**UNITED STATESSECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

**FORM 10-QSB**

**(Mark One)**
| **x**                                                                                                                      | **QUARTERLY REPORT UNDER SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|----------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------|
| ** **                                                                                                                 |                                                                                             |
| **For  quarterly period ended   June 30, 2007**                                                             |
| ** **                                                                                                                 |
| **o**                                                                                                                      | **TRANSITION REPORT UNDER SECTION 13 OR  15(d) OF THE EXCHANGE ACT**                   |
| ** **                                                                                                                 | ** **                                                                                       |
| **For the  transition period  from       to       ** |
| ** **                                                                                                                 |
| **Commission  file number:  000-28882**                                                                          |

 

**WORLD HEART CORPORATION**

(Exact name of small businessissuer as specified in its charter)
| **Canada**                                                      | ** ** | **52-2247240**                     |
|-----------------------------------------------------------------|------------|------------------------------------|
| (State or other  jurisdiction of incorporation or organization) |       | (IRS Employer  Identification No.) |

 

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

(Address of principalexecutive offices)

**(510)563-5000**

(Issuer’s telephone number)

**N/A**

(Former name, formeraddress and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Actduring the past 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.        Yesx    Noo

Indicateby check mark whether the Registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).

Yes o    No x

State the number of shares outstanding of each of theissuer’s classes of common equity, as of the latest practicable date:

The number of common shares outstanding as of August5, 2007 was 11,507,275.

Transitional Small Business Disclosure Format (Checkone):      Yes o    No x

 

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**TABLEOF CONTENTS**
|              | **Item** | ** ** | ** **                                                      | ** ** |
|--------------|----------|------------|-----------------------------------------------------------------|------------|
|         |     |       |                                                            |       |
| Part I  | 1        |       | Financial Statements                                            | 3          |
|         |     |       |                                                            |       |
|         | 2        |       | Management’s Discussion and Analysis or Plan of  Operation | 12         |
|         |     |       |                                                            |       |
|         | 3        |       | Controls and Procedures                                         | 17         |
|         |     |       |                                                            |       |
| Part II | 1        |       | Legal Proceedings                                               | 18         |
|         |     |       |                                                            |       |
|         | 2        |       | Unregistered Sales of Equity Securities and Use of  Proceeds    | 18         |
|         |     |       |                                                            |       |
|         | 3        |       | Defaults Upon Senior Securities                                 | 18         |
|         |     |       |                                                            |       |
|         | 4        |       | Submission of Matters to a Vote of Security Holders             | 18         |
|         |     |       |                                                            |       |
|         | 5        |       | Other Information                                               | 18         |
|         |     |       |                                                            |       |
|         | 6        |       | Exhibits                                                        | 18         |
|         |     |       |                                                            |       |
|         |     |       | Signatures                                                      | 19         |

 

2

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**PART I—FINANCIAL INFORMATION**

 

**ITEM 1.  FINANCIAL STATEMENTS.**

 

**WORLD HEART CORPORATION**

## **CondensedConsolidated Balance Sheets**

(United States Dollars)
| ** **                                                                                                   | ** ** | **June 30, 2007** | ** **     | **December 31, 2006** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|-----------------------------|----------------|---------------------------------|------------|
| ** **                                                                                                   | ** ** | **(Unaudited)**             | ** **     | ** **                      | ** ** |
| **ASSETS**                                                                                                   | ** ** | ** **                  | ** **     | ** **                      | ** ** |
| **Current assets**                                                                                           | ** ** | ** **                  | ** **     | ** **                      | ** ** |
| Cash and cash equivalents                                                                                    |       | $                           | 6,575,210      |                            | $          | 12,216,671 |   |
| Trade and other  receivables                                                                                 |       | 660,299                     |           | 2,297,769                       |       |
| Prepaid expenses                                                                                             |       | 928,471                     |           | 703,689                         |       |
| Inventory                                                                                                    |       | 2,152,583                   |           | 3,088,359                       |       |
|                                                                                                         |       | 10,316,563                  |           | 18,306,488                      |       |
| **Long-term assets**                                                                                         | * *   | * *                    | * *       | * *                        | * *   |
| Cash pledged as  collateral for lease                                                                        |       | 750,000                     |           | 750,000                         |       |
| Property and equipment                                                                                       |       | 792,955                     |           | 950,470                         |       |
| Intangible assets                                                                                            |       | 395,052                     |           | 490,764                         |       |
|                                                                                                         |       | 1,938,007                   |           | 2,191,234                       |       |
| **Total assets**                                                                                             | ** ** | **$**                       | **12,254,570** | ** **                      | **$**      | **20,497,722** | ** ** |
|                                                                                                         | ** ** | ** **                  | * *       | * *                        | * *   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                | * *   | * *                    | ** **     | ** **                      | ** ** |
| ** **                                                                                                   | * *   | * *                    | ** **     | ** **                      | ** ** |
| **Current liabilities**                                                                                      | ** ** | ** **                  | ** **     | ** **                      | ** ** |
| Accounts payable and  accrued liabilities                                                                    |       | 2,699,908                   |           | $                               | 3,526,448  |   |
| Accrued site  restoration                                                                                    |       | 1,250,000                   |           | 876,000                         |       |
| Accrued compensation                                                                                         |       | 904,214                     |           | 919,146                         |       |
| Deferred clinical fees                                                                                       |       | 309,998                     |           | 309,998                         |       |
| Deferred revenue                                                                                             |       | 121,613                     |           | 159,801                         |       |
| **Total liabilities**                                                                                        |       | 5,285,733                   |           | 5,791,393                       |       |
| ** **                                                                                                   | ** ** | ** **                  | ** **     | ** **                      | ** ** |
| **Shareholders’ equity**                                                                                | ** ** | ** **                  | ** **     | ** **                      | ** ** |
| Preferred stock, no par value, no shares issued and outstanding                                              |       | —                      |           | —                          |       |
| Common stock, no par value, 11,507,275 shares issued and  outstanding at June 30, 2007 and December 31, 2006 |       | 290,750,131                 |           | 290,750,131                     |       |
| Additional paid-in-capital                                                                                   |       | 2,544,674                   |           | 2,375,497                       |       |
| Cumulative other comprehensive income                                                                        |       | (6,285,577                  | )              | (6,285,577                      | )          |
| Accumulated deficit                                                                                          |       | (280,040,391                | )              | (272,133,722                    | )          |
| Total shareholders’ equity                                                                              |       | 6,968,837                   |           | 14,706,329                      |       |
| **Total liabilities and shareholders’ equity**                                                          | ** ** | **$**                       | **12,254,570** | ** **                      | **$**      | **20,497,722** | ** ** |

 

(Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.)

3

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**WORLD HEART CORPORATION**

**Condensed Consolidated Statementsof Operations**

(United States Dollars)

(Unaudited)
| ** **                                                                  | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                  | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Revenue**                                                                 |       | $                                                   | 848,594    |                                              | $          | 2,988,071 |   | $ | 1,696,309 |   | $ | 6,272,887 |   |
| **Cost of goods sold**                                                      |       | (823,068                                            | )          | (1,910,476                                        | )          | (1,891,832 | ) | (3,322,217 | ) |
| ** **                                                                  |       |                                                |       |                                              |       |   |   |   |   |
| **Gross profit**                                                            |       | 25,526                                              |       | 1,077,595                                         |       | (195,523 | ) | 2,950,670 |   |
| ** **                                                                  |       |                                                |       |                                              |       |   |   |   |   |
| **Operating expenses**                                                      |       |                                                |       |                                              |       |   |   |   |   |
| Selling, general  and administrative                                        |       | 1,457,173                                           |       | 2,275,644                                         |       | 3,002,644 |   | 4,731,486 |   |
| Research and  development                                                   |       | 3,135,944                                           |       | 2,763,492                                         |       | 5,004,966 |   | 5,662,390 |   |
| Amortization of  intangibles                                                |       | 47,856                                              |       | 47,856                                            |       | 95,712 |   | 95,712 |   |
|                                                                        |       |                                                |       |                                              |       |   |   |   |   |
| **Total  operating expenses**                                               |       | 4,640,973                                           |       | 5,086,992                                         |       | 8,103,322 |   | 10,489,588 |   |
| ** **                                                                  |       |                                                |       |                                              |       |   |   |   |   |
| **Operating loss**                                                          |       | (4,615,447                                          | )          | (4,009,397                                        | )          | (8,298,845 | ) | (7,538,918 | ) |
| ** **                                                                  |       |                                                |       |                                              |       |   |   |   |   |
| **Other income (expenses)**                                                 |       |                                                |       |                                              |       |   |   |   |   |
| Foreign exchange  gain (loss)                                               |       | (4,021                                              | )          | 47,219                                            |       | 131,005 |   | 40,521 |   |
| Investment and  other income                                                |       | 140,772                                             |       | 73,704                                            |       | 260,052 |   | 166,976 |   |
| Gain (loss) on  disposal of property and equipment                          |       | 2,973                                               |       | —                                            |       | 2,973 |   | (271 | ) |
| Interest  (expense) income                                                  |       | (958                                                | )          | —                                            |       | (1,854 | ) | 1,627 |   |
|                                                                        |       |                                                |       |                                              |       |   |   |   |   |
| **Total Other income (expense)**                                            |       | 138,766                                             |       | 120,923                                           |       | 392,176 |   | 208,853 |   |
| ** **                                                                  |       |                                                |       |                                              |       |   |   |   |   |
| **Net loss**                                                                |       | $                                                   | (4,476,681 | )                                                 | $          | (3,888,474 | ) | $ | (7,906,669 | ) | $ | (7,330,065 | ) |
| ** **                                                                  |       |                                                |       |                                              |       |   |   |   |   |
| **Weighted average number of  common shares outstanding basic and diluted** |       | 11,507,275                                          |       | 5,547,955                                         |       | 11,507,275 |   | 5,547,955 |   |
| ** **                                                                  |       |                                                |       |                                              |       |   |   |   |   |
| **Basic and diluted loss per  common share**                                |       | $                                                   | (0.39      | )                                                 | $          | (0.70 | ) | $ | (0.69 | ) | $ | (1.32 | ) |

 

(Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.)

4

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**WORLDHEART CORPORATION**

**Condensed Consolidated Statements of CashFlow**

(United StatesDollars)

(Unaudited)

** **
| ** **                                                         | ** ** | **Six Months Ended June 30,** | ** **    |
|--------------------------------------------------------------------|------------|---------------------------------------------------|---------------|
| **CASH FLOWS FROM (USED IN)**                  | ** ** | **2007**                                          | ** **    | **2006** | ** ** |
| **Operating activities**                                           |       |                                              |          |   |   |
| Net loss for the period                                            |       | $                                                 | (7,906,669    | ) | $ | (7,330,065 | ) |
| Adjustments to  reconcile net loss to net cash used in operations: |       |                                              |          |   |   |
| Amortization and  depreciation                                     |       | 205,614                                           |          | 423,439 |   |
| (Gain) loss on  disposal of property and equipment                 |       | (2,973                                            | )             | 271 |   |
| Write down of  property and equipment                              |       | 213,593                                           |          | — |   |
| Write down of  inventory                                           |       | 425,000                                           |          | — |   |
| Stock-based  compensation expense                                  |       | 169,177                                           |          | 83,208 |   |
| Unrealized  foreign exchange gain                                  |       | 47,318                                            |          | 945 |   |
| Change in operating  components of working capital                 |       | 1,378,859                                         |          | 803,983 |   |
| **Cash used in operating  activities**                             | ** ** | **(5,470,081**                                    | **)**         | **(6,018,219** | **)** |
|                                                               |       |                                              |          |   |   |
| **Investing activities**                                           |       |                                              |          |   |   |
| Purchase of property and  equipment                                |       | (163,007                                          | )             | (75,404 | ) |
| **Cash used in investing  activities**                             | ** ** | **(163,007**                                      | **)**         | **(75,404** | **)** |
|                                                               |       |                                              |          |   |   |
| **Effect of exchange rates on  cash and cash equivalents**         |       | (8,373                                            | )             | — |   |
| **Decrease in cash and cash  equivalents for the period**          | ** ** | **(5,641,461**                                    | **)**         | **(6,093,623** | **)** |
| ** **                                                         | ** ** | ** **                                        | ** **    | ** ** | ** ** |
| **Cash and cash equivalents,  beginning of the period**            | ** ** | **12,216,671**                                    | ** **    | **10,661,682** | ** ** |
| ** **                                                         | ** ** | ** **                                        | ** **    | ** ** | ** ** |
| **Cash and cash equivalents, end  of the period**                  | ** ** | **$**                                             | **6,575,210** | ** ** | **$** | **4,568,059** | ** ** |

 

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

5

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**WORLDHEART CORPORATION**

**Notes to Unaudited Condensed ConsolidatedFinancial Statements**

**1.****              Going ConcernAssumption**

These consolidatedfinancial statements have been prepared on the basis of accounting principlesapplicable to a going concern, which assume that World Heart Corporation andits subsidiaries (collectively referred to as WorldHeart or the Corporation)will continue in operation for the foreseeable future and will be able torealize its assets and discharge its liabilities in the normal course ofoperations.

During the quarter endedJune 30, 2007, the Corporation incurred a net loss of $4.5 million and usedcash in its operations of $2.4 million. At June 30, 2007, WorldHeart had cashand cash equivalents of $6.6 million, current assets of $10.3 million andcurrent liabilities of $5.3 million. The Corporation expects to continue togenerate operating losses at least through 2007 and 2008. As a result, there issubstantial doubt about the ability of the Corporation to meet its obligationsas they come due and the appropriateness of the use of accounting principlesapplicable to a going concern.

In November 2006,the Corporation entered into a purchase agreement with certain new and currentinvestors for a private placement financing. The private placement was approvedby shareholders at the Corporation’s Annual and Special Meeting held onDecember 20, 2006. Net proceeds from the financing were $13.8 million.

In November 2006,the Corporation announced a significant restructuring and realignment of itsbusiness operations to focus on development of its LevacorTM Rotary VAD product and reduced commercialefforts on the Novacor® LVAS product. The restructuring program wasdirected at reducing manufacturing, selling and administrative costs,associated with the Corporation’s Novacor LVAS product.

Despite the 2006financing and restructuring, the Corporation will be required to raiseadditional capital to allow for the on-going satisfaction of its obligations ona timely basis and to continue in operation. WorldHeart is exploring variousfinancing alternatives, including equity financing transactions and corporatecollaborations, to meet cash requirements. Equity financings could include, butare not limited to, private investments in public equity transactions orstrategic equity investments by interested companies. Corporate collaborationscould include licensing the Corporation’s products for upfront and milestonepayments, or co-development and co-funding of the Corporation’s products. Therecan be no assurance that the alternatives the Corporation is exploring will besuccessful.

These consolidated financialstatements do not reflect adjustments in the carrying values of assets andliabilities, the reported revenues and expenses, and the balance sheet classificationsused that would be necessary if the going concern assumption were notappropriate. These adjustments could be material.

**2.****              Reverse Stock Split**

On May 30, 2007, theCorporation announced that it effected a one-for-ten reverse stock split of itscapital stock. The reverse stock split was previously approved by theCorporation’s Board of Directors and by the Corporation’s shareholders.

Pursuant to the reversestock split, each holder of the Corporation’s common shares on May 30, 2007,the date of effectiveness of the reverse stock split, became entitled toreceive one new common share in exchange for every ten old common shares heldby such shareholder.

The effect of the reversestock split has been retroactively applied throughout the financial statementscontained herein.

6

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**3.****              SignificantAccounting Policies**

*Basis of presentation*

The accompanying interimunaudited condensed consolidated financial statements have been prepared bymanagement pursuant to the rules and regulations of the Securities and ExchangeCommission (the SEC) and include all assets, liabilities, revenues and expensesof the Corporation and its wholly owned subsidiaries: World Heart Inc. andWorld Heart B.V. All material inter-company transactions and balances have beeneliminated. These interim unaudited condensed consolidated financial statementsand notes thereto should be read in conjunction with Management’s Discussionand Analysis or Plan of Operation and the audited financial statements andnotes thereto included in the Corporation’s Annual Report on Form 10-KSB, asamended, for the year ended December 31, 2006. In the opinion of management,these interim unaudited consolidated financial statements reflect all normal andrecurring adjustments considered necessary to state fairly the results for theperiods presented. The results for the period ended June 30, 2007 are notnecessarily indicative of the results to be expected for the entire fiscal yearended December 31, 2007 or for any future period.

*Earnings per share andcommon stock price per share*

The weighted average sharesoutstanding used to calculate loss per share in all periods were adjusted forthe Corporation’s one-for-ten reverse stock split during the second quarter of2007. The reverse stock split is treated as if it happened at the beginning ofeach period presented. The per share price of stock and stock options discussedin this document have also been adjusted to reflect the reverse stock split.

*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 revenues and expensesduring the reporting periods. Such management estimates include allowance fordoubtful accounts, sales and other allowances, inventory reserves, incometaxes, valuation reserve for net deferred tax assets, stock-based compensation,site restoration, deferred revenue, warranty reserves and legal reserves.Actual results could differ from these estimates.

**4.**              Stock-based Compensation

OnJanuary 1, 2006, WorldHeart adopted FAS 123(R) using the modified prospectivetransition method. 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 an expense inthe calculation of net income. As FAS 123(R) requires that stock-basedcompensation expense be based on awards that are ultimately expected to vest,stock-based compensation for 2007 has been reduced for estimated forfeitures.When estimating forfeitures, voluntary termination behaviors as well as trendsof actual option forfeitures are considered. To the extent actual forfeituresdiffer from our current estimates, cumulative adjustments to stock-basedcompensation expense are recorded.

On May 30, 2007, theCorporation announced that it effected a one-for-ten reverse stock split of itscapital stock. The reverse stock split was previously approved by theCorporation’s Board of Directors and by the Corporation’s shareholders. Theeffect of the reverse stock split has been applied to all share numberscontained herein.

WorldHeart uses theBlack-Scholes valuation model for estimating the fair value of stockcompensation.

7

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Thestock-based compensation expense recorded for the three and six months endedJune 30, 2007 were as follows:
|                                     | ** ** | **Three**                                          | ** ** | **Six** | ** ** |
|-------------------------------------|------------|----------------------------------------------------|------------|---------|------------|
| ** **                          | ** ** | **Months Ended June 30, 2007** | ** ** |
| ** **                          |       |                                               |       |    |       |
| Selling, general  and adminstrative |       | $                                                  | 110,315    |    | $          | 141,856 |   |
| Research and  development           |       | 21,030                                             |       | 27,321  |       |
| Total                               |       | $                                                  | 131,345    |    | $          | 169,177 |   |

 

The unrecognized expenseof awards not yet vested is $623,000 at June 30, 2007, net of estimatedforfeitures. This will be recognized over the next twelve quarters.  The aggregate intrinsic value is calculatedas the difference between the exercise price of the options and the quotedprice of our common shares that were in the money at June 30, 2007. At June 30,2007, the aggregate intrinsic value of all outstanding options was nil.

The following tablesummarizes stock option activity for the quarter ended June 30, 2007:
| ** **                             | ** ** | **Employees** | ** ** | **Non-Employees**                              | ** ** | ** **  | ** ** |
|----------------------------------------|------------|---------------|------------|------------------------------------------------|------------|-------------|------------|
| ** **                             | ** ** | **Options**   | ** ** | **Weighted average  exercise price** | ** ** | **Options** | ** ** | **Weighted average  exercise price** | ** ** | **Total Options** | ** ** |
| ** **                             |       |          |       |                                           |       |        |       |   |   |   |   |
| Outstanding at  December 31, 2006 |       | 600,348       |       | $                                              | 12.27      |        | 61,792     |   | $ | 18.01 |   | 662,140 |   |
| Granted                                |       | 297,300       |       | 4.10                                           |       | 25,000      |       | 4.10 |   | 322,300 |   |
| Expired                                |       | (2,069        | )          | 134.50                                         |       | (55         | )          | 386.40 |   | (2,123 | ) |
|                                   |       |          |       |                                           |       |        |       |   |   |   |   |
| Outstanding at  March 31, 2007         |       | 895,579       |       | $                                              | 9.30       |        | 86,737     |   | $ | 13.80 |   | 982,316 |   |
| Granted                                |       | 34,900        |       | 3.38                                           |       | 12,500      |       | 3.40 |   | 47,400 |   |
| Expired                                |       | (2,091        | )          | 141.50                                         |       | —      |       | — |   | (2,091 | ) |
| Forfeited                              |       | (2,328        | )          | 5.83                                           |       | —      |       | — |   | (2,328 | ) |
| Outstanding at June 30,  2007          |       | 926,061       |       | $                                              | 12.10      |        | 99,237     |   | $ | 12.49 |   | 1,025,298 |   |

 

As of June 30, 2007, 660,525 of the outstandingoptions are exercisable.

The weighted average fair value of the optionsgranted during the three and six month periods ended June 30, 2007 and June 30,2006 were $1.50 and $2.47 and $4.40 and $8.60, respectively. The followingassumptions were used to calculate the weighted average fair values:
| ** **                       | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------|------------|----------------------------------|------------|--------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                       | ** ** | **June 30, 2007**      | ** ** | **June 30, 2006**    | ** ** |
| Average risk  free interest rate |       | 4.5                              | %          | 4.5                            | %          | 4.5                              | %          | 4.5                            | %          |
| Expected life  (in years)        |       | 5.5                              |       | 5.6                            |       | 5.5                              |       | 5.6                            |       |
| Expected  volatility             |       | 97                               | %          | 98                             | %          | 95                               | %          | 93                             | %          |
| Dividend yield                   |       | 0                                | %          | 0                              | %          | 0                                | %          | 0                              | %          |

 

8

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Thedividend yield of zero is based on the fact that WorldHeart has never paid cashdividends and has no present intention to pay cash dividends.  Expected volatility is based on thehistorical volatility of the Corporation’s common shares over the period commensuratewith the expected life of the options. The risk free interest rate is based on average rates for 5 and 7 yeartreasury notes as published by the Federal Reserve.

**5**.  Performance Bonus

OnMarch 8, 2007 the Compensation Committee of the Board of Directors approved a2007 Performance Bonus plan for its employees.  The bonus will be earnedbased on achievement of goals related to the Corporation’s business.  Themaximum bonus is approximately $846,000 and will be paid 25% in cash and 75% incommon shares.

Thecash and share payments will be paid when the Compensation Committee determinesthat the 2007 performance goals have been achieved.  If the performancegoals are not achieved on or before December 31, 2007, then no performancebonuses will be paid. An expense of $340,000 was recorded related to this planin the second quarter of 2007 based on progress made towards the achievement ofits annual goals.

**6.   Comprehensive Income**

For the three and six monthsended June 30, 2007 and June 30, 2006, there were no significant differencesbetween the Corporation’s comprehensive loss and its net loss.

**7.**              Recent Accounting Pronouncements

InFebruary 2007, the Financial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting Standards No. 159, “The Fair Value Option ofFinancial Assets and Liabilities” (“SFAS 159”). SFAS 159 provides entities with the option to report selected financialassets and liabilities at fair value.  Businessentities adopting SFAS 159 will report unrealized gains and losses in earningsat each subsequent reporting date on items for which fair value option has beenelected.   SFAS 159 establishedpresentation and disclosure requirements designed to facilitate comparisonsbetween entities that choose different measurement attributes for similar typesof assets and liabilities.  SFAS 159requires additional information that will help investors and other financial statementsusers to understand the effect of an entity’s choice to use fair value on itsearnings.  SFAS 159 is effective forfiscal years beginning after November 15, 2007, with earlier adoptionpermitted. The Corporation is currently assessing the impact that the adoptionof SFAS 159 may have on its consolidated financial position, results ofoperation and cash flows.

InJune 2006, the FASB issued interpretation No. 48, “Accounting for Uncertaintyin Income Taxes-An interpretation of FASB Statement 109” (“FIN 48”).  FIN 48 clarifies the accounting foruncertainty in income taxes recognized in enterprises’ financial statements inaccordance with Statement of Financial Accounting Standards No. 109, “Accountingfor Income Taxes” (“FAS 109”).  Thisinterpretation prescribes a recognition threshold and measurement attribute forthe financial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. FIN 48 also provides guidance onrecognition of tax benefits, classification on the balance sheet, interest and penalties,accounting in interim periods, disclosure, and transition.  The Corporation adopted FIN 48 effectiveJanuary 1, 2007.  In accordance with FIN48, the Corporation has decided to classify any interest and penalties as acomponent of tax expense. There was no interest and penalties in the three orsix month periods ended June 30, 2007. As a result of the implementation of FIN 48, the Corporation recognizedno material adjustment in income tax expense or its net deferred tax asset in2007. The Corporation files income tax return in the United States federaljurisdiction, Canadian jurisdiction, and various states. The Corporation is notunder examination for any of these jurisdictions.

9

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**8.**    **Warrants and Certain Stock Options Denominated in Canadian dollars**

Effective January 1,2004, WorldHeart determined that its functional currency had changed from theCanadian dollar to the U.S. dollar because the majority of its businessoperations and investors were in the United States.

Concurrent with this changein functional currency, WorldHeart adopted the U.S. dollar as its reportingcurrency. Prior to January 1, 2004 the functional and reporting currencywas the Canadian dollar.

WorldHeart has primarilyfinanced its operations from the sale of equity and debt securities that havebeen denominated in U.S. and Canadian dollars. As part of these financings,WorldHeart has issued warrants to purchase common stock that have also beendenominated in U.S. and Canadian dollars, and therefore, had warrants outstandingat June 30, 2007 and December 31, 2006 that are denominated in bothcurrencies.

The SEC and FASB have issuedrecent interpretations that suggest warrants whose exercise price is differentfrom the entity’s functional currency cannot be classified as equity and shouldbe treated as derivatives, which would be recorded as liabilities and carriedat their fair value. Changes in the fair value from period to period would berecorded as a gain or loss in the statement of operations.

Therecent SEC and FASB interpretations relate to FASB Statement No. 133, “Accountingfor Derivative Instruments and Hedging Activities” and  Emerging Issue Task Force  (“EITF”) “EITF 00-19 “Accounting forDerivative Financial Instruments Indexed to and Potentially Settled in a Company’sOwn Stock”. The FASB has initiated a project to determine the accountingtreatment for certain equity instruments with elements of foreigncurrency risk. This project is expected to provide further guidance withrespect to accounting for such items.

WorldHeart isawaiting the results of the FASB’s project and has not, therefore, recordedwarrants outstanding that have exercise prices in Canadian dollars, asderivatives. If the Corporation had recorded such instruments as derivatives,it would have reported an incremental gain in net income of zero for thequarter and six months ended June 30, 2007 and an incremental gain in netincome of approximately $0.6 million for the quarter and six months ended June30, 2006, related to these instruments in the statement of operations for theseperiods. The amounts were calculated using the Black-Scholes option pricingmodel. The Corporation used the following assumptions to value the instruments:a 0% dividend rate for both quarters presented, volatility of 97% and 95% forquarters ended June 30, 2007 and June 30, 2006, respectively, the actualexercise price of each instrument, the actual Corporation closing share pricefor June 30, 2007 and June 30, 2006, the estimated remaining life of theunderlying warrant at June 30, 2007 and June 30, 2006, and the Canadian riskfree interest rate based on the estimated remaining life of the relatedwarrant.

**9.**              Commitments and Contingencies

**(a) Operating Leases**

The Corporation iscommitted to minimum lease payments for office facilities and equipment andlicenses. There is also a $750,000 balance of pledged cash used as collateralfor the Oakland lease as of June 30, 2007. In addition, WorldHeart has paid a$150,000 security deposit and has established a $1,250,000 reserve forpotential site restoration associated with the Oakland lease. The reserve wasincreased by $374,000 from December 31, 2006. The Oakland lease expired onApril 30, 2007.  On July 20, 2007, theCorporation entered into a compromise and new lease agreement with respect tothe property, subject to certain conditions. See Note 10- Subsequent Events.

**(b) Research Agreement**

Effective April 1,1996, the Corporation entered into a research agreement with the CardiovascularDevices Division (CVD) of the Ottawa Heart Institute Research Corporation(Research Agreement) under which the Corporation agreed to fund a substantialportion of CVD’s remaining research efforts relating to artificial hearttechnology. The Corporation acquired joint ownership with CVD of the technologyarising from CVD’s research under the Research Agreement and an exclusivetwenty-five year license to market the product and certain other relatedtechnologies for

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an initial license fee of$147,544 and royalties of 7%. The Corporation is no longer focused ondeveloping or commercializing this technology and as a result is not expectedto make any royalty payments to CVD.

The Corporation’sresearch funding to CVD under the Research Agreement was $13,400,000 for theperiod from April 1, 1996 to December 31, 2004. No payments were madeduring 2005 or 2006 and the Corporation does not anticipate any future paymentsunder the Research Agreement, as it is not pursuing development of the CVDartificial heart technology and is in the process of terminating the agreement.

The Corporation has been in and actively continues discussions with the Ottawa Heart Institute to resolve certain payments which both parties believe are owed by the other. In addition, a former officer of WorldHeart currently employed at CVD has made additional claims for certain payments, which  WorldHeart disputes. WorldHeart is actively pursuing a settlement of claims made with both parties. At June 30, 2007, WorldHeart has recorded accrued liabilities of approximately $639,000 associated with the Ottawa Heart Institute and the former officer.

**10. Subsequent Events**

On July 20, 2007, WorldHeart entered into a Compromise Agreement and an executory Standard Industrial/Commercial Single Tenant Lease Agreement (the “New Lease”) with Oakport Associates, a California limited partnership (the “Lessor”) with respect to the Corporation’s headquarters and manufacturing facilities in Oakland, California (the “Premises”).  The Corporation’s prior lease agreement (the “Prior Lease”) with respect to the Premises expired by its own terms on April 30, 2007, and the Corporation has been negotiating with the Lessor the terms of certain restoration obligations with respect to the Premises under the Prior Lease, as well as the terms of the New Lease.

Pursuant to the terms of the Compromise Agreement, WorldHeart will continue to lease the Premises under substantially similar terms as the Prior Lease, except on a month-to-month basis at a base rent of $41,572 per month, until it performs agreed-upon restoration work on one of the two buildings it occupied under the Prior Lease, which work it must complete by January 30, 2008, subject to certain extensions due to events outside of the Corporation’s control.  If such restoration work is completed in a timely and satisfactory manner, the New Lease will become effective with respect to the one remaining building that the Corporation will continue to occupy.  Any restoration obligations with respect to this remaining building are being satisfied by the Lessor drawing down on the Letter of Credit in the amount of $750,000 which has been in place in connection with the Premises under the Prior Lease.

The New Lease will be for a term of three years and a base rent of $20,000 per month in year one, $21,000 per month in year two and $22,000 per month in year three. In addition, the Lessor agreed to apply $100,000 of a $150,000 security deposit under the Prior Lease towards the security deposit under the New Lease and to return the balance, plus all accrued interest, to the Corporation.  If the New Lease becomes effective as planned, the parties will mutually release each other from all claims under the Prior Lease, including without limitation any further restoration obligations on behalf of the Corporation.  If WorldHeart is unable to fulfill its obligations under the Compromise Agreement, it will be deemed a holdover tenant and, among other obligations, will be subject to the holdover rent payments in the amount of 150% of the base rent under the terms of the Prior Lease.

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**ITEM 2.   MANAGEMENT’S DISCUSSION ANDANALYSIS OR PLAN OF OPERATION**

**INTRODUCTION**

World Heart Corporation andits subsidiaries are collectively referred to as WorldHeart. The followingManagement Discussion and Analysis of Financial Condition and Results ofOperations (MD&A) discusses material changes in WorldHeart’s financialcondition and results of operations and cash flows for the three and six monthsended June 30, 2007 and June 30, 2006. Such discussion and comments on theliquidity and capital resources should be read in conjunction with theinformation contained in WorldHeart’s audited consolidated financial statementsfor the year ended December 31, 2006, prepared in accordance with therules and regulations of the SEC included in our Annual Report onForm 10 — KSB, as amended, for the fiscal year endedDecember 31, 2006.

The discussion andcomments contained hereunder include both historical information andforward-looking information. The forward-looking information, which generallyis information stated to be anticipated, expected, or projected by management,involves known and unknown risks, uncertainties and other factors that maycause the actual results and performance to be materially different from anyfuture results and performance expressed or implied by such forward-lookinginformation. Potential risks and uncertainties include, without limitation: ourability to raise additional funding, numerous uncertainties and time delaysinherent in the development of products, particularly our LevacorTM Rotary VAD; WorldHeart’s need to establishreimbursement mechanisms and product acceptance from third-party payers;extensive government regulation of our products; rapid developments intechnology by competitors some of whom have significantly greater financial,production and marketing resources; and slower than anticipated growth in theDestination Therapy market, as well as other risks and uncertainties set forthunder the heading “Risk Factors” in our Annual Report on Form 10-KSB,as amended, for year ended December 31, 2006.

On May 30, 2007, theCorporation announced a one-for-ten reverse stock split, the effect of whichhas been retroactively applied throughout the financial statements containedherein.

**OVERVIEW**

WorldHeart is engaged indevelopment of mechanical circulatory support systems focused oncommercializing implantable ventricular assist devices (VADs), which aremechanical pumps that allow for the restoration of normal blood circulation topatients suffering from advanced heart failure. WorldHeart believes that it hasa broad platform of next-generation products under development for long-termcirculatory support and that both pulsatile and rotary pumps are required totreat the full spectrum of clinical needs of end and late-stage heart failurepatients. WorldHeart believes that rotary devices are best suited forlate-stage patients, with some contractility, who require only partial support,or an assist. Alternatively, pulsatile devices are best suited for end-stagepatients with poor ventricular contractility, who require full support, orfunctional replacement.

WorldHeart currentlyderives all of its revenue from its Novacor LVAS and related peripheralequipment, which it sells directly to medical clinics and hospitals in theUnited States, Europe and Canada and through a distributor in certain othercountries. The Novacor LVAS is commercially approved as a Bridge-to-Transplantdevice in the United States and Canada. In Europe, the Novacor LVAS hasunrestricted approval for use as an alternative to transplantation,Bridge-to-Transplantation and to support patients who may be able to recoverthe use of their natural heart. In Japan, the device is commercially approvedfor use in cardiac patients at risk of imminent death from non-reversible leftventricular failure for which there is no alternative except hearttransplantation.

In July 2005,WorldHeart acquired the assets of MedQuest Products, Inc. (MedQuest) includinga rotary VAD, now called the Levacor Rotary VAD. In conjunction with theacquisition, WorldHeart raisedapproximately $22.7 million in gross financing proceeds from a privateplacement with Maverick Venture Management, LLC and the exercise of certain warrantsand also converted all of its remaining convertible debentures from an earlierfinancing. Pre-clinical testing of the Levacor Rotary VAD wasaccelerated after the acquisition, with successful initial human feasibilityclinical implants in Europe completed during 2006.

In November 2006,WorldHeart announced a restructuring plan, which included a reduction ofcommercial operations associated with the Novacor LVAS, and a refocusing of itsresources on the development of its next generation products, particularly theLevacor Rotary VAD. WorldHeart also reduced its workforce and consolidated itsfacilities in Oakland, in an effort to further reduce expenses.

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Effortsare currently directed towards completion of preclinical qualificationactivities of the Levacor VAD in advance of the planned clinical trials, whichare expected to begin in the United States in late 2007 or early 2008.  Refinements to external system components,intended to enhance system ergonomics and improve the quality of life of VAD recipients,have been implemented.  In addition,manufacturing capabilities in WorldHeart’s Salt Lake City facility are beingenhanced, including expansion of clean room space.

WorldHeart is alsodeveloping a next-generation implantable pulsatile VAD, called theNovacor II. Development work on the Novacor II achieved an importantmilestone with successful initial animal implants completed in 2005 and 2006.Further development work on the Novacor II is expected to resume aftercompletion of the development of Levacor Rotary VAD and subject to additionalfunding availability.

In addition, WorldHeartis developing the PediaFlowTM VAD (PVAD) and aminimally invasive VAD (MIVAD) based on PVAD technology.  The PVAD is a small, magnetically levitated,axial rotary VAD currently under development by a consortium, includingWorldHeart, intended for use in infants. Development is funded by the NationalInstitutes of Health, under a contract awarded to the University ofPittsburgh.  WorldHeart’s MIVAD design isbased on the technology incorporated in the PVAD device using vascularconnections to allow placement through minimally invasive techniques. It isintended to provide partial circulatory support in patients at an earlier stageof heart failure than currently used VADs. In July 2007, a successful initial acute animal implant of the PediaFlowwas completed at the University of Pittsburgh.

Research and developmentby WorldHeart’s competitors is proceeding on several rotary flow devices.Certain of these devices have received the CE mark in Europe and are advancingthrough clinical trials in the United States and Europe. WorldHeart believesthat its Levacor Rotary VAD is the most advanced rotary device underdevelopment.

Although the DestinationTherapy patient population continues to be largely untreated by cardiac assistdevices, and the adoption rates have been slower than anticipated, theCorporation believes that the Destination Therapy market will evolve morerapidly as next-generation devices are evaluated clinically and as experiencewith these VADs increases.

**Summaryof Quarterly Results**

In thousands(000’s) except for per share amounts

(unaudited)

 
| ** **                                  | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|
| ** **                                  | ** ** | **June 30,**                | ** ** | **March 31,** | ** ** | **December 31,** | ** ** | **September 30,** | ** ** |
| ** **                                  | ** ** | **2007**                         | ** ** | **2007** | ** ** | **2006** | ** ** | **2006** | ** ** |
|                                        |       |                             |       |   |   |   |   |   |   |
| Net revenue                                 |       | $                                | 849        |   | $ | 848 |   | $ | 956 |   | $ | 1,387 |   |
| Net loss for the  period                    |       | (4,477                           | )          | (3,430 | ) | (5,136 | ) | (7,619 | ) |
| Net loss  applicable to common shareholders |       | (4,477                           | )          | (3,430 | ) | (5,136 | ) | (7,619 | ) |
|  Basic and diluted loss per share      |       | $                                | (0.39      | ) | $ | (0.30 | ) | $ | (0.80 | ) | $ | (1.40 | ) |

 
| ** **                                  | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|
| ** **                                  | ** ** | **June 30,**                | ** ** | **March 31,** | ** ** | **December 31,** | ** ** | **September 30,** | ** ** |
| ** **                                  | ** ** | **2006**                         | ** ** | **2006** | ** ** | **2005** | ** ** | **2005** | ** ** |
|                                        |       |                             |       |   |   |   |   |   |   |
| Net revenue                                 |       | $                                | 2,988      |   | $ | 3,285 |   | $ | 3,630 |   | $ | 2,150 |   |
| Net loss for the  period                    |       | (3,888                           | )          | (3,442 | ) | (21,998 | ) | (22,251 | ) |
| Net loss  applicable to common shareholders |       | (3,888                           | )          | (3,442 | ) | (21,998 | ) | (28,111 | ) |
|  Basic and diluted loss per share      |       | $                                | (0.70      | ) | $ | (0.60 | ) | $ | (4.00 | ) | $ | (6.40 | ) |

 

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**RESULTS OF OPERATIONS FORTHE THREE AND SIX MONTH PERIOD ENDED JUNE 30, 2007 COMPARED WITH THE THREEAND SIX MONTH PERIOD ENDED JUNE 30, 2006**
| ** **                                                                  | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                  | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                                        |       |                                                |       |                                              |       |   |   |   |   |
| **Revenue**                                                                 |       | $                                                   | 849        |                                              | $          | 2,988 |   | $ | 1,696 |   | $ | 6,273 |   |
| **Cost of  goods sold**                                                     |       | (823                                                | )          | (1,910                                            | )          | (1,892 | ) | (3,322 | ) |
| ** **                                                                  |       |                                                |       |                                              |       |   |   |   |   |
| **Gross  profit**                                                           |       | 26                                                  |       | 1,078                                             |       | (196 | ) | 2,951 |   |
| ** **                                                                  |       |                                                |       |                                              |       |   |   |   |   |
| **Operating  expenses**                                                     |       |                                                |       |                                              |       |   |   |   |   |
| Selling, general and administrative                                         |       | 1,457                                               |       | 2,276                                             |       | 3,003 |   | 4,732 |   |
| Research and development                                                    |       | 3,136                                               |       | 2,763                                             |       | 5,005 |   | 5,662 |   |
| Amortization of intangibles                                                 |       | 48                                                  |       | 48                                                |       | 96 |   | 96 |   |
|                                                                        |       |                                                |       |                                              |       |   |   |   |   |
| **Total operating expenses**                                                |       | 4,641                                               |       | 5,087                                             |       | 8,104 |   | 10,490 |   |
| ** **                                                                  |       |                                                |       |                                              |       |   |   |   |   |
| **Operating  loss**                                                         |       | (4,615                                              | )          | (4,009                                            | )          | (8,300 | ) | (7,539 | ) |
| ** **                                                                  |       |                                                |       |                                              |       |   |   |   |   |
| ** **                                                                  |       |                                                |       |                                              |       |   |   |   |   |
| **Other  income (expense)**                                                 |       | 138                                                 |       | 121                                               |       | 393 |   | 209 |   |
| ** **                                                                  |       |                                                |       |                                              |       |   |   |   |   |
| **Net  loss applicable to common shareholders**                             |       | $                                                   | (4,477     | )                                                 | $          | (3,888 | ) | $ | (7,907 | ) | $ | (7,330 | ) |
|                                                                        |       |                                                |       |                                              |       |   |   |   |   |
| **Weighted  average number of common shares outstanding basic and diluted** |       | 11,507                                              |       | 5,548                                             |       | 11,507 |   | 5,548 |   |
| ** **                                                                  |       |                                                |       |                                              |       |   |   |   |   |
| **Basic and diluted loss per  common share**                                |       | $                                                   | (0.39      | )                                                 | $          | (0.70 | ) | $ | (0.69 | ) | $ | (1.32 | ) |

 

***Revenue:*******The sale of Novacor LVAS implant kits andrelated peripheral equipment and services accounts for all of WorldHeart’srevenues.  We primarily sell our productsdirectly, except for a few countries where we sell through distributors.

The composition ofrevenue in thousands ($000’s) is as follows except for units:
| ** **             | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **             | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| **(unaudited)**        | ** ** | **$**                                               | ** ** | **Units**                                         | ** ** | **$** | ** ** | **Units** | ** ** | **$** | ** ** | **Units** | ** ** | **$** | ** ** | **Units** | ** ** |
|                   |       |                                                |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Implant kits           |       | $                                                   | 391        |                                              | 6          |   | $ | 1,844 |   | 27 |   | $ | 684 |   | 10 |   | $ | 4,069 |   | 59 |   |
| Peripherals and  other |       | 458                                                 |       |                                              |       | 1,144 |   |   |   | 1,013 |   |   |   | 2,204 |   |   |   |
|                   |       |                                                |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenue                |       | $                                                   | 849        |                                              |       |   | $ | 2,988 |   |   |   | $ | 1,696 |   |   |   | $ | 6,273 |   |   |   |

 

Revenue for the quarter ended June 30, 2007 was $849,000 reflecting andecrease of $2,139,000, or 72%, compared with $2,988,000 for the quarter endedJune 30, 2006. Implant kit revenue in the second quarter of 2007 decreased by $1,453,000, or 79%, compared with the second quarter of 2006.  Implant kits recognized as revenue were  six and 27 in the quarters ended June 30, 2007 and June 30, 2006,respectively. The significant decrease in revenue during 2007 resulted fromthe  decision made in the fourth quarterof 2006 to reduce  commercial efforts onWorldHeart’s first generation Novacor LVAS product.

Peripherals and other revenues, including Novacor LVAS hardware andperipheral sales, services and other revenue for the quarter ended June 30,2007 were $458,000, a decrease of $686,000, compared with peripherals and other revenue of  $1,144,000 recorded in the quarter ended June30, 2006. We currently expect Novacor LVAS revenue to be approximately the samelevel during the second half of 2007, as during the first half of this year.

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Revenue during thefirst six months of 2007 was $1,696,000, a decrease of $4,577,000, or 73 %,compared with $6,273,000 recorded in same period of 2006. Implant kit revenueof $684,000 decreased  by 83% for the sixmonths ended June 30, 2007, comparedwith $4,069,000 for the six months ended June30, 2006. Implant kits recognized as revenue for the six months ended June 30, 2007 totaled 10, compared with 59during the same period of 2006.

***Cost of goods sold:***  For thethree months ended June 30, 2007, the cost of goods sold as a percent ofrevenue was 97%, compared with 64% for the three months ended June 30, 2006.  Cost of goods exceeded revenue during thefirst six months of 2007, compared with 53%, over the same period in 2006**. **The significantlyhigher cost of goods sold in this year’s second quarter and the six monthsended June 30, 2007 was due, principally, to the write off of excess Novacorinventory in the United States and Europe and expensing of manufacturingvariances.

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

The composition of selling, general andadministrative expenses in thousands ($000’s) is as follows:
| ** **                  | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| **(Unaudited)**             | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                  |       |                                                |       |                                              |       |   |   |   |   |
| Selling                     |       | $                                                   | 367        |                                              | $          | 1,004 |   | $ | 852 |   | $ | 2,027 |   |
| General and  administrative |       | 1,090                                               |       | 1,272                                             |       | 2,151 |   | 2,705 |   |
| Total                       |       | $                                                   | 1,457      |                                              | $          | 2,276 |   | $ | 3,003 |   | $ | 4,732 |   |

 

Selling, generaland administrative expense for the three months ended June 30, 2007 decreased by $819,000, or 36 %, compared with thesame period in 2006, and for the six months ended June 30, 2007 decreased by$1,728,000, or 37%, versus the same period in 2006.  Selling expenses for the three months ended June 30, 2007 decreased by $637,000, or63%, compared with the same period in 2006, and for the six month period endedJune 30, 2007 decreased by $1,175,000, or 58%, compared with the same periodlast year. Selling expenses decreased due to our November 2006 restructuring,which eliminated most of our sales force and reduced personnel costs in Europe.

General andadministrative expenses for the three months ended June 30, 2007 decreased by$182,000, or  14%, compared with the sameperiod in 2006, and for the six months ended June 30, 2007 decreased  by $554,000,  or 21%. These reductions are primarily due to the restructuring of ouropertions in the fourth quarter of 2006. For the three and six month periodsended June 30, 2007, WorldHeart recorded $110,000 and $142,000 in stock-basedcompensation expense, respectively, compared with $51,000 and $83,000 for thesame periods of 2006.   Administrativeexpenses are expected to remain at about current levels in the next quarterincreasing somewhat thereafter with the implementation of information systemupgrades and internal control improvements, as well as administrative supportof our product development programs.

***Research and development:***Research anddevelopment expenses consist principally of salaries and related expenses forresearch personnel, prototype manufacturing, testing, clinical trial expenses,factory costs and regulatory affairs expenses incurred at our Oakland and SaltLake City facilities.

Research anddevelopment expenses for the three months ended June 30, 2007 were $3,136,000,an increase  of  $373,000, compared with $2,763,000 for thethree months ended June 30, 2006. Research and development expenses for the six months ended June 30, 2007decreased by $657,000, compared with the six months ended June 30, 2006.  For the comparable three and six monthperiods, research and development and clinical costs of our Levacor Rotary VADincreased in 2007, while Novacor related expenses in 2006 were significantlyreduced in the second half of the year. Research and development expenses forour Levacor Rotary VAD are expected to increase 

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throughout the secondhalf of 2007 in preparation for animal studies and United States feasibilityclinical trials. For the three and six month periods ended June 30, 2007,WorldHeart recorded $21,000 and $27,000 in stock-based compensation expense,respectively, compared with $0 and $638 for the same periods of 2006.

***Amortization of intangibles:*****Amortization of intangibles for the threeand six month periods ended June 30, 2007 were $48,000 and $96,000,respectively. These intangible assets were recorded as part of the MedQuestacquisition and represent the estimated intangible value of the MedQuestworkforce of $765,000, which is being amortized on a straight-line basis overfour years.

***Foreign Exchange:***Foreign exchangetransactions resulted in a loss of $4,000 for the three month period endedJune 30, 2007, compared with a gain of $47,000 for the three month periodended June 30, 2006. Foreign exchange transactions resulted in a gain of$131,000 for the six month period ended June 30, 2007, compared with again of $41,000 for the six month period ended June 30, 2006. Thesechanges during the three and six month periods in 2007 and 2006 were primarilydue to fluctuations of the U.S. dollar versus the Euro and Canadian dollarduring these periods.

***Investment and other income:***Investment and other income for the quarter ended June 30, 2007 was $141,000,compared with $74,000 during the quarter ended June 30, 2006.  Investment and other income was $260,000 forthe six month period ended June 30, 2007, compared with $167,000 for thesix month period ended June 30, 2006.  The increases reflect higheraverage cash balances on our investments and higher investment interest ratesin 2007.

**LIQUIDITY AND CAPITAL RESOURCES**

Historically,WorldHeart has funded losses from operations through the sale of equity andissuance of debt instruments. Combined with revenues and investment income,these funds have provided WorldHeart with the resources to operate ourbusiness, sell and support our products, fund our research and developmentprogram and clinical trials, apply for and obtain the necessary regulatoryapprovals and develop new technologies and products.

AtJune 30, 2007, we had cash and cash equivalents of $6.6 million, adecrease of $5.6 million from December 31, 2006 and a decrease of $2.5million from March 31, 2007. During the six month period ended June 30, 2007,cash used to fund operating activities was $5.5 million, consisting primarilyof the net loss for the period of $7.9 million offset somewhat by non-cashcharges related primarily to an inventory write off of $0.4 million associatedwith the Novacor product, $0.2 million in further write off of some of ourproperty and equipment  as part ofconsolidation of our Oakland and Heesch operations and $0.4 million in non-cashstock based compensation and depreciation expenses. Working capital changes of$1.4 million consisted primarily of $1.5 million decrease in trade and otherreceivables and $0.5 million inventory, offset by a $0.6 million decrease inaccounts payable.

Investingactivities in the first half of 2007 requiring cash resources consisted of $0.2million in capital equipment additions. There were no financing activitiesduring the first half of 2007.

With the completion ofthe private placement and restructuring programs initiated in the fourthquarter of 2006, based on our current operating expenses and projected revenuesof our Novacor LVAS and reimbursement from the Levacor Rotary VAD, we believe we have sufficient cash to fundoperations into the first quarter of 2008.

We are continuing toexplore various financing alternatives, including equity financing transactionsand corporate collaborations. Equity financings could likely include, but arenot limited to, private investments in public equity transactions or strategicequity investment by interested companies. Corporate collaborations couldinclude licensing of one or more of our products for upfront and milestonepayments, or co-development and co-funding of our products. We have completed arestructuring program initiated in the fourth quarter of 2006 re-aligning ourspending to focus on our key development program, the Levacor Rotary VAD, andwill continue to carefully manage our overall cash usage. While WorldHeart isexploring opportunities to maintain and improve our financial condition, thereis no assurance that these programs will be successful. This would result in asignificant delay in the completion, reduction in scope or termination of ourdevelopment programs.

Our long-term workingcapital and capital requirements depend upon numerous factors, including thefollowing: our continued ability to generate Novacor LVAS sales without anactive selling effort and staff; the rate of investment in our next-generationtechnologies, particularly the Levacor Rotary VAD; the clinical trial costs andthe approval process for our next-generation products; our general efforts toimprove operational efficiency, conserve cash and implement other costconservation programs.

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**CRITICAL ACCOUNTING ESTIMATES**

As a result of theCorporation’s decision to reduce commercial operations associated with theNovacor LVAS, and refocus its resources on the development of its nextgeneration products, WorldHeart wrote off $4.6 million of Novacor related inventoriesduring the third and fourth quarter of 2006 that management estimated weresurplus. In the quarter ended March 31, 2007, the Corporation wrote off  $0.2 million of inventory and in the quarterended June 30, 2007 wrote off an additional $0.2 million of inventory inOakland and Europe. Management estimated future usage of inventory on hand byprojecting future sales of its Novacor product, and used these to predict rawmaterial parts and components that would be consumed in manufacturing productto meet these sales. Future write downs may be required based on actual salesachieved and will be recorded when they can be reasonably determined.

**OFF- BALANCESHEET ARRANGEMENTS**

None.

**ITEM3.    CONTROLS AND PROCEDURES**

*Evaluation of disclosure controls and procedures*: Based on their evaluation of our disclosure controls and procedures(as defined in Rules 13a-15(e) and 15d-15(e) under the ExchangeAct) as of June 30, 2007, ourpresident and chief executive officer (principal executive officer) and ourchief financial officer (principal accounting and financial officer) haveconcluded that our disclosure controls and procedures are designed to ensurethat information required to be disclosed in the reports that we file or submitunder the Exchange Act is recorded, processed, summarized and reported withinthe time periods specified in the Securities and Exchange Commission’srules and forms and are operating in an effective manner at the reasonableassurances level.

*Changes in internal controls over financial reporting:* There was no change in our internal controls over financial reportingthat occurred during the quarter ended June 30, 2007 that has materially affected, or is reasonably likely to materiallyaffect, our internal controls over financial reporting.

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**PART II—OTHER INFORMATION**

**ITEM 1. LEGAL PROCEEDINGS**

(None)

**ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OFPROCEEDS**

The Corporation has made norepurchases of common shares during the period covered by this report.

**ITEM 3. DEFAULTS UPON SENIOR SECURITIES**

(None)

**ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITYHOLDERS**

As previously disclosed in a current report on Form 8-K filed with the SEC on July 5, 2007, WorldHeart held its annual meeting of shareholders on June 28, 2007. The complete voting results have been published as an exhibit to the above current report on Form 8-K and are incorporated herein by reference.

**ITEM 5. OTHER INFORMATION**

(None)

**ITEM6.  EXHIBITS**

(a)               Exhibits
| Exhibit 10.21     |   | Compromise Agreement with Oakport Associates, LP  dated July 20, 2007, and Standard Industrial Commercial Single Tenant Lease  Agreement. |
|-------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------|
|              |   |                                                                                                                                      |
| Exhibit 31.1 |   | Certification of Principal Executive Officer  pursuant to Section 302 of the Sarbanes-Exley 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.            |

 

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**SIGNATURES**

In accordance with therequirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.
|                         |   |                                        | World Heart Corporation |
|------------------------------|--------|---------------------------------------------|-------------------------|
|                         |   |                                        | (Registrant)            |
|                         |   |                                        |
|                         |   |                                        |
| Dated:   August 9, 2007 |   | /s/ Jal S.  Jassawalla                      |                    |
|                         |   | Jal S.  Jassawalla, President and Chief     |
|                         |   | Executive  Officer                          |
|                         |   |                                        |
|                         |   |                                        |
| Dated:   August 9, 2007 |   | /s/ A. Richard  Juelis                      |
|                         |   | A. Richard  Juelis, Vice President, Finance |
|                         |   | and Chief  Financial Officer                |
|                              |        |                                             |                         |  |

 

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