UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549

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FORM 10-KSB

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ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004
Commission File No. 0-28882

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WORLD HEART CORPORATION

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|Ontario(State or other Jurisdiction of
Incorporation or Organization)            | 52-2247240(I.R.S. Employer
Identification No.)
|-------------------------------------------------------------------------------- | ----------------------------------------------
|7799 Pardee Lane
Oakland, California, USA(Address of Principal Executive Office) | 94621(Zip Code)                               
|(510) 563-5000(Issuer's Telephone Number)                                       

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

|Title of each classNone                                        | Name of each exchange on which registeredNone                  
|-------------------------------------------------------------- | ---------------------------------------------------------------
|Securities registered under Section 12(g) of the Exchange Act:
|Title of each classCommon Shares, no par value                 | Name of each exchange on which registeredNASDAQ National Market

Check
whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

ý

No

o


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

The issuer's revenues for its most recent fiscal year ended December 31, 2004 were $9,575,761.

The
aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of March 30, 2005 was $20,008,644.

The
number of common shares outstanding as of March 30, 2005 was 17,101,405.

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DOCUMENTS INCORPORATED BY REFERENCE

The following document is incorporated by reference: Definitive Proxy Statement for the fiscal year ended December 31, 2004.

Transitional
Small Business Disclosure Format (Check one):

Yes

o

No

ý




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TABLE OF CONTENTS

|                     |  | Item |  |                                                                                                                 |  | Page
|-------------------- |  | ---- |  | --------------------------------------------------------------------------------------------------------------- |  | ----
|Part I               |  | 1    |  | Description of Business                                                                                         |  | 1   
|                     |  | 2.   |  | Properties                                                                                                      |  | 19  
|                     |  | 3.   |  | Legal Proceedings                                                                                               |  | 19  
|                     |  | 4.   |  | Submission of Matters to a Vote of Security Holders                                                             |  | 19  
|Part II              |  | 5.   |  | Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities  |  | 20  
|                     |  | 6.   |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                           |  | 22  
|                     |  | 7.   |  | Financial Statements                                                                                            |  | 37  
|                     |  | 8.   |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            |  | 37  
|                     |  | 8A.  |  | Controls and Procedures                                                                                         |  | 37  
|                     |  | 8B   |  | Other Information                                                                                               |  | 37  
|PART III             |  | 9.   |  | Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act |  | 38  
|                     |  | 10.  |  | Executive Compensation                                                                                          |  | 38  
|                     |  | 11.  |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                  |  | 38  
|                     |  | 12.  |  | Certain Relationships and Related Transactions                                                                  |  | 38  
|                     |  | 13.  |  | Exhibits                                                                                                        |  | 38  
|                     |  | 14.  |  | Principal Accountant Fees and Services                                                                          |  | 40  
|SIGNATURES           |  | 41  
|EXHIBIT INDEX        |  | 42  
|FINANCIAL STATEMENTS |  | F-1 

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PART I

Item 1.    Description of Business.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-KSB includes "forward-looking statements" within the meaning of Section 27A of the United States Securities Act of
1933 and Section 21E of the United States Securities Exchange Act of 1934. The forward-looking statements contain information that is generally stated to be anticipated, expected or projected
by World Heart Corporation (WorldHeart), and involves known and unknown risks, uncertainties and other factors that may cause the actual results and performance of WorldHeart to be materially
different from any future results and performance expressed or implied by such forward-looking information. Potential risks and uncertainties include, without limitation, the uncertainties inherent in
the development of a new product for use in the human body, our potential need for significant additional funding, our need for acceptance from third-party payers, extensive government regulation of
our products, and rapid developments in technology, including developments by competitors. Important factors that could cause our actual results to differ materially from those expressed or implied by
such forward-looking statements include:



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

CORPORATE STRUCTURE

Name, Address, and Incorporation

WorldHeart
was incorporated by articles of incorporation under the laws of the Province of Ontario on April 1, 1996. Our registered office is located at 1 Laser Street,
Ottawa, Ontario, Canada, K2E 7V1 and our telephone number is (613) 226-4278. Our head office is located at 7799 Pardee Lane, Oakland, California, USA, 94621 and
we have an office at Cereslaan 34, 5384 VT, Heesch, Netherlands.

Our
articles of incorporation were amended on June 22, 2000 to create a first series of 1,374,750 preferred shares designated as Cumulative Redeemable Convertible Preferred
Shares, Series A (the Series A Shares), in connection with the acquisition by WorldHeart of the Novacor division (Novacor) of Edwards Lifesciences LLC (Edwards). On
November 26, 2003, our articles were amended to amend the rights and privileges of the Series A Shares in connection with the conversion by Edwards Lifesciences (U.S) Inc. of its
Series A Shares as part of our financing transaction completed in September 2003. Our articles were amended again on December 1, 2003, to effect a one common share for seven
common shares share consolidation.

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Intercorporate Relationships

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

World
Heart B.V. is our wholly-owned subsidiary, incorporated under the laws of the Netherlands on March 5, 2004, through which we carry on sales, sales support and
distribution in Europe.

2007262 Ontario Inc.
(2007262), is an associated research and development company of WorldHeart, incorporated under the laws of the Province of Ontario on
November 29, 2001 to carry out specified research and development for us. WorldHeart and New Generation Biotech (Equity) Fund Inc. (NewGen), an Ontario labour-sponsored venture
capital corporation, each hold 100 common shares of 2007262. WorldHeart holds all the issued and outstanding non-voting Series 1 preferred shares and non-voting
Series 2 preferred shares of 2007262.

DEVELOPMENT OF THE BUSINESS

Three Year History and Development of WorldHeart

WorldHeart is a global medical devices company focused on the development, production, sales and support of ventricular assist devices (VADs). VADs are mechanical
assist devices that supplement the circulatory function of the heart by re-routing blood flow through a mechanical pump. VADs are used for treatment of patients with end-stage
heart failure (i.e. patients whose hearts are irreversibly damaged and which cannot be treated effectively by medical or surgical means other than a transplant).
Bridge-to-transplant therapy involves implanting a VAD in a transplant-eligible patient to maintain or improve the patient's health until a donor heart becomes available.
Destination therapy is the implanting of a VAD to provide long-term support for a patient not currently eligible for a natural heart transplant.

Our
current business is based on two generations of implantable, pulsatile VADs; the current generation commercially available Novacor LVAS and an in-development
next-generation Novacor II. These devices are intended for use in both bridge-to-transplant therapy and destination therapy.

Following
the acquisition of the Novacor division from Edwards in June 2000, we have focused our operations on:



Since
January 1, 2002 a number of significant events have occurred indicating the increasing acceptance by the medical community of VAD-based therapy for treatment of
end-stage heart failure that we expect will positively impact WorldHeart's business as well as all competitive VAD suppliers. We believe these events signal a future expansion in the use
of VADs.

Significant
industry developments include:



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A
number of significant developments related specifically to WorldHeart's Novacor LVAS products have also occurred:



In
2003, we rationalized and reallocated our workforce to focus on sales, production, and support of the Novacor LVAS, on a basis consistent with the development plans and strategy for
WorldHeart's next-generation VAD.

Effective
January 1, 2004, we assumed full sales and support responsibility for the Novacor LVAS worldwide with the exception of Japan. Edwards was previously our exclusive
distributor for the Novacor LVAS in all countries other than the United States where we sell directly. We continue to distribute the Novacor LVAS through Edwards in Japan and through other
distributors in selected markets.

In
September 2003, we completed a significant equity financing and restructuring. This financing and restructuring is described in the audited consolidated financial statements
prepared in accordance with generally accepted accounting principles (GAAP) in the United States (U.S. GAAP) which are included elsewhere in this Annual Report. In summary, the financing and
restructuring included:



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On
March 18, 2004, our common shares, which had been delisted from the NASDAQ National Market (NASDAQ) on October 15, 2002, were re-listed on NASDAQ under the
symbol WHRT.

On
April 22, 2004, with the announcement of our first quarter results, we commenced reporting our results in United States dollars.

On
July 12, 2004, we announced that our first quarter results would be restated, and on August 12, 2004, we released our restated first quarter results. Restated revenues
for the first quarter decreased by $1.3 million to $2.2 million and shipments of the Novacor LVAS kits decreased by 25 kits to a total of 26 kits. The restatement resulted
partly in respect of a sale during the first quarter of 20 kits to a world-leading center, which has implanted more than 100 Novacor LVAS kits. It became apparent that there was the
expectation on the part of the buyer that it would receive a limited right of return for certain Novacor LVAS kits that it purchased in the event that they were not implanted prior to reaching their
sterilization expiry dates. As a result, we determined that the appropriate accounting treatment was to exclude revenue from this sale in accordance with our revenue recognition criteria. An
additional five kits were shipped and billed, however, revenue from these kits was deferred as the sales did not meet our revenue recognition policy. The effect of these restatements on the net loss
was an increase of approximately $585,000 to a net loss of $4.1 million and an increase in the net loss per common share by four cents to a net loss per common share of 27 cents.

On
July 28, 2004, we announced certain management changes including the appointment of Mr. Jal S. Jassawalla as President and Chief Executive Officer replacing
Mr. Roderick M. Bryden who resigned from those positions and from the board of directors of WorldHeart. Dr. Piet Jansen was appointed Managing Director, Europe and continued as Chief
Medical Officer for WorldHeart. Mr. John Marinchak was appointed Vice President, Marketing and Sales. Also Mr. Robert W. Corson was appointed Vice President, Manufacturing
replacing Mr. Robert Griffin who left WorldHeart in July 2004.

On
August 12, 2004, Mr. Mark Goudie, Vice President, Finance and Chief Financial Officer was appointed to the board of directors to fill the vacancy created by the
resignation of Mr. Bryden.

On
August 25, 2004, we announced the consolidation of our operations from Ottawa, Ontario to Oakland, California to be substantially completed over a period of nine months.

On
September 16, 2004, we completed the sale of $13,318,750 aggregate principal amount of convertible debentures and warrants. The debentures are convertible, at the option of the
holder, into common shares at a conversion rate of $1.25 per common share until September 15, 2009. The purchasers of the convertible debentures were also issued a total of
10,655,000 warrants to purchase common shares at an exercise price of $1.55 per common share exercisable until September 15, 2009. In connection with our proposed acquisition of the
business of MedQuest and the related private placement of common shares of WorldHeart, all the holders of these convertible debentures and warrants have agreed to convert these debentures and exercise
these warrants if our shareholders approve a reduction in the exercise price of the warrants to $1.00 per common share at the annual and special meeting of shareholders of WorldHeart to be held
May 9, 2005 (the 2005 Annual and Special Meeting of Shareholders).

On
October 1, 2004, Mr. Phillip J. Miller was appointed Vice President, Research and Development.

On
March 22, 2005, WorldHeart announced that it had ceased to be a foreign private issuer as defined in the United States Securities Exchange Act of 1934 because, as a
result of the consolidation of WorldHeart's operations to Oakland, California, the mind and management of WorldHeart is located in California. In

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addition,
as part of the consolidation of WorldHeart's operations, WorldHeart announced that Mark Goudie will resign as Vice President, Finance and Chief Financial Officer and Robert Corson will
resign as Vice President, Manufacturing in the second quarter of 2005. The board of directors and management are in the process of finding suitable replacements who will be based in Oakland,
California.

Significant Acquisitions

WorldHeart did not complete any significant acquisitions or dispositions in the most recent fiscal year ended December 31, 2004.

On
January 31, 2005, we entered into an asset purchase agreement (the MedQuest Agreement) with MedQuest Products, Inc. (MedQuest), as amended by amendment no. 1
dated March 22, 2005, under which we agreed to purchase all of the assets of MedQuest, subject to certain conditions including shareholder approval (the MedQuest Acquisition).

Also,
on January 31, 2005, we entered into a purchase agreement, as amended by amendment no. 1 dated March 22, 2005, (the Maverick Agreement) with Maverick
Venture Management, LLC (Maverick) pursuant to which Maverick has agreed to purchase in a private placement approximately 8.9 million common shares of WorldHeart at $1.35 per common
share for an aggregate purchase price of $12 million. The closing of the private placement is contingent on the closing of the transactions contemplated in the MedQuest Agreement and on our
shareholders approving a reduction in the exercise price of the warrants to $1.00 per common share.

As
noted above, we have also entered into an agreement with each of the holders of our convertible debentures and warrants, who purchased convertible debentures and warrants in the
transaction completed in September 2004, pursuant to which the debenture holders and warrant holders have agreed to convert their debentures and exercise their warrants prior to the closing of
the transactions contemplated by the MedQuest Agreement and the Maverick Agreement.

Pursuant
to the MedQuest Agreement, WorldHeart will acquire all the assets of MedQuest, subject to certain approvals (including approval by our shareholders and MedQuest's stockholders),
consents and conditions. MedQuest, based in Salt Lake City, Utah, USA is in the final development stages of its HeartQuest VAD, a non-pulsatile rotary flow blood pump
(the MedQuest rotary VAD). WorldHeart currently offers the pulsatile Novacor LVAS and is in development of a next-generation pulsatile pump Novacor II. The acquisition of MedQuest
will add an advanced rotary pump to our VAD platform.

The
private placement and the exercise of warrants for approximately $10.7 million will raise additional equity of approximately $23 million, a portion of which, along with
any residual cash acquired from MedQuest, will be used to pay certain loans and liabilities related to the MedQuest Acquisition including up to $3.5 million owed to Maverick in connection with
the funding of ongoing operations of MedQuest until the closing of the MedQuest Acquisition. In addition, the conversion of outstanding debentures issued in September 2004 will result in the
conversion to equity of approximately $13.3 million of our outstanding debt. Subject to shareholder approval, the exercise price of the warrants will be reduced from $1.55 to $1.00 per common
share in return for the holders' agreement to exercise the warrants early and convert their debentures (the Warrant Exercise & Debenture Conversion). The conversion price of the
debentures will remain at $1.25 per common share.

Upon
completion of the acquisition, WorldHeart will retain MedQuest's employees at the facility in Salt Lake City, Utah, which will serve as the development and manufacturing site
for our rotary pump products.

Maverick
is a majority shareholder of MedQuest. At the closing of the transactions, Maverick and the shareholders of MedQuest will hold approximately 33% of the common shares of
WorldHeart. Maverick will be given the right to nominate up to two designees to WorldHeart's board of directors so long as it holds or controls at least 25% of our issued and outstanding common
shares.

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BUSINESS OF WORLD HEART CORPORATION

Business Overview and Our Products

Our current business is based on two generations of implantable, pulsatile VADs  the current generation, commercially
available Novacor LVAS, and our in-development next-generation VAD, Novacor II. We will also acquire the MedQuest rotary VAD through our purchase of MedQuest. Specifically:



The Novacor LVAS is our commercially available, implantable, pulsatile VAD, which has been in clinical use for more than 20 years and has been implanted in
approximately 1,600 patients worldwide. The Novacor LVAS is an electromagnetically-driven pump, about the size of a human heart, that provides circulatory support for patients with
life-threatening heart failure by taking over part or all of the workload of the left ventricle of the heart. It is implanted within the abdominal wall and mimics the natural heart by
creating
a pulsing flow of blood. The natural heart continues to deliver what it can, and may recover partially while assisted by the Novacor LVAS. The Novacor LVAS is completely self-regulating,
responding instantaneously to the recipient's changing heartbeat and circulatory demands.

The
experience in long-term support continues to grow. The majority of recipients have had a support duration of less than one year. However, over 139 recipients have
been supported for more than one year, 35 of whom have lived with the device for more than two years, 14 for more than three years, three for more than four years and one for more than
six years. No patient deaths have been attributed to the Novacor LVAS failure. A single patient who was transplant-ineligible at the time of initial implant of the Novacor LVAS in 1998 received
continuous circulatory support for more than six years from the Novacor LVAS, including a scheduled replacement of the initial Novacor LVAS after four years and this patient subsequently received a
natural heart.

The
Novacor LVAS is commercially available as a bridge-to-transplant in Europe, the United States and Canada. In Europe, it is also available with an
unrestricted indication for destination therapy. In Japan, the Novacor LVAS is the only approved implantable VAD for use by cardiac patients at risk of imminent death from non-reversible
left ventricular failure for which there is no alternative but a heart transplant.

In
the United States, WorldHeart commenced the RELIANT Trial in the second quarter of 2004.



Pulsatile VAD

Our next-generation pulsatile VAD, Novacor II, is currently under development and is expected to result in a fully implantable, pulsatile VAD designed
specifically for destination therapy patients. Novacor II is being developed to be approximately 50% of the size of the Novacor LVAS, with no mechanical bearings. For the fully implantable
configuration, its dual chamber design eliminates the need for volume compensation and the need for external venting, and incorporates remote power and monitoring
(i.e. across-the-skin power and data transfer) and an implanted controller/battery. These features are expected to provide recipients with an enhanced quality of life by
allowing freedom of movement and minimal limitations to their regular activities. It is

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magnetically-driven,
allowing for simple operation with no wearing elements or precision components. Initially, the Novacor II will be available with a percutaneous lead to provide clinicians and
patients with the simplest possible implant configuration.

We
expect that the Novacor II will begin animal trials in 2005, begin initial clinical trials in 2007 and receive commercial approvals in Europe in 2008 and in the United States
in 2010.

MedQuest Rotary VAD

Through the acquisition of the assets of MedQuest, which is expected to be completed in the second quarter of 2005, we will obtain the MedQuest rotary VAD, an
advanced, next-generation, rotary blood pump intended for destination therapy. Unlike the initial generation of rotary pumps with blood-lubricated bearings, the MedQuest rotary VAD is a
compact, magnetically levitated, centrifugal pump with an impeller that is completely magnetically levitated. Full magnetic levitation eliminates wear mechanisms within the pump and provides for
greater clearances for more optimized blood flow around the impeller, while eliminating dependence on the patient's blood for suspension. The MedQuest rotary VAD's levitation technology employs a
unique combination of passive and single-axis active control, resulting in a system of optimal simplicity.

The
MedQuest rotary VAD is now at an advanced stage of development and is expected to commence an initial feasibility clinical trial in 2005, and is expected to receive commercial
approvals in Europe in 2007 and in the United States in 2009.

Third-party Reimbursement for VADs

The United States and Canada currently provide for public reimbursement of VADs used as a bridge-to-transplant. In addition, certain private
insurance carriers in the United States provide reimbursement for VAD use. On October 1, 2003, a National Coverage Decision by the CMS in the United States extended reimbursement
to VADs approved by the FDA for destination therapy. On October 1, 2004, CMS implemented a previously announced increase in payments for implantation of all VADs, representing a 30% to 40%
increase in reimbursements for centers implanting VADs and resulting in average reimbursement rates in the United States of $130,000 to $140,000.

Several
countries in Europe provide reimbursement for VADs. Reimbursements, however, vary between countries and budget constraints, to date, have limited reimbursements.

Also,
effective April 1, 2004, reimbursement in Japan for implantable VADs was approved.

Application of VADs in Patient Care



The search for an effective treatment for end-stage heart failure is ongoing. Therapies such as medication and transplantation have significant
limitations, and alternative emerging technologies, such as xenografts (animal organs or tissue transplanted into humans, with rejection being an even greater challenge), cardiomyoplasty
(the use of another muscle wrapped around the heart and electrically stimulated to augment heart function), genetic tissue engineering, multiple site pacing (pacing wires placed on two to three
separate ventricular sites), passive constraint devices and implantable artificial hearts (total artificial hearts and ventricular assist devices, pulsatile and non-pulsatile), are being
investigated. The following are treatment methods currently being employed for advanced heart failure:



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VADs that are either externally placed or abdominally implanted have been demonstrated as being effective in supporting blood circulation in patients with a
failing heart. More than 10,000 patients have been supported by pulsatile VADs that are in the market.

The
following advantages over other treatments generally apply to VADs that are currently approved and in use, including the Novacor LVAS. We expect that these advantages will also apply
to our Novacor II and the MedQuest rotary VAD that we will acquire:



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Marketing, Training and Distribution Strategy

Our principal markets are currently North America and Europe. Revenue for each geographic market for fiscal 2004 and 2003 was as follows:

|              |  | Revenue
|------------- |  | -------
|
|United States |  | $      
|Europe(1)     |  |        
|Canada(1)     |  |        
|Japan         |  |        
|              |  |        
|              |  | $      
|              |  |        

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With the acquisition of the Novacor division of Edwards in June 2000, we immediately gained access to many key medical centres involved in
cardiac transplantation in North America, Europe and Japan. The Novacor LVAS has been available for implant in approximately 100 centres in these geographic markets. We sell directly within the
United States. Prior to December 31, 2003, outside the United States, the Novacor LVAS was represented by Edwards. On January 1, 2004, we assumed full sales and support
responsibility for the Novacor LVAS worldwide with the exception of Japan. WorldHeart continues to distribute its products through Edwards in Japan and through other distributors in selected markets.

The
United States and European-based operations of our Novacor business have experienced clinical and technical personnel who support active implant centres and their leading
clinicians.

Product
improvements to the Novacor LVAS, which were introduced in Europe during 2002, have now also been introduced in the United States and Canada. The RELIANT Trial is ongoing
in the United States and the data is expected to support a PMA Supplement for the approval of the Novacor LVAS for destination therapy. Our United States sales force has also been
expanded in order to increase our sales in the United States.

Sources and Availability of Raw Materials

In 2004, we experienced difficulties in obtaining certain externally supplied inputs to the Novacor LVAS and related equipment. We continue to work with our
suppliers in an attempt to ensure an adequate flow of
quality raw materials and subassemblies which will allow us to meet the commercial demand for our products. We do not anticipate that the prices of raw materials will be subject to significant
volatility.

Intellectual Property

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

To
date, we have been granted one patent, and a second patent is pending, for the Novacor II in the United States and a European patent has been granted covering the
United Kingdom, France, Germany, Italy, Switzerland and Liechtenstein. We have applied for patents for Novacor II in Canada and in Japan. The Transcutaneous Energy Transfer technology licensed
to WorldHeart from the Ottawa Heart Institute intended to be incorporated in Novacor II has been patented in the United States, Canada and the United Kingdom.

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

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Product Liability Insurance

We maintain product liability insurance in the amount of $10,000,000 per occurrence and to a maximum of $10,000,000.

Competition



In addition to competing with other less-invasive therapies for heart failure, the Novacor LVAS and next-generation VADs will compete with
existing VADs and VADs under development, sold by a number of existing and emerging companies. Competition from medical device companies and medical device subsidiaries of healthcare companies is
intense and may increase. Many of our competitors may have substantially greater financial, technical, manufacturing, distribution and marketing resources.

At
present, only two companies in North America have developed implantable VADs approved for commercial sale: WorldHeart and Thoratec. Thoratec has two pulsatile left ventricular assist
device models of its HeartMate that have been approved in the United States for commercial sale. One is pneumatically driven (Heartmate IP LVAS), and the other is electrically driven (HeartMate
XVE). The HeartMate XVE and the Novacor LVAS have been approved for commercial sale for bridge-to-transplant indications in the United States and without restriction for
use for heart-failure patients in Europe. Each of these VADs is implanted in the abdomen and has a percutaneous lead that combines the power wires and vent.

The
HeartMate XVE received approval for destination therapy in the United States in April 2003. WorldHeart commenced the RELIANT Trial in the second quarter of 2004, in
which the Novacor LVAS is being randomized to the HeartMate XVE which is the control arm. It is expected that data from this trial will support a PMA Supplement which will be submitted to the FDA for
the use of the Novacor LVAS for destination therapy.

Thoratec,
and other companies such as Abiomed, Inc. (Abiomed), have VADs that are designed for temporary use but are not implanted in the body. Their pumps are external and
attached to the natural heart via connecting tubes running through the recipient's skin and tissue. Abiomed's VAD is approved by the FDA for in-hospital use only. In 2001, Thoratec
received approval from the FDA for a portable console driver for its VAD that can enable recipients to leave the hospital.

To
date, the only VADs that have been approved in the United States for commercial sale are not totally implantable or remotely powered, monitored and controlled, and, with the
exception of the Novacor LVAS and HeartMate XVE, are primarily for acute (short-term) use or for bridge-to-transplant applications.

In
Europe and certain other countries outside North America, Berlin Heart Institute and Medos Medizentechnik AG provide external VADs comparable to those manufactured and distributed by
Thoratec.



Currently, most heart assist devices intended for chronic use are pulsatile, mimicking the natural heart's pumping action. Non-pulsatile, or
continuous blood flow VADs, are under development and have been tested in animals and in human trials as a bridge-to-transplant or bridge-to-recovery.
At the present time, the scientific community has varying opinions as to whether or not continuous flow VADs will be viable for long-term implantation in humans. Continuous flow VADs are
expected to be smaller, less complex and valveless, to have lower energy needs and to be potentially less costly. There is a lack of long-term clinical data on non-pulsatile
pump reliability and on human physiological and haematological responses, including the determination of the human body's requirement for a pulsatile blood flow for long-term health.

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

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(or, functional
replacement); while rotary devices are better suited for late-stage patients, with some left ventricular contractility, who require only partial support
(or, assist).



We believe that the only fully implantable, pulsatile VADs under development are the Arrow LionHeart VAD and our next-generation VAD,
Novacor II.



There are a large number of non-pulsatile, or rotary flow, VADs in varying stages of development. One such device, which has been undergoing
United States clinical trials (as a bridge-to-transplant and for destination therapy) and which is approved for use in Europe, is the MicroMed
DeBakey® VAD being developed by MicroMed Technology, Inc. This device provides continuous left ventricular assist via a small rotary pump that is implanted in the abdomen and is
powered via wires that perforate the skin, connected to an external controller and rechargeable battery pack. The Jarvik 2000 Flowmaker®, developed by Jarvik Heart, Inc., is a
similar device at a comparable state of development.

We
believe that the MedQuest rotary VAD under development, which we will acquire upon completion of the MedQuest Acquisition, is a technologically advanced, next generation, rotary pump.
Its magnetically-levitated rotor results in a pump with no moving parts subject to wear, resulting in a small device expected to provide multi-year support over a wide range of flows.

Combining
MedQuest's rotary VAD with WorldHeart's clinical and commercialization infrastructure and our current and next-generation, long-term, pulsatile Novacor
systems will be critical in expanding our activities in the destination therapy market. If the MedQuest Acquisition is completed, WorldHeart will be the only company having small, silent,
next-generation pulsatile and rotary systems under development, as well as having a current-generation, pulsatile device in the market today.

Regulatory Matters



Most countries, including the United States, Canada and countries in Europe, require regulatory approval prior to the commercial distribution of medical
devices. In particular, implantable medical devices generally are subject to rigorous clinical testing as a condition of approval by the FDA and by similar authorities in Canada, in Europe and in
other countries. The approval process for our Novacor II and MedQuest's rotary VAD will be expensive and time consuming.



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

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

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

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

Our
Novacor II and the MedQuest rotary VAD are expected to be classified as Class IV medical devices under the Medical Devices Regulations, requiring WorldHeart to apply for
authorization from the MDB to conduct investigational testing on human subjects in Canada. At the conclusion of the human clinical trials, we will apply for a medical device license that will allow
for general marketing of the device.



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

We
intend to apply for various applicable certifications under the International Standards Organization (ISO), a worldwide federation of national bodies, founded in Geneva, Switzerland
in 1946. ISO has over 92 member countries, including the United States and Canada. ISO standards are integrated requirements which, when implemented, form the foundation and framework
for an effective quality management system. These standards were developed and published by the ISO. ISO certification is widely regarded as essential to enter Western European markets. All companies
are required to obtain ISO certification and the "CE" mark, an international symbol of quality and compliance, in order to market medical devices in Europe. ISO 13485 certification is the most
stringent standard in the ISO series and covers design, production, installation and servicing of products. WorldHeart received ISO 13485 certification in 2003. WorldHeart has received "CE"
mark certification for the Novacor LVAS, with applicable European medical device directives.



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

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Our Employees

At March 30, 2005, we employed 121 full-time staff and consultants. Of these employees, five were employed in Ottawa, Ontario,
106 in Oakland, California, and 10 in Heesch, Netherlands. Approximately 68% of our employees were involved with research, development, manufacturing, quality, and clinical affairs, 12%
were in sales and clinical support, and 20% were in finance, administration, and regulatory affairs. In January 2004, we assumed the sales and sales support employees in the Netherlands' office
who previously were employed by Edwards.

The
completion of the MedQuest Acquisition will result in the addition of approximately 25 employees at a facility located in Salt Lake City, Utah.

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 highly-skilled labour pools in
Oakland where there are well-developed technology industries.

None
of our employees is subject to a collective bargaining agreement nor have we experienced any work stoppages. We believe that our relations with our employees are good.

RISK FACTORS

You should carefully consider the following risk factors related to our business and the MedQuest Acquisition, the Maverick private placement and the Warrant
Exercise & Debenture Conversion, in evaluating the business of WorldHeart. The risk factors include risks related to the combined businesses of WorldHeart and MedQuest. 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 or results of operations could be materially adversely affected.

Risk Factors Relating to our Business

We have had substantial losses and limited revenues earned since incorporation.

Since its founding in 1996, WorldHeart has invested approximately $200 million in internally developed and acquired technologies. These form the basis for
the business of WorldHeart today. Research and development expenses have been reduced in the past two years and are expected to be increased in relation to the completion and regulatory approval of
products currently under development. In addition, overall expense levels have been reduced during the past two years, while marketing and sales expenses have increased. If the MedQuest Acquisition is
completed, there will be an increase in our research and development and other expenses.

WorldHeart
generated revenues of $9,575,761 from commercial sales of the Novacor LVAS for the year ended December 31, 2004 ($6,775,807 for the year ended December 31,
2003). We believe that we will be able to generate increased revenues on the basis of the current product and regulatory approvals that have been granted to date. However, there can be no assurance
that we will be able to generate the level of revenues required to achieve profitability and to fund research and development activities.

We
anticipate the closing of the MedQuest Acquisition in the second quarter of 2005. Since its founding in 1993, MedQuest has generated losses from operations and currently does not have
a commercially available revenue-generating product. For the six months ended December 31, 2004, MedQuest had a net loss of $1.9 million ($2.2 million for the year ended
June 30, 2004). If the MedQuest Acquisition is completed, we are committed to making additional significant expenditures for the MedQuest rotary VAD project in fiscal 2005 and subsequent fiscal
years, which will likely result in losses from these activities in future periods. These expenditures include costs associated with performing pre-clinical and clinical trials for the
MedQuest rotary VAD, continuing research and development, seeking regulatory approvals and, if we receive these approvals, commencing commercial manufacturing, sales and marketing of the MedQuest
rotary VAD.

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We will require significant capital investment to bring future products and product enhancements to market.

Our
investment of capital could be significant. Developing our technology, future products and continued product enhancements, including those of the MedQuest rotary VAD technology that
we are acquiring, require a commitment of substantial funds to conduct the costly and time-consuming research and clinical trials necessary for such development. If adequate funds are not
available when required, we may be required to delay, reduce the scope of or eliminate one or more of our research or development programs or obtain funds through arrangements with collaborative
partners or others that may require us to relinquish rights to certain of our technologies, potential products or products that we would otherwise seek to develop or commercialize ourselves. The
inability to obtain additional financing when needed would likely have a material adverse effect on our business, financial condition and results of operations.

We may be unable to obtain regulatory approvals.

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

In
the United States, WorldHeart commenced its RELIANT Trial in the second quarter of 2004 where the Novacor LVAS is being randomized to the HeartMate XVE, which is the control
arm. It is expected that data from this trial will support a PMA Supplement, which will be submitted to the FDA for the use of the Novacor LVAS for destination therapy. However, there can be no
assurance that the FDA will act quickly or favourably in the review of this application to market.

The
Novacor II is expected to begin animal trials in 2005, commence initial clinical trials in 2007 and receive commercial approvals in Europe in 2008 and in the United States in
2010. In addition, the MedQuest rotary VAD is expected to commence an initial feasibility clinical trial in 2005 and is expected to receive commercial approvals in Europe in 2007 and in the
United States in 2009.

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

We are dependent on a limited number of products.

Our future financial performance is expected to depend on the successful sales and marketing of the Novacor LVAS, the development, introduction, customer
acceptance and successful sales and marketing of WorldHeart's Novacor II and, if the MedQuest Acquisition is completed, of a rotary VAD. To date, all of our revenues have resulted from sales of the
Novacor LVAS and related technologies. The MedQuest rotary VAD is now at an advanced stage of development and is expected to commence an initial feasibility clinical trial in 2005, and is expected to
receive commercial approvals in Europe in 2007 and in the United States in 2009. Our Novacor II is expected to begin animal trials in 2005, commence initial clinical trials in 2007 and receive
commercial approvals in Europe in 2008 and in the United States in 2010. There is presently limited pre-clinical data relating to our Novacor II and no applications for any clinical
trials or regulatory approvals have been made. Prior to any commercial use, the technologies relating to the Novacor II and to the MedQuest rotary VAD will require pre-clinical and
extensive clinical testing, as well as regulatory approvals.

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Our
future financial performance will depend, in significant part, on successful development, introduction and customer acceptance of our current generation Novacor LVAS and future
Novacor II and MedQuest rotary VAD products. We currently have no clinical data relating to our products under development. 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 successful commercialization of the Novacor II and of the MedQuest rotary VAD. There can be no assurance that we will not experience difficulties that could delay or prevent the
commercialization of the Novacor II or of the MedQuest rotary VAD. Any significant delays in, or premature termination of, clinical trials of our products under development could have a material
adverse effect on our business, financial condition and results of operations.

Market acceptance of our technologies and products is uncertain.

The Novacor LVAS and our next-generation Novacor II and MedQuest rotary VAD represent ventricular assist technologies that must compete with other
products as well as with other therapies for heart failure, such as medication, transplants, cardiomyoplasty and total artificial heart devices.

Failure
of our products and their underlying technologies to achieve significant market acceptance 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 drugs and pacing, our products will compete with ventricular
assist technology being developed and sold by a number of other companies. Competition from device companies and medical device subsidiaries of healthcare and pharmaceutical companies is intense and
expected to increase.

Some
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 which are more effective than those developed or marketed by us or that could render our technology and products non-competitive or obsolete, or we may
not be able to keep pace with technological developments, all of which could have a material adverse effect on our business, financial condition and results of operations.

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 associated with the products from third-party payers, including governmental and private health insurers and managed care
organizations. Consequently, we expect that our products will typically be purchased by healthcare providers, clinics, hospitals and other users who will bill various third-party payers, such as
government programs and private insurance plans, for the healthcare services provided to their patients.

The
coverage and the level of payment provided by third-party payers in the United States and other countries vary according to a number of factors, including the medical
procedure, third-party payer, location and cost. In the United States, many private payers follow the recommendations of the CMS, which establishes guidelines for the 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 could have a material adverse effect on our business, financial condition and results of operations.

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We control intellectual property and if we cannot protect our intellectual property, our business could be adversely affected.

Our
intellectual property rights and those we will acquire from MedQuest are and will continue to be a critical component of our success. The loss of critical licenses, patent 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 licenses, patents and 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 patent law, and may
not adequately protect our proprietary information. Our competitors may independently develop proprietary non-infringing technologies and processes that are substantially equivalent to
ours, or design around our patents. Companies in the medical device industry typically obtain patents and frequently engage in substantial intellectual property litigation. Our products and
technologies could infringe on the rights of others. If a third party successfully asserts a claim for infringement against us, we may be liable for substantial damages, we may be unable to sell
products using that technology or we may have to seek a license or redesign the related product. These alternatives may be uneconomical or impossible. Patent litigation could be costly, result in
product development delays, and divert the efforts and attention of management from our business.

The
validity of any of our critical licenses or patents may be challenged by others, and we could encounter legal and financial difficulties in enforcing our licenses and patent rights
against alleged infringers. In addition, others could develop technologies or obtain patents, which would render our patents and patent rights obsolete. Although we do not believe patents are the sole
determinant in the commercial success of our products, the loss of a significant percentage of our licenses or patents could have a material adverse effect on our business, financial condition and
results of operations.

Claims
by competitors and other third parties that our products allegedly infringe the patent rights of others could have a material adverse effect on our business. The medical device
industry is characterized by frequent and substantial intellectual property litigation. The cardiovascular device market is characterized by extensive patent and other intellectual property claims.
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 of the efforts of WorldHeart's 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 or pay royalties that may be substantial. Furthermore, we cannot assure that necessary licenses would be
available on satisfactory terms, or at all. Accordingly, an adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing
or selling certain of our products, any of which could have a material adverse effect on our business, financial condition and results of operations.

We are exposed to product liability claims.

Our business exposes us to an inherent risk of potential product liability claims related to the manufacturing, marketing and sale of the Novacor LVAS, our
next-generation Novacor II and, if the MedQuest Acquisition is completed, the MedQuest rotary VAD, by device recipients in whom the devices are implanted 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 WorldHeart. A successful claim brought
against us in excess of, or outside of, our insurance coverage could have a material adverse effect on our business, financial condition and results of operations. Claims against WorldHeart,
regardless of their merit or potential outcome, could also have a material adverse effect on our ability to obtain physician endorsement of our products or to expand our business, which could have a
material adverse effect on our business, financial condition and results of operations.

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

The
manufacture of our products and MedQuest 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. Achieving continued cost reductions will depend upon our ability to reduce material costs and reduce the time required to complete certain
manufacturing processes. The conduct of manufacturing operations is subject to numerous risks, including reliance on third-party manufacturers, unanticipated technological problems and delays.
WorldHeart, 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. Failure or delay by WorldHeart or any third-party manufacturer of our products or product components to comply with applicable regulations or to satisfy regulatory
inspections could have a material adverse effect on our business, financial condition and results of operations.

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

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.

On
August 25, 2004, we announced plans to consolidate our operations from Ottawa, Ontario to Oakland, California over a period of nine months and, as a result, employees
previously based in Ottawa have been terminated. The failure to manage successfully the geographic consolidation and the integration of new employees could have a material adverse effect on our
business, financial condition and results of operations.

In
the past MedQuest has depended heavily on the contributions of its President and Chief Executive Officer, certain directors, and several other principal members of its technical,
sales and support, regulatory and clinical, operating and administrative management and staff, many of whom would be difficult to replace. It is anticipated that all key MedQuest employees will become
employees of WorldHeart upon completion of the MedQuest Acquisition. However, there is no assurance that we will be able to retain these individuals.

The price of our shares is highly volatile.

As a one-product, small capitalization biotechnology company, the price of our common shares has been, and is likely to continue to be, highly
volatile. Future announcements concerning us or our competitors, quarterly variations in operating results, introduction of new products, delays in the introduction of new products or changes in
product pricing policies by us or our competitors, acquisition or loss of significant customers, partners, distributors and suppliers, changes in earnings' estimates by analysts, regulatory
developments, or fluctuations in the economy or general market conditions, among other factors, could cause the market price of our common shares to fluctuate substantially. There can be no assurance
that the market

17

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price
of our common shares will not decline below its current price or that it will not experience significant fluctuations in the future, including fluctuations that are unrelated to our performance.

The
stock market in recent years has experienced extreme price and volume fluctuations that have particularly affected the market prices of many smaller companies. The trading price of
our common shares is expected to be subject to significant fluctuations in response to variations in quarterly operating results, announcements of innovations by us or our competitors, general
conditions in the industry in which we operate and other factors. These fluctuations, as well as general economic and market conditions, may have a material adverse effect on the market price of our
common shares.

We incur risks associated with acquisitions.

We evaluate, and following the MedQuest Acquisition will continue to evaluate, potential acquisitions of complementary businesses, products and technologies. Such
acquisitions could subject us to numerous risks, including risks associated with the integration into WorldHeart of new employees and technology. Moreover, the negotiation and completion of such
transactions involves the diversion of resources from our core business operations. In addition, acquisitions could result in immediate and substantial dilution to our existing shareholders, large
one-time write-offs or the creation of goodwill or other intangible assets. The failure to successfully evaluate, negotiate, effect and integrate an acquisition transaction
could have a material adverse effect on our business, financial condition and results of operations.

We incur risks associated with changes in currency valuations.

WorldHeart's business is conducted in multiple currencies and WorldHeart may be subject to foreign exchange losses.

WorldHeart's
functional and reporting currency is the United States dollar. However, certain assets, liabilities, revenues and expenses are dominated and occur in foreign
currencies including the Euro and Canadian dollar. There can be no assurances that WorldHeart will not suffer losses associated with fluctuations of the United States dollar compared to these
foreign currencies.

Risk Factors Related to the MedQuest Acquisition, the Maverick Private Placement and the Warrant Exercise & Debenture Conversion

The availability of additional common shares upon the completion of the MedQuest Acquisition, the Maverick private placement and the Warrant Exercise & Debenture
Conversion could depress the price of our common shares.

Immediately
following the completion of the MedQuest Acquisition, the Maverick private placement and the Warrant Exercise & Debenture Conversion a significant number of additional
WorldHeart common shares will be available for trading in the public market. The additional shares in the market may cause the price of our common shares to decline. Also, if our shareholders sell
substantial numbers of our common shares in the public market following completion of the transactions, the market price of our common shares could fall. These sales might also make it more difficult
for us to sell equity or equity related securities at a time and price that we would deem appropriate. All of the common shares of WorldHeart issued to MedQuest pursuant to the MedQuest Acquisition
and to Maverick pursuant to the private placement will be registered shortly following completion of those transactions, and following registration will become freely tradable without restrictions or
further registration. Immediately upon completion of the Warrant Exercise & Debenture Conversion all of the WorldHeart common shares issued pursuant to that transaction, will become freely
tradable without restrictions or further registration, in each case, under the Securities Act of 1933, as amended, unless the shares are held by an "affiliate" of WorldHeart, as that term is defined
under the Securities Act of 1933, as amended.

The MedQuest Acquisition may stimulate competition and we may not be able to compete successfully.

The
MedQuest Acquisition may cause our competitors to enter business combinations or accelerate product development. These and other competitive practices could create more powerful or
aggressive competitors. There is a risk that we will not be able to compete successfully as future markets evolve. Increased

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competitive
pressure could lead to lower sales and prices of our products, and this could harm our business, results of operations and financial condition.

The integration of the WorldHeart and MedQuest businesses may be costly and we may fail to successfully effect the integration.

Our
ability to realize some of the anticipated benefits of the MedQuest Acquisition will depend in part on our ability to integrate MedQuest's operations into our current operations in a
timely and efficient manner. The integration process will require significant efforts from each of our management and the management of MedQuest. The MedQuest rotary VAD development will continue to
be conducted from the current MedQuest facilities in Salt Lake City, Utah. The integration process may distract management's attention from the day-to-day business of the
combined company. If we are unable to successfully integrate the operations of MedQuest or if this integration process is delayed or costs of integration are more than expected, our business,
operating results and financial condition may be negatively impacted.

The concentration of our capital stock ownership following the completion of the MedQuest Acquisition, private placement to Maverick and Warrant Exercise & Debenture
Conversion will limit your ability to influence corporate matters.

As
of March 30, 2005, one shareholder exercised control over approximately 14.43% of our issued common shares. Upon completion of the MedQuest Acquisition and the private
placement to Maverick and the related conversion of debentures and exercise of warrants, Maverick, directly and indirectly, will control approximately 33% of our issued common shares. As such,
Maverick will exercise significant influence over all matters requiring shareholder approval, including the election of directors and significant corporate acquisitions such as a merger or other sale
of our company or its assets for the foreseeable future. This concentrated control will limit your ability to influence corporate matters, and, as a result, we may take actions that our shareholders
do not view as beneficial. As a result, the market price of our common shares could be adversely affected.

Item 2.    Description of Property.

Our Facilities

Our registered office is located in Ottawa, Ontario. Our facilities in Ottawa comprise 22,755 square feet of manufacturing and office space with a
lease that expires on December 31, 2006. We are currently attempting to dispose of this office space as part of our consolidation and we will maintain only a sales function in Canada. As
part of the consolidation of our operations which commenced in August 2004, we have moved our head office to Oakland, California where we have two buildings and approximately
40,000 square feet of manufacturing and office space. This space was obtained as part of the Novacor acquisition and continues to
be the sole manufacturing facility for the Novacor LVAS. The Oakland lease expires on April 30, 2007. Our office in Heesch, Netherlands consists of approximately 2,500 square feet
under a lease expiring December 31, 2007. Upon completion of the acquisition of MedQuest, we will also have facilities in Salt Lake City, Utah totalling approximately
24,000 square feet.

We
are not aware of any environmental issues that may affect the use of our properties.

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.    Submission of Matters to a Vote of Security Holders.

None

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PART II

Item 5.    Market for Common Equity and Related Stockholder Matters.

Our common shares trade on the NASDAQ under the symbol WHRT and on the Toronto Stock Exchange (TSX) under the symbol WHT. Our common shares began trading on the
NASDAQ commencing in August 1998 but were delisted on October 15, 2002 and were quoted on the NASDAQ OTC Bulletin Board from October 15, 2002 until March 17, 2004. Our
common shares were readmitted to trading on NASDAQ on March 18, 2004. On December 1, 2003, WorldHeart amended its articles to effect a one common share for seven common shares
consolidation and began trading on a post-consolidated basis on December 4, 2003.

The
following table sets forth the high and low bid prices for our common shares as reported on the NASDAQ OTC Bulletin Board for each of the quarters from the quarter ended
March 31, 2003 through March 17, 2004.

|                                 |  | Common Shares
|-------------------------------- |  | -------------
|
|Quarter Ended                    |  |              
|March 31, 2003                   |  | $            
|June 30, 2003                    |  | $            
|September 30, 2003               |  | $            
|December 31, 2003                |  | $            
|January 1, 2004  March 17, 2004 |  | $            

The
following table sets forth the high and low sales prices for our common shares as reported on the NASDAQ for each of the quarters from the quarter ended March 31, 2004 through
March 30, 2005.

|                                                 |  | Common Shares
|------------------------------------------------ |  | -------------
|
|Quarter Ended                                    |  |              
|March 31, 2004 (March 18, 2004  March 31, 2004) |  | $            
|June 30, 2004                                    |  | $            
|September 30, 2004                               |  | $            
|December 31, 2004                                |  | $            
|Month Ended                                      |  |              
|January 31, 2005                                 |  | $            
|February 28, 2005                                |  | $            
|March 1, 2005 to March 30, 2005                  |  | $            

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The
following table sets forth the high and low sales prices for our common shares as reported on the TSX for each of the quarters from the quarter ended March 31, 2003 through
March 30, 2005.

|                                |  | Common Shares
|------------------------------- |  | -------------
|
|Quarter Ended                   |  |              
|March 31, 2003                  |  | Cdn$         
|June 30, 2003                   |  | Cdn$         
|September 30, 2003              |  | Cdn$         
|December 31, 2003               |  | Cdn$         
|March 31, 2004                  |  | Cdn$         
|June 30, 2004                   |  | Cdn$         
|September 30, 2004              |  | Cdn$         
|December 31, 2004               |  | Cdn$         
|Month Ended                     |  |              
|January 31, 2005                |  | Cdn$         
|February 28, 2005               |  | Cdn$         
|March 1, 2005 to March 30, 2005 |  | Cdn$         

As
of March 30, 2005, the approximate number of holders of record of our common shares was 200 and the approximate number of beneficial holders of our common shares was 9,400.

EQUITY COMPENSATION PLAN INFORMATION

WorldHeart adopted the WorldHeart Corporation Employee Stock Option Plan (the Plan) on December 6, 1996 and amended and restated the Plan on
March 6, 1997, October 27, 1997, October 27, 1998, February 23, 1999, May 15, 2000, April 26, 2001, May 1, 2002, October 16, 2003,
March 9, 2004, September 23, 2004 and on January 31, 2005. The Plan is intended to encourage ownership in WorldHeart's shares by employees, officers, directors and consultants of
WorldHeart. The Plan is administered by the Compensation Committee. The maximum number of common shares which may be reserved and set aside under options to eligible persons pursuant to the Plan is
1,501,857 common shares, and subject to shareholder approval being sought at the 2005 Annual and Special Meeting of Shareholders will be increased to 9,772,505 common shares.
Subject to shareholder approval being sought at the 2005 Annual and Special Meeting of Shareholders, the maximum number of common shares reserved for issuance to any one person under the Plan
has been amended by the board of directors to remove the limitation of 5% of the issued and outstanding common shares from time to time. Pursuant to the Plan, the option exercise price for all options
is determined by the Compensation Committee based on the closing price of the common shares on the TSX on the date immediately prior to the date of grant. Unless otherwise determined by the
Compensation Committee, options will vest in equal amounts on each of the first, second and third anniversaries of the date of grant and must be exercised within a four year period from the last date
of vesting. Some options previously granted under the Plan vest over a five year period and must be exercised within a four year period from the date of vesting.

21

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|Plan Category                                              |  | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights
(a) |     | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights
(b) |      | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
(c) |          
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------- | --- | ------------------------------------------------------------------------------- | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------- | ---------
|Equity compensation plans approved by security holders     |  | 2,921,086                                                                                       | (1) | $                                                                               | 3.41 |                                                                                                                                                 | 1,950,275
|                                                           |  |                                                                                                 |     |                                                                                 |      |                                                                                                                                                 |          
|Equity compensation plans not approved by security holders |  |                                                                                                |     |                                                                                 |     |                                                                                                                                                 |         
|                                                           |  |                                                                                                 |     |                                                                                 |      |                                                                                                                                                 |          
|Total                                                      |  | 2,921,086                                                                                       |     | $                                                                               | 3.41 |                                                                                                                                                 | 1,950,275
|                                                           |  |                                                                                                 |     |                                                                                 |      |                                                                                                                                                 |          

---

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

INTRODUCTION

World Heart Corporation and its subsidiaries are collectively referred to as "WorldHeart". The following Management Discussion and Analysis of Financial Condition
and Results of Operations ("MD&A") was prepared by management as of March 21, 2005, was approved by the Board of Directors and discusses material changes in WorldHeart's financial condition and
results of operations and cash flows for the years ended December 31, 2004, 2003 and 2002. Such discussion and comments on the liquidity and capital resources should be read in conjunction with
the information contained in the accompanying audited consolidated financial statements prepared in accordance with U.S. GAAP. In this discussion, all amounts are in United States
dollars ("U.S. dollars") unless otherwise stated.

The
discussion and comments contained hereunder include both historical information and forward-looking information. The forward-looking information, which generally is information
stated to be anticipated, expected, or projected by management, involves known and unknown risks, uncertainties and other factors that may cause the actual results and performance to be materially
different from any future results and performance expressed or implied by such forward-looking information. Potential risks and uncertainties include, without limitation, the uncertainties inherent in
the development of new products for use in the human body, WorldHeart's need for significant additional funding, successful integration of acquisitions, WorldHeart's need to establish reimbursement
mechanisms and product acceptance from third-party payers, extensive government regulation of our products, rapid developments in technology, including developments by competitors, potential lack of
anticipated synergies and efficiencies of scale related to the MedQuest acquisition, and potential difficulties in the integration of the MedQuest operations.

OVERVIEW

WorldHeart is a global medical device company currently focused on the development and commercialization of implantable pulsatile VADs, which are mechanical pumps
that allow for the restoration of normal blood circulation to patients suffering from late-stage congestive heart failure. WorldHeart has facilities in Ottawa, Ontario, Canada, Oakland,
California, United States and Heesch, Netherlands. WorldHeart currently derives substantially all of its revenue from its Novacor LVAS (left ventricular assist system) and related peripheral
equipment.

22

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WorldHeart
manufactures and distributes the Novacor LVAS. The Corporation sells its Novacor products directly to medical clinics and hospitals in the United States, most of Europe
and Canada and through a distributor in Japan and certain other countries.

The
Novacor LVAS is commercially approved as a bridge to transplantation device in the United States and Canada. In Europe, the Novacor LVAS has unrestricted approval for use as
an alternative to transplantation, a bridge to transplantation, and to support patients who may have an ability to recover the use of their natural heart. In Japan, the device is commercially approved
for use in cardiac patients at risk of imminent death from non-reversible left ventricular failure for which there is no alternative except heart transplantation.

WorldHeart
has commenced a long-term use (Destination Therapy) trial in the United States called RELIANT (Randomized
Evaluation of the Novacor LVAS in a
Non-Transplant Population). Data from the RELIANT Trial is expected to support a Pre-market Approval Supplement that
will request approval for the use of the Novacor LVAS by non-transplant eligible patients (Destination Therapy) in the United States.

WorldHeart
is in the process of developing a next-generation implantable pulsatile VAD and, subject to certain approvals, has recently agreed to acquire, from MedQuest, the
technology associated with a magnetically levitated centrifugal rotary VAD. Development work on the Novacor II miniature pulsatile VAD will continue with initial clinical trials in 2007, and initial
commercial approvals in Europe in 2008 and in the United States in 2010.

SELECTED FINANCIAL INFORMATION

All financial information is prepared in accordance with U.S. GAAP and is stated in U.S. dollars. Effective January 1, 2004, our functional
currency was deemed to have changed from the Canadian dollar to the
U.S. dollar. In general, this change resulted from the restructuring and issuance of common shares and warrants that occurred in the year ended December 31, 2003, along with a gradual
increase in the overall proportion of business activities conducted in U.S. dollars and with the expectation that this trend will continue. Concurrent with this change in functional currency,
we adopted the U.S. dollar as our reporting currency.

|                                           |  | Year ended December 31, 2004 |             | Year ended December 31, 2003 |   | Year ended December 31, 2002 |  
|------------------------------------------ |  | ---------------------------- | ----------- | ---------------------------- | - | ---------------------------- | -
|Net revenue                                |  | $                            | 9,575,761   |                              | $ | 6,775,807                    |  
|Net loss for the year                      |  |                              | (26,141,798 | )                            |   | (14,629,054                  | )
|Net loss applicable to common shareholders |  |                              | (26,141,798 | )                            |   | (18,168,304                  | )
|Basic and diluted loss per share           |  |                              | (1.70       | )                            |   | (2.90                        | )
|Total assets                               |  |                              | 42,258,430  |                              |   | 50,180,069                   |  
|Long term liabilities                      |  | $                            | 8,193,508   |                              | $ |                             |  

SUMMARY OF QUARTERLY RESULTS

|                                           |  | Three Months Ended |           
|------------------------------------------ |  | ------------------ | ----------
|
|Net revenue                                |  | $                  | 2,986,980 
|Net loss                                   |  |                    | (6,293,510
|Net loss applicable to common shareholders |  |                    | (6,293,510
|Basic and diluted loss per common share    |  | $                  | (0.41     

23

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|
|

|                                           |  | Three Months Ended |           
|------------------------------------------ |  | ------------------ | ----------
|
|Net revenue                                |  | $                  | 559,704   
|Net loss                                   |  |                    | (4,846,928
|Net loss applicable to common shareholders |  |                    | (6,864,152
|Basic and diluted loss per common share    |  | $                  | (0.47     

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004 COMPARED TO THE YEAR ENDED DECEMBER 31, 2003

Consolidated results of operations

|                                    |                | Year ended December 31, 2004 |             | As a % of net revenue |     | December 31, 2003 |   | As a % of net revenue
|----------------------------------- | -------------- | ---------------------------- | ----------- | --------------------- | --- | ----------------- | - | ---------------------
|Revenue                             |                |                              |             |                       |     |                   |   |                      
|                                    | Gross revenues |                              | $           | 9,575,761             |     |                   |   | $                    
|                                    | Less: returns  |                              |             |                      |     |                   |   |                      
|                                    |                |                              |             |                       |     |                   |   |                      
|                                    | Net revenue    |                              |             | 9,575,761             |     | 100%              |   |                      
|Cost of goods sold                  |                |                              | (7,680,384  | )                     | 80% |                   |   | (4,968,898           
|                                    |                |                              |             |                       |     |                   |   |                      
|Gross margin                        |                |                              | 1,895,377   |                       | 20% |                   |   | 1,806,909            
|Selling, general and administrative |                |                              | (13,363,796 | )                     |     |                   |   | (7,263,759           
|Research and development            |                |                              | (5,838,754  | )                     |     |                   |   | (9,604,080           
|Restructuring costs                 |                |                              | (1,787,129  | )                     |     |                   |   | (3,356,487           
|Amortization of intangibles         |                |                              | (515,012    | )                     |     |                   |   | (1,938,595           
|Foreign exchange gain (loss)        |                |                              | (308,338    | )                     |     |                   |   | 10,055,129           
|Investment income                   |                |                              | 99,427      |                       |     |                   |   | 105,596              
|Loss on disposal of capital assets  |                |                              | (46,431     | )                     |     |                   |   | (27,147              
|Interest and financing expenses     |                |                              | (6,277,142  | )                     |     |                   |   | (4,406,620           
|                                    |                |                              |             |                       |     |                   |   |                      
|Net loss                            |                | $                            | (26,141,798 | )                     |     |                   | $ | (14,629,054          
|                                    |                |                              |             |                       |     |                   |   |                      

Revenue.The sale of Novacor LVAS implant kits and related peripheral equipment and services accounts
for substantially all of WorldHeart's revenues. WorldHeart primarily sells its products directly, except for certain countries, including Japan, where we sell through distributors. Prior to
January 1, 2004, WorldHeart sold its products directly in the United States and to our distributor, Edwards Lifesciences LLC ("Edwards"), outside the United States.

The
composition of revenue is as follows:

|                                |                         | Year ended December 31, 2004 |   | Year ended December 31, 2003 |  
|------------------------------- | ----------------------- | ---------------------------- | - | ---------------------------- | -
|
|Gross implant revenue / kits    |                         | 7,055,643                    |   | 113                          |  
|Peripherals and other           |                         | 2,520,118                    |   |                              |  
|                                |                         |                              |   |                              |  
|Gross revenue before returns    |                         | 9,575,761                    |   | 113                          |  
|Re-purchased Edwards inventory: |                         |                              |   |                              |  
|                                |  Implant kits          |                              |  |                              | 
|                                |  Peripherals and other |                              |  |                              |  
|                                |                         |                              |   |                              |  
|Net revenue / kits              |                         | 9,575,761                    |   | 113                          |  
|                                |                         |                              |   |                              |  

24

---



Net
revenue for the year ended December 31, 2004 increased to approximately $9.6 million representing an increase of 41% over the year ended December 31, 2003.
Implant kit net revenue in 2003 includes the return of 20 units, which WorldHeart re-acquired in connection with the amendments to the distribution agreement with Edwards in
December 2003. Net implant kits recognized as revenue in 2004 increased by 15% compared to 2003.

Peripherals
and other revenues, including Novacor LVAS hardware and peripheral sales and services for the year ended December 31, 2004, were approximately $2.5 million,
which represents an increase of 82% over other revenue of approximately $1.4 million (gross revenue of approximately $1.9 million less returns of approximately $505,000) recorded in the
year ended December 31, 2003. We anticipate that the proportionate sales may shift from hardware, peripheral and service sales to implant kit sales as centres enrolled in our RELIANT Trial
increase implant volume under the program.

Gross
revenue increased to approximately $9.6 million representing an increase of 21% over the year ended December 31, 2003. Novacor LVAS implant kit gross revenue
increased to approximately $7.1 million for the year ended December 31, 2004 compared to approximately $6.0 million for the year ended December 31, 2003 representing an
increase of 18%. The gross number of implant kits recognized as revenue in the year ended December 31, 2004 was 113 compared to 118 in the year ended December 31, 2003. The
revenue per kit increased substantially for sales outside of the United States and Japan due primarily to the shift to selling direct to medical centers rather than through a distributor.

An
additional 17 implant kits were shipped and invoiced in the year ended December 31, 2004, however, these kits were deferred as revenue at the time of shipment as the
transactions did not meet our revenue recognition criteria. These kits remain in deferred revenue at December 31, 2004 representing approximately $1,020,000 and will be recognized as the
earnings process is completed in future periods.

WorldHeart
sold 59 implant kits in the United States in 2004 compared to 51 implant kits in 2003. In Europe, Canada and the rest-of-world,
excluding Japan, WorldHeart sold 44 implant kits in 2004 compared to 44 in 2003 (64 kits less the return of 20 kits). Japanese sales totaled ten implant kits in 2004
compared to three in 2003.

During
the second quarter of 2004, WorldHeart announced its RELIANT Trial and implantation commenced under the RELIANT Trial in the third quarter of 2004. The RELIANT Trial is a
randomized 40 center equivalency trial where patients will receive a Novacor LVAS or Thoratec Corporation's Heartmate® XVE LVAS on a 2:1 ratio and where Heartmate is the
control arm. At December 31, 2004, WorldHeart has enrolled nine (9) centers under the RELIANT Trial with five (5) implants.

Cost of goods sold.For the year ended December 31, 2004, the overall cost of goods sold
increased to 80% of revenue as compared to 73% for the year ended December 31, 2003.

Despite
continued efforts to improve per unit manufacturing costs, we continued to experience significant production inefficiencies during 2004 caused by supply shortages due to quality
control and production volumes well below capacity. This resulted in higher Novacor LVAS per unit production costs. We expect the cost per unit to decrease as we continue to address the supply issues
and increase production.

Gross
margin for the year ended December 31, 2004 decreased to 20% of revenues from 27% of revenues for the year ended December 31, 2003. This decrease was due to
production inefficiencies, which were partially offset by a shift to direct selling. In addition, certain low margin sales were made to new centers for the initial equipment investment needed to begin
a Novacor LVAS implant program at the center. Improvement in gross margin percentage is expected as discounts offered to new centers decrease and as costs per unit decrease from contract manufacturing
of some components and production volume increases.

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

25

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The
composition of selling, general and administrative expenses is as follows:

|                           |  | Year ended December 31, 2004 |            | Year ended December 31, 2003
|-------------------------- |  | ---------------------------- | ---------- | ----------------------------
|Selling                    |  | $                            | 7,369,558  |                             
|General and administrative |  |                              | 5,994,238  |                             
|                           |  |                              |            |                             
|                           |  | $                            | 13,363,796 |                             
|                           |  |                              |            |                             

Selling,
general and administrative expenses for the year ended December 31, 2004 increased by approximately $6.1 million or 84% from the same period in 2003. Selling
expenses increased during 2004, as compared to 2003, as WorldHeart assumed responsibility for its direct sales in Europe and increased sales and marketing program expenditures in the
United States. The comparative sales expenses for the year ended December 31, 2003 were constrained as a result of our financial position at that time. General and administrative
expenses have also increased with the expanded infrastructure required to support a broadened sales responsibility and due to increases in communication expenses, professional fees, insurance costs
and multi-jurisdictional regulatory costs. Costs related to the European distribution operations and the related support are fully reflected in the results for the year ended December 31, 2004.
In the third quarter of 2004, WorldHeart commenced the consolidation of its North American operations. This is anticipated to result in a decrease in general and administrative expenses in 2005.

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

Research
and development expenses for the year ended December 31, 2004 decreased by approximately $3.8 million or 39% compared to year ended December 31, 2003. Gross
research and development expenditures excluding the impact of government programs decreased by 42% to approximately $6.0 million in 2004 compared to approximately $10.3 million in 2003.

|                                        |  | Year ended December 31, 2004 |           | Year ended December 31, 2003 |  
|--------------------------------------- |  | ---------------------------- | --------- | ---------------------------- | -
|Gross research and development expenses |  | $                            | 5,975,344 |                              | $
|Investment tax credits                  |  |                              | (136,590  | )                            |  
|                                        |  |                              |           |                              |  
|Net research and development expenses   |  | $                            | 5,838,754 |                              | $
|                                        |  |                              |           |                              |  

Lower
research and development costs for year ended December 31, 2004 compared to the same period in 2003 reflect expense reductions associated with the merged
next-generation VAD development program and reduced pre-clinical and clinical trial expenses. The cost reduction programs were completed in fiscal year 2003 and the expense
reductions were realized in 2004. Development work on the next-generation pulsatile VAD will continue with initial clinical trials expected to begin in 2007.

Investment
tax credits for the year ended December 31, 2004 totaled approximately $137,000 and relate to a Canadian provincial government investment tax credit program. A credit
of approximately $2.3 million was recorded against research and development expense for the year ended December 31, 2003 relating to a Canadian federal tax credit program. However, in
the same period a provision of approximately $1.7 million was recorded against research and development expense relating to a provincial tax credit program claim that was recorded in a prior
period but was, and continues to be, under dispute. WorldHeart continues to review various tax credit programs but only records a credit when collection of the claim is reasonably assured.

Restructuring costs.On August 25, 2004, we approved a plan to consolidate the Ottawa, Ontario
operations into our facilities in Oakland, California where the Novacor LVAS is manufactured. The consolidation of the

26

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North
American operations into one location is expected to reduce ongoing business expenses and improve operational efficiency and effectiveness.

WorldHeart
expects the restructuring to be completed by the end of June 2005 and expects to incur total restructuring charges of approximately $2.6 million comprised as
follows:

|                             |  | 2004
|---------------------------- |  | ----
|
|Employee severance costs     |  | $   
|Contract settlement costs    |  |     
|Write down of capital assets |  |     
|Other costs                  |  |     
|                             |  |     
|                             |  | $   
|                             |  |     

During
the year ended December 31, 2004, actual restructuring costs of approximately $1.8 million have been recorded. Employee severance costs represent the amount
employees have earned to December 31, 2004. Contract settlement costs are recorded when notice is provided that the contract is being terminated and WorldHeart ceases to use the right conveyed
under the contract. The capital assets were written down to their net realizable value when the decision was made to consolidate the North American operations and it was determined that the carrying
value of the capital assets was impaired. Other restructuring costs are recognized when the services are actually received.

During
the year ended December 31, 2003, WorldHeart realigned its business operations to focus on Novacor LVAS commercial operations and to reduce research and development costs
by merging our three next-generation VAD programs. Total restructuring costs for the year ended December 31, 2003 amounted
to approximately $3.4 million. The restructuring costs related to employee severance and termination
costs were approximately $1.6 million; costs related to the buyout of a Novacor LVAS royalty agreement were approximately $1.0 million; costs related to the excess of inventory purchase
cost over the carrying value of the inventory re-purchased from Edwards were approximately $770,000; and other miscellaneous costs were approximately $13,000. The royalty
buy-out eliminated royalty payment obligations going forward of 4% of Novacor LVAS sales. Approximately $2.2 million of the 2003 restructuring costs were paid in 2003 with
approximately $1.2 million being paid in 2004. The difference of approximately $28,000 was adjusted in 2004 to reflect revised estimates for employee severance and termination costs.

Amortization of intangibles.Amortization of intangibles for the year ended December 31, 2004
was approximately $515,000 compared to approximately $1.9 million for the same period in 2003. The majority of the intangible assets arose from the purchase of the Novacor business in
June 2000. Most of these assets have now reached the end of their original estimated useful life and have been fully amortized. As at December 31, 2004, intangible assets totaling
approximately $255,000 remain unamortized.

Foreign exchange gains and losses.During the year ended December 31, 2004, a foreign exchange
loss of approximately $308,000 was recorded compared to a gain of approximately $10.0 million for the year ended December 31, 2003. The 2004 foreign exchange loss relates to the effect
of a strengthening U.S. dollar compared to the Canadian dollar during the first half of the year on net monetary assets, predominately cash and cash equivalents and short-term
investments, less current liabilities, denominated in Canadian dollars. The majority of the 2003 foreign exchange gain can be attributed to the preferred shares.

Investment income.Investment income primarily represents interest earned on cash equivalents and
short-term investments. During the year ended December 31, 2004, investment income of approximately $99,000 was recorded compared to income of approximately $106,000 for the year
ended December 31, 2003. The decrease is due to having, on average over the course of 2004, less surplus cash to invest as compared to 2003.

Interest expense and financing costs.During the year ended December 31, 2004, interest and
financing costs of approximately $6.3 million were recorded compared to costs of approximately $4.4 million during the year

27

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ended
December 31, 2003. Interest expense and financing costs in 2004 consisted mainly of the non-cash charge of the beneficial conversion feature of the convertible debentures
issued on September 15, 2004, totaling approximately $5.8 million and the corresponding interest related to the convertible debentures. These non-cash interest charges will
continue to accrete ratably on the convertible debentures until their conversion or maturity. It is anticipated that all outstanding debentures will be converted in accordance with the terms of the
MedQuest acquisition. Interest expense and financing costs for the year ended December 31, 2003 consisted of interest on loan obligations that were outstanding during the year as well as the
costs of entering into the loan obligations. In September 2003, the loans were repaid in full.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2003 COMPARED TO THE YEAR ENDED DECEMBER 31, 2002

Consolidated results of operations

|                                    |                       | Year ended December 31, 2003 |             | As a % of net revenue |     | Year ended December 31, 2002 |   | As a % of net revenue
|----------------------------------- | --------------------- | ---------------------------- | ----------- | --------------------- | --- | ---------------------------- | - | ---------------------
|Revenue                             |                       |                              |             |                       |     |                              |   |                      
|                                    | Gross revenues        |                              | $           | 7,883,203             |     |                              |   | $                    
|                                    | Less: Sales returns   |                              |             | (1,107,396            | )   |                              |   |                      
|                                    | Edwards guarantee fee |                              |             |                      |     |                              |   |                      
|                                    |                       |                              |             |                       |     |                              |   |                      
|                                    | Net revenue           |                              |             | 6,775,807             |     | 100%                         |   |                      
|Cost of goods sold                  |                       |                              | (4,968,898  | )                     | 73% |                              |   | (6,284,996           
|                                    |                       |                              |             |                       |     |                              |   |                      
|Gross margin                        |                       |                              | 1,806,909   |                       | 27% |                              |   | 151,700              
|Selling, general and administrative |                       |                              | (7,263,759  | )                     |     |                              |   | (6,686,437           
|Research and development            |                       |                              | (9,604,080  | )                     |     |                              |   | (15,931,912          
|Restructuring costs                 |                       |                              | (3,356,487  | )                     |     |                              |   |                     
|Amortization of intangibles         |                       |                              | (1,938,595  | )                     |     |                              |   | (2,603,311           
|Foreign exchange gain               |                       |                              | 10,055,129  |                       |     |                              |   | 509,208              
|Investment income                   |                       |                              | 105,596     |                       |     |                              |   | 117,589              
|Loss on disposal of capital assets  |                       |                              | (27,147     | )                     |     |                              |   | (32,087              
|Interest and financing expenses     |                       |                              | (4,406,620  | )                     |     |                              |   | (77,423              
|                                    |                       |                              |             |                       |     |                              |   |                      
|Net loss                            |                       | $                            | (14,629,054 | )                     |     |                              | $ | (24,552,673          
|                                    |                       |                              |             |                       |     |                              |   |                      

Revenue.The sale of Novacor LVAS Implant Kits and related peripheral equipment and services accounts
for substantially all of WorldHeart's revenues. For the years presented above, WorldHeart sold its products directly in the United States and to its distributor, Edwards, outside the
United States.

The
composition of revenue is as follows:

|                                      |  | Year ended December 31, 2003 |   | Year ended December 31, 2002
|------------------------------------- |  | ---------------------------- | - | ----------------------------
|
|Gross implant revenue / kits          |  | 5,996,738                    |   | 118                         
|Peripherals and other                 |  | 1,886,465                    |   |                             
|                                      |  |                              |   |                             
|Gross revenue before returns and fees |  | 7,883,203                    |   | 118                         
|Re-purchased Edwards inventory:       |  |                              |   |                             
| Implant kits                        |  | (602,339                     | ) | (20                         
| Peripherals and other               |  | (505,057                     | ) |                             
|Edwards guarantee fee                 |  |                             |   |                             
|                                      |  |                              |   |                             
|Net revenue / kits                    |  | 6,775,807                    |   | 98                          
|                                      |  |                              |   |                             

28

---



Gross revenues from sales of the Novacor LVAS and related equipment (before returns and the Edwards guarantee) increased 15% from approximately $6.9 million in the year ended
December 31, 2002 to approximately $7.9 million in the year ended December 31, 2003. At December 31, 2003, WorldHeart purchased Novacor inventory and other assets from
Edwards as part of the amendments to the distribution agreement. The purchase of the inventory was accounted for as a sales return which reduced 2003 revenue by approximately $1.1 million

In
2003 the gross number of kits shipped for revenue increased by 13% to 118 kits compared to 104 kits in 2002. The net sale of implant kits decreased to 98 kits in
2003 from 104 kits in 2002 due to 20 kits that were treated as returns when WorldHeart re-acquired inventory associated with the amendments to the distribution agreement with
Edwards in December 2003.

In
the United States, where WorldHeart sold directly, selling prices were significantly higher than non-U.S. sales where we sold to our distributor Edwards.
WorldHeart sold 51 implant kits in the United States in 2003 compared to 39 implant kits in 2002. On December 31, 2003, WorldHeart amended its distribution agreement with
Edwards in order to sell directly in the rest of the world with the exception of Japan where Edwards will remain the sole distributor. For future periods, selling prices outside of the
United States, except Japan, will increase to reflect end-user pricing. In Europe, Canada and the rest-of-world, excluding Japan, WorldHeart sold
64 implant kits in 2003 compared to 57 in 2002. Japanese sales totaled three (3) implant kits in 2003 compared to eight (8) in 2002.

In
its distribution agreement with Edwards, WorldHeart was required to pay a minimum gross margin guarantee in the event that Edwards' gross margin generated on the sales of WorldHeart
products were below $2 million annually. The guarantee shortfall was accounted for as a reduction of revenues. Edwards' sales of WorldHeart's products were sufficient during 2003 to meet the
minimum guarantee requirement; therefore, no guarantee payment was required. The guarantee was terminated effective January 1, 2004 as part of the amendment to the Edwards distribution
agreement.

Cost of goods sold.Cost of goods sold decreased as a percentage of net revenue from 98% in 2002 to
73% in 2003.

The
decrease as a percent of revenue is partially the result of a higher proportion of product being sold in the U.S. where higher margins are earned as compared to Europe and the
rest of the world in 2003 versus 2002, the commencement of a cost reduction program for cost of sales in the fourth quarter of 2003, as well as managed reductions in indirect manufacturing support
costs and direct manufacturing overheads.

Correspondingly,
gross margins in 2003 increased to 27% of revenues from 2% of net revenues in 2002.

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

The
composition of selling, general and administrative expenses is as follows:

|                           |  | Year ended December 31, 2003 |           | Year ended December 31, 2002
|-------------------------- |  | ---------------------------- | --------- | ----------------------------
|Selling                    |  | $                            | 4,518,270 |                             
|General and administrative |  |                              | 2,745,489 |                             
|                           |  |                              |           |                             
|                           |  | $                            | 7,263,759 |                             
|                           |  |                              |           |                             

Selling,
general and administrative expenses for year ended December 31, 2003 increased by approximately $577,000 or 9% from the same period in 2002. Actual expenses remained
fairly constant year over year, however, due to the average exchange rates applied upon the change in our reporting currency, the reported U.S. dollar values show an increase in expenses. The
average exchange rate for 2003 increased approximately 12% over the average exchange rate for 2002.

29

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

Gross
research and development expenses, excluding the impact of government assistance, decreased by approximately $8.5 million or 45% to approximately $10.3 million in
2003 as compared to approximately $18.8 million in 2002. Net research and development costs for 2003 were approximately $6.3 million or 40%, lower than 2002.

|                                        |  | Year ended December 31, 2003 |            | Year ended December 31, 2002 |  
|--------------------------------------- |  | ---------------------------- | ---------- | ---------------------------- | -
|Gross research and development expenses |  | $                            | 10,299,324 |                              | $
|Investment tax credits                  |  |                              | (695,244   | )                            |  
|                                        |  |                              |            |                              |  
|Net research and development expenses   |  | $                            | 9,604,080  |                              | $
|                                        |  |                              |            |                              |  

Lower
research and development costs in 2003 compared to 2002 are due to year-over-year expense reductions associated with the merged next-generation
VAD development programs and reduced pre-clinical and clinical trial activity compared to 2002. WorldHeart continued to reduce expenditures predominantly due to a consolidation of our next
generation VAD development programs that were commenced late in 2002, which resulted in a decelerated investment in research and development throughout 2003.

WorldHeart
continued implants under the feasibility phase of the Novacor LVAS clinical trial (INTrEPID) throughout all of 2002 and into the first quarter of 2003. In addition, the next
generation pre-clinical trials were terminated in the third quarter of 2002 and there was no next generation trial activity in 2003.

During
2002, the consolidated next-generation VAD program and change in the scope necessitated an amendment to the federal government Technology Partners Canada ("TPC")
contribution agreement. On May 21, 2003, TPC approved this amendment allowing WorldHeart to claim eligible expenditures for reimbursement against the funding available under the
$6.6 million contribution agreement. As part of the amendment to the agreement, the royalty rate payable to TPC was reduced to 0.65% and is to be calculated on the consolidated revenues of
WorldHeart commencing January 1, 2004.

WorldHeart
had previously recorded as a credit against research and development expense a tax credit receivable in the amount of approximately $2.3 million related to the
provincial Ontario Business Research Institute tax credit ("OBRITC") program. The claim was associated with research payments made to the Cardiovascular Devices Division of the Ottawa Heart Institute
Research Corporation ("CVD") from 1997 to 2000. Following the completion of the provincial Ministry of Finance's audit and proposed amendments to the OBRITC legislation, a payment of approximately
$598,000 was received during the year ended December 31, 2003. The full amount of the claim is under dispute and, due to the uncertainty of the ultimate resolution of the claim, a provision for
the remainder of approximately $1.7 million was recorded in 2003. This provision was charged to research and development expense.

Restructuring costs.On September 23, 2003, WorldHeart realigned its business operations to
focus on commercial operations and to reduce research and development costs related to our next generation VAD.

WorldHeart
restructured its worldwide distribution agreement with Edwards to allow for better control over direct sales, marketing and distribution for all territories, with the
exception of Japan. WorldHeart also purchased certain inventory and capital assets from Edwards in Europe and commenced direct sales activities effective January 1, 2004. Edwards agreed to
provide certain transitional services until WorldHeart established the appropriate infrastructure to support direct sales in Europe. Early in 2004, World Heart B.V., a wholly owned subsidiary,
was incorporated with a head office in Heesch, Netherlands, and the European infrastructure was established in-house in the first half of 2004.

We
also refocused our efforts to reduce manufacturing costs associated with the production of the Novacor LVAS. We continue to evolve our processes to move towards more
cost-effective manufacturing processes

30

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expected
to lead to reduced costs for inventory and cost of goods sold. We also reduced the rate of investment associated with the development of our next-generation VAD.

As
part of these initiatives 37 positions were eliminated, of which 24 related to research and development, nine related to general and administration and four related to
manufacturing.

Total
restructuring costs incurred for the year ended December 31, 2003 were approximately $3.4 million and related to the following:



As
at December 31, 2003, approximately $2.2 million of the total restructuring costs had been paid with the remainder of approximately $1.2 million included in
accounts payable and accrued liabilities all of which except approximately $28,000 was paid in the year ended December 31, 2004. The $28,000 was determined to be an overestimate of accrued
salaries and was credited to the 2004 expense.

Amortization of intangibles.Amortization of intangibles for 2003 amounted to approximately
$1.9 million compared to approximately $2.6 million for 2002. The majority of the intangible assets arose from the purchase of the Novacor business in June 2000. The decrease in
amortization is due to the majority of these assets reaching the end of the original estimated useful life during the year. As at December 31, 2003, intangible assets of approximately $879,000
remain unamortized

Foreign exchange gains.A foreign exchange gain of approximately $10.0 million was recorded in
2003 compared to a gain of approximately $509,000 in 2002. Certain balance sheet items are denominated in Canadian dollars. Foreign exchange gains and losses arose when the value of the
U.S. dollar changed relative to the value of the Canadian dollar. The majority of the foreign exchange gain can be attributed to the preferred shares.

Investment income.Investment income primarily represents interest earned on cash equivalents and
short-term investments. Investment income decreased to approximately $106,000 in 2003 from approximately $118,000 in 2002. The decrease relates to having a larger sum of excess cash for a
shorter period of time in 2003. WorldHeart generated substantially all of its investment income in the fourth quarter of 2003 on excess funds received upon completion of the private placement late in
the third quarter of 2003.

Interest expense and financing costs.Interest expense and financing costs consist mainly the costs
associated with debt financing transactions entered into during the first nine months of 2003.

Interest
and financing expenses in 2003 totaled approximately $4.4 million compared to approximately $77,000 in 2002. The interest, fees and other costs were associated with loans
entered into in 2003 to allow WorldHeart to meet its cash requirements until an equity transaction could be completed.

LIQUIDITY AND CAPITAL RESOURCES

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

Liquidity.At December 31, 2004, WorldHeart had cash, cash equivalents and
short-term investments of approximately $8.8 million and net working capital of approximately $14.1 million compared to cash, cash equivalents and short-term investments of
approximately $18.1 million and net working capital of approximately $18.3 million at December 31, 2003.

31

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Cash, cash equivalents and short-term investments decreased in 2004 by approximately $9.3 million. This primarily related to cash used in investing activities of
approximately $585,000 for the purchase of capital assets and cash pledged as collateral for a lease; an operating cash net use of approximately $22.9 million including a net pay down of
approximately $3.9 million of accounts payable and accrued compensation and an increase in inventory of approximately $2.2 million; offset by the net proceeds received on the issuance of
convertible debentures and warrants for approximately $12.9 million; and approximately $1.5 million received on the issuance of common shares through the exercise of warrants.

During
the year, WorldHeart completed a convertible debenture and warrant issuance for gross proceeds of approximately $13.3 million.

Subsequent
to year end, on January 31, 2005, WorldHeart announced that it had entered in to a definitive agreement to acquire MedQuest, subject to certain approvals, consents,
conditions and the approval of the shareholders. MedQuest, based in Salt Lake City, Utah, is in the final development stages of its HeartQuest ventricular assist device, a magnetically
levitated centrifugal rotary blood pump. As separate components of that transaction, WorldHeart also announced that it had definitive agreements to issue through a private placement,
8.9 million common shares, at $1.35 per share, for gross proceeds of $12 million and raise approximately $10.7 million through the exercise of 10.7 million existing
warrants at an exercise price of $1.00 per warrant. These transactions are expected to be completed contemporaneously with the MedQuest acquisition in the second quarter of 2005. Upon completion of
the private placement and warrant exercise it is anticipated that WorldHeart will receive approximately $22.7 million of cash and extinguish all of its convertible debentures providing adequate
resources to fund operations into 2006 when we may be required to obtain additional funding to sustain operations.

Our
long-term working capital and capital requirements will depend upon numerous factors, including the following: our continued focus on improving commercial operations and
viability through the expanded sales of Novacor LVAS; increasing revenues through higher average selling prices and enrollment in the RELIANT Trial (Randomized Evaluation of the Novacor LVAS in a
Non-Transplant Population); decreasing production costs through a manufacturing cost reduction program; the rate of investment in our next-generation technologies, including
our under-development pulsatile VAD and the rotary VAD expected to be acquired in the second quarter of 2005; the costs associated with clinical trials and the approval process for the
next-generation technologies; and our general efforts to improve operational efficiency and effectiveness.

OUTLOOK

External environment.The market for effective pharmacological, electro-physiological or device
treatments for late-stage heart failure continues to grow, and despite significant progress on many fronts, no competitive breakthroughs have been announced or are believed to be imminent.
The number of diagnosed heart failure patients is increasing as a result of both population demographic trends, and also as a response to the increasing number of survivors from sudden cardiac events,
many of whom subsequently develop congestive heart failure. We believe the potential market for our heart assist devices, with their current regulatory approvals, continues to be at least
100,000 patients per annum in North America, Europe, Japan and certain other countries.

There
is growing evidence of increasing clinical acceptance of the use of mechanical circulatory assist therapies in the treatment of late stage heart failure, and on two separate
occasions in March 2003 and May 2004, the Centers for Medicare and Medicaid Services in the United States announced the extension of reimbursement coverage for both bridge
and destination therapy VAD use. These extensions have resulted in increased payments for procedures using such devices. These developments are expected to continue to accelerate the use of
ventricular assist devices both in the United States and elsewhere. Also, effective April 1, 2004, reimbursement in Japan for implantable VADs was approved. Novacor LVAS is the only
approved device of its kind in Japan.

In
the United States, WorldHeart commenced a randomized equivalency trial called RELIANT in the second quarter of 2004. In this trial the Novacor LVAS is being randomized to the
Thoratec HeartMate® XVE LVAS, which will be the control arm. RELIANT is a randomized 40 center equivalency trial where patients will receive a Novacor LVAS or Thoratec Corporation's
Heartmate®XVE LVAS on a 2:1 ratio. It is expected that

32

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data
from this trial will support a Premarket Approval Supplement, which will be submitted to the U.S. Food and Drug Administration for the use of the Novacor LVAS by non-transplant
eligible patients (i.e. destination therapy).

We
continue to believe that the long-term use or Destination Therapy market will evolve rapidly when devices are accepted as reliable and durable. A wider adoption of VADs as
a Destination Therapy will likely occur with the next-generation VADs and we believe that late-stage heart failure will be best served by a combination of pulsatile and rotary
flow VADs.

Internal environment.We expect to continue to incur net operating losses on a quarterly basis,
through 2006, assuming the completion of the MedQuest acquisition, which is expected to be completed in the second quarter of 2005. We believe that our commercial operations associated with Novacor
LVAS will continue to
improve. We expect to continue to increase revenues as a result of higher Novacor LVAS Implant Kit sales, particularly in the United States. Enrollment in the RELIANT Trial commenced in the
second quarter of 2004 and implantation under the RELIANT Trial commenced in the third quarter of 2004 and is expected to continue through 2005 and 2006. We also expect gross margin contribution to
increase through a combination of higher volumes which should lead to lower per unit manufacturing costs through more efficient and optimal manufacturing levels and continuation of our manufacturing
cost reduction program.

In
addition, in the third quarter of 2004, a plan was put in place to consolidate the Ottawa operations into our Oakland operations to further improve operating cost structure, increase
efficiency and improve effectiveness.

WorldHeart
expects to complete the acquisition of MedQuest in the second quarter of 2005 and commence an initial feasibility clinical trial of its magnetically levitated centrifugal
rotary VAD by the beginning of 2006. Initial commercial approvals for the VAD are expected to occur in Europe 2007 with approvals for the VAD in the United States two years later.

Development
work on the Novacor II pulsatile VAD will continue with initial clinical trials in 2007, and initial commercial approvals in Europe in 2008 and in the
United States in 2010.

Commitments

(a)    Contractual Obligations

The
following table sets forth WorldHeart's contractual obligations, excluding MedQuest commitments, as of December 31, 2004:

|                                                                      |  | Total |           | Less than 1 Year |   | 1-3 Years |  | 3-5 Years
|--------------------------------------------------------------------- |  | ----- | --------- | ---------------- | - | --------- |  | ---------
|Operating lease obligations                                           |  | $     | 3,242,720 |                  | $ | 1,440,597 |  | $        
|Long-term debt obligations                                            |  |       |          |                  |   |          |  |          
|Capital lease obligations                                             |  |       |          |                  |   |          |  |          
|Purchase obligations                                                  |  |       |          |                  |   |          |  |          
|Other long-term liabilities reflected on the balance sheet under GAAP |  | $     | 16,368    |                  | $ |          |  | $        

(b)    Operating Leases

During 2003, $222,003 was drawn against the cash amount pledged as collateral for obligations under a premises lease for the Oakland, California operations. In
2004, the balance was restored to the original pledged amount of $750,000. The cash remains pledged against a letter of credit issued by WorldHeart in support of its obligations and is not available
for general operations.

33

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(c)    Novacor LVAS Royalties

WorldHeart is committed, under the Novacor LVAS royalty agreement to royalty payments to certain employees. Royalties are payable on annual consolidated gross
revenues at a rate of 0.808% up to a maximum of $3,232,000. Royalty payments to date total $1,027,184, included in accounts payable and accrued liabilities at December 31, 2004 is $95,646
(December 31, 2003  $37,478).

(d)    Technology Partnerships Canada Contribution Agreement

During 2002, WorldHeart entered into a shared funding program with Technology Partnerships Canada ("TPC") under which the Canadian government shares costs of
certain research and development activities. Funding in the amount of approximately $6,624,000 was claimed. Effective January 1, 2004, repayment is in the form of royalties payable on annual
consolidated gross revenues at a rate of 0.65% for a 9 year period ended December 31, 2012. If during this period royalty payments reach the maximum of $20,250,000 no further repayments
will be required. If the royalty payments do not exceed $20,250,000 during this period they will continue until 2015 or until the maximum is reached.

CAPITAL EXPENDITURES

|                     |  | 2004 |         | 2003 |   | 2002   
|-------------------- |  | ---- | ------- | ---- | - | -------
|Capital Expenditures |  | $    | 363,224 |      | $ | 150,135
|                     |  |      |         |      |   |        

Capital
expenditures for 2004 decreased substantially from 2003 as WorldHeart reduced costs and expenditures. WorldHeart anticipates that capital expenditures for 2005 will be similar to
2004.

At
December 31, 2004, WorldHeart occupied three locations. The Ottawa location comprises 22,755 square feet of manufacturing and office space with a lease that
expires on December 31, 2006. The Ottawa location is currently being shut down as part of the restructuring plan approved in August 2004. The second location is in Oakland with two
buildings consisting of approximately 40,000 square feet of manufacturing and office space. The Oakland leases were renewed in 2002 for a five-year term expiring on
April 30, 2007. The third location is in Heesch, Netherlands with approximately 2,500 square feet of warehouse and office space. The Heesch lease was signed in 2004 for a
three-year term expiring on December 31, 2007.

MARKET RISK

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

Investment
risk is mitigated by close adherence to an established investment policy, which has been approved by the Board of Directors. The policy sets liquidity criteria, and counter
party risk diversification criteria and restricts investments to investment grade quality instruments of AA or better or R1 medium or better in the
case of commercial paper. There exists modest income exposure to a decline in interest rates. This is not significant due to the short terms to maturity of the instruments held and the already low
current interest rates.

WorldHeart
has assets and liabilities denominated in foreign currencies, including the Canadian dollar and the Euro. Occasionally, WorldHeart enters into foreign exchange contracts in
order to match its foreign exchange requirements. At December 31, 2004, there were no outstanding foreign exchange forward contracts. WorldHeart generally attempts to match its cash balances to
its expected net cash outflow for a particular currency during the year.

CRITICAL ACCOUNTING ESTIMATES

We have identified the following policies as critical to our business and the understanding of our results of operations. For a more detailed discussion on the
application of these and other accounting policies, see the notes to the audited consolidated financial statements.

34

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Revenue recognition

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

For
multiple element offerings WorldHeart allocates the proceeds to the elements based on their relative fair values. Revenue from each element is recognized when the product is
delivered or services rendered.

WorldHeart
has provided certain customers with deferred payment terms. In general, WorldHeart transfers future payments under these contracts to third-party financing institutions on a
non-recourse basis. In situations where WorldHeart assumed responsibility for interest payments, revenue was recorded net of the present value of the committed future interest cost. The
transfer of the related accounts receivable was recorded when control of the receivable was surrendered.

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

Inventory valuation

WorldHeart will write-down from time to time certain inventory that it considers obsolete or excess based on its expected demand. To the extent
inventory movement or product demand is not as anticipated, the write-down may be higher or lower than the usage that is ultimately experienced. Once written down, the inventory is not
written back up.

Valuation of goodwill

In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", WorldHeart reviews the carrying value
of long-lived assets including goodwill 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.

In
evaluating whether there is an impairment of goodwill, management compares the carrying amounts of such assets with the related enterprise value. In the event an impairment exists, an
impairment charge would be determined by comparing the carrying amounts of the asset to the related enterprise value. Since WorldHeart operates in one business segment, enterprise value or market
capitalization is an acceptable measurement of the value of the goodwill. The enterprise value determined on December 31, 2004 was sufficient to support the carrying value of goodwill.

In
accordance with SFAS No. 142, "Goodwill and Other Intangible Assets", WorldHeart completes on an annual basis an impairment test of goodwill. Upon completion of the
impairment test as of the end of the fiscal 2004, it was determined that goodwill is not impaired.

Restructuring

In August of 2004, a restructuring plan was implemented to consolidate the North American operations, which included a reduction in workforce, lease and contract
termination costs, a write down of capital assets to their net realizable value and other costs was implemented. At each reporting date, WorldHeart evaluates the accruals, which are based on
estimates, to ensure that they are still appropriate. Included in accruals as of December 31, 2003, were approximately $600,000 related to employee severance costs, approximately $58,000
related to contract termination costs and approximately $14,000 related to other costs. In certain instances, it may be determined that these accruals are no longer required because of efficiencies in
carrying out the restructuring plan. In these cases, WorldHeart would reverse any related accrual to income when it is determined it is no longer required. Alternatively, in certain circumstances, it
may be determined that certain

35

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accruals
are insufficient as new events occur or as additional information is obtained. In these cases, WorldHeart would increase the applicable existing accrual with the offset recorded as a
restructuring charge.

OTHER FACTORS

Current Product.WorldHeart's near-term commercial operations are exclusively focused on
its Novacor LVAS Implant Kit and related equipment and support. Commercial success will therefore be dependant on WorldHearts ability to continue to increase Novacor LVAS sales. Novacor LVAS is
approved for use by eligible heart failure patients without limitation, in Europe and Japan and as a bridge-to-transplant device in the United States and Canada.
WorldHeart has commenced an equivalency clinical trial in the second quarter of 2004 in the United States called RELIANT in which patients will be randomized to receive either the Novacor LVAS
or the Thoratec HeartMate® XVE LVAS. It is expected that data from this clinical trial will support a Premarket Approval Supplement, which will be submitted to the U.S. Food and
Drug Administration, for the use of the Novacor LVAS by non-transplant eligible patients (i.e. destination therapy). Implants under this trial are eligible for reimbursement by the
Centers for Medicare and Medicaid Services ("CMS") and certain private insurers. We believe that approval of the Novacor LVAS for long-term or destination therapy use in the
United States would increase the market for the Novacor LVAS substantially.

Pulsatile VADs.WorldHeart has several competitors with commercially approved pulsatile VADs having
pumps that are externally located or abdominally implanted. The devices which are developed by the Corporation's competitors are now primarily used as bridges to transplant, although one product
(Thoratec HeartMate® XVE) was approved in 2002 for a destination therapy indication for use in the United States. Some of WorldHeart's existing known competitors have significantly
greater financial, production and marketing resources. There can be no assurance that the development program, including
pre-clinical and human clinical trials will be successful or that the necessary regulatory approvals will be received.

WorldHeart
believes that our pulsatile next-generation implantable VAD is the only pulsatile device that is currently at an advanced stage of development. During 2002
management merged the three next-generation VAD development programs into one VAD program. WorldHeart expects clinical trials for our next-generation implantable pulsatile VAD
will commence in 2007. However, there can be no assurance that the development program, including pre-clinical and human clinical trials will be successful or that the necessary regulatory
approvals will be received.

Non-pulsatile VADs.As discussed above, subsequent to year-end WorldHeart
entered into a definitive agreement to purchase the assets of MedQuest including its rotary flow, centrifugal, magnetically levitated next generation VAD technology. WorldHeart expects clinical trials
for our next-generation implantable non-pulsatile VAD will commence in early 2006. However, there can be no assurance that the development program, including
pre-clinical and human clinical trials, will be successful or that the necessary regulatory approvals will be received.

Research
and development by WorldHeart's competitors is proceeding for several next-generation non-pulsatile continuous flow assist devices. Certain of these
devices have received CE Mark in Europe and are in clinical trials in the United States and Europe. It has not been determined whether these non-pulsatile devices will be suitable
for long-term use.

Novacor LVAS Sales.Sales of the Novacor LVAS contribute to overhead and other indirect costs of
producing the Novacor LVAS product. To date, however, at current volumes the Novacor commercial operations have contributed only modest gross margin or have resulted in gross margin deficits.
WorldHeart expects to continue to increase gross margin through increased sales and reduced manufacturing costs, however, to the extent that it is unable to do so, there is risk that WorldHeart could
be adversely affected and the Novacor operations could continue to consume cash resources.

ACCOUNTING POLICIES

In previous years WorldHeart presented its consolidated financial statements in accordance with Canadian GAAP. However, WorldHeart changed its presentation to
U.S. GAAP at December 31, 2004. Significant differences between Canadian GAAP and U.S. GAAP are presented in Note 22 to the audited consolidated financial
statements.

36

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OUTSTANDING SHARE DATA

The outstanding share data as at December 31, 2004, is a follows:

|                                   |  | Number outstanding
|---------------------------------- |  | ------------------
|Common shares                      |  | 15,744,522        
|Options                            |  | 3,172,771         
|Warrants                           |  | 24,424,233        
|Convertible debentures             |  | 10,655,000        
|Interest on convertible debentures |  | 1,997,813         

Included
in options above are 2,383,725 options subject to shareholder approval of an increase in the number of options available under the employee stock option plan.

A
conversion rate of $1.00 per common share was assumed for the interest on the convertible debentures. Interest accrues on the face value of the convertible debentures at an annual
non-compounding rate of 3%.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued SFAS No. 148,which amended the transitional provisions of SFAS No. 123 for companies
electing to recognize employee stock-based compensation using the fair value based method. The provisions of FASB No. 148 will be effective for years beginning on or after
January 1, 2006. In addition, during 2004, the FASB issued SFAS No. 123R, which also amended the provisions of SFAS No. 123. The provisions of
FASB No. 123R will be effective for years beginning on or after January 1, 2006. The Corporation plans on adopting these new pronouncements in 2006, the impact of which is not
known at this time.

In
January 2005, the Canadian Institute of Chartered Accountants ("CICA") released Section 1531, "Comprehensive Income" ("Section 1531"), which requires financial
instruments to be measured at fair value. The provisions of Section 1531 are effective for years starting on or after October 31, 2006. The Corporation plans on adopting this new
pronouncement in 2007, the impact of which is not known at this time.

Item 7.    Financial Statements.

The financial statements required to be filed pursuant to this Item 7 are included in this Annual Report on Form 10-KSB on
pages F-1 to F-24.

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

None.

Item 8A.    Controls and Procedures.

Evaluation of disclosure controls and procedures.Based on their evaluation of our disclosure controls and procedures
(as defined in Rules 13a-14(c) and 15d-14(c) under the Exchange Act) as of a date within 90 days of the filing date of this Annual
Report on Form 10-KSB, our president and chief executive officer (principal executive officer) and our chief financial officer (principal accounting and financial officer) have
concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and are operating in an effective manner.

Changes in internal controls.There were no significant changes in our internal controls or in other factors that could
significantly affect these controls subsequent to the date of our most recent evaluation.

Item 8B.    Other Information.

None.

37

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PART III

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

The information relating to our directors, nominees for election as directors, and executive officers under the headings "Election of Directors" and "Executive
Officers" in our definitive proxy statement for the 2005 Annual and Special Meeting of Shareholders is incorporated herein by reference to such proxy statement.

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

Item 10.    Executive Compensation.

The discussion under the heading "Executive Compensation" in our definitive proxy statement for the 2005 Annual and Special Meeting of Shareholders is
incorporated herein by reference to such proxy statement.

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

The discussion under the heading "Voting Shares, Record Date and Principal Holders" in our definitive proxy statement for the 2005 Annual and Special Meeting of
Shareholders is incorporated herein by reference to such proxy statement.

Item 12.    Certain Relationships and Related Transactions.

None.

Item 13.    Exhibits.

|            |  |                                                                                                                                                                                                                                        
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 2.1 |  | Asset Purchase Agreement between World Heart Corporation (the "Company") and MedQuest, dated as of January 31, 2005 (incorporated by reference to the Company's Report on Form 6-K, Dated February 1, 2005).                           
|Exhibit 3.1 |  | Certificate and Articles of Incorporation (incorporated by reference to the Company's Registration Statement on Form F-1, dated October 8, 1996).                                                                                      
|Exhibit 3.2 |  | Amendment to Certificate and Articles of Incorporation dated June 12, 2000 (incorporated by reference to Exhibit 1.1 to the Company's Annual Report on Form 20-F for the year ended December 31, 2001 (Commission File
No. 000-28882)).
|Exhibit 3.3 |  | By-laws of the Company (incorporated by reference to the Company's Registration Statement on Form F-1, dated October 8, 1996).                                                                                                         
|Exhibit 3.4 |  | Amendment to the By-Laws of the Company (incorporated by reference to Amendment No. 2 to the Company's Registration Statement on Form F-1, dated December 6, 1996.                                                                     
|Exhibit 3.5 |  | Articles of Amendment, dated November 26, 2003 (incorporated by reference to Exhibit 4.9 of the Company's Registration Statement on Form F-3 (Commission File No. 333-111512)).                                                        
|Exhibit 3.6 |  | Articles of Amendment, dated December 1, 2003 (incorporated by reference to Exhibit 4.10 of the Company's Registration Statement on Form F-3 (Commission File No. 333-111512)).                                                        
|Exhibit 4.1 |  | Form of Common Share Certificate (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form F-3 (Commission File No. 333-111512)).                                                                      
|            |  |                                                                                                                                                                                                                                        

38

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|Exhibit 4.2  |  | Registration Rights Agreement, dated September 22, 2003, between the Company and the purchasers named therein (incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form F-3 (Commission File
No. 333-111512)).                          
|------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 4.3  |  | Warrant Indenture, dated September 22, 2003, between the Company and CIBC Mellon Trust Company (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form F-3 (Commission File No. 333-111512)
).                                        
|Exhibit 4.4  |  | U.S. Purchase Agreement for Units, dated September 22, 2003 (incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form F-3 (Commission File No. 333-111512)).                                                                            
|Exhibit 4.5  |  | Purchase Agreement, dated September 15, 2004, between the Company and the investors listed therein (incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form F-3 (Commission File No. 333-119750)
).                                    
|Exhibit 4.6  |  | Agency Agreement, dated September 22, 2003, between the Company and Research Capital Corporation (incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form F-3 (Commission File No. 333-111512)
).                                      
|Exhibit 4.7  |  | Registration Rights Agreement, dated September 15, 2004, between the Company and the purchasers named therein (incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form F-3 (Commission File
No. 333-119750)).                          
|Exhibit 4.8  |  | Warrant Indenture, dated September 15, 2004, between the Company and CIBC Mellon Trust Company (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form F-3 (Commission File No. 333-119750)
).                                        
|Exhibit 4.9  |  | Agency Agreement, dated as of September 15, 2004, between the Company and Research Capital Corporation (incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form F-3 (Commission File
No. 333-119750)).                                 
|Exhibit 4.10 |  | Form of 3% Unsecured Convertible Debentures due September 15, 2009 (incorporated by reference to Exhibit 4.6 to the Company's Registration Statement on Form F-3 (Commission File No. 333-119750)).                                                                     
|Exhibit 10.1 |  | Restated and Amended Distribution Agreement, dated December 31, 2003, between the Company and Edwards Lifesciences LLC (incorporated by reference to Exhibit 99.1 to Amendment No. 1 the Company's Registration Statement on
Form F-3 (Commission File No. 333-111512)).
|Exhibit 10.2 |  | Consulting Agreement, dated July 13, 2004, between the Company and Synergistic Business Solutions.*                                                                                                                                                                     
|Exhibit 10.3 |  | Letter Agreement, dated October 22, 2004, between the Company and Daniela Kennedy.*                                                                                                                                                                                     
|Exhibit 10.4 |  | Letter Agreement, dated April 1, 2002, as amended on September 20, 2003 and November 5, 2004, between the Company and D. Mark Goudie.*                                                                                                                                  
|Exhibit 10.5 |  | Letter Agreement, dated December 9, 2003, as amended on October 12, 2004, between the Company and Piet Jansen.*                                                                                                                                                         
|Exhibit 10.6 |  | Letter Agreement, dated October 6, 2003, as amended on October 12, 2004, between the Company and John Marinchak.*                                                                                                                                                       
|Exhibit 10.7 |  | Letter Agreement, dated June 23, 2000, as amended on October 12, 2004, between the Company and Phillip J. Miller.*                                                                                                                                                      
|Exhibit 10.8 |  | Agreement, dated July 28, 2004, among the Company, SC Stormont Corporation, and Roderick M. Bryden.*                                                                                                                                                                    
|             |  |                                                                                                                                                                                                                                                                         

39

---



|Exhibit 10.9 |  | Purchase Agreement, dated as of January 31, 2005, between the Company and Maverick Venture Management, LLC (incorporated by reference to the Company's Report on Form 6-K, Dated February 1, 2005).
|------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 23.1 |  | Consent of Independent Accountants.*                                                                                                                                                               
|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.*                                                                           
|Exhibit 99.1 |  | Amended and Restated Code of Conduct of the Company, adopted on October 26, 2004.*                                                                                                                 

---

Item 14.    Principal Accountant Fees and Services.

The discussion under the heading "Appointment of Auditors" in our definitive proxy statement for the 2005 Annual and Special Meeting of Shareholders in
incorporated herein by reference to such proxy statement.

40

---





SIGNATURES

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

| | WORLD HEART CORPORATION(Registrant)                                                
| | -----------------------------------------------------------------------------------
| | By /s/JAL S. JASSAWALLA,
President and Chief Executive Officer(Signature and Title)
| | Date                        March 31, 2005                                         

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

|Name                                      |  | Title                                                                                                         |  | Date          
|----------------------------------------- |  | ------------------------------------------------------------------------------------------------------------- |  | --------------
|                                          |  |                                                                                                               |  |               
|/s/JAL S. JASSAWALLAJal S. Jassawalla     |  | President and Chief Executive Officer
(principal executive officer)                                           |  | March 31, 2005
|/s/D. MARK GOUDIED. Mark Goudie           |  | Vice President, Finance and Chief Financial Officer and Director
(principal financial and accounting officer) |  | March 31, 2005
|John F. Carlson                           |  | Director                                                                                                      |  | March 31, 2005
|/s/WILLIAM C. GARRIOCKWilliam C. Garriock |  | Director                                                                                                      |  | March 31, 2005
|/s/ROBERT J. MAJTELESRobert J. Majteles   |  | Director                                                                                                      |  | March 31, 2005
|/s/C. IAN ROSSC. Ian Ross                 |  | Chairman of the Board and Director                                                                            |  | March 31, 2005

41

---





EXHIBIT INDEX

|            |  |                                                                                                                                                                                                                                               
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 2.1 |  | Asset Purchase Agreement between World Heart Corporation (the "Company") and MedQuest, dated as of January 31, 2005 (incorporated by reference to the Company's Report on Form 6-K, Dated February 1, 2005).                                  
|Exhibit 3.1 |  | Certificate and Articles of Incorporation (incorporated by reference to the Company's Registration Statement on Form F-1, dated October 8, 1996).                                                                                             
|Exhibit 3.2 |  | Amendment to Certificate and Articles of Incorporation dated June 12, 2000 (incorporated by reference to Exhibit 1.1 to the Company's Annual Report on Form 20-F for the year ended December 31, 2001 (Commission File
No. 000-28882)).       
|Exhibit 3.3 |  | By-laws of the Company (incorporated by reference to the Company's Registration Statement on Form F-1, dated October 8, 1996).                                                                                                                
|Exhibit 3.4 |  | Amendment to the By-Laws of the Company (incorporated by reference to Amendment No. 2 to the Company's Registration Statement on Form F-1, dated December 6, 1996.                                                                            
|Exhibit 3.5 |  | Articles of Amendment, dated November 26, 2003 (incorporated by reference to Exhibit 4.9 of the Company's Registration Statement on Form F-3 (Commission File No. 333-111512)).                                                               
|Exhibit 3.6 |  | Articles of Amendment, dated December 1, 2003 (incorporated by reference to Exhibit 4.10 of the Company's Registration Statement on Form F-3 (Commission File No. 333-111512)).                                                               
|Exhibit 4.1 |  | Form of Common Share Certificate (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form F-3 (Commission File No. 333-111512)).                                                                             
|Exhibit 4.2 |  | Registration Rights Agreement, dated September 22, 2003, between the Company and the purchasers named therein (incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form F-3 (Commission File
No. 333-111512)).
|Exhibit 4.3 |  | Warrant Indenture, dated September 22, 2003, between the Company and CIBC Mellon Trust Company (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form F-3 (Commission File No. 333-111512)
).              
|Exhibit 4.4 |  | U.S. Purchase Agreement for Units, dated September 22, 2003 (incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form F-3 (Commission File No. 333-111512)).                                                  
|Exhibit 4.5 |  | Purchase Agreement, dated September 15, 2004, between the Company and the investors listed therein (incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form F-3 (Commission File No. 333-119750)
).          
|Exhibit 4.6 |  | Agency Agreement, dated September 22, 2003, between the Company and Research Capital Corporation (incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form F-3 (Commission File No. 333-111512)
).            
|Exhibit 4.7 |  | Registration Rights Agreement, dated September 15, 2004, between the Company and the purchasers named therein (incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form F-3 (Commission File
No. 333-119750)).
|Exhibit 4.8 |  | Warrant Indenture, dated September 15, 2004, between the Company and CIBC Mellon Trust Company (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form F-3 (Commission File No. 333-119750)
).              
|Exhibit 4.9 |  | Agency Agreement, dated as of September 15, 2004, between the Company and Research Capital Corporation (incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form F-3 (Commission File
No. 333-119750)).       
|            |  |                                                                                                                                                                                                                                               

42

---



|Exhibit 4.10 |  | Form of 3% Unsecured Convertible Debentures due September 15, 2009 (incorporated by reference to Exhibit 4.6 to the Company's Registration Statement on Form F-3 (Commission File No. 333-119750)).                                                                     
|------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 10.1 |  | Restated and Amended Distribution Agreement, dated December 31, 2003, between the Company and Edwards Lifesciences LLC (incorporated by reference to Exhibit 99.1 to Amendment No. 1 the Company's Registration Statement on
Form F-3 (Commission File No. 333-111512)).
|Exhibit 10.2 |  | Consulting Agreement, dated July 13, 2004, between the Company and Synergistic Business Solutions.*                                                                                                                                                                     
|Exhibit 10.3 |  | Letter Agreement, dated October 22, 2004, between the Company and Daniela Kennedy.*                                                                                                                                                                                     
|Exhibit 10.4 |  | Letter Agreement, dated April 1, 2002, as amended on September 20, 2003 and November 5, 2004, between the Company and D. Mark Goudie.*                                                                                                                                  
|Exhibit 10.5 |  | Letter Agreement, dated December 9, 2003, as amended on October 12, 2004, between the Company and Piet Jansen.*                                                                                                                                                         
|Exhibit 10.6 |  | Letter Agreement, dated October 6, 2003, as amended on October 12, 2004, between the Company and John Marinchak.*                                                                                                                                                       
|Exhibit 10.7 |  | Letter Agreement, dated June 23, 2000, as amended on October 12, 2004, between the Company and Phillip J. Miller.*                                                                                                                                                      
|Exhibit 10.8 |  | Agreement, dated July 28, 2004, among the Company, SC Stormont Corporation, and Roderick M. Bryden.*                                                                                                                                                                    
|Exhibit 10.9 |  | Purchase Agreement, dated as of January 31, 2005, between the Company and Maverick Venture Management, LLC (incorporated by reference to the Company's Report on Form 6-K, Dated February 1, 2005).                                                                     
|Exhibit 23.1 |  | Consent of Independent Accountants.*                                                                                                                                                                                                                                    
|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.*                                                                                                                                                
|Exhibit 99.1 |  | Amended and Restated Code of Conduct of the Company, adopted on October 26, 2004.*                                                                                                                                                                                      

---

43

---





WORLD HEART CORPORATION

|                                                                                                     |  | Page
|---------------------------------------------------------------------------------------------------- |  | ----
|Management's Statement of Responsibility                                                             |  | F-2 
|Auditors' Report to the Shareholders of World Heart Corporation                                      |  | F-3 
|Comments by Auditors for U.S. Readers on Canada-U.S. Reporting Differences                           |  | F-4 
|AUDITED CONSOLIDATED FINANCIAL STATEMENTS:                                                           |  |     
|Consolidated Balance Sheets as of December 31, 2004 and 2003                                         |  | F-5 
|Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002           |  | F-6 
|Consolidated Statements of Shareholders' Equity for the years ended December 31, 2004, 2003 and 2002 |  | F-7 
|Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002           |  | F-8 
|Notes to Consolidated Financial Statements                                                           |  | F-9 

F-1

---





MANAGEMENT'S STATEMENT OF RESPONSIBILITY

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

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

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

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

|Original signed by: |  | Original signed by:    
|------------------- |  | -----------------------
|JAL. S. JASSAWALLA  |  | D. MARK GOUDIE         
|President           |  | Chief Financial Officer

F-2

---



AUDITORS' REPORT TO THE SHAREHOLDERS OF WORLD HEART CORPORATION

We have audited the consolidated balance sheets of World Heart Corporation as at December 31, 2004 and 2003, and the consolidated statements of operations,
shareholders' equity (deficiency) and cash flow for the years ended December 31, 2004, 2003 and 2002. These financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on our audits.

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

In
our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Corporation as at December 31, 2004 and 2003 and
the results of its operations and its cash flows for the years ended December 31, 2004, 2003 and 2002 in accordance with generally accepted accounting principles in the United States.

On
March 11, 2005,we reported separately to the shareholders of the Corporation on the consolidated financial statements for the same period, prepared in accordance with
accounting principles generally accepted in Canada.

|Ottawa, Canada |  | PRICEWATERHOUSECOOPERS LLP
|-------------- |  | --------------------------
|March 11, 2005 |  | Chartered Accountants     

F-3

---



COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCES

In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when the
financial statements are affected by conditions and events that cast substantial doubt on the Corporation's ability to continue as a going concern, such as those described in Note 1
to the consolidated financial statements. Although we conducted our audits in accordance with generally accepted auditing standards in Canada and the standards of the Public Company Accounting
Oversight Board (United States), our report to the shareholders dated March 11, 2005 is expressed in accordance with Canadian reporting standards which do not permit a reference to such
conditions and events in the auditors' report when these are adequately disclosed in the financial statements

|Ottawa, Canada |  | PRICEWATERHOUSECOOPERS LLP
|-------------- |  | --------------------------
|March 11, 2005 |  | Chartered Accountants     

F-4

---





WORLD HEART CORPORATION        CONSOLIDATED BALANCE SHEETS        (United States Dollars)

|                                                  |                                          | December 31, 2004                                                                            |            | December 31, 2003 |  
|------------------------------------------------- | ---------------------------------------- | -------------------------------------------------------------------------------------------- | ---------- | ----------------- | -
|ASSETS                                            |                                          |                                                                                              |            |                   |  
|Current assets                                    |                                          |                                                                                              |            |                   |  
|                                                  | Cash and cash equivalents (note 4)       |                                                                                              | $          | 3,818,767         |  
|                                                  | Short-term investments (note 4)          |                                                                                              |            | 4,999,034         |  
|                                                  | Trade and other receivables              |                                                                                              |            | 4,238,049         |  
|                                                  | Prepaid expenses                         |                                                                                              |            | 575,261           |  
|                                                  | Inventory (note 5)                       |                                                                                              |            | 8,112,525         |  
|                                                  |                                          |                                                                                              |            |                   |  
|                                                  |                                          |                                                                                              | 21,743,636 |                   |  
|Long-term receivable                              |                                          |                                                                                              | 318,553    |                   |  
|Cash pledged as collateral for lease(note 17 (a)) |                                          |                                                                                              | 750,000    |                   |  
|Capital assets(note 6)                            |                                          |                                                                                              | 2,011,586  |                   |  
|Goodwill                                          |                                          |                                                                                              | 17,179,643 |                   |  
|Intangible assets(note 7)                         |                                          |                                                                                              | 255,012    |                   |  
|Other assets                                      |                                          |                                                                                              |           |                   |  
|                                                  |                                          |                                                                                              |            |                   |  
|                                                  |                                          | $                                                                                            | 42,258,430 |                   | $
|                                                  |                                          |                                                                                              |            |                   |  
|LIABILITIES AND SHAREHOLDERS' EQUITY              |                                          |                                                                                              |            |                   |  
|Current liabilities                               |                                          |                                                                                              |            |                   |  
|                                                  | Accounts payable and accrued liabilities |                                                                                              | $          | 3,854,833         |  
|                                                  | Taxes payable (note 9)                   |                                                                                              |            | 832,000           |  
|                                                  | Accrued compensation                     |                                                                                              |            | 1,343,364         |  
|                                                  | Deferred revenue                         |                                                                                              |            | 1,607,622         |  
|                                                  |                                          |                                                                                              |            |                   |  
|                                                  |                                          |                                                                                              | 7,637,819  |                   |  
|Convertible debentures(note 10)                   |                                          |                                                                                              | 8,177,140  |                   |  
|Long-term obligation                              |                                          |                                                                                              | 16,368     |                   |  
|                                                  |                                          |                                                                                              |            |                   |  
|                                                  |                                          |                                                                                              | 15,831,327 |                   |  
|                                                  |                                          |                                                                                              |            |                   |  
|Commitments and contingencies(note 17)            |                                          |                                                                                              |            |                   |  
|Shareholders' equity                              |                                          |                                                                                              |            |                   |  
|                                                  | Common shares                            |                                                                                              |            | 214,616,061       |  
|                                                  |                                          | Issued and outstanding  15,744,522 common shares (December 31, 2003  15,023,689) (note 12) |            |                   |  
|                                                  | Additional paid-in capital               |                                                                                              |            | 11,451,267        |  
|                                                  | Cumulative other comprehensive income    |                                                                                              |            | (6,285,577        | )
|                                                  | Accumulated deficit                      |                                                                                              |            | (193,354,648      | )
|                                                  |                                          |                                                                                              |            |                   |  
|                                                  |                                          |                                                                                              | 26,427,103 |                   |  
|                                                  |                                          |                                                                                              |            |                   |  
|                                                  |                                          | $                                                                                            | 42,258,430 |                   | $
|                                                  |                                          |                                                                                              |            |                   |  

|Signed on behalf of the Board of Directors
Original signed by John F. Carlson and C. Ian Ross
|---------------------------------------------------------------------------------------------
|Director                                                                                     

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

F-5

---



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

|                                                     |                                      | Year ended December 31, 2004 |             | Year ended December 31, 2003 |   | Year ended December 31, 2002 |           
|---------------------------------------------------- | ------------------------------------ | ---------------------------- | ----------- | ---------------------------- | - | ---------------------------- | ----------
|Revenue                                              |                                      | $                            | 9,575,761   |                              | $ | 6,775,807                    |           
|Cost of goods sold                                   |                                      |                              | (7,680,384  | )                            |   | (4,968,898                   | )         
|                                                     |                                      |                              |             |                              |   |                              |           
|Gross margin                                         |                                      |                              | 1,895,377   |                              |   | 1,806,909                    |           
|                                                     |                                      |                              |             |                              |   |                              |           
|Expenses                                             |                                      |                              |             |                              |   |                              |           
|                                                     | Selling, general and administrative  |                              |             | (13,363,796                  | ) |                              | (7,263,759
|                                                     | Research and development (note 13)   |                              |             | (5,838,754                   | ) |                              | (9,604,080
|                                                     | Restructuring costs (note 14)        |                              |             | (1,787,129                   | ) |                              | (3,356,487
|                                                     | Amortization of intangibles          |                              |             | (515,012                     | ) |                              | (1,938,595
|                                                     |                                      |                              |             |                              |   |                              |           
|                                                     |                                      |                              | (21,504,691 | )                            |   | (22,162,921                  | )         
|                                                     |                                      |                              |             |                              |   |                              |           
|Loss before the undernoted                           |                                      |                              | (19,609,314 | )                            |   | (20,356,012                  | )         
|Other income (expenses)                              |                                      |                              |             |                              |   |                              |           
|                                                     | Foreign exchange gain (loss)         |                              |             | (308,338                     | ) |                              | 10,055,129
|                                                     | Investment income                    |                              |             | 99,427                       |   |                              | 105,596   
|                                                     | Loss on disposal of capital assets   |                              |             | (46,431                      | ) |                              | (27,147   
|                                                     | Interest expense and financing costs |                              |             | (6,277,142                   | ) |                              | (4,406,620
|                                                     |                                      |                              |             |                              |   |                              |           
|Net loss for the year                                |                                      |                              | (26,141,798 | )                            |   | (14,629,054                  | )         
|Accretion on preferred shares                        |                                      |                              |            |                              |   | (1,614,855                   | )         
|Inducement related to conversion of preferred shares |                                      |                              |            |                              |   | (1,924,395                   | )         
|                                                     |                                      |                              |             |                              |   |                              |           
|Net loss applicable to common shareholders           |                                      | $                            | (26,141,798 | )                            | $ | (18,168,304                  | )         
|                                                     |                                      |                              |             |                              |   |                              |           
|Weighted average number of common shares outstanding |                                      |                              | 15,373,689  |                              |   | 6,259,757                    |           
|                                                     |                                      |                              |             |                              |   |                              |           
|Basic and diluted loss per common share              |                                      | $                            | (1.70       | )                            | $ | (2.90                        | )         
|                                                     |                                      |                              |             |                              |   |                              |           

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

F-6

---





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

|                                                                              |  |            |  |   |             | Special Warrants, Warrants, Options and Additional Paid-in Capital |   |            |   |   |            |   |  
|----------------------------------------------------------------------------- |  | ---------- |  | - | ----------- | ------------------------------------------------------------------ | - | ---------- | - | - | ---------- | - | -
|
|
|
|Balance as at December 31, 2001                                               |  | 2,134,656  |  | $ | 83,661,951  |                                                                    | $ | 9,453,641  |   | $ | (51,579    | ) | $
|Special warrants converted into common shares and warrants                    |  | 432,428    |  |   | 9,839,811   |                                                                    |   | (9,453,641 | ) |   |           |   |  
|Warrants issued in connection with government grant (note 17 (c))             |  |           |  |   |            |                                                                    |   | 808,011    |   |   |           |   |  
|Stock options issued for services                                             |  |           |  |   |            |                                                                    |   | 115,287    |   |   |           |   |  
|Warrants issued for services and in connection with short-term loan           |  |           |  |   |            |                                                                    |   | 208,419    |   |   |           |   |  
|Expired, cancelled and forfeited options and warrants                         |  |           |  |   |            |                                                                    |   |           |   |   |           |   |  
|Accretion on preferred shares                                                 |  |           |  |   |            |                                                                    |   |           |   |   |           |   |  
|Reduction in APIC caused by accretion on preferred shares                     |  |           |  |   |            |                                                                    |   | (1,131,717 | ) |   |           |   |  
|Cumulative translation adjustment (note 3 (c))                                |  |           |  |   |            |                                                                    |   |           |   |   | (527,138   | ) |  
|Net loss for the year ended December 31, 2002                                 |  |           |  |   |            |                                                                    |   |           |   |   |           |   |  
|                                                                              |  |            |  |   |             |                                                                    |   |            |   |   |            |   |  
|Balance as at December 31, 2002                                               |  | 2,567,084  |  |   | 93,501,762  |                                                                    |   |           |   |   | (578,717   | ) |  
|Common shares issued through private placement and public offering            |  | 11,006,159 |  |   | 43,692,929  |                                                                    |   |           |   |   |           |   |  
|Common shares and warrants granted upon the conversion of warrants and rights |  | 238,857    |  |   | 3,211,698   |                                                                    |   |           |   |   |           |   |  
|Warrants issued in connection with debentures and loans                       |  |           |  |   |            |                                                                    |   | 2,354,370  |   |   |           |   |  
|Common shares and warrants issued upon conversion of preferred shares         |  | 1,211,589  |  |   | 72,051,103  |                                                                    |   |           |   |   |           |   |  
|Stock options issued for services                                             |  |           |  |   |            |                                                                    |   | 193,449    |   |   |           |   |  
|Expired, cancelled and forfeited options and warrants                         |  |           |  |   |            |                                                                    |   |           |   |   |           |   |  
|Accretion on preferred shares                                                 |  |           |  |   |            |                                                                    |   |           |   |   |           |   |  
|Reduction in APIC caused by accretion on preferred shares                     |  |           |  |   |            |                                                                    |   | (1,465,842 | ) |   |           |   |  
|Cumulative translation adjustment (note 3 (c))                                |  |           |  |   |            |                                                                    |   |           |   |   | (5,706,860 | ) |  
|Net loss for the year ended December 31, 2003                                 |  |           |  |   |            |                                                                    |   |           |   |   |           |   |  
|                                                                              |  |            |  |   |             |                                                                    |   |            |   |   |            |   |  
|Balance as at December 31, 2003                                               |  | 15,023,689 |  |   | 212,457,492 |                                                                    |   | 1,081,977  |   |   | (6,285,577 | ) |  
|Common shares and warrants issued in connection with convertible debentures   |  | 470,833    |  |   | 659,166     |                                                                    |   | 4,548,920  |   |   |           |   |  
|Value of debentures' beneficial conversion feature                            |  |           |  |   |            |                                                                    |   | 5,821,370  |   |   |           |   |  
|Common shares issued upon exercise of warrants                                |  | 250,000    |  |   | 1,499,403   |                                                                    |   |           |   |   |           |   |  
|Warrants repurchased                                                          |  |           |  |   |            |                                                                    |   | (1,000     | ) |   |           |   |  
|Stock options issued for services                                             |  |           |  |   |            |                                                                    |   |           |   |   |           |   |  
|Expired, cancelled and forfeited options and warrants                         |  |           |  |   |            |                                                                    |   |           |   |   |           |   |  
|Net loss for the year ended December 31, 2004                                 |  |           |  |   |            |                                                                    |   |           |   |   |           |   |  
|                                                                              |  |            |  |   |             |                                                                    |   |            |   |   |            |   |  
|Balance as at December 31, 2004                                               |  | 15,744,522 |  | $ | 214,616,061 |                                                                    | $ | 11,451,267 |   | $ | (6,258,577 | ) | $
|                                                                              |  |            |  |   |             |                                                                    |   |            |   |   |            |   |  

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

F-7

---





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

|                                                             |                                                                    | Year ended December 31, 2004                                      |             | Year ended December 31, 2003 |           | Year ended December 31, 2002 |            
|------------------------------------------------------------ | ------------------------------------------------------------------ | ----------------------------------------------------------------- | ----------- | ---------------------------- | --------- | ---------------------------- | -----------
|CASH FLOWS FROM (USED IN)                                    |                                                                    |                                                                   |             |                              |           |                              |            
|Operating activities                                         |                                                                    |                                                                   |             |                              |           |                              |            
|                                                             | Net loss for the period                                            |                                                                   | $           | (26,141,798                  | )         | $                            | (14,629,054
|                                                             | Items not involving cash                                          |                                                                   |             |                              |           |                              |            
|                                                             |                                                                    | Amortization                                                      |             |                              | 1,390,508 |                              |            
|                                                             |                                                                    | Loss on disposal of capital assets                                |             |                              | 46,431    |                              |            
|                                                             |                                                                    | Write down of capital and intangible assets                       |             |                              | 547,366   |                              |            
|                                                             |                                                                    | Issuance of options and warrants for services and financing costs |             |                              | 81,466    |                              |            
|                                                             |                                                                    | Interest on debt                                                  |             |                              | 6,266,027 |                              |            
|                                                             |                                                                    | Unrealized foreign exchange loss (gain)                           |             |                              | 7,956     |                              |            
|                                                             |                                                                    | Gain on settlement of obligation                                  |             |                              |          |                              |            
|                                                             | Change in operating components of working capital (note 18)        |                                                                   |             | (5,132,726                   | )         |                              | (4,939,234 
|                                                             |                                                                    |                                                                   |             |                              |           |                              |            
|                                                             |                                                                    |                                                                   | (22,934,770 | )                            |           | (24,957,387                  | )          
|                                                             |                                                                    |                                                                   |             |                              |           |                              |            
|Investing activities                                         |                                                                    |                                                                   |             |                              |           |                              |            
|                                                             | Purchase of short-term investments                                 |                                                                   |             | (4,999,035                   | )         |                              | (10,847,245
|                                                             | Redemption of short-term investments                               |                                                                   |             | 11,504,032                   |           |                              |           
|                                                             | Purchase of capital assets                                         |                                                                   |             | (363,224                     | )         |                              | (150,135   
|                                                             | Cash pledged as collateral for lease                               |                                                                   |             | (222,003                     | )         |                              | 217,178    
|                                                             |                                                                    |                                                                   |             |                              |           |                              |            
|                                                             |                                                                    |                                                                   | 5,919,770   |                              |           | (10,780,202                  | )          
|                                                             |                                                                    |                                                                   |             |                              |           |                              |            
|Financing activities                                         |                                                                    |                                                                   |             |                              |           |                              |            
|                                                             | Capital lease repayments                                           |                                                                   |             |                             |           |                              | (40,460    
|                                                             | Short-term loan proceeds                                           |                                                                   |             |                             |           |                              |           
|                                                             | Repayment of short-term loan and accumulated interest              |                                                                   |             |                             |           |                              | (1,308,558 
|                                                             | Senior and subordinated loan proceeds                              |                                                                   |             |                             |           |                              | 6,542,790  
|                                                             | Repayment of senior and subordinated loan and accumulated interest |                                                                   |             |                             |           |                              | (7,367,568 
|                                                             | Convertible debenture proceeds                                     |                                                                   |             | 13,318,750                   |           |                              | 856,837    
|                                                             | Repayment of convertible debenture and accumulated interest        |                                                                   |             |                             |           |                              | (884,108   
|                                                             | Bridge loan proceeds                                               |                                                                   |             |                             |           |                              | 767,771    
|                                                             | Repayment of bridge loan and accumulated interest                  |                                                                   |             |                             |           |                              | (775,068   
|                                                             | Issuance of common shares through private placement                |                                                                   |             |                             |           |                              | 48,453,282 
|                                                             | Funds received on the exercise of warrants                         |                                                                   |             | 1,499,403                    |           |                              | 1,120,555  
|                                                             | Payment of expenses relating to financing                          |                                                                   |             | (378,162                     | )         |                              | (379,646   
|                                                             | Repurchase of warrants                                             |                                                                   |             | (1,000                       | )         |                              |           
|                                                             | Payment of expenses on the exercise of warrants                    |                                                                   |             |                             |           |                              | (33,618    
|                                                             | Payment of expenses related to the issuance of common shares       |                                                                   |             |                             |           |                              | (4,760,352 
|                                                             |                                                                    |                                                                   |             |                              |           |                              |            
|                                                             |                                                                    |                                                                   | 14,438,991  |                              |           | 42,191,857                   |            
|                                                             |                                                                    |                                                                   |             |                              |           |                              |            
|Effect of exchange rate changes on cash and cash equivalents |                                                                    |                                                                   | 57,099      |                              |           | (273,905                     | )          
|                                                             |                                                                    |                                                                   |             |                              |           |                              |            
|Change in cash and cash equivalents for the period           |                                                                    |                                                                   | (2,518,910  | )                            |           | 6,180,363                    |            
|Cash and cash equivalents, beginning of the period           |                                                                    |                                                                   | 6,337,677   |                              |           | 157,314                      |            
|                                                             |                                                                    |                                                                   |             |                              |           |                              |            
|Cash and cash equivalents, end of the period                 |                                                                    | $                                                                 | 3,818,767   |                              | $         | 6,337,677                    |            
|                                                             |                                                                    |                                                                   |             |                              |           |                              |            

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

F-8

---





WORLD HEART CORPORATION        NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.     GOING CONCERN ASSUMPTION



2.     NATURE OF OPERATIONS



3.     SIGNIFICANT ACCOUNTING POLICIES









F-9

---









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











F-10

---













4.     CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

|                                                    |  | 2004 |           | 2003
|--------------------------------------------------- |  | ---- | --------- | ----
|
|Cash                                                |  | $    | 1,518,767 |     
|Guaranteed investment certificates                  |  |      | 2,300,000 |     
|Asset backed notes held with financial institutions |  |      |          |     
|Corporate securities                                |  |      |          |     
|                                                    |  |      |           |     
|                                                    |  | $    | 3,818,767 |     
|                                                    |  |      |           |     



F-11

---



5.     INVENTORY

|                 |  | 2004 |           | 2003
|---------------- |  | ---- | --------- | ----
|Raw materials    |  | $    | 2,337,702 |     
|Work in progress |  |      | 3,014,302 |     
|Finished goods   |  |      | 2,760,521 |     
|                 |  |      |           |     
|                 |  | $    | 8,112,525 |     
|                 |  |      |           |     



6.     CAPITAL ASSETS

2004Cost

Accumulated Amortization

Net Book ValueFurniture and fixtures

$
443,349

$
334,184

$
109,165Computer equipment and software


1,465,905


1,061,608


404,297Manufacturing and research equipment


4,996,274


3,498,150


1,498,124Leasehold improvements


507,755


507,755


$
7,413,283

$
5,401,697

$
2,011,586


|
|

2003Cost

Accumulated Amortization

Net Book ValueFurniture and fixtures

$
407,318

$
248,922

$
158,396Computer equipment and software


1,581,625


975,081


606,544Manufacturing and research equipment


5,458,867


3,182,150


2,276,717Leasehold improvements


507,755


507,755


$
7,955,565

$
4,913,908

$
3,041,657


7.     INTANGIBLE ASSETS



2004Cost

Accumulated Amortization

Net Book ValuePurchased technology

$
6,191,698

$
5,936,686

$
255,012Other intangible assets


4,371,573


4,371,573


$
10,563,271

$
10,308,259

$
255,012


|
|

2003Cost

Accumulated Amortization

Net Book ValuePurchased technology

$
6,191,698

$
5,426,633

$
765,065Other intangible assets


4,371,573


4,257,520


114,053$
10,563,271

$
9,684,153

$
879,118


F-12

---



8.     SHORT-TERM LOANS



9.     TAXES PAYABLE



10.   CONVERTIBLE DEBENTURES



September 15, 2004

December 31, 2004Convertible debentures

$
1,911,128

$
8,177,140Warrants


4,369,170


4,369,170Beneficial conversion feature


5,821,370


$
12,101,668

$
12,546,310




F-13

---





11.   PREFERRED SHARES





12.   SHAREHOLDERS' EQUITY





F-14

---





Employees

Non-EmployeesOptions
#

Weighted average exercise price
$

Options
#

Weighted average exercise price
$

Warrants
#

Weighted average exercise price
$

Total
#Outstanding at Dec. 31, 2001

177,113

56.47

6,078

53.16

151,066

36.02

334,257Granted

132,801

27.82

4,826

29.05

490,641

24.92

628,268Exercised









(22,499
)
26.72

(22,499
)Expired

(3,518
)
45.93





(12,143
)
97.04

(15,661
)Forfeited

(45,099
)
38.87

(1,221
)
42.56





(46,320
)Outstanding at Dec. 31, 2002

261,297

45.09

9,683

42.49

607,065

26.18

878,045Granted

1,079,538

8.07

34,350

8.25

14,138,457

6.18

15,252,345Exercised









(147,857
)
7.12

(147,857
)Cancelled

(118,108
)
53.77

(3,110
)
46.99





(121,218
)Expired

(2,758
)
39.51





(5,000
)
57.75

(7,758
)Forfeited

(75,621
)
19.36

(1,258
)
9.41





(76,879
)Outstanding at Dec. 31, 2003

1,144,348

10.98

39,665

13.54

14,592,665

6.99

15,776,678Granted

127,852

6.46

3,095

7.77

10,923,566

1.58

11,054,513Exercised









(250,000
)
5.93

(250,000
)Repurchased









(300,000
)
5.93

(300,000
)Expired

(7,166
)
52.46





(541,998
)
26.84

(549,164
)Forfeited

(514,165
)
8.01

(4,583
)
8.48





(518,748
)Outstanding at Dec. 31, 2004

750,869

11.85

38,177

13.68

24,424,233

4.15

25,213,279


F-15

---



OptionsEmployees

Non-Employees

WarrantsWeighted average exercise price of exercisable options and warrants:December 31, 2002

$
52.24

$
51.84

$
27.59December 31, 2003


45.67


50.55


7.03December 31, 2004


18.09


18.34


4.15Number of exercisable options and warrants:December 31, 2002


87,916


3,372


607,065December 31, 2003


66,283


4,036


14,592,665December 31, 2004


287,102


17,867


24,424,233Range of exercise prices of all options and warrants at December 31, 2004:From

$
1.02

$
5.31

$
1.55To


105.43


59.95


29.05Range of expiry dates of all options and warrants at December 31, 2004:From


Jan. 5, 2005


Jul. 14, 2005


Dec. 19, 2005To


Dec. 7, 2011


Dec. 31, 2010


Sep. 14, 2009




Range of exercise price

Number outstanding

Weighted average exercise price

Weighted average remaining life in years$      1.02 to 2.50

10,868,424

$
1.55

4.72.51 to 5.00

1,484


4.08

5.55.01 to 7.50

13,258,314


6.01

3.77.51 to 10.00

864,269


8.00

4.410.01 to 20.00

7,838


14.68

1.320.01 to 40.00

170,095


28.72

2.140.01 to 105.43

42,855


56.44

1.625,213,279

$
4.40

4.1




2004

2003

2002Net loss

$
(26,113,600
)
$
(31,797,218
)
$
(32,088,780
)Share-based compensation costs


(2,134,707
)

(1,579,378
)

(1,653,660
)Adjusted pro forma net loss

$
(28,248,307
)
$
(33,376,596
)
$
(33,742,440
)Reported basic and diluted loss per share

$
(1.70
)
$
(5.08
)
$
(12.64
)Share-based compensation costs per share


(0.14
)

(0.25
)

(0.65
)Pro forma basic loss per share

$
(1.84
)
$
(5.33
)
$
(13.29
)


F-16

---





2004

2003

2002Expected option life, in years

6

6

6Volatility

73%

75%

75%Risk free interest rate

4.00%

3.65%

3.65%Dividend yield

Nil

Nil

Nil


13.   GOVERNMENT ASSISTANCE



14.   RESTRUCTURING



Costs accrued during the year

Costs paid or settled in the year

Balance in accrued liabilities as at December 31Employee severance costs

$
1,396,037

$
795,923

$
600,114Contract settlement costs


57,653





57,653Write down of capital assets


338,595


338,595


Other costs


22,509


8,624


13,885$
1,814,794

$
1,143,142

$
671,652




F-17

---



15.   LOSS PER COMMON SHARE



Number of common shares to be issued on exercise or conversion2004

2003

2002Convertible preferred shares





932,502Employee and non-employee stock options

789,046

1,184,013

270,980Warrants

24,424,233

14,592,665

840,139Convertible debentures

10,655,000



Stock options subject to shareholder approval

2,383,725



Total potentially dilutive instruments

38,252,004

15,776,678

2,043,621


16.   INCOME TAXES



2004

2003

2002Canadian loss

$
(15,761,396
)
$
(11,035,175
)
$
(9,081,119
)United States' loss


(9,052,555
)

(6,804,439
)

(19,929,633
)European loss


(1,299,648
)

(328,991
)

Loss before income taxes

$
(26,113,599
)
$
(18,168,605
)
$
(29,010,752
)Expected statutory rate


36.12%


36.62%


38.62%Expected recovery of income tax

$
(9,430,000
)
$
(6,650,000
)
$
(11,210,000
)Effect of foreign tax rate differences


(510,000
)

(350,000
)

(490,000
)Permanent differences


95,000


(560,000
)

1,680,000Change in valuation allowance


10,150,000


12,360,000


8,240,000Effect of changes in SR&ED carryforwards


2,247,000


750,000


800,000Effect of tax rate changes


268,000


270,000


1,360,000Effect of exchange rate differences


(2,820,000
)

(5,820,000
)

(380,000
)Recovery of income taxes

$


$


$





F-18

---





2004

2003Deferred tax assets:SR&ED expenditures

$
10,280,000

$
9,390,000Net operating losses


39,960,000


32,190,000Investment tax credits


5,540,000


4,660,000Share issue costs


4,790,000


4,500,000Asset basis differences


1,500,000


1,320,00062,070,000


52,060,000Less: valuation allowance


(61,780,000
)

(51,630,000
)290,000


430,000Deferred tax liabilities:Asset basis differences


(290,000
)

(430,000
)Net deferred income tax liability

$


$





2004

2003SR&ED expenditures  carried forward without expiry

$
28,500,000

$
25,610,000Income tax loss carryforwards:Federal (Canada) (expire 2005-2011)


63,203,000


49,210,000Provincial (expire 2005-2011)


62,100,000


52,290,000United States (expire 2010-2020)


49,100,000


46,430,000Europe


1,400,000


140,000Investment tax credits (expire 2006-2014)


7,100,000


6,170,000


17.   COMMITMENTS AND CONTINGENCIES





Year ended December 31,

2005

$
1,440,5972006


1,407,6802007


354,7702008


37,4762009


2,197






F-19

---







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



2004

2003

2002Accounts and other receivables

$
(475,399
)
$
(334,286
)
$
2,017,870Prepaid expenses


52,000


(275,978
)

224,705Inventory


(2,176,785
)

(1,812,506
)

1,148,080Accounts payable and accrued liabilities


(2,172,728
)

(2,502,353
)

3,418,486Accrued compensation


(359,814
)

(14,111
)

612,029$
(5,132,726
)
$
(4,939,234
)
$
7,421,170




19.   SEGMENTED INFORMATION



F-20

---





2004

2003

2002Revenue

Long-lived assets

Revenue

Long-lived assets

Revenue

Long-lived assetsUnited States

$
5,343,725

$
16,038,366

$
4,129,322

$
17,023,263

$
3,452,779

$
18,248,248Europe


3,033,294


515,011


1,862,335


611,979


2,187,115


Canada


510,672


2,892,864


245,424


3,465,176


599,450


3,136,947Japan


688,070





538,726





616,114


Less: Edwards fee














(418,762
)

$
9,575,761

$
19,446,241

$
6,775,807

$
21,100,418

$
6,436,696

$
21,385,195




20.   SUBSEQUENT EVENTS



21.   FINANCIAL INSTRUMENTS



F-21

---











22.   CANADIAN ACCOUNTING PRINCIPLES



F-22

---





2004

2003ASSETSCurrent assets

$
21,743,636

$
28,470,186Long-term receivable


318,553


Cash pledged as collateral for lease


750,000


527,997Capital assets


2,011,586


3,041,657Goodwill and intangible assets


17,434,655


18,058,761Other assets





81,468$
42,258,430

$
50,180,069LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities

$
7,637,819

$
10,139,027Convertible debentures(1)


2,530,659


Long-term obligation


16,368


10,184,846


10,139,027Shareholders' equity (deficiency)Common shares(2)(3)


187,027,058


184,868,489Contributed surplus(1)(3)


22,871,780


4,893,750Cumulative translation adjustment


(6,490,184
)

(6,490,184
)Accumulated deficit(1)(2)(3)(4)


(171,335,070
)

(143,231,013
)32,073,584


(40,041,042
)$
42,258,430

$
50,180,069




2004

2003

2002Net loss applicable to common shareholders in accordance with U.S. GAAP

$
(26,141,798
)
$
(18,168,304
)
$
(29,010,753
)Accretion on preferred shares





1,614,855


4,458,080Inducement related to conversion of preferred shares





1,924,395


Net loss in accordance with U.S. GAAP


(26,141,798
)

(14,629,054
)

(24,552,673
)Adjustments to reconcile to Canadian GAAP:Non-cash share based compensation costs(6)


(2,134,707
)




Interest and accretion on convertible debentures(1)


5,469,700





Amortization of purchased in-process research and development(5)





(916,180
)

(2,060,095
)Interest on preferred shares(3)





(4,322,110
)

(4,872,441
)Foreign exchange translation on shares(3)





(1,985,669
)

(205,650
)Gain on settlement of obligation under research and development arrangement(4)





(1,694,300
)

Net loss in accordance with Canadian GAAP


(22,806,805
)

(23,547,313
)

(31,690,859
)Inducement related to conversion of preferred shares





(1,924,395
)

Net loss applicable to common shareholders in accordance with Canadian GAAP

$
(22,806,805
)
$
(25,471,708
)
$
(31,690,859
)Weighted average number of common shares outstanding


15,373,689


6,259,757


2,539,912Basic and diluted loss per common share

$
(1.48
)
$
(4.07
)
$
(12.48
)




F-23

---





September 15, 2004

December 31, 2004Convertible debentures

$
1,734,350

$
2,530,659Warrants


4,504,127


4,504,127Conversion feature


5,863,191


5,863,191$
12,101,668

$
12,897,977




23.   NEW ACCOUNTING PRONOUNCEMENTS



F-24

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