##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2011
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 COMMISSION FILE NUMBER: 001-34256
 HEARTWARE INTERNATIONAL, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    26-3636023(State of Incorporation)
    
    (I.R.S. Employer Identification No.)
 205 Newbury Street, Suite 101
Framingham, Massachusetts 01701
+1 508 739 0950
 
 
 : þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
 o þ
  Class
    
    Shares Outstanding as of April 27, 2011Common Stock, $0.001 Par Value Per Share
    
    13,920,906




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##### 



PART I. FINANCIAL INFORMATION
    
    
    5ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    
    
    5ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    24ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    31ITEM 4. CONTROLS AND PROCEDURES
    
    
    31PART II. OTHER INFORMATION
    
    
    33ITEM 1A. RISK FACTORS
    
    
    33ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    33ITEM 6. EXHIBITS
    
    
    33Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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References
  
    
    HeartWare, the Company, HeartWare Group, we, us and our refer to HeartWare
International, Inc. and its consolidated subsidiaries, HeartWare Pty. Limited, HeartWare,
Inc., HeartWare GmbH and HeartWare (UK) Limited.
 
    
    HeartWare International, Inc. refers to HeartWare International, Inc., a Delaware
corporation incorporated on July 29, 2008.
 
    
    HeartWare Pty. Limited refers to HeartWare Pty. Limited (formerly known as HeartWare
Limited), an Australian proprietary corporation originally incorporated on November 26,
2004.
 
    
    HeartWare, Inc. refers to HeartWare, Inc., a Delaware corporation incorporated on
April 3, 2003. HeartWare, Inc. was acquired by HeartWare Pty. Limited on January 24, 2005.
 
    
    HeartWare GmbH refers to HeartWare GmbH, a German corporation established on February
19, 2010.
 
    
    HeartWare (UK) Limited refers to HeartWare (UK) Limited, a limited liability
corporation established in the United Kingdom on February 19, 2010.
 Currency
  Trademarks
 ® ® ® ®
 Forward-Looking Statements
  
    
    our expectations with respect to regulatory submissions and approvals, such as FDA
approval of our premarket approval application for our HeartWare® Ventricular Assist System
for a bridge-to-transplant indication;
 
    
    our expectations with respect to our clinical trials, including enrollment in or
completion of our clinical trials;
 
    
    our expectations with respect to the integrity or capabilities of our intellectual
property position;
 
    
    our ability and plans to commercialize our existing products;
 
    
    our ability and plans to develop and commercialize new products and the expected
features and functionalities and possible benefits of these products; and
 
    
    our estimates regarding our capital requirements and financial performance, including
profitability.
  3




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4




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 HEARTWARE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
 March 31, 2011
    
    
    December 31, 2010ASSETSCurrent assets:Cash and cash equivalents
    
    $
    156,076,828
    
    
    $
    192,148,312Short-term investments, net
    
    
    57,976,511
    
    
    
    21,330,110Accounts receivable, net
    
    
    14,115,847
    
    
    
    19,052,672Inventories, net
    
    
    17,342,288
    
    
    
    15,076,590Prepaid expenses and other current assets
    
    
    2,807,620
    
    
    
    2,406,505Total current assets
    
    
    248,319,094
    
    
    
    250,014,189Property, plant and equipment, net
    
    
    8,336,199
    
    
    
    7,484,022Long-term investments, net
    
    
    
    
    
    
    4,005,659Other intangible assets, net
    
    
    1,703,494
    
    
    
    1,595,456Deferred financing costs, net
    
    
    2,871,169
    
    
    
    2,939,149Restricted cash
    
    
    1,538,429
    
    
    
    1,538,429Total assets
    
    $
    262,768,385
    
    
    $
    267,576,904LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,544,453
    
    
    $
    3,889,643Accrued expenses and other current liabilities
    
    
    8,224,493
    
    
    
    7,001,350Total current liabilities
    
    
    10,768,946
    
    
    
    10,890,993Convertible senior notes, net
    
    
    90,200,636
    
    
    
    88,921,557Commitments and contingencies  See Note 15Stockholders equity:Preferred stock  $.001 par value; 5,000,000 shares
authorized; no shares issued and outstanding at
March 31, 2011 and December 31, 2010
    
    
    
    
    
    
    Common stock  $.001 par value; 25,000,000 shares
authorized; 13,920,906 and 13,878,686 shares issued
and outstanding at March 31, 2011 and December 31,
2010, respectively
    
    
    13,921
    
    
    
    13,879Additional paid-in capital
    
    
    306,005,320
    
    
    
    302,533,344Accumulated deficit
    
    
    (136,699,563
    )
    
    
    (127,268,545
    )Accumulated other comprehensive loss:Cumulative translation adjustments
    
    
    (7,522,199
    )
    
    
    (7,548,706
    )Unrealized gain on investments
    
    
    1,324
    
    
    
    34,382Total accumulated other comprehensive loss
    
    
    (7,520,875
    )
    
    
    (7,514,324
    )Total stockholders equity
    
    
    161,798,803
    
    
    
    167,764,354Total liabilities and stockholders equity
    
    $
    262,768,385
    
    
    $
    267,576,904
   5




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HEARTWARE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 Three Months EndedMarch 31,2011
    
    
    2010Revenues, net
    
    $
    17,974,600
    
    
    $
    10,703,120Cost of revenues
    
    
    7,595,453
    
    
    
    5,680,542Gross profit
    
    
    10,379,147
    
    
    
    5,022,578Operating expenses:Selling, general and administrative
    
    
    8,664,088
    
    
    
    4,556,422Research and development
    
    
    9,300,128
    
    
    
    4,755,678Total operating expenses
    
    
    17,964,216
    
    
    
    9,312,100Loss from operations
    
    
    (7,585,069
    )
    
    
    (4,289,522
    )Other income (expense):Foreign exchange gain (loss)
    
    
    592,325
    
    
    
    (367,014
    )Interest expense
    
    
    (2,605,472
    )
    
    
    Interest income, net
    
    
    167,198
    
    
    
    112,221Loss before income taxes
    
    
    (9,431,018
    )
    
    
    (4,544,315
    )Provision for income taxes
    
    
    
    
    
    
    Net loss
    
    $
    (9,431,018
    )
    
    $
    (4,544,315
    )Net loss per common share  basic and
diluted
    
    $
    (0.68
    )
    
    $
    (0.35
    )Weighted average shares outstanding 
basic and diluted
    
    
    13,900,602
    
    
    
    12,958,326
   6




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HEARTWARE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited)
 Three Months Ended March 31,2011
    
    
    2010Net loss
    
    $
    (9,431,018
    )
    
    $
    (4,544,315
    )Foreign currency translation adjustments
    
    
    26,507
    
    
    
    76,717Unrealized loss on investments
    
    
    (33,058
    )
    
    
    (23,792
    )Comprehensive loss
    
    $
    (9,437,569
    )
    
    $
    (4,491,390
    )
   7




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HEARTWARE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(unaudited)
 AccumulatedCommon Shares
    
    
    Additional
    
    
    
    
    
    
    OtherShares
    
    
    
    
    
    
    Paid-In
    
    
    Accumulated
    
    
    ComprehensiveIssued
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Loss
    
    
    TotalBalance, December 31, 2010
    
    
    13,878,686
    
    
    $
    13,879
    
    
    $
    302,533,344
    
    
    $
    (127,268,545
    )
    
    $
    (7,514,324
    )
    
    $
    167,764,354Issuance of common stock
pursuant to share-based awards
    
    
    42,220
    
    
    
    42
    
    
    
    536,596
    
    
    
    
    
    
    
    
    
    
    
    536,638Share-based compensation
    
    
    
    
    
    
    
    
    
    
    2,935,380
    
    
    
    
    
    
    
    
    
    
    
    2,935,380Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,431,018
    )
    
    
    
    
    
    
    (9,431,018
    )Other comprehensive loss:Foreign currency translation
Adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,507
    
    
    
    26,507Unrealized loss on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,058
    )
    
    
    (33,058
    )Balance, March 31, 2011
    
    
    13,920,906
    
    
    $
    13,921
    
    
    $
    306,005,320
    
    
    $
    (136,699,563
    )
    
    $
    (7,520,875
    )
    
    $
    161,798,803
   8




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HEARTWARE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 Three Months Ended March 31,2011
    
    
    2010CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (9,431,018
    )
    
    $
    (4,544,315
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation of property, plant and equipment
    
    
    493,362
    
    
    
    281,039Amortization of intangible assets
    
    
    30,637
    
    
    
    23,226Share-based compensation expense
    
    
    2,935,380
    
    
    
    1,726,467Amortization of premium on investments
    
    
    232,612
    
    
    
    21,448Amortization of discount on convertible notes
    
    
    1,279,079
    
    
    
    Amortization of deferred financing costs
    
    
    68,580
    
    
    
    Loss on disposal of assets
    
    
    18,140
    
    
    
    Change in operating assets and liabilities:Accounts receivable
    
    
    4,944,326
    
    
    
    3,553,778Inventories, net
    
    
    (2,287,146
    )
    
    
    (3,120,148
    )Prepaid expenses and other current assets
    
    
    (398,505
    )
    
    
    (1,244,721
    )Accounts payable
    
    
    (1,346,209
    )
    
    
    (1,406,311
    )Accrued interest on convertible senior notes
    
    
    1,257,813
    
    
    
    Accrued expenses and other current liabilities
    
    
    (36,293
    )
    
    
    (83,833
    )Net cash used in operating activities
    
    
    (2,239,242
    )
    
    
    (4,793,370
    )CASH FLOWS FROM INVESTING ACTIVITIESPurchases of investments
    
    
    (46,906,413
    )
    
    
    (16,644,600
    )Maturities of investments
    
    
    14,000,000
    
    
    
    Additions to property, plant and equipment
    
    
    (1,363,737
    )
    
    
    (864,848
    )Additions to patents
    
    
    (138,676
    )
    
    
    (137,222
    )Proceeds from disposition of assets
    
    
    28,892
    
    
    
    Net cash used in investing activities
    
    
    (34,379,934
    )
    
    
    (17,646,670
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issuance of common stock
    
    
    
    
    
    
    62,760,450Payment of common stock issuance costs
    
    
    (600
    )
    
    
    (4,259,079
    )Proceeds from exercise of stock options
    
    
    536,638
    
    
    
    340,092Net cash provided by financing activities
    
    
    536,038
    
    
    
    58,841,463Effect of exchange rate changes on cash and cash equivalents
    
    
    11,654
    
    
    
    46,780(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (36,071,484
    )
    
    
    36,448,203CASH AND CASH EQUIVALENTS  BEGINNING OF PERIOD
    
    
    192,148,312
    
    
    
    50,834,714CASH AND CASH EQUIVALENTS  END OF PERIOD
    
    $
    156,076,828
    
    
    $
    87,282,917
   9




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HEARTWARE INTERNATIONAL, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 Note 1. Basis of Presentation
    Note 2. Liquidity
     10




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Note 3. Significant Accounting Policies
 Principles of Consolidation
  Accounting Estimates
  Cash and Cash Equivalents
  Investments
  Receivables
    Three months endedMarch 31,2011
    
    
    2010Beginning balance
    
    $
    600,000
    
    
    $
    Additions (bad debt expense)
    
    
    
    
    
    
    Deductions (charge-offs)
    
    
    
    
    
    
    Ending balance
    
    $
    600,000
    
    
    $
    
  11




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Inventories, net
  Deferred Financing Costs
  Product Warranty
     Three months endedMarch 31,2011
    
    
    2010Beginning balance
    
    $
    290,891
    
    
    $
    99,169Accrual for (reversal of) warranty expense
    
    
    (88,466
    )
    
    
    40,962Warranty costs incurred during the period
    
    
    
    
    
    
    (21,075
    )Ending balance
    
    $
    202,425
    
    
    $
    119,056
 Fair Value Measurements
   12




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Vendor Concentration
  Concentration of Credit Risk and other Risks and Uncertainties
    New Accounting Standards
 Software (Topic 985): Certain Revenue Arrangements That Include Software
Elements (a consensus of the FASB Emerging Issues Task Force). Software: Revenue Recognition,
 Fair Value Measurements and Disclosures
(Topic 820): Improving Disclosures about Fair Value Measurements
  13




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Compensation-Stock Compensation (Topic 718):
Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the
Market in Which the Underlying Equity Security Trades
 Note 4. Investments
   At March 31, 2011
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    AggregateCost Basis
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueShort-term investments:Corporate debt
    
    $
    21,316,023
    
    
    $
    23,137
    
    
    $
    
    
    
    $
    21,339,160U.S. government agency debt
    
    
    36,659,164
    
    
    
    
    
    
    
    (21,813
    )
    
    
    36,637,351Total short-term investments
    
    $
    57,975,187
    
    
    $
    23,137
    
    
    $
    (21,813
    )
    
    $
    57,976,511
 At December 31, 2010
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    AggregateCost Basis
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueShort-term investments:Corporate debt
    
    $
    21,294,673
    
    
    $
    35,437
    
    
    $
    
    
    
    $
    21,330,110Total short-term investments
    
    $
    21,294,673
    
    
    $
    35,437
    
    
    $
    
    
    
    $
    21,330,110Long-term investments:U.S. government agency debt
    
    $
    4,006,714
    
    
    $
    
    
    
    $
    (1,055
    )
    
    $
    4,005,659Total long-term investments
    
    $
    4,006,714
    
    
    $
    
    
    
    $
    (1,055
    )
    
    $
    4,005,659
   14




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Note 5. Fair Value Measurements
 Fair Value Measurements and Disclosures,
       At March 31, 2011Carrying
    
    
    Fair
    
    
    Fair Value Measurements
at the Reporting Date UsingValue
    
    
    Value
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3AssetsShort-term investments
    
    $
    57,976,511
    
    
    $
    57,976,511
    
    
    $
    
    
    
    $
    57,976,511
    
    
    $
    LiabilitiesConvertible senior
notes
    
    $
    90,200,636
    (1)
    
    $
    163,807,438
    
    
    $
    
    
    
    $
    163,807,438
    
    
    $
    
 At December 31, 2010Carrying
    
    
    Fair
    
    

Fair Value Measurements at the Reporting Date UsingValue
    
    
    Value
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3AssetsShort-term investments
    
    $
    21,330,110
    
    
    $
    21,330,110
    
    
    $
    
    
    
    $
    21,330,110
    
    
    $
    Long-term investments
    
    $
    4,005,659
    
    
    $
    4,005,659
    
    
    $
    
    
    
    $
    4,005,659
    
    
    $
    LiabilitiesConvertible senior
notes
    
    $
    89,921,557
    (1)
    
    $
    160,693,813
    
    
    $
    
    
    
    $
    160,693,813
    
    
    $
    
 (1)
    
    The carrying amount of our convertible senior notes is net of unamortized
discount. See Note 10, Debt for more information.   15




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Note 6. Inventories, Net
  March 31,
    
    
    December 31,2011
    
    
    2010Raw material
    
    $
    3,716,816
    
    
    $
    4,279,170Work-in-process
    
    
    3,719,460
    
    
    
    2,708,840Finished goods
    
    
    9,906,012
    
    
    
    8,088,580$
    17,342,288
    
    
    $
    15,076,590
  Note 7. Property, Plant and Equipment, Net
  Estimated
    
    
    March 31,
    
    
    December 31,Useful Lives
    
    
    2011
    
    
    2010Machinery and equipment
    
    
    1.5 to 7 years
    
    
    $
    9,712,779
    
    
    $
    8,966,747Leasehold improvements
    
    
    3 to 7 years
    
    
    
    475,512
    
    
    
    282,483Office equipment, furniture
and fixtures
    
    
    5 to 7 years
    
    
    
    669,379
    
    
    
    450,849Purchased software
    
    
    5 to 7 years
    
    
    
    1,929,381
    
    
    
    1,741,13212,787,051
    
    
    
    11,441,211Less: accumulated depreciation
    
    
    
    
    
    
    (4,450,852
    )
    
    
    (3,957,189
    )$
    8,336,199
    
    
    $
    7,484,022
 Note 8. Other Intangible Assets, Net
  March 31, 2011
    
    
    December 31, 2010Weighted Average Life
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmortizable Intangible Assets
    
    (Years)
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationPatents
    
    
    15
    
    
    $
    2,000,359
    
    
    $
    (296,865
    )
    
    $
    1,861,684
    
    
    $
    (266,228
    )
  Note 9. Accrued Expenses and Other Current Liabilities
  March 31,
    
    
    December 31,2011
    
    
    2010Accrued payroll and other employee costs
    
    $
    2,499,099
    
    
    $
    4,152,833Accrued material purchases
    
    
    1,626,939
    
    
    
    255,679Accrued interest payable on convertible notes
    
    
    1,467,448
    
    
    
    209,635Accrued professional fees
    
    
    707,274
    
    
    
    577,237Accrued research and development costs
    
    
    596,160
    
    
    
    671,928Accrued VAT
    
    
    548,903
    
    
    
    647,525Other accrued expenses
    
    
    778,670
    
    
    
    486,513$
    8,224,493
    
    
    $
    7,001,350
  16




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Note 10. Debt
 Convertible Senior Notes
    Debt
  17




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March 31,
    
    
    December 31,2011
    
    
    2010Principal amount
    
    $
    143,750,000
    
    
    $
    143,750,000Unamortized discount
    
    
    (53,549,364
    )
    
    
    (54,828,443
    )Net carrying amount
    
    $
    90,200,636
    
    
    $
    88,921,557Equity component
    
    $
    55,037,913
    
    
    $
    55,037,913
   Stated amount at 3.5% coupon rate
    
    $
    1,257,813Amortization of discount
    
    
    1,279,079Amortization of deferred financing costs
    
    
    68,580$
    2,605,472
 Note 11. Stockholders Equity
    Note 12. Share-Based Compensation
   18




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Three Months EndedMarch 31,2011
    
    
    2010Cost of revenues
    
    $
    585,218
    
    
    $
    268,650Selling, general and administrative
    
    
    1,444,349
    
    
    
    902,058Research and development
    
    
    905,813
    
    
    
    555,759$
    2,935,380
    
    
    $
    1,726,467
  Equity Plans
   Stock Options
    19




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##### Table of Contents



Three Months EndedMarch 31,2011
    
    
    2010Dividend yield
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    58.76
    %
    
    
    61.30
    %Risk-free interest rate
    
    
    2.51
    %
    
    
    2.90
    %Estimated holding period (years)
    
    
    6.25
    
    
    
    6.25
  WeightedWeighted
    
    
    AverageAverage
    
    
    RemainingExercise
    
    
    Contractual Life
    
    
    AggregateShares
    
    
    Price
    
    
    (Years)
    
    
    Intrinsic ValueOutstanding at December 31,
2010
    
    
    404,366
    
    
    $
    32.87Granted
    
    
    1,750
    
    
    
    86.58Exercised
    
    
    (15,491
    )
    
    
    34.64Forfeited
    
    
    (3,062
    )
    
    
    59.14Expired
    
    
    
    
    
    
    Outstanding at March 31, 2011
    
    
    387,563
    
    
    $
    33.18
    
    
    
    6.47
    
    
    $
    20,285,034Exercisable at March 31, 2011
    
    
    246,700
    
    
    $
    34.88
    
    
    
    5.72
    
    
    $
    12,493,926
      Restricted Stock Units
   20




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WeightedAverageRemainingContractualNumber of
    
    
    Life
    
    
    AggregateUnits
    
    
    (Years)
    
    
    Intrinsic ValueOutstanding at December 31, 2010
    
    
    544,865Granted
    
    
    3,250Vested/Exercised
    
    
    (26,729
    )Forfeited
    
    
    (12,050
    )Expired
    
    
    Outstanding at March 31, 2011
    
    
    509,336
    
    
    
    1.60
    
    
    $
    43,558,415Exercisable at March 31, 2011
    
    
    
    
    
    
    
    
    
    $
    
      Note 13. Net Loss Per Common Share
  Three Months EndedMarch 31,2011
    
    
    2010Common shares issuable upon:Conversion of convertible notes
    
    
    1,767,923
    
    
    
    Exercise of share-based awards
    
    
    896,899
    
    
    
    874,531
  21




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Note 14. Business Segment, Geographic Areas and Major Customers
   Three Months EndedMarch 31,(in thousands)
    
    2011
    
    
    2010Domestic
    
    $
    6,302
    
    
    $
    2,682Germany
    
    
    5,498
    
    
    
    5,556International, excluding Germany
    
    
    6,175
    
    
    
    2,465$
    17,975
    
    
    $
    10,703
   Note 15. Commitments and Contingencies
   Note 16. Subsequent Events
   22




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23




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ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
     
    
    FDA approval of an Investigational Device Exemption (IDE) Supplement that allows us to
enroll a third allotment, of 94 additional patients, in our ADVANCE bridge-to-transplant
clinical trial under a Continued Access Protocol (CAP);
 
    
    Submission of a Pre-Market Approval application for our HeartWare System based on data
generated in our ADVANCE bridge-to-transplant clinical trial and subsequent acceptance by
the FDA of the application for filing and substantive review;
 
    
    Being named to the REVIVE-IT study, a study to be completed by the Universities of
Michigan and Pittsburgh on the benefits of LVADs in patients with earlier access to the
device;
 
    
    Approval of the HeartWare System by the Therapeutic Goods Administration (TGA) in
Australia for listing on the Australian Register of Therapeutic Goods; and
 
    
    Approval by the U.S. FDA and notification of acceptance by the British Standards
Institution of the addition of a sintered inflow tube.
    24




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##### Table of Contents



Critical Accounting Policies and Estimates
 Managements Discussion and Analysis of Financial
Condition and Results of Operations
 Results of Operations
 Three months ended March 31, 2011 and 2010
 Revenues, net
 Three Months EndedMarch 31,(in thousands)
    
    2011
    
    
    2010
    
    
    ChangeRevenues, net
    
    $
    17,975
    
    
    $
    10,703
    
    
    
    68
    %
    25




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##### Table of Contents



Cost of Revenues
   Three Months EndedMarch 31,2011
    
    
    2010Gross profit (in thousands)
    
    $
    10,379
    
    
    $
    5,023Gross margin %
    
    
    58
    %
    
    
    47
    %
    26




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##### Table of Contents



Selling, General and Administrative
  Three Months EndedMarch 31,(in thousands)
    
    2011
    
    
    2010
    
    
    ChangeTotal selling, general and administrative expenses
    
    $
    8,664
    
    
    $
    4,556
    
    
    
    90
    %
   Research and Development
  Three Months EndedMarch 31,(in thousands)
    
    2011
    
    
    2010
    
    
    ChangeTotal research and development expenses
    
    $
    9,300
    
    
    $
    4,756
    
    
    
    96
    %
   Foreign Exchange
   27




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Interest Expense
   Interest Income, net
  Income Taxes
   Liquidity and Capital Resources
   28




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Three Months Ended March 31,2011
    
    
    2010(in thousands)Net cash used in operating activities
    
    $
    (2,239
    )
    
    $
    (4,793
    )Net cash used in investing activities
    
    
    (34,380
    )
    
    
    (17,647
    )Net cash provided by financing activities
    
    
    536
    
    
    
    58,841Effect of exchange rate changes on cash and cash
equivalents
    
    
    12
    
    
    
    47Net (decrease) increase in cash and cash equivalents
    
    $
    (36,071
    )
    
    $
    36,448
 Cash Used in Operating Activities
   Cash Used in Investing Activities
  Cash Provided by Financing Activities
    29




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##### Table of Contents



Operating Capital and Capital Expenditure Requirements
     
    
    commercial acceptance of our products;
 
    
    costs to manufacture our products;
 
    
    expenses required to operate multiple clinical trials;
 
    
    further product research and development for next generation products and
peripherals and expanding indications for our products as well as efforts to sustain
and maintain incremental improvements to existing products;
 
    
    expanding our sales and marketing capabilities on a global basis, including building
a team to support U.S. commercialization should the FDA approve our device for
marketing in the U.S.;
 
    
    broadening our infrastructure in order to meet the needs of our growing operations;
and
 
    
    complying with the requirements related to being a public company in both the United
States and Australia.
 Contractual Obligations
  Managements Discussion and Analysis of Financial Condition and Results of Operations
  30




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Risk
   Foreign Currency Rate Fluctuations
   
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   31




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Changes in Internal Control over Financial Reporting
  Inherent Limitations on Controls and Procedures
   32




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PART II. OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   
 ITEM 6. EXHIBITS
 3.1
    
    Certificate of Incorporation of HeartWare International, Inc. (1)
 3.2
    
    Bylaws of HeartWare International, Inc. (1)
 31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13A-14(a) or Rule 15d-14(a) of the
Securities Exchange Act
 31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13A-14(a) or Rule 15d-14(a) of the
Securities Exchange Act
 31.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 (1)
    
    Incorporated by reference to the respective exhibits filed with the Companys Current
Report on Form 8-K filed with the Securities and Exchange Commission on November 13, 2008.  33




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SIGNATURES
  HEARTWARE INTERNATIONAL, INC.Date: May 6, 2011
    /s/ Douglas GodshallDouglas GodshallChief Executive OfficerDate: May 6, 2011
    /s/ David McIntyreDavid McIntyreChief Financial Officer and
Chief Operating Officer
(Principal Financial Officer)Date: May 6, 2011
    /s/ Lauren FarrellLauren FarrellVice President, Finance
(Principal Accounting Officer)  34




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EXHIBIT INDEX
 31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13A-14(a) or Rule 15d-14(a) of the
Securities Exchange Act
 31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13A-14(a) or Rule 15d-14(a) of the
Securities Exchange Act
 31.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  35