WORLD HEART CORP

In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (ASU 2011-05). ASU 2011-05 allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity. ASU 2011-05 does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (ASU 2011-12). ASU 2011-12 defers the effective date of provisions included in ASU 2011-05 that require entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement where net income is presented and the statement where other comprehensive income is presented for both interim and annual financial statements. ASU 2011-12 further states that entities must continue to report reclassification adjustments out of accumulated comprehensive income consistent with the presentation requirements in effect before ASU 2011-05. Effective January 1, 2012, the Company adopted the applicable provisions included in ASU 2011-05 and elected to present a single continuous statement of comprehensive income. The Company continues to monitor the FASB’s deliberations regarding ASU 2011-12.

Research and development: Research and development expenses consist principally of salaries and related expenses for research personnel, consulting, prototype manufacturing, testing, clinical studies, material purchases and regulatory affairs incurred at our Salt Lake City and Oakland facilities. Our Oakland facility was closed during 2011 as part of our 2011 Restructuring Plan. Additionally, a portion of our research and development expenses are offset by amounts reimbursed to us by the NIH as part of the cost sharing agreement for the development of the PediaFlow VAD. Research and development expenses for the three months ended March 31, 2012 decreased $1.6 million, or 62%, compared with the three months ended March 31, 2011. The decrease is primarily due to the combination of our 2011 Restructuring Plan and termination of our Levacor BTT clinical study and our 2012 Restructuring Plan resulting in a reduction of research, development, clinical and manufacturing personnel ($1.2 million), a decrease in consulting services ($412,000), a decrease in research supplies used to address Levacor VAD related device refinements ($306,000), a decrease in stock based compensation ($266,000), a decrease in facility related expenses part of which resulted from the closure of our Oakland facility in 2011 ($163,000), a decrease in research expenses ($156, 000), a decrease in travel and entertainment related expenses no longer needed to support the clinical trial or multiple locations ($58,000), offset by a decrease in capitalized manufacturing and overhead expenses associated with the termination of our efforts to commercialize the Levacor VAD ($810,000), an increase in royalties to our collaborative partners that previously were included in the cost of goods sold when our Levacor clinical study was operational ($92,000), an increase in research supplies used to develop MiFlow and PediaFlow ($55,000) and an increase in legal fees related to our intellectual property ($19,000). Additionally, in 2012, we incurred and expect to be reimbursed for our development under our cost-sharing agreement with the NIH for the PediaFlow VAD relating to labor, benefits, consulting, including services provided by subcontractors, and materials and supplies expenses for the three months ended March 31, 2012 of $89,900 compared to $315,468 for the same period in 2011. For the three months ended March 31, 2012 and 2011, we recorded a credit to expense of $45,000 and a charge of $221,000, respectively, in stock-based compensation expense. The credit resulted primarily from the forfeiture of options relating to terminated personnel resulting from the 2011 and 2012 Restructuring Plans. Research and development expenses are expected to decrease during 2012 due to our 2012 Restructuring Plan.

Fluctuations in the market price of HeartWare common stock may be the result of general market and economic conditions, changes in the business, operations or prospects of HeartWare, market assessments of the likelihood that the merger will be completed and the timing of closing of the merger and other factors independent of the merger. In addition to the adoption of the merger agreement by World Heart stockholders at the World Heart special meeting, completion of the merger is subject to the satisfaction of other conditions that may not occur until sometime after the World Heart special meeting. As a result, at the time of the World Heart special meeting, World Heart stockholders will not know the number of shares of HeartWare common stock they will be entitled to receive, and they will not know whether they will receive shares of HeartWare common stock or cash as merger consideration, and thus will not know the precise dollar value of the merger consideration they will be entitled to receive upon completion of the merger.

The merger agreement contains “no shop” provisions that, subject to limited exceptions, limit World Heart’s ability to discuss, facilitate or commit to competing third-party proposals to acquire all or a significant part of the company, or to license its intellectual property. These provisions might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of World Heart, or acquiring or licensing its intellectual property, from considering or proposing that transaction even if it were prepared to pay consideration with a higher per share market price than that proposed in the merger, or might result in a potential competing acquirer’s proposing to pay a lower per share price to acquire World Heart than it might otherwise have proposed to pay. World Heart can consider and participate in discussions and negotiations with respect to an alternative proposal so long as such proposal did not arise from any breach of the “no shop” provisions pertaining to World Heart and the World Heart board of directors determines in good faith (after consultation with outside legal counsel) that failure to take such action would be inconsistent with its fiduciary duties to World Heart stockholders under applicable law.

After the effective time of the merger, World Heart stockholders will own, as a group, in the aggregate, a significantly smaller percentage of HeartWare than they currently own of World Heart. Immediately following the merger, former stockholders of World Heart are expected to own approximately 1% of the outstanding shares of HeartWare common stock, based on the number of shares of HeartWare common stock and World Heart common stock outstanding on the record date. Consequently, as a general matter, World Heart stockholders, as a group, will have significantly reduced ownership and voting interests in HeartWare following the merger than they owned of World Heart prior to the merger and, as a result, they will have less influence over the management and policies of HeartWare than they currently exercise over the management and policies of World Heart.