INTRODUCTION

World Heart Corporation and its subsidiaries are collectively referred to as WorldHeart or the Corporation. The following Management Discussion and Analysis of Financial Condition and Results of Operations (MD&A) discusses material changes in WorldHeart's financial condition and results of operations and cash flows for the three and six months ended June 30, 2009 and June 30, 2008. Such discussion and comments on the liquidity and capital resources should be read in conjunction with the information contained in WorldHeart's audited consolidated financial statements for the year ended December 31, 2008, prepared in accordance with GAAP included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

The discussion and comments contained hereunder include both historical information and "forward-looking statements" within the meaning of Section 27A of the United States Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the United States Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical facts are "forward-looking statements" for the purposes of these provisions, including statements regarding our expectations with respect to future development plans for our next-generation product candidates, particularly the Levacor™ Rotary VAD (Ventricular Assist Device), the timing and scope of pre-clinical testing and clinical trials, our ability to secure additional funding or to form strategic partnerships, our cost reduction efforts and their impact on our ability to maintain operations, as well as other statements that can be identified by the use of forward-looking language, such as "believe", "feel", "expect", "may", "will", "should", "seek", "plan", "anticipate", "intend" or the negative of those terms, or by discussions of strategy or intentions. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results and performance to be materially different from any future results and performance expressed or implied by such forward-looking statements. Potential risks and uncertainties include, without limitation: our need for additional significant financing in the future; costs and delays associated with clinical trials for our products and next-generation product candidates, such as Levacor Rotary VAD; our ability to manufacture, sell and market our products; decisions and timing of decisions made by health regulatory agencies regarding approval of our products; competition from other products and therapies for heart failure; continued slower than anticipated destination therapy adoption rate for VADs; limitations on third-party reimbursements; our ability to obtain and enforce in a timely manner patent and other intellectual property protection for our technology and products; our ability to avoid, either by product design, licensing arrangement or otherwise, infringement of third parties' intellectual property; our ability to enter into corporate alliances or other strategic relationships relating to the development and commercialization of our technology and products; loss of commercial market share to competitors due to our financial condition; our ability to remain listed on the NASDAQ Capital Market; as well as other risks and uncertainties set forth under the heading "Risk Factors" in our Annual Report on Form 10-K, for the fiscal year ended December 31, 2008.

OVERVIEW

Our business is focused on the development and sale of ventricular assist devices ("VADs"), particularly our Levacor Rotary VAD (Levacor VAD or Levacor). VADs are mechanical assist devices that supplement the circulatory function of the heart by re-routing blood flow through a mechanical pump allowing for the restoration of normal blood circulation.

In the past, we derived most of our revenue from our Novacor LVAS and related peripheral equipment, which we sold, directly to medical clinics and hospitals in the United States, Europe and Canada and through a distributor in certain other countries. The legacy generation VAD, the Novacor LVAS, was commercially approved as a Bridge-to-Transplant device in the United States and Canada. In Europe, the Novacor LVAS had unrestricted approval for use as an alternative to transplantation, Bridge-to-Transplantation and to support patients who may be able to recover the use of their natural heart. In Japan, the device was commercially approved for use in cardiac patients at risk of imminent death from non-reversible left ventricular failure for which there was no alternative except heart transplantation.

In July 2005, we acquired the assets of MedQuest Products, Inc. ("MedQuest"), including a rotary VAD, now called the Levacor™ Rotary VAD. In conjunction with the acquisition, we raised approximately $22.7 million in gross financing proceeds from a private placement with Maverick Venture Management, LLC and the exercise of certain warrants and also converted all of the remaining convertible debentures from an earlier financing. Pre-clinical testing of the Levacor VAD was accelerated after the acquisition, with successful initial human feasibility use in Europe in 2006.

In November 2006, we announced a restructuring plan, which included a reduction of commercial operations associated with the Novacor LVAS, and a refocusing of our resources on the development of the next generation product, particularly the Levacor VAD. After more than twenty years in clinical use, the Novacor LVAS has reached the natural end of its life cycle and we have

been focusing on the development of the Levacor VAD and on activities leading to the start of a US clinical trial with the Levacor VAD in the second half of 2009. In January 2009, we submitted an Investigational Device Exemption (IDE) application to the US Food and Drug Administration for a Bridge-to-Transplant study of the Levacor VAD.

In July 2008, we completed a $30.0 million private placement transaction and recapitalization under the terms of the Recapitalization Agreement (the "Recapitalization Agreement") dated June 20, 2008 and amended on July 31, 2008, among the Corporation, our wholly owned subsidiary World Heart Inc. ("WHI"), Abiomed, Inc. ("Abiomed"), Venrock Partners V, L.P., Venrock Associates V, L.P. and Venrock Entrepreneurs Fund V, L.P. (collectively, "Venrock"), Special Situations Fund III QP, L.P., Special Situations Cayman Fund, L.P., Special Situations Private Equity Fund, L.P., Special Situations Life Sciences Fund, L.P. and Austin W. Marxe (collectively, "SSF") and New Leaf Ventures II, L.P. ("New Leaf"). Simultaneously with the closing of the recapitalization, Abiomed entered into a Termination and Release Letter Agreement with us and converted the full amount of principal and interest owed on the $5,000,000, 8% Secured Convertible Promissory Note (the "Note") previously issued to Abiomed by the Corporation and WHI into 2,866,667 of our common shares, released the security interest in all of our assets and those of WHI that secured the Note, terminated the warrant Abiomed held to purchase 113,333 of our common shares, forgave other amounts we owed to Abiomed and terminated previously existing agreements, arrangements and understandings with us. The purchase price delivered by Venrock and SSF at the closing was offset by repayment of the principal and interest owed on the bridge loan facility of $1,400,000 that Venrock and SSF had previously provided to us. As part of the recapitalization transaction, we issued warrants to purchase an aggregate of 83,333 common shares to our advisors, Pacific Growth Equities, LLC and Stifel, Nicolaus and Company.

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

Research and development by our competitors is proceeding on several rotary flow devices. Certain of these devices have received the CE mark in Europe and are advancing through clinical trials in the United States and Europe, and one device received U.S. marketing approval last year. We believe that our Levacor VAD is the most advanced fourth-generation rotary device under development.

Summary of Quarterly Results

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

(Unaudited)



                                                          Three Months Ended
                                     June 30,       March 31,      December 31,      September 30,
                                       2009           2009             2008              2008

Net revenue                         $         -    $         5    $          369    $           192
Net loss for the period                  (4,367 )       (3,651 )          (3,627 )           (7,162 )
Net loss applicable to common
shareholders                             (4,367 )       (3,651 )          (3,627 )           (7,162 )
Basic and diluted loss per share    $     (0.33 )  $     (0.28 )  $        (0.27 )  $         (0.80 )

                                                          Three Months Ended
                                     June 30,       March 31,      December 31,      September 30,
                                       2008           2008             2007              2007

Net revenue                         $       536    $       635    $          348    $           532
Net loss for the period                  (3,050 )      (11,478 )          (7,639 )           (3,018 )
Net loss applicable to common
shareholders                             (3,050 )      (11,478 )          (7,639 )           (3,018 )
Basic and diluted loss per share    $     (7.94 )  $    (29.92 )  $       (19.92 )  $         (7.87 )

RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2009
COMPARED WITH THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2008



                                      Three Months Ended June 30,          Six Months Ended June 30,
(Unaudited)                              2009              2008             2009              2008
Revenue                                          -    $          536                5    $        1,172
Cost of goods sold                              25               287               53               687

Gross profit                                   (25 )             249              (48 )             485

Operating expenses
Selling, general and
administrative                               1,476             1,205            2,919             2,405
Research and development                     2,608             1,932            4,712             4,425
Clinical and marketing support                   -                 -                -             6,479
Restructuring costs                            198                 -              251                 -
Amortization of intangibles                     48                48               96                96

Total operating expenses                     4,330             3,185            7,978            13,405

Operating loss                              (4,355 )          (2,936 )         (8,026 )         (12,920 )

Other income (expense)                         (12 )            (113 )              8            (1,607 )

Net loss applicable to common
shareholders                        $       (4,367 )  $       (3,049 )  $      (8,018 )  $      (14,527 )

Weighted average number of
common shares outstanding basic
and diluted                                 13,254               384           13,254               384

Basic and diluted loss per
common share                        $        (0.33 )  $        (7.94 )  $       (0.60 )  $       (37.84 )

Revenue: In the past, sales of Novacor LVAS implant kits and related peripheral equipment and services accounted for the majority of our revenues. In addition, and to a greater percentage of overall revenues in recent quarters, we generate revenue from sales of SPUS (Segmented Poly Urethane Solution) used by other medical device manufacturers. We primarily sell our products directly, except for a few countries where we sell through distributors.

The composition of revenue in thousands ($000's) is as follows except for units:

                               Three Months Ended June 30,           Six Months Ended June 30,
                                 2009                2008             2009              2008
(Unaudited)                  $       Units        $      Units     $      Units       $      Units
Novacor Product Revenues
Implant kits               $   -      Nil       $    -    Nil    $   -     Nil     $   318     5
Peripherals and other          -                   111               5                 339
                               -                   111               5                 657
SPUS Revenues                  -                   425               -                 515
Total Revenue              $   -                $  536           $   5             $ 1,172

Revenue for the quarter ended June 30, 2009 was nil reflecting a decrease of $536,000 compared with the quarter ended June 30, 2008. There were no Novacor LVAS implant kits sold in the quarters ended June 30, 2009 and June 30, 2008. Novacor peripherals and other revenue, including Novacor LVAS hardware, peripherals, and services, was nil for the quarter ended June 30, 2009 a decrease of $111,000 compared with the comparable prior year quarter. The overall revenue decrease is attributable to our November 2006 decision to reduce our commercial efforts with respect to the Novacor and focus our resources on the development of our Levacor VAD. In 2007 and 2008, we made the Novacor LVAS available to medical centers only until our inventory was depleted, which occurred in mid-2008. We continue to support our Novacor patients but have discontinued the manufacture and sale of additional Novacor implant kits. Patient support revenue from peripheral Novacor LVAS products is anticipated to be minimal throughout the remainder of 2009.

There was no SPUS revenue for the quarter ended June 30, 2009 compared with $425,000 in the quarter ended June 30, 2008. In all probabilities, SPUS revenue will end in 2009.

Revenue for the first six months of 2009 was $5,000, a decrease of $1,167,000 compared with $1,172,000 recorded in the same period of 2008. Novacor implant kits recognized as revenue for the six months ended June 30, 2009 were nil compared with 5 during the same period of 2008. Revenue generated from Novacor hardware, peripherals and services was $5,000 for the first six months of 2009 compared to $339,000 for the same six-month period in 2008. SPUS revenues were nil for the first six months of 2009 compared with $515,000 for the same six month period in 2008 We anticipate no implant kit sales, no SPUS sales and minimal Novacor peripheral revenues throughout the remainder of 2009.

Cost of goods sold: For the three and six month periods ended June 30, 2009, cost of goods sold consisted entirely of royalties payable under a minimum annual royalty agreement with Vertellus UK Limited. For the three and six month periods ended June 30, 2008 cost of goods sold, which consisted of raw materials, labor, royalties and other costs related to the manufacture of our Novacor LVAS, was 54% and 59% respectively. The decrease in cost of goods sold during the three and six month periods ended June 30, 2009 compared with the same periods last year is attributable to the complete phase out of our Novacor LVAS product and the decrease in SPUS revenues.

Selling, general and administrative: Selling, general and administrative expenses consist primarily of payroll and related expenses for executives, sales, marketing, accounting and administrative personnel. Our other administrative expenses include professional fees, board of director fees, communication expenses, insurance premiums, public reporting costs and general corporate expenses.

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

                                        Three Months Ended June 30,          Six Months Ended June 30,
(Unaudited)                              2009                2008              2009             2008

Selling                             $           237     $           231    $         385    $         479
General and administrative                    1,239                 974            2,534            1,926
Total                               $         1,476     $         1,205    $       2,919    $       2,405

Selling expenses for the three months ended June 30, 2009 increased by $6,000 or 3%, compared with the same period in 2008. The increase was due to higher stock based compensation expense and an accrual for bonuses under the 2009 Employee Bonus Plan, which is based on achievement of applicable milestones. These increases were almost entirely offset by the reduction in support efforts for the Novacor LVAS. There was no provision for the 2008 Employee Bonus Plan in the comparable 2008 period as the applicable milestones were not achieved. For the six-month period ended June 30, 2009 selling expenses decreased $94,000 or 20%, compared with the six month period ended June 30, 2008. The decrease is attributable to reduced Novacor LVAS support efforts offset by increased stock based compensation expense and the accrual of bonuses under the 2009 Employee Bonus Plan. There was no provision for the 2008 Employee Bonus Plan in the comparable 2008 period as the applicable milestones were not achieved. For the three and six month periods ended June 30, 2009, we recorded $26,000 and $32,000, respectively, in stock-based compensation expense compared with $6,000 and $11,000 in the comparable 2008 periods. Selling expenses primarily relate to enrollment of new centers in the anticipated Levacor clinical trials, field support of existing Novacor patients and marketing/show costs. Selling expenses are expected to increase over the remainder of 2009 as we begin to distribute our next generation Levacor device for evaluation in clinical trials.

General and administrative expenses for the three months ended June 30, 2009 increased by $265,000, or 27%, compared with the same period in 2008. The increase is attributable to increased stock based compensation expense, an accrual for bonuses under the 2009 Employee Bonus Plan, increased salaries from the addition of a new CEO and consulting expenses related to SOX 404 controls which are required to be in place by the end of 2009. There was no provision for the 2008 Employee Bonus Plan in the comparable 2008 period as the applicable milestones were not achieved. For the three month periods ended June 30, 2009 and June 30, 2008, we recorded $134,000, and $43,000, respectively, in stock-based compensation expense. For the six month period ended June 30, 2009 general and administrative expenses increased $608,000 or 32%, compared with the same period in 2008. This increase is attributable to salaries, benefits, recruitment and legal fees associated with our phased consolidation plan, including hiring of our new CEO, the transition of our former CEO into another executive position, the accrual for bonuses under the 2009

Employee Bonus Plan and increased stock based compensation expense. We recorded $203,000 and $96,000, respectively, in stock-based compensation for the six month periods ended June 30, 2009 and 2008, respectively. General and administrative expenses are expected to remain at approximately the same level over the next several quarters.

Research and development: Research and development (R&D) expenses consist principally of salaries and related expenses for research personnel, consulting, prototype manufacturing, testing, clinical trials, material purchases and regulatory affairs incurred at our Oakland and Salt Lake City facilities.

R&D expenses for the three months ended June 30, 2009 increased by $675,000 or 35%, compared with the three months ended June 30, 2008. The increase is primarily attributable to increased R&D efforts related to the Levacor pilot build for clinical trials, increased stock based compensation expense and an accrual for bonuses under the 2009 Employee Bonus Plan. For the six-month periods ended June 30, 2009 and 2008 R&D expenses increased by $287,000 or 6%. The increase relates to the Levacor pilot build, increased stock based compensation the accrual for bonuses under the 2009 Employee Bonus Plan. For the three and six-month periods ended June 30, 2009 we recorded $115,000 and $144,000 respectively, in stock-based compensation expense compared with $25,000 and $47,000 respectively, in the comparable prior year periods, R&D expenses for our Levacor VAD are expected to increase during the remainder of 2009 with additional development and pre-clinical testing.

Clinical and marketing support-non-cash: On December 11, 2007, we issued a 5-year warrant to Abiomed to purchase up to 113,333 of our common shares, exercisable at $0.30 per share, as compensation for clinical and marketing support services. Upon issuance, approximately 20% of the warrant was immediately exercisable and the remaining 80% became exercisable in January 2008. In the first quarter of 2008, we recorded non-cash expense of $6.5 million related to the fair value of the warrant. There were no such charges recorded for the three and six month periods ended June 30, 2009. The warrant was terminated in July 2008 pursuant to the terms of the Recapitalization Agreement.

Restructuring costs: The terms of the employment agreement of our new CEO hired in the first quarter of 2009 contained a Relocation Benefits package to cover reimbursement for certain relocation-related expenses in an amount of up to $107,000, plus additional estimated tax gross-up payments of up to $48,000. For the quarter ended June 30, 2009, an estimated restructuring charge of $150,000, inclusive of tax gross up payment, was recorded in connection with the CEO's relocation package. The physical move was completed in the quarter ended June 30, 2009 and we do not expect to record additional relocation expenses for the CEO in the future. Additionally, we recorded $48,000 in accruals for termination benefits for employees whose positions will be eliminated over time in connection with the relocation of our corporate office to Utah; bringing the total restructuring costs to $198,000 for the quarter ended June 30, 2009. For the six month period ended June 30, 2009 restructuring costs were $251,000 consisting primarily of the CEO Relocation Benefits package and accrued termination benefits. There were no such charges recorded for the three and six month periods ended June 30, 2008.

Amortization of intangibles: Amortization of the acquired MedQuest workforce for the three and six month periods ended June 30, 2009 and June 30, 2008 was $48,000 and $96,000 respectively. This intangible asset is being amortized on a straight-line basis over four years and will be fully amortized in the quarter ending September 30, 2009.

Foreign Exchange: Foreign exchange transactions resulted in losses of $18,000 and $6,000 for the three and six month periods ended June 30, 2009 respectively. For the three and six month periods ended June 30, 2008 foreign exchange losses were $5,000 and $11,000, respectively. The losses relate primarily to the fluctuations in the relative value of the U.S. dollar compared with the Euro and Canadian dollar. We anticipate continued fluctuations of foreign exchange gains and losses.

Investment and other income: Investment and other income for the quarter ended June 30, 2009 was $6,000 compared with a loss of $5,000 during the three month period ended June 30, 2008. The loss in the 2008 quarter resulted from immediate payment discounts granted to customers in order to generate operating funds. Investment and other income for the six-month period ended June 30, 2009 was $14,000 compared to $18,000 for the six-month period ended June 30, 2008. Although average daily balances of invested cash were greater in the 2009 the earnings were lower due to the significant decline in interest rates in 2009. We anticipate our investment income will decrease over the remainder of 2009 resulting from consumption of cash to fund operations.

Interest expense: In the quarter ended June 30, 2008, we recorded interest expense of $103,000 which was accrued interest on the $5.0 million Abiomed convertible note. For the six month period ended June 30, 2008 we recorded interest expense of $1,615,000, of which $1,414,000 related to the beneficial conversion feature of the $4.0 million convertible note issued to Abiomed on January 3, 2008 and $201,000 was accrued interest calculated at 8% on the entire $5.0 million convertible note. The note and accumulated interest was converted into common shares as part of the Recapitalization Agreement. There were no such charges for the three and six-month periods ended June 30, 2009 and only minor interest expense, related to capital leases, of $400 and $800 was incurred in the three and six-month periods ended June 30, 2009. For the remainder of 2009 we anticipate interest expense to increase as we add additional capital leases.

LIQUIDITY AND CAPITAL RESOURCES

Historically, we have funded losses from operations through the sale of equity and issuance of debt instruments. Combined with revenue and investment income, these funds have provided us with the resources to operate our business, sell and support our products, fund our research and development program and clinical trials, apply for and obtain the necessary regulatory approvals and develop new technologies and products.

At June 30, 2009, we had cash and cash equivalents of $13.3 million, a decrease of $7.4 million from December 31, 2008. For the first six-months of 2009 cash used to fund operating activities was $7.2 million consisting primarily of the net loss for the period of $8.0 million offset by non-cash charges of $179,000 for depreciation and amortization and $379,000 of non-cash stock compensation expense. Working capital changes consisted of a $223,000 decrease in accounts receivable and increases of $108,000 in inventories and $187,000 in accounts payable and accrued compensation offset by an increase of $44,000 in prepaid expenses and other assets.

Investing activities requiring cash resources for the six-months ended June 30, . . .