatile and an investment in our common stock could suffer a decline in value.

You should consider an investment in our common stock as risky and invest only if you can withstand a significant loss
and wide fluctuations in the market value of your investment. We receive only limited attention by securities analysts and frequently experience an imbalance between supply and demand for our common stock. The market price of our common stock has
been highly volatile and is likely to continue to be volatile. Factors affecting our common stock price include:



| |  |  | our ability to meet market expectations with respect to enrollment in our BTT study and FDA approval or the timing for FDA approval for our product
candidates;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | announcements of technological innovations or new commercial products by us or our competitors;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | governmental regulation and changes in medical device reimbursement policies;
| | - |  | -----------------------------------------------------------------------------



| |  |  | developments in patent or other intellectual property rights;
| | - |  | -------------------------------------------------------------



| |  |  | public concern as to the safety and efficacy of devices that we and our competitors develop;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | fluctuations in our operating results; and
| | - |  | ------------------------------------------



| |  |  | general market conditions.
| | - |  | --------------------------

We may not be able to maintain our listing on the NASDAQ Capital Market, which would adversely affect the price and liquidity of our common stock.

Currently our common stock is quoted on the NASDAQ Capital Market under the symbol WHRT. We must satisfy certain minimum
listing maintenance requirements to maintain the NASDAQ Capital Market quotation, including certain governance requirements and a series of financial tests relating to stockholders equity or net income or market value, public float, number of market
makers and stockholder, market capitalization, and maintaining a minimum bid price of $1.00 per share.

During 2010, 2009 and
2008, we received notices from the NASDAQ Stock Market stating non-compliance with various listing maintenance requirements. On February 1, 2010, we received a NASDAQ Staff Deficiency Letter notifying us that we did not comply with the
independent audit committee requirements set forth in NASDAQ Listing Rule 5605. On October 28, 2008 and August 31, 2009, we received letters from the NASDAQ Staff notifying us that we failed to maintain a minimum of 500,000
publicly held shares requirement for continued listing on the NASDAQ Capital Market as set forth in NASDAQ Listing Rule 5550(a)(4). To date, we are in compliance with all minimum listing requirements of the NASDAQ Capital Market and
all matters have been closed with NASDAQ. We have had difficulties maintaining compliance in the past and we might not be able to maintain compliance with all minimum listing requirements in the future. If we do not meet NASDAQs continued
listing requirements NASDAQ may take action to delist our common stock. A delisting of our common stock could negatively impact us by reducing the liquidity and market price of our common stock and potentially reducing the number of investors
willing to hold or acquire our common stock.



18



---

##### Table of Contents

The sales of common stock by our stockholders could depress the price of our common
stock.

If our stockholders sell substantial amounts of our common stock in the public market, the market price of our
common stock 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. Sales by these stockholders, or the perception that such sales could occur
in the future, could have an adverse impact on the trading price of our common stock.

The concentration of our capital
stock ownership, following the completion of the July 2008 private placement and recapitalization, the January 2010 private placement and the October 2010 private placement, may limit your ability to influence corporate matters.

A significant amount of our common stock is held by a relatively small number of investors. After the completion of our financing in
October 2010, three of our largest stockholders collectively beneficially owned approximately 71% of our common stock. These investors also have certain rights to designate members of our Board of Directors and may exercise significant influence
over all matters requiring stockholder approval, including elections of directors and significant corporate transactions, such as a merger or other sale of WorldHeart or our assets for the foreseeable future. This concentrated control may limit your
ability to influence corporate matters and, as a result, we may take actions that our other stockholders do not view as beneficial.

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

We have never paid any cash dividends on our common stock 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 stock in the foreseeable future. As a result, our stockholders will not be able to receive a return on
their common stock unless the value of our common stock appreciates and they sell them.

Provisions of Delaware
corporate law and provisions of our charter and bylaws may discourage a takeover attempt.

Our
charter and bylaws and provisions of Delaware law may deter or prevent a takeover attempt, including an attempt that might result in a premium over the market price for our common stock. Our board of directors has the authority to issue shares of
preferred stock and to determine the price, rights, preferences and restrictions, including voting rights of those shares without any further vote or action by the stockholders. The issuance of preferred stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock. These provisions, along with Section 203 of the
Delaware General Corporation Law, prohibiting certain business combinations with an interested stockholder, could discourage potential acquisition proposals and could delay or prevent a change of control.



|Item 2. | Properties
|------- | ----------

Our Facilities

Our facility in Salt Lake City, Utah is comprised of 32,888 square feet of research and office space with a lease term
through January 31, 2015.

We lease our office space in Oakland, California consisting of approximately 3,198 square
feet. The lease on this facility expires October 31, 2011 and we do not plan to renew, or extend the lease.

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.



19



---

##### Table of Contents

|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.



|Item 4. | [Removed and Reserved]
|------- | ----------------------



20



---

##### Table of Contents

PART II



|Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
|------- | -------------------------------------------------------------------------------------------------------------

Our common shares are traded on the NASDAQ Capital Market under the symbol WHRT. Our common shares have been trading on one of the NASDAQ
exchanges since August 1998.

The following table sets forth the high and low sales prices for our common stock as reported on
NASDAQ for the periods indicated.



|               |  |               |      |  |     |   |      | 
|-------------- |  | ------------- | ---- |  | --- | - | ---- | 
|               |  | Common Shares |     
|2010           |  | High          |      |  | Low |  
|First Quarter  |  | $             | 6.99 |  |     | $ | 2.02 | 
|Second Quarter |  | $             | 3.61 |  |     | $ | 2.07 | 
|Third Quarter  |  | $             | 3.26 |  |     | $ | 2.08 | 
|Fourth Quarter |  | $             | 2.99 |  |     | $ | 1.78 | 
|               | 
|               |  | Common Shares |     
|2009           |  | High          |      |  | Low |  
|First Quarter  |  | $             | 4.25 |  |     | $ | 2.14 | 
|Second Quarter |  | $             | 3.19 |  |     | $ | 1.70 | 
|Third Quarter  |  | $             | 8.63 |  |     | $ | 2.41 | 
|Fourth Quarter |  | $             | 5.28 |  |     | $ | 3.80 | 

As of March 30,
2011 the approximate number of holders of record of our common shares was 81.

We have never paid any dividends to
stockholders and presently intend to retain our future earnings, if any, to fund the development and growth of our business and, therefore, do not anticipate paying any cash dividends in the foreseeable future.



|Item 6. | Selected Financial Data
|------- | -----------------------

N/A



21



---

##### Table of Contents

|Item 7. | 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 or the Company. The following Management Discussion and Analysis of Financial Condition and Results of Operations (MD&A) was prepared by
management and discusses material changes in our financial condition and results of operations and cash flows for the years ended December 31, 2010, 2009 and 2008. 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.

OVERVIEW

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 need for additional significant financing in the future; risks associated with our Levacor Ventircular Assist Device (VAD)
Bridge-to-Transplant (BTT) clinical trial, including any risks related to the pause in the BTT trial enrollment; costs and delays associated with research and development, manufacturing, pre-clinical testing and clinical trials for our products and
next-generation candidates, such as the Levacor VAD, the minimally invasive VAD, and the PediaFlow VAD; our ability to manufacture, sell and market our products; decision, and the timing of decisions made by health regulatory agencies regarding
approval of our products; competition from other products and therapies for heart failure; continued slower than anticipated destination therapy (DT) adoption rate for VADS; limitations on third-party reimbursements; our ability to obtain and
enforce in a timely manner patent and other intellectual property protection for our technology and products; our ability to avoid, either by product design, licensing arrangement or otherwise, infringement of third parties intellectual
property; our ability to enter into corporate alliances or other strategic relationships relating to the development and commercialization of our technology and products; loss of commercial market share to competitors due to our financial condition;
our ability to remain listed on the NASDAQ Capital Market; as well as other risks and uncertainties set forth under Item 1A. Risk Factors.

Our business is focused on the development and sale of VADs, particularly our Levacor 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. The Levacor VAD uses a magnetically-levitated rotor resulting in no moving parts subject to wear, which is expected to provide multi-year
support. In August 2009, we received conditional approval of our Investigational Device Exemption (IDE) from the U.S. Food and Drug Administration (FDA) for the Levacor VAD to begin a BTT clinical study. In January 2010, we received
unconditional IDE approval from the FDA. The BTT study enrollment will involve approximately 160 subjects. The follow-up period for subjects in the BTT study is six months with the end points of heart transplant, six-month survival on the
device or device removal for recovery and survival to 60 days after device removal. To date we have enrolled fifteen subjects in the BTT study and we have activated nine clinical centers. In July 2010, the FDA approved the expansion of the BTT
study by ten additional centers, for a total of 20 centers. In February 2011, the company decided to pause enrollment in the BTT study while three refinements are made to its Levacor VAD based on initial clinical experience. These refinements are
the projection of the inflow cannula into the ventricle, the elimination of a false alarm that has led to controller exchanges and the optimization of surface finishing/coating manufacturing processes. Although we expect that the design
modifications will be technically ready by the end of April 2011, in light of ongoing communications with the FDA, the timeline for implementation of these refinements is dependent on review and approval by the FDA which is uncertain.



22



---

##### Table of Contents

VADs are used for treatment of patients with severe heart failure including patients whose
hearts are irreversibly damaged and cannot be treated effectively by medical or surgical means other than transplant. BTT therapy involves implanting a VAD in a transplant-eligible patient to maintain or improve the patients health until a
donor heart becomes available. DT 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 the use of VADs to restore a patients cardiac function
helping the natural heart to recover and thereby allowing removal of the VAD.

In addition, we, in conjunction with a
consortium consisting of the University of Pittsburgh, Childrens Hospital of Pittsburgh, Carnegie Mellon University and LaunchPoint Technologies, Inc. (LaunchPoint) have been developing a small, magnetically levitated, rotary pediatric
VAD (PediaFlow VAD). The PediaFlow VAD is intended for use in newborns and infants and has been primarily funded by the National Institutes of Health (NIH). In February 2011, the FDA granted Humanitarian Use Device (HUD) designation for the
PediaFlow VAD. The HUD designation is given to devices that are intended to benefit patients with conditions that effect fewer than 4,000 patients per year. Under the HUD designation, manufacturers are required to demonstrate safety and the probable
benefit of their device.

The technology embodied in the PediaFlow VAD is also intended to form the basis for a small,
minimally invasive VAD. The minimally invasive VAD is aimed at providing partial to full circulatory support in both early-stage and late-stage heart failure patients. We expect to be in an adult clinical trial with the minimally invasive VAD in
2014, contingent on our ability to obtain future financing and our ability to satisfactorily complete all regulatory requirements. We are exploring various strategic options to accelerate our development of the minimally invasive VAD.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2010 COMPARED WITH THE YEAR ENDED DECEMBER 31, 2009

(In thousands 000s except loss per common share)



|                                                                        |  |                         |         |   |      |   |         |  
|----------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | -
|                                                                        |  | Year Ended December 31, |        
|                                                                        |  | 2010                    |         |   | 2009 |  
|Revenue                                                                 |  | $                       | 2,179   |   |      | $ | 5       |  
|Cost of goods sold                                                      |  |                         | (2,346  | ) |      |   | (213    | )
|                                                                        |  |                         |         |   |      |   |         |  
|Gross profit (loss)                                                     |  |                         | (167    | ) |      |   | (208    | )
|                                                                        |  |                         |         |   |      |   |         |  
|Operating expenses                                                      |  |                         |         |   |      |   |         |  
|Research and development                                                |  |                         | 8,081   |   |      |   | 10,357  |  
|Selling, general and administrative                                     |  |                         | 3,944   |   |      |   | 5,436   |  
|Restructuring costs                                                     |  |                         |        |   |      |   | 578     |  
|Amortization of intangibles                                             |  |                         |        |   |      |   | 108     |  
|                                                                        |  |                         |         |   |      |   |         |  
|Total operating expenses                                                |  |                         | 12,025  |   |      |   | 16,479  |  
|                                                                        |  |                         |         |   |      |   |         |  
|Operating loss                                                          |  |                         | (12,192 | ) |      |   | (16,687 | )
|                                                                        |  |                        
|Other (expense) income                                                  |  |                         |         |   |      |   |         |  
|Foreign exchange loss                                                   |  |                         | (14     | ) |      |   | (24     | )
|Investment and other income                                             |  |                         | 21      |   |      |   | 18      |  
|Loss on change in fair value of warrant liability                       |  |                         | (1,897  | ) |      |   |        |  
|Loss on liquidation of foreign entity                                   |  |                         | (6,286  | ) |      |   |        |  
|Loss on disposal of property and equipment                              |  |                         | (7      | ) |      |   | (4      | )
|Interest expense                                                        |  |                         | (142    | ) |      |   | (14     | )
|                                                                        |  |                         |         |   |      |   |         |  
|Net loss applicable to common shareholders                              |  | $                       | (20,517 | ) |      | $ | (16,711 | )
|                                                                        |  |                         |         |   |      |   |         |  
|Weighted average number of common shares outstanding, basic and diluted |  |                         | 17,043  |   |      |   | 13,273  |  
|                                                                        |  |                         |         |   |      |   |         |  
|Basic and diluted loss per common share                                 |  | $                       | (1.20   | ) |      | $ | (1.26   | )
|                                                                        |  |                         |         |   |      |   |         |  



23



---

##### Table of Contents

Revenue. Sales of Levacor VAD implant kits, capital equipment and related
peripheral equipment and services accounted for the majority of our revenue during the year ended December 31, 2010. In addition, we generated revenue from sales of SPUS (Segmented Poly Urethane Solution), used by one other medical device
manufacturer. We do not expect any significant sales of SPUS to occur in the future.

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



|                      |  |                         |       |  |            |  |     |       |  |  |        |  |  |            |   |  |       |  |     |   |  |  |   | 
|--------------------- |  | ----------------------- | ----- |  | ---------- |  | --- | ----- |  |  | ------ |  |  | ---------- | - |  | ----- |  | --- | - |  |  | - | 
|                      |  | Year Ended December 31, |      
|                      |  | 2010                    |       |  | 2009       | 
|                      |  | Amount                  |       |  | % of Total |  |     | Units |  |  | Amount |  |  | % of Total |   |  | Units | 
|Product revenues:     |  |                         |       |  |            |  |     |       |  |  |        |  |  |            |   |  |       |  |     |   |  |  |   | 
|Implant kits          |  | $                       | 1,548 |  |            |  | 80  | %     |  |  | 19     |  |  | $          |  |  |       |  | 0   | % |  |  |  | 
|Peripherals and other |  |                         | 387   |  |            |  | 20  | %     |  |  |        |  |  |            | 5 |  |       |  | 100 | % |  |  |   | 
|                      |  |                         |       |  |            |  |     |       |  |  |        |  |  |            |   |  |       |  |     |   |  |  |   | 
|Total product revenue |  | $                       | 1,935 |  |            |  | 100 | %     |  |  |        |  |  | $          | 5 |  |       |  | 100 | % |  |  |   | 
|                      |  |                         |       |  |            |  |     |       |  |  |        |  |  |            |   |  |       |  |     |   |  |  |   | 
|Grant revenue         |  |                         | 244   |  |            |  | 11  | %     |  |  |        |  |  |            |  |  |       |  | 0   | % |  |  |   | 
|                      |  |                         |       |  |            |  |     |       |  |  |        |  |  |            |   |  |       |  |     |   |  |  |   | 
|Total revenue         |  | $                       | 2,179 |  |            |  | 100 | %     |  |  |        |  |  | $          | 5 |  |       |  | 100 | % |  |  |   | 
|                      |  |                         |       |  |            |  |     |       |  |  |        |  |  |            |   |  |       |  |     |   |  |  |   | 



|* | Product revenue during 2010 relates to Levacor VAD implants and periperhals. Product revenue during 2009 related to Novacor VAD peripherals.
|- | --------------------------------------------------------------------------------------------------------------------------------------------

Total revenue for the year ended December 31, 2010 was $2.2 million, compared to $5,000 for the year ended December 31,
2009. Revenue from Levacor VAD implant kits sold during 2010 was $1.5 million compared to zero for 2009. Implant kit revenue for 2010 relates to 19 Levacor VADs that were sold in our BTT clinical study. Although we received an
unconditional IDE from the FDA in January 2010, in February 2011, we paused enrollment in our BTT trial while three refinements are made to our Levacor VAD based on initial clinical experience and the timeline for the reinitiating the study is
uncertain. We do not expect to generate any revenue until the restart of our BTT trial. Peripherals and other revenue, including SPUS for 2010 and 2009 were $387,000 and $5,000, respectively. We recognized $77,000 and zero in SPUS revenue for
the years ended December 31, 2010 and 2009, respectively. The increase in SPUS revenue is a result a single sale to one customer with no purchase orders being placed in 2009.

For the year ended December 31, 2010, we recorded $244,000 in grant revenue received from the IRS Qualifying Therapeutic Discovery
Project (QTDP) program compared to zero for the year ended December 31, 2009.

Cost of goods sold. For the
year ended December 31, 2010, cost of goods sold was $2.3 million consisting of raw materials, labor, royalties payable, minimum annual royalties payable to several of our collaborative partners and other costs related to the manufacture of our
Levacor VAD. For the year ended December 31, 2009, cost of goods sold of $213,000 consisted entirely of royalties payable under minimum annual royalty agreements. Cost of goods sold as a percentage of revenue is expected to improve in the
future as we realize manufacturing efficiencies and are able to negotiate better pricing from third party vendors as our sales and production volume increase.

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

Research
and development expenses for the year ended December 31, 2010 decreased by $2.3 million or 22%, compared with the year ended December 31, 2009. The decrease between periods is primarily attributable to capitalized materials, labor and
overhead as a result of receiving IDE approval from the FDA in August 2009 and thus beginning to produce inventory which was previously expensed ($3.4 million), decrease in research



24



---

##### Table of Contents

expenses ($1.1 million) of which $683,000 was related to in-process research and development (IRP&D) costs associated with the LaunchPoint Agreement and $413,000 was related to other research
and development expense, decrease in legal fees relating to patent expense ($119,000) and decrease in building related expenses ($30,000). These expenses were offset by an increase in payroll and related costs resulting from an increase in clinical
and manufacturing personnel ($1.1 million), increase in clinical training and monitoring activities related to our Levacor VAD BTT clinical study ($493,000), increase in stock based compensation expense ($347,000), increase in consulting fees
($217,000), increase in facility expenses related to the move of our Oakland personnel to a new office space ($109,000) and an increase in depreciation expenses ($112,000). For the year ended December 31, 2010 and 2009, we recorded $770,000 and
$423,000, respectively, in stock-based compensation expense. Research and development expenses are expected to increase during 2011 as we continue to develop our Levacor VAD, implement design changes, and continue activities on pre-clinical testing
and other product development.

Selling, general and administrative. Selling, general and administrative
expenses consist primarily of payroll and related expenses for executives, marketing, accounting and administrative personnel. Selling expenses primarily relate to marketing and trade show costs. Our administrative expenses include professional
fees, investor communication expenses, insurance premiums, public reporting costs and general corporate expenses.

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



|                           |  |                         |       |  |      |   |       | 
|-------------------------- |  | ----------------------- | ----- |  | ---- | - | ----- | 
|                           |  | Year Ended December 31, |      
|                           |  | 2010                    |       |  | 2009 |  
|Selling                    |  | $                       | 525   |  |      | $ | 749   | 
|General and administrative |  |                         | 3,419 |  |      |   | 4,688 | 
|                           |  |                         |       |  |      |   |       | 
|Total                      |  | $                       | 3,944 |  |      | $ | 5,437 | 
|                           |  |                         |       |  |      |   |       | 

Selling expenses for the year ended December 31, 2010 decreased by $224,000, or 30%, compared with the
year ended December 31, 2009. The decrease is due to a decrease in personnel and related expenses ($118,000), decrease in facilities and other allocated expenses resulting from decrease in personnel ($85,000) and a decrease in consulting,
travel and other selling expenses ($40,000). These decreases are offset by an increase in legal fees relating to the filing of trademarks ($7,000) and increase in stock based compensation ($12,000). For the year ended December 31, 2010 and
2009, we recorded $90,000 and $ 78,000, respectively, in stock-based compensation expense. Selling expenses are expected to decline due to the pause in enrollment in our BTT trail and subsequent delay in our marketing efforts or activities.

General and administrative expenses for the year ended December 31, 2010 decreased by $1.3 million, or 27%, compared
with the year ended December 31, 2009. The decrease is due to a number of factors including the reduction in the number of general administration employees between periods which resulted in a decrease in payroll and related benefits expenses
($250,000), decrease in consulting and other professional expenses ($286,000), decrease in legal fees primarily related to the 2010 reincorporation into Delaware and 2008 Restructuring Plan which were incurred in 2009 ($483,000), decrease in general
office expenses ($173,000) and a decrease in insurance costs resulting from lower premiums ($152,000). These decreases are offset by increases in stock based compensation ($33,000), increase in depreciation expense ($30,000) and an increase in
travel and entertainment expenses ($12,000). For the year ended December 31, 2010 and December 31, 2009, we recorded $598,000 and $565,000, respectively, in stock-based compensation expense. General and administrative expenses are expected
to remain at the same level in 2011.

Restructuring costs. Restructuring costs for the year ended
December 31, 2010 and 2009 were zero and $578,000, respectively. Restructuring costs in 2009 consisted primarily of termination benefits of several employees, relocation benefits of our new CEO and fair value of the remaining lease payments on
our Oakland



25



---

##### Table of Contents

facility. There were no such charges recorded in 2010. As of December 31, 2010, we have completed our 2008 Restructuring Plan and all accrued liabilities associated with the restructuring
plan had been paid. There has been no material change in the restructuring liability as initially measured. We have realized operational efficiencies from this consolidation into one facility and we expect to realize cost savings especially in
facilities related expenses.

Amortization of intangibles. Amortization of intangibles for the years ended
December 31, 2010 and December 31, 2009 was zero and $108,000, respectively. The intangible asset related to acquired MedQuest workforce, was being amortized on a straight line basis over four years and became fully amortized in August
2009.

Foreign exchange. Foreign exchange transactions resulted in a loss of $14,000 for the year ended
December 31, 2010 compared to a loss of approximately $24,000 for the year ended December 31, 2009. Gains and losses primarily relate to fluctuations in the relative value of the U.S. dollar compared with the Euro. We anticipate
significant fluctuations of foreign exchange gains and losses in the future.

Investment and other income.
Investment and other income for the year ended December 31, 2010 was $21,000 compared to $18,000 for the year ended December 31, 2009. Investment and other income increased slightly during the year ended December 31, 2010 compared to
the same period in 2009 primarily due to higher average investment balances as a result of the recently completed private placement of our common stock in October 2010. We anticipate our investment income to decrease in future periods resulting from
consumption of cash to fund operations, however; interest rates earned on our investments are anticipated to increase in the future.

Loss on change in fair value of warrant liability: We recorded a $1.9 million non-cash loss on change in fair value of warrant liability during the year ended December 31, 2010 related
to warrants issued in our October 2010 financing. The loss was primarily attributable to an increase in the common stock price from October to December 31, 2010. The warrants were classified as a liability due to a provision contained within
the warrant agreement which allows the warrant holder the option to elect to receive an amount of cash equal to the value of the warrants as determined in accordance with the Black-Scholes option pricing model with certain defined assumptions upon a
change of control. There were no similar warrants outstanding in 2009. The warrant liability will continue to fluctuate in the future based on inputs to the Black-Scholes model including our current stock price, the remaining life of the warrants,
the volatility of our stock price, and the risk free interest rate.

Loss on liquidation of foreign entity: We
recorded a $6.3 million non-cash loss on liquidation of foreign entity during the year ended December 31, 2010 related to World Heart Corporation changing its jurisdiction of incorporation from the federal jurisdiction of Canada to the state of
Delaware and terminating a majority of operations in Canada. As this was a one-time charge we do not expect a similar loss in the future.

Loss on disposal of property and equipment. During the years ended December 31, 2010 and 2009, we recognized a loss of $7,000 and $4,000, respectively, on dispositions and write-downs
of assets.

Interest expense. For the year ended December 31, 2010, interest expense was $142,000 compared
with $14,000 for the year ended December 31, 2009. Interest expense recorded in 2010 and 2009 primarily relates to the effective interest rate on the $1.0 million note issued to LaunchPoint in December 2009 under the LaunchPoint Agreement.



26



---

##### Table of Contents

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2009 COMPARED WITH THE YEAR ENDED
DECEMBER 31, 2008

(In thousands 000s except loss per common share)



|                                                                       |  |                         |         |   |      |   |         |  
|---------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | -
|                                                                       |  | Year Ended December 31, |        
|                                                                       |  | 2009                    |         |   | 2008 |  
|Revenue                                                                |  | $                       | 5       |   |      | $ | 1,732   |  
|Cost of goods sold                                                     |  |                         | (213    | ) |      |   | (992    | )
|                                                                       |  |                         |         |   |      |   |         |  
|Gross profit (loss)                                                    |  |                         | (208    | ) |      |   | 740     |  
|                                                                       |  |                         |         |   |      |   |         |  
|Operating expenses                                                     |  |                         |         |   |      |   |         |  
|Research and development                                               |  |                         | 10,357  |   |      |   | 9,174   |  
|Selling, general and administrative                                    |  |                         | 5,436   |   |      |   | 4,626   |  
|Clinical and marketing support- non-cash                               |  |                         |        |   |      |   | 6,479   |  
|Restructuring costs                                                    |  |                         | 578     |   |      |   | 131     |  
|Amortization of intangibles                                            |  |                         | 108     |   |      |   | 191     |  
|                                                                       |  |                         |         |   |      |   |         |  
|Total operating expenses                                               |  |                         | 16,479  |   |      |   | 20,601  |  
|                                                                       |  |                         |         |   |      |   |         |  
|Operating loss                                                         |  |                         | (16,687 | ) |      |   | (19,861 | )
|                                                                       |  |                        
|Other income (expense)                                                 |  |                         |         |   |      |   |         |  
|Debt inducement expense                                                |  |                         |        |   |      |   | (3,914  | )
|Unrealized foreign exchange gain (loss)                                |  |                         | (24     | ) |      |   | 17      |  
|Investment and other income (loss)                                     |  |                         | 18      |   |      |   | 141     |  
|Loss on disposal of property and equipment                             |  |                         | (4      | ) |      |   | (41     | )
|Interest expense                                                       |  |                         | (14     | ) |      |   | (1,659  | )
|                                                                       |  |                         |         |   |      |   |         |  
|Net loss applicable to common shareholders                             |  | $                       | (16,711 | ) |      | $ | (25,317 | )
|                                                                       |  |                         |         |   |      |   |         |  
|Weighted average number of common shares outstanding basic and diluted |  |                         | 13,273  |   |      |   | 5,799   |  
|                                                                       |  |                         |         |   |      |   |         |  
|Basic and diluted loss per common share                                |  | $                       | (1.26   | ) |      | $ | (4.37   | )
|                                                                       |  |                         |         |   |      |   |         |  

Revenue. Historically, sales of Novacor LVAS implant kits and related peripheral equipment and services
accounted for the majority of our revenue. In addition, we generated revenue from sales of SPUS, a compound used by one other medical device manufacturer. We have historically sold our products directly, except for a few countries where we sold
through distributors.

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



|                      |  |                         |   |  |            |  |     |       |  |  |        |  |  |            |       |  |       |  |     |   |  |  |   | 
|--------------------- |  | ----------------------- | - |  | ---------- |  | --- | ----- |  |  | ------ |  |  | ---------- | ----- |  | ----- |  | --- | - |  |  | - | 
|                      |  | Year Ended December 31, |  
|                      |  | 2009                    |   |  | 2008       | 
|                      |  | Amount                  |   |  | % of Total |  |     | Units |  |  | Amount |  |  | % of Total |       |  | Units | 
|Product revenues:     |  |                         |   |  |            |  |     |       |  |  |        |  |  |            |       |  |       |  |     |   |  |  |   | 
|Implant kits          |  | $                       |  |  |            |  |    |       |  |  |       |  |  | $          | 318   |  |       |  | 19  | % |  |  | 5 | 
|Peripherals and other |  |                         | 5 |  |            |  | 100 | %     |  |  |       |  |  |            | 1,414 |  |       |  | 81  | % |  |  |   | 
|                      |  |                         |   |  |            |  |     |       |  |  |        |  |  |            |       |  |       |  |     |   |  |  |   | 
|Total revenue         |  | $                       | 5 |  |            |  | 100 | %     |  |  |        |  |  | $          | 1,732 |  |       |  | 100 | % |  |  |   | 
|                      |  |                         |   |  |            |  |     |       |  |  |        |  |  |            |       |  |       |  |     |   |  |  |   | 



|* | Product revenues during 2009 and 2008 relate to Novacor implant kits and peripherals.
|- | -------------------------------------------------------------------------------------



27



---

##### Table of Contents

Total revenue for the year ended December 31, 2009 was $5,000 reflecting a decrease of
$1.7 million or 100% compared with the year ended December 31, 2008. There were zero and five Novacor LVAS implant kits sold during the years ended December 31, 2009 and 2008, respectively. Novacor peripherals and other revenue were
$5,000 for the year ended December 31, 2009, a decrease of $1.4 million or 100% compared with the year ended December 31, 2008. The overall revenue decrease was attributable to our November 2006 decision to reduce our commercial efforts
with respect to the Novacor LVAS and focus our resources on the development of our Levacor VAD. In 2008, we made the Novacor LVAS available to medical centers until our inventory was depleted. We continue to support the one remaining long-term
Novacor patient but have discontinued the manufacture and sale of the Novacor LVAS. We recognized zero and $785,000 in SPUS revenue for the years ended December 31, 2009 and 2008, respectively. The decrease was a result of SPUS revenue
associated with one customer with no purchase orders being placed in 2009.

Cost of goods sold. For the year
ended December 31, 2009, cost of goods sold of $213,000 consisted entirely of royalties payable under minimum annual royalty agreements with Vertellus UK Limited and LaunchPoint. For the year ended December 31, 2008, cost of goods sold of
$992,000 was 57% of total revenue. Cost of goods sold during the year ended December 31, 2008 consisted of raw materials, labor, royalties and other costs related to the manufacture of our Novacor LVAS, as well as Novacor LVAS inventory
write-downs of $218,000.

Research and development.Research and development expenses for the year ended
December 31, 2009 increased by $1.2 million or 13% compared with the year ended December 31, 2008. The increase was primarily attributable to increased research and developments efforts related to the Levacor VAD build for clinical
trials ($230,000), increased stock based compensation expense ($320,000), increased Clinical Research Organization (CRO) costs associated with our planned Levacor VAD clinical study ($210,000) and an increase in other research expenses ($800,000),
of which $683,000 was in process research and development (IPR&D) costs associated with the LaunchPoint Agreement. These increases were offset in part by decreased salaries resulting from our phased consolidation plan to our Salt Lake City, Utah
facility announced in August, 2008 ($360,000). For the year ended December 31, 2009, we recorded $423,000 in stock-based compensation expense associated with research and development employees compared with $103,000 recorded in
December 31, 2008.

Selling, general and administrative.

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



|                           |  |                         |       |  |      |   |       | 
|-------------------------- |  | ----------------------- | ----- |  | ---- | - | ----- | 
|                           |  | Year Ended December 31, |      
|                           |  | 2009                    |       |  | 2008 |  
|Selling                    |  | $                       | 749   |  |      | $ | 979   | 
|General and administrative |  |                         | 4,688 |  |      |   | 3,647 | 
|                           |  |                         |       |  |      |   |       | 
|Total                      |  | $                       | 5,437 |  |      | $ | 4,626 | 
|                           |  |                         |       |  |      |   |       | 

Selling expenses for the year ended December 31, 2009 decreased by $230,000, or 23% compared with the
same period in 2008. The decrease was attributable to the continued decline of our Novacor LVAS support efforts. For the years ended December 31, 2009 , we recorded $78,000 in stock-based compensation expense compared with $26,000 in the same
period of 2008.

General and administrative expenses for the year ended December 31, 2009 increased $1.0 million, or 29%
versus the same period in 2008. This increase was attributable to salaries, and benefits ($220,000), consulting, recruiting and legal fees associated with our phased consolidation plan ($449,000), including hiring of our new CEO and CFO and the
transition of our former CEO into another executive position, and increased stock based compensation expense ($372,000). For the years ended December 31, 2009 and 2008, we recorded $565,000 and $193,000, respectively, in stock based
compensation expense associated with general and administrative employees.



28



---

##### Table of Contents

Clinical and marketing support. On December 11, 2007, we issued a 5-year
warrant to Abiomed to purchase up to 113,333 of our common shares, exercisable at $0.30 per share as compensation for clinical and marketing support services. Upon issuance, approximately 20% of the warrant was immediately exercisable and the
remaining 80% became exercisable in January 2008. In 2008 we recorded a non-cash clinical marketing and support services expense of $6.5 million related to the fair value of the warrant. There was no such charge recorded in 2009. The warrant
was terminated in July 2008 pursuant to the terms of the Recapitalization Agreement.

Restructuring costs.
Restructuring costs in 2009 and 2008 were $578,000 and $131,000 and consisted primarily of termination benefits of several employees, relocation benefits of our new CEO and fair value of the remaining lease payments on our Oakland facility. The
terms of the employment agreement of our new CEO, hired in the first quarter of 2009, contained a relocation benefits package to cover reimbursement for certain relocation-related expenses in an amount of up to $107,000, plus additional estimated
tax gross-up payments of up to $48,000. We recorded restructuring charges of $155,000, inclusive of tax gross up payment during the year ended December 31, 2009. We do not expect to record additional relocation expenses for the CEO in the
future. Additionally, we recorded $77,000 and $65,000, during the year ended December 31, 2009 and 2008, respectively, for termination benefits for employees whose positions were eliminated in connection with the relocation of our corporate
office to Salt Lake City, Utah. Additionally, we recorded $220,000 during the year ended December 31, 2009 related to minimum lease payments on our Oakland facility associated with unused space due to the 2008 restructuring.

Amortization of intangibles. Amortization of intangibles for the years ended December 31, 2009 and December 31,
2008 was $108,000 and $191,000, respectively. The intangible asset related to acquired MedQuest workforce was amortized on a straight line basis over four years and was fully amortized in August 2009.

Debt Inducement Expense. During the year ended December 31, 2008, we recorded a non-cash expense of $3.9 million
associated with the beneficial conversion rights of the induced conversion of the Abiomed Note and termination of previously existing agreements and warrants. There was no such charge recorded for the year ended December 31, 2009.

Foreign exchange. Foreign exchange transactions resulted in a loss of $23,000 for the year ended December 31, 2009
compared to a gain of approximately $18,000 for the year ended December 31, 2008. Gains and losses were primarily related to fluctuations in the relative value of the U.S. dollar compared with the Euro and the Canadian dollar.

Investment and other income. Investment and other income for the year ended December 31, 2009 was $18,000 compared to
$142,000 for the year ended December 31, 2008. Although average daily balances of invested cash were greater in 2009, earnings were lower due to the significant decline in interest rates in 2009.

Loss on disposal of property and equipment. During the years ended December 31, 2009 and 2008, we recognized losses of
$4,000 and $41,000, respectively, on dispositions and write-downs of assets.

Interest expense. For the year
ended December 31, 2009, interest expense was $14,000 compared with $1.7 million for the year ended December 31, 2008. Interest expense recorded in 2009 was primarily related to the effective interest rate on the $1.0 million
note issued to LaunchPoint in December 2009 under an intellectual property agreement. Interest expense recorded in 2008 was related to a $1.4 million charge on the beneficial conversion feature of the $5.0 million convertible note issued
to Abiomed on January 3, 2008 (Abiomed Note), $236,000 in interest expense at 8% on the entire $5.0 million convertible note, $8,000 in interest expense on the bridge loan facility and $1,000 in interest expense related to other financing
arrangements. The Abiomed Note and accumulated interest thereon were converted into common shares as part of the Recapitalization Agreement.

OFF-BALANCE SHEET ARRANGEMENTS

None.



29



---

##### Table of Contents

LIQUIDITY AND CAPITAL RESOURCES

Historically, we have funded losses from operations through the sale of equity and issuance of debt instruments. Combined with revenue and
investment income, these funds have provided us with the resources to operate our business, sell and support our products, attract and retain key personnel, fund our research and development programs and clinical studies, and apply for and obtain
the necessary regulatory approvals.

At December 31, 2010, we had cash and cash equivalents of $9.5 million and $12.9
million in available for sale investment securities totaling $22.4 million, compared to a total of $6.1 million as of December 31, 2009. For the year ended December 31, 2010, cash used in operating activities was $14.4 million, consisting
primarily of the net loss of $20.5 million and $8,000 in accretion of discount on marketable securities, offset by $6.3 million for the non-cash loss on the liquidation of foreign entity, $1.9 million for change in the fair value of the warrant
liability, $1.5 million for non-cash stock compensation expense, $141,000 for non-cash interest on the LaunchPoint Note, $348,000 for amortization and depreciation expense and $7,000 loss on disposal of property. Additionally, working capital
changes consisted of cash decreases related to a $522,000 increase in trade and other receivables, $3.7 million increase in inventory and cash increases related to a $2,000 decrease in accounts payable and accrued liabilities, offset by a $167,000
increase in accrued compensation and $15,000 decrease in prepaid expenses and other current assets. For the year ended December 31, 2010, cash used in investing activities consisted of $12.8 million related primarily to the net purchase of
marketable investment securities and $385,000 in the purchase of property and equipment. For the year ended December 31, 2010, cash provided by financing activities was $31.2 million related primarily to net proceeds from the issuance of our
common stock in private placements of equity that occurred January 2010 and October 2010.

At December 31, 2009, we had
cash and cash equivalents of $5.6 million, a decrease of $15.1 million from December 31, 2008. For the year ended December 31, 2009, cash used to fund operating activities was $14.4 million, consisting primarily of the net
loss for the period of $16.7 million, offset by non-cash charges of $323,000 for depreciation and amortization, $1.1 million for stock compensation expense and $695,000 in interest and in-process research and development related to the
LaunchPoint Note. Working capital changes consisted of cash increases related to a $610,000 decrease in trade and other receivables and prepaid expenses and other current assets and a $213,000 increase in accounts payable and accrued liabilities.
This was offset by cash decreases related to an increase in inventories of $342,000 and a $243,000 decrease in accrued compensation. Investing activities in 2009 requiring cash resources consisted of $418,000 in property and equipment additions
primarily related to Levacor VAD tooling and manufacturing equipment and $499,000 in the purchase of marketable investment securities. Financing activities in 2009 included proceeds of $193,000 from the exercise of warrants and $2,000 from the sale
of property and equipment offset by $6,000 of capital lease repayments.

We expect that our existing capital resources will be
sufficient to allow us to maintain our current and planned operations through at least 2011. However, our actual needs will depend on numerous factors, including the progress of our Levacor VAD clinical trial, the progress and scope of our
internally funded research and development activities and our success in manufacturing Levacor VAD on a timely basis sufficient to meet the needs of our clinical study. In February 2011, we paused enrollment in our BTT trial based on initial
clinical experience and the timeline for the reinitiating the study is uncertain. We do not expect to generate any revenue until the restart of our BTT trial. Our Levacor VAD clinical trial may be modified or terminated for many reasons
including the risk that our device demonstrates safety issues; the risk that regulatory authorities may not approve our device for further development or may require additional or expanded clinical studies to be performed; and the risk that we or
our suppliers may not be able to supply sufficient quantities of our device, parts, or materials to support clinical trial, which could lead to a disruption or cessation of the clinical study. If any of the events occur, our actual capital
needs may substantially exceed our anticipated capital needs and we may have to substantially modify or terminate current and planned clinical trial, postpone conducting future clinical studies or change our strategic direction. As a result,
our business may be materially harmed, our stock price may be adversely affected, and our ability to raise additional capital may be impaired.



30



---

##### Table of Contents

We will need to raise substantial additional funds to support our long-term research,
product development and commercialization programs. We regularly consider various fund raising alternatives, including, for example, debt or equity financing and merger and acquisition alternatives. We may also seek additional funding through
strategic alliances, collaborations, or license agreements and other financing mechanisms. There can be no assurance that additional financing will be available on acceptable terms, if at all. If adequate funds are not available, we may be required
to delay, reduce the scope of, or eliminate one or more of our research and development programs, or to obtain funds through arrangements with licensees or other that may require us to relinquish rights to certain of our technologies that we by
otherwise seek to develop or commercialize on our own.

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our consolidated financial condition and results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue and research and development costs. We base our estimates on historical experience
and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical
accounting policies affect the significant judgments and estimates used in the preparation of our consolidated financial statements:



| |  |  | revenue recognition;
| | - |  | --------------------



| |  |  | accrual of research and development expenses;
| | - |  | ---------------------------------------------



| |  |  | inventory capitalization; and,
| | - |  | ------------------------------



| |  |  | share-based compensation;
| | - |  | -------------------------

Revenue Recognition. We recognize revenue from product sales in accordance with ASC 605, Revenue Recognition. Pursuant to purchase agreements or orders, we ship product to our
customers. Revenue from product sales is only recognized when substantially all the risks and rewards of ownership have transferred to our customers, the selling price is fixed and collection is reasonably assured. Beginning in 2010, a majority of
our product sales are made on a consignment basis and as such, pursuant to the terms of the consignment arrangements, revenue is generally recognized on the date the consigned product is implanted or otherwise consumed. Revenue from product sales
not sold on a consignment basis is generally recognized upon customer receipt and acceptance of the product. Beginning in 2010, revenue is being recognized from sales of the Levacor VAD in connection with our BTT clinical trial. In February 2011, we
paused enrollment in our BTT trial while three refinements are made to our Levacor VAD based on initial clinical experience and the timeline for the reinitiating the study is uncertain. We do not expect to generate any revenue until the restart
of our BTT trial.

The significant elements of our multiple-element offerings are implant kits, peripherals and other. For
arrangements with multiple elements, we recognize revenue using the residual method as described in ASC 605-25, Revenue Recognition of Multiple Element Arrangements. Under the residual method, revenue is allocated and deferred for the
undelivered elements based on relative fair value. The determination of fair value of the undelivered elements in multiple elements arrangements is based on the price charged when such elements are sold separately, which is commonly referred to as
vendor-specific objective-evidence, or VSOE. Each elements revenue is recognized when all of the revenue recognition criteria are met. Trade receivables are recorded for product sales and do not bear interest. We regularly evaluate the
collectability of trade receivables. An allowance for doubtful accounts is maintained for estimated credit losses. When estimating credit losses, we consider a



31



---

##### Table of Contents

number of factors including the aging of a customers account, credit worthiness of specific customers, historical trends and other information. We review our allowance for doubtful accounts
monthly. At December 31, 2010 and 2009, the allowance for doubtful accounts was zero and $239,000, respectively.

Accrual of Research and Development Expenses. Research and development costs are expensed as incurred and include salaries
and benefits; costs paid to third-party contractors to conduct clinical trials, develop and manufacture devices; and associated overhead and facilities costs. Clinical trial costs are a significant component of research and development expenses and
include costs associated with third-party contractors. Invoicing from third-party contractors for services performed can lag several months. We accrue the costs of services rendered in connection with third-party contractor activities based on our
estimate of management fees, site management and monitoring costs and date management costs. Differences between actual clinical trial costs and estimated clinical trial costs have not be material and are adjusted for in the period in which they
become known.

Inventory Capitalization. We expense costs relating to the production of inventories as research
and development (R&D) expense in the period incurred until such time as we believe future commercialization is considered probable and future economic benefit is expected to be recognized, which generally is reliant upon receipt of regulatory
approval. We then begin to capitalize subsequent inventory costs relating to the product. We received a conditional IDE in August 2009 from the FDA for the Levacor VAD and subsequently began selling our product through our BTT clinical trial.
Therefore, effective August 23, 2009, we adopted a policy for capitalizing inventory and recognizing cost of sales related to the Levacor VAD.

Prior to August 23, 2009, all costs associated with the manufacturing the Levacor VAD and related surgical and peripheral products were expensed as R&D costs. Therefore, gross margin on sales of
our product will be higher until our zero cost inventory is fully consumed.

Inventories are stated at the lower cost or
market. Cost is determined on a first-in, first out, FIFO method. We utilize a standard costing system, which requires significant management judgment and estimates in determining and applying standard labor and overhead rates. Labor and overhead
rates are estimated based on our best estimate of annual production volumes and labor rates and hours per manufacturing process. These estimates are based on historical experience and budgeted expenses and production volume. Estimates are set at the
beginning of the year and updated periodically. While we believe our standard costs are reliable, actual production costs and volume change may impact inventory, costs of sales and the absorption of production overhead expenses.

We review our inventory for excess or obsolete inventory and write down obsolete or otherwise unmarketable inventory to its estimated net
realizable value.

We included in inventory materials and finished goods that can be held for sale or used in non-revenue
clinical trials. Products consumed in non-revenue clinical trials are expensed as part of research and development when consumed.

Share-Based Compensation. We recognize share-based compensation expense in connection with our share-based awards, net of an estimated forfeiture rate, and therefore only recognize
compensation costs for those awards expected to vest over the service period of the award. We use a Black-Scholes option pricing model to estimate the fair value of our stock options. Calculating share-based compensation expense requires the input
of highly subjective judgment and assumptions, including estimates of expected life of the award, stock price volatility, forfeiture rates and risk-free interest rates. The assumptions used in calculating the fair value of shared-based awards
represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our share-based compensation expense could be materially
different in the future.



32



---

##### Table of Contents

When appropriate, we estimate the expected life of a stock option by averaging the
contractual term of the stock option grants (up to 10 years) with the associated vesting term (typically 3 or 4 years). We estimate the volatility of our publicly-traded shares. We estimate the forfeiture rate based on our historical
experience of forfeitures and our employee retention rate. If our actual forfeiture rate is materially different from our estimate, the share- based compensation expense could be significantly different from what we have recorded in the current
period. We estimate the risk-free interest rate based on rates in effect for United States government bonds with terms similar to the expected lives of the awards at the time of grant. Estimates of share- based compensation expenses are significant
to our financial statements, but these expenses are based on option valuation models and will never result in the payment of cash by us.

CONTRACTUAL OBLIGATIONS

The Company is committed to minimum lease payments for office facilities and equipment, purchase obligations, note payable, interest,
licenses, and royalty payments on net sales of the Levacor VAD or other future products. The following represents our contractual obligations as of December 31, 2010 (in thousands):



|                                    |  |       |       |  |                 |   |       |           |  |   |           |  |  |            |     |  |  |   |     |    
|----------------------------------- |  | ----- | ----- |  | --------------- | - | ----- | --------- |  | - | --------- |  |  | ---------- | --- |  |  | - | --- | ---
|                                    |  | Total |       |  | Less than 1Year |   |       | 2-3 Years |  |   | 4-5 Years |  |  | Thereafter |    
|Operating leases                    |  | $     | 1,034 |  |                 | $ | 282   |           |  | $ | 484       |  |  | $          | 268 |  |  | $ |    |    
|Purchase obligations (1)            |  |       | 1,961 |  |                 |   | 1,711 |           |  |   | 250       |  |  |            |    |  |  |   |    |    
|Note payable - gross                |  |       | 800   |  |                 |   | 200   |           |  |   | 400       |  |  |            | 200 |  |  |   |    |    
|Interest on note payable            |  |       | 90    |  |                 |   | 36    |           |  |   | 45        |  |  |            | 9   |  |  |   |    |    
|Capital lease obligations           |  |       | 64    |  |                 |   | 56    |           |  |   | 8         |  |  |            |    |  |  |   |    |    
|Minimum royalty payment obligations |  |       | 1,576 |  |                 |   | 382   |           |  |   | 864       |  |  |            | 220 |  |  |   | 110 |    
|                                    |  |       |       |  |                 |   |       |           |  |   |           |  |  |            |     |  |  |   |     |    
|Total                               |  | $     | 5,525 |  |                 | $ | 2,667 |           |  | $ | 2,051     |  |  | $          | 697 |  |  | $ | 110 | (2)
|                                    |  |       |       |  |                 |   |       |           |  |   |           |  |  |            |     |  |  |   |     |    



|(1) | Purchase obligations primarily represent commitments for services, manufacturing agreements, purchase commitments and research and development licensing agreements.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes only one year of minimum annual royalty payments that have variable or indefinite termination dates.
|--- | -------------------------------------------------------------------------------------------------------------

From time to time, the Company enters into collaborative arrangements for the research and development (R&D), manufacture and/or
commercialization of products and product candidates. These collaborations can provide for non-refundable, upfront license fees, R&D and commercial performance milestone payments, cost sharing and royalty payments. The Companys
collaboration agreements with third parties are performed on a best efforts basis with no guarantee of either technological or commercial success.

See Note 12 of our financial statements for more information on our various licensing and royalty agreements.

Operating Leases

Our headquarters and manufacturing facilities are
located in Salt Lake City, Utah. The lease expires in January 31, 2015. The Salt Lake City facility security deposits total $14,200.

We have administrative offices located in Oakland, California. The lease at this facility expires on October 31, 2011. The Oakland facility does not have a security deposit.

Capital Expenditures



|                     |  |      |         |  |      |   |         |      |  |   |         | 
|-------------------- |  | ---- | ------- |  | ---- | - | ------- | ---- |  | - | ------- | 
|                     |  | 2010 |         |  | 2009 |   |         | 2008 | 
|Capital Expenditures |  | $    | 412,000 |  |      | $ | 418,000 |      |  | $ | 154,000 | 



33



---

##### Table of Contents

Capital expenditures for 2010 decreased slightly from 2009. The majority of capital
additions made in 2009 were to prepare for the initiation of our BTT clinical trial in January 2010, while capital expenditures in 2010 were for various tooling related to our Levacor VAD, as well as leasehold improvements to our Salt Lake facility
and the acquisition and implementation of a new accounting and material requirements planning (MRP) system. We anticipate that capital expenditures for 2011 will be at the same level as 2010. As of December 31, 2010, we purchased capital assets
of approximately $54,000 which we are financing and recorded under current capital leases.

During the year ended
December 31, 2010, we occupied facilities in Salt Lake City, Utah and in Oakland, California. Our headquarters facility is in Salt Lake City consisting of 32,888 square feet of research and office space, pursuant to a lease that has been
extended until January 31, 2015. Our Oakland facility consists of 3,198 square feet of office space. The lease on the new Oakland office space became effective November 1, 2010, for a term of one year, expiring October 31, 2011.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of changes in the value of market risk sensitive instruments caused by fluctuations in rates, foreign exchange rates and commodity prices. Changes in these factors could
cause fluctuations in our results of operations and cash flows.

Interest Rate Risk

Our exposure to interest rate risk is currently confined to interest earnings on our cash that is invested in highly liquid money market
funds, certificates of deposits and government municipal bonds. The primary objective of our investment activities is to preserve our capital to fund operations. We seek to maximize income from our investments without assuming significant risk. We
do not presently use derivative financing instruments in our investing portfolio. Our cash and investments policy emphasizes liquidity and preservation of principal and other portfolio considerations.

Foreign Currency Rate Fluctuations

Since January 1, 2004, the functional currency of the Company has been the U.S. dollar. Effective January 1, 2010, World Heart Corporation changed its jurisdiction of incorporation from the
federal jurisdiction of Canada to the state of Delaware in the United States through a planned arrangement and substantially terminated a majority of operations outside the United States. As a result, when preparing reports for United States
reporting purposes, we are no longer required to translate assets and liabilities of our Canadian entity but we continue to do this for all assets and liabilities of our Netherlands entity which have minimum business activities, at the period-end
exchange rate and revenue and expenses at the average exchange rates in effect during the period. The net effect of these translation adjustments are included in net loss for the year.

We do not presently utilize foreign currency forward contracts and instead hold minimum cash reserves in the currency in which those
reserves are anticipated to be expended.

OUTSTANDING SHARE DATA

The outstanding share data as at December 31, 2010, 2009 and 2008 is as follows:



|                                   |  |                              |            |  |      |  |            |      |  |  |            | 
|---------------------------------- |  | ---------------------------- | ---------- |  | ---- |  | ---------- | ---- |  |  | ---------- | 
|                                   |  | Number of shares outstanding |           
|                                   |  | 2010                         |            |  | 2009 |  |            | 2008 | 
|Common shares                      |  |                              | 26,682,332 |  |      |  | 13,312,265 |      |  |  | 13,253,964 | 
|Options to purchase common shares  |  |                              | 1,845,128  |  |      |  | 1,512,488  |      |  |  | 32,772     | 
|Warrants to purchase common shares |  |                              | 14,712,986 |  |      |  | 25,416     |      |  |  | 84,395     | 



34



---

##### Table of Contents

On December 2, 2010, $200,000 of the $1.0 million LaunchPoint Note plus $45,000 in
accrued interest matured. We issued 101,282 restricted shares of our common stock to LaunchPoint. The stock price used for determining the conversion rate was $2.43, the publicly traded weighted average closing price of our common stock for the
three month period preceding the anniversary date of December 2, 2010.

On October 19, 2010, we completed a private
placement of common stock and warrants to purchase common stock. Gross proceeds from the offering were approximately $25.3 million. We issued an aggregate of 11,850,118 newly-issued shares of common stock at an issue price of $2.135 per share.
Additionally, we issued warrants to purchase up to 11,850,118 additional shares of common stock at an exercise price of $2.31 per share.

On January 26, 2010, we completed a private placement of common stock and warrants to purchase common stock. Gross proceeds from the offering were approximately $7.3 million. We issued an
aggregate of 1,418,726 newly-issued shares of common stock at an issue price of $5.15 per share and warrants to purchase up to 2,837,452 additional shares of common stock at an exercise price of $4.90 per share.

On July 31, 2008, we completed a $30.0 million private placement transaction and recapitalization (Recapitalization Agreement).
Under the terms of the recapitalization, we issued 10.0 million common shares (Issuance). In connection with the Issuance, the parties to the recapitalization entered into a Registration Rights Agreement dated July 31, 2008, as amended
October 31, 2008, to register the common shares issued in connection with the Issuance and Abiomed conversion. We issued warrants to purchase an aggregate of 83,333 common shares to our advisors.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma
Information for Business Combinations. ASU 2010-29 is intended to address diversity in practice regarding pro forma revenue and earnings disclosure requirements for business combinations. This guidance specifies that if a public entity
presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior
annual reporting period only. The guidance also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination
included in the reported pro forma revenue and earnings. ASU 2010-29 affects any public entity, as defined by Topic 805, which enters into business combinations that are material on an individual or aggregate basis. The guidance is effective

prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period after
December 15, 2010. The impact of this ASU is not expected to have a material impact on the Company in the next year.

In
April 2010, the FASB issued ASU 2010-17, Revenue RecognitionMilestone Method (Topic 605): Milestone Method of Revenue Recognition (ASU 2010-17). ASU 2010-17 provides guidance on applying the milestone method to milestone payments for
achieving specified performance measures when those payments are related to uncertain future events. Under the ASU, entities can make an accounting policy election to recognize arrangement consideration received for achieving specified performance
measures during the period in which the milestones are achieved, provided certain criteria are met for the milestones to be considered substantive. This ASU is effective on a prospective basis for research and development milestones achieved in
fiscal years, beginning on or after June 15, 2010, which for us means the fiscal year ending on December 31, 2011. The impact of this ASU is not expected to be material to the consolidated financial statements of the Company.

In January 2010, FASB issued ASU 2010-06, Improving Disclosures about Fair Value Measurements, to amend the disclosure requirements
related to recurring and nonrecurring fair value measurements. The guidance requires new disclosures on the transfers of assets and liabilities between Level 1 (quoted prices in



35



---

##### Table of Contents

active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons and the timing of the
transfers. Additionally, the guidance requires a roll forward of activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The
guidance became effective for us with the reporting period beginning January 1, 2010, except for the disclosure on the roll forward activities for Level 3 fair value measurements, which became effective for us January 1, 2011. Other
than requiring additional disclosures, adoption of this new guidance will not have a material impact on the Companys consolidated financial statements.



|Item 8. | Financial Statements.
|------- | ---------------------

The financial statements required to be filed pursuant to this Item 8 are included in this Annual Report on Form 10-K beginning
on page F-1.



36



---

##### Table of Contents

|Item 9. | Change In and Disagreements with Accountants on Accounting and Financial Disclosure.
|------- | ------------------------------------------------------------------------------------

None.



|Item 9(A). | Controls and Procedures.
|---------- | ------------------------

Evaluation of Disclosure Controls and Procedures.We conducted an evaluation, with the participation of our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (Exchange
Act), as of December 31, 2010 to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the
Securities Exchange Commissions rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including
our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our President and Chief Executive Officer (principal
executive officer) and our Chief Financial Officer (principal accounting and financial officer) we have concluded that as of December 31, 2010, our disclosure controls and procedures were not effective at the reasonable assurance level due to
the material weaknesses described below.

A material weakness is a control deficiency (within the meaning of the Public
Company Accounting Oversight Board (PCAOB) Auditing Standard No. 5) or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be
prevented or detected.

Management identified the following material weaknesses in the Companys internal control over
financial reporting as of December 31, 2010:

As of December 31, 2010, there was one material internal control
weakness in the Companys internal control over financial reporting with regard to having sufficient technical resources to appropriately analyze and account for complex derivative instruments, specifically with regard to our interpretation of
ASC 480, Distinguishing Liabilities from Equity, as it related to the initial classification of our warrants in the October Offering as equity instruments. During the audit, we determined that we should have accounted for these warrants as
liabilities instead of equity. The impact of the required accounting resulted in a material reclassification between equity and liabilities but had no impact on operating income or cash. We believe that the financial statements included in this
report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

Remediation and Improvement Plan for Material Weakness in Controls and Procedures

A plan was introduced to implement remediation measures to address the material weaknesses described above. Specifically, management plans to devote resources to the improvement of our internal control
over financial reporting, in particular over handling of complex derivative accounting issues. As we enter into transactions that involve complex accounting issues, we will consult with third party professionals with expertise in these matters as
necessary to insure appropriate accounting treatment for such transactions. The elements of our remediation plan can only be accomplished over time and we can offer no assurance that these initiatives will ultimately have the intended effects. Any
failure to maintain such internal controls could adversely impact our ability to report our financial results on a timely and accurate basis. If our financial statements are not accurate, investors may not have a complete understanding of our
operations or may lose confidence in our reported financial information. Likewise, if our financial statements are not filed on a timely basis as required by the SEC and NASDAQ, we could face severe consequences from those authorities. In either
case, it could result in a material adverse effect on our business or have a negative effect on the trading price of our common stock. We can give no assurance that the measures we have taken and plan to take in the future will remediate the
material weakness identified or that any additional material weaknesses will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of those controls.



37



---

##### Table of Contents

These remediation efforts are designed to address the material weakness identified above and
to improve and strengthen our overall control environment. We believe these actions will minimize the material weakness from reoccurring. Our management, including our principal executive officer and principal financial officer, does not expect that
disclosure controls or internal controls over financial reporting will prevent all errors, even as the aforementioned remediation measures are implemented and further improved to address all deficiencies. The design of any system of controls is
based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Changes in Internal Control over Financial Reporting. There was no change in our internal control over financial reporting that
occurred during the three months ended December 31, 2010 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

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



|Item 9B. | Other Information.
|-------- | ------------------

None.



38



---

##### Table of Contents

PART III



|Item 10. | Directors, Executive Officers, and Corporate Governance.
|-------- | --------------------------------------------------------

The information required by this item is incorporated herein by reference to our definitive proxy statement relating to the 2011 annual meeting of stockholders (the 2011 Proxy Statement), which we intend
to file with the Securities and Exchange Commission within 120 days of the end of our fiscal year ended December 31, 2010.



|Item 11. | Executive Compensation.
|-------- | -----------------------

The information required under this item may be found in the 2011 Proxy Statement and is incorporated herein by reference.



|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
|-------- | -----------------------------------------------------------------------------------------------

The information required under this item may be found in the 2011 Proxy Statement and is incorporated herein by reference.



|Item 13. | Certain Relationships and Related Transactions and Director Independence.
|-------- | -------------------------------------------------------------------------

The information required under this item may be found in the 2011 Proxy Statement and is incorporated herein by reference.



|Item 14. | Principal Accountant Fees and Services.
|-------- | ---------------------------------------

The information required under this item may be found in the 2011 Proxy Statement and is incorporated herein by reference.



39



---

##### Table of Contents

PART IV



|Item 15. | Exhibits, Financial Statements Schedules.
|-------- | -----------------------------------------

(a)(1) Financial Statements. The following financial statements and related documents are filed as part of this report:



|                                                                                                                |  |  |     | 
|--------------------------------------------------------------------------------------------------------------- |  |  | --- | 
|Report of Independent Registered Public Accounting Firm                                                         |  |  | F-2 | 
|Consolidated Balance Sheets as of December 31, 2010 and 2009                                                    |  |  | F-3 | 
|Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and
2008                      |  |  | F-4 | 
|Consolidated Statements of Shareholders Equity (Deficit) for the years ended December 
31, 2010, 2009 and 2008 |  |  | F-5 | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and
2008                      |  |  | F-6 | 
|Notes to Consolidated Financial Statements                                                                      |  |  | F-7 | 

(a)(2) Financial Statement
Schedules. None.

(a)(3) Exhibits. The following exhibits are filed as part of this report:



|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 |  | Certificate of Incorporation of World Heart Corporation as currently in effect (incorporated by reference to the Corporations Post-Effective Amendment No. 1 to
Registration Statement on Form S-3 (Commission File No. 333-155129)).                                                                                                                                                                                                                                                                                                                                                                                     
|            | 
|Exhibit 3.2 |  | Bylaws of World Heart Corporation as currently in effect (incorporated by reference to the Corporations Post-Effective amendment No. 1 to Registration Statement on
Form S-3 (Commission File No. 333-155129)).                                                                                                                                                                                                                                                                                                                                                                                                           
|            | 
|Exhibit 4.1 |  | Specimen Common Stock Certificate (incorporated by reference to the corporations Post-Effective Amendment No. 1 to Registration Statement on Form S-3 (Commission
File No. 333-155129)).                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            | 
|Exhibit 4.2 |  | Recapitalization Agreement dated June 20, 2008 between the registrant, World Heart Inc., a wholly-owned subsidiary of the registrant, ABIOMED, Inc., Venrock Partners
V, L.P., Venrock Associates V, L.P. and Venrock Entrepreneurs Fund V, L.P., Special Situations Fund III QP LP, Special Situations Cayman Fund, L.P., Special Situations Private Equity Fund, L.P., Special Situations Life
Sciences Fund, L.P. and Austin Marxe (incorporated by reference to Exhibit 99.2 to the Corporations Form 8-K filed on June 25, 2008 (Commission File No. 000-28882)).                                                    
|            | 
|Exhibit 4.3 |  | Form of Demand Note (incorporated by reference to Exhibit 99.3 to the Corporations Form 8-K filed on June 25, 2008 (Commission File
No. 000-28882)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | 
|Exhibit 4.4 |  | Amendment No. 1 to the Recapitalization Agreement dated July 31, 2008 between the registrant, World Heart Inc., a wholly-owned subsidiary of the registrant,
ABIOMED, Inc., Venrock Partners V, L.P., Venrock Associates V, L.P. and Venrock Entrepreneurs Fund V, L.P., Special Situations Fund III QP LP, Special Situations Cayman Fund, L.P., Special Situations Private Equity
Fund, L.P., Special Situations Life Sciences Fund, L.P., Austin Marxe and New Leaf Ventures II, L.P. (incorporated by reference to Exhibit 99.2 to the Corporations Form 8-K filed on August 6, 2008 (Commission File
No. 000-28882)).
|            | 
|Exhibit 4.5 |  | Form of Five-Year Warrant (incorporated by reference to Exhibit 4.5 to the Corporations Form 8-K filed on January 22, 2010 (Commission File
No. 000-28882)).                                                                                                                                                                                                                                                                                                                                                                                                                                                              



40



---

##### Table of Contents

|              |  |                                                                                                                                                                                                                                                                                                                  
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              | 
|Exhibit 4.6   |  | Form of 15-Month Warrant (incorporated by reference to Exhibit 4.6 to the Corporations Form 8-K filed on January 22, 2010 (Commission File
No. 000-28882)).                                                                                                                                                     
|              | 
|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 10.3  |  | 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  |  | 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 10.5  |  | 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 10.6  |  | 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 10.10 |  | 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 10.11 |  | 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 10.12 |  | 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 10.13 |  | 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 10.14 |  | World Heart Corporation 2006 Equity Incentive Plan, as amended (formerly known as World Heart Corporation Employee Stock Option Plan) (incorporated by reference to Exhibit 10.6
to the Corporations Form 10-Q for the quarter ended September 30, 2009 (Commission File No. 000-28882)).*                      
|              | 
|Exhibit 10.15 |  | 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 10.16 |  | 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)).*                                                                                



41



---

##### Table of Contents

|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              | 
|Exhibit 10.17 |  | 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 10.18 |  | 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 10.19 |  | 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 10.21 |  | Form of Registration Rights Agreement (incorporated by reference to Exhibit 99.4 to the Corporations Form 8-K filed on June 25, 2008 (Commission File
No. 000-28882)).                                                                                                                                                                                                                                                                                                                                                             
|              | 
|Exhibit 10.22 |  | Registration Rights Agreement dated July 31, 2008 between registrant, ABIOMED, Inc., Venrock Partners V, L.P., Venrock Associates V, L.P. and Venrock
Entrepreneurs Fund V, L.P., Special Situations Fund III QP LP, Special Situations Cayman Fund, L.P., Special Situations Private Equity Fund, L.P., Special Situations Life Sciences Fund, L.P., Austin Marxe and New Leaf
Ventures II, L.P. (incorporated by reference to Exhibit 99.3 to the Corporations Form 8-K filed on August 6, 2008 (Commission File No. 000-28882)).
|              | 
|Exhibit 10.23 |  | Amendment and Waiver to Registration Rights Agreement between World Heart Corporation, its wholly-owned subsidiary World Heart Inc. and certain investors named therein dated as
of November 3, 2008 (incorporated by reference to Exhibit 4.4 to the Corporations Form S-3 filed on November 6, 2008 (Commission File No. 333-155129))                                                                                                                                                                                            
|              | 
|Exhibit 10.24 |  | 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 10.25 |  | 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 10.26 |  | 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 10.27 |  | 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 10.28 |  | Consulting Agreement, dated June 19, 2008, by and between World Heart Inc. and Pellone Enterprises Incorporated (incorporated by reference to Exhibit 10.1 to the
Corporations Form 8-K filed on July 1, 2008 (Commission File No. 000-28882)).*                                                                                                                                                                                                                                                                                   
|              | 
|Exhibit 10.29 |  | Termination and Release Letter dated July 31, 2008 from ABIOMED, Inc. to the registrant and World Heart inc., a wholly-owned subsidiary of the registrant
(incorporated by reference to Exhibit 99.4 to the Corporations Form 8-K filed on August 6, 2008 (Commission File No. 000-28882)).                                                                                                                                                                                                                                        
|              | 
|Exhibit 10.30 |  | Amendment to Jal S. Jassawallas Offer Letter, dated December 29, 2008 (incorporated by reference to Exhibit 10.34 to the Corporations Form 8-K filed on
April 13, 2009 (Commission File No. 000-28882)).*                                                                                                                                                                                                                                                                                                                         



42



---

##### Table of Contents

|              |  |                                                                                                                                                                                                                                                                                            
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              | 
|Exhibit 10.31 |  | Letter Agreement, dated January 31, 2009, between World Heart Inc. and John Alexander Martin (incorporated by reference to Exhibit 99.2 to the Corporations
Form 8-K filed on February 9, 2009 (Commission File No. 000-28882)).*                                                         
|              | 
|Exhibit 10.32 |  | Letter Agreement, dated August 10, 2009, between World Heart Inc. and Morgan R. Brown (incorporated by reference to Exhibit 99.2 to the Corporations
Form 8-K filed on August 10, 2009 (Commission File No. 000-28882)).*                                                                 
|              | 
|Exhibit 10.33 |  | Change of Control and Severance Agreement with J. Alex Martin (incorporated by reference to Exhibit 10.2 to the Corporations Form 10-Q for the period ended
September 30, 2009 (Commission File No. 000-28882)).*                                                                         
|              | 
|Exhibit 10.34 |  | Change of Control and Severance Agreement with Morgan R. Brown (incorporated by reference to Exhibit 10.3 to the Corporations Form 10-Q for the period ended
September 30, 2009 (Commission File No. 000-28882)).*                                                                        
|              | 
|Exhibit 10.35 |  | Change of Control and Severance Agreement with Jal S. Jassawalla (incorporated by reference to Exhibit 10.4 to the Corporations Form 10-Q for the period ended
September 30, 2009 (Commission File No. 000-28882)).*                                                                      
|              | 
|Exhibit 10.36 |  | Form of Change of Control and Severance Agreement (incorporated by reference to Exhibit 10.5 to the Corporations Form 10-Q for the period ended September 30,
2009 (Commission File No. 000-28882)).*                                                                                     
|              | 
|Exhibit 10.37 |  | Amendment and Restatement of Offer Letter, effective February 4, 2009, between World Heart Inc. and Jal S. Jassawalla (incorporated by reference to Exhibit 10.34 to
the Corporations Form 8-K filed on April 13, 2009 (Commission File No. 000-28882)).*                                 
|              | 
|Exhibit 10.38 |  | 2009 Performance Bonus Program for Executive Officers and Other Employees (incorporated by reference to Exhibit 99.1 to the Corporations Form 8-K dated
March 31, 2009 (Commission File No. 000-28882)).*                                                                                 
|              | 
|Exhibit 10.39 |  | Securities Purchase Agreement, dated January 26, 2010, by and among World Heart Corporation and the purchasers listed on the signature pages thereto (incorporated by reference
to Exhibit 10.1 to the Corporations Form 8-K filed on January 22, 2010 (Commission File No. 000-28882)).  
|              | 
|Exhibit 10.40 |  | Registration Rights Agreement, dated January 26, 2010, by and among World Heart Corporation and the purchasers listed on the signature pages thereto (incorporated by reference
to Exhibit 10.2 to the Corporations Form 8-K filed on January 22, 2010 (Commission File No. 000-28882)).  
|              | 
|Exhibit 10.41 |  | Form of indemnification agreement (incorporated by reference to Exhibit 10.33 to the Corporations Form 10-K filed on March 30, 2009 (Commission File
No. 000-28882)).                                                                                                                     
|              | 
|Exhibit 10.42 |  | 2010 Performance Bonus Program for Executive Officers and Other Employees (incorporated by reference to Exhibit 99.1 to the Corporations Form 8-K dated February 14,
2011 (Commission File No. 000-28882)).*                                                                              
|              | 
|Exhibit 10.43 |  | Letter Agreement, dated April 19, 2010, between World Heart Inc. and John C. Woodard (incorporated by reference to Exhibit 99.2 to the Corporations Form 8-K
filed on May 3, 2010 (Commission File No. 000-28882)).*                                                                      
|              | 
|Exhibit 10.44 |  | Securities Purchase Agreement, dated October 13, 2010, by and among World Heart Corporation and the purchasers listed on the signature pages thereto (incorporated by reference to
Exhibit 10.4 to the Corporations Form S-3 filed on November 17, 2010 (Commission File No. 333-170639)).



43



---

##### Table of Contents

|              |  |                                                                                                                                                                                                                                                                                            
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              | 
|Exhibit 10.45 |  | Registration Rights Agreement, dated October 13, 2010, by and among World Heart Corporation and the purchasers listed on the signature pages thereto (incorporated by reference to
Exhibit 10.5 to the Corporations Form S-3 filed on November 17, 2010 (Commission File No. 333-170639)).
|              | 
|Exhibit 10.46 |  | Form of Warrant (incorporated by reference to Exhibit 4.7 to the Corporations Form 8-K filed on October 14, 2010 (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 21.1  |  | List of All Subsidiaries of World Heart Corporation.                                                                                                                                                                                                                                       
|              | 
|Exhibit 23.1  |  | Consent of Independent Registered Public Accounting FirmBurr Pilger Mayer, Inc.                                                                                                                                                                                                           
|              | 
|Exhibit 24.1  |  | Power of Attorney (reference is made to the signature page to this Form 10-K).                                                                                                                                                                                                             
|              | 
|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.                                                                                                                                                                    



|* | Management contract or compensatory plan or arrangement
|- | -------------------------------------------------------



44



---

##### Table of Contents

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/ JOHN ALEXANDER
MARTINPresident and Chief Executive OfficerDate: March 31, 2011


We, the undersigned, directors and officers of World Heart Corporation do hereby severally constitute and appoint JOHN ALEXANDER MARTIN and MORGAN R. BROWN and each or any of them, our true and lawful
attorneys and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to the Registrants Annual Report on Form 10-K for
the fiscal year ended December 31, 2010, and to file the same with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys and agents, and each or any of
them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys
and agents, and each of them, or substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

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/ JOHN ALEXANDER MARTIN
John Alexander Martin         |  | President, Chief Executive Officer and Director (principal executive officer)                      |  | March 31, 2011
|                                                        |  |                                                                                                   
|/s/ MORGAN R. BROWN
Morgan R. Brown                     |  | Executive Vice President, and Chief Financial Officer (principal accounting and financial officer) |  | March 31, 2011
|                                                        |  |                                                                                                   
|/s/ MICHAEL S. ESTES, PH.D.
Michael Sumner Estes, Ph.D. |  | Chairman of the Board and Director                                                                 |  | March 31, 2011
|                                                        |  |                                                                                                   
|/s/ JEANI DELAGARDELLE
Jeani Delagardelle               |  | Director                                                                                           |  | March 31, 2011
|                                                        |  |                                                                                                   
|/s/ WILLIAM C. GARRIOCK
William C. Garriock             |  | Director                                                                                           |  | March 31, 2011
|                                                        |  |                                                                                                   
|/s/ EUGENE B. JONES
Eugene B. Jones                     |  | Director                                                                                           |  | March 31, 2011
|                                                        |  |                                                                                                   
|/s/ ANDERS D. HOVE
Anders D. Hove                       |  | Director                                                                                           |  | March 31, 2011
|                                                        |  |                                                                                                   
|/s/ AUSTIN W. MARXE
Austin W. Marxe                     |  | Director                                                                                           |  | March 31, 2011



45



---

##### Table of Contents

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  |  | Certificate of Incorporation of World Heart Corporation as currently in effect (incorporated by reference to the Corporations Post-Effective Amendment No. 1 to
Registration Statement on Form S-3 (Commission File No. 333-155129))                                                                                                                                                                                                                                                                                                                                                                                      
|             | 
|Exhibit 3.2  |  | Bylaws of World Heart Corporation as currently in effect (incorporated by reference to the Corporations Post-Effective amendment No. 1 to Registration Statement on
Form S-3 (Commission File No. 333-155129)).                                                                                                                                                                                                                                                                                                                                                                                                           
|             | 
|Exhibit 4.1  |  | Specimen Common Stock Certificate (incorporated by reference to the corporations Post-Effective Amendment No. 1 to Registration Statement on Form S-3 (Commission
File No. 333-155129)).                                                                                                                                                                                                                                                                                                                                                                                                                                  
|             | 
|Exhibit 4.2  |  | Recapitalization Agreement dated June 20, 2008 between the registrant, World Heart Inc., a wholly-owned subsidiary of the registrant, ABIOMED, Inc., Venrock Partners
V, L.P., Venrock Associates V, L.P. and Venrock Entrepreneurs Fund V, L.P., Special Situations Fund III QP LP, Special Situations Cayman Fund, L.P., Special Situations Private Equity Fund, L.P., Special Situations Life
Sciences Fund, L.P. and Austin Marxe (incorporated by reference to Exhibit 99.2 to the Corporations Form 8-K filed on June 25, 2008 (Commission File No. 000-28882)).                                                    
|             | 
|Exhibit 4.3  |  | Form of Demand Note (incorporated by reference to Exhibit 99.3 to the Corporations Form 8-K filed on June 25, 2008 (Commission File
No. 000-28882)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|             | 
|Exhibit 4.4  |  | Amendment No. 1 to the Recapitalization Agreement dated July 31, 2008 between the registrant, World Heart Inc., a wholly-owned subsidiary of the registrant,
ABIOMED, Inc., Venrock Partners V, L.P., Venrock Associates V, L.P. and Venrock Entrepreneurs Fund V, L.P., Special Situations Fund III QP LP, Special Situations Cayman Fund, L.P., Special Situations Private Equity
Fund, L.P., Special Situations Life Sciences Fund, L.P., Austin Marxe and New Leaf Ventures II, L.P. (incorporated by reference to Exhibit 99.2 to the Corporations Form 8-K filed on August 6, 2008 (Commission File
No. 000-28882)).
|             | 
|Exhibit 4.5  |  | Form of Five-Year Warrant (incorporated by reference to Exhibit 4.5 to the Corporations Form 8-K filed on January 22, 2010 (Commission File
No. 000-28882)).                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|             | 
|Exhibit 4.6  |  | Form of 15-Month Warrant (incorporated by reference to Exhibit 4.6 to the Corporations Form 8-K filed on January 22, 2010 (Commission File
No. 000-28882)).                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|             | 
|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 10.3 |  | 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 |  | 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)).*                                                                                                                                                                                                                                                                                                                                                                                                



46



---

##### Table of Contents

|              |  |                                                                                                                                                                                                                                                                                                                  
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              | 
|Exhibit 10.5  |  | 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 10.6  |  | 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 10.10 |  | 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 10.11 |  | 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 10.12 |  | 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 10.13 |  | 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 10.14 |  | World Heart Corporation 2006 Equity Incentive Plan, as amended (formerly known as World Heart Corporation Employee Stock Option Plan) (incorporated by reference to Exhibit 10.6
to the Corporations Form 10-Q for the quarter ended September 30, 2009 (Commission File No. 000-28882)).*                      
|              | 
|Exhibit 10.15 |  | 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 10.16 |  | 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 10.17 |  | 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 10.18 |  | 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 10.19 |  | 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 10.21 |  | Form of Registration Rights Agreement (incorporated by reference to Exhibit 99.4 to the Corporations Form 8-K filed on June 25, 2008 (Commission File
No. 000-28882)).                                                                                                                                          



47



---

##### Table of Contents

|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              | 
|Exhibit 10.22 |  | Registration Rights Agreement dated July 31, 2008 between registrant, ABIOMED, Inc., Venrock Partners V, L.P., Venrock Associates V, L.P. and Venrock
Entrepreneurs Fund V, L.P., Special Situations Fund III QP LP, Special Situations Cayman Fund, L.P., Special Situations Private Equity Fund, L.P., Special Situations Life Sciences Fund, L.P., Austin Marxe and New Leaf
Ventures II, L.P. (incorporated by reference to Exhibit 99.3 to the Corporations Form 8-K filed on August 6, 2008 (Commission File No. 000-28882)).
|              | 
|Exhibit 10.23 |  | Amendment and Waiver to Registration Rights Agreement between World Heart Corporation, its wholly-owned subsidiary World Heart Inc. and certain investors named therein dated as
of November 3, 2008 (incorporated by reference to Exhibit 4.4 to the Corporations Form S-3 filed on November 6, 2008 (Commission File No. 333-155129)).                                                                                                                                                                                           
|              | 
|Exhibit 10.24 |  | 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 10.25 |  | 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 10.26 |  | 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 10.27 |  | 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 10.28 |  | Consulting Agreement, dated June 19, 2008, by and between World Heart Inc. and Pellone Enterprises Incorporated (incorporated by reference to Exhibit 10.1 to the
Corporations Form 8-K filed on July 1, 2008 (Commission File No. 000-28882)).*                                                                                                                                                                                                                                                                                   
|              | 
|Exhibit 10.29 |  | Termination and Release Letter dated July 31, 2008 from ABIOMED, Inc. to the registrant and World Heart inc., a wholly-owned subsidiary of the registrant
(incorporated by reference to Exhibit 99.4 to the Corporations Form 8-K filed on August 6, 2008 (Commission File No. 000-28882)).                                                                                                                                                                                                                                        
|              | 
|Exhibit 10.30 |  | Amendment to Jal S. Jassawallas Offer Letter, dated December 29, 2008 (incorporated by reference to Exhibit 10.34 to the Corporations Form 8-K filed on
April 13, 2009 (Commission File No. 000-28882)).*                                                                                                                                                                                                                                                                                                                         
|              | 
|Exhibit 10.31 |  | Letter Agreement, dated January 31, 2009, between World Heart Inc. and John Alexander Martin (incorporated by reference to Exhibit 99.2 to the Corporations
Form 8-K filed on February 9, 2009 (Commission File No. 000-28882))*                                                                                                                                                                                                                                                                                                   
|              | 
|Exhibit 10.32 |  | Letter Agreement, dated August 10, 2009, between World Heart Inc. and Morgan R. Brown (incorporated by reference to Exhibit 99.2 to the Corporations
Form 8-K filed on August 10, 2009 (Commission File No. 000-28882)).*                                                                                                                                                                                                                                                                                                          
|              | 
|Exhibit 10.33 |  | Change of Control and Severance Agreement with J. Alex Martin (incorporated by reference to Exhibit 10.2 to the Corporations Form 10-Q for the period ended
September 30, 2009 (Commission File No. 000-28882)).*                                                                                                                                                                                                                                                                                                                  
|              | 
|Exhibit 10.34 |  | Change of Control and Severance Agreement with Morgan R. Brown (incorporated by reference to Exhibit 10.3 to the Corporations Form 10-Q for the period ended
September 30, 2009 (Commission File No. 000-28882)).*                                                                                                                                                                                                                                                                                                                 



48



---

##### Table of Contents

|              |  |                                                                                                                                                                                                                                                                                            
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              | 
|Exhibit 10.35 |  | Change of Control and Severance Agreement with Jal S. Jassawalla (incorporated by reference to Exhibit 10.4 to the Corporations Form 10-Q for the period ended
September 30, 2009 (Commission File No. 000-28882)).*                                                                      
|              | 
|Exhibit 10.36 |  | Form of Change of Control and Severance Agreement (incorporated by reference to Exhibit 10.5 to the Corporations Form 10-Q for the period ended September 30,
2009 (Commission File No. 000-28882)).*                                                                                     
|              | 
|Exhibit 10.37 |  | Amendment and Restatement of Offer Letter, effective February 4, 2009, between World Heart Inc. and Jal S. Jassawalla (incorporated by reference to Exhibit 10.34 to
the Corporations Form 8-K filed on April 13, 2009 (Commission File No. 000-28882)).*                                 
|              | 
|Exhibit 10.38 |  | 2009 Performance Bonus Program for Executive Officers and Other Employees (incorporated by reference to Exhibit 99.1 to the Corporations Form 8-K dated
March 31, 2009 (Commission File No. 000-28882)).*                                                                                 
|              | 
|Exhibit 10.39 |  | Securities Purchase Agreement, dated January 26, 2010, by and among World Heart Corporation. and the purchasers listed on the signature pages thereto (incorporated by reference
to Exhibit 10.1 to the Corporations Form 8-K filed on January 22, 2010 (Commission File No. 000-28882)). 
|              | 
|Exhibit 10.40 |  | Registration Rights Agreement, dated January 26, 2010, by and among World Heart Corporation and the purchasers listed on the signature pages thereto (incorporated by reference
to Exhibit 10.2 to the Corporations Form 8-K filed on January 22, 2010 (Commission File No. 000-28882)).  
|              | 
|Exhibit 10.41 |  | Form of indemnification agreement (incorporated by reference to Exhibit 10.33 to the Corporations Form 10-K filed on March 30, 2009 (Commission File
No. 000-28882)).                                                                                                                     
|              | 
|Exhibit 10.42 |  | 2010 Performance Bonus Program for Executive Officers and Other Employees (incorporated by reference to Exhibit 99.1 to the Corporations Form 8-K dated February 14,
2011 (Commission File No. 000-28882)).*                                                                              
|              | 
|Exhibit 10.43 |  | Letter Agreement, dated April 19, 2010, between World Heart Inc. and John C. Woodard (incorporated by reference to Exhibit 99.2 to the Corporations Form 8-K
filed on May 3, 2010 (Commission File No. 000-28882)).*                                                                      
|              | 
|Exhibit 10.44 |  | Securities Purchase Agreement, dated October 13, 2010, by and among World Heart Corporation and the purchasers listed on the signature pages thereto (incorporated by reference to
Exhibit 10.4 to the Corporations Form S-3 filed on November 17, 2010 (Commission File No. 333-170639)).
|              | 
|Exhibit 10.45 |  | Registration Rights Agreement, dated October 13, 2010, by and among World Heart Corporation and the purchasers listed on the signature pages thereto (incorporated by reference to
Exhibit 10.5 to the Corporations Form S-3 filed on November 17, 2010 (Commission File No. 333-170639)).
|              | 
|Exhibit 10.46 |  | Form of Warrant (incorporated by reference to Exhibit 4.7 to the Corporations Form 8-K filed on October 14, 2010 (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 21.1  |  | List of All Subsidiaries of World Heart Corporation.                                                                                                                                                                                                                                       
|              | 
|Exhibit 23.1  |  | Consent of Independent Registered Public Accounting FirmBurr Pilger Mayer, Inc.                                                                                                                                                                                                           
|              | 
|Exhibit 24.1  |  | Power of Attorney (reference is made to the signature page to this Form 10-K).                                                                                                                                                                                                             



49



---

##### Table of Contents

|             |  |                                                                                                                        
|------------ |  | -----------------------------------------------------------------------------------------------------------------------
|             | 
|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.



50



---

##### Table of Contents

WORLD HEART CORPORATION



|                                                                                                                |  |      |     | 
|--------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                |  | Page |    
|Report of Independent Registered Public Accounting Firm                                                         |  |      | F-2 | 
|Consolidated Balance Sheets as of December 31, 2010 and 2009                                                    |  |      | F-3 | 
|Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and
2008                      |  |      | F-4 | 
|Consolidated Statements of Shareholders Equity (Deficit) for the years ended December 
31, 2010, 2009 and 2008 |  |      | F-5 | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and
2008                      |  |      | F-6 | 
|Notes to Consolidated Financial Statements                                                                      |  |      | F-7 | 



---

##### Table of Contents

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 sheets of World Heart Corporation and its subsidiaries as of December 31, 2010
and 2009, and the related consolidated statements of operations, shareholders equity (deficit) and cash flows for each of the three years in the period ended December 31, 2010. 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 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. The Corporation is not required to have, nor were we engaged to perform, an audit of the Corporations internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporations
internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, 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 opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of World Heart Corporation and its subsidiaries as of December 31, 2010 and 2009 and the results of their operations and their cash flows for each of the three years ended December 31, 2010 in conformity with accounting
principles generally accepted in the United States of America.

/s/ Burr Pilger Mayer, Inc.

San Francisco, California

March 30, 2011



F-2



---

##### Table of Contents

WORLD HEART CORPORATION

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                                                                                         |  |                   |              |   |                   |   |              |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------------ | - | ----------------- | - | ------------ | -
|                                                                                                                                                                                                                                         |  | December 31, 2010 |              |   | December 31, 2009 |  
|ASSETS                                                                                                                                                                                                                                   |  |                   |              |   |                   |   |              |  
|Current assets                                                                                                                                                                                                                           |  |                   |              |   |                   |   |              |  
|Cash and cash equivalents                                                                                                                                                                                                                |  | $                 | 9,500,921    |   |                   | $ | 5,562,670    |  
|Marketable investment securities                                                                                                                                                                                                         |  |                   | 11,274,668   |   |                   |   | 499,417      |  
|Trade receivables, net of allowance for doubtful accounts of $0 and $238,854 at December 31, 2010 and December 31,
2009, respectively                                                                                                    |  |                   | 188,842      |   |                   |   |             |  
|Other receivables                                                                                                                                                                                                                        |  |                   | 373,329      |   |                   |   | 18,907       |  
|Inventory, net of allowance for excess and obsolete of $713,720 and $0 at December 31, 2010 and December 31, 2009,
respectively                                                                                                          |  |                   | 4,042,008    |   |                   |   | 341,614      |  
|Prepaid expenses                                                                                                                                                                                                                         |  |                   | 257,047      |   |                   |   | 271,966      |  
|                                                                                                                                                                                                                                         |  |                   |              |   |                   |   |              |  
|                                                                                                                                                                                                                                         |  |                   | 25,636,815   |   |                   |   | 6,694,574    |  
|Long-term assets                                                                                                                                                                                                                         |  |                   |              |   |                   |   |              |  
|Property and equipment, net                                                                                                                                                                                                              |  |                   | 936,797      |   |                   |   | 879,833      |  
|Marketable investment securities                                                                                                                                                                                                         |  |                   | 1,641,202    |   |                   |   |             |  
|Other long-term assets                                                                                                                                                                                                                   |  |                   | 14,756       |   |                   |   | 36,360       |  
|                                                                                                                                                                                                                                         |  |                   |              |   |                   |   |              |  
|                                                                                                                                                                                                                                         |  |                   | 2,592,755    |   |                   |   | 916,193      |  
|                                                                                                                                                                                                                                         |  |                   |              |   |                   |   |              |  
|Total assets                                                                                                                                                                                                                             |  | $                 | 28,229,570   |   |                   | $ | 7,610,767    |  
|                                                                                                                                                                                                                                         |  |                   |              |   |                   |   |              |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                                                                     |  |                   |              |   |                   |   |              |  
|Current liabilities                                                                                                                                                                                                                      |  |                   |              |   |                   |   |              |  
|Accounts payable and accrued liabilities                                                                                                                                                                                                 |  | $                 | 1,630,130    |   |                   | $ | 1,522,199    |  
|Accrued compensation                                                                                                                                                                                                                     |  |                   | 812,412      |   |                   |   | 645,306      |  
|Note payable - short term, net                                                                                                                                                                                                           |  |                   | 124,386      |   |                   |   | 110,971      |  
|                                                                                                                                                                                                                                         |  |                   |              |   |                   |   |              |  
|                                                                                                                                                                                                                                         |  |                   | 2,566,928    |   |                   |   | 2,278,476    |  
|                                                                                                                                                                                                                                         |  |                   |              |   |                   |   |              |  
|Long-term liabilities                                                                                                                                                                                                                    |  |                   |              |   |                   |   |              |  
|Note payable - long term, net                                                                                                                                                                                                            |  |                   | 462,616      |   |                   |   | 580,123      |  
|Other long term liabilities                                                                                                                                                                                                              |  |                   | 15,383       |   |                   |   | 93,182       |  
|Warrant liability                                                                                                                                                                                                                        |  |                   | 13,569,663   |   |                   |   |             |  
|                                                                                                                                                                                                                                         |  |                   |              |   |                   |   |              |  
|Total liabilities                                                                                                                                                                                                                        |  |                   | 16,614,590   |   |                   |   | 2,951,781    |  
|                                                                                                                                                                                                                                         |  |                   |              |   |                   |   |              |  
|Commitments and Contingencies (Note 12)                                                                                                                                                                                                  |  |                   |              |   |                   |   |              |  
|                                                                                                                                                                                                                                         |  |                  
|Shareholders equity (deficit)                                                                                                                                                                                                           |  |                   |              |   |                   |   |              |  
|Preferred stock $0.01 par value; 1,000,000 shares authorized; no shares issued or outstanding                                                                                                                                            |  |                   |             |   |                   |   |             |  
|Common stock $0.001 par value, 50,000,000 shares authorized, 26,682,332 shares issued and outstanding at December 31, 2010; and
no par value, unlimited shares authorized, 13,312,265 shares issued and outstanding at December 31, 2009 |  |                   | 26,682       |   |                   |   | 325,279,751  |  
|Additional paid-in-capital                                                                                                                                                                                                               |  |                   | 364,833,568  |   |                   |   | 18,389,635   |  
|Cumulative other comprehensive loss                                                                                                                                                                                                      |  |                   | (3,590       | ) |                   |   | (6,285,577   | )
|Accumulated deficit                                                                                                                                                                                                                      |  |                   | (353,241,680 | ) |                   |   | (332,724,823 | )
|                                                                                                                                                                                                                                         |  |                   |              |   |                   |   |              |  
|Total shareholders equity                                                                                                                                                                                                               |  |                   | 11,614,980   |   |                   |   | 4,658,986    |  
|                                                                                                                                                                                                                                         |  |                   |              |   |                   |   |              |  
|Total liabilities and shareholders equity                                                                                                                                                                                               |  | $                 | 28,229,570   |   |                   | $ | 7,610,767    |  
|                                                                                                                                                                                                                                         |  |                   |              |   |                   |   |              |  

(See accompanying notes to the consolidated financial statements)



F-3



---

##### Table of Contents

WORLD HEART CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                        |      |                         |             |      |  |   |             |   |  |   |             |  
|----------------------------------------------------------------------- | ---- | ----------------------- | ----------- | ---- |  | - | ----------- | - |  | - | ----------- | -
|                                                                        |      | Year Ended December 31, |            
|                                                                        | 2010 |                         |             | 2009 |  |   | 2008        |  
|Revenue                                                                 |      | $                       | 2,179,169   |      |  | $ | 4,765       |   |  | $ | 1,732,143   |  
|Cost of goods sold                                                      |      |                         | (2,346,529  | )    |  |   | (212,975    | ) |  |   | (992,197    | )
|                                                                        |      |                         |             |      |  |   |             |   |  |   |             |  
|Gross profit (loss)                                                     |      |                         | (167,360    | )    |  |   | (208,210    | ) |  |   | 739,946     |  
|                                                                        |      |                         |             |      |  |   |             |   |  |   |             |  
|Operating expenses                                                      |      |                         |             |      |  |   |             |   |  |   |             |  
|Research and development                                                |      |                         | 8,080,817   |      |  |   | 10,356,792  |   |  |   | 9,173,531   |  
|Selling, general and administrative                                     |      |                         | 3,944,410   |      |  |   | 5,436,655   |   |  |   | 4,626,372   |  
|Clinical and marketing support (non-cash)                               |      |                         |            |      |  |   |            |   |  |   | 6,478,619   |  
|Restructuring costs                                                     |      |                         |            |      |  |   | 577,666     |   |  |   | 131,431     |  
|Amortization of intangibles                                             |      |                         |            |      |  |   | 107,916     |   |  |   | 191,424     |  
|                                                                        |      |                         |             |      |  |   |             |   |  |   |             |  
|Total operating expenses                                                |      |                         | 12,025,227  |      |  |   | 16,479,029  |   |  |   | 20,601,377  |  
|                                                                        |      |                         |             |      |  |   |             |   |  |   |             |  
|Operating loss                                                          |      |                         | (12,192,587 | )    |  |   | (16,687,239 | ) |  |   | (19,861,431 | )
|                                                                        |      |                         |            
|Other income (expenses)                                                 |      |                         |             |      |  |   |             |   |  |   |             |  
|Debt inducement expense                                                 |      |                         |            |      |  |   |            |   |  |   | (3,914,357  | )
|Foreign exchange gain (loss)                                            |      |                         | (13,804     | )    |  |   | (23,322     | ) |  |   | 17,597      |  
|Investment and other income                                             |      |                         | 21,152      |      |  |   | 18,465      |   |  |   | 141,758     |  
|Loss on change in fair value of warrant liability                       |      |                         | (1,896,767  | )    |  |   |            |   |  |   |            |  
|Loss on liquidation of foreign entity                                   |      |                         | (6,285,577  | )    |  |   |            |   |  |   |            |  
|Loss on disposal of property and equipment                              |      |                         | (7,315      | )    |  |   | (4,270      | ) |  |   | (41,172     | )
|Interest expense                                                        |      |                         | (141,959    | )    |  |   | (14,135     | ) |  |   | (1,659,179  | )
|                                                                        |      |                         |             |      |  |   |             |   |  |   |             |  
|Net loss                                                                |      | $                       | (20,516,857 | )    |  | $ | (16,710,501 | ) |  | $ | (25,316,784 | )
|                                                                        |      |                         |             |      |  |   |             |   |  |   |             |  
|Weighted average number of common shares outstanding: basic and diluted |      |                         | 17,042,968  |      |  |   | 13,273,462  |   |  |   | 5,798,940   |  
|                                                                        |      |                         |             |      |  |   |             |   |  |   |             |  
|Basic and diluted loss per common share                                 |      | $                       | (1.20       | )    |  | $ | (1.26       | ) |  | $ | (4.37       | )
|                                                                        |      |                         |             |      |  |   |             |   |  |   |             |  

(See accompanying notes to the consolidated financial statements)



F-4



---

##### Table of Contents

WORLD HEART CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (DEFICIT)



|                                                                                                                |  |              |            |   |                          |   |              |                   |  |   |                                    |  |  |                    |             |   |                              |   |            |   |  |   |              |   |  |   |             |  
|--------------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | - | ------------------------ | - | ------------ | ----------------- |  | - | ---------------------------------- |  |  | ------------------ | ----------- | - | ---------------------------- | - | ---------- | - |  | - | ------------ | - |  | - | ----------- | -
|                                                                                                                |  | Common Stock |            |   | AdditionalPaid-inCapital |   |              | ComprehensiveLoss |  |   | AccumulatedOtherComprehensive
Loss |  |  | AccumulatedDeficit |             |   | ShareholdersEquity(Deficit) |  
|                                                                                                                |  | Number       |            |   | Amount                   |   |              |                   |  |   |                                   
|Balance, January 1, 2008                                                                                        |  |              | 383,576    |   |                          |   | 290,750,131  |                   |  |   | 5,142,339                          |  |  |                    |             |   |                              |   | (6,285,577 | ) |  |   | (290,697,538 | ) |  |   | (1,090,645  | )
|Non-cash stock compensation                                                                                     |  |              |           |   |                          |   |             |                   |  |   | 322,171                            |  |  |                    |             |   |                              |   |           |   |  |   |             |   |  |   | 322,171     |  
|Fair value of beneficial conversion feature for convertible debenture                                           |  |              |           |   |                          |   |             |                   |  |   | 1,466,143                          |  |  |                    |             |   |                              |   |           |   |  |   |             |   |  |   | 1,466,143   |  
|Warrants issued in connection with support services agreement                                                   |  |              |           |   |                          |   |             |                   |  |   | 6,478,619                          |  |  |                    |             |   |                              |   |           |   |  |   |             |   |  |   | 6,478,619   |  
|Common stock issued for bonus liability                                                                         |  |              | 3,722      |   |                          |   | 457,908      |                   |  |   |                                   |  |  |                    |             |   |                              |   |           |   |  |   |             |   |  |   | 457,908     |  
|Recapitalization and financing, net                                                                             |  |              | 10,000,000 |   |                          |   | 28,640,769   |                   |  |   |                                   |  |  |                    |             |   |                              |   |           |   |  |   |             |   |  |   | 28,640,769  |  
|Debt inducement expense                                                                                         |  |              |           |   |                          |   |             |                   |  |   | 3,914,357                          |  |  |                    |             |   |                              |   |           |   |  |   |             |   |  |   | 3,914,357   |  
|Conversion of note payable and accrued interest to common stock                                                 |  |              | 2,866,666  |   |                          |   | 5,238,444    |                   |  |   |                                   |  |  |                    |             |   |                              |   |           |   |  |   |             |   |  |   | 5,238,444   |  
|Net loss for the year ended December 31, 2008                                                                   |  |              |           |   |                          |   |             |                   |  |   |                                   |  |  | $                  | (25,316,784 | ) |                              |   |           |   |  |   | (25,316,784  | ) |  |   | (25,316,784 | )
|                                                                                                                |  |              |            |   |                          |   |              |                   |  |   |                                    |  |  |                    |             |   |                              |   |            |   |  |   |              |   |  |   |             |  
|Total comprehensive loss                                                                                        |  |              |            |   |                          |   |              |                   |  |   |                                    |  |  | $                  | (25,316,784 | ) |                              |   |            |   |  |   |              |   |  |   |             |  
|                                                                                                                |  |              |            |   |                          |   |              |                   |  |   |                                    |  |  |                    |             |   |                              |   |            |   |  |   |              |   |  |   |             |  
|Balance, December 31, 2008                                                                                      |  |              | 13,253,964 |   |                          | $ | 325,087,252  |                   |  | $ | 17,323,629                         |  |  |                    |             |   |                              | $ | (6,285,577 | ) |  | $ | (316,014,322 | ) |  | $ | 20,110,982  |  
|Non-cash stock compensation                                                                                     |  |              |           |   |                          |   |             |                   |  |   | 1,066,006                          |  |  |                    |             |   |                              |   |           |   |  |   |             |   |  |   | 1,066,006   |  
|Common shares issued upon exercise of warrants                                                                  |  |              | 58,301     |   |                          |   | 192,499      |                   |  |   |                                   |  |  |                    |             |   |                              |   |           |   |  |   |             |   |  |   | 192,499     |  
|Rounding adjustment due to stock splits                                                                         |  |              | (59        | ) |                          |   |             |                   |  |   |                                   |  |  |                    |             |   |                              |   |           |   |  |   |             |   |  |   |            |  
|Net loss for the year ended December 31, 2009                                                                   |  |              |           |   |                          |   |             |                   |  |   |                                   |  |  | $                  | (16,710,501 | ) |                              |   |           |   |  |   | (16,710,501  | ) |  |   | (16,710,501 | )
|                                                                                                                |  |              |            |   |                          |   |              |                   |  |   |                                    |  |  |                    |             |   |                              |   |            |   |  |   |              |   |  |   |             |  
|Total comprehensive loss                                                                                        |  |              |            |   |                          |   |              |                   |  |   |                                    |  |  | $                  | (16,710,501 | ) |                              |   |            |   |  |   |              |   |  |   |             |  
|                                                                                                                |  |              |            |   |                          |   |              |                   |  |   |                                    |  |  |                    |             |   |                              |   |            |   |  |   |              |   |  |   |             |  
|Balance, December 31, 2009                                                                                      |  |              | 13,312,206 |   |                          | $ | 325,279,751  |                   |  | $ | 18,389,635                         |  |  |                    |             |   |                              | $ | (6,285,577 | ) |  | $ | (332,724,823 | ) |  | $ | 4,658,986   |  
|Common stock and warrants issued in January and October private placement, net                                  |  |              | 13,268,844 |   |                          |   | 13,269       |                   |  |   | 19,474,565                         |  |  |                    |             |   |                              |   |           |   |  |   |             |   |  |   | 19,487,834  |  
|Common stock issued for payment of LaunchPoint note plus accrued interest                                       |  |              | 101,282    |   |                          |   | 101          |                   |  |   | 244,899                            |  |  |                    |             |   |                              |   |           |   |  |   |             |   |  |   | 245,000     |  
|Reclassification of common stock to additional paid-in-capital with a $.001 par value effective January 1,
2010 |  |              |           |   |                          |   | (325,266,439 | )                 |  |   | 325,266,439                        |  |  |                    |             |   |                              |   |           |   |  |   |             |   |  |   |            |  
|Non-cash stock compensation                                                                                     |  |              |           |   |                          |   |             |                   |  |   | 1,458,030                          |  |  |                    |             |   |                              |   |           |   |  |   |             |   |  |   | 1,458,030   |  
|Gross unrealized loss on marketable investment securities                                                       |  |              |            |   |                          |   |              |                   |  |   |                                    |  |  |                    | (4,456      | ) |                              |   |            |   |  |   |              |   |  |   |             |  
|Reclassification for realized loss on marketable investment securities                                          |  |              |            |   |                          |   |              |                   |  |   |                                    |  |  |                    | 866         |   |                              |   |            |   |  |   |              |   |  |   |             |  
|                                                                                                                |  |              |            |   |                          |   |              |                   |  |   |                                    |  |  |                    |             |   |                              |   |            |   |  |   |              |   |  |   |             |  
|Net unrealized loss on marketable investment securities                                                         |  |              |           |   |                          |   |             |                   |  |   |                                   |  |  |                    | (3,590      | ) |                              |   | (3,590     | ) |  |   |             |   |  |   | (3,590      | )
|Foreign currency translation gain from effect of liquidation of foreign subsidiary                              |  |              |           |   |                          |   |             |                   |  |   |                                   |  |  |                    | 6,285,577   |   |                              |   | 6,285,577  |   |  |   |             |   |  |   | 6,285,577   |  
|Net loss for the year ended December 31, 2010                                                                   |  |              |           |   |                          |   |             |                   |  |   |                                   |  |  | $                  | (20,516,857 | ) |                              |   |           |   |  |   | (20,516,857  | ) |  |   | (20,516,857 | )
|                                                                                                                |  |              |            |   |                          |   |              |                   |  |   |                                    |  |  |                    |             |   |                              |   |            |   |  |   |              |   |  |   |             |  
|Comprehensive loss                                                                                              |  |              |            |   |                          |   |              |                   |  |   |                                    |  |  | $                  | (14,234,870 | ) |                              |   |            |   |  |   |              |   |  |   |             |  
|                                                                                                                |  |              |            |   |                          |   |              |                   |  |   |                                    |  |  |                    |             |   |                              |   |            |   |  |   |              |   |  |   |             |  
|Balance, December 31, 2010                                                                                      |  |              | 26,682,332 |   |                          | $ | 26,682       |                   |  | $ | 364,833,568                        |  |  |                    |             |   |                              | $ | (3,590     | ) |  | $ | (353,241,680 | ) |  | $ | 11,614,980  |  
|                                                                                                                |  |              |            |   |                          |   |              |                   |  |   |                                    |  |  |                    |             |   |                              |   |            |   |  |   |              |   |  |   |             |  

(See accompanying notes to the consolidated financial statements)



F-5



---

##### Table of Contents

WORLD HEART CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOW



|                                                                                                          |  |                         |             |   |      |   |             |      |  |   |             |  
|--------------------------------------------------------------------------------------------------------- |  | ----------------------- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                                                                                          |  | Year Ended December 31, |            
|                                                                                                          |  | 2010                    |             |   | 2009 |   |             | 2008 | 
|Net loss for the period                                                                                   |  | $                       | (20,516,857 | ) |      | $ | (16,710,501 | )    |  | $ | (25,316,784 | )
|Adjustments to reconcile net loss to net cash used in operations:                                         |  |                         |             |   |      |   |             |      |  |   |             |  
|Amortization and depreciation                                                                             |  |                         | 347,493     |   |      |   | 322,860     |      |  |   | 460,954     |  
|Loss on disposal of property and equipment                                                                |  |                         | 7,315       |   |      |   | 4,270       |      |  |   | 41,172      |  
|Write down of inventory                                                                                   |  |                         |            |   |      |   |            |      |  |   | 217,789     |  
|Non-cash stock compensation expense                                                                       |  |                         | 1,458,030   |   |      |   | 1,066,006   |      |  |   | 322,171     |  
|Non-cash interest on debt                                                                                 |  |                         | 140,908     |   |      |   | 11,844      |      |  |   | 1,466,143   |  
|Accretion of discount on marketable investment securities                                                 |  |                         | (7,778      | ) |      |   |            |      |  |   |            |  
|Non-cash loss on change in fair value of warrant liability                                                |  |                         | 1,896,767   |   |      |   |            |      |  |   |            |  
|Non-cash loss on liquidation of foreign entity                                                            |  |                         | 6,285,577   |   |      |   |            |      |  |   |            |  
|Non-cash expense for fair value of warrants                                                               |  |                         |            |   |      |   |            |      |  |   | 6,478,619   |  
|Non-cash debt inducement expense                                                                          |  |                         |            |   |      |   |            |      |  |   | 3,914,357   |  
|Non-cash acquisition of in-process research and development through note payable                          |  |                         |            |   |      |   | 683,000     |      |  |   |            |  
|Unrealized foreign exchange gain (loss)                                                                   |  |                         |            |   |      |   | (33,552     | )    |  |   | (66,205     | )
|                                                                                                          |  |                         |            
|Change in operating components of working capital:                                                        |  |                         |             |   |      |   |             |      |  |   |             |  
|Trade and other receivables                                                                               |  |                         | (521,660    | ) |      |   | 424,196     |      |  |   | (106,350    | )
|Prepaid expenses and other current assets                                                                 |  |                         | 14,919      |   |      |   | 186,166     |      |  |   | (266,104    | )
|Inventory                                                                                                 |  |                         | (3,700,394  | ) |      |   | (341,614    | )    |  |   | 646,525     |  
|Accounts payable and accrued liabilities                                                                  |  |                         | (2,448      | ) |      |   | 212,834     |      |  |   | (278,659    | )
|Accrued compensation                                                                                      |  |                         | 167,106     |   |      |   | (243,079    | )    |  |   | 41,093      |  
|                                                                                                          |  |                         |             |   |      |   |             |      |  |   |             |  
|Cash used in operating activities                                                                         |  |                         | (14,431,022 | ) |      |   | (14,417,570 | )    |  |   | (12,445,279 | )
|                                                                                                          |  |                         |             |   |      |   |             |      |  |   |             |  
|Investing activities                                                                                      |  |                         |             |   |      |   |             |      |  |   |             |  
|Purchase of property and equipment                                                                        |  |                         | (384,931    | ) |      |   | (417,567    | )    |  |   | (153,891    | )
|Sales of marketable investment securities                                                                 |  |                         | 2,656,586   |   |      |   |            |      |  |   |            |  
|Purchase of marketable investment securities                                                              |  |                         | (15,068,851 | ) |      |   | (499,417    | )    |  |   |            |  
|                                                                                                          |  |                         |             |   |      |   |             |      |  |   |             |  
|Cash used in investing activities                                                                         |  |                         | (12,797,196 | ) |      |   | (916,984    | )    |  |   | (153,891    | )
|                                                                                                          |  |                         |             |   |      |   |             |      |  |   |             |  
|Financing activities                                                                                      |  |                         |             |   |      |   |             |      |  |   |             |  
|Convertible bridge loan proceeds                                                                          |  |                         |            |   |      |   |            |      |  |   | 1,400,000   |  
|Convertible debenture proceeds                                                                            |  |                         |            |   |      |   |            |      |  |   | 4,000,000   |  
|Common shares and warrants issued through private placements, net                                         |  |                         | 31,160,730  |   |      |   |            |      |  |   | 28,600,000  |  
|Exercise of warrants and issuance of shares                                                               |  |                         |            |   |      |   | 192,499     |      |  |   |            |  
|Proceeds from sale of assets                                                                              |  |                         |            |   |      |   | 1,500       |      |  |   |            |  
|Capital lease repayments                                                                                  |  |                         | 5,739       |   |      |   | (6,011      | )    |  |   |            |  
|Payment of fees related to convertible debentures, financing, exercise of warrants and issuance of shares |  |                         |            |   |      |   |            |      |  |   | (1,359,231  | )
|                                                                                                          |  |                         |             |   |      |   |             |      |  |   |             |  
|Cash provided by financing activities                                                                     |  |                         | 31,166,469  |   |      |   | 187,988     |      |  |   | 32,640,769  |  
|                                                                                                          |  |                         |             |   |      |   |             |      |  |   |             |  
|Effect of exchange rates on cash and cash equivalents                                                     |  |                         |            |   |      |   | 5,512       |      |  |   | (2,379      | )
|                                                                                                          |  |                         |             |   |      |   |             |      |  |   |             |  
|Increase (decrease) in cash and cash equivalents for the period                                           |  |                         | 3,938,251   |   |      |   | (15,141,054 | )    |  |   | 20,039,220  |  
|                                                                                                          |  |                         |            
|Cash and cash equivalents, beginning of the period                                                        |  |                         | 5,562,670   |   |      |   | 20,703,724  |      |  |   | 664,504     |  
|                                                                                                          |  |                         |             |   |      |   |             |      |  |   |             |  
|Cash and cash equivalents, end of the period                                                              |  | $                       | 9,500,921   |   |      | $ | 5,562,670   |      |  | $ | 20,703,724  |  
|                                                                                                          |  |                         |             |   |      |   |             |      |  |   |             |  
|Supplementary cash flow information                                                                       |  |                         |             |   |      |   |             |      |  |   |             |  
|Interest paid on financing                                                                                |  |                         | 1,051       |   |      |   | 1,313       |      |  |   | 1,651       |  
|Non cash financing activities:                                                                            |  |                         |             |   |      |   |             |      |  |   |             |  
|Reclassification from equity to warrant liability                                                         |  |                         | 11,672,896  |   |      |   |            |      |  |   |            |  
|Bridge loans converted to common stock                                                                    |  |                         |            |   |      |   |            |      |  |   | 1,400,000   |  
|Note payable and accrued interest converted to common stock                                               |  |                         | 245,000     |   |      |   |            |      |  |   | 5,238,444   |  
|Accrued bonus paid by issuance of stock                                                                   |  |                         |            |   |      |   |            |      |  |   | 457,908     |  

(See accompanying
notes to the consolidated financial statements)



F-6



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS OF THE CORPORATION

World Heart
Corporation, together with its subsidiaries (collectively referred to as WorldHeart or the Company), is 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 Salt Lake City, Utah and Oakland, California. The Company is currently focusing on the development of its next-generation Levacor® VAD (Levacor VAD). In January 2010, the Company received unconditional Investigational Device Exemption (IDE) from
the U.S. Food and Drug Administration (FDA) for the Levacor VAD in a Bridge-to-Transplant (BTT) clinical study and enrolled the first patient in January 2010. In July 2010, the FDA approved the expansion of the BTT clinical study into ten additional
centers, making a total of 20 centers that the Company can enroll into the study. In February 2011, the Company paused enrollment in the BTT study based on initial clinical experience until certain device refinements could be made and the FDA
reviews and approves the refinements. It is uncertain when enrollment in the BTT clinical study will resume. The Company expects to realize cost recoveries from the use of the Levacor VAD in the clinical trials in the United States. Such recoveries
are expected to be an important part of the Companys overall operating cash flows once enrollment commences in the BTT study. The Company is also developing small, magnetically levitated minimally invasive VADs aimed at providing full to
partial circulatory support to patients both in late stage heart failure and in earlier stages of heart failure.

2. SIGNIFICANT ACCOUNTING
POLICIES

The following significant accounting policies are followed by the Company in preparing its consolidated financial statements.

(a) Basis of Presentation and Principles of Consolidation

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 Company and its wholly owned subsidiaries; World Hearts Incorporated (WHI) and World Heart B.V. (WHBV). All material intercompany transactions
and balances have been eliminated.

(b) Use of Estimates

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. Such
management estimates include allowance for doubtful accounts, sales and other allowances, inventory reserves, income taxes, realizability of deferred tax assets, stock-based compensation, deferred revenues, and warranty, legal and restructuring
reserves. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ from these estimates.

(c) Cash Equivalents

Cash equivalents include money market funds. Cash equivalents include highly liquid and highly rated investments with maturity periods of three months or less when purchased. The composition and
maturities are regularly monitored by management.



F-7



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



(d) Fair Value Measurement

The Companys financial instruments are cash and cash equivalents, marketable investment securities, accounts receivable, accounts
payable, accrued liabilities, warrant liability and notes payable. The recorded values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair values based on their short-term nature.

The fair value of marketable investment securities is estimated based upon quoted market prices. The fair value of the
warrant liability represents its estimated fair value based upon a Black-Scholes option pricing model. The recorded values of notes payable, net of the discount, approximate the fair value as the interest approximates market rates.

The Company measures certain financial assets (cash equivalents, marketable investment securities, and warrant liability) at fair value
on a recurring basis. The Company follows a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical
assets and liabilities (Level 1) and the lowest priority to measurements involving significant unobservable inputs (Level 3). The three levels of the fair value hierarchy are as follows:



| |  |  | Level 1 measurements are quoted prices (unadjusted) in active markets for identical assets or liabilities that the company has the ability to access at
the measurement date.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2 measurements are inputs other than quoted prices included in Level 1 that are observable either directly or indirectly.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3 measurements are unobservable inputs.
| | - |  | ---------------------------------------------

(e) Marketable Investment Securities

The Company classifies its
marketable investment securities as either short-term or long-term available for sale securities. Available for sale securities are recorded at fair value. Investments in short-term and long-term available-for-sale securities consist of certificates
of deposits and government municipal bonds. Unrealized holding gains and losses, net of the related tax effect, are excluded from earnings and are reported as a separate component of stockholders equity (deficit) until realized. A decline in
the market value below cost that is deemed other than temporary is charged to results of operations resulting in the establishment of a new cost basis for the security. Premiums and discounts are amortized or accreted into the cost basis over the
life of the related security as adjustments to yield using the effective-interest method. Interest income is recognized when earned. Realized gains and losses from the sale of marketable investment securities are included in results of operations
and are determined on the specific-identification basis.

The Company has established guidelines relative to credit ratings,
diversification and maturities that are intended to mitigate risk and provide liquidity.

(f) Concentration of Credit
Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist
primarily of cash and cash equivalents, marketable investment securities and accounts receivable. Substantially, all of the Companys liquid cash equivalents are invested primarily in money market funds. Additionally, the Company has
investments in marketable investment securities, primarily comprised of certificates of deposit and government municipal bonds. Cash and cash equivalents held with financial institutions may exceed the amount of insurance provided by the Federal
Deposit Insurance Corporation (FDIC)



F-8



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



on such deposits. Marketable investments are subject to credit risk although most are in amounts protected by FDIC insurance. The Company invests in high-grade instruments and limits its exposure
to any one issuer. The Company has trade accounts receivable of $188,842 as of December 31, 2010, which is limited to large hospitals and transplant centers. The Company performs ongoing credit evaluations of its customers and generally does
not require collateral. The Company maintains reserves for potential credit losses. Write-offs during the periods presented have been insignificant. As of December 31, 2010, two customers accounted for approximately 87% of the trade receivable
balance.

(g) Inventory

Prior to August 20, 2009, all costs associated with manufacturing the Levacor VAD and related surgical and peripheral products were expensed at research and development costs. Therefore, gross margin
on sales of the Levacor VAD will be higher until zero cost inventories are fully consumed.

Inventories are stated at the
lower cost or market. Cost is determined on a first-in, first out (FIFO) method. The Company utilizes a standard costing system, which requires significant management judgment and estimates in determining and applying standard labor and overhead
rates. Labor and overhead rates are estimated based on the Companys best estimate of annual production volumes and labor rates and hours per manufacturing process. These estimates are based on historical experience and budgeted expenses and
production volume. Estimates are set at the beginning of the year and updated periodically. While the Company believes its standard costs are reliable, actual production costs and volume change may impact inventory, costs of sales and the absorption
of production overhead expenses.

The Company reviews inventory for excess or obsolete inventory and writes down obsolete or
otherwise unmarketable inventory to its estimated net realizable value.

The Company included in inventory, materials and
finished goods that can be held for sale or used in non-revenue clinical trials. Products consumed in non-revenue clinical trials are expensed as part of research and development when consumed.

(h) Concentration of Suppliers

The Company has entered into agreements with contract manufacturers to manufacture clinical supplies of its product candidates. In some instances, the Company is dependent upon a single supplier. The loss
of one of these suppliers could have a material adverse effect upon the Companys operations.

(i) Property and
Equipment

Capital assets are recorded at cost. Depreciation is calculated over estimated useful lives ranging from 5
to 7 years. Leasehold improvements are amortized over the lesser of the useful life or the remaining term of the lease. On January 1, 2010, the Company changed its method of depreciation for property and equipment from the double declining
method to the straight line method using the following rates and bases:



|                                     |  |                                        
|------------------------------------ |  | ---------------------------------------
|Furniture and fixtures               |  | Straight-line over 7 years             
|                                     | 
|Computer equipment and software      |  | Straight-line over 5 years             
|                                     | 
|Manufacturing and research equipment |  | Straight-line over 5 years             
|                                     | 
|Leasehold improvements               |  | Straight-line ranging from 1 to 7 years



F-9



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



The change in depreciation method was done to better match expected use of the equipment
with the Companys future business plans and did not result in a material impact on depreciation expense. The carrying value of property and equipment is assessed when factors indicating a possible impairment are present. The Company 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. There
were no impairments recorded during the three years reported in the consolidated financial statements.

(j) Intangible
Assets

Intangible assets with a definite life are amortized over their legal or estimated useful lives, whichever is
shorter.

The Company 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 Company 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 Companys intangible assets is comprised of the value assigned to workforce
acquired in the MedQuest Acquisition in July 2005 that was fully amortized in 2009 and value assigned to the Companys Novacor LVAS product that was fully amortized in December 2005.

(k) Income Taxes

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

The Company 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. The Company recognized interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying statements of operation. Accrued interest and penalties
are included within the related tax liability in the consolidated balance sheets.

(l) Revenue Recognition, Trade
Receivables and Deferred Revenue

We recognize revenue from product sales in accordance with ASC 605, Revenue
Recognition. Pursuant to purchase agreements or orders, we ship product to our customers. Revenue from product sales is only recognized when substantially all the risks and rewards of ownership have transferred to our customers, the selling
price is fixed and collection is reasonably assured. Beginning in 2010, a majority of our product sales are made on a consignment basis and as such, pursuant to the terms of the consignment arrangements, revenue is generally recognized on the date
the consigned product is implanted or otherwise consumed. Revenue from product sales not sold on a consignment basis is generally recognized upon customer receipt and acceptance of the product.



F-10



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Beginning in 2010, revenue is being recognized from sales of the Levacor VAD in connection with our BTT clinical trial. In February 2011, we paused enrollment in our BTT trial while three
refinements are made to our Levacor VAD based on initial clinical experience and the timeline for the reinitiating the study is uncertain. We do not expect to generate any revenue until the restart of our BTT trial.

The significant elements of our multiple-element offerings are implant kits, peripherals and a limited amount of post implant
consultation services. For arrangements with multiple elements, we recognize revenue using the residual method as described in ASC 605-25, Revenue Recognition of Multiple Element Arrangements. Under the residual method, revenue is allocated
and deferred for the undelivered elements based on relative fair value. The determination of fair value of the undelivered elements in multiple elements arrangements is based on the price charged when such elements are sold separately, which is
commonly referred to as vendor-specific objective-evidence, or VSOE. Each elements revenue is recognized when all of the revenue recognition criteria are met.

Trade receivables are recorded for product sales and do not bear interest. The Company regularly evaluates the collectability of trade receivables. An allowance for doubtful accounts is maintained for
estimated credit losses. When estimating credit losses, the Company considers a number of factors including the aging of a customers account, credit worthiness of specific customers, historical trends and other information. The Company reviews
its allowance for doubtful accounts monthly. We did not incur any losses related to customer bad debts during the past three years. At December 31, 2010 and 2009, the allowance for doubtful accounts was $0 and $238,854, respectively.

(m) Warranty

The Company warrants its products for various periods against defects in material or installation workmanship. 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.

The Company
provides for a six month warranty related to the sale of its Levacor VAD system peripherals. The warranty reserve, which is included in accounts payable and accrued liabilities, totaled $40,809 and $44,000 at December 31, 2010 and 2009,
respectively. The reserve in 2009 related to warranty reserve on previous Novacor LVAS sales.

(n) Research and
Development Costs

Research and development (R&D) costs, including research performed under contract by third
parties, are expensed as incurred. Major components of R&D expenses consist of personnel costs including salaries and benefits, prototype manufacturing, testing, clinical trials, material purchases and regulatory affairs. For the purchase of
research and development technology under an assignment or license agreement or other collaborative agreements, the Company analyzes how to characterize payment based on the relevant facts and circumstances related to each agreement.

(o) Stock-Based Compensation

The Company accounts for stock based compensation by recognizing the fair value of stock compensation as an expense in the calculation of net income (loss). The Company recognizes stock compensation
expense in the period in which the employee is required to provide service, which is generally 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.



F-11



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



(p) Shipping and Handling Costs

The Company records freight billed to its customers as sales of product and services and the related freight costs as a cost of sales,
product and services. The Companys shipping and handling costs are not significant.

(q) Restructuring Expense

The Company records costs and liabilities associated with exit and disposal activities based on estimates of fair
value in the period the liabilities are incurred. In periods subsequent to initial measurement, changes to the liability are measured using the credit-adjusted risk-free discount rate applied in the initial period. The liability is evaluated and
adjusted as appropriate for changes in circumstances.

(r) Government Assistance

Government assistance is recognized when the expenditures that qualify for assistance are made and the Company 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.

On February 2010, the Company announced that it
was part of a consortium awarded a $5.6 million, 4-year contract by the National Institutes of Health (NIH) to further develop the PediaFlow VAD to clinical trial readiness. For the year ended December 31, 2010, the Company recorded other
receivables and a reduction on R&D expenses of $224,000 related to the NIH grant. The $224,000 is included in other receivables at December 31, 2010.

On October 2010, the Company was awarded a $244,479 grant under the IRS Qualifying Therapeutic Discovery Project (QTDP) program, which was created by Congress as part of the Patient Protection and
Affordable Care Act of 2010. The Company received the funds during the year ended December 31, 2010 and recorded the receipt as grant revenue.

(s) Foreign Currency Translation and Functional Currency

Since
January 1, 2004, the functional currency of the Company has been the U.S. dollar. The accumulated other comprehensive loss on the balance sheet at December 31, 2009 represents the impact of converting to U.S. dollars from Canadian dollars
prior to January 1, 2004. Effective January 1, 2010, the Company changed its jurisdiction of incorporation from the federal jurisdiction of Canada to the state of Delaware in the United States through a planned arrangement and
substantially terminated a majority of operations outside the United States. As a result, the Company recorded a loss on the liquidation of foreign entity of $6.3 million during the year ended December 31, 2010 which represented the other
comprehensive loss on the balance sheet at December 31, 2009. Exchange gains and losses are included in the net loss for the year.

(t) Comprehensive Loss

Comprehensive income (loss) consists of net
income (loss) and other gains and losses affecting stockholders equity (deficit) that, under U.S. GAAP, are excluded from net income (loss). Accumulated other comprehensive loss for the years ended December 31, 2010, 2009 and 2008 was
$3,590, $6,285,577 and $6,285,577, respectively. The accumulated other comprehensive loss as of December 31, 2010 is related to accumulated net unrealized losses on marketable investment securities while the accumulated other comprehensive loss
as of December 31, 2009 and 2008 was related to a foreign currency translation resulting



F-12



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



from the conversion of the Companys functional currency from Canadian dollar to the US dollars in 2004. During the year ended December 31, 2010, the Company changed its jurisdiction of
incorporation from the federal jurisdiction of Canada to the state of Delaware, terminating a majority of its operations in Canada and recording a $6.3 million loss on liquidation of foreign entity.

(u) Earnings per Share

Basic earnings per share are computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period presented. Diluted earnings per share are 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 year ended December 31, 2010, 2009 and 2008, basic earnings per share are the same as
diluted earnings per share as a result of the Companys common stock equivalents being anti-dilutive.

The following
reconciliation shows the anti-dilutive shares excluded from the calculation of basic and diluted earnings (loss) per common share attributable to the Company for the years ended December 31:



|                                 |  |      |            |  |      |  |           |      |  |  |         | 
|-------------------------------- |  | ---- | ---------- |  | ---- |  | --------- | ---- |  |  | ------- | 
|                                 |  | 2010 |            |  | 2009 |  |           | 2008 | 
|Gross number of shares excluded: |  |      |            |  |      |  |           |      |  |  |         | 
|Warrants                         |  |      | 14,712,986 |  |      |  | 25,416    |      |  |  | 84,395  | 
|Stock options                    |  |      | 1,845,128  |  |      |  | 1,512,488 |      |  |  | 32,772  | 
|                                 |  |      |            |  |      |  |           |      |  |  |         | 
|                                 |  |      | 16,558,114 |  |      |  | 1,537,904 |      |  |  | 117,167 | 
|                                 |  |      |            |  |      |  |           |      |  |  |         | 

(v) Reclassification

Certain prior year amounts have been reclassified to conform with the current year presentation.

3. REVERSE STOCK SPLIT

On October 27, 2008, the Company effected a thirty-for-one reverse stock split. The reverse stock split was previously approved by
the Companys Board of Directors and shareholders.

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



F-13



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



4. MARKETABLE INVESTMENT SECURITIES AND FAIR VALUE

The Companys marketable investment securities consist primarily of investments in certificates of deposit and municipal bonds which
are classified as available for sale. Marketable investment securities as of December 31, 2010 and 2009 are summarized as follows:

|                                       |  |                |            |  |                               |   |       |                                |  |   |            |   |  |   |            | 
|-------------------------------------- |  | -------------- | ---------- |  | ----------------------------- | - | ----- | ------------------------------ |  | - | ---------- | - |  | - | ---------- | 
|2010:                                  |  | Amortized Cost |            |  | Gross unrealizedholding gains |   |       | Gross unrealizedholding losses |  |   | Fair Value |  
|Certificates of deposit                |  | $              | 8,186,916  |  |                               | $ | 614   |                                |  | $ | (10,029    | ) |  | $ | 8,177,501  | 
|Municipal bonds                        |  |                | 4,732,544  |  |                               |   | 6,055 |                                |  |   | (230       | ) |  |   | 4,738,369  | 
|                                       |  |                |            |  |                               |   |       |                                |  |   |            |   |  |   |            | 
|Total marketable investment securities |  | $              | 12,919,460 |  |                               | $ | 5,825 |                                |  | $ | (10,259    | ) |  | $ | 12,915,870 | 
|                                       |  |                |            |  |                               |   |       |                                |  |   |            |   |  |   |            | 
|                                       |  |                |            | 
|2009:                                  |  | Amortized Cost |            |  | Gross unrealizedholding gains |   |       | Gross unrealizedholding losses |  |   | Fair Value |  
|Certificates of deposit                |  | $              | 499,417    |  |                               | $ |      |                                |  | $ |           |   |  | $ | 499,417    | 
|                                       |  |                |            |  |                               |   |       |                                |  |   |            |   |  |   |            | 
|Total marketable investment securities |  | $              | 499,417    |  |                               | $ |      |                                |  | $ |           |   |  | $ | 499,417    | 
|                                       |  |                |            |  |                               |   |       |                                |  |   |            |   |  |   |            | 

Marketable investment securities available for sale in an unrealized loss position as of December 31,
2010 and 2009 are as follows:



|                                       |  |                              |           |  |                              |   |         |            |  |   |                   |  |  |   |   | 
|-------------------------------------- |  | ---------------------------- | --------- |  | ---------------------------- | - | ------- | ---------- |  | - | ----------------- |  |  | - | - | 
|                                       |  | Held for less than 12 months |           |  | Held for more than 12 months |  
|As of December 31, 2010:               |  | Fair Value                   |           |  | Unrealized Losses            |   |         | Fair Value |  |   | Unrealized Losses | 
|Certificates of deposit                |  | $                            | 6,689,788 |  |                              | $ | (10,029 | )          |  | $ |                  |  |  | $ |  | 
|Municipal bonds                        |  |                              | 252,480   |  |                              |   | (230    | )          |  |   |                  |  |  |   |  | 
|                                       |  |                              |           |  |                              |   |         |            |  |   |                   |  |  |   |   | 
|Total marketable investment securities |  | $                            | 6,942,268 |  |                              | $ | (10,259 | )          |  | $ |                  |  |  | $ |  | 
|                                       |  |                              |           |  |                              |   |         |            |  |   |                   |  |  |   |   | 
|                                       |  |                             
|                                       |  | Held for less than 12 months |           |  | Held for more than 12 months |  
|As of December 31, 2009:               |  | Fair Value                   |           |  | Unrealized Losses            |   |         | Fair Value |  |   | Unrealized Losses | 
|Certificates of deposit                |  | $                            |          |  |                              | $ |        |            |  | $ |                  |  |  | $ |  | 
|                                       |  |                              |           |  |                              |   |         |            |  |   |                   |  |  |   |   | 
|Total marketable investment securities |  | $                            |          |  |                              | $ |        |            |  | $ |                  |  |  | $ |  | 
|                                       |  |                              |           |  |                              |   |         |            |  |   |                   |  |  |   |   | 

Maturities of marketable investment securities are as follows at December 31, 2010 and 2009:



|                                       |  |                    |            |  |            |   |            |                |  |   |            |  |  |   |         | 
|-------------------------------------- |  | ------------------ | ---------- |  | ---------- | - | ---------- | -------------- |  | - | ---------- |  |  | - | ------- | 
|                                       |  | As of December 31, |           
|                                       |  | 2010               |            |  | 2009       |  
|                                       |  | Amortized Cost     |            |  | Fair Value |   |            | Amortized Cost |  |   | Fair Value | 
|Due within one year                    |  | $                  | 11,279,736 |  |            | $ | 11,274,668 |                |  | $ | 499,417    |  |  | $ | 499,417 | 
|Due after one year through five years  |  |                    | 1,053,169  |  |            |   | 1,054,236  |                |  |   |           |  |  |   |        | 
|Due after five years through ten years |  |                    |           |  |            |   |           |                |  |   |           |  |  |   |        | 
|Due after ten years                    |  |                    | 586,555    |  |            |   | 586,966    |                |  |   |           |  |  |   |        | 
|                                       |  |                    |            |  |            |   |            |                |  |   |            |  |  |   |         | 
|Total marketable investment securities |  | $                  | 12,919,460 |  |            | $ | 12,915,870 |                |  | $ | 499,417    |  |  | $ | 499,417 | 
|                                       |  |                    |            |  |            |   |            |                |  |   |            |  |  |   |         | 



F-14



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



The following table presents the placement in the fair value hierarchy of assets and
liabilities that are measured at fair value on a recurring basis at December 31, 2010 and 2009:



|                                    |  |                                                   |           |  |                                  |   |            |                               |  |   |            | 
|----------------------------------- |  | ------------------------------------------------- | --------- |  | -------------------------------- | - | ---------- | ----------------------------- |  | - | ---------- | 
|                                    |  | Level 1                                           |           |  | Level 2                          |   |            | Level 3                       | 
|                                    |  | Quoted pricesin activemarkets foridentical assets |           |  | Significantotherobservableinputs |   |            | Significantunobservableinputs | 
|Assets at December 31, 2010:        |  |                                                   |           |  |                                  |   |            |                               |  |   |            | 
|Cash equivalents-money market funds |  | $                                                 | 8,636,898 |  |                                  | $ |           |                               |  | $ |           | 
|Certificates of deposits            |  |                                                   |          |  |                                  |   | 8,177,501  |                               |  |   |           | 
|State and municipal bonds           |  |                                                   |          |  |                                  |   | 4,738,369  |                               |  |   |           | 
|                                    |  |                                                   |           |  |                                  |   |            |                               |  |   |            | 
|Total marketable securities         |  | $                                                 | 8,636,898 |  |                                  | $ | 12,915,870 |                               |  | $ |           | 
|                                    |  |                                                   |           |  |                                  |   |            |                               |  |   |            | 
|Liabilities at December 31, 2010:   |  |                                                   |           |  |                                  |   |            |                               |  |   |            | 
|Warrant liability                   |  | $                                                 |          |  |                                  | $ |           |                               |  | $ | 13,569,664 | 
|                                    |  |                                                   |           |  |                                  |   |            |                               |  |   |            | 
|Assets at December 31, 2009:        |  |                                                   |           |  |                                  |   |            |                               |  |   |            | 
|Certificates of deposits            |  | $                                                 |          |  |                                  | $ | 499,417    |                               |  | $ |           | 
|                                    |  |                                                   |           |  |                                  |   |            |                               |  |   |            | 
|Total marketable securities         |  | $                                                 |          |  |                                  | $ | 499,417    |                               |  | $ |           | 
|                                    |  |                                                   |           |  |                                  |   |            |                               |  |   |            | 

There were no transfers between levels in 2010 and 2009.

(b) Interest rate risk

The Company is subject to minimal interest rate risk in relation to its investments in certificates of deposits and municipal bonds for the years ended during December 31, 2010 and 2009.

(c) Interest rate risk on debt

The Companys debt obligations consist of $800,000 remaining of a convertible note issued to LaunchPoint Technologies Inc. (LaunchPoint) which carries a fixed interest rate. The Company is not
exposed to interest rate market risk on the LaunchPoint note. The carrying value of the LaunchPoint note approximates its fair value at December 31, 2010.

(c) Foreign exchange risk

The Company has minimal assets and liabilities
in foreign currencies; primarily the Euro dollar. The Companys current foreign currency exposure is not significant due to the nature of the underlying assets and liabilities.



F-15



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



5. INVENTORY

As of December 31, 2010 and December 31, 2009, net inventory balances were as follows:



|                 |  |              |           |  |      |   |         | 
|---------------- |  | ------------ | --------- |  | ---- | - | ------- | 
|                 |  | December 31, |          
|                 |  | 2010         |           |  | 2009 |  
|Raw materials    |  | $            | 1,733,017 |  |      | $ | 131,614 | 
|Work in progress |  |              | 1,342,887 |  |      |   | 210,000 | 
|Finished goods   |  |              | 966,104   |  |      |   |        | 
|                 |  |              |           |  |      |   |         | 
|Total inventory  |  | $            | 4,042,008 |  |      | $ | 341,614 | 
|                 |  |              |           |  |      |   |         | 

Inventory on consignment at customer sites at December 31, 2010 and 2009 was $447,629 and $0,
respectively.

6. PROPERTY AND EQUIPMENT

Property and equipment consists of the following as of December 31, 2010 and 2009:



|                                   |  |      |           |  |                                      |   |          |               |  |   |         | 
|---------------------------------- |  | ---- | --------- |  | ------------------------------------ | - | -------- | ------------- |  | - | ------- | 
|                                   |  | 2010 |          
|                                   |  | Cost |           |  | AccumulatedDepreciation/Amortization |   |          | Net BookValue | 
|Furniture & fixtures               |  | $    | 77,421    |  |                                      | $ | (39,435  | )             |  | $ | 37,986  | 
|Computer equipment & software      |  |      | 256,327   |  |                                      |   | (103,570 | )             |  |   | 152,756 | 
|Manufacturing & research equipment |  |      | 914,780   |  |                                      |   | (356,856 | )             |  |   | 557,924 | 
|Leasehold improvements             |  |      | 353,065   |  |                                      |   | (164,935 | )             |  |   | 188,131 | 
|                                   |  |      |           |  |                                      |   |          |               |  |   |         | 
|                                   |  | $    | 1,601,593 |  |                                      | $ | (664,796 | )             |  | $ | 936,797 | 
|                                   |  |      |           |  |                                      |   |          |               |  |   |         | 



|                                   |  |      |           |  |                                      |   |            |               |  |   |         | 
|---------------------------------- |  | ---- | --------- |  | ------------------------------------ | - | ---------- | ------------- |  | - | ------- | 
|                                   |  | 2009 |          
|                                   |  | Cost |           |  | AccumulatedDepreciation/Amortization |   |            | Net BookValue | 
|Furniture & fixtures               |  | $    | 168,402   |  |                                      | $ | (117,552   | )             |  | $ | 50,850  | 
|Computer equipment & software      |  |      | 630,822   |  |                                      |   | (522,963   | )             |  |   | 107,859 | 
|Manufacturing & research equipment |  |      | 2,566,844 |  |                                      |   | (2,009,146 | )             |  |   | 557,698 | 
|Leasehold improvements             |  |      | 568,792   |  |                                      |   | (405,366   | )             |  |   | 163,426 | 
|                                   |  |      |           |  |                                      |   |            |               |  |   |         | 
|                                   |  | $    | 3,934,860 |  |                                      | $ | (3,055,027 | )             |  | $ | 879,833 | 
|                                   |  |      |           |  |                                      |   |            |               |  |   |         | 

Depreciation and amortization expense for the years ended December 31, 2010, 2009, and 2008 was
$347,493, $214,944 and $269,530, respectively. On April 1, 2010, the Company recorded one-time depreciation expense on assets with remaining net book value that had reached their respective useful life totaling $116,725. Additionally in 2010,
the Company removed the cost basis and corresponding accumulated depreciation/amortization of assets that were no longer in service.

For the years ended December 31, 2010, 2009 and 2008, the Company wrote-off certain property and equipment and recorded a loss of $7,315, $4,270 and $41,172, respectively.



F-16



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



7. CURRENT LIABILITIES

Accounts Payable and Accrued Liabilities

Accounts payable and
accrued liabilities consist of the following:



|                                               |  |              |           |  |      |   |           | 
|---------------------------------------------- |  | ------------ | --------- |  | ---- | - | --------- | 
|                                               |  | December 31, |          
|                                               |  | 2010         |           |  | 2009 |  
|Accounts payable                               |  | $            | 676,890   |  |      | $ | 368,219   | 
|Accrued liabilities                            |  |              | 912,431   |  |      |   | 1,109,979 | 
|Accrued warranty                               |  |              | 40,809    |  |      |   | 44,000    | 
|                                               |  |              |           |  |      |   |           | 
|Total accounts payable and accrued liabilities |  | $            | 1,630,130 |  |      | $ | 1,522,199 | 
|                                               |  |              |           |  |      |   |           | 

Accrued Compensation

Accrued compensation includes accruals for year-end employee wages, severance payments, vacation pay, and performance bonuses. The components of accrued compensation, inclusive of payroll taxes, are as
follows:



|                           |  |              |         |  |      |   |         | 
|-------------------------- |  | ------------ | ------- |  | ---- | - | ------- | 
|                           |  | December 31, |        
|                           |  | 2010         |         |  | 2009 |  
|Wages                      |  | $            | 21,731  |  |      | $ | 50,090  | 
|Severance                  |  |              | 61,505  |  |      |   | 77,524  | 
|Vacation                   |  |              | 396,027 |  |      |   | 326,526 | 
|Bonuses                    |  |              | 333,149 |  |      |   | 191,166 | 
|                           |  |              |         |  |      |   |         | 
|Total accrued compensation |  | $            | 812,412 |  |      | $ | 645,306 | 
|                           |  |              |         |  |      |   |         | 

Annually, the Compensation Committee of the Board of Directors, in conjunction with the entire Board of
Directors, approves the corporate goals and objectives for the year with corresponding weighting and payout. Subsequent to each year end, typically in February of the year following, the Compensation Committee reviews accomplishment of corporate
goals and recommends bonus payout, including executive officers payouts. The Board of Directors reviews the Compensation Committee recommendation, modifies as appropriate, and approves the performance bonus payouts. For the year ended
December 31, 2010 and 2009, accrued performance bonuses were $333,149 and $191,166, respectively, and were payable in cash.

8. EQUITY
AND DEBT TRANSACTIONS

Abiomed Inc.

On December 11, 2007, the Company entered into a note purchase agreement with Abiomed Inc. (Abiomed). Pursuant to the purchase agreement, Company issued to Abiomed a secured convertible
promissory note (Abiomed 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. At the Companys
Annual and Special Meeting of shareholders held on April 29, 2008, the Corporations shareholders approved the entire Abiomed transaction.

The closing prices of the Companys common shares on December 11, 2007 and January 3, 2008 were lower than the Abiomeds Notes conversion price, thereby creating a beneficial
conversion feature in the Abiomed Note. The Company calculated the beneficial conversion feature on the first tranche of funding of



F-17



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



$1.0 million and recognized a discount of approximately $500,000, computed as the difference between the closing price and exercise price of the warrants. This was recorded as interest
expense during the year ended December 31, 2007. Upon the receipt of the second tranche of funding of $4.0 million on January 3, 2008, the Company recorded an additional $1.4 million in interest expense associated with the
beneficial conversion feature of the $4.0 million note.

On December 11, 2007, pursuant to the clinical and
marketing support services agreement with Abiomed, the Company issued to Abiomed a 5-year warrant to purchase up to up to 113,333 common shares of the Company, exercisable at $0.30 per share, of which 22,667 were immediately vested and 90,667 vested
in January 2008. The Company recorded a non-cash clinical and marketing support expense of $6.5 million and $1.8 million for the year ended December 31, 2008 and 2007, respectively, related to the value of such vested warrant. The
Company used the Black-Scholes method to compute the fair value of the warrant issued as consideration for the clinical and marketing support services agreement.

Recapitalization

On July 31, 2008, the Company completed a
$30.0 million private placement transaction and recapitalization under the terms of the Recapitalization Agreement (Recapitalization Agreement) dated June 20, 2008 and amended on July 31, 2008, among the Company, Abiomed, Venrock
Partners V, L.P., Venrock Associates V, L.P. and Venrock Entrepreneurs Fund V, L.P. (collectively Venrock), Special Situations Fund III QP, L.P., Special Situations Cayman Fund, L.P., Special Situations Private Equity
Fund, L.P., Special Situations Life Sciences Fund, L.P. and Austin W. Marxe (collectively SSF) and New Leaf Ventures II, L.P (New Leaf). Simultaneously with the closing, Abiomed entered into a Termination and Release Letter Agreement dated
July 31, 2008 with the Company. Under the terms of the Termination and Release Letter Agreement, the Company converted the full amount of principal and interest owed on the Abiomed Note into 2,866,666 common shares of the Company (the
Conversion). Additionally, Abiomed released the security interest in all of the assets of the Company that secured the Abiomed Note, terminated the warrants Abiomed held to purchase 113,333 common shares of the Company, forgave other amounts owed by
the Company and terminated all the previously existing agreements, arrangements and understandings with the Company.

The
induced conversion of the Abiomed Note and simultaneous termination of previously existing agreements, arrangements and understanding between the Company and Abiomed, and the subsequent issuance of 2,866,666 common shares of the Company, approved by
the Companys shareholders during its Special Meeting of Shareholders held on October 9, 2008, resulted in a non-recurring expense of approximately $3.9 million against additional paid-in capital.

On July 31, 2008, the Company completed the Recapitalization Agreement. Under the terms of the Recapitalization Agreement, the
Company issued 10.0 million common shares for an aggregate purchase price of $30.0 million (Issuance), of which Venrock invested $11.0 million, SSF invested $9.0 million and New Leaf invested $10.0 million. The purchase
price delivered by Venrock and SSF at the closing was offset by repayment of the principal and interest owed on the bridge loan facility of $1.4 million (Bridge Facility) that Venrock and SSF had previously provided to the Company.
Simultaneously with the closing of the Issuance, Abiomed entered into a Termination and Release Letter Agreement dated July 31, 2008 with the Company. In connection with the Issuance, the parties to the Recapitalization Agreement entered into a
Registration Rights Agreement dated July 31, 2008, as amended October 31, 2008, to register the common shares issued in connection with the Issuance and the Conversion. The Company incurred $529,000 of legal fees related to the private
placement and $80,000 of legal, accounting and Form S-3 filing fees in registering the common shares.



F-18



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



The Company paid aggregate cash commission of $750,000 and issued warrants to purchase
an aggregate of 83,333 common shares to its advisors, Pacific Growth Equities, LLC and Stifel, Nicolaus and Company. The warrants, with an exercise price of $3.30 per share, were subject to shareholder approval and were approved by the
Companys shareholders during the Special Meeting of Shareholders held on October 9, 2008. The fair value of the warrants was calculated using the Black-Scholes option valuation model. Accordingly, the amount of $283,000 was attributed to
the issuance of warrants as advisor fees for services related to the financing and recapitalization. The issuance of the warrants had no impact on total equity and did not impact operating results for the year ended December 31, 2008.

In accordance with terms pursuant to the Recapitalization Agreement, the following terms were satisfied and, where required,
carried by majority votes by the Companys shareholders during the Special Meeting of Shareholders held on October 9, 2008:



| | (i) | The approval of a reverse stock split of its common shares, to be determined by the Board of Directors, within the range of 20 to-1 to 30-to-1;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | The election as Directors of the Company of the nominees of each of Abiomed, Venrock, SSF and New Leaf, to hold office until the next annual meeting or until their
successors are elected or appointed; and
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | The termination of Abiomeds current distribution rights with the Company and replacement with reduced distribution rights, under which Company is required to
negotiate in good faith with Abiomed regarding distribution arrangements for certain of the Companys products before engaging a third-party distributor; and
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | The establishment of an equity incentive program for the benefit of the Companys independent directors, officers, employees and consultants covering, together
with the Companys existing plans, a maximum of 1,466,666 common shares of the Company.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

LaunchPoint Note

On December 2, 2009 (Issuance Date) the Company issued to LaunchPoint a note (LaunchPoint Note) in
the principal amount of $1.0 million, with interest at 4.5% per annum, maturing five years from the Issuance Date. Twenty percent of the principal amount of the LaunchPoint Note, together with accrued interest, will be converted into
restricted shares of the Companys common stock, on each anniversary of the Issuance Date for five years. LaunchPoints right of resale for each annual issuance of restricted shares will be limited to no more than one-twelfth of such
shares in each of the next 12 months with the restrictions lifted after 12 months. The stock price used for determining the conversion rate will be the publicly traded weighted average closing price of the Companys common stock for
the three month period preceding the relevant anniversary date. The Company will have the right to repurchase, at any time prior to November 9, 2011, any outstanding balance of the LaunchPoint Note at a 15% discount. The effective interest rate
on the LaunchPoint Note is 20%. On December 2, 2010, the first twenty percent of the note plus accrued interest ($245,000) became due and the Company issued 101,282 restricted shares of its common stock to LaunchPoint. As of December 31,
2010, the current and long term portions of the note are $124,386 and $462,616, respectively, net of a total discount of $213,000.

Reincorporation

Effective January 1, 2010, the Company changed
its jurisdiction of incorporation from the federal jurisdiction of Canada to the state of Delaware in the United States through a planned arrangement. The certificate of incorporation in Delaware authorizes the issuance of a total of
51.0 million shares, consisting of



F-19



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



50.0 million shares of common stock and 1.0 million shares of preferred stock. Each share of common stock has a par value of $0.001 and each share of preferred stock has a par value of
$0.01. As a result of this change in jurisdiction, the Company reclassified approximately $325.3 million out of common stock and into additional-paid-in capital.

Prior to the reincorporation of the Company from Canada to Delaware, the Company had recorded $6.3 million cumulative translation adjustment related to the conversion of foreign subsidiaries into the
reporting currency. As a result of the reincorporation from Canada to Delaware and subsequent liquidation of the Companys entity in Canada, the Company recorded a $6.3 million non-cash loss on the liquidation of foreign subsidiary during
the year ended December 31, 2010 and wrote off the balance of cumulative translation adjustment.

Private Placements

On January 26, 2010, the Company completed a private placement of common stock and warrants to purchase common
stock. Gross proceeds from the offering were approximately $7.3 million. The Company issued an aggregate of 1,418,726 newly issued shares of common stock at an issue price of $5.15 per share. Additionally, the Company issued warrants to
purchase up to 2,837,452 additional shares of common stock at an exercise price of $4.90 per share. The placement agent for the transaction received a placement fee of approximately $60,000 and the Company incurred other related professional fees of
approximately $243,000. In connection with the private placement, the Company filed a registration statement under the Securities Act on Form S-3 covering the registration of the common stock and warrants in March 2010 which was declared
effective in April 2010.

On October 19, 2010, the Company completed a private placement of common stock and warrants to
purchase common stock (October Offering). Gross proceeds from the offering were approximately $25.3 million. The Company issued an aggregate of 11,850,118 newly-issued shares of common stock at an issue price of $2.135 per share. Additionally
the Company issued warrants to purchase up to 11,850,118 additional shares of common stock at an exercise price of $2.31 per share. The placement agents for the transaction received a placement fee of approximately $1.0 million. In connection with
the private placement, the Company filed a registration statement under the Securities Act on Form S-3 covering the registration of the common stock and warrants in November 2010 which was declared effective in December 2010.

Common Stock Warrant Liability

The Company accounts for its common stock warrants under ASC 480, Distinguishing Liabilities from Equity, which requires any financial instrument, other than an outstanding share, that, at
inception, embodies an obligation to repurchase the issuers equity shares, or is indexed to such and obligation, and it requires or may require the issuer to settle the obligation by transferring assets, would qualify for classification as a
liability. The guidance required the Companys outstanding warrants from the October Offering to be classified as liabilities and to be fair valued at each reporting period, with the changes in fair value recognized as gain (loss) on fair value
of warranty liability in the Companys consolidated statements of operations. Specifically, the warrants issued in the October Offering allow the warrant holder the option to elect to receive an amount of cash equal to the value of the warrants
as determined in accordance with the Black-Scholes option pricing model with certain defined assumptions upon a change of control. Upon exercise or expiration of the warrant, the fair value of the warrant at that time will be reclassified to equity
from a liability.

At December 31, 2010, the Company had 11,850,115 warrants outstanding to purchase an equal number of
common stock from the October Offering. The fair value of these warrants on December 31, 2010 was



F-20



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



determined using the Black-Scholes option pricing model as defined in the October Offering with the following Level 3 inputs:



|                        |  |                  |      |  
|----------------------- |  | ---------------- | ---- | -
|                        |  | December 31,2010 |     
|                       
|Risk-free interest rate |  |                  | 2.19 | %
|Expected life in years  |  |                  | 4.8  |  
|Dividend yield          |  |                  |     |  
|Volatility              |  |                  | 60   | %
|Stock price             |  | $                | 2.25 |  

On October 13,
2010, the Company determined the fair value of the warrants to be $11.7 million and classified that amount of the net proceeds from the October Offering to warrant liability. During the year ended December 31, 2010, a change in fair value of
$1.9 million related to the October Offering warrants was recorded as loss on change in fair value of warrants in the Companys consolidated statement of operations. At December 31, 2010 the entire warranty liability of approximately $13.6
million is treated as a long term liability as the Company believes it is unlikely a change of control will occur within the next year.

The following table is a reconciliation of the warrant liability measured at fair value using level 3 inputs:



|                                                                |  |                   |            | 
|--------------------------------------------------------------- |  | ----------------- | ---------- | 
|                                                                |  | Warrant Liability |           
|Balance at December 31, 2009                                    |  | $                 |           | 
|Initial Fair value of common stock warrants in October offering |  |                   | 11,672,896 | 
|Change in fair value of common stock warrants during 2010       |  |                   | 1,896,767  | 
|                                                                |  |                   |            | 
|Balance at December 31, 2010                                    |  | $                 | 13,569,663 | 
|                                                                |  |                   |            | 

9. SHAREHOLDERS EQUITY

Common shares

Authorized common shares of the Company consist of
50.0 million shares with a par value of $0.001.

Preferred Shares

Authorized preferred shares of the Company consist of 1.0 million shares with a par value of $0.01. The Company had no outstanding
preferred shares at December 31, 2010 and 2009.

Employee Stock Option Plan

The Company has an employee stock option plan, the 2006 Equity Incentive Plan (Incentive Plan). The exercise price for all equity awards
issued under the Incentive Plan is 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 stock options generally vest over a
four-year or three-year period, first year cliff vesting with monthly vesting thereafter on the four-year awards and annually in equal portions on the three-year awards, and have a ten year life.

The Incentive Plan allows for 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. An aggregate



F-21



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



of 2,166,667 shares are authorized for future issuance under the Incentive Plan. As of December 31, 2010, there are 321,539 shares reserved for future grants under the Incentive Plan.

Stock-based Compensation

The Company accounts for stock based compensation in accordance with ASC 718, Stock Based Compensation, which requires the recognition of the fair value of stock compensation as an expense in the
calculation of net income. ASC 718 requires that stock-based compensation expense be based on awards that are ultimately expected to vest. Stock-based compensation for the years ended December 31, 2010, 2009 and 2008 has been reduced for
estimated forfeitures. When estimating forfeitures, voluntary termination behaviors, as well as trends of actual option forfeitures are considered. To the extent actual forfeitures differ from the Companys current estimates, cumulative
adjustments to stock- based compensation expense are recorded.

Except for transactions with employees and directors that are
within the scope of ASC 718, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable.

The Company 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, 2010, 2009 and 2008 was as follows:



|                                    |  |              |           |  |      |   |           |      |  |   |         | 
|----------------------------------- |  | ------------ | --------- |  | ---- | - | --------- | ---- |  | - | ------- | 
|                                    |  | December 31, |          
|                                    |  | 2010         |           |  | 2009 |   |           | 2008 | 
|Selling, general and administrative |  | $            | 688,193   |  |      | $ | 643,006   |      |  | $ | 218,928 | 
|Research and development            |  |              | 769,837   |  |      |   | 423,000   |      |  |   | 103,243 | 
|                                    |  |              |           |  |      |   |           |      |  |   |         | 
|Total                               |  | $            | 1,458,031 |  |      | $ | 1,066,006 |      |  | $ | 322,171 | 
|                                    |  |              |           |  |      |   |           |      |  |   |         | 

As of December 31, 2010, approximately $3.0 million of total unrecognized compensation expense related
to stock options is expected to be recognized over a period of approximately 16 quarters.

The aggregate intrinsic value is
calculated as the difference between the exercise price of all outstanding options and the quoted price of the Companys common shares that were in the money at December 31, 2010. At December 31, 2010, the aggregate intrinsic value of
all outstanding options was $1,780 with a weighted average remaining contractual term of approximately 8.5 years. Of the 1,845,128 outstanding options, 618,668 options were vested and exercisable, with a weighted average remaining contractual
life of 8.2 years and 1,226,460 options were unvested, with a weighted average remaining contractual life of 8.7 years. Based upon the historical forfeiture rate, unvested options expected to vest as of December 31, 2010 are
1,165,137. No options were exercised under the Companys Incentive Plan during the years ended December 31, 2010, 2009 and 2008.



F-22



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



A summary of the status and changes the Companys non-vested options calculation
for the years ended December 31, 2010, 2009 and 2008 is presented below:



|                               |  |        |           |   |                                       |   |        | 
|------------------------------ |  | ------ | --------- | - | ------------------------------------- | - | ------ | 
|                               |  | Shares |           |   | Weighted AverageGrant-Date Fair Value |  
|Nonvested at January 1, 2008   |  |        | 12,373    |   |                                       | $ | 90.00  | 
|Granted                        |  |        | 437       |   |                                       |   | 42.58  | 
|Vested                         |  |        | (4,159    | ) |                                       |   | 94.44  | 
|Forfeited                      |  |        | (1,215    | ) |                                       |   | 74.08  | 
|                               |  |        |           |   |                                       |   |        | 
|Nonvested at December 31, 2008 |  |        | 7,436     |   |                                       |   | 217.19 | 
|Granted                        |  |        | 1,618,098 |   |                                       |   | 2.77   | 
|Vested                         |  |        | (26,207   | ) |                                       |   | 15.83  | 
|Forfeited                      |  |        | (130,379  | ) |                                       |   | 2.76   | 
|                               |  |        |           |   |                                       |   |        | 
|Nonvested at December 31, 2009 |  |        | 1,468,948 |   |                                       |   | 3.62   | 
|Granted                        |  |        | 440,273   |   |                                       |   | 3.37   | 
|Vested                         |  |        | (608,744  | ) |                                       |   | 2.98   | 
|Forfeited                      |  |        | (74,017   | ) |                                       |   | 3.09   | 
|                               |  |        |           |   |                                       |   |        | 
|Nonvested at December 31, 2010 |  |        | 1,226,460 |   |                                       | $ | 3.88   | 
|                               |  |        |           |   |                                       |   |        | 

The following table summarized stock options and warrant activity for the years ended December 31,
2010, 2009 and 2008:



|                  |  |           |           |   |                               |   |          |         |  |  |                               |   |  |          |          |  |                               |  |            |       |  |   |          |  |  |  |            |  
|----------------- |  | --------- | --------- | - | ----------------------------- | - | -------- | ------- |  |  | ----------------------------- | - |  | -------- | -------- |  | ----------------------------- |  | ---------- | ----- |  | - | -------- |  |  |  | ---------- | -
|                  |  | Employees |           |   | Non-Employees                 |   |          |         |  |  |                               |   |  |          |         
|                  |  | Options   |           |   | Weightedaverageexercise price |   |          | Options |  |  | Weightedaverageexercise price |   |  | Warrants |          |  | Weightedaverageexercise price |  |            | Total | 
|Outstanding at    |  |           |           |   |                               |   |          |         |  |  |                               |   |  |          |          |  |                               |  |            |       |  |   |          |  |  |  |            |  
|January 1, 2008   |  |           | 31,452    |   |                               | $ | 351.30   |         |  |  | 3,237                         |   |  | $        | 317.10   |  |                               |  | 63,662     |       |  | $ | 145.20   |  |  |  | 98,351     |  
|Granted           |  |           | 437       |   |                               |   | 47.84    |         |  |  |                              |   |  |          |         |  |                               |  | 174,000    |       |  |   | 3.30     |  |  |  | 174,437    |  
|Expired           |  |           | (871      | ) |                               |   | 1,426.55 |         |  |  | (268                          | ) |  |          | 3,072.58 |  |                               |  | (39,934    | )     |  |   | 2,421.44 |  |  |  | (41,073    | )
|Cancelled         |  |           |          |   |                               |   |         |         |  |  |                              |   |  |          |         |  |                               |  | (113,333   | )     |  |   | 0.30     |  |  |  | (113,333   | )
|Forfeited         |  |           | (1,215    | ) |                               |   | 74.08    |         |  |  |                              |   |  |          |         |  |                               |  |           |       |  |   |         |  |  |  | (1,215     | )
|                  |  |           |           |   |                               |   |          |         |  |  |                               |   |  |          |          |  |                               |  |            |       |  |   |          |  |  |  |            |  
|Outstanding at    |  |           |           |   |                               |   |          |         |  |  |                               |   |  |          |          |  |                               |  |            |       |  |   |          |  |  |  |            |  
|December 31, 2008 |  |           | 29,803    |   |                               |   | 324.80   |         |  |  | 2,969                         |   |  |          | 298.61   |  |                               |  | 84,395     |       |  |   | 7.32     |  |  |  | 117,167    |  
|Granted           |  |           | 1,493,098 |   |                               |   | 2.77     |         |  |  | 125,000                       |   |  |          | 4.91     |  |                               |  |           |       |  |   |         |  |  |  | 1,618,098  |  
|Expired           |  |           | (7,834    | ) |                               |   | 493.26   |         |  |  | (168                          | ) |  |          | 674.37   |  |                               |  | (646       | )     |  |   | 465.00   |  |  |  | (8,648     | )
|Cancelled         |  |           |          |   |                               |   |         |         |  |  |                              |   |  |          |         |  |                               |  | (58,333    | )     |  |   | 3.30     |  |  |  | (58,333    | )
|Forfeited         |  |           | (130,379  | ) |                               |   | 3.00     |         |  |  |                              |   |  |          |         |  |                               |  |           |       |  |   |         |  |  |  | (130,379   | )
|                  |  |           |           |   |                               |   |          |         |  |  |                               |   |  |          |          |  |                               |  |            |       |  |   |          |  |  |  |            |  
|Outstanding at    |  |           |           |   |                               |   |          |         |  |  |                               |   |  |          |          |  |                               |  |            |       |  |   |          |  |  |  |            |  
|December 31, 2009 |  |           | 1,384,687 |   |                               |   | 6.91     |         |  |  | 127,801                       |   |  |          | 10.85    |  |                               |  | 25,416     |       |  |   | 4.91     |  |  |  | 1,537,905  |  
|Granted           |  |           | 440,273   |   |                               |   | 3.57     |         |  |  |                              |   |  |          |         |  |                               |  | 14,687,570 |       |  |   | 2.81     |  |  |  | 15,127,843 |  
|Expired           |  |           | (33,616   | ) |                               |   | 22.50    |         |  |  |                              |   |  |          |         |  |                               |  |           |       |  |   |         |  |  |  | (33,616    | )
|Forfeited         |  |           | (74,017   | ) |                               |   | 3.26     |         |  |  |                              |   |  |          |         |  |                               |  |           |       |  |   |         |  |  |  | (74,017    | )
|                  |  |           |           |   |                               |   |          |         |  |  |                               |   |  |          |          |  |                               |  |            |       |  |   |          |  |  |  |            |  
|Outstanding at    |  |           |           |   |                               |   |          |         |  |  |                               |   |  |          |          |  |                               |  |            |       |  |   |          |  |  |  |            |  
|December 31, 2010 |  |           | 1,717,327 |   |                               | $ | 5.92     |         |  |  | 127,801                       |   |  | $        | 10.85    |  |                               |  | 14,712,986 |       |  | $ | 2.81     |  |  |  | 16,558,115 |  
|                  |  |           |           |   |                               |   |          |         |  |  |                               |   |  |          |          |  |                               |  |            |       |  |   |          |  |  |  |            |  



F-23



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Valuation Assumptions

The Company calculates the fair value of each equity award on the date of grant using the Black-Scholes option pricing model. During the years ended December 31, 2010, 2009 and 2008, 440,273,
1,618,098 and 437 stock options were granted, respectively. The weighted average fair value of the options granted during the years ended December 31, 2010, 2009 and 2008 was $3.37, $2.77 and $42.58, respectively. For the years ended
December 31, 2010, 2009 and 2008, the following weighted average assumptions were utilized:



|                                |  |      |      |   |      |  |     |      |  |  |     |  
|------------------------------- |  | ---- | ---- | - | ---- |  | --- | ---- |  |  | --- | -
|                                |  | 2009 |      |   | 2009 |  |     | 2008 | 
|Expected option life (in years) |  |      | 6.08 |   |      |  | 5.5 |      |  |  | 5.5 |  
|Expected volatility             |  |      | 154  | % |      |  | 156 | %    |  |  | 133 | %
|Average risk free interest rate |  |      | 2.5  | % |      |  | 2.5 | %    |  |  | 3.7 | %
|Dividend yield                  |  |      |     |   |      |  |    |      |  |  |    |  

The dividend yield of
zero is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. Expected volatility is based on the historical volatility of the Companys common shares over the period commensurate
with the expected life of the options. Expected life in years is based on the simplified method as permitted by ASC Topic 718. The Company believes that all stock options issued under its stock option plans meet the criteria of
plain vanilla stock options. The Company uses a term of 6.08 years for all its stock options. The risk free interest rate is based on average rates for five and seven-year treasury notes as published by the Federal Reserve.

Stock Option and Warrant Activity

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



|                                                                     |  |           |                  |  |               |  |                   |          |  |  |                  | 
|-------------------------------------------------------------------- |  | --------- | ---------------- |  | ------------- |  | ----------------- | -------- |  |  | ---------------- | 
|                                                                     |  | Options   |                  |  |               | 
|                                                                     |  | Employees |                  |  | Non-Employees |  |                   | Warrants | 
|Weighted average exercise price of exercisable options and warrants: |  |           |                  |  |               |  |                   |          |  |  |                  | 
|December 31, 2010                                                    |  |           | $      11.39     |  |               |  | $  18.48          |          |  |  | $          2.84  | 
|December 31, 2009                                                    |  |           | $    298.75      |  |               |  | $  36.36          |          |  |  | $        19.97   | 
|December 31, 2008                                                    |  |           | $    387.95      |  |               |  | $335.72           |          |  |  | $        11.56   | 
|                                                                     |  |           |                 
|Number of exercisable options and warrants:                          |  |           |                  |  |               |  |                   |          |  |  |                  | 
|December 31, 2010                                                    |  |           | 560,751          |  |               |  | 57,917            |          |  |  | 14,712,987       | 
|December 31, 2009                                                    |  |           | 18,306           |  |               |  | 25,234            |          |  |  | 25,417           | 
|December 31, 2008                                                    |  |           | 22,671           |  |               |  | 2,629             |          |  |  | 84,396           | 
|                                                                     |  |           |                 
|Range of exercise prices of all exercisable options and warrants at: |  |           |                  |  |               |  |                   |          |  |  |                  | 
|December 31, 2010                                                    |  |           |                  |  |               |  |                   |          |  |  |                  | 
|From                                                                 |  |           | $       2.20     |  |               |  | $    5.00         |          |  |  | $         2.31   | 
|To                                                                   |  |           | $2,835.00        |  |               |  | $390.00           |          |  |  | $  1,020.00      | 
|                                                                     |  |           |                 
|Range of expiry dates of all exercisable options and warrants at:    |  |           |                  |  |               |  |                   |          |  |  |                  | 
|December 31, 2010                                                    |  |           |                  |  |               |  |                   |          |  |  |                  | 
|From                                                                 |  |           | March 5, 2011    |  |               |  | July 28, 2014     |          |  |  | July 31, 2013    | 
|To                                                                   |  |           | February 3, 2020 |  |               |  | December 29, 2019 |          |  |  | October 19, 2015 | 



F-24



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



The following table summarizes information about the outstanding options and warrants as
at December 31, 2010.



|                        |  |                                       |            |  |                                |   |        |                                         |  |  |     | 
|----------------------- |  | ------------------------------------- | ---------- |  | ------------------------------ | - | ------ | --------------------------------------- |  |  | --- | 
|Range of exercise price |  | Number of outstandingoptions/warrants |            |  | Weighted averageexercise price |   |        | Weighted average remaininglife in years | 
|$01.00 to $2.75         |  |                                       | 13,225,864 |  |                                | $ | 2.33   |                                         |  |  | 5.2 | 
|$2.76 to $6.10          |  |                                       | 3,311,054  |  |                                | $ | 4.89   |                                         |  |  | 3.1 | 
|$6.11 to $2,835         |  |                                       | 21,197     |  |                                | $ | 289.79 |                                         |  |  | 4.5 | 
|                        |  |                                       |            |  |                                |   |        |                                         |  |  |     | 
|                        |  |                                       | 16,558,115 |  |                                | $ | 3.21   |                                         |  |  | 4.8 | 
|                        |  |                                       |            |  |                                |   |        |                                         |  |  |     | 

10. RESTRUCTURING

On August 21, 2008, the Company announced a phased consolidation into its location in Salt Lake City, Utah (2008 Restructuring Plan). Included in the consolidation plan was the elimination of certain
positions in its Oakland, California facility, the relocation of certain positions to Salt Lake City, Utah, the appointment of a President and Chief Executive Officer (CEO) and Chief Financial Officer based in its Salt Lake facility and the
transition of the former CEO to Chief Technology Officer. Accrued restructuring costs of $0 and $298,000 as of December 31, 2010 and December 31, 2009, respectively, are included in accounts payable and accrued liabilities.



|                         |  |                            |         |  |                                |   |         |                 |  |   |                            |   |  |   |         | 
|------------------------ |  | -------------------------- | ------- |  | ------------------------------ | - | ------- | --------------- |  | - | -------------------------- | - |  | - | ------- | 
|                         |  | Balance atDecember 31,2008 |         |  | Chargedto expensein fiscal2009 |   |         | Paid or settled |  |   | Balance atDecember 31,2009 |  
|2008 Restructuring Plan  |  |                            |         |  |                                |   |         |                 |  |   |                            |   |  |   |         | 
|Severance                |  | $                          | 65,000  |  |                                | $ | 358,000 |                 |  | $ | (345,000                   | ) |  | $ | 78,000  | 
|Facility related expense |  |                            |        |  |                                |   | 220,000 |                 |  |   |                           |   |  |   | 220,000 | 
|                         |  |                            |         |  |                                |   |         |                 |  |   |                            |   |  |   |         | 
|Total                    |  | $                          | 65,000  |  |                                | $ | 578,000 |                 |  | $ | (345,000                   | ) |  | $ | 298,000 | 
|                         |  |                            |         |  |                                |   |         |                 |  |   |                            |   |  |   |         | 
|                         |  |                            |         | 
|                         |  | Balance atDecember 31,2009 |         |  | Chargedto expensein fiscal2010 |   |         | Paid or settled |  |   | Balance atDecember 31,2010 |  
|2008 Restructuring Plan  |  |                            |         |  |                                |   |         |                 |  |   |                            |   |  |   |         | 
|Severance                |  | $                          | 78,000  |  |                                | $ |        |                 |  | $ | (78,000                    | ) |  | $ |        | 
|Facility related expense |  |                            | 220,000 |  |                                |   |        |                 |  |   | (220,000                   | ) |  |   |        | 
|                         |  |                            |         |  |                                |   |         |                 |  |   |                            |   |  |   |         | 
|Total                    |  | $                          | 298,000 |  |                                | $ |        |                 |  | $ | (298,000                   | ) |  | $ |        | 
|                         |  |                            |         |  |                                |   |         |                 |  |   |                            |   |  |   |         | 

As a result of this restructuring and phased consolidation plan, the Company has recorded cumulative
restructuring charges of $709,097, consisting of $0, $577,666, and $131,431 for the years ended December 31, 2010 2009, and 2008, primarily associated with workforce reduction, severance and retention payments and relocation and facility lease
costs. There has been no material change in the restructuring liability as initially measured.

11. INCOME TAXES

The Company operates in several tax jurisdictions. Its income is subject to varying rates of tax and losses incurred in one jurisdiction
that cannot be used to offset income taxes payable in another. The Company had both a financial accounting and tax basis loss for the year ended December 31, 2010, 2009 and 2008 and has no provision for income taxes for the year.



F-25



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



A reconciliation between the companys federal and states income tax rate with the
Companys effective tax rate is as follows:



|                                       |  |              |             |   |      |   |             |      |  |   |             |  
|-------------------------------------- |  | ------------ | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                       |  | December 31, |            
|                                       |  | 2010         |             |   | 2009 |   |             | 2008 | 
|Canadian loss                          |  | $            |            |   |      | $ | (1,030,482  | )    |  | $ | (12,432,617 | )
|United States loss                    |  |              | (20,472,264 | ) |      |   | (15,665,740 | )    |  |   | (12,172,022 | )
|European loss                          |  |              | (44,593     | ) |      |   | (14,279     | )    |  |   | (712,143    | )
|                                       |  |              |             |   |      |   |             |      |  |   |             |  
|Loss before income taxes               |  |              | (20,516,857 | ) |      |   | (16,710,501 | )    |  |   | (25,316,782 | )
|Expected statutory rate                |  |              | 37.45       | % |      |   | 32.12       | %    |  |   | 32.12       | %
|Expected recovery of income tax        |  |              | (7,683,563  | ) |      |   | (5,367,413  | )    |  |   | (8,131,750  | )
|Effect of foreign tax rate differences |  |              | 16,700      |   |      |   | (294,498    | )    |  |   | (318,206    | )
|Permanent differences                  |  |              | 3,608,021   |   |      |   | 14,041      |      |  |   | (4,977,732  | )
|Change in valuation allowance          |  |              | 7,645,875   |   |      |   | 6,695,664   |      |  |   | 6,071,814   |  
|Effect of changes in carry forwards    |  |              | (3,227,560  | ) |      |   | (698,165    | )    |  |   | (765,134    | )
|Effect of exchange rate differences    |  |              | (359,473    | ) |      |   | (349,629    | )    |  |   | 8,121,008   |  
|                                       |  |              |             |   |      |   |             |      |  |   |             |  
|Recovery of income taxes               |  | $            |            |   |      | $ |            |      |  | $ |            |  
|                                       |  |              |             |   |      |   |             |      |  |   |             |  

The combined federal and states statutory rate was 37.45% for 2010. In 2009 and 2008 the Companys
income and loss was also subject to a blended US and Canadian statutory rate of 32.12%. The permanent difference for the year ended December 31, 2010 relates primarily to a $6.3 million loss on liquidation of foreign entity when the Company
changed its jurisdiction of incorporation from the federal jurisdiction of Canada to the state of Delaware, terminating a majority of its operations in Canada and to a $1.9 million loss resulting from a change in fair value related to the October
Offering warrants.

The effect of changes in carryforwards line item includes a writedown of Canadian tax attributes for which
benefit will not be recognized as no further Canadian tax returns will be filed. There were no significant permanent differences for the year ended December 31, 2009. For the year ended December 31, 2008, the permanent difference relates
primarily to imputed interest expense on the preferred shares issued to Abiomed and warrant expense on warrants issued to Abiomed.

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



|                                  |  |              |             |   |      |   |             |      |  |   |             |  
|--------------------------------- |  | ------------ | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                  |  | December 31, |            
|                                  |  | 2010         |             |   | 2009 |   |             | 2008 | 
|Deferred tax assets:              |  |              |             |   |      |   |             |      |  |   |             |  
|Net operating losses              |  | $            | 59,172,631  |   |      | $ | 50,026,557  |      |  | $ | 44,533,000  |  
|Tax credits                       |  |              | 2,277,884   |   |      |   | 1,933,686   |      |  |   | 1,530,000   |  
|Share issue costs                 |  |              |            |   |      |   |            |      |  |   | 1,227,000   |  
|Accrual and reserves              |  |              | 992,586     |   |      |   | 1,260,915   |      |  |   | 396,000     |  
|Asset basis differences           |  |              | 4,006,438   |   |      |   | 5,582,506   |      |  |   | 4,422,000   |  
|                                  |  |              |             |   |      |   |             |      |  |   |             |  
|                                  |  |              | 66,449,539  |   |      |   | 58,803,664  |      |  |   | 52,108,000  |  
|Less: valuation allowance         |  |              | (66,449,539 | ) |      |   | (58,803,664 | )    |  |   | (52,108,000 | )
|                                  |  |              |             |   |      |   |             |      |  |   |             |  
|Deferred tax liabilities:         |  |              |             |   |      |   |             |      |  |   |             |  
|Asset basis differences           |  |              |            |   |      |   |            |      |  |   |            |  
|                                  |  |              |             |   |      |   |             |      |  |   |             |  
|Net deferred income tax liability |  | $            |            |   |      | $ |            |      |  | $ |            |  
|                                  |  |              |             |   |      |   |             |      |  |   |             |  



F-26



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Management establishes a valuation allowance for those deductible temporary differences
when it is more likely than not that the benefit of such deferred tax assets will not be recognized. The ultimate realization of deferred tax assets is dependent upon the Companys ability to generate taxable income during the periods in which
the temporary differences become deductible. Management considers the historical level of taxable income, projections for future taxable income, and tax planning strategies in making this assessment. Managements assessment in the near term is
subject to change if estimates of future taxable income during the carryforward period are reduced.

Management believes that,
based on a number of factors, it is more likely than not that the deferred tax assets will not be utilized, such that a full valuation allowance has been recorded. The valuation allowance increased by $7.6 million for the period ended
December 31, 2010.

The Company recorded no liability for uncertain income tax positions for the period ended
December 31, 2010. The Company 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,
2010, no penalties or interest expense related to income tax positions were recognized and as of December 31, 2010, no penalties or interest related to income tax positions were accrued.

The unrecognized tax benefits changed by approximately $40 million during the 2010 tax year, relating to the write-down of Canadian tax
credits and net operating losses. As the Canadian company reincorporated in Delaware, the Company will no longer file Canadian tax returns and thus will not recognize the benefit of these attributes. The Company does not anticipate that any of the
unrecognized tax benefits will increase or decrease significantly over the next twelve months. The Companys tax years 2000-2010 will remain open for examination by the federal and state authorities for three and four years, respectively, from
the date of utilization of any net operating loss credits.

A reconciliation of the unrecognized tax benefits for the year
ended December 31, 2010 is as follows:



|                                                             |  |   |             |  
|------------------------------------------------------------ |  | - | ----------- | -
|Balance at January 1, 2010                                   |  | $ | 42,930,733  |  
|Increases based on tax positions related to the current year |  |   | 34,180      |  
|Reductions for tax positions of prior years                  |  |   | (40,606,828 | )
|                                                             |  |   |             |  
|Balance at December 31, 2010                                 |  |   | 2,358,085   |  
|                                                             |  |   |             |  

As of December 31, 2010, none of the unrecognized tax benefits could affect the Companys income
tax provision or effective tax rate.

As of December 31, 2010, the Company had federal and state net operating loss carry
forwards of approximately $138.0 million and $238.7 million, respectively, available to offset future taxable income. Federal and state net operating loss carry forwards expire in varying amounts beginning in 2020 and 2010, respectively.

As of December 31, 2010, the Company had federal and state R&D credit carryforwards of approximately $1.7 million
and $812,000, respectively, available to reduce future taxable income. The federal credit carryforwards expire beginning in 2025, and the state credits have no expiration date.

Utilization of the Companys net operating loss carryforwards and credits may be subject to an annual limitation due to the
change in ownership provisions under Section 382 of the Internal Revenue Code and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.



F-27



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



12. EMPLOYEE BENEFIT PLAN

The Company maintains a tax-qualified employee savings and retirement plan (401(k) Plan) covering all of the Companys employees in
the United States. Pursuant to the 401(k) Plan, employees may elect to reduce their current compensation up to the prescribed IRS annual limit and have the amount of such reduction contributed to the 401(k) Plan. The 401(k) Plan permits, but does
not require, additional matching contributions to the 401(k) Plan by the Company on behalf of all participants. During the years ended December 31, 2010, 2009 and 2008, the Company matched 100% of employee contributions of up to 2% of employee
pre-tax and post- tax contributions. The Company adopted the 401(k) Plan in 2008. Total matching contributions for the years ended December 31, 2010, 2009 and 2008 were $77,000, $83,000 and $17,000.

13. COMMITMENTS AND CONTINGENCIES

The Company is committed to minimum lease payments for office facilities and equipment, purchase obligations, note payable, interest, capital lease obligations, and licenses and royalty payments on net
sales of the Levacor VAD or other future products.



|                                    |  |       |           |  |                 |   |           |           |  |   |           |  |  |            |         |  |  |   |         |    
|----------------------------------- |  | ----- | --------- |  | --------------- | - | --------- | --------- |  | - | --------- |  |  | ---------- | ------- |  |  | - | ------- | ---
|                                    |  | Total |           |  | Less than 1Year |   |           | 2-3 Years |  |   | 4-5 Years |  |  | Thereafter |        
|Operating leases                    |  | $     | 1,033,975 |  |                 | $ | 281,908   |           |  | $ | 484,485   |  |  | $          | 267,581 |  |  | $ |        |    
|Purchase obligations (1)            |  |       | 1,960,902 |  |                 |   | 1,710,902 |           |  |   | 250,000   |  |  |            |        |  |  |   |        |    
|Note payable - gross                |  |       | 800,000   |  |                 |   | 200,000   |           |  |   | 400,000   |  |  |            | 200,000 |  |  |   |        |    
|Interest on note payable            |  |       | 90,000    |  |                 |   | 36,000    |           |  |   | 45,000    |  |  |            | 9,000   |  |  |   |        |    
|Capital lease obligations           |  |       | 64,214    |  |                 |   | 56,486    |           |  |   | 7,728     |  |  |            |        |  |  |   |        |    
|Minimum royalty payment obligations |  |       | 1,576,000 |  |                 |   | 382,000   |           |  |   | 864,000   |  |  |            | 220,000 |  |  |   | 110,000 |    
|                                    |  |       |           |  |                 |   |           |           |  |   |           |  |  |            |         |  |  |   |         |    
|Total                               |  | $     | 5,525,091 |  |                 | $ | 2,667,296 |           |  | $ | 2,051,213 |  |  | $          | 696,581 |  |  | $ | 110,000 | (2)
|                                    |  |       |           |  |                 |   |           |           |  |   |           |  |  |            |         |  |  |   |         |    



|(1) | Purchase obligations primarily represent commitments for services, manufacturing agreements and other research and purchase commitments.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes only one year of minimum annual royalty payments that have variable or indefinite termination dates.
|--- | -------------------------------------------------------------------------------------------------------------

(a) Operating Leases

Total rent expense for the years ended December 31, 2010, 2009, and 2008 was $338,220, $612,107 and $642,608, respectively

(b) Collaborative Arrangements

From time to time, the Company enters into
collaborative arrangements for the research and development (R&D), manufacture and/or commercialization of products and product candidates. These collaborations can provide for non- refundable, upfront license fees, R&D and commercial
performance milestone payments, cost sharing and royalty payments. The Companys collaboration agreements with third parties are performed on a best efforts basis with no guarantee of either technological or commercial success.

LaunchPoint Technologies Inc.

On September 15, 2008, the Company entered into an agreement with LaunchPoint Technologies Inc (LaunchPoint Agreement) wherein all of LaunchPoints right, title and interest in and to the
assigned technology



F-28



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



and intellectual property relating to physiological control of rotary blood pumps were assigned, sold, transferred granted and delivered to the Company for $230,000. In addition, the LaunchPoint
Agreement included a 0.5% royalty on net future sales through 2020 of products using such technology. The purchase price of $230,000 was paid in equal installments of $10,000 over 23 months ending September 2010.

Under the LaunchPoint Agreement, LaunchPoint agreed to provide exclusive R&D services to the Company, for approximately
two years, for the design, production, distribution or sale of rotary blood pumps that provide assisted circulation. In return, WorldHeart will engage LaunchPoint in Active Projects with one of them being the PediaFlow project. The
PediaFlow is a small, magnetically levitated rotary VAD intended for use in newborns and infants. The Company agreed to provide LaunchPoint with an annual funding of $120,000 until termination on either (i) the second anniversary of the
LaunchPoint Agreement (September 15, 2010), (ii) expiration of the period of exclusivity according to the terms of any Active Project or (iii) termination of R&D services pursuant to any Active Project.

On November 13, 2009, the Company entered into an Amendment Agreement amending the existing LaunchPoint Agreement. Under the
Amendment Agreement, LaunchPoint assigned additional technology and intellectual property to WorldHeart in exchange for (a) increased royalty on net future sales through 2029 (or the date of expiry of the last to expire patents assigned to
WorldHeart) of products using all technology (0.74%), with minimum annual royalties to LaunchPoint of approximately $129,000 for the first four years and payment of $60,000, thereafter, (b) entry into an R&D services agreement of $225,000,
and (c) the issuance of a $1.0 million note.

Additionally, at the Companys discretion and depending on the
Companys involvement, WorldHeart can choose to reimburse LaunchPoint to cover market rates for government grants and contracts. LaunchPoint provided the Company with an option on all future technology related to rotary pumps that provide
assisted circulation, whether or not reimbursed by the Company.

On December 2, 2009 (Issuance Date), the Company issued
to LaunchPoint a promissory note (LaunchPoint Note) in the principal amount of $1.0 million with interest at 4.5% per annum maturing five years from the Issuance Date. Twenty percent of the principal amount of the LaunchPoint Note, together
with accrued interest, will be converted into restricted shares of the Companys common stock, on each anniversary date of the Issuance Date. LaunchPoints right of resale for each annual issuance of restricted shares will be limited to no
more than one-twelfth of such shares in each of the next 12 months with the restrictions lifted after 12 months. The stock price used for determining the conversion rate will be the publicly traded weighted average closing price of the
Companys common stock for the three month period preceding the relevant anniversary date. WorldHeart will have the right to repurchase, at any time prior to the second anniversary of the Amendment Date, any outstanding balance of the
LaunchPoint Note at a 15% discount. . The effective interest rate on the LaunchPoint Note is 20%.

The Company recorded
in-process research and development expense of $683,000 related to the issuance of the LaunchPoint Note. A $317,000 discount or an approximate 15% discount rate was applied to the LaunchPoint Note. The discount will be amortized over the five-year
term of the LaunchPoint Note as interest expense.

On December 2, 2010, upon maturity of the first twenty percent of the
principal amount of the LaunchPoint Note, the Company issued 101,282 restricted shares of its common stock to LaunchPoint which represents $200,000 of the principal plus $45,000 in accrued interest based on a conversion rate of $2.43 per share.



F-29



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



The five year maturity schedule of the LaunchPoint Note is as follows:



|                           |  |       |          |   |              |   |         |      |  |   |         |   |  |      |         |   |      |   |         |   |  |   |   | 
|-------------------------- |  | ----- | -------- | - | ------------ | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - | ---- | - | ------- | - |  | - | - | 
|                           |  |       |          |   | December 31, |  
|                           |  | Total |          |   | 2011         |   |         | 2012 |  |   | 2013    |   |  | 2014 |         |   | 2015 |  
|Current note payable       |  | $     | 200,000  |   |              | $ | 200,000 |      |  | $ |        |   |  | $    |        |   |      | $ |        |   |  | $ |  | 
|Current discount           |  | $     | (82,493  | ) |              |   | (82,493 | )    |  |   |        |   |  |      |        |   |      |   |        |   |  |   |  | 
|                           |  |       |          |   |              |   |         |      |  |   |         |   |  |      |         |   |      |   |         |   |  |   |   | 
|Net current note payable   |  | $     | 117,507  |   |              | $ | 117,507 |      |  | $ |        |   |  | $    |        |   |      | $ |        |   |  | $ |  | 
|                           |  |       |          |   |              |   |         |      |  |   |         |   |  |      |         |   |      |   |         |   |  |   |   | 
|Long term note payable     |  | $     | 600,000  |   |              | $ |        |      |  | $ | 200,000 |   |  | $    | 200,000 |   |      | $ | 200,000 |   |  | $ |  | 
|Long term discount         |  |       | (137,384 | ) |              |   |        |      |  |   | (65,784 | ) |  |      | (46,698 | ) |      |   | (24,902 | ) |  |   |  | 
|                           |  |       |          |   |              |   |         |      |  |   |         |   |  |      |         |   |      |   |         |   |  |   |   | 
|Net long term note payable |  | $     | 462,616  |   |              | $ |        |      |  | $ | 134,216 |   |  | $    | 153,302 |   |      | $ | 175,098 |   |  | $ |  | 
|                           |  |       |          |   |              |   |         |      |  |   |         |   |  |      |         |   |      |   |         |   |  |   |   | 

Carnegie Mellon

During November 2009, the Company entered into a license agreement with Carnegie Mellon University (CMU) granting the Company the exclusive, world-wide right and license to use and sublicense certain
licensed technology in exchange for annual royalties of sixteen-hundredth of one percent (0.16%) of net sales or a minimum royalty of $43,000 per year beginning in February 2010 thru February 2014, whichever is higher. Beginning the first calendar
year the product utilizing CMUs technology is commercialized and sales are generated, or in 2014, whichever is later, the Company would be required to pay annual minimum royalties of $40,000 per calendar year in future years. The agreement
will conclude at the end of twenty (20) years or on the expiration date of the last-to-expire Patent, whichever comes later, unless terminated by another provision of the agreement.

Vertellus Specialties UK Limited

On November 28, 2008, the Company
entered into and agreement with Vertellus Specialties UK Limited (Vertellus) wherein Vertellus agreed to supply the Company with its proprietary compound and granted the Company the right to access its proprietary information including the
manufacturing process of its proprietary compound.

Vertellus also granted the Company an exclusive, worldwide,
non-transferable, non-assignable, non-sublicensable, royalty bearing sub-license under some of Vertellus patents, and other relevant intellectual property, to apply the product in processing all of the Companys VADs including the Levacor
VAD and to sell such VADs worldwide in exchange for annual minimum royalties of $150,000 in 2010, $200,000 in 2011 and $250,000 for each year in 2012 and 2013, if the minimum number of VADs sold, as defined by the agreement, is not met. The
sub-license agreement is in force for an intial term of five years.

Technology Partnerships Canada Contribution Agreement

During 2002, the Company 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 by TPC. Effective January 1, 2004, repayment by the Company will be 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. On October 12, 2010, under the TPC Agreement, TPC and WorldHeart agreed to offset royalties owed by WorldHeart totaling
approximately $91,000 against receivables owed by TPC to the Company.



F-30



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



University of Pittsburgh

During February 2002, the Company entered into a license agreement with the University of Pittsburgh granting the Company an exclusive right to certain technology and patents in exchange for annual
royalties equal to one-tenth of one percent (0.1%) of net sales. Additionally, annual maintenance fees of $75,000, which are non-refundable and non-creditable against royalties are due beginning May 2007 and annually thereafter, until gross sales of
products utilizing or incorporating the technology during the preceding twelve month period is greater than $500,000. Ninety percent of all payments due shall be paid to the university and ten percent of such royalty payments shall be paid to the
National Aeronautics and Space Administration (NASA), a co-owner of certain patent rights.

University of Virginia

During March 1999, the Company entered into an exclusive royalty-based license agreement with the University of Virginia granting the
Company an exclusive right to certain inventions, patents and patent applications in exchange for annual minimum royalties of no less than $10,000. For net sales with respect to commercialized product occurring within agreed licensed territories,
the royalty rate shall be one-half of one percent (0.5%), and for net sales of occurring outside the agreed licensed territories, the royalty rate shall be one-quarter of one percent (0.25%), subject to certain termination clauses between the
Company and the University of Virginia.

Heart and Lung Institute, LLC

During October 1998, the Company entered into an exclusive license and sublicense agreements with the Heart and Lung Institute (HLI)
wherein exclusive right and license on certain technology and patents were granted to the Company in exchange for 3.15% annual royalties based on an amount earlier funded by HLI. The royalty is equal to a percentage of net sales on commercialized
product, for a period of twenty years from the date of the agreement or for as long as products incorporating the licensed technology are being commercialized.

(c) Legal Proceedings

In the normal course of business, the Company may be
a party to legal proceedings. The Company is not currently a party to any material legal proceedings.

14. SEGMENTED INFORMATION

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

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



F-31



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Geographic Locations

The following geographic data provides revenue based on product shipment destination and long-lived assets based on physical location. As
of December 31, 2010, the Company has two locations in the United States.



|              |  |         |           |  |                  |   |         |         |  |   |                  |  |  |         |         |  |                  |   |           |  |  |   |         | 
|------------- |  | ------- | --------- |  | ---------------- | - | ------- | ------- |  | - | ---------------- |  |  | ------- | ------- |  | ---------------- | - | --------- |  |  | - | ------- | 
|              |  | 2010    |           |  | 2009             |   |         | 2008    | 
|              |  | Revenue |           |  | Long livedAssets |   |         | Revenue |  |   | Long livedAssets |  |  | Revenue |         |  | Long livedAssets |  
|United States |  | $       | 2,179,169 |  |                  | $ | 951,553 |         |  | $ |                 |  |  | $       | 916,193 |  |                  | $ | 1,502,654 |  |  | $ | 801,327 | 
|Europe        |  |         |          |  |                  |   |        |         |  |   | 4,765            |  |  |         |        |  |                  |   | 73,439    |  |  |   | 6,605   | 
|Canada        |  |         |          |  |                  |   |        |         |  |   |                 |  |  |         |        |  |                  |   | 20,765    |  |  |   |        | 
|Japan         |  |         |          |  |                  |   |        |         |  |   |                 |  |  |         |        |  |                  |   | 135,285   |  |  |   |        | 
|              |  |         |           |  |                  |   |         |         |  |   |                  |  |  |         |         |  |                  |   |           |  |  |   |         | 
|Total         |  | $       | 2,179,169 |  |                  | $ | 951,553 |         |  | $ | 4,765            |  |  | $       | 916,193 |  |                  | $ | 1,732,143 |  |  | $ | 807,932 | 
|              |  |         |           |  |                  |   |         |         |  |   |                  |  |  |         |         |  |                  |   |           |  |  |   |         | 

15. RECENT ACCOUNTING PRONOUNCEMENTS

In December 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma
Information for Business Combinations. ASU 2010-29 is intended to address diversity in practice regarding pro forma revenue and earnings disclosure requirements for business combinations. This guidance specifies that if a public entity
presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior
annual reporting period only. The guidance also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination
included in the reported pro forma revenue and earnings. ASU 2010-29 affects any public entity, as defined by Topic 805, that enters into business combinations that are material on an individual or aggregate basis. The guidance is effective
prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period after December 15, 2010. The Company will adopt the provisions of this guidance on January 1, 2011.

In April 2010, the FASB issued ASU 2010-17, Revenue Recognition - Milestone Method (Topic 605): Milestone Method of
Revenue. ASU 2010-17 provides guidance on applying the milestone method to milestone payments for achieving specified performance measures when those payments are related to uncertain future events. Under the ASU, entities can make an accounting
policy election to recognize arrangement consideration received for achieving specified performance measures during the period in which the milestones are achieved, provided certain criteria are met for the milestones to be considered substantive.
This ASU is effective on a prospective basis for research and development milestones achieved in fiscal years, beginning on or after June 15, 2010, which for the Company means 2011. The impact of this ASU is not expected to be material to the
consolidated financial statements of the Company.

In January 2010, FASB issued ASU 2010-06, Improving Disclosures about
Fair Value Measurements, to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires new disclosures on the transfers of assets and liabilities between Level 1 (quoted prices in
active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons and the timing of the transfers. Additionally, the guidance requires a roll
forward of activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance will become effective for us with the



F-32



---

##### Table of Contents

WORLD HEART CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)



reporting period beginning January 1, 2010, except for the disclosure on the roll forward activities for Level 3 fair value measurements, which will become effective for us
January 1, 2011. Other than requiring additional disclosures, adoption of this new guidance will not have a material impact on the Companys consolidated financial statements.



F-33