**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-QSB**

**(Mark One)**

| **ý** | ** ** | **QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                          |
|------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                      |
| ** ** | ** ** | **For  quarterly period ended****June 30, 2005**                                                                                                                                                                                                                                |
| ** ** | ** ** | ** **                                                                                                                                                                                                                                                                      |
| **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 Company as specified in its charter)

 

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

 

**7799 Pardee Lane, Oakland, California, USA, 94621**

(Address of principal executive offices)

 

**(510) 563-5000**

(Issuer’s telephone number)

 

**N/A**

(Former name, former address and former fiscal year, if changed sincelast report)

 

Check whether theissuer (1) filed all reports required to be filed by Section 13 or 15(d) of theExchange Act during the past 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.      Yes ý      No o

Statethe number of shares outstanding of each of the issuer’s classes of commonequity, as of the latest practicable date:

Thenumber of common shares outstanding as of June 30, 2005 was 17,101,359.

TransitionalSmall Business Disclosure Format (Check one):       Yes o      No ý

 

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**TABLEOF CONTENTS**
| ** ** | ** ** | **Item**                                  | ** ** |   | **Page** |
|------------|------------|-------------------------------------------|------------|--------|----------|
| Part I     | 1          | Financial Statements                      | 3          |
|       |       |                                      |       |
|       | 2          | Management’s Discussion and Analysis | 11         |
|       |       |                                      |       |
|       | 3          | Controls and Procedures                   | 19         |
|       |       |                                      |       |
| Part II    | 6          | Exhibits and Reports on Form 8-K          | 20         |
|       |       |                                      |       |
|       |       | Signatures                                | 21         |

 

----

 

**PART I—FINANCIAL INFORMATION**

** **

**Item1.    Financial Statements.**

**WORLD HEART CORPORATION**

## **ConsolidatedBalance Sheets**

(United States Dollars)

 
| ** **                                                                                                   | ** ** | **June 30, 2005** | ** **     | **December 31, 2004** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|-----------------------------|----------------|---------------------------------|------------|
| ** **                                                                                                   | ** ** | **(unaudited)**             | ** **     | ** **                      | ** ** |
| **ASSETS**                                                                                                   |       |                        |           |                            |       |
| **Current assets**                                                                                           |       |                        |           |                            |       |
| Cash and cash equivalents                                                                                    |       | $                           | 1,811,931      |                            | $          | 3,818,767 |   |
| Short-term investments                                                                                       |       | —                      |           | 4,999,034                       |       |
| Trade and other receivables                                                                                  |       | 2,679,684                   |           | 4,238,049                       |       |
| Prepaid expenses                                                                                             |       | 931,442                     |           | 575,261                         |       |
| Inventory                                                                                                    |       | 8,816,864                   |           | 8,112,525                       |       |
|                                                                                                         |       | 14,239,921                  |           | 21,743,636                      |       |
|                                                                                                         |       |                        |           |                            |       |
| **Long-term Assets**                                                                                         |       |                        |           |                            |       |
| Long-term receivable                                                                                         |       | —                      |           | 318,553                         |       |
| Cash pledged as collateral for lease                                                                         |       | 750,000                     |           | 750,000                         |       |
| Deferred financing and transaction costs                                                                     |       | 1,063,854                   |           | —                          |       |
| Capital assets                                                                                               |       | 1,772,509                   |           | 2,011,586                       |       |
| Goodwill                                                                                                     |       | 17,179,643                  |           | 17,179,643                      |       |
| Intangible assets                                                                                            |       | —                      |           | 255,012                         |       |
|                                                                                                         |       | 20,766,006                  |           | 20,514,794                      |       |
| **Total Assets**                                                                                             | ** ** | **$**                       | **35,005,927** | ** **                      | **$**      | **42,258,430** | ** ** |
|                                                                                                         |       |                        |           |                            |       |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY**                                                               |       |                        |           |                            |       |
| **Current liabilities**                                                                                      |       |                        |           |                            |       |
| Accounts payable and accrued liabilities                                                                     |       | $                           | 5,070,795      |                            | $          | 3,854,833 |   |
| Taxes payable                                                                                                |       | 326,000                     |           | 832,000                         |       |
| Accrued compensation                                                                                         |       | 725,449                     |           | 1,343,364                       |       |
| Accrued financing and transaction costs                                                                      |       | 794,898                     |           | —                          |       |
| Deferred revenue                                                                                             |       | 1,391,862                   |           | 1,607,622                       |       |
|                                                                                                         |       | 8,309,004                   |           | 7,637,819                       |       |
| **Long-term liabilities**                                                                                    |       |                        |           |                            |       |
| Convertible debentures  (note 3)                                                                             |       | 7,804,317                   |           | 8,177,140                       |       |
| Long-term obligation                                                                                         |       | —                      |           | 16,368                          |       |
|                                                                                                         |       | 7,804,317                   |           | 8,193,508                       |       |
| **Total Liabilities**                                                                                        |       | 16,113,321                  |           | 15,831,327                      |       |
| **Shareholders’ equity**                                                                                |       |                        |           |                            |       |
| Common shares                                                                                                |       | 215,740,523                 |           | 214,616,061                     |       |
| Issued and outstanding—17,101,359 common shares (December 31,  2004—15,744,522 common shares) |       |                        |           |                            |       |
| Additional paid-in capital                                                                                   |       | 11,377,442                  |           | 11,451,267                      |       |
| Cumulative other comprehensive income                                                                        |       | (6,285,577                  | )              | (6,285,577                      | )          |
| Accumulated deficit                                                                                          |       | (201,939,782                | )              | (193,354,648                    | )          |
| **Total Shareholders’ equity**                                                                          |       | 18,892,606                  |           | 26,427,103                      |       |
| **Total Liabilities & Shareholders’ equity**                                                        | ** ** | **$**                       | **35,005,927** | ** **                      | **$**      | **42,258,430** | ** ** |
|                                                                                                              |            |                             |                |                                 |            |  |  |  |

 

(Theaccompanying notes are an integral part of these consolidated financialstatements.)

 

3

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**WORLD HEART CORPORATION**

**Consolidated Statements of Operations andAccumulated Deficit**

**(United States Dollars)**

 
| ** **                                                | ** ** | **Three months ended** | ** **   | **Six months ended** | ** ** |
|-----------------------------------------------------------|------------|------------------------|--------------|----------------------|------------|
| ** **                                                | ** ** | **June 30, 2005**      | ** **   | **June 30, 2004**    | ** ** | **June 30, 2005** | ** ** | **June 30, 2004** | ** ** |
| ** **                                                | ** ** | **(unaudited)**        | ** **   | **(unaudited)**      | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
|                                                      |       |                   |         |                 |       |   |   |   |   |
| **Revenue**                                               |       | $                      | 2,449,178    |                 | $          | 2,146,388 |   | $ | 5,866,166 |   | $ | 4,338,731 |   |
|                                                      |       |                   |         |                 |       |   |   |   |   |
| **Cost of goods sold**                                    |       | 2,142,266              |         | 1,701,765            |       | 4,253,968 |   | 2,880,162 |   |
|                                                      |       |                   |         |                 |       |   |   |   |   |
| **Gross margin**                                          |       | 306,912                |         | 444,623              |       | 1,612,198 |   | 1,458,569 |   |
|                                                      |       |                   |         |                 |       |   |   |   |   |
| **Expenses**                                              |       |                   |         |                 |       |   |   |   |   |
| Selling, general and administrative                       |       | 3,017,330              |         | 3,802,357            |       | 6,463,159 |   | 6,837,802 |   |
| Research and development                                  |       | 1,274,510              |         | 1,684,835            |       | 2,462,068 |   | 3,030,403 |   |
| Restructuring costs (note 5)                              |       | 211,905                |         | —               |       | 341,403 |   | — |   |
| Amortization of intangibles                               |       | 127,513                |         | 129,166              |       | 255,027 |   | 258,332 |   |
|                                                      |       | 4,631,258              |         | 5,616,358            |       | 9,521,657 |   | 10,126,537 |   |
|                                                      |       |                   |         |                 |       |   |   |   |   |
| **Loss before the undernoted**                            |       | (4,324,346             | )            | (5,171,735           | )          | (7,909,459 | ) | (8,667,968 | ) |
|                                                      |       |                   |         |                 |       |   |   |   |   |
| **Other income (expenses)**                               |       |                   |         |                 |       |   |   |   |   |
| Foreign exchange loss                                     |       | 7,093                  |         | (267,442             | )          | (17,279 | ) | (367,909 | ) |
| Investment income                                         |       | 11,742                 |         | 33,887               |       | 32,240 |   | 124,684 |   |
| Interest expense and financing costs                      |       | (337,230               | )            | 2,498                |       | (690,639 | ) | (1,206 | ) |
|                                                      |       |                   |         |                 |       |   |   |   |   |
| **Net loss for the period**                               |       | (4,642,741             | )            | (5,402,792           | )          | (8,585,137 | ) | (8,912,399 | ) |
|                                                      |       |                   |         |                 |       |   |   |   |   |
| **Accumulated deficit, beginning of the period**          |       | (197,297,041           | )            | (170,722,457         | )          | (193,354,645 | ) | (167,212,850 | ) |
|                                                      |       |                   |         |                 |       |   |   |   |   |
| **Accumulated deficit, end of the period**                |       | $                      | (201,939,782 | )                    | $          | (176,125,249 | ) | $ | (201,939,782 | ) | $ | (176,125,249 | ) |
|                                                      |       |                   |         |                 |       |   |   |   |   |
| **Weighted average number of common shares  outstanding** |       | 17,101,359             |         | 15,273,689           |       | 16,830,658 |   | 15,195,392 |   |
| **Basic and diluted loss per common share**               |       | $                      | (0.27        | )                    | $          | (0.35 | ) | $ | (0.51 | ) | $ | (0.59 | ) |
|                                                           |            |                        |              |                      |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

(Theaccompanying notes are an integral part of these consolidated financialstatements.)

 

4

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**WORLD HEART CORPORATION**

**ConsolidatedStatements of Cash Flow**

**(UnitedStates Dollars)**

 
| ** **                                                        | ** ** | **Three months ended** | ** **    | **Six months ended** | ** ** |
|-------------------------------------------------------------------|------------|------------------------|---------------|----------------------|------------|
| ** **                                                        | ** ** | **June 30, 2005**      | ** **    | **June 30, 2004**    | ** ** | **June 30, 2005** | ** ** | **June 30, 2004** | ** ** |
| ** **                                                        | ** ** | **(unaudited)**        | ** **    | **(unaudited)**      | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| **CASH FLOWS  FROM (USED IN)**                                    |       |                   |          |                 |       |   |   |   |   |
| ** **                                                        |       |                   |          |                 |       |   |   |   |   |
| **Operating activities**                                          |       |                   |          |                 |       |   |   |   |   |
| Net loss for the period                                           |       | $                      | (4,642,741    | )                    | $          | (5,402,792 | ) | $ | (8,585,137 | ) | $ | (8,912,399 | ) |
| Items not involving cash—                                    |       |                   |          |                 |       |   |   |   |   |
| Amortization                                                      |       | 315,246                |          | 346,068              |       | 609,771 |   | 671,908 |   |
| Issuance of options and warrants for services and financing costs |       | —                 |          | 73,265               |       | — |   | 81,466 |   |
| Interest and accretion on convertible debentures                  |       | 330,479                |          | —               |       | 677,801 |   | — |   |
| Unrealized foreign  exchange loss                                 |       | 179,451                |          | 63,901               |       | 276,999 |   | 187,246 |   |
| Change in operating  components of working capital                |       | 1,389,873              |          | (1,456,862           | )          | 422,161 |   | (5,645,966 | ) |
|                                                              |       | (2,427,692             | )             | (6,376,420           | )          | (6,598,405 | ) | (13,617,745 | ) |
| **Investing activities**                                          |       |                   |          |                 |       |   |   |   |   |
| Redemption of short-term  investments                             |       | —                 |          | —               |       | 4,999,034 |   | 11,504,032 |   |
| Purchase of capital assets                                        |       | (22,768                | )             | (119,911             | )          | (115,680 | ) | (154,162 | ) |
| Cash pledged as collateral  for lease                             |       | —                 |          | —               |       | — |   | (222,003 | ) |
|                                                              |       | (22,768                | )             | (119,911             | )          | 4,883,354 |   | 11,127,867 |   |
| **Financing  activities**                                         |       |                   |          |                 |       |   |   |   |   |
| Deferred financing and  transaction costs paid                    |       | (265,122               | )             | —               |       | (268,956 | ) | — |   |
| Common shares issued  through exercise of warrants                |       | —                 |          | —               |       | — |   | 1,499,404 |   |
|                                                              |       | (265,122               | )             | —               |       | (268,956 | ) | 1,499,404 |   |
|                                                              |       |                   |          |                 |       |   |   |   |   |
| **Effect of exchange rate changes on cash and cash  equivalents** |       | (9,348                 | )             | (102,275             | )          | (22,829 | ) | (74,350 | ) |
| **Change in cash and cash equivalents for the  period**           | ** ** | **(2,724,930**         | **)**         | **(6,598,606**       | **)**      | **(2,006,836** | **)** | **(1,064,824** | **)** |
| **Cash and cash equivalents, beginning of the  period**           |       | 4,536,861              |          | 11,871,459           |       | 3,818,767 |   | 6,337,677 |   |
| **Cash and  cash equivalents, end of the period**                 | ** ** | **$**                  | **1,811,931** | ** **           | **$**      | **5,272,853** | ** ** | **$** | **1,811,931** | ** ** | **$** | **5,272,853** | ** ** |
|                                                                   |            |                        |               |                      |            |  |  |  |  |  |  |  |  |  |  |  |

 

 
| ** **                                                                             | ** ** | **Three months ended**      | ** ** | **Six months ended**        | ** ** |
|----------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                             | ** ** | **June 30, 2005** | ** ** | **June 30, 2004** | ** ** | **June 30, 2005** | ** ** | **June 30, 2004** | ** ** |
| ** **                                                                             | ** ** | **(unaudited)**             | ** ** | **(unaudited)**             | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| **Supplementary Cash Flow  Information**                                               |       |                        |       |                        |       |   |   |   |   |
|                                                                                   |       |                        |       |                        |       |   |   |   |   |
| Convertible debentures  settled with the issuance of common shares                     |       | $                           | —     |                        | $          | — |   | $ | 1,679,461 |   | $ | — |   |
| Accrued interest on  convertible debentures settled with the issuance of common shares |       | $                           | —     |                        | $          | — |   | $ | 19,977 |   | $ | — |   |
|                                                                                        |            |                             |            |                             |            |  |  |  |  |  |  |  |  |  |  |

 

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

 

5

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**1.****             ****GoingConcern Assumption**

 

These interimunaudited consolidated financial statements have been prepared on the basis ofaccounting principles applicable to a going concern, which assume that WorldHeart Corporation (the “Company” or “WorldHeart”) will continue in operationfor the foreseeable future and will be able to realize its assets and dischargeits liabilities in the normal course of operations.

 

In the previous quarter, the Company concluded that the use of theseprinciples may not be appropriate as there was substantial doubt that theCompany would be able to continue as a going concern at that time.  The Company continued to experience lossesand a net cash outflow in the second quarter. Subsequent to June 30, 2005 the Company received $23.0 million in grossproceeds from the exercise of warrants and a private placement financing (seeNote 6) which management believes will be sufficient to sustain operationsuntil mid-year 2006.  The Company’sability to continue as a going concern beyond that time is dependent upon itsability to obtain additional financing, control expenses and becomecommercially successful.

 

Thesefinancial statements do not reflect adjustments to the carrying values ofassets and liabilities, the reported revenues and expenses, and the balancesheet classifications used that would be necessary if the going concernassumption were not appropriate.  Suchadjustments could be material.

 

**2.****             ****SignificantAccounting Policies**

 

(a)****Basis of presentation

 

The accompanyinginterim unaudited consolidated financial statements have been prepared bymanagement in accordance with accounting principles generally accepted in theUnited States (“GAAP”), and include all assets, liabilities, revenues andexpenses of the Company and its wholly owned subsidiaries: World Heart Inc. andWorld Heart B.V.  All materialinter-company transactions and balances have been eliminated.  These interim, unaudited consolidated financialstatements follow the same accounting policies and methods of their applicationas the Company’s audited consolidated financial statements for the year endedDecember 31, 2004.  These interimunaudited consolidated financial statements do not conform in all respects tothe requirements of GAAP for annual financial statements.  These condensed notes to the interimunaudited consolidated financial statements should be read in conjunction withthe audited consolidated financial statements and notes for the year ended December31, 2004.  In the opinion of management,these interim unaudited consolidated financial statements reflect all normaland recurring adjustments considered necessary to state fairly the results forthe periods presented.

 

Thepreparation of these interim unaudited consolidated financial statements inconformity with GAAP requires management to make estimates and assumptions thataffect the amounts reported in the unaudited consolidated financial statementsand the accompanying notes. Actual results could differ from these estimatesand the operating results for the interim periods presented are not necessarilyindicative of the results expected for the full year.

** **

**3.     ConvertibleDebentures and Warrants**

 

On July 29,2005, the Company completed the acquisition of the assets MedQuest Products, Inc.(“MedQuest”).  As part of thistransaction, the Company issued tender offers to the holders of its unsecuredconvertible debentures (the “Debentures”) and the holders of its common stockpurchase warrants (the “Warrants”).  Theholders of the Debentures unanimously agreed, to convert all of the outstandingDebentures at the stated conversion price of $1.25 per common share and theholders of the Warrants unanimously agreed, following shareholder approval onJuly 18, 2005 to reduce the Warrant exercise price from $1.55 to $1.00 pershare, to exercise the 10,655,000 Warrants into 10,655,000 common shares.  The accrued interest on the Debentures wasalso converted into an additional 236,097 common shares at a conversion priceequal to the market price at the date of conversion.  (See Note 6)

 

The Companyhad issued the Debentures and the Warrants (which were issued as detachablewarrants in conjunction with the Debenture issue) on September 15, 2004resulting in net proceeds of $12,101,668 after share issue costs of$1,217,082.  The Debentures, which wouldhave become due on September 15, 2009, were convertible at any time at theholder’s’ option into common shares of the Company at a price of $1.25 pershare and accumulated non-compounding interest at an annual rate of 3%. Theinterest was convertible at any time into common shares of the Company at aprice based on the five day weighted average trading price immediately prior toconversion.

 

The Companycould have redeemed the Debentures when the trading price of the Company’scommon shares was greater than $3.00 for 20 consecutive days, subject to amaximum of 20% of the initially issued Debentures in any 90-day period.  The Warrants allowed the holders to purchase10,655,000 common shares of the Company at an exercise price of $1.55 per shareand were exercisable for a period of five years.  WorldHeart could have called the Warrantswhen the trading price of the Company’s common shares was greater than $4.50for 20 consecutive trading days, subject to a maximum of 20% of the initiallyissued Warrants in any 90-day period.

 

6

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**4.   Stock-basedCompensation**

 

The Company accounts for its stock option plan in accordance with the Financial AccountingStandards Board’s (“FASB”) Statement of Financial Accounting Standards (“SFAS”)No. 123, “Accounting for Stock Based Compensation”,which requires companies to recognize as expense, over the vesting period, thefair value of all stock-based awards on the date of grant or to continue toapply the provisions of Accounting Principles Board (“APB”) OpinionNo. 25, “Accounting for Stock Issued to Employees” andprovide pro forma net income and pro forma income per share disclosures as ifthe fair value based method defined in SFAS No. 123 had been applied tostock-based awards.  The Company followsthis alternative method.

 

The estimated share-based compensation costs based on stock optionsgranted to directors and employees and the pro forma net loss and loss pershare are as follows:

 
| ** **                                        | ** ** | **Three months ended  June 30, 2005** | ** ** | **Three months ended  June 30, 2004** | ** ** | **Six months ended  June 30, 2005** | ** ** | **Six months ended  June 30, 2004** | ** ** |
|---------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|
| Net loss for the period                           |       | $                                               | (4,642,741 | )                                               | $          | (5,402,792                                    | )          | $                                             | (8,585,137 | ) | $ | (8,912,399 | ) |
| Share-based compensation  costs                   |       | 317,584                                         |       | 599,980                                         |       | 649,304                                       |       | 1,217,483                                     |       |
| Adjusted pro forma net  loss                      |       | $                                               | (4,960,325 | )                                               | $          | (6,002,772                                    | )          | $                                             | (9,234,441 | ) | $ | (10,129,882 | ) |
| Reported basic and diluted loss per common share  |       | $                                               | (0.27      | )                                               | $          | (0.35                                         | )          | $                                             | (0.51      | ) | $ | (0.59 | ) |
| Share-based compensation costs per common share   |       | (0.02                                           | )          | (0.04                                           | )          | (0.04                                         | )          | (0.08                                         | )          |
| Pro forma basic and diluted loss per common share |       | $                                               | (0.29      | )                                               | $          | (0.39                                         | )          | $                                             | (0.55      | ) | $ | (0.67 | ) |
|                                                   |            |                                                 |            |                                                 |            |                                               |            |                                               |            |  |  |  |  |  |  |  |

 

On September23, 2004, the Company conditionally granted 2,383,725 options to purchasecommon shares of the Company to employees, officers, directors, andconsultants, subject to shareholder approval of an increase in the number ofoptions available under the employee stock option plan.  Shareholder approval occurred on July 18,2005.  These options have an exercise price of$1.12 per share, except for 215,000 options which have an exercise price of Cdn$1.43 per share.  The options vest onethird on each of the first, second and third anniversaries of the date of grantand expire on September 22, 2013.  Inaddition, on January 31, 2005 the Company conditionally granted 3,418,750options to purchase common shares of the Company to employees, officers,directors and consultants, with 1,309,500 of these options reserved for newofficers and employees.  These grantswere also subject to shareholder approval of an increase inthe number of options available under the employee stock option plan.  Shareholder approval occurred on July 18,2005.  The options granted on January 31,2005 havean exercise price of $1.48 per share, vest one third on each of the first,second and third anniversaries of the date of grant and expire six years aftereach vesting date.  The share-basedcompensation costs and the adjusted pro forma net loss above do not include thecharges related to the options conditionally granted by the Company.  These options will be measured and theresulting compensation cost will be recorded in the periods followingshareholder approval.

 

The Companydid not have any new option issuances requiring measurement during the sixmonths ended June 30, 2005.  The weightedaverage fair value of options issued during the three and six months ended June30, 2004 was $4.44.  The fair values ofoptions granted are determined using the Black-Scholes model.  For the three months and six months endedJune 30, 2004, the following weighted average assumptions were utilized:

 
| ** **                      | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|---------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                      | ** ** | **June 30, 2004**                | ** ** | **June 30, 2004**              | ** ** |
| Expected option life, in  years |       | 6                                |       | 6                              |       |
| Volatility                      |       | 73                               | %          | 73                             | %          |
| Risk free interest rate         |       | 4.00                             | %          | 4.00                           | %          |
| Dividend yield                  |       | Nil                              |       | Nil                            |       |

 

 

**5.   Restructuring**

 

On August 25,2004, the Company approved a plan to consolidate its Ottawa, Ontario operationsinto its facilities in Oakland, California where the Novacor® LVAS ismanufactured.  The consolidation of theNorth American operations into one location has reduced ongoing businessexpenses and management expects it will continue to improve the Company’soperational efficiency and effectiveness. The majority of the consolidation was completed by the end of June 2005.

 

 

7

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Theamounts accrued and expensed to date are as follows:

 
| ** **                                                  | ** ** | **Employee  severance** | ** ** | **Contract  settlement** | ** ** | **Write  down** | ** ** | **Other** | ** ** | **Total**  | ** ** |
|-------------------------------------------------------------|------------|-------------------------|------------|--------------------------|------------|-----------------|------------|-----------|------------|------------|------------|
|                                                        |       |                    |       |                     |       |            |       |      |       |       |       |
| Costs accrued during 2004                                   |       | $                       | 1,396,037  |                     | $          | 57,653          |       | $         | 338,595    |       | $          | 22,509 |   | $ | 1,814,794 |   |
| Costs paid or settled in 2004                               |       | (795,923                | )          | —                   |       | (338,595        | )          | (8,624    | )          | (1,143,142 | )          |
| Balance in accrued liabilities as at December 31, 2004 |       | 600,114                 |       | 57,653                   |       | —          |       | 13,885    |       | 671,652    |       |
|                                                        |       |                    |       |                     |       |            |       |      |       |       |       |
| Costs accrued during the period                             |       | 110,539                 |       | —                   |       | (3,546          | )          | 22,505    |       | 129,498    |       |
| Costs paid or settled in the period                         |       | (674,414                | )          | —                   |       | 3,546           |       | (20,518   | )          | (691,386   | )          |
| Balance in accrued liabilities as at March 31, 2005    |       | 36,239                  |       | 57,653                   |       | —          |       | 15,872    |       | 109,764    |       |
|                                                        |       |                    |       |                     |       |            |       |      |       |       |       |
| Costs accrued during the period                             |       | 20,186                  |       | 192,012                  |       | (3,255          | )          | 2,962     |       | 211,905    |       |
| Costs paid or settled in the period                         |       | (56,425                 | )          | —                   |       | 3,255           |       | —    |       | (53,170    | )          |
| Balance in accrued liabilities as at June 30, 2005     |       | —                  |       | $                        | 249,665    |            | $          | —    |       | $          | 18,834     |   | $ | 268,499 |   |
|                                                             |            |                         |            |                          |            |                 |            |           |            |            |            |  |  |  |  |  |  |  |  |

 

**6.   Subsequent Events**

 

On January 31,2005, the Company announced a definitive agreement to concurrently: acquire allthe assets of MedQuest for 9,300,000 common shares; issue 8,888,889 commonshares, through a private placement to Maverick Venture Management, LLC (“Maverick”),for gross proceeds of $12,000,000 (the “Private Placement”); convert all of itsoutstanding Debentures; and issue 10,655,000 common shares upon the exercise of10,655,000 Warrants for gross proceeds of $10,655,000.  Upon approval by shareholder vote on July 18,2005 and unanimous tendering of the Debentures and Warrants, the Companysuccessfully completed the MedQuest asset acquisition and the Private Placementin July 2005.

 

The Companywill begin consolidating the results of operations of MedQuest in its financialstatements from the date the transaction was consummated.  This is expected to result in a one-timecharge to earnings for the value of the In-Process Research and Developmentacquired of approximately $17 million in the period ended September 30, 2005and an increase in the Company’s loss per quarter of approximately $1.2 millionto reflect the research and development costs and additional general andadministrative costs associated with MedQuest.

 

8

----

 

**7.     Canadian AccountingPrinciples**

 

The interim unaudited consolidated financial statements have beenprepared in accordance with U.S. GAAP. These principles differ, as they affect the Company, for the three and sixmonth periods ended June 30, 2005 and for the balance sheets as at June 30,2005 and December 31, 2004, in the following material respects from CanadianGAAP.  There are no differences inreported cash flows for the periods presented.

 

(a)           Balance sheets—Canadian GAAP

 
| ** **                                            | ** ** | **June 30, 2005** | ** ** | **December 31, 2004** | ** ** |
|-------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **                                            | ** ** | **(unaudited)**             | ** ** | ** **                      | ** ** |
| **ASSETS**                                            |       |                        |       |                            |       |
| Current assets                                        |       | $                           | 14,239,921 |                            | $          | 21,743,636 |   |
| Long-term receivable                                  |       | —                      |       | 318,553                         |       |
| Deferred financing and transaction costs              |       | 1,063,854                   |       | —                          |       |
| Cash pledged as collateral for lease                  |       | 750,000                     |       | 750,000                         |       |
| Capital assets                                        |       | 1,772,509                   |       | 2,011,586                       |       |
| Goodwill and intangible assets                        |       | 17,179,643                  |       | 17,434,655                      |       |
| **Total Assets**                                      |       | $                           | 35,005,927 |                            | $          | 42,258,430 |   |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY**        |       |                        |       |                            |       |
| Current liabilities                                   |       | $                           | 8,309,004  |                            | $          | 7,637,819 |   |
| Convertible debentures(1)                             |       | 3,399,892                   |       | 2,530,659                       |       |
| Long-term obligation                                  |       | —                      |       | 16,368                          |       |
| **Total Liabilities**                                 |       | 11,708,896                  |       | 10,184,846                      |       |
| **Shareholders’ equity  (deficiency)**           |       |                        |       |                            |       |
| Common shares (2)                                     |       | 188,194,744                 |       | 187,027,058                     |       |
| Contributed surplus(1)                                |       | 22,710,529                  |       | 22,871,780                      |       |
| Cumulative translation adjustment                     |       | (6,490,185                  | )          | (6,490,184                      | )          |
| Accumulated deficit(1)(2)                             |       | (181,118,057                | )          | (171,335,070                    | )          |
| **Total Shareholders’ equity**                   |       | 23,297,031                  |       | 32,073,584                      |       |
| **Total Liabilities & Shareholders’ equity** |       | $                           | 35,005,927 |                            | $          | 42,258,430 |   |
|                                                       |            |                             |            |                                 |            |  |  |  |  |

 

 

(b)          Statements of loss—CanadianGAAP

 
| ** **                                                    | ** ** | **Three months ended**      | ** ** | **Six months ended**        | ** ** |
|---------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                    | ** ** | **June 30, 2005** | ** ** | **June 30, 2004** | ** ** | **June 30, 2005** | ** ** | **June 30, 2004** | ** ** |
| ** **                                                    | ** ** | **(unaudited)**             | ** ** | **(unaudited)**             | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
|                                                          |       |                        |       |                        |       |   |   |   |   |
| **Net loss for the period in accordance with U.S.  GAAP**     |       | $                           | (4,642,741 | )                           | $          | (5,402,792 | ) | $ | (8,585,137 | ) | $ | (8,912,399 | ) |
| **Adj to reconcile to Canadian  GAAP:**                       | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Non-cash share-based compensation costs(3)                    |       | 320,721                     |       | 599,980                     |       | 652,441 |   | 1,217,483 |   |
| Interest and accretion on convertible debentures(1)           |       | 261,372                     |       | —                      |       | 535,238 |   | — |   |
| **Net loss for the period in accordance with  Canadian GAAP** |       | $                           | (5,224,834 | )                           | $          | (6,002,772 | ) | $ | (9,772,816 | ) | $ | (10,129,882 | ) |
| ** **                                                    |       |                        |       |                        |       |   |   |   |   |
| **Weighted average number of common shares  outstanding**     |       | 17,101,359                  |       | 15,273,689                  |       | 16,830,658 |   | 15,195,392 |   |
|                                                          |       |                        |       |                        |       |   |   |   |   |
| **Basic and diluted loss per common share**                   |       | $                           | (0.31      | )                           | $          | (0.39 | ) | $ | (0.58 | ) | $ | (0.67 | ) |
|                                                               |            |                             |            |                             |            |  |  |  |  |  |  |  |  |  |  |  |

 

9

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(c)           Footnotes

 

(1)          Under U.S. GAAPthe proceeds of the issue of the Debentures were allocated between theDebentures, the Warrants, and the beneficial conversion feature based on theirrelative fair values.  The value of theWarrants and the beneficial conversion feature were recorded in additionalpaid-in capital.  On September 16, 2004,the earliest possible exercise date, the full value of the beneficialconversion feature was charged to interest expense.  Under Canadian GAAP the proceeds of the issuewere allocated based on the relative fair values of the Debentures, theWarrants and the conversion option.  Thenet proceeds were allocated as follows:

 
| ** **             | ** ** | **September 15, 2004** | ** ** |
|------------------------|------------|------------------------|------------|
|                   |       |                   |       |
| Convertible Debentures |       | $                      | 1,734,350  |   |
| Warrants               |       | 4,504,127              |       |
| Conversion feature     |       | 5,863,191              |       |
| Total                  |       | $                      | 12,101,668 |   |
|                        |            |                        |            |  |  |

 

The value allocated to the debentures will accrete tothe cash value at maturity at the effective interest rate.  Due to the conversion of Debentures and therelated accrued interest during the six months ended June 30, 2005, under U.S.GAAP $1,050,622 was transferred from convertible Debentures and $73,825 wastransferred from additional paid-in capital to common shares.  Under Canadian GAAP, the amount transferredfrom convertible Debentures was $353,996 and from contributed surplus was$813,693.

 

(2)          The difference between theissue price and initial public offering (IPO) price of shares issued within aone-year period prior to the IPO is generally accounted for as an expense andcharged against earnings for the period with a corresponding and equal amountrecorded as paid-in capital.  There is nocorresponding requirement under Canadian GAAP. The difference of $27,545,779 related to the Company’s IPO in 1996increases the common shares and accumulated deficit reported under U.S. GAAP,with no difference reported in total shareholders’ equity.

 

(3)          Under U.S. GAAP, the Companyaccounts for its stock option plan in accordance with APB Opinion No. 25 andprovides pro forma net income and pro forma income per share disclosure as ifthe fair value based method as defined in SFAS No. 123 had been applied tostock-based awards.  Under Canadian GAAP,the Company accounts for its stock option plan in accordance with the CanadianInstitute of Chartered Accountants (“CICA”) Handbook section 3870, “Stock-basedCompensation and Other Stock-based Payments”, which requires entities toaccount for employee stock options using the fair value based method, wherecompensation cost is measured at fair value at the date of grant and isexpensed over the stock-based awards vesting period.

 

**8.     New AccountingPronouncements**

 

During 2004, the FASB issued SFAS No. 123R, requiringcompanies to recognize employee stock-based compensation using the fair valuebased method.   The provisions ofFASB No. 123R will be effective for years beginning on or afterJanuary 1, 2006.  The Company planson adopting these new pronouncements in 2006.

 

10

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**ITEM2.   MANAGEMENT’S DISCUSSION and ANALYSIS**

 

**INTRODUCTION**

 

World Heart Corporation and its subsidiaries are collectively referredto as “WorldHeart”.  The followingManagement Discussion and Analysis of Financial Condition and Results ofOperations (“MD&A”) was prepared by management as of August 4, 2005, wasapproved by the Board of Directors and is an update of our discussion andanalysis for the three month period ended December 31, 2004.  This MD&A discusses material changes inWorldHeart’s financial condition and results of operations and cash flows forthe three and six months ended June 30, 2005. Such discussion and comments on the liquidity and capital resourcesshould be read in conjunction with the information contained in WorldHeart’saudited consolidated financial statements for the year ended December 31, 2004,prepared in accordance with accounting principles generally accepted in theUnited States (“GAAP”) included in our Annual Report on Form 10 – KSB/Afor the fiscal year ended December 31, 2004. Significant differences between Canadian GAAP and U.S. GAAP arepresented in Note 7 to the interim unaudited consolidated financial statementsfor the three and six months ended June 30, 2005.  In this discussion, all amounts are in UnitedStates dollars (“U.S. dollars”) unless otherwise stated.

 

The discussion and comments contained hereunder include both historicalinformation and forward-looking information. The forward-looking information, which generally is information statedto be anticipated, expected, or projected by management, involves known andunknown risks, uncertainties and other factors that may cause the actualresults and performance to be materially different from any future results andperformance expressed or implied by such forward-looking information.  Potential risks and uncertainties include,without limitation, numerous uncertainties inherent in the development of newproducts for use in the human body, WorldHeart’s need to establishreimbursement mechanisms and product acceptance from third-party payers,extensive government regulation of our products, rapid developments intechnology, including developments by competitors, lack of anticipatedsynergies and efficiencies related to the MedQuest Products, Inc. (“MedQuest”)acquisition and the need for and ability to raise additional funding.

 

**OVERVIEW**

 

WorldHeart is a global medicaldevice company currently focused on the development and commercialization ofimplantable ventricular assist devices (“VADs”), which are mechanicalpumps that allow for the restoration of normal blood circulation to patientssuffering from late-stage congestive heart failure.  WorldHeart hasfacilities in Oakland, California, Salt Lake City, Utah and Heesch,Netherlands.  During the second quarter 2005,we consolidated the Ottawa operations into our Oakland facility.  WorldHeart currently derives substantiallyall of its revenue from its Novacor LVAS (left ventricular assist system) and related peripheral equipment whichit manufactures in Oakland and sells directly to medical clinics and hospitalsin the United States, most of Europe and Canada and through a distributor inJapan and certain other countries.

 

The Novacor LVAS is commercially approved as a bridge totransplantation device in the United States and Canada.  In Europe, the Novacor LVAS has unrestrictedapproval for use as an alternative to transplantation, a bridge totransplantation, and to support patients who may have an ability to recover theuse of their natural heart.  In Japan,the device is commercially approved for use in cardiac patients at risk ofimminent death from non-reversible left ventricular failure for which there isno alternative except heart transplantation.

 

WorldHeart is conducting a long-term use (“Destination Therapy”)pivotal trial in the United States called RELIANT (Randomized Evaluationof the Novacor LVAS in aNon-TransplantPopulation).  Data from the RELIANT Trialis expected to support a Pre-market Approval Supplement that will requestapproval for the use of the Novacor LVAS by non-transplant eligible orDestination Therapy patients in the United States.

 

WorldHeart is developing a next-generation small implantable pulsatileVAD (the “Novacor II”) and has recently acquired MedQuest’s technology anddevelopment programs associated with a magnetically levitated centrifugalrotary VAD.   Development work on theNovacor II continues with a successful initial animal implant completed in July2005, and further animal trials planned for late 2005 and human trials beginningin 2007.  Pre-clinical animal testing ofthe MedQuest rotary VAD is underway and an initial feasibility clinical studyis planned by early 2006.

 

11

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**SUMMARY OFQUARTERLY RESULTS**

 
| ** **                                 | ** ** | **Three months ended**      | ** ** |
|--------------------------------------------|------------|-----------------------------|------------|
| ** **                                 | ** ** | **June 30, 2005** | ** ** | **March 31, 2005** | ** ** | **December 31, 2004** | ** ** | **September 30, 2004** | ** ** |
| Net revenue                                |       | $                           | 2,449,178  |   | $ | 3,416,988 |   | $ | 2,986,980 |   | $ | 2,250,050 |   |
| Net loss                                   |       | (4,642,741                  | )          |   | (3,942,396 | ) |   | (5,608,818 | ) |   | (11,620,584 | ) |
| Net loss applicable to common shareholders |       | (4,642,741                  | )          | (3,942,396 | ) | (6,293,510 | ) | (10,935,893 | ) |
| Basic and diluted loss per share           |       | $                           | (0.27      | ) | $ | (0.24 | ) | $ | (0.41 | ) | $ | (0.71 | ) |
|                                       |       |                        |       |   |   |   |   |   |   |
| ** **                                 | ** ** | **Three months ended**      | ** ** |
| ** **                                 | ** ** | **June 30, 2004** | ** ** | **March 31, 2004** | ** ** | **December 31, 2003** | ** ** | **September 30, 2003** | ** ** |
| Net revenue                                |       | $                           | 2,146,388  |   | $ | 2,192,343 |   | $ | 559,704 |   | $ | 2,023,170 |   |
| Net loss                                   |       | (5,402,792                  | )          |   | (3,509,607 | ) |   | (4,846,928 | ) |   | (8,125,804 | ) |
| Net loss applicable to common shareholders |       | (5,402,792                  | )          | (3,509,607 | ) | (6,864,152 | ) | (9,222,682 | ) |
| Basic and diluted loss per share           |       | $                           | (0.35      | ) | $ | (0.23 | ) | $ | (0.47 | ) | $ | (2.24 | ) |
|                                            |            |                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

**RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDEDJUNE** **30,** **2005 COMPARED WITH THE THREE MONTH PERIOD ENDED JUNE** **30,** **2004**

 

## **Consolidated results of operations**

 
| ** **                           | ** ** | **Three months ended**      | ** ** |
|--------------------------------------|------------|-----------------------------|------------|
| ** **                           | ** ** | **June 30, 2005** | ** ** | **June 30, 2004** | ** ** |
|                                 |       |                        |       |   |   |
| **Revenue**                          |       | $                           | 2,449,178  |   | $ | 2,146,388 |   |
| **Cost of goods sold**               |       | (2,142,266                  | )          | (1,701,765 | ) |
| **Gross margin**                     |       | 306,912                     |       | 444,623 |   |
| **% of Revenue**                     |       | 13                          | %          | 21 | % |
|                                 |       |                        |       |   |   |
| Selling, general and  administrative |       | (3,017,330                  | )          | (3,802,357 | ) |
| Research and development             |       | (1,274,510                  | )          | (1,684,835 | ) |
| Restructuring costs                  |       | (211,905                    | )          | — |   |
| Amortization of  intangibles         |       | (127,513                    | )          | (129,166 | ) |
| Foreign exchange loss                |       | 7,093                       |       | (267,442 | ) |
| Investment income                    |       | 11,742                      |       | 33,887 |   |
| Interest and financing  expenses     |       | (337,230                    | )          | 2,498 |   |
| **Total Costs and Expenses**         |       | (4,949,653                  | )          | (5,847,415 | ) |
| **Net loss**                         |       | $                           | (4,642,741 | ) | $ | (5,402,792 | ) |
|                                      |            |                             |            |  |  |  |  |  |

 

**Revenue:** The sale of Novacor LVAS implant kits (“implantkits”) and related peripheral equipment and services accounts for substantiallyall of WorldHeart’s revenues.  WorldHeartprimarily sells its products directly, except for certain countries includingJapan, where we sell through distributors.

 

12

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The composition of revenue is as follows:

 
| ** **            | ** ** | **Three months  ended** | ** ** |
|-----------------------|------------|-------------------------|------------|
| ** **            | ** ** | **June 30,  2005**      | ** ** | **June 30,  2004** | ** ** |
| ** **            | ** ** | **$**                   | ** ** | **Units** | ** ** | **$** | ** ** | **Units** | ** ** |
| Implant kits          |       | 1,545,408               |       | 23 |   | 1,730,184 |   | 24 |   |
| Peripherals and other |       | 903,770                 |       |   |   | 416,204 |   |   |   |
| Revenue               |       | 2,449,178               |       |   |   | 2,146,388 |   |   |   |

 

Revenue for the second quarter of 2005 increased to approximately $2.45million representing an increase of 14% over the same quarter in 2004.  Novacor LVAS implant kit revenue decreased toapproximately $1.55 million for the three months ended June 30, 2005compared with approximately $1.73 million for the three months ended June 30,2004, representing a decrease of 11%. Implant kits recognized as revenue in the second quarter of 2005 totaled23 compared with 24 in the second quarter of 2004.  The revenue per implant kit was $67,192 inthe second quarter, up slightly from the revenue recognized per implant kit inthe first quarter of 2005, and down seven percent compared with the secondquarter of 2004.  We continue to providesome discount to new centers that are purchasing peripheral equipment alongwith their first implant kits.  We expectthe average revenue per implant kit to begin to increase as centers becomeenabled with the required peripheral equipment and increase implant volumeunder the RELIANT Trial.

 

As at March 31, 2005, 18 implant kits had been shipped and invoiced butdeferred as revenue as the transactions did not meet our revenue recognitioncriteria.  Revenue was recognize on threeof the prior deferred implant kits during the second quarter of 2005; however,revenue relating to 2 implant kits shipped and invoiced in the second quarterwas deferred at the time of shipment as the transactions did not meet ourrevenue recognition criteria, leaving 17 implant kits in deferred revenue atJune 30, 2005.  These kits, plus someundelivered components of multiple element transactions, have resulted indeferred revenue as at June 30, 2005 of approximately $1.4 million thatwill be recognized in future periods.

 

Peripherals and other revenues, including Novacor LVAS hardware andperipheral sales and services, were $904,000 and $416,000 for the three monthsended June 30, 2005 and June 30, 2004, respectively.  Weanticipate that the proportion of sales may shift from hardware, peripheral andservice sales to implant kit sales as centers enrolled in our RELIANT Trialincrease implant volume.

 

**Cost of goods sold:* ***For the three months ended June 30, 2005,the overall cost of goods sold increased to 87% of revenue from 79% for thethree months ended June 30, 2004. Although we continued to implement programs to reduce manufacturingcosts, we experienced greater production inefficiencies during the secondquarter of 2005, versus the comparable quarter last year, caused primarily byproduction volumes further below standard capacity resulting in higher NovacorLVAS manufacturing costs.  We expect ourcost per unit to remain at current high levels until we reach sustainableincreased production volumes.

 

**Gross Margin:* ***Gross margin for the three months endedJune 30, 2005 decreased to 13% of revenues from 21% of revenues for the threemonths ended June 30, 2004.  Thisdecrease was due primarily to production inefficiencies, as describedabove.  In addition, during the secondquarter of 2005, certain lower margin sales were made to new centers for theinitial equipment investment needed to begin a Novacor LVAS implant program atthose centers.  Improvement in grossmargin percentage is contingent on implementation of cost reduction programsand production volume increases.  Inaddition, we expect the effects of higher incentives on start-up equipmentinitially offered to certain new centers to decrease as the centers shift topurchasing implant kits in response to usage.

 

**Selling, general andadministrative: **Selling, general and administrativeexpenses consist primarily of salaries and related expenses, sales, marketing,accounting and administrative personnel, professional fees, travel expenses,promotional activities, customer service and technical support, insurances,facility costs and other general corporate expenses.

 

13

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Thecomposition of selling, general and administrative expenses is as follows:

 
| ** **                                          | ** ** | **Three months ended** | ** ** |
|-----------------------------------------------------|------------|------------------------|------------|
| ** **                                          | ** ** | **June 30, 2005**      | ** ** | **June 30, 2004** | ** ** |
|                                                |       |                   |       |   |   |
| Selling                                             |       | $                      | 1,617,472  |   | $ | 1,761,858 |   |
| General and administrative                          |       | 1,399,858              |       | 2,040,499 |   |
| Total: Selling, general  and administrative expense |       | $                      | 3,017,330  |   | $ | 3,802,357 |   |
|                                                     |            |                        |            |  |  |  |  |  |

 

Selling, general and administrative expenses for the three months endedJune 30, 2005 decreased by approximately $785,000 or 21% over the same periodin 2004.  Selling expenses decreased inthe second quarter of 2005, compared with the second quarter of 2004 despiteincreased sales personnel and our sales and marketing program initiatives inthe United States and Europe.  Generaland administrative expenses have decreased in the second quarter of 2005compared with the second quarter of 2004, primarily due to cost savingsassociated with the consolidation of our North American operations. Theseexpenses are expected to increase in the next several quarters resulting fromthe additional general and administrative expenses of MedQuest beginning inAugust 2005, and costs associated with the implementation of Sarbanes-Oxleycompliance programs.

 

**Research and development:****Research and development expenses consist principallyof salaries and related expenses for development personnel, prototypemanufacturing, testing, clinical trial expenses, factory costs and regulatoryaffairs expenses.

 

Research and development expenses for the three months ended June 30,2005 decreased by $410,000 or 24% compared with the three months ended June 30,2004.  Lower research and developmentcosts for the second quarter of 2005 compared with the same period in 2004reflect the reduction in expenses due to the consolidation of the NorthAmerican operations.  Development work onthe next-generation Novacor II and MedQuest rotary VAD will increase inpreparation for initial animal and human clinical trials.

 

**Restructuring costs: **On August 25, 2004, we approved a plan to consolidate the Ottawa,Ontario operations into our facilities in Oakland, California where the NovacorLVAS is manufactured.  The consolidationof the North American operations into one location is expected to reduce ongoingbusiness expenses and improve operational efficiency and effectiveness. Themajority of the restructuring was completed by the end of June 2005.

 

Restructuring costs accrued and expensed to date are as follows:

 
| ** **                                             | ** ** | **Employee  severance** | ** ** | **Contract  settlement** | ** ** | **Write  down** | ** ** | **Other** | ** ** | **Total**  | ** ** |
|--------------------------------------------------------|------------|-------------------------|------------|--------------------------|------------|-----------------|------------|-----------|------------|------------|------------|
|                                                   |       |                    |       |                     |       |            |       |      |       |       |       |
| Costs accrued during 2004                              |       | $                       | 1,396,037  |                     | $          | 57,653          |       | $         | 338,595    |       | $          | 22,509 |   | $ | 1,814,794 |   |
| Costs paid or settled in 2004                          |       | (795,923                | )          | —                   |       | (338,595        | )          | (8,624    | )          | (1,143,142 | )          |
| Balance in accrued liabilities as at December 31, 2004 |       | 600,114                 |       | 57,653                   |       | —          |       | 13,885    |       | 671,652    |       |
|                                                   |       |                    |       |                     |       |            |       |      |       |       |       |
| Costs accrued during the period                        |       | 110,539                 |       | —                   |       | (3,546          | )          | 22,505    |       | 129,498    |       |
| Costs paid or settled in the period                    |       | (674,414                | )          | —                   |       | 3,546           |       | (20,518   | )          | (691,386   | )          |
| Balance in accrued liabilities as at March 31, 2005    |       | 36,239                  |       | 57,653                   |       | —          |       | 15,872    |       | 109,764    |       |
|                                                   |       |                    |       |                     |       |            |       |      |       |       |       |
| Costs accrued during the period                        |       | 20,186                  |       | 192,012                  |       | (3,255          | )          | 2,962     |       | 211,905    |       |
| Costs paid or settled in the period                    |       | (56,425                 | )          | —                   |       | 3,255           |       | —    |       | (53,170    | )          |
| Balance in accrued liabilities as at June 30, 2005     |       | —                  |       | $                        | 249,665    |            | $          | —    |       | $          | 18,834     |   | $ | 268,499 |   |
|                                                        |            |                         |            |                          |            |                 |            |           |            |            |            |  |  |  |  |  |  |  |  |  |

 

14

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Duringthe three months ended June 30, 2005, actual restructuring costs ofapproximately $212,000 have been recorded. Employee severance costs that have been recorded represent the amountsemployees have earned to June 30, 2005. Various contract settlement costs, primarily Ottawa facility related,were recorded when notice was provided that the contract was being terminatedand WorldHeart ceased to use the right conveyed under the contract.  We provided these notices in the secondquarter of 2005 with a cease use date of June 30, 2005.  The capital assets were written down to theirnet realizable value when the decision was made to consolidate the North Americanoperations and it was determined that the carrying value of the capital assetswas impaired.

 

**Amortization of intangibles:**  Amortization of intangibles for the threemonths ended June 30, 2005 was $128,000. The majority of the intangible assets arose from the purchase of theNovacor business in June 2000, and have been amortized on a straight-linebasis.  As at June 30, 2005, these assetsreached the end of their original estimated useful life and have been fullyamortized.

 

**Foreign Exchange:**Foreign exchangetransactions resulted in a gain of approximately $7,000 for the period endingJune 30, 2005 compared with a  $267,000expense for the three-month period ending June 30, 2004.  The change was due primarily to thestrengthening of the U.S. dollar this year. Exchange gains or losses are expected to diminish in the future with thewinding down of our Canadian operations.

 

**Interest expense and financing costs: **During the three monthsended June 30, 2005, interest and financing costs were $337,000 comparedwith  $2,500 gain during the three monthsended June 30, 2004.  Interest expenseand financing costs for the three months ended June 30, 2005, consisted mainlyof the interest and accretion related to convertible debentures.  All outstanding debentures were converted inJuly 2005 and will result in a significant reduction in the third quarter andelimination of these non-cash interest changes in future reporting periods.

 

 

 

**RESULTS OF OPERATIONS FOR THE SIX MONTH PERIOD ENDEDJUNE** **30,** **2005 COMPARED WITH THE SIX MONTH PERIOD ENDED JUNE** **30,** **2004**

 

## **Consolidated results of operations**

 
| ** **                           | ** ** | **Six months ended** | ** ** |
|--------------------------------------|------------|----------------------|------------|
| ** **                           | ** ** | **June 30, 2005**    | ** ** | **June 30, 2004** | ** ** |
|                                 |       |                 |       |   |   |
| **Revenue**                          |       | $                    | 5,866,166  |   | $ | 4,338,731 |   |
| **Cost of goods sold**               |       | (4,253,968           | )          | (2,880,162 | ) |
| **Gross margin**                     |       | 1,612,198            |       | 1,458,569 |   |
| **% of Revenue**                     |       | 27                   | %          | 34 | % |
|                                 |       |                 |       |   |   |
| Selling, general and  administrative |       | (6,463,159           | )          | (6,837,802 | ) |
| Research and development             |       | (2,462,068           | )          | (3,030,403 | ) |
| Restructuring costs                  |       | (341,403             | )          | — |   |
| Amortization of  intangibles         |       | (255,027             | )          | (258,332 | ) |
| Foreign exchange loss                |       | (17,279              | )          | (367,909 | ) |
| Investment income                    |       | 32,240               |       | 124,684 |   |
| Interest and financing  expenses     |       | (690,639             | )          | (1,206 | ) |
| **Total Costs and Expenses**         |       | (10,197,335          | )          | (10,370,968 | ) |
| **Net loss**                         |       | $                    | (8,585,137 | ) | $ | (8,912,399 | ) |
|                                      |            |                      |            |  |  |  |  |  |  |

 

**Revenue:** The sale of Novacor LVAS implant kits andrelated peripheral equipment and services accounts for substantially all ofWorldHeart’s revenues.  WorldHeartprimarily sells its products directly, except for certain countries, includingJapan, where we sell through distributors.

 

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The composition of revenue is as follows:

 
| ** **            | ** ** | **Six months  ended** | ** ** |
|-----------------------|------------|-----------------------|------------|
| ** **            | ** ** | **June 30,  2005**    | ** ** | **June 30,  2004** | ** ** |
| ** **            | ** ** | **$**                 | ** ** | **Units** | ** ** | **$** | ** ** | **Units** | ** ** |
| Implant kits          |       | 3,691,734             |       | 55 |   | 3,459,450 |   | 50 |   |
| Peripherals and other |       | 2,174,432             |       |   |   | 879,281 |   |   |   |
| Revenue               |       | 5,866,166             |       |   |   | 4,338,731 |   |   |   |

 

Revenue during the first six months of 2005 increased approximately$1.5 million representing an increase of 35% over the same period in 2004.  Novacor LVAS implant kit revenue increased by7% to approximately $3.7 million for the six months ended June 30, 2005compared with approximately $3.5 million for the six months ended June 30,2004.  Implant kits recognized as revenuefor the six months ended June 30, 2005 totaled 55 compared with 50 during thesame period of 2004.  The revenue perimplant kit decreased approximately 3% during the six months ended June 30,2005 compared with the same period in 2004. We expect the average revenue per implant kit to increase as centersbecome enabled with the required peripheral equipment and increase implant volume under the RELIANTTrial.

 

Peripherals and other revenues, including Novacor LVAS hardware andperipheral sales and services, for the six months ended June 30, 2005,were approximately $2.2 million, which represents an increase of 147% overperipherals and other revenue of approximately $879,000 recorded in the periodended June 30, 2004.  This increaserelates to the sale of required peripheral equipment to new medical centersjoining the RELIANT Trial. We anticipatethat the proportion of sales may shift from hardware, peripheral and servicesales to implant kit sales as centers enrolled in our RELIANT Trial increaseimplant volume.

 

**Cost of goods sold:* ***For the six months ended June 30, 2005, theoverall cost of goods sold increased to 73% of revenue compared with 66% in thesix months ended June 30, 2004.  Weexperienced greater production inefficiencies during the first half of 2005versus the first half of 2004 caused by supply shortages associated with theacceptance process for components being manufactured by new suppliers andproduction volumes well below capacity. This resulted in higher Novacor LVAS manufacturing costs.  We expect the cost per unit to remain atcurrent high levels for the rest of this year with subsequent decreases as wecontinue to address the supply issues and increase production volumes.

 

**Gross Margin:* ***Gross margin for the six months endedJune 30, 2005 decreased to 27% of revenues from 34% of revenues for the six monthsended June 30, 2004.  This decrease wasdue in part to production inefficiencies, as described above.  In addition, during the first half of 2005,certain lower margin sales were made to new medical centers for the initialequipment investment needed to begin a Novacor LVAS implant program at thosecenters.  Improvement in gross marginpercentage is contingent on implementation of cost reduction programs, contractmanufacturing of some components and production volume increases.  In addition, we expect the effects of higherincentives on start-up equipment initially offered to certain new centers todecrease as the centers shift to purchasing implant kits in response to usage.

 

**Selling, general andadministrative: **Selling, general and administrative expensesconsist primarily of salaries and related expenses, sales, marketing,accounting and administrative personnel, professional fees, travel expenses,promotional activities, customer service and technical support, insurances,facility costs and other general corporate expenses.

 

The composition of selling, general and administrative expenses is asfollows:

 
| ** **                                          | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------------|------------|----------------------|------------|
| ** **                                          | ** ** | **June 30, 2005**    | ** ** | **June 30, 2004** | ** ** |
|                                                |       |                 |       |   |   |
| Selling                                             |       | $                    | 3,335,204  |   | $ | 3,124,454 |   |
| General and administrative                          |       | 3,127,955            |       | 3,713,348 |   |
| Total: Selling, general  and administrative expense |       | $                    | 6,463,159  |   | $ | 6,837,802 |   |

 

Selling expenses for the six months ended June 30, 2005 increased byapproximately $211,000, or 7%, over the same period in 2004.  General and administrative expenses decreasedin the first half of 2005 compared with the first half of 2004 primarily due tocost savings associated with the consolidation of our North Americanoperations. These expenses are expected to increase in the next

 

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several quarters resulting from the additional general andadministrative expenses of MedQuest beginning in August 2005, and costsassociated with the implementation of Sarbanes-Oxley compliance programs.

 

**Researchand development:* ***Research and development expenses consist principallyof salary and related expenses for development personnel, prototypemanufacturing, testing, clinical trial expenses and factory costs.  Research and development expenses for the sixmonths ended June 30, 2005 decreased by approximately $568,000 or 19% comparedwith the six months ended June 30, 2004.

 

Lowerresearch and development costs for the first six months of 2005, compared withthe same period in 2004, reflect the reduction in expenses due to the consolidationof our North American operations. Development work on the next-generation Novacor II and MedQuest rotaryVAD will increase in preparation for initial animal and human clinical trials.

 

Investment taxcredits for the six months ended June 30, 2004 totalled approximately $137,000and relate to Canadian provincial government assistance received.  We continue to review various tax creditprograms but only record a credit when collection of the claim is reasonablyassured.

 

**Restructuring costs: **On August 25,2004, we approved a plan to consolidate the Ottawa, Ontario operations into ourfacilities in Oakland, California where the Novacor LVAS is manufactured.  The consolidation of the North Americanoperations into one location has already reduced, and is expected to continueto reduce, ongoing business expenses and improve operational efficiency andeffectiveness. The majority of the restructuring was completed by the end ofJune 2005.

 

Restructuring costs accrued and expensed to date are as follows:

 
| ** **                                             | ** ** | **Employee severance** | ** ** | **Contract settlement** | ** ** | **Write  down** | ** ** | **Other** | ** ** | **Total**  | ** ** |
|--------------------------------------------------------|------------|------------------------|------------|-------------------------|------------|-----------------|------------|-----------|------------|------------|------------|
|                                                   |       |                   |       |                    |       |            |       |      |       |       |       |
| Costs accrued during 2004                              |       | $                      | 1,396,037  |                    | $          | 57,653          |       | $         | 338,595    |       | $          | 22,509 |   | $ | 1,814,794 |   |
| Costs paid or settled in 2004                          |       | (795,923               | )          | —                  |       | (338,595        | )          | (8,624    | )          | (1,143,142 | )          |
| Balance in accrued liabilities as at December 31, 2004 |       | 600,114                |       | 57,653                  |       | —          |       | 13,885    |       | 671,652    |       |
|                                                   |       |                   |       |                    |       |            |       |      |       |       |       |
| Costs accrued during the period                        |       | 110,539                |       | —                  |       | (3,546          | )          | 22,505    |       | 129,498    |       |
| Costs paid or settled in the period                    |       | (674,414               | )          | —                  |       | 3,546           |       | (20,518   | )          | (691,386   | )          |
| Balance in accrued liabilities as at March 31, 2005    |       | 36,239                 |       | 57,653                  |       | —          |       | 15,872    |       | 109,764    |       |
|                                                   |       |                   |       |                    |       |            |       |      |       |       |       |
| Costs accrued during the period                        |       | 20,186                 |       | 192,012                 |       | (3,255          | )          | 2,962     |       | 211,905    |       |
| Costs paid or settled in the period                    |       | (56,425                | )          | —                  |       | 3,255           |       | —    |       | (53,170    | )          |
| Balance in accrued liabilities as at June 30, 2005     |       | —                 |       | $                       | 249,665    |            | $          | —    |       | $          | 18,834     |   | $ | 268,499 |   |
|                                                        |            |                        |            |                         |            |                 |            |           |            |            |            |  |  |  |  |  |  |  |

 

During the six months ended June 30, 2005, actual restructuring costsof approximately $341,000 have been recorded. Employee severance costs represent the amounts employees have earned toJune 30, 2005.  Various contractsettlement costs, primarily Ottawa facility related, were recorded when noticewas provided that the contract was being terminated and WorldHeart ceased to usethe right conveyed under the contract. We provided these notices in the second quarter of 2005 with a cease usedate of June 30, 2005.  The capitalassets were written down to their net realizable value when the decision wasmade to consolidate the North American operations and it was determined thatthe carrying value of the capital assets was impaired.

 

**Amortization of intangibles:**  Amortization of intangibles for the sixmonths ended June 30, 2005 was approximately $255,000 compared withapproximately $258,000 for the same period in 2004.  The majority of the intangible assets arosefrom the purchase of the Novacor business in June 2000.  As at June 30, 2005, these assets reached theend of their original estimated useful life and have been fully amortized.

 

**Interest expense and financing costs: **During the six months endedJune 30, 2005, interest and financing costs of approximately $691,000 wererecorded compared with an expense of approximately $1,000 during the six monthsended June 30, 2004.  Interest expenseand financing costs in the six months ended June 30, 2005, consisted mainly ofthe interest and accretion related to the

 

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convertibledebentures.  These non-cash interestcharges have been brought to an end with the completion of the MedQuestacquisition and conversion of the convertible debentures.  (See Note 6)

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

Historically, WorldHeart has funded losses from operations through thesale of equity and issuance of debt instruments.  Combined with revenues, these funds haveprovided us with the resources to operate our business, attract and retain keypersonnel, fund our research and development program and clinical trials, applyand obtain the necessary regulatory approvals and develop our technology andproducts.

 

**Liquidity**:  At June 30, 2005, we had cash and cashequivalents of approximately $1.8 million.   Net working capital was $5.9 million,including cash and cash equivalents.  AtMarch 31, 2005 cash, cash equivalents and short-term investments were$4.5 million and net working capital was $11.0 million.

 

Cash, cash equivalents and short-term investments decreased in thesecond quarter of 2005 by approximately $2.7 million.  This primarily related to cash used to fundoperating activities of approximately $2.4 million consisting primarily ofthe net loss for the period of $4.6 million offset by an increase in workingcapital of $1.4 million.  Working capitalchanges included a net increase of $1.2 million of accounts payable and accruedliabilities and an increase in accrued financing and transaction costs of$800,000 offset by a net decrease in trade and other receivables ofapproximately $1.6 million.

 

In July 2005, we completed the acquisition of the MedQuest assets.  MedQuest, based in Salt Lake City, Utah, isin the development stage of its HeartQuestTM ventricular assist device, amagnetically levitated centrifugal rotary blood pump.  As part of the acquisition transaction inJuly 2005, we completed a private placement to Maverick, issuing 8.9 millioncommon shares at $1.35 per share, for gross proceeds of $12 million.  The Company also raised $10.7 millionthrough the exercise of 10.7 million warrants at an exercise price of$1.00 per share. At August 1, 2005, after completion of the private placementand warrant exercise, offset by certain transaction costs, other operatingexpenses incurred in July 2005 and the repayment by MedQuest to Maverick of a$3.5 million bridge loan netted from the proceeds of the private placement, wehad approximately $20.0 million in cash and cash equivalents.  In addition, in July 2005, all of the Company’sdebenture holders converted their outstanding debentures, which had a value atmaturity of approximately $15 million, into common shares of the Company. Withthe completion of these transactions, we believe that we have adequateresources to fund operations into mid-year 2006.   We will likely be required to obtainadditional funding during the first half of 2006.

 

Our long-term working capital and capital requirements will depend uponnumerous factors, including the following: our continued focus on improvingcommercial operations; expanded sales of Novacor LVAS through higher averageselling prices and enrollment in the RELIANT Trial; decreasing production coststhrough a manufacturing cost reduction program; the rate of investment in ournext-generation technologies, including our Novacor II VAD and MedQuest rotaryVAD; the clinical trials costs and the approval process for the next-generationproducts; and our general efforts to improve operational efficiency andconserve cash including planned synergies from the MedQuest acquisition.

 

 

**OUTLOOK**

 

**Externalenvironment:**  Themarket for effective pharmacological, electro-physiological or devicetreatments for late-stage heart failure continues to grow, and despitesignificant progress on many fronts, no competitive breakthroughs have beenannounced or are believed to be imminent. The number of diagnosed heart failure patients is increasing as a resultof both population demographic trends, and also as a response to the increasingnumber of survivors from sudden cardiac events, many of whom subsequentlydevelop congestive heart failure.  Webelieve the potential market for heart assist devices continues to be approximately100,000 patients per annum in North America, Europe, Japan and certainother countries.

 

There is growing evidence of increasing clinical acceptance of the useof mechanical circulatory assist therapies in the treatment of late stage heartfailure, and on two separate occasions in March 2003 and May 2004,the Centers for Medicare and Medicaid Services (“CMS”) in theUnited States announced the extension of reimbursement coverage for bothbridge and destination therapy VAD use. These extensions have resulted in increased payments for proceduresusing such devices. These developments are expected to continue to acceleratethe use of VADs both in the United States and elsewhere.  Also, effective April 1, 2004,reimbursement in Japan for implantable VADs was approved. The Novacor LVAS isthe only approved device of its kind in Japan.

 

 

**CurrentProduct:** WorldHeart’snear-term commercial operations are exclusively focused on its Novacor LVASimplant and related equipment and support. Commercial success will therefore be dependant on our ability tocontinue to increase Novacor LVAS sales. Novacor LVAS is approved for use by eligible heart failure patientswithout limitation in Europe and Japan and as a bridge to transplant device inthe United States, Japan and Canada. WorldHeart commenced an equivalency clinical trial in the second quarterof 2004 in the United States called RELIANT in which patients will berandomized to receive either the Novacor LVAS or the 

 

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Thoratec HeartMate® XVE LVAS.  Itis expected that data from this clinical trial will support a Pre-marketApproval Supplement, which will be submitted to the United States Food andDrug Administration, for the use of the Novacor LVAS by non-transplant eligiblepatients (i.e., Destination Therapy). Implants under this trial areeligible for reimbursement by the CMS and certain private insurers.  We believe that approval of the Novacor LVASfor long-term or Destination Therapy use in the United States wouldincrease the market for the Novacor LVAS substantially.

 

**PulsatileVADs:** WorldHearthas several competitors with commercially approved pulsatile VADs having pumpsthat are externally located or abdominally implanted.  The devices that are developed by the Company’scompetitors are now primarily used as bridges to transplant, although oneproduct (Thoratec HeartMate® XVE) was approved in 2002 for a DestinationTherapy indication for use in the United States.  Some of WorldHeart’s existing known competitorshave significantly greater financial, production and marketing resources.  There can be no assurance that thedevelopment program, including pre-clinical and human clinical trials will besuccessful, completed on a timely basis or that the necessary regulatoryapprovals will be received.

 

**Non-pulsatileVADs: **In July 2005,WorldHeart completed the acquisition of MedQuest, including its rotary flow,centrifugal, magnetically levitated next generation VAD technology.  We expect initial feasibility clinical trialsfor the rotary VAD to begin early in 2006. However, there can be no assurance that the development program,including pre-clinical and human clinical trials, will be successful or thatthe necessary regulatory approvals will be received.

 

Research and development by WorldHeart’s competitors is proceeding forseveral next-generation non-pulsatile continuous flow assist devices.  Certain of these devices have received the CEMark in Europe and are advancing through clinical trials in the United Statesand Europe.  It has not been determinedwhether these non-pulsatile devices will be suitable for long-term use.

 

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

 

 

**NEWACCOUNTING PRONOUNCEMENTS**

 

In June 2001, the FASB issued SFAS No. 148,which amended thetransitional provisions of SFAS No. 123 for companies electing to recognizeemployee stock-based compensation using the fair value based method.  The provisions of FASB No. 148 will beeffective for years beginning on or after January 1, 2006.  In addition, during 2004, the FASB issuedSFAS No. 123R, which also amended the provisions of SFAS No. 123.  The provisions of FASB No. 123R will beeffective for years beginning on or after January 1, 2006.  The Company plans on adopting these newpronouncements in 2006.

 

 

**Item3.    Controls and Procedures**

 

*Evaluation of disclosure controls and procedures*:  Based on their evaluation of our disclosurecontrols and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under theexchange act) as of June 30, 2005, our president and chief executive officer(principal executive officer) and our chief financial officer (principalaccounting and financial officer) have concluded that our disclosure controlsand procedures are designed to ensure that information required to be disclosedin the reports that we file or submit under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in theSecurities and Exchange Commission’s rules and forms are operating in aneffective manner.

 

*Changes in internal controls overfinancial reporting:*  There was no change in our internal controlsover financial reporting that occurred during the quarter ended June 30, 2005,that has materially affected, or is reasonably likely to materially affect, ourinternal controls over financial reporting.

 

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**PART II—OTHER INFORMATION**

** **

**Item6.    Exhibits and Reports on Form 8-K.**

(a)       Exhibits
| Exhibit 4.1  |   | Registration rights agreement between the  Company, MedQuest Products, Inc and Maverick Venture Management, LLC dated  July 29, 2005 |
|--------------|--------|--------------------------------------------------------------------------------------------------------------------------------------|
|         |   |                                                                                                                                 |
| Exhibit 10.1 |   | Employment offer letter for John J. Vajda  dated May 19, 2005                                                                        |
|         |   |                                                                                                                                 |
| Exhibit 10.2 |   | Employment offer letter for Richard Juelis  dated May 27, 2005                                                                       |
|         |   |                                                                                                                                 |
| Exhibit 10.3 |   | Employment offer letter for Pratap  Khanwilkar dated July 29, 2005                                                                   |
|         |   |                                                                                                                                 |
| 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.            |

 

(b)       During the quarter endedJune 30, 2005, the Company filed the following reports on Form 8-K:
| **Date:**      | ** ** | **Item:** | ** ** | **Description:**                                                                                                                                                                                                                                                         |
|----------------|------------|-----------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| April 11, 2005 |       | 8.01      |       | Concerning its  announcement that the financial statements for the year ended December 31,  2004 contained a note describing the going concern assumption as it related  to the financial statements and requirements for the Company to raise  additional capital. |
|           |       |      |       |                                                                                                                                                                                                                                                                     |
| April 28, 2005 |       | 2.02      |       | Announcing  financial results for the quarter ended March 31, 2005.                                                                                                                                                                                                      |
|           |       |      |       |                                                                                                                                                                                                                                                                     |
| May 18, 2005   |       | 5.02      |       | Announcing D. Mark Goudie’s resignation  as Vice President, Finance and Chief Financial Officer of the Company.                                                                                                                                                     |
|           |       |      |       |                                                                                                                                                                                                                                                                     |
| June 2, 2005   |       | 5.02      |       | Announcing the appointment of Richard  Juelis as Vice President, Finance and Chief Financial Officer of the Company.                                                                                                                                                     |
|           |       |      |       |                                                                                                                                                                                                                                                                     |
| June 20, 2005  |       | 8.01      |       | Announcing the commencement of the  Company’s tender offers for outstanding debentures and warrants.                                                                                                                                                                |
|           |       |      |       |                                                                                                                                                                                                                                                                     |
| June 29, 2005  |       | 8.01      |       | Announcing the First Patient in the  United States to be Successfully weaned from the Novacor Left Ventricular Assist  System.                                                                                                                                           |

 

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**SIGNATURES**

In accordance withthe requirements of the Exchange Act, the registrant caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.
|   |   |           |   | World Heart Corporation |
|--------|--------|----------------|--------|-------------------------|
|   |   |           |   | (Registrant)            |
|   |   |           |   |                    |
| Date   |   | August 9, 2005 |   | /s/ Jal S. Jassawalla   |
|   |   |           |   | (Signature)*            |
|   |   |           |   |                    |
| Date   |   | August 9, 2005 |   | /s/ Richard Juelis      |
|   |   |           |   | (Signature)*            |

 

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