##### 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 September 30, 2010
 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 October 29, 2010Common Stock, $0.001 Par Value Per Share
    
    
    13,869,262




---



##### 



PART I. FINANCIAL INFORMATION
    
    
    4ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    
    
    4ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    22ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    30ITEM 4. CONTROLS AND PROCEDURES
    
    
    30PART II. OTHER INFORMATION
    
    
    31ITEM 1A. RISK FACTORS
    
    
    31ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    31ITEM 6. EXHIBITS
    
    
    32Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



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
  
  3




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 HEARTWARE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
 September 30,
    
    
    December 31,2010
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    67,498,308
    
    
    $
    50,834,714Short-term investments, net
    
    
    21,495,250
    
    
    
    Accounts receivable, net
    
    
    8,289,963
    
    
    
    11,384,647Inventories, net
    
    
    17,218,993
    
    
    
    8,870,903Prepaid expenses and other current assets
    
    
    2,264,799
    
    
    
    1,663,157Total current assets
    
    
    116,767,313
    
    
    
    72,753,421Property, plant and equipment, net
    
    
    6,842,380
    
    
    
    3,719,415Long-term investments, net
    
    
    4,007,479
    
    
    
    Other intangible assets, net
    
    
    1,485,536
    
    
    
    1,191,917Restricted cash
    
    
    288,429
    
    
    
    288,429Total assets
    
    $
    129,391,137
    
    
    $
    77,953,182LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,142,915
    
    
    $
    3,122,131Accrued expenses and other current liabilities
    
    
    7,088,848
    
    
    
    3,848,086Total current liabilities
    
    
    10,231,763
    
    
    
    6,970,217Commitments and contingenciesStockholders equity:Preferred stock  $.001 par value; 5,000,000
shares authorized; no shares issued and
outstanding at September 30, 2010 and December
31, 2009
    
    
    
    
    
    
    Common stock  $.001 par value; 25,000,000
shares authorized; 13,869,262 and 11,786,173
shares issued and outstanding at September 30,
2010 and December 31, 2009, respectively
    
    
    13,869
    
    
    
    11,786Additional paid-in capital
    
    
    247,013,680
    
    
    
    176,698,329Accumulated deficit
    
    
    (120,242,092
    )
    
    
    (97,871,645
    )Accumulated other comprehensive loss
    
    
    (7,626,083
    )
    
    
    (7,855,505
    )Total stockholders equity
    
    
    119,159,374
    
    
    
    70,982,965Total liabilities and stockholders equity
    
    $
    129,391,137
    
    
    $
    77,953,182
   4




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##### Table of Contents



HEARTWARE INTERNATIONAL, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues, net
    
    $
    13,816,693
    
    
    $
    7,506,209
    
    
    $
    34,276,891
    
    
    $
    11,952,452Cost of revenues
    
    
    6,002,368
    
    
    
    4,103,700
    
    
    
    15,976,258
    
    
    
    6,401,429Gross profit
    
    
    7,814,325
    
    
    
    3,402,509
    
    
    
    18,300,633
    
    
    
    5,551,023Operating expenses:Selling, general and administrative
    
    
    6,993,636
    
    
    
    3,148,897
    
    
    
    19,238,437
    
    
    
    11,720,760Research and development
    
    
    9,312,738
    
    
    
    3,645,980
    
    
    
    21,579,617
    
    
    
    9,994,274Total operating expenses
    
    
    16,306,374
    
    
    
    6,794,877
    
    
    
    40,818,054
    
    
    
    21,715,034Loss from operations
    
    
    (8,492,049
    )
    
    
    (3,392,368
    )
    
    
    (22,517,421
    )
    
    
    (16,164,011
    )Other income (expense):Foreign exchange gain (loss)
    
    
    514,191
    
    
    
    107,609
    
    
    
    (259,309
    )
    
    
    (260,049
    )Interest expense
    
    
    
    
    
    
    (350,696
    )
    
    
    (971
    )
    
    
    (350,696
    )Interest income, net
    
    
    133,775
    
    
    
    7,278
    
    
    
    407,254
    
    
    
    25,827Change in fair value of derivative
instrument
    
    
    
    
    
    
    (2,223,759
    )
    
    
    
    
    
    
    (2,223,759
    )Other, net
    
    
    
    
    
    
    (22,500
    )
    
    
    
    
    
    
    (25,187
    )Loss before income taxes
    
    
    (7,844,083
    )
    
    
    (5,874,436
    )
    
    
    (22,370,447
    )
    
    
    (18,997,875
    )Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (7,844,083
    )
    
    $
    (5,874,436
    )
    
    $
    (22,370,447
    )
    
    $
    (18,997,875
    )Net loss per common share  basic
and diluted
    
    $
    (0.57
    )
    
    $
    (0.60
    )
    
    $
    (1.66
    )
    
    $
    (2.07
    )Weighted average shares
outstanding  basic and diluted
    
    
    13,752,829
    
    
    
    9,715,577
    
    
    
    13,467,540
    
    
    
    9,156,074
   5




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##### Table of Contents



HEARTWARE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited)
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net loss
    
    $
    (7,844,083
    )
    
    $
    (5,874,436
    )
    
    $
    (22,370,447
    )
    
    $
    (18,997,875
    )Foreign currency translation
adjustments
    
    
    261,075
    
    
    
    55,836
    
    
    
    198,337
    
    
    
    810,195Unrealized gain on investments
    
    
    76,209
    
    
    
    
    
    
    
    31,085
    
    
    
    Comprehensive loss
    
    $
    (7,506,799
    )
    
    $
    (5,818,600
    )
    
    $
    (22,141,025
    )
    
    $
    (18,187,680
    )
   6




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##### Table of Contents



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, 2009
    
    
    11,786,173
    
    
    $
    11,786
    
    
    $
    176,698,329
    
    
    $
    (97,871,645
    )
    
    $
    (7,855,505
    )
    
    $
    70,982,965Issuance of common stock
pursuant to public offering,
net of offering costs
    
    
    1,767,900
    
    
    
    1,768
    
    
    
    58,487,069
    
    
    
    
    
    
    
    
    
    
    
    58,488,837Issuance of common stock
pursuant to share-based awards
    
    
    315,189
    
    
    
    315
    
    
    
    3,266,364
    
    
    
    
    
    
    
    
    
    
    
    3,266,679Share-based compensation expense
    
    
    
    
    
    
    
    
    
    
    8,561,918
    
    
    
    
    
    
    
    
    
    
    
    8,561,918Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,370,447
    )
    
    
    
    
    
    
    (22,370,447
    )Accumulated other comprehensive
loss:Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    198,337
    
    
    
    198,337Unrealized gain on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,085
    
    
    
    31,085Balance, September 30, 2010
    
    
    13,869,262
    
    
    $
    13,869
    
    
    $
    247,013,680
    
    
    $
    (120,242,092
    )
    
    $
    (7,626,083
    )
    
    $
    119,159,374
   7




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##### Table of Contents



HEARTWARE INTERNATIONAL, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
 Nine Months Ended September 30,2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (22,370,447
    )
    
    $
    (18,997,875
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation
    
    
    958,143
    
    
    
    672,254Amortization
    
    
    73,339
    
    
    
    54,641Share-based compensation expense
    
    
    8,561,918
    
    
    
    1,790,416Change in fair value of derivative instrument
    
    
    
    
    
    
    2,223,759Other non-cash expenses
    
    
    730,506
    
    
    
    313,418Change in operating assets and liabilities:Accounts receivable
    
    
    2,763,282
    
    
    
    (5,893,930
    )Inventories
    
    
    (8,348,090
    )
    
    
    (4,500,341
    )Prepaid expenses and other current assets
    
    
    (595,181
    )
    
    
    (108,259
    )Accounts payable
    
    
    21,787
    
    
    
    2,710,372Accrued expenses and other current liabilities
    
    
    3,318,705
    
    
    
    (675,832
    )Net cash used in operating activities
    
    
    (14,886,038
    )
    
    
    (22,411,377
    )CASH FLOWS FROM INVESTING ACTIVITIESPurchases of investments
    
    
    (25,802,150
    )
    
    
    Additions to property, plant and equipment
    
    
    (4,053,433
    )
    
    
    (1,002,848
    )Additions to patents
    
    
    (366,958
    )
    
    
    (348,705
    )Proceeds from dispositions of assets
    
    
    
    
    
    
    1,936Net cash used in investing activities
    
    
    (30,222,541
    )
    
    
    (1,349,617
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issuance of common stock
    
    
    62,760,450
    
    
    
    29,497,556Payment of offering costs
    
    
    (4,359,934
    )
    
    
    (508,561
    )Proceeds from convertible debt
    
    
    
    
    
    
    4,000,000Proceeds from exercise of stock options
    
    
    3,266,679
    
    
    
    621,384Net cash provided by financing activities
    
    
    61,667,195
    
    
    
    33,610,379Effect of exchange rate changes on cash and cash equivalents
    
    
    104,978
    
    
    
    767,832INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    16,663,594
    
    
    
    10,617,217CASH AND CASH EQUIVALENTS  BEGINNING OF PERIOD
    
    
    50,834,714
    
    
    
    20,803,656CASH AND CASH EQUIVALENTS  END OF PERIOD
    
    $
    67,498,308
    
    
    $
    31,420,873Supplemental disclosure of non-cash financing activities:Recognition of fair value of derivative instrument
    
    $
    
    
    
    $
    3,891,109
   8




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##### Table of Contents



HEARTWARE INTERNATIONAL, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 1. Basis of Presentation
   2. Liquidity
    3. Significant Accounting Policies
 Principles of Consolidation
   9




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##### Table of Contents



Accounting Estimates
  Cash and Cash Equivalents
  Investments
  Receivables
  Inventories
  Product Warranty
   10




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##### Table of Contents



Nine months endedSeptember 30,2010
    
    
    2009Beginning balance
    
    $
    99,169
    
    
    $
    Accrual for warranties
    
    
    229,422
    
    
    
    Warranty costs incurred during the period
    
    
    (97,961
    )
    
    
    Ending balance
    
    $
    230,630
    
    
    $
    
 Fair Value Measurements
  Vendor Concentration
  Concentration of Credit Risk
   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,
  11




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##### Table of Contents



Fair Value Measurements and Disclosures
(Topic 820): Improving Disclosures about Fair Value Measurements
 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
 4. Investments
   Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    AggregateCost Basis
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueShort-term investments:Corporate debt
    
    $
    21,464,091
    
    
    $
    31,159
    
    
    $
    
    
    
    $
    21,495,250Total short-term investments
    
    $
    21,464,091
    
    
    $
    31,159
    
    
    $
    
    
    
    $
    21,495,250Long-term investments:US government agency debt
    
    $
    4,007,553
    
    
    $
    
    
    
    $
    (74
    )
    
    $
    4,007,479Total long-term investments
    
    $
    4,007,553
    
    
    $
    
    
    
    $
    (74
    )
    
    $
    4,007,479
   12




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5. Fair Value Measurements
 Fair Value Measurements and Disclosures,
      Investments
  Fair Value Measurements at the Reporting Date UsingTotal
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Short-term
investments 
Corporate debt
    
    $
    21,495,250
    
    
    $
    
    
    
    $
    21,495,250
    
    
    $
    Long-term
investments  US
government agency
debt
    
    $
    4,007,479
    
    
    $
    
    
    
    $
    4,007,479
    
    
    $
    
  Derivative Instrument
   13




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##### Table of Contents



6. Inventories, Net
  September 30,
    
    
    December 31,2010
    
    
    2009Raw material
    
    $
    5,291,840
    
    
    $
    2,984,486Work-in-process
    
    
    2,910,600
    
    
    
    1,497,591Finished goods
    
    
    9,016,553
    
    
    
    4,388,826$
    17,218,993
    
    
    $
    8,870,903
  7. Property, Plant and Equipment, Net
  Estimated
    
    September 30,
    
    
    December 31,Useful Lives
    
    2010
    
    
    2009Machinery and equipment
    
    5 to 7 years
    
    $
    8,144,056
    
    
    $
    5,295,217Leasehold improvements
    
    3 to 7 years
    
    
    253,024
    
    
    
    210,570Office equipment, furniture
and fixtures
    
    5 to 7 years
    
    
    362,545
    
    
    
    278,587Purchased software
    
    5 to 7 years
    
    
    1,601,674
    
    
    
    487,38810,361,299
    
    
    
    6,271,762Less: accumulated depreciation
    
    
    
    
    (3,518,919
    )
    
    
    (2,552,347
    )$
    6,842,380
    
    
    $
    3,719,415
  14




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##### Table of Contents



8. Other Intangible Assets, Net
  September 30, 2010
    
    
    December 31, 2009Weighted Average Life
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmortizable Intangible Assets
    
    (Years)
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationPatents
    
    15
    
    
    $
    1,723,603
    
    
    $
    (238,067
    )
    
    $
    1,356,645
    
    
    $
    (164,728
    )
  9. Accrued Expenses and Other Current Liabilities
  September 30,
    
    
    December 31,2010
    
    
    2009Accrued payroll and other employee costs
    
    $
    3,403,416
    
    
    $
    2,487,066Accrued VAT taxes
    
    
    1,588,253
    
    
    
    42,256Accrued material purchases
    
    
    749,564
    
    
    
    370,226Accrued professional fees
    
    
    459,802
    
    
    
    347,063Accrued research and development expenses
    
    
    376,532
    
    
    
    344,256Other accrued expenses
    
    
    511,281
    
    
    
    257,219$
    7,088,848
    
    
    $
    3,848,086
  10. Stockholders Equity
     15




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11. Share-Based Compensation
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Cost of revenues
    
    $
    257,536
    
    
    $
    290,980
    
    
    $
    733,456
    
    
    $
    370,635Selling, general and administrative
    
    
    1,768,618
    
    
    
    632,349
    
    
    
    6,248,595
    
    
    
    853,599Research and development
    
    
    536,802
    
    
    
    366,487
    
    
    
    1,579,867
    
    
    
    566,182$
    2,562,956
    
    
    $
    1,289,816
    
    
    $
    8,561,918
    
    
    $
    1,790,416
   Equity Plans
   16




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##### Table of Contents



Stock Options
    Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    60.26
    %
    
    
    60.50
    %
    
    
    60.94
    %
    
    
    60.50
    %Risk-free interest rate
    
    
    2.05
    %
    
    
    2.80
    %
    
    
    2.71
    %
    
    
    2.80
    %Estimated holding period (years)
    
    
    6.25
    
    
    
    6.25
    
    
    
    6.25
    
    
    
    6.25
  WeightedWeighted
    
    
    AverageAverage
    
    
    RemainingExercise
    
    
    Contractual Life
    
    
    AggregateShares
    
    
    Price
    
    
    (Years)
    
    
    Intrinsic ValueOutstanding at
December 31, 2009
    
    
    520,835
    
    
    $
    27.96Granted
    
    
    34,250
    
    
    
    48.57Exercised
    
    
    (121,981
    )
    
    
    26.78Forfeited
    
    
    (6,501
    )
    
    
    27.19Expired
    
    
    (9,563
    )
    
    
    41.32Outstanding at
September 30, 2010
    
    
    417,040
    
    
    $
    31.60
    
    
    
    6.96
    
    
    $
    15,496,480Exercisable at
September 30, 2010
    
    
    260,674
    
    
    $
    32.73
    
    
    
    6.18
    
    
    $
    9,391,503
   17




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##### Table of Contents



Restricted Stock Units
   WeightedAverageRemainingContractualNumber of
    
    
    Life
    
    
    AggregateUnits
    
    
    (Years)
    
    
    Intrinsic ValueOutstanding at December 31, 2009
    
    
    413,135Granted
    
    
    154,375Vested/Exercised
    
    
    (193,208
    )Forfeited
    
    
    (5,107
    )Expired
    
    
    Outstanding at September 30, 2010
    
    
    369,195
    
    
    
    8.73
    
    
    $
    25,385,848Exercisable at September 30, 2010
    
    
    
    
    
    
    
    
    
    $
    
       18




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12. Net Loss Per Common Share
  Three and Nine MonthsEndedSeptember 30,2010
    
    
    2009Common shares issuable upon:Exercise of share-based awards
    
    
    786,235
    
    
    
    1,032,569Conversion of convertible debt
    
    
    
    
    
    
    129,855Conversion of escrow balance
    
    
    
    
    
    
    519,421
  13. Business Segment, Geographic Areas and Major Customers
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,(in thousands)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Domestic
    
    $
    3,880
    
    
    $
    2,763
    
    
    $
    8,427
    
    
    $
    5,691International
    
    
    9,937
    
    
    
    4,743
    
    
    
    25,850
    
    
    
    6,261$
    13,817
    
    
    $
    7,506
    
    
    $
    34,277
    
    
    $
    11,952
   19




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14. Commitments and Contingencies
  
 
     20




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15. Subsequent Events
    21




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ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
         22




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Critical Accounting Policies and Estimates
  Managements Discussion and Analysis of Financial Condition and Results of Operations
  23




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Results of Operations
 Three and nine months ended September 30, 2010 and 2009
 Revenues, net
    Cost of Revenues
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Gross profit (in thousands)
    
    $
    7,814
    
    
    $
    3,403
    
    
    $
    18,301
    
    
    $
    5,551Gross margin %
    
    
    57
    %
    
    
    45
    %
    
    
    53
    %
    
    
    46
    %
  24




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##### Table of Contents



Selling, General and Administrative
   Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    Change
    
    
    2010
    
    
    2009
    
    
    Change(in thousands)
    
    
    
    
    
    
    (in thousands)Total selling,
general and
administrative
    
    $
    6,994
    
    
    $
    3,149
    
    
    
    122.1
    %
    
    $
    19,238
    
    
    $
    11,721
    
    
    
    64.1
    %
      25




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##### Table of Contents



Research and Development
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    Change
    
    
    2010
    
    
    2009
    
    
    Change(in thousands)
    
    
    
    
    
    
    (in thousands)Total research and
development
expenses
    
    $
    9,313
    
    
    $
    3,646
    
    
    
    155.4
    %
    
    $
    21,580
    
    
    $
    9,994
    
    
    
    115.9
    %
     Foreign Exchange
   26




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Interest Expense
   Interest Income, net
  Change in Fair Value of Derivative Instrument
  Income Taxes
   Liquidity and Capital Resources
   27




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Nine Months Ended September 30,2010
    
    
    2009Net cash used in operating activities
    
    $
    (14,886,038
    )
    
    $
    (22,411,377
    )Net cash used in investing activities
    
    
    (30,222,541
    )
    
    
    (1,349,617
    )Net cash provided by financing activities
    
    
    61,667,195
    
    
    
    33,610,379Effect of exchange rate changes on cash
and cash equivalents
    
    
    104,978
    
    
    
    767,832Net increase in cash and cash equivalents
    
    $
    16,663,594
    
    
    $
    10,617,217
 Cash Used in Operating Activities
   Cash Used in Investing Activities
  Cash Provided by Financing Activities
   28




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Contractual Obligations
     29




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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
  Changes in Internal Control over Financial Reporting
   30




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PART II. OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS
   Recently adopted healthcare reform legislation may impact our profitability.
  If we fail to successfully introduce next generation products and improvements to our existing
product, our future growth may suffer.
  The long and variable sales and deployment cycles for our VAD systems may cause our product
sales and operating results to vary significantly from quarter-to-quarter.
  If we cannot successfully manage
the additional business and regulatory risks that result from our expansion
into multiple foreign markets, we may experience an adverse impact to our
business, financial condition and results of operations.
   •
  
  failure to fulfill foreign regulatory requirements on a timely basis or
at all to market the HeartWare System or other future products;•
  
  availability of, and changes in, reimbursement within prevailing foreign
health care payment systems;•
  
  adapting to the differing laws and regulations, business and clinical
practices, and patient preferences in foreign countries;•
  
  difficulties in managing foreign relationships and operations, including
any relationships that we may establish with foreign partners, distributors or
sales or marketing agents;•
  
  differing levels of protection for intellectual property rights in some
countries;•
  
  difficulty in collecting accounts receivable and longer collection
periods;•
  
  costs of enforcing contractual obligations in foreign jurisdictions;•
  
  recessions in economies outside of the United States;•
  
  political instability and unexpected changes in diplomatic and trade
relationships;•
  
  currency exchange rate fluctuations; and•
  
  potentially adverse tax consequences, including our ability to interpret
local tax rules and implement appropriate tax treatment/collection.   
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   31




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ITEM 6. EXHIBITS
 3.1
    
    
    Certificate of Incorporation of HeartWare International, Inc. (1)3.2
    
    
    Bylaws of HeartWare International, Inc. (1)10.1
    
    
    Second Amendment to Business Lease, dated August 9, 2010, between HeartWare, Inc. and
Atlantic-Philadelphia Realty LLC (2)10.2
    
    
    First Amendment to Lease made as of the 30th day of September, 2010 by and between JDRP
ASSOCIATES NO. 1, LTD. and HEARTWARE, INC. (3)31.1
    
    
    Certification of Chief Executive Officer pursuant to Rule 13A-14(a) or Rule 15d-14(a) of the
Securities Exchange Act31.2
    
    
    Certification of Chief Financial Officer pursuant to Rule 13A-14(a) or Rule 15d-14(a) of the
Securities Exchange Act31.1
    
    
    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 200232.2
    
    
    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.(2)
    
    Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed
with the Securities and Exchange Commission on August 19, 2010.(3)
    
    Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed
with the Securities and Exchange Commission on September 30, 2010.  32




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Signatures
  HEARTWARE INTERNATIONAL, INC.Date: November 4, 2010
    /s/  Douglas GodshallDouglas GodshallChief Executive OfficerDate: November 4, 2010
    /s/  David McIntyreDavid McIntyreChief Financial Officer and Chief Operating Officer  33




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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 Act31.2
    
    
    Certification of Chief Financial Officer pursuant to Rule 13A-14(a) or Rule 15d-14(a) of the
Securities Exchange Act31.1
    
    
    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 200232.2
    
    
    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
  34