**Table of Contents**

** **

 

** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,DC 20549**

** **

**FORM 10-Q**

** **

**(Mark One)**

 

**x****     ****QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For quarterly period ended March 31, 2009**

 

**o****        ****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THEEXCHANGE ACT**

 

**For the transition periodfrom       to       **

 

**Commission filenumber:  000-28882**

 

**WORLD HEART CORPORATION**

(Exact name of registrant as specified in itscharter)

 

| **Canada**                                                      | ** ** | **52-2247240**                     |
|-----------------------------------------------------------------|------------|------------------------------------|
| (State  or other jurisdiction of incorporation or organization) |       | (IRS  Employer Identification No.) |

 

**7799 PardeeLane, Oakland, California, USA, 94621**

(Addressof principal executive offices)

 

**(510)563-5000**

(Registrant’stelephone number)

 

 (Former name, former address andformer fiscal year, if changed since last report) **N/A**

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  Yes x  No o

 

Indicate by a checkmark whether the registrant has submittedelectronically and posted on its corporate Website, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  Yes o No o

 

Indicate by check mark whether the Registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany.  See the definitions of “largeaccelerated filer” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

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

 

Indicate by check markwhether the Registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  Yes o No x

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date:

The number of common shares outstanding as of May 12,2009 was 13,253,964.

 

 

 

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Table of Contents

 

**TABLE OF CONTENTS**

 
| ** **   | **Item** | ** **                                                                                  | ** ** | ** ** |
|--------------|----------|---------------------------------------------------------------------------------------------|------------|------------|
|         |     |                                                                                        |       |       |
| Part I  | 1        | Financial Statements                                                                        |       |       |
|         |     |                                                                                        |       |       |
|         | 2        | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |       |       |
|         |     |                                                                                        |       |       |
|         | 3        | Quantitative  and Qualitative Disclosures About Market Risk                                 |       |       |
|         |     |                                                                                        |       |       |
|         | 4        | Controls and  Procedures                                                                    |       |       |
|         |     |                                                                                        |       |       |
| Part II | 1        | Legal  Proceedings                                                                          |       |       |
|         |     |                                                                                        |       |       |
|         | 1A       | Risk Factors                                                                                |       |       |
|         |     |                                                                                        |       |       |
|         | 2        | Unregistered  Sales of Equity Securities and Use of Proceeds                                |       |       |
|         |     |                                                                                        |       |       |
|         | 3        | Defaults  Upon Senior Securities                                                            |       |       |
|         |     |                                                                                        |       |       |
|         | 4        | Submission  of Matters to a Vote of Security Holders                                        |       |       |
|         |     |                                                                                        |       |       |
|         | 5        | Other  Information                                                                          |       |       |
|         |     |                                                                                        |       |       |
|         | 6        | Exhibits                                                                                    |       |       |
|         |     |                                                                                        |       |       |
|         |     | Signatures                                                                                  |       |       |

 

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Tableof Contents

 

**PART I—FINANCIAL INFORMATION**

 

**ITEM 1.  FINANCIAL STATEMENTS.**

 

**WORLD HEART CORPORATION**

## **CondensedConsolidated Balance Sheets**

(United States Dollars)

(Unaudited)

 
| ** **                                                                                                                                      | ** ** | **March 31, 2009** | ** **     | **December 31, 2008 (1)** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|----------------|--------------------------------|------------|
| **ASSETS**                                                                                                                                      |       |                    |           |                           |       |
| **Current assets**                                                                                                                              |       |                    |           |                           |       |
| Cash and cash equivalents                                                                                                                       |       | $                       | 17,393,671     |                           | $          | 20,703,724 |   |
| Trade and other receivables, net of  allowance for doubtful accounts of $199,042 at March 31, 2009 and  $204,133 at December 31, 2008 |       | 58,741                  |           | 322,548                        |       |
| Inventory net of allowance for excess and  obsolete of $2,650,787 at March 31, 2009 and December 31, 2008                             |       | —                  |           | —                         |       |
| Prepaid expenses                                                                                                                                |       | 695,643                 |           | 458,294                        |       |
|                                                                                                                                            |       | 18,148,055              | ** **     | 21,484,566                     | ** ** |
| **Long-term assets**                                                                                                                            | ** ** | ** **              | ** **     | ** **                     | ** ** |
| Property and equipment, net                                                                                                                     |       | 705,595                 |           | 651,572                        |       |
| Intangible assets, net                                                                                                                          |       | 60,060                  |           | 107,916                        |       |
| Other long-term assets                                                                                                                          |       | 156,360                 |           | 156,360                        |       |
|                                                                                                                                            |       | 922,015                 | ** **     | 915,848                        | ** ** |
| **Total assets**                                                                                                                                | ** ** | **$**                   | **19,070,070** | ** **                     | **$**      | **22,400,414** | ** ** |
| ** **                                                                                                                                      | ** ** | ** **              | ** **     | ** **                     | ** ** |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                   |       |                    |           |                           |       |
| ** **                                                                                                                                      |       |                    |           |                           |       |
| **Current liabilities**                                                                                                                         |       |                    |           |                           |       |
| Accounts payable and accrued liabilities                                                                                                        |       | $                       | 1,447,239      |                           | $          | 1,388,675 |   |
| Accrued compensation                                                                                                                            |       | 1,026,357               |           | 897,086                        |       |
| Current portion of capital lease  obligations                                                                                                   |       | 8,481                   |           | —                         |       |
| Deferred revenue                                                                                                                                |       | 3,671                   |           | 3,671                          |       |
|                                                                                                                                            |       | 2,485,748               |           | 2,289,432                      |       |
|                                                                                                                                            |       |                    |           |                           |       |
| **Long-term liabilities**                                                                                                                       |       |                    |           |                           |       |
| Non-current portion of capital lease  obligations                                                                                               |       | 20,936                  |           | —                         |       |
| **Total liabilities**                                                                                                                           |       | 2,506,684               |           | 2,289,432                      |       |
|                                                                                                                                            |       |                    |           |                           |       |
| **Shareholders’ equity**                                                                                                                   |       |                    |           |                           |       |
| Common stock, no par value, 13,253,964  shares issued and outstanding at March 31, 2009 and December 31,  2008                        |       | 325,087,252             |           | 325,087,252                    |       |
| Additional paid-in-capital                                                                                                                      |       | 17,427,457              |           | 17,323,629                     |       |
| Cumulative other comprehensive loss                                                                                                             |       | (6,285,577              | )              | (6,285,577                     | )          |
| Accumulated deficit                                                                                                                             |       | (319,665,746            | )              | (316,014,322                   | )          |
| Total shareholders’ equity                                                                                                                 |       | 16,563,386              |           | 20,110,982                     |       |
| **Total liabilities and shareholders’ equity**                                                                                             | ** ** | **$**                   | **19,070,070** | ** **                     | **$**      | **22,400,414** |   |

 

(The accompanying notes are an integral partof these condensed consolidated financial statements.)

 

(1)  Derived from the Company’s auditedconsolidated financial statements as of December 31, 2008.

 

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## **WORLD HEARTCORPORATION**

## **CondensedConsolidated Statements of Operations**

(United States Dollars)

(Unaudited)

 
| ** **                                                                  | ** ** | **Three Months Ended March 31,** | ** **     |
|-----------------------------------------------------------------------------|------------|---------------------------------------|----------------|
| ** **                                                                  | ** ** | **2009**                              | ** **     | **2008** | ** ** |
|                                                                        |       |                                  |           |   |   |
| **Revenue**                                                                 |       | $                                     | 4,765          |   | $ | 635,996 |   |
| **Cost of goods sold**                                                      |       | 28,238                                |           | 400,119 |   |
| **Gross profit**                                                            |       | (23,473                               | )              | 235,877 |   |
|                                                                        |       |                                  |           |   |   |
| **Operating expenses**                                                      |       |                                  |           |   |   |
| Selling, general and administrative                                         |       | 1,442,885                             |           | 1,200,292 |   |
| Research and development                                                    |       | 2,103,931                             |           | 2,492,447 |   |
| Clinical and marketing support - non-cash                                   |       | —                                |           | 6,478,619 |   |
| Restructuring costs                                                         |       | 52,718                                |           | — |   |
| Amortization of intangibles                                                 |       | 47,856                                |           | 47,856 |   |
| **Total operating expenses**                                                |       | 3,647,390                             |           | 10,219,214 |   |
|                                                                        |       |                                  |           |   |   |
| **Operating loss**                                                          |       | (3,670,863                            | )              | (9,983,337 | ) |
|                                                                        |       |                                  |           |   |   |
| **Other income (expenses)**                                                 |       |                                  |           |   |   |
| Unrealized foreign exchange gain (loss)                                     |       | 11,509                                |           | (5,595 | ) |
| Investment and other income                                                 |       | 8,330                                 |           | 23,296 |   |
| Interest expense                                                            |       | (400                                  | )              | (1,512,062 | ) |
| **Net loss**                                                                | ** ** | **$**                                 | **(3,651,424** | **)** | **$** | **(11,477,698** | **)** |
|                                                                        |       |                                  |           |   |   |
| **Weighted average number of common shares  outstanding basic and diluted** |       | 13,253,964                            |           | 383,576 |   |
|                                                                        |       |                                  |           |   |   |
| **Basic and diluted loss per common share**                                 |       | $                                     | (0.28          | ) | $ | (29.92 | ) |

 

(The accompanying notes arean integral part of these condensed consolidated financial statements.)

 

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**WORLD HEART CORPORATION**

## **CondensedConsolidated Statements of Cash Flows**

(United States Dollars)

(Unaudited)

 
| ** **                                                           | ** ** | **Three Months Ended March 31,** | ** **     |
|----------------------------------------------------------------------|------------|---------------------------------------|----------------|
| ** **                                                           | ** ** | **2009**                              | ** **     | **2008** | ** ** |
|                                                                 |       |                                  |           |   |   |
| Net loss for the period                                              |       | $                                     | (3,651,424     | ) | $ | (11,477,698 | ) |
| Adjustments to reconcile net loss to net  cash used in operations:   |       |                                  |           |   |   |
| Amortization and depreciation                                        |       | 88,670                                |           | 118,981 |   |
| Non-cash stock compensation expense                                  |       | 103,829                               |           | 80,748 |   |
| Non-cash interest on debt                                            |       | —                                |           | 1,466,143 |   |
| Non-cash expense for fair value of warrants                          |       | —                                |           | 6,478,619 |   |
| Unrealized foreign exchange gain (loss)                              |       | (9,261                                | )              | (24,633 | ) |
| Change in operating components of working  capital                   |       | 222,036                               |           | (260,390 | ) |
| **Cash used in operating activities**                                | ** ** | **(3,246,150**                        | **)**          | **(3,618,230** | **)** |
|                                                                 |       |                                  |           |   |   |
| **Investing activities**                                             |       |                                  |           |   |   |
| Purchase of property and equipment                                   |       | (64,149                               | )              | (32,543 | ) |
| **Cash used in investing activities**                                | ** ** | **(64,149**                           | **)**          | **(32,543** | **)** |
|                                                                 |       |                                  |           |   |   |
| **Financing activities**                                             |       |                                  |           |   |   |
| Repayment of capitalized leases                                      |       | (1,271                                | )              | — |   |
| Convertible debenture proceeds                                       |       | —                                |           | 4,000,000 |   |
| **Cash provided by (used in) financing  activities**                 | ** ** | **(1,271**                            | **)**          | **4,000,000** | ** ** |
| **Effect of exchange rates on cash and cash  equivalents**           | ** ** | **1,517**                             | ** **     | **(2,798** | **)** |
| **Increase (decrease) in cash and cash  equivalents for the period** | ** ** | **(3,310,053**                        | **)**          | **346,429** | ** ** |
| **Cash and cash equivalents, beginning of the  period**              | ** ** | **20,703,724**                        | ** **     | **664,504** | ** ** |
| **Cash and cash equivalents, end of the  period**                    | ** ** | **$**                                 | **17,393,671** | ** ** | **$** | **1,010,933** | ** ** |

 

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

 

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**WORLD HEART CORPORATION**

#### **Notes toUnaudited Condensed Consolidated Financial Statements**

 

**1.****                                      Natureof Operations of the Corporation**

 

World Heart Corporation(“WorldHeart” or the “Corporation”) is developing and commercializingimplantable ventricular assist devices (VADs), which are mechanical pumps thatallow for the restoration of normal blood circulation to patients sufferingfrom advanced heart failure. WorldHeart has facilities in Oakland, California,Salt Lake City, Utah and Herkenbosch, Netherlands. In the past, WorldHeartderived its revenue from the legacy Novacor LVAS and related peripheralequipment which it manufactured and sold directly to medical clinics andhospitals in the United States, Europe and Canada and through distributors inother countries. As previously announced, after more than twenty years inclinical use, the Corporation phased out its first-generation Novacor LVAS asit approached the natural end of its life cycle. WorldHeart’s focus is on thedevelopment, clinical trial and subsequent commercialization of the advancedrotary Levacor VAD. The Corporation anticipates to realize cost recoveries in thesecond half of 2009 from the use of Levacor in FDA conditionally approvedclinical trials. Such recoveries are expected to be an important part of theCorporation’s overall operating cash flows.

 

**2.****                                      Summaryof Significant Accounting Policies**

 

### *Basis of presentation*

The accompanying interimcondensed unaudited consolidated financial statements have been prepared bymanagement in accordance with accounting principles generally accepted in theUnited States (“GAAP”) and with the instructions to Form 10-Q and Article 8of Regulation S-X. Accordingly, these consolidated financial statements includeall assets, liabilities, revenue and expenses of the Corporation and its whollyowned subsidiaries: World Heart Inc. and World Heart B.V. All materialinter-company transactions and balances have been eliminated. These interimunaudited condensed consolidated financial statements and notes thereto shouldbe read in conjunction with Management’s Discussion and Analysis of FinancialCondition and Results of Operations and the audited financial statements and notesthereto included in the Corporation’s Annual Report on Form 10-K for theyear ended December 31, 2008. In the opinion of management, the condensedbalance sheet at December 31, 2008 which has been derived from auditedfinancial statements and these interim unaudited consolidated financialstatements reflect all normal and recurring adjustments considered necessary tostate fairly the results for the periods presented. The results for the periodended March 31, 2009 are not necessarily indicative of the results to beexpected for the entire fiscal year ended December 31, 2009 or for anyfuture period.

 

*Use of estimates*

The preparation of theseconsolidated financial statements in accordance with accounting principlesgenerally accepted in the United States of America, requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the dates ofthe financial statements and the reported amounts of revenue and expensesduring the reporting periods. Such management estimates include allowance fordoubtful accounts, sales and other allowances, inventory reserves, incometaxes, realizability of deferred tax assets, stock-based compensation, deferredrevenue, warranty reserves and legal reserves. Actual results could differ fromthese estimates.

 

*Revenue Recognition, AccountsReceivable and Deferred Revenue*

Revenue from product andservice 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 ordeterminable; and collection is reasonably assured.

 

The significant elementsof the Corporation’s multiple-element offerings are Implant Kits, Peripheralsand Other. For arrangements with multiple elements, the Corporation recognizesrevenue using the residual method as described in SOP 98-9. Under the residualmethod, revenue is allocated and deferred for the undelivered elements based onrelative fair value. The determination of fair value of the undeliveredelements in multiple elements arrangements is based on the price charged whensuch elements are sold separately, which is commonly referred to asvendor-specific objective-evidence, or VSOE. Each element’s revenue isrecognized when all of the revenue recognition criteria are met for each of theelements.

 

The Company regularlyevaluates the collectability of its accounts receivable. An allowance fordoubtful accounts is maintained for estimated credit losses. When estimatingcredit losses, the Company considers a number of factors including the aging ofa customer’s account, creditworthiness of specific customers, historical trendsand other information*.*

 

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**WORLD HEART CORPORATION**

Notes toUnaudited Condensed Consolidated Financial Statements - continued

 

The Corporation hasprovided certain customers with deferred payment terms. Certain products arecovered by a limited warranty. Warranty costs are based on historicalexperience and estimated and recorded when the related sales are recognized.Any additional costs are recorded when incurred or when they can reasonably beestimated.

 

*Restructuring Expense*

 

The Corporation recordscosts and liabilities associated with exit and disposal activities, as definedin Financial Accounting Standards Board (“FASB”) Statement No. 146, “Accountingfor Costs Associated with Exit or Disposal Activities” (“SFAS 146”), basedon estimates of fair value in the period the liabilities are incurred. Inperiods subsequent to initial measurement, changes to the liability aremeasured using the credit-adjusted risk-free discount rate applied in theinitial period. In 2008 and 2006, the Corporation recorded costs andliabilities for exit and disposal activities related to a restructuring plan inaccordance with SFAS 146. The liability is evaluated and adjusted asappropriate, for changes in circumstances. During the three month periods endedMarch 31, 2009 and 2008, the Corporation recorded restructuring expense of$52,718 and $0, respectively, which was primarily attributable to costsrelating to workforce reduction.

 

*Research and Development Costs*

Research and development(“R&D”) costs, including research performed under contract by thirdparties, are expensed as incurred.  Forthe purchase of research and development technology under an assignment orlicense agreement, the Corporation records R&D expense in accordance withFASB Statement No. 2, “Accounting for Research andDevelopment Costs,” as interpreted by FASB Interpretation (FIN) No. 4, “Applicabilityof FASB Statement No. 2 to Business Combinations Accounted for by the PurchaseMethod.”

 

**3.**                                      ReverseStock Split

** **

On October 27, 2008, the Corporation effected a thirty-for-onereverse stock split. Previously, on May 30, 2007, the Corporation effecteda ten-for-one reverse stock split of its capital stock. The reverse stock splitin both years was previously approved by the Corporation’s Board of Directorsand by the Corporation’s shareholders.

 

Pursuantto the October 2008 reverse stock split, each holder of the Corporation’scommon shares on October 27, 2008, the effective date of the reverse stocksplit, became entitled to receive one new common share in exchange for everythirty old common shares held by such shareholder.

 

Theeffect of the reverse stock split has been retroactively applied throughout thefinancial statements contained herein.

 

**4.****                                      Stock-basedCompensation**

 

On January 1, 2006,WorldHeart adopted FAS 123(R) using the modified prospective transitionmethod. Under this method, the provisions of FAS 123(R) apply to allstock-based awards granted after the effective date. The unrecognized expenseof awards not yet vested as of January 1, 2006 are recognized as anexpense in the calculation of net income. As FAS 123(R) requires thatstock-based compensation expense be based on awards that are ultimatelyexpected to vest, therefore, stock-based compensation for March 31, 2009and 2008 has been reduced for estimated forfeitures. When estimatingforfeitures, voluntary termination behaviors as well as trends of actual optionforfeitures are considered. To the extent actual forfeitures differ from ourcurrent estimates, cumulative adjustments to stock-based compensation expenseare recorded.

 

WorldHeart uses theBlack-Scholes valuation model for estimating the fair value of stockcompensation. The stock-based compensation expense for the three months ended March 31,2009 and 2008 was as follows:

 
| ** **                          | ** ** | **Three Months Ended March 31,** | ** ** |
|-------------------------------------|------------|---------------------------------------|------------|
| **(Unaudited)**                     | ** ** | **2009**                              | ** ** | **2008** | ** ** |
| Selling, general and administrative |       | $                                     | 74,518     |   | $ | 58,646 |   |
| Research and development            |       | 29,311                                |       | 22,102 |   |
| Total                               |       | $                                     | 103,829    |   | $ | 80,748 |   |

 

The unrecognized expenseof awards not yet vested as of March 31, 2009 was $2,773,140 and therelated stock-based compensation expense will be recognized over the following15 quarters beginning April 1, 2009.

 

The aggregate intrinsicvalue is calculated as the difference between the exercise price of the optionsand the quoted price of our common shares that were in the money at March 31,2009. At March 31, 2009, the aggregate intrinsic value of all outstandingoptions was $90 with a weighted average remaining contractual term ofapproximately 9.8 years. Of the 1,059,693 outstanding options, 28,455 optionswere exercisable with a weighted average remaining contractual life of 4.7years and 1,031,238 were

 

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**WORLD HEART CORPORATION**

Notes toUnaudited Condensed Consolidated Financial Statements - continued

 

unvested with a weightedaverage remaining contractual life of 9.9 years. No options were exercisedunder our stock option plan during the quarter ended March 31, 2009.

 

A summary of the statusand changes of our non-vested options related to our employee stock option planas of the quarter ended March 31, 2009 is presented below. The weightedaverage grant date fair value on non-vested shares represents the gross valueof unvested options. The increase in the number of options granted during thefirst quarter in 2009 reflects the recent board-based grant of options to theCorporation’s employees, by the Compensation Committee.

 
| ** **                          | ** ** | ** ** | ** ** | **Weighted Average**      | ** ** |
|-------------------------------------|------------|------------|------------|---------------------------|------------|
| ** **                          | ** ** | **Shares** | ** ** | **Grant-Date Fair Value** | ** ** |
| Nonvested at December 31, 2008 |       | 7,436      |       | $                         | 87.33      |   |
| Granted                             |       | 1,027,169  |       | 2.42                      |       |
| Vested                              |       | (3,367     | )          | 96.45                     |       |
| Forfeited                           |       | —     |       | —                    |       |
| Nonvested at March 31, 2009    |       | 1,031,238  |       | $                         | 2.73       |   |

 
| ** **                            | ** ** | **Employees** | ** ** | **Non-Employees**  | ** ** | ** **  | ** ** | ** **   | ** ** | ** **   | ** ** |
|---------------------------------------|------------|---------------|------------|--------------------|------------|-------------|------------|--------------|------------|--------------|------------|
| ** **                            | ** ** | ** **    | ** ** | ** **         | ** ** | ** **  | ** ** | **Weighted** | ** ** | ** **   | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                            | ** ** | ** **    | ** ** | **Weighted**       | ** ** | ** **  | ** ** | **average**  | ** ** | ** **   | ** ** | **Weighted** | ** ** | ** ** | ** ** |
| ** **                            | ** ** | ** **    | ** ** | **average**        | ** ** | ** **  | ** ** | **exercise** | ** ** | ** **   | ** ** | **average** | ** ** | ** ** | ** ** |
| ** **                            | ** ** | **Options**   | ** ** | **exercise price** | ** ** | **Options** | ** ** | **price**    | ** ** | **Warrants** | ** ** | **exercise price** | ** ** | **Total** | ** ** |
| ** **                            | ** ** | **#**         | ** ** | **$**              | ** ** | **#**       | ** ** | **$**        | ** ** | **#**        | ** ** | **$** | ** ** | **#** | ** ** |
| Outstanding at December 31, 2008 |       | 29,803        |       | $                  | 324.80     |        | 2,969      |         | $          | 298.61       |       | 84,395 |   | $ | 7.32 |   | 117,167 |   |
| Granted                               |       | 1,027,169     |       | 2.59               |       | —      |       | —       |       | —       |       | — |   | 1,027,169 |   |
| Expired                               |       | (241          | )          | 1,632.93           |       | (7          | )          | 4,089.99     |       | —       |       | — |   | (248 | ) |
| Forfeited                             |       | —        |       | —             |       | —      |       | —       |       | —       |       | — |   | — |   |
| Outstanding at March 31, 2009    |       | 1,056,731     |       | $                  | 11.31      |        | 2,962      |         | $          | 289.65       |       | 84,395 |   | $ | 7.32 |   | 1,144,088 |   |

 

*Valuation Assumptions*

 

WorldHeart calculatesthe fair value of each option award on the date of grant using theBlack-Scholes option pricing model. During the three months ended March 31,2009, 1,027,169 stock options were granted. For the three month periods ended March 31,2009 and 2008, the weighted average fair value of the options granted was $2.42and $42.61, respectively. The following weighted average assumptions wereutilized:

 
| ** **               | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------|------------|-------------------------------------------------|------------|
| ** **               | ** ** | **2009**                                        | ** ** | **2008** | ** ** |
| Risk free interest rate  |       | 2.11                                            | %          | 3.36 | % |
| Expected life (in years) |       | 5.5                                             |       | 5.5 |   |
| Expected volatility      |       | 155                                             | %          | 133 | % |
| Dividend yield           |       | 0                                               | %          | 0 | % |

 

The dividend yield ofzero is based on the fact that WorldHeart has never paid cash dividends and hasno present intention to pay cash dividends. Expected volatility is based on thehistorical volatility of the Corporation’s common shares over the periodcommensurate with the expected life of the options. The risk free interest rateis based on average rates for five and seven year treasury notes as publishedby the Federal Reserve.

 

**5.****                                      Inventory**

 

WorldHearthas determined that its first-generation Novacor® LVAS has reached the naturalend of its product life cycle and has shifted its business focus to thedevelopment, clinical trial and subsequent commercialization of the advancedrotary Levacor 

 

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**WORLD HEART CORPORATION**

Notes toUnaudited Condensed Consolidated Financial Statements - continued

 

VentricularAssist Device (VAD). Management estimates that there will be no further salesof Novacor products in 2009 and has written-down gross inventory of $2,650,787to a net carrying value of zero at December 31, 2008.

 

**6.****                                      CurrentLiabilities**

 

**AccruedCompensation**

 

Accrued compensation includesaccruals for quarter-end employee wages and Board of Director fees, vacation,clinical and performance bonuses and severance related to the Corporation’sphased consolidation and restructuring plan. The components of accruedcompensation, inclusive of payroll taxes, are as follows:

 
| ** **                 | ** ** | **March 31, 2009** | ** **    | **December 31, 2008** | ** ** |
|----------------------------|------------|-------------------------|---------------|----------------------------|------------|
| Wages                      |       | $                       | 134,024       |                       | $          | 60,090 |   |
| Severance                  |       | 108,523                 |          | 65,344                     |       |
| Vacation                   |       | 442,378                 |          | 423,009                    |       |
| Bonus                      |       | 341,432                 |          | 348,643                    |       |
| Total accrued compensation | ** ** | **$**                   | **1,026,357** | ** **                 | **$**      | **897,086** | ** ** |

 

**PerformanceBonus**

 

On February 5, 2009, the Compensation Committee of the Board ofDirectors approved the payment of 2008 cash performance bonuses to itsemployees, taking into account objectives and goals achieved, as well asdiscretionary measures. As of April 2009, all accrued bonuses have beenpaid totaling $341,432.

 

On March 25, 2009, the Compensation Committee, as confirmed by theBoard of Directors of the Corporation, approved the 2009 Performance BonusPlan, including the potential payments under the plan and the performancemilestones to be achieved. No accrual for the 2009 cash performance bonusprogram has been made as the performance milestones become relevant insubsequent quarters.

 

**AccountsPayable and Accrued Liabilities**

 

Accounts payable andaccrued liabilities consist of the following:

 
| ** **                                     | ** ** | **March 31, 2009** | ** **    | **December 31, 2008** | ** ** |
|------------------------------------------------|------------|-------------------------|---------------|----------------------------|------------|
| Accounts payable                               |       | $                       | 237,829       |                       | $          | 460,234 |   |
| Accued liabilities                             |       | 1,096,033               |          | 822,693                    |       |
| Accrued site restoration                       |       | 5,395                   |          | 5,395                      |       |
| Sales taxes payable                            |       | 11,934                  |          | 4,305                      |       |
| Accrued warranty                               |       | 96,048                  |          | 96,048                     |       |
| Total accounts payable and accrued liabilities | ** ** | **$**                   | **1,447,239** | ** **                 | **$**      | **1,388,675** | ** ** |

 

**7.****                                      ComprehensiveIncome**

 

For the three month periods ended March 31, 2009and March 31, 2008, there were no significant differences between theCorporation’s comprehensive loss and its net loss.

 

**8.****                                      RecentAccounting Pronouncements**

 

Since December 2008 the following newstandards have been issued that may impact the Corporation:

 

InApril 2009, the FASB issued FSP FAS *107-1and APB 28-1, Interim Disclosures about Fair Value of FinancialInstruments. * Itrequires the fair value for all financial instruments within the scope of SFAS No. 107,*Disclosures about Fair Value of FinancialInstruments* (“SFAS No. 107”), to be disclosed in the interimperiods as well as in annual financial statements.  This standard iseffective for the quarter ending after June 15, 2009.  TheCorporation is currently assessing the potential impact that adoption of thisstandard may have on its financial statements.

 

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**WORLD HEART CORPORATION**

Notes toUnaudited Condensed Consolidated Financial Statements - continued

 

InApril 2009, the FASB issued FSP FAS 157-4, *Determining Fair Value When the Volume and Level of Activity for theAsset or Liability Have Significantly Decreased and Identifying TransactionsThat Are Not Orderly*. It clarifies the objective and method of fairvalue measurement even when there has been a significant decrease in marketactivity for the asset being measured. This standard is effective for thequarter ending after June 15, 2009. The Corporation is currentlyassessing the potential impact that adoption of this standard may have on itsfinancial statements.

 

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**ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

 

**INTRODUCTION**

 

World Heart Corporation and its subsidiaries are collectivelyreferred to as “WorldHeart” or the “Corporation.” The following Management’sDiscussion and Analysis of Financial Condition and Results of Operations(MD&A) discusses material changes in WorldHeart’s financial condition andresults of operations and cash flows for the three months ended March 31,2009 and 2008. Such discussion and comments on the liquidity and capitalresources should be read in conjunction with the information contained inWorldHeart’s audited consolidated financial statements for the year ended December 31,2008, prepared in accordance with U.S. GAAP included in our Annual Report on Form 10–Kfor the fiscal year ended December 31, 2008.

 

Thediscussion and comments contained hereunder include both historical informationand “forward-looking statements” within the meaning of Section 27A of theUnited States Securities Act of  1933, asamended (the “Securities Act”) and Section 21E of the United StatesSecurities Exchange Act of 1934, as amended (the “Exchange Act”). Allstatements other than statements of historical facts are “forward-lookingstatements” for the purposes of these provisions, including statementsregarding our expectations with respect to future development plans for ournext-generation product candidates, particularly the LevacorTM Rotary VAD(Ventricular Assist Device), the timing and scope of pre-clinical testing andclinical trials, our ability to secure additional funding or to form strategicpartnerships, our cost reduction efforts and their impact on our ability tomaintain operations, as well as other statements that can be identified by theuse of forward-looking language, such as “believe”, “feel”, “expect”, “may”, “will”,“should”, “seek”, “plan”, “anticipate”, “intend” or the negative of thoseterms, or by discussions of strategy or intentions.  These forward-looking statements involveknown and unknown risks, uncertainties and other factors that may cause theactual results and performance to be materially different from any futureresults and performance expressed or implied by such forward-lookingstatements. Potential risks and uncertainties include, without limitation: ourneed for additional significant financing in the future; costs and delaysassociated with clinical trials for our products and next-generation productcandidates, such as Levacor Rotary VAD, MiVAD and PediaFlow; our ability tomanufacture, sell and market our products; decisions and timing of decisionsmade by health regulatory agencies regarding approval of our products;competition from other products and therapies for heart failure; continuedslower than anticipated destination therapy adoption rate for VADs; limitationson third-party reimbursements; our ability to obtain and enforce in a timelymanner patent and other intellectual property protection for our technology andproducts; our ability to avoid, either by product design, licensing arrangementor otherwise, infringement of third parties’ intellectual property; our abilityto enter into corporate alliances or other strategic relationships relating tothe development and commercialization of our technology and products; loss ofcommercial market share to competitors due to our financial condition; ourability to remain listed on the NASDAQ Capital Market; as well as other risks anduncertainties set forth under the heading “Risk Factors” in our Annual Reporton Form 10-K, for the fiscal year ended December 31, 2008.

 

**OVERVIEW**

** **

Ourbusiness is focused on the development and sale of ventricular assist devices (“VADs”),particularly our Levacor Rotary VAD (Levacor VAD or Levacor). VADs aremechanical assist devices that supplement the circulatory function of the heartby re-routing blood flow through a mechanical pump allowing for the restorationof normal blood circulation.

 

Inthe past, we derived most of our revenue from our Novacor LVAS and relatedperipheral equipment, which we sold, directly to medical clinics and hospitalsin the United States, Europe and Canada and through a distributor in certainother countries. The legacy generation VAD, the Novacor LVAS, was commerciallyapproved as a Bridge-to-Transplant device in the United States and Canada. InEurope, the Novacor LVAS had unrestricted approval for use as an alternative totransplantation, Bridge-to-Transplantation and to support patients who may beable to recover the use of their natural heart. In Japan, the device wascommercially approved for use in cardiac patients at risk of imminent deathfrom non-reversible left ventricular failure for which there was no alternativeexcept heart transplantation.

 

InJuly 2005, we acquired the assets of MedQuest Products, Inc. (“MedQuest”),including a rotary VAD, now called the LevacorTM Rotary VAD. In conjunction withthe acquisition, we raisedapproximately $22.7 million in gross financing proceeds from a privateplacement with Maverick Venture Management, LLC and the exercise of certainwarrants and also converted all of the remaining convertible debentures from anearlier financing. Pre-clinical testing of the LevacorRotary VAD was accelerated after the acquisition, with successful initial humanfeasibility use in Europe in 2006.

 

InNovember 2006, we announced a restructuring plan, which included areduction of commercial operations associated with the Novacor LVAS, and arefocusing of our resources on the development of the next generation product,particularly the Levacor Rotary VAD. After more than twenty years in clinicaluse, the Novacor LVAS has reached the natural end of its life cycle and we havebeen focusing on the development of the Levacor Rotary VAD and on activitiesleading to the start of a US clinical trial with the Levacor Rotary VAD in thesecond half of 2009.

 

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InJuly 2008, we completed a $30.0 million private placement transaction andrecapitalization under the terms of the Recapitalization Agreement (the “RecapitalizationAgreement”) dated June 20, 2008 and amended on July 31, 2008, amongthe Corporation, our wholly owned subsidiary World Heart Inc. (“WHI”), Abiomed, Inc.(“Abiomed”), Venrock Partners V, L.P., Venrock Associates V, L.P. and VenrockEntrepreneurs Fund V, L.P. (collectively, “Venrock”), Special Situations FundIII QP, L.P., Special Situations Cayman Fund, L.P., Special Situations PrivateEquity Fund, L.P., Special Situations Life Sciences Fund, L.P. and Austin W.Marxe (collectively, “SSF”) and New Leaf Ventures II, L.P. (“New Leaf”).Simultaneously with the closing of the recapitalization, Abiomedentered into a Termination and Release Letter Agreement with us and convertedthe full amount of principal and interest owed on the $5,000,000 8% SecuredConvertible Promissory Note (the “Note”) previously issued to Abiomed by theCorporation and WHI into 2,866,667 of our common shares, released the securityinterest in all of our assets and those of WHI that secured the Note,terminated the warrant Abiomed held to purchase 113,333 of our common shares,forgave other amounts we owed to Abiomed and terminated previously existingagreements, arrangements and understandings with us. The purchase pricedelivered by Venrock and SSF at the closing was offset by repayment of theprincipal and interest owed on the bridge loan facility of $1,400,000 thatVenrock and SSF had previously provided to us. As part ofthe recapitalization transaction, we issued warrants to purchase an aggregateof 83,333 common shares to our advisors, Pacific Growth Equities, LLC andStifel, Nicolaus and Company.

 

On August 21, 2008, we announced that we were embarking on aphased consolidation into a primary facility at our current location in SaltLake City, Utah. On August 22, 2008, we completed the first phase of ourconsolidation plan and eliminated five positions at our Oakland facility,including the position of Vice President of Manufacturing. On February 4,2009, as part of our consolidation plan, we announced that we had appointedSalt Lake City-based Mr. John Alexander Martin as our President and ChiefExecutive Officer. Mr. Jal S. Jassawalla, our former President and CEO,continues to be based in Oakland, along with certain key employees in areassuch as Research and Development, Clinical Affairs and Regulatory Affairs andcontinues to serve the Corporation as Executive Vice President and ChiefTechnology Officer. Included in the consolidation plan is the appointment of aChief Financial Officer to be based in Salt Lake City, the elimination of somepositions in Oakland and the relocation of certain positions to Salt Lake Cityby approximately the fourth quarter of 2009.

 

Researchand development by our competitors is proceeding on several rotary flowdevices. Certain of these devices have received the CE mark in Europe and areadvancing through clinical trials in the United States and Europe, and onedevice received U.S. marketing approval last year. We believe that our LevacorVAD is the most advanced fourth-generation rotary device under development.

 

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**RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODENDED MARCH 31, 2009 COMPARED WITH THE THREE MONTH PERIOD ENDED MARCH 31,2008:**

 
| ** **                                                                  | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------------------------------------------------------|------------|---------------------------------------|------------|
| **(Unaudited)**                                                             | ** ** | **2009**                              | ** ** | **2008** | ** ** |
| **Revenue**                                                                 |       | $                                     | 5          |   | $ | 636 |   |
| **Cost of goods sold**                                                      |       | 28                                    |       | 400 |   |
|                                                                        |       |                                  |       |   |   |
| **Gross profit**                                                            |       | (23                                   | )          | 236 |   |
|                                                                        |       |                                  |       |   |   |
| **Operating expenses**                                                      |       |                                  |       |   |   |
| Selling, general and administrative                                         |       | 1,443                                 |       | 1,200 |   |
| Research and development                                                    |       | 2,104                                 |       | 2,492 |   |
| Clinical and marketing support                                              |       | —                                |       | 6,479 |   |
| Restructuring costs                                                         |       | 53                                    |       | — |   |
| Amortization of intangibles                                                 |       | 48                                    |       | 48 |   |
|                                                                        |       |                                  |       |   |   |
| **Total operating expenses**                                                |       | 3,648                                 |       | 10,219 |   |
|                                                                        |       |                                  |       |   |   |
| **Operating loss**                                                          |       | (3,671                                | )          | (9,983 | ) |
|                                                                        |       |                                  |       |   |   |
| **Other income (expense)**                                                  |       | 19                                    |       | (1,494 | ) |
|                                                                        |       |                                  |       |   |   |
| **Net loss applicable to common shareholders**                              |       | $                                     | (3,652     | ) | $ | (11,478 | ) |
|                                                                        |       |                                  |       |   |   |
| **Weighted average number of common shares  outstanding basic and diluted** |       | 13,254                                |       | 384 |   |
|                                                                        |       |                                  |       |   |   |
| **Basic and diluted loss per common share**                                 |       | $                                     | (0.28      | ) | $ | (29.92 | ) |

 

***Revenue:***In the past,****sales of NovacorLVAS implant kits and related peripheral equipment and services accounted forthe majority of our revenue. In addition, we generate revenue from sales ofSPUS (Segmented Poly Urethane Solution) used by one other medical devicemanufacturer, which has contributed a greater percentage of overall revenue inrecent quarters. We primarily sell our products directly, except for a fewcountries where we sell through distributors.

 

The composition of revenue inthousands ($000’s) is as follows except for units:

 
| ** **                   | ** ** | **Three Months Ended March 31,** | ** ** |
|------------------------------|------------|---------------------------------------|------------|
| ** **                   | ** ** | **2009**                              | ** ** | **2008** | ** ** |
| **(Unaudited)**              | ** ** | **$**                                 | ** ** | **Units** | ** ** | **$** | ** ** | **Units** | ** ** |
| **Novacor Product Revenues** |       |                                  |       |   |   |   |   |   |   |
| Implant kits                 |       | $                                     | —     |   | Nil |   | $ | 318 |   | 5 |   |
| Peripherals and other        |       | 5                                     |       |   |   | 228 |   |   |   |
|                         |       | 5                                     |       |   |   | 546 |   |   |   |
| **SPUS Revenues**            |       | —                                |       |   |   | 90 |   |   |   |
| **Total Revenue**            | ** ** | **$**                                 | **5**      | ** ** | ** ** | ** ** | **$** | **636** | ** ** | ** ** | ** ** |

 

Revenue for the quarter ended March 31, 2009 was $5,000 reflectinga decrease of $631,000, or 99%, compared with the quarter ended March 31,2008. There were no Novacor LVAS implant kits sold in the quarter ended March 31,2009 compared to five implant kits sold in the quarter ended March 31,2008. Novacor peripherals and other revenue, including Novacor LVAS hardware,peripherals, and services, was $5,000 for the quarter ended March 31, 2009a decrease of $223,000, or 98%, compared with Novacor peripherals and servicesrevenue of $228,000 recorded in the quarter ended March 31, 2008. Theoverall revenue decrease is attributable to our November 2006 decision toreduce our commercial efforts with respect to the Novacor and focus ourresources on the development of our Levacor Rotary VAD. In 2007 and 2008, wemade the Novacor LVAS available to medical centers only until our inventory wasdepleted, which occurred in mid-2008. We continue to support our Novacorpatients but have discontinued the manufacture and sale of additional Novacorimplant kits. Patient support revenue from peripheral Novacor LVAS products isanticipated to be minimal throughout the remainder of 2009.

 

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There was no SPUS revenue for the quarterended March 31, 2009 compared with $90,000 in the quarter ended March 31,2008. We anticipate no additional revenues from SPUS over the remainder of 2009as we have begun to dismantle the production equipment for transfer to SaltLake City.

 

***Cost of goodssold:***  For the threemonths ended March 31, 2009, cost of goods sold consisted entirely ofroyalties payable under a minimum annual royalty agreement. For the threemonths ended March 31, 2008, cost of goods sold was 63% of revenue andconsisted of raw materials, labor, royalties and other costs related to themanufacture of our Novacor LVAS. The decrease in cost of goods sold during thethree months ended March 31, 2009, compared with the same quarter lastyear is entirely due to the complete phase out of our Novacor LVAS productresulting in revenue of zero.

 

***Selling******, general and administrative:*** Selling, general and administrativeexpenses consist primarily of payroll and related expenses for executives,sales, marketing, accounting and administrative personnel. Selling expensesprimarily relate to enrollment of new centers in the anticipated Levacorclinical trials, field support of existing Novacor patients and marketing/tradeshow costs. Our other administrative expenses include professional fees,communication expenses, insurance premiums, public reporting costs and generalcorporate expenses.

 

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

 
| ** **                 | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------------|------------|---------------------------------------|------------|
| **(Unaudited)**            | ** ** | **2009**                              | ** ** | **2008** | ** ** |
|                       |       |                                  |       |   |   |
| Selling                    |       | $                                     | 149        |   | $ | 248 |   |
| General and administrative |       | 1,294                                 |       | 952 |   |
| Total                      |       | $                                     | 1,443      |   | $ | 1,200 |   |

 

Selling expenses for the threemonths ended March 31, 2009 decreased by $99,000, or 40%, compared withthe same period in 2008. The decrease is attributable to reduced Novacor LVASsupport efforts. For the three month periods ended March 31, 2009 and2008, we recorded $6,000 and $5,000, respectively, in stock-based compensationexpense as part of our selling expenses. Selling expenses are expected toincrease over the remainder of 2009 as we begin to distribute our nextgeneration Levacor device for evaluation in the clinical trials.

 

General and administrativeexpenses for the three months ended March 31, 2009 increased by $342,000,or 36%, compared with the same period in 2008. The increase is attributable toincreases in salaries, benefits, recruitment and legal fees associated with theCorporation’s phased consolidation plan, including hiring of our new CEO andthe transition of our former CEO into another executive position. For the threemonth periods ended March 31, 2009 and March 31, 2008, we recorded$69,000, and $53,000, respectively, in stock-based compensation expense as partof our general and administrative expenses. General and administrative expensesare expected to decrease slightly in the next quarter and remain at that levelfor the remainder of 2009.

 

***Research anddevelopment:***Research and development expenses consist principally of salaries andrelated expenses for research personnel, consulting, prototype manufacturing,testing, clinical trials, material purchases and regulatory affairs incurred atour Oakland and Salt Lake City facilities.

 

Research and development expenses for the three months ended March 31,2009 decreased $388,000, or 16%, compared with the three months ended March 31,2008. The decrease is attributable to the Levacor Rotary VAD prototype buildwhich occurred in first quarter of 2008, and personnel savings resulting fromthe elimination of  Novacor LVASmanufacturing in early 2008 and the elimination of several positions as part ofthe August 2008 phased consolidation and restructuring plan. For the three month periods ended March 31,2009 and March 31, 2008, we recorded $29,000 and $22,000, respectively, instock based compensation expense as part of our research and developmentexpenses. For the remainder of 2009, research and development expensesare expected to remain at about the same level or may decrease slightly due tothe elimination of some personnel as part of the previously announced phasedconsolidation and restructuring, slightly offset by continuing efforts towardsthe development and manufacture of our Levacor Rotary VAD and preparation forour clinical trials.

 

***Clinical andmarketing support-non-cash:***  On December 11,2007, we issued a 5-year warrant to Abiomed to purchase up to 113,333 of ourcommon shares, exercisable at $0.30 per share, as compensation for clinical andmarketing support services. Upon issuance, approximately 20% of the warrant wasimmediately exercisable and the remaining 80% became exercisable in January 2008.  In the first quarter of 2008, we recordednon-cash expense of $6.5 million related to the fair value of the warrant.There was no such charge recorded for the quarter ended March 31, 2009.

 

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***Restructuring costs:***In the quarter ended March 31, 2009, we recorded restructuring costs of$53,000. This was primarily related to accruals for termination benefits foremployees whose positions will be eliminated over time. There was no suchcharge recorded for the quarter-ended March 31, 2008. The total accrualfor this one-time termination benefit is $165,000 spread over their serviceperiods through approximately the fourth quarter of 2009.

 

***Amortization ofintangibles:*****Amortizationof the acquired MedQuest workforce for each of the three month periods ended March 31,2009 and 2008 was $48,000. This intangible asset is being amortized on astraight-line basis over four years and will be fully amortized in the thirdquarter of 2009.

 

***ForeignExchange:***Foreign exchange transactions resultedin a gain of $12,000 for the three month period ended March 31, 2009compared with a loss of $6,000 for the three month period ended March 31,2008. The change relates primarily to fluctuations in the relative value of theU.S. dollar compared with the Euro and Canadian dollar. We expect continuedfluctuations of foreign exchange gains and losses.

 

***Investmentand other income:*** Investment and other income for the quarter ended March 31, 2009was $8,000 compared to $23,000 during the quarter ended March 31, 2008.Although average daily balances of invested cash were greater in the 2009quarter, the earnings were lower due to the significant decline in interestrates in 2009. We anticipate our investment income will decrease over theremainder of 2009 resulting from consumption of cash to fund operations and acontinuing decline in interest rates.

 

***Interest expense:******Inquarter ended March 31, 2008, we recorded interest expense of $1,512,000,of which $1,414,000 related to the beneficial conversion feature of the $4.0million convertible note issued to Abiomed on January 3, 2008. $98,000 wasaccrued interest calculated at 8% on the entire $5.0 million convertible note.*** The noteand accumulated interest was converted into common shares as part of theRecapitalization Agreement. There were no such charges in the quarter ended March 31,2009 and only minor interest expense of $400 was incurred under a capital leaseduring the quarter ended March 31, 2009. During the remainder of 2009, weanticipate interest expense to increase when we add to our capital leases.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

Historically, we have fundedlosses from operations through the sale of equity and issuance of debtinstruments. Combined with revenue and investment income, these funds haveprovided us with the resources to operate our business, sell and support ourproducts, fund our research and development program and clinical trials, applyfor and obtain the necessary regulatory approvals and develop new technologiesand products.

 

At March 31, 2009, wehad cash and cash equivalents of $17.4 million, a decrease of $3.3 million fromDecember 31, 2008. During the first quarter of 2009 cash used to fundoperating activities was $3.2 million consisting primarily of the net loss forthe period of $3.7 million offset by non-cash charges of $89,000 fordepreciation and amortization and $104,000 of non-cash stock compensationexpense. Working capital changes consisted of a $262,000 decrease in accountsreceivable and an increase of $196,000 in accounts payable and accruedcompensation offset by an increase of $236,000 in prepaid expenses and otherassets.

 

Investing activitiesrequiring cash resources for the quarter ended March 31, 2009 consisted of$64,000 in property and equipment additions.

 

With the receipt of theproceeds from the July 2008 recapitalization, based on our currentoperating expenses and projected sales of our Levacor Rotary VAD, we believe wehave sufficient cash to fund operations into 2010.

 

We are continuing toexplore all strategic and financing alternatives, including equity financingtransactions and corporate collaborations. Equity financings could include, butare not limited to, private investments in public equity transactions, convertibledebentures and strategic equity investment by interested companies. Corporatecollaborations could include licensing of one or more of our products,co-funding of our products or potential sale of WorldHeart or our subsidiaries.We initiated a phased-in restructuring program in the third quarter of 2008re-aligning our spending to focus on our key development program, the LevacorRotary VAD, have further reduced spending and will continue to carefully manageour overall cash usage.

 

Our long-term working capital and capital requirementswill depend upon numerous factors, including the following: our ability tobring the Levacor Rotary VAD to clinical trials in 2009 and its acceptance inthe marketplace, the rate of investment in our next-generation technologies,particularly the Levacor Rotary VAD; the clinical trial costs and the approvalprocess for our next-generation products; our general efforts to improveoperational efficiency, conserve cash and implement other cost conservationprograms.

 

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**OFF- BALANCE SHEET ARRANGEMENTS**

 

None.

 

**ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK**

 

**NotRequired**

 

**ITEM 4T.  CONTROLS AND PROCEDURES**

 

*Evaluationof disclosure controls and procedures*: Based on theirevaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Exchange Act) as of March 31, 2009, our presidentand chief executive officer (principal executive officer) and our chieffinancial officer (principal financial officer) have concluded that ourdisclosure controls and procedures are effective at the reasonable assurancelevel. A control system cannot provide absolute assurance, however, that theobjectives of the control systems are met, and no evaluation of controls canprovide absolute assurance that all control issues and instances of fraud, ifany, within a company have been detected.

 

*Changes ininternal control over financial reporting:* There was nochange in our internal control over financial reporting that occurred duringthe quarter ended March 31, 2009 that has materiallyaffected, or is reasonably likely to materially affect, our internal controlover financial reporting.

 

**PART II—OTHERINFORMATION**

 

#### **ITEM 1. LEGAL PROCEEDINGS**

 

In the normal course ofbusiness, we may be a party to legal proceedings. We are not currently a partyto any material legal proceedings, except as described in our Annual Report on Form 10-Kfor the year ended December 31, 2008.

 

#### **ITEM 1A.  RISK FACTORS**

 

There have been nomaterial changes to our risk factors from those reported in our Annual Reporton Form 10-K for the year ended December 31, 2008.

 

**ITEM 2. UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

 

None.

 

**ITEM 3.DEFAULTS UPON SENIOR SECURITIES**

 

None.

 

**ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

None.

 

**ITEM 5.OTHER INFORMATION**

 

The date of our 2009 annualmeeting of shareholders has been delayed by more than 30 calendar days from theanniversary date of our 2008 annual meeting

 

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**ITEM6.  EXHIBITS**

 

(a)               Exhibits

 
| Exhibit 10.32 |   | Letter Agreement, dated  January 31, 2009, between World Heart Inc. and John Alexander Martin  (incorporated by reference to Exhibit 99.2 to the Corporation’s  Form 8-K filed on February 9, 2009 (Commission File No. 000-28882)). |
|--------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|               |   |                                                                                                                                                                                                                                                               |
| Exhibit 10.33 |   | Form of  indemnification agreement (incorporated by reference to Exhibit 10.33 to  the Corporation’s Form 10-K filed on March 30, 2009 (Commission  File No. 000-28882)).                                                            |
|               |   |                                                                                                                                                                                                                                                               |
| Exhibit 10.34 |   | 2009 Performance Bonus  Program for Executive Officers and Other Employees (incorporated by reference  to Exhibit 99.1 to the Corporation’s Form 8-K dated March 31,  2009 (Commission File No. 000-28882)).                              |
|               |   |                                                                                                                                                                                                                                                               |
| Exhibit 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.                                                                                                                                     |

 

**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 
|                                       | World Heart Corporation                 |
|--------------------------------------------|-----------------------------------------|
|                                       | (Registrant)                            |
|                                       |                                    |
|                                       |                                    |
|   Dated:   May 14, 2009     | /s/ John A. Martin                      |
|                                       | John A.  Martin, President and Chief    |
|                                       | Executive  Officer                      |
|                                       |                                    |
|                                       |                                    |
|   Dated:  May 14, 2009 | /s/ David Pellone                       |
|                                       | David  Pellone, Vice President, Finance |
|                                       | and Chief  Financial Officer            |

 

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