##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




---

Form 10-Q

|           |  |                                                                                                  
|---------- |  | -------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                  
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13
    OR 15 (d)
    OF THE SECURITIES EXCHANGE ACT OF 1934 
|          
|           |  | For the quarterly period ended June 30,
    2002                                                 
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15 (d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the transition period
    from           to                                                  

Commission file number 000-23953



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Omega Worldwide, Inc.

(Exact name of Registrant as specified in its
charter)


|                                                                   |  |                                      
|------------------------------------------------------------------ |  | -------------------------------------
|Maryland                                                           |  | 38-3382537                           
|(State or other jurisdiction of
    incorporation or organization) |  | (IRS Employer
    Identification No.)
|                                                                  
|1905 Pauline Boulevard,
    Suite 1,                               |  | 48103                                
|Ann Arbor, Michigan                                                |  | (Zip Code)                           
|(Address of Principal Executive
    Offices)                       |  |                                      

(734) 222-9640

(Telephone Number, Including Area
Code)


Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the
past
90 days.     Yes þ          No o

Indicate the number of shares outstanding of each
of the issuers classes of common stock as of June 30,
2002

|                             |  |                   
|---------------------------- |  | ------------------
|Common Stock, $.10 par value |  | 12,354,553        
|(Class)                      |  | (Number of shares)



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TABLE OF CONTENTS



|                                                     |  |  |  |  |  |  |  | 
|---------------------------------------------------- |  |  |  |  |  |  |  | 
|INDEX                                               
|PART 1 -- FINANCIAL INFORMATION                     
|CONDENSED CONSOLIDATED BALANCE SHEETS               
|CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|SIGNATURES                                          
|Amendment to the Rights Agreement                   
|Second Amendment to the Rights Agreement            
|Amendment To Employment Agreement                   
|Amendment to Employment Agreement                   
|Amendment to Employment Agreement                   
|Section 906 Certification                           



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##### Table of Contents



OMEGA WORLDWIDE, INC.

FORM 10-Q

June 30, 2002






INDEX


|                                  |  |                                                                                                                                       |  |          |    | 
|--------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | -- | 
|                                  |  |                                                                                                                                       |  | Page No.
|                                  |  |                                                                                                                                       |  |         
|PART I  FINANCIAL
    INFORMATION
|Item 1.                           |  | Financial Statements:                                                                                                                 |  |          |    | 
|                                  |  | Condensed Consolidated Balance Sheets 
    June 30, 2002 (unaudited) and September 30, 2001
    (audited)                            |  |          | 2  | 
|                                  |  | Condensed Consolidated Statements of Operations
    (unaudited)  Three-month and Nine-month periods ended
    June 30, 2002 and 2001 |  |          | 3  | 
|                                  |  | Condensed Consolidated Statements of Cash Flows
    (unaudited)  Nine-month periods ended June 30,
    2002 and 2001                 |  |          | 4  | 
|                                  |  | Notes to Condensed Consolidated Financial
    Statements June 30, 2002 (unaudited)                                                    |  |          | 5  | 
|Item 2.                           |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                                             |  |          | 13 | 
|Item 3.                           |  | Quantitative and Qualitative Disclosure About
    Market Risk                                                                         |  |          | 18 | 
|PART II  OTHER INFORMATION       
|Item 1.                           |  | Legal Proceedings                                                                                                                     |  |          | 20 | 
|Item 2.                           |  | Change in Securities and Use of Proceeds                                                                                              |  |          | 20 | 
|Item 3.                           |  | Defaults upon Senior Securities                                                                                                       |  |          | 20 | 
|Item 4.                           |  | Submission of Matters to a Vote of Security
    Holders                                                                               |  |          | 20 | 
|Item 5.                           |  | Other Information                                                                                                                     |  |          | 20 | 
|Item 6.                           |  | Exhibits and Reports on Form 8-K                                                                                                      |  |          | 20 | 

1



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##### Table of Contents








PART 1  FINANCIAL
INFORMATION


Item 1.     Financial
statements

OMEGA WORLDWIDE, INC.






CONDENSED CONSOLIDATED BALANCE
SHEETS


Unaudited


|                                                                                                      |                                               |                                                                         |                                            |               |       |        |        |        |       |        | 
|----------------------------------------------------------------------------------------------------- | --------------------------------------------- | ----------------------------------------------------------------------- | ------------------------------------------ | ------------- | ----- | ------ | ------ | ------ | ----- | ------ | 
|                                                                                                      |                                               | June 30,                                                                |                                            | September 30,
|                                                                                                      |                                               | 2002                                                                    |                                            | 2001         
|                                                                                                      |                                               |                                                                         |                                            |              
|                                                                                                      |                                               | (Unaudited)                                                             |                                            | (Audited)    
|                                                                                                      |                                               |                                                                        
|                                                                                                      |                                               | (In Thousands,                                                         
|                                                                                                      |                                               | Except Par Values)                                                     
|ASSETS                                                                                               
|Current Assets:                                                                                       |                                               |                                                                         |                                            |               |       |        |        |       
|                                                                                                      | Cash and short-term investments               |                                                                         | $                                          | 6,822         |       |        | $      | 6,184  |      
|                                                                                                      | Restricted cash                               |                                                                         |                                            |              |       |        |        | 2,211  |      
|                                                                                                      | Patient receivables                           |                                                                         |                                            | 8,558         |       |        |        | 9,602  |      
|                                                                                                      | Prepaid expenses                              |                                                                         |                                            | 2,690         |       |        |        | 2,577  |      
|                                                                                                      | Current tax benefit receivable                |                                                                         |                                            | 4,200         |       |        |        |       |      
|                                                                                                      | Other current assets                          |                                                                         |                                            | 3,391         |       |        |        | 1,022  |      
|                                                                                                      |                                               |                                                                         |                                            |               |       |        |        |       
|                                                                                                      |                                               |                                                                         | Total Current Assets                       |               |       | 25,661 |        |        |       | 21,596 | 
|Plant, property and equipment, net of accumulated
    depreciation of $3,773 and $2,509, respectively |                                               |                                                                         | 15,404                                     |               |       |        | 13,950 |       
|Investments in and advances to Principal
    Healthcare Finance Limited                               |                                               |                                                                         | 37,661                                     |               |       |        | 36,689 |       
|Investments in Principal Healthcare Finance Trust                                                     |                                               |                                                                         | 6,571                                      |               |       |        | 6,523  |       
|Rent deposits                                                                                         |                                               |                                                                         | 3,682                                      |               |       |        | 3,670  |       
|Other assets                                                                                          |                                               |                                                                         | 953                                        |               |       |        | 3,740  |       
|                                                                                                      |                                               |                                                                         |                                            |               |       |        |        |       
|                                                                                                      |                                               |                                                                         | 64,271                                     |               |       |        | 64,572 |       
|                                                                                                      |                                               |                                                                         |                                            |               |       |        |        |       
|                                                                                                      |                                               |                                                                         | Total Assets                               |               | $     | 89,932 |        |        | $     | 86,168 | 
|                                                                                                      |                                               |                                                                         |                                            |               |       |        |        |       
|LIABILITIES AND SHAREHOLDERS
    EQUITY                                                             
|Current Liabilities:                                                                                  |                                               |                                                                         |                                            |               |       |        |        |       
|                                                                                                      | Short-term debt                               |                                                                         | $                                          | 236           |       |        | $      | 2,514  |      
|                                                                                                      | Accounts payable and accrued expenses         |                                                                         |                                            | 15,884        |       |        |        | 16,270 |      
|                                                                                                      | Accrued income taxes                          |                                                                         |                                            |              |       |        |        | 82     |      
|                                                                                                      | Deferred income                               |                                                                         |                                            | 2,384         |       |        |        | 1,027  |      
|                                                                                                      |                                               |                                                                         |                                            |               |       |        |        |       
|                                                                                                      |                                               |                                                                         | Total Current Liabilities                  |               |       | 18,504 |        |        |       | 19,893 | 
|Long-term debt                                                                                        |                                               |                                                                         | 2,124                                      |               |       |        | 1,587  |       
|Deferred income tax payable                                                                           |                                               |                                                                         | 4,200                                      |               |       |        |       |       
|Other long-term liabilities                                                                           |                                               |                                                                         | 158                                        |               |       |        | 208    |       
|                                                                                                      |                                               |                                                                         |                                            |               |       |        |        |       
|                                                                                                      |                                               |                                                                         | Total Liabilities                          |               |       | 24,986 |        |        |       | 21,688 | 
|                                                                                                      |                                               |                                                                         |                                            |               |       |        |        |       
|Shareholders Equity:                                                                                 |                                               |                                                                         |                                            |               |       |        |        |       
|                                                                                                      | Preferred Stock $1.00 par value:              |                                                                         |                                            |               |       |        |        |        |      
|                                                                                                      |                                               | Authorized  10,000 shares                                              |                                            |               |       |        |        |        |       |       
|                                                                                                      |                                               | Outstanding 260 Class C shares at
    liquidation value                 |                                            |               | 2,600 |        |        |        | 2,600 |       
|                                                                                                      | Common stock $.10 par value                   |                                                                         |                                            |               |       |        |        |        |      
|                                                                                                      |                                               | Authorized  50,000 shares                                              |                                            |               |       |        |        |        |       |       
|                                                                                                      |                                               | Outstanding  12,355 shares at
    June 30, 2002 and September 30, 2001 |                                            |               | 1,236 |        |        |        | 1,236 |       
|                                                                                                      | Additional paid-in capital                    |                                                                         |                                            | 53,181        |       |        |        | 53,181 |      
|                                                                                                      | Retained earnings                             |                                                                         |                                            | 6,967         |       |        |        | 7,761  |      
|                                                                                                      | Accumulated other comprehensive income (loss) |                                                                         |                                            | 962           |       |        |        | (298   | )    
|                                                                                                      |                                               |                                                                         |                                            |               |       |        |        |       
|                                                                                                      |                                               |                                                                         | Total Shareholders Equity                 |               |       | 64,946 |        |        |       | 64,480 | 
|                                                                                                      |                                               |                                                                         |                                            |               |       |        |        |       
|                                                                                                      |                                               |                                                                         | Total Liabilities and Shareholders Equity |               | $     | 89,932 |        |        | $     | 86,168 | 
|                                                                                                      |                                               |                                                                         |                                            |               |       |        |        |       

See notes to condensed consolidated financial
statements.

2



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##### Table of Contents



OMEGA WORLDWIDE, INC.






CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


|                                                                                |                                                       |                                          |        |                   |       |      |        |        |     |   |         |         |       |   |         |         |       | 
|------------------------------------------------------------------------------- | ----------------------------------------------------- | ---------------------------------------- | ------ | ----------------- | ----- | ---- | ------ | ------ | --- | - | ------- | ------- | ----- | - | ------- | ------- | ----- | 
|                                                                                |                                                       |                                          |        |                  
|                                                                                |                                                       | Three Months Ended                       |        | Nine Months Ended
|                                                                                |                                                       | June 30,                                 |        | June 30,         
|                                                                                |                                                       |                                          |        |                  
|                                                                                |                                                       | 2002                                     |        | 2001              |       | 2002 |        | 2001  
|                                                                                |                                                       |                                          |        |                   |       |      |        |       
|                                                                                |                                                       |                                         
|                                                                                |                                                       | Unaudited                               
|                                                                                |                                                       | (In Thousands, Except Per Share Amounts)
|Revenues:                                                                       |                                                       |                                          |        |                   |       |      |        |        |     |   |         |         |       |   |         |        
|                                                                                | Patient services revenue                              |                                          | $      | 38,552            |       |      | $      | 35,463 |     |   | $       | 111,255 |       |   | $       | 104,778 |      
|                                                                                | Fee income  Principal Healthcare
    Finance Limited |                                          |        | 988               |       |      |        | 1,056  |     |   |         | 2,928   |       |   |         | 3,199   |      
|                                                                                | Fee income  Principal Healthcare
    Finance Trust   |                                          |        | 336               |       |      |        | 309    |     |   |         | 1,009   |       |   |         | 899     |      
|                                                                                | Interest Income:                                      |                                          |        |                   |       |      |        |        |     |   |         |         |       |   |         |         |      
|                                                                                |                                                       | Principal Healthcare Finance Limited     |        |                   | 1,011 |      |        |        | 876 |   |         |         | 3,019 |   |         |         | 2,721 | 
|                                                                                |                                                       | Short-term investments                   |        |                   | 78    |      |        |        | 131 |   |         |         | 293   |   |         |         | 440   | 
|                                                                                | Other income                                          |                                          |        | 8                 |       |      |        |       |     |   |         | 8       |       |   |         |        |      
|                                                                                |                                                       |                                          |        |                   |       |      |        |        |     |   |         |         |       |   |         |        
|                                                                                |                                                       |                                          | 40,973 |                   |       |      | 37,835 |        |     |   | 118,512 |         |       |   | 112,037 |        
|Expenses:                                                                       |                                                       |                                          |        |                   |       |      |        |        |     |   |         |         |       |   |         |        
|                                                                                | Direct cost of patient services                       |                                          |        | 37,857            |       |      |        | 35,724 |     |   |         | 111,557 |       |   |         | 106,566 |      
|                                                                                | Direct costs of asset management                      |                                          |        | 914               |       |      |        | 733    |     |   |         | 2,256   |       |   |         | 2,096   |      
|                                                                                | Interest expense                                      |                                          |        | 51                |       |      |        | 110    |     |   |         | 182     |       |   |         | 466     |      
|                                                                                | General, administrative and other expenses            |                                          |        | 1,452             |       |      |        | 929    |     |   |         | 3,114   |       |   |         | 1,996   |      
|                                                                                | Severance agreement expense                           |                                          |        |                  |       |      |        |       |     |   |         | 1,626   |       |   |         |        |      
|                                                                                | Foreign currency exchange loss                        |                                          |        |                  |       |      |        | 316    |     |   |         | 740     |       |   |         | 316     |      
|                                                                                | Non-recurring expense                                 |                                          |        | 586               |       |      |        | 552    |     |   |         | 630     |       |   |         | 683     |      
|                                                                                |                                                       |                                          |        |                   |       |      |        |        |     |   |         |         |       |   |         |        
|                                                                                |                                                       |                                          | 40,860 |                   |       |      | 38,364 |        |     |   | 120,105 |         |       |   | 112,123 |        
|                                                                                |                                                       |                                          |        |                   |       |      |        |        |     |   |         |         |       |   |         |        
|Earnings (loss) before equity earnings and
    income taxes                     |                                                       |                                          | 113    |                   |       |      | (529   | )      |     |   | (1,593  | )       |       |   | (86     | )      
|Equity in earnings of Principal Healthcare
    Finance Limited                  |                                                       |                                          | 473    |                   |       |      | 556    |        |     |   | 983     |         |       |   | 1,560   |        
|Equity in earnings of Principal Healthcare
    Finance Trust                    |                                                       |                                          | 213    |                   |       |      | 13     |        |     |   | 393     |         |       |   | 179     |        
|Equity in earnings of Essex Healthcare Corporation                              |                                                       |                                          |       |                   |       |      |       |        |     |   |        |         |       |   | 26      |        
|Gain on sale of partial interest in Principal
    Healthcare Finance Trust      |                                                       |                                          | 423    |                   |       |      |       |        |     |   | 423     |         |       |   |        |        
|Recognized impairment on investment in Principal
    Healthcare Finance Limited |                                                       |                                          |       |                   |       |      |       |        |     |   | (1,000  | )       |       |   |        |        
|Recognized impairment on investment in Moran
    Health Care (UK) Ltd.          |                                                       |                                          |       |                   |       |      | (2,665 | )      |     |   |        |         |       |   | (2,665  | )      
|                                                                                |                                                       |                                          |        |                   |       |      |        |        |     |   |         |         |       |   |         |        
|Operating income (loss)                                                         |                                                       |                                          | 1,222  |                   |       |      | (2,625 | )      |     |   | (794    | )       |       |   | (986    | )      
|Income tax (provision) benefit                                                  |                                                       |                                          |       |                   |       |      | 1,082  |        |     |   |        |         |       |   | 874     |        
|                                                                                |                                                       |                                          |        |                   |       |      |        |        |     |   |         |         |       |   |         |        
|Net earnings (loss)                                                             |                                                       |                                          | 1,222  |                   |       |      | (1,543 | )      |     |   | (794    | )       |       |   | (112    | )      
|Net earnings allocated to preferred stock
    dividends                         |                                                       |                                          | (52    | )                 |       |      | (52    | )      |     |   | (156    | )       |       |   | (156    | )      
|                                                                                |                                                       |                                          |        |                   |       |      |        |        |     |   |         |         |       |   |         |        
|Net earnings (loss) available to common
    shareholders                        |                                                       | $                                        | 1,170  |                   |       | $    | (1,595 | )      |     | $ | (950    | )       |       | $ | (268    | )      
|                                                                                |                                                       |                                          |        |                   |       |      |        |        |     |   |         |         |       |   |         |        
|Earnings (loss) per common share, basic                                         |                                                       | $                                        | 0.09   |                   |       | $    | (0.13  | )      |     | $ | (0.08   | )       |       | $ | (0.02   | )      
|                                                                                |                                                       |                                          |        |                   |       |      |        |        |     |   |         |         |       |   |         |        
|Earnings (loss) per common share, diluted                                       |                                                       | $                                        | 0.09   |                   |       | $    | (0.13  | )      |     | $ | (0.08   | )       |       | $ | (0.02   | )      
|                                                                                |                                                       |                                          |        |                   |       |      |        |        |     |   |         |         |       |   |         |        
|Average shares outstanding, basic                                               |                                                       |                                          | 12,355 |                   |       |      | 12,341 |        |     |   | 12,355  |         |       |   | 12,341  |        
|                                                                                |                                                       |                                          |        |                   |       |      |        |        |     |   |         |         |       |   |         |        
|Average shares outstanding, diluted                                             |                                                       |                                          | 12,357 |                   |       |      | 12,363 |        |     |   | 12,355  |         |       |   | 12,341  |        
|                                                                                |                                                       |                                          |        |                   |       |      |        |        |     |   |         |         |       |   |         |        
|Total comprehensive income (loss), net of income
    taxes                      |                                                       | $                                        | 4,497  |                   |       | $    | (1,560 | )      |     | $ | 466     |         |       | $ | (248    | )      
|                                                                                |                                                       |                                          |        |                   |       |      |        |        |     |   |         |         |       |   |         |        

See notes to condensed consolidated financial
statements.

3



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##### Table of Contents



OMEGA WORLDWIDE, INC.






CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


|                                            |                                                                                     |                                                                                 |        |        |        |   |        |        |        |  
|------------------------------------------- | ----------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | -
|                                            |                                                                                     |                                                                                
|                                            |                                                                                     | Nine Months Ended                                                              
|                                            |                                                                                     | June 30,                                                                       
|                                            |                                                                                     |                                                                                
|                                            |                                                                                     | 2002                                                                            |        | 2001  
|                                            |                                                                                     |                                                                                 |        |       
|                                            |                                                                                     |                                                                                
|                                            |                                                                                     | Unaudited                                                                      
|                                            |                                                                                     | (In Thousands)                                                                 
|Operating activities:                       |                                                                                     |                                                                                 |        |        |        |   |        |       
|                                            | Net loss                                                                            |                                                                                 | $      | (794   | )      |   | $      | (112   | )     
|                                            | Adjustments to reconcile net loss to net cash
    provided by operating activities: |                                                                                 |        |        |        |   |        |        |       
|                                            |                                                                                     | Equity in earnings of Principal Healthcare
    Finance Limited                  |        |        | (983   | ) |        |        | (1,560 | )
|                                            |                                                                                     | Equity in earnings of Principal Healthcare
    Finance Trust                    |        |        | (394   | ) |        |        | (179   | )
|                                            |                                                                                     | Equity in earnings of Essex Healthcare Corporation                              |        |        |       |   |        |        | (26    | )
|                                            |                                                                                     | Straight-line rent adjustment                                                   |        |        | 1,994  |   |        |        | 2,549  |  
|                                            |                                                                                     | Depreciation and amortization                                                   |        |        | 1,351  |   |        |        | 1,078  |  
|                                            |                                                                                     | Gain on sale of partial interest in Principal
    Healthcare Finance Trust      |        |        | (423   | ) |        |        |       |  
|                                            |                                                                                     | Recognized impairment on investment in Principal
    Healthcare Finance Limited |        |        | 1,000  |   |        |        |       |  
|                                            |                                                                                     | Recognized impairment on investment in Moran
    Health Care (UK) Ltd.          |        |        |       |   |        |        | 2,665  |  
|                                            |                                                                                     | Other non-cash charges                                                          |        |        | 328    |   |        |        | 399    |  
|                                            |                                                                                     | Payments of Federal and foreign taxes                                           |        |        | (901   | ) |        |        | (560   | )
|                                            |                                                                                     | Net change in operating assets and liabilities                                  |        |        | (2,124 | ) |        |        | (2,944 | )
|                                            |                                                                                     | Foreign currency translation                                                    |        |        | 2,763  |   |        |        |       |  
|                                            |                                                                                     |                                                                                 |        |        |        |   |        |       
|Net cash provided by operating activities   |                                                                                     |                                                                                 | 1,817  |        |        |   | 1,310  |       
|Cash flows from financing activities:       |                                                                                     |                                                                                 |        |        |        |   |        |       
|                                            | Repayment of revolving warehouse facility drawn
    by subsidiary                   |                                                                                 |        | (2,260 | )      |   |        | (253   | )     
|                                            | Proceeds from (repayment of) long-term borrowings
    by subsidiary                 |                                                                                 |        | 520    |        |   |        | (621   | )     
|                                            | Repayments of revolving credit facility with bank                                   |                                                                                 |        |       |        |   |        | (4,850 | )     
|                                            |                                                                                     |                                                                                 |        |        |        |   |        |       
|Net cash used in financing activities       |                                                                                     |                                                                                 | (1,740 | )      |        |   | (5,724 | )     
|Cash flows from investing activities:       |                                                                                     |                                                                                 |        |        |        |   |        |       
|                                            | Acquisition of plant, property and equipment by
    subsidiaries                    |                                                                                 |        | (2,588 | )      |   |        | (1,823 | )     
|                                            | Decrease in restricted cash                                                         |                                                                                 |        | 2,211  |        |   |        | 613    |       
|                                            | Repayments from (temporary advances to) Principal
    Healthcare Finance Limited    |                                                                                 |        | (445   | )      |   |        | 5,450  |       
|                                            | Proceed from sale of partial interest in
    Principal Healthcare Finance Trust     |                                                                                 |        | 1,502  |        |   |        |       |       
|                                            | Proceeds from sale of Essex Healthcare investment                                   |                                                                                 |        |       |        |   |        | 325    |       
|                                            | Dividends from affiliates                                                           |                                                                                 |        |       |        |   |        | 183    |       
|                                            | Other                                                                               |                                                                                 |        | (119   | )      |   |        | (128   | )     
|                                            |                                                                                     |                                                                                 |        |        |        |   |        |       
|Net cash provided by investing activities   |                                                                                     |                                                                                 | 561    |        |        |   | 4,620  |       
|                                            |                                                                                     |                                                                                 |        |        |        |   |        |       
|Increase in cash and short-term investments |                                                                                     | $                                                                               | 638    |        |        | $ | 206    |       
|                                            |                                                                                     |                                                                                 |        |        |        |   |        |       

See notes to condensed consolidated financial
statements.

4



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##### Table of Contents



OMEGA WORLDWIDE, INC.






NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS


Unaudited


June 30, 2002


(Dollars in thousands, except for per share
amounts)


Note A  Significant Accounting
Policies

Basis of
Presentation

The accompanying unaudited condensed consolidated
financial statements for the Company have been prepared in
accordance with accounting principles generally accepted in the
United States for interim financial information and with the
instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles
generally accepted in the United States for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results
for the three-month and nine-month periods ended June 30,
2002 are not necessarily indicative of the results that may be
expected for the year ending September 30, 2002. For
further information, refer to the financial statements and
footnotes thereto in the Companys annual report,
Form 10-K for the year ended September 30, 2001.

The balance sheet at September 30, 2001, has
been derived from audited consolidated financial statements at
that date but does not include all of the information and
footnotes required by accounting principles generally accepted
in the United States.

Consolidation
and Subsidiaries

The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries after
elimination of all material intercompany accounts and
transactions. The Companys policy is to report the results
of its subsidiaries and equity method investees on a one-month
lag basis. This allows time to produce accounts in a local GAAP
and then convert to a U.S. GAAP basis.

The Company reports the results of those
subsidiaries in which it has over 20% ownership, but in which it
does not hold a majority interest, using the equity method of
accounting, using a one-month lag basis. Investments in public
companies over which the Company does not exercise control are
recorded at fair market value. Temporary changes in fair market
value are charged to accumulated other comprehensive income,
while permanent reductions in fair market value are charged to
operations.

Non-Recurring
Expenses

As previously announced, the Company has been
exploring ways to maximize shareholder value. The cost of legal
advice and other settlement costs related to the process totaled
$586 and $552 for the three-month periods ended June 30,
2002 and 2001, respectively, and $630 and $683 for the
nine-month periods ended June 30, 2002 and 2001,
respectively.

Severance
Agreement Expense

The Company has reached an agreement with certain
former employees, including the former president, to pay them
severance payments upon their termination of employment under
certain terms of their employment agreements, as defined. The
total amounts of severance agreement expense for the nine-month
period ending June 30, 2002 is $1,626.

Financial
Instruments

In June 1998, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, as

5



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##### Table of Contents



OMEGA WORLDWIDE, INC.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

amended by SFAS No. 137 and SFAS
No. 138, which established new accounting and reporting
standards for derivative instruments. These rules require that
all derivative instruments be reported in the consolidated
financial statements at fair value. The fair value for all
derivative contracts is included in other assets or other
liabilities and will be recorded each period in earnings or
other comprehensive income, depending on whether the derivative
is designated and effective as part of a hedged transaction, and
on the type of hedge transaction. Gains or losses on derivative
instruments reported in other comprehensive income must be
reclassified as earnings in the period in which earnings are
affected by the underlying hedged item, and the ineffective
portion of all hedges is recognized in other income (expense) in
the statements of earnings in the current period. These new
standards may result in additional volatility in reported
earnings, other comprehensive income (loss) and accumulated
other comprehensive income (loss). These rules became effective
for the Company on October 1, 2000 and did not have a
significant effect on the Companys consolidated results of
operations or financial position upon adoption.

The Company is exposed to market risk from
changes in foreign currency exchange rates. The Company manages
its exposure to these market risks through its operating,
financing and investing activities and, when deemed appropriate,
through the use of forward foreign exchange contracts.

The Company has entered into forward foreign
exchange contracts in order to manage exposure related to
certain investments denominated in British Pound Sterling and
Australian dollars. The Company records changes in fair value of
its forward foreign exchange contracts in other income or
expense. The Companys forward foreign exchange contracts
are marked-to-market and unrealized gains and losses are
included in current period net income (loss) and a component of
other income (expense).

Translation

Translation of currencies for foreign subsidiary
financial information is computed pursuant to the provisions of
SFAS No. 52, Foreign Currency
Translation, which provides that balance sheet amounts
are translated at the period-end exchange rate and income
statement amounts are translated at the average-period exchange
rate. Gains and losses from foreign currency transactions are
included in the determination of net income. To offset the risk
of future currency fluctuations on receivables due from foreign
subsidiaries and investments, the Company may enter into foreign
exchange contracts to sell or buy currencies at specific rates
and on specific dates. During the three-month and nine-month
periods ended June 30, 2002, the Company recorded a charge
to accumulated other comprehensive gains of $3,275 and $1,260,
respectively, due to changes in the period-end exchange rates.
During the quarter ended June 30, 2001, the Company
terminated one of its currency hedges resulting in a net gain of
$528 while the underlying receivables and cash, which were no
longer hedged, required a write-down of $844 at June 30,
2001. The result is a net foreign currency exchange loss for the
three-month and nine-month periods ending June 30, 2001 of
$316. There are no material amounts of foreign currency hedge
trading gains or losses included in the results of operations
for the three-month and nine-month periods ended June 30,
2002 and 2001.

Accumulated other comprehensive income (loss)
consists of the net exchange gains and losses resulting from the
translation of foreign financial statements and is charged
directly to the balance sheet as a component of
shareholders equity.

Impact of
Recently Issued Accounting Standards

In June 2001, the FASB issued SFAS No. 141,
Business Combinations(FAS 141), and
No. 142, Goodwill and Other Intangible Assets(FAS 142). FAS 141 requires that the
purchase method of accounting be used for all business
combinations initiated after June 30, 2001. FAS 141
also includes guidance on the initial recognition and
measurement of goodwill and other intangible assets arising from
business combinations completed after June 30, 2001.
FAS 142 prohibits the amortization of goodwill and
intangible assets with indefinite useful lives. FAS 142
requires that these assets be reviewed for impairment at least

6



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##### Table of Contents



OMEGA WORLDWIDE, INC.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

annually. Intangible assets with finite lives
will continue to be amortized over their useful lives.
Additionally, FAS 142 requires that goodwill included in
the carrying value of equity method investments no longer be
amortized.

The Company applied FAS 142 beginning
October 1, 2001. The Company tested goodwill for impairment
using the two-step process prescribed in FAS 142. The first
step is a screen for potential impairment, while the second step
measures the amount of the impairment, if any. Based upon the
results of its review, the Company has determined there is no
goodwill impairment.

In October 2001, the FASB issued Statement
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets(FAS 144). FAS 144
supersedes FASB Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, however it retains the fundamental provisions
of that statement related to the recognition and measurement of
the impairment of long-lived assets to be held and
used. In addition, FAS 144 provides more guidance on
estimating cash flows when performing a recoverability test,
requires that a long-lived asset to be disposed of other than by
sale (e.g. abandoned) be classified as held and used
until it is disposed of, and establishes more restrictive
criteria to classify an asset as held for sale.
FAS 144 is effective for year-ends beginning after
December 15, 2001, but the Company adopted the FAS 144
effective October 1, 2001 with no material impact on the
consolidated financial statements.

Note B  Principal Healthcare
Finance Limited (Principal-UK)

The Company has a British Pound Sterling
denominated subordinated loan receivable of $22,992 and $22,040
at June 30, 2002 and September 30, 2001, respectively
from Principal-UK that was due June 29, 2001 and is now
past due. The loan bears interest at a rate of 15.93% (12.93%
through June 29, 2001) at June 30, 2002. In addition,
the Company has temporary unsecured advances to Principal-UK in
the amount of $6,390 and $5,697 outstanding at June 30,
2002 and September 30, 2001, respectively, with interest at
9.00%. Included in interest income for the three-month periods
ended June 30, 2002 and 2001 is $1,011 and $876,
respectively, and $3,019 and $2,721 for the nine-month periods
ended June 30, 2002 and 2001, respectively, related to the
subordinated loan receivable and temporary unsecured advances to
Principal-UK.

7



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##### Table of Contents



OMEGA WORLDWIDE, INC.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The following summarizes selected unaudited
financial information of Principal-UK in accordance with
accounting principles generally accepted in the United States:

|                                                                                            |                                 |                    |        |                   |         |         |        |         |         |   |        |         |         |   |        |         |         |  
|------------------------------------------------------------------------------------------- | ------------------------------- | ------------------ | ------ | ----------------- | ------- | ------- | ------ | ------- | ------- | - | ------ | ------- | ------- | - | ------ | ------- | ------- | -
|                                                                                            |                                 |                    |        |                  
|                                                                                            |                                 | Three-Month Period |        | Nine-Month Period
|                                                                                            |                                 | Ended              |        | Ended            
|                                                                                            |                                 |                    |        |                  
|                                                                                            |                                 | May 31,            |        | May 31,           |         | May 31, |        | May 31,
|Selected operating results for the period:                                                  |                                 | 2002               |        | 2001              |         | 2002    |        | 2001   
|                                                                                            |                                 |                    |        |                   |         |         |        |        
|Revenues:                                                                                   |                                 |                    |        |                   |         |         |        |         |         |   |        |         |         |   |        |        
|                                                                                            | Rent income                     |                    | $      | 13,824            |         |         | $      | 13,893  |         |   | $      | 41,243  |         |   | $      | 41,648  |        
|                                                                                            | Patient service revenue         |                    |        | 2,400             |         |         |        | 2,102   |         |   |        | 6,912   |         |   |        | 6,427   |        
|                                                                                            | Interest income                 |                    |        | 63                |         |         |        | 32      |         |   |        | 168     |         |   |        | 96      |        
|                                                                                            | Other income                    |                    |        | 1,019             |         |         |        | 1,026   |         |   |        | 3,091   |         |   |        | 3,606   |        
|                                                                                            |                                 |                    |        |                   |         |         |        |         |         |   |        |         |         |   |        |        
|                                                                                            |                                 | Total revenues     |        |                   | 17,306  |         |        |         | 17,053  |   |        |         | 51,414  |   |        |         | 51,777  |  
|Expenses:                                                                                   |                                 |                    |        |                   |         |         |        |         |         |   |        |         |         |   |        |        
|                                                                                            | Interest expense                |                    |        | (8,884            | )       |         |        | (8,854  | )       |   |        | (26,624 | )       |   |        | (27,061 | )      
|                                                                                            | Depreciation and amortization   |                    |        | (2,426            | )       |         |        | (2,434  | )       |   |        | (7,386  | )       |   |        | (7,433  | )      
|                                                                                            | Direct cost of patient services |                    |        | (2,106            | )       |         |        | (2,024  | )       |   |        | (6,034  | )       |   |        | (6,498  | )      
|                                                                                            | General and administrative      |                    |        | (1,964            | )       |         |        | (1,382  | )       |   |        | (6,714  | )       |   |        | (4,075  | )      
|                                                                                            |                                 |                    |        |                   |         |         |        |         |         |   |        |         |         |   |        |        
|                                                                                            |                                 | Total expenses     |        |                   | (15,380 | )       |        |         | (14,694 | ) |        |         | (46,758 | ) |        |         | (45,067 | )
|                                                                                            |                                 |                    |        |                   |         |         |        |         |         |   |        |         |         |   |        |        
|Income from operations before income taxes                                                  |                                 |                    | 1,926  |                   |         |         | 2,359  |         |         |   | 4,656  |         |         |   | 6,710  |        
|Provision for income taxes                                                                  |                                 |                    | (533   | )                 |         |         | (633   | )       |         |   | (1,613 | )       |         |   | (1,852 | )      
|                                                                                            |                                 |                    |        |                   |         |         |        |         |         |   |        |         |         |   |        |        
|Net income from operations before cumulative
    effects of change in accounting principles |                                 | $                  | 1,393  |                   |         | $       | 1,726  |         |         | $ | 3,043  |         |         | $ | 4,858  |        
|                                                                                            |                                 |                    |        |                   |         |         |        |         |         |   |        |         |         |   |        |        
|Average exchange rate ($ per £)                                                             |                                 | $                  | 1.4432 |                   |         | $       | 1.4320 |         |         | $ | 1.4421 |         |         | $ | 1.4483 |        

|                                                                                |  |         |         |            |  |   |         | 
|------------------------------------------------------------------------------- |  | ------- | ------- | ---------- |  | - | ------- | 
|                                                                                |  | May 31, |         | August 31,
|Selected balance sheet information as of:                                       |  | 2002    |         | 2001      
|                                                                                |  |         |         |           
|Investments in real estate subject to triple-net
    lease, net of depreciation |  | $       | 368,548 |            |  | $ | 371,917 | 
|Total assets                                                                    |  |         | 546,585 |            |  |   | 532,109 | 
|Non-recourse debt borrowings(1)                                                 |  |         | 416,536 |            |  |   | 440,795 | 
|Total liabilities                                                               |  |         | 518,781 |            |  |   | 507,615 | 
|Total stockholders equity                                                      |  |         | 27,804  |            |  |   | 24,494  | 
|Exchange rate ($ per £)                                                         |  |         | 1.4659  |            |  |   | 1.4577  | 



---



|    |                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------
|(1) | Substantially all of Principal-UKs real
    estate is pledged as collateral for Principal-UKs debt
    agreements.

The functional currency of Principal-UK is the
British pound sterling. In accordance with FASB 52, the
balance sheet amounts are translated at the period end exchange
rate and the income statement amounts are translated at the
average exchange rate for the period.

As of May 31, 2002 and August 31, 2001,
Principal-UK had $79,559 and $69,141, respectively, of mortgage,
loan and subordinated notes payable past due, including $28,100
and $27,648, respectively, due to the Company in respect of
subordinated notes and temporary unsecured advances.
Principal-UK is in negotiations with its lenders to extend the
maturity dates and the terms of the various loans and notes. If
Principal-UK is unable to extend the maturity dates and the
terms with these lenders, Principal-UK will look to
(1) obtain alternative financing from other financial
institutions, or (2) the potential sale of certain assets
as sources of cash to repay the amounts outstanding under such
mortgage, loan and notes payable. This condition

8



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##### Table of Contents



OMEGA WORLDWIDE, INC.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

raises doubt about Principal-UKs ability to
continue as a going concern. Principal-UKs financial
statements do not include any adjustments to reflect the
possible future effects on the recoverability and
classifications of assets or the amounts and classifications of
liabilities that may result from the outcome to this uncertainty.

Principal-UK continues to maintain its periodic
payment requirements under the mortgage and other loans from
third-parties, but has not made any interest payments to the
Company in respect of the subordinated notes and temporary
unsecured advances since January 2002. Additionally,
Principal-UK has not made any interest payments since January
2002 to the other third-party holder of its subordinated notes.
While Principal-UK has continued to make payments to its
lenders under the mortgage and other loans, there can be no
assurance that one or all of the affected lenders will not
demand payment of such indebtedness immediately. Additionally,
there can be no assurance that Principal-UK will be in
compliance with its financial debt covenants in future periods
since Principal-UKs future financial performance is
subject to various risks and uncertainties, including, but not
limited to, the effects of increases in market interest rates
from current levels; the risk of potential increases in vacancy
rates and the resulting impact on Principal-UKs revenue;
and risks associated with refinancing Principal-UKs
current debt obligations or obtaining new financing under terms
as favorable as Principal-UK has experienced in prior periods.

The Companys financial statements do not
include any adjustments to reflect the possible future effects
on the recoverability in respect of the subordinated notes and
temporary unsecured advances made to Principal-UK of $29,382 at
June 30, 2002 that may result from the outcome to the
uncertainty of Principal-UKs ability to continue as a
going concern described above. The realization of the
subordinated notes and temporary unsecured advances to and the
Companys investment in Principal-UK is dependent upon the
resolution of this uncertainty.

The Companys financial statements
recognized an impairment in its investment of Principal-UK
of $1,000 during the second quarter of the current fiscal year.

Since January 2002, Principal-UK has not paid
fees due to the Company in respect of management services
provided to Principal-UK in the amount of $259. At June 30,
2002, the Company is due, but has not received, interest from
Principal-UK in respect of subordinated notes and temporary
unsecured advances amounting to $2,188. The Company expects to
receive these amount in due course.

The effective tax rates are 35% and 28% for the
nine-month periods ending May 31, 2002 and 2001,
respectively. These rates differ from the UK tax rate primarily
because the provision for depreciation and amortization is not
deductible for tax purposes in the United Kingdom. The
Companys proportionate share of Principal-UKs
earnings for the three-month periods ended May 31, 2002 and
2001 are approximately $494 and $577, respectively, and
approximately $1,044 and $1,621 for the nine-month periods
ending May 31, 2002 and 2001, respectively. Finally, the
Company has recorded a charge against earnings of approximately
$21 for the three-month periods ended May 31, 2002 and
2001, respectively, and approximately $61 for the nine-month
periods ending May 31, 2002 and 2001, respectively,
representing amortization over a ten-year period of the excess
of the Companys investment in Principal-UK over its
proportionate share of Principal-UKs underlying equity.

9



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##### Table of Contents



OMEGA WORLDWIDE, INC.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Note C  Principal Healthcare
Finance Trust (Principal-Australia)

The following summarizes selected unaudited
financial information of Principal-Australia in accordance with
generally accepted accounting principles in the United States:

|                                                 |                                  |                |        |         |        |         |        |         |        |   |        |        |        |   |        |        |        |  
|------------------------------------------------ | -------------------------------- | -------------- | ------ | ------- | ------ | ------- | ------ | ------- | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | -
|                                                 |                                  | May 31,        |        | May 31, |        | May 31, |        | May 31,
|Selected Operating Results for the period ended: |                                  | 2002           |        | 2001    |        | 2002    |        | 2001   
|                                                 |                                  |                |        |         |        |         |        |        
|Revenues:                                        |                                  |                |        |         |        |         |        |         |        |   |        |        |        |   |        |       
|                                                 | Rent income                      |                | $      | 3,512   |        |         | $      | 2,931   |        |   | $      | 9,658  |        |   | $      | 8,857  |       
|                                                 | Interest income                  |                |        | 40      |        |         |        | 34      |        |   |        | 116    |        |   |        | 244    |       
|                                                 | Other income                     |                |        | 135     |        |         |        | 9       |        |   |        | 156    |        |   |        | 28     |       
|                                                 |                                  |                |        |         |        |         |        |         |        |   |        |        |        |   |        |       
|                                                 |                                  | Total revenues |        |         | 3,687  |         |        |         | 2,974  |   |        |        | 9,930  |   |        |        | 9,129  |  
|Expenses:                                        |                                  |                |        |         |        |         |        |         |        |   |        |        |        |   |        |       
|                                                 | Interest expense                 |                |        | (2,298  | )      |         |        | (1,977  | )      |   |        | (6,432 | )      |   |        | (6,014 | )     
|                                                 | Depreciation and amortization    |                |        | (485    | )      |         |        | (480    | )      |   |        | (1,500 | )      |   |        | (1,454 | )     
|                                                 | Amortization of debt issue costs |                |        | (29     | )      |         |        | (58     | )      |   |        | (84    | )      |   |        | (177   | )     
|                                                 | General and administrative       |                |        | (388    | )      |         |        | (431    | )      |   |        | (1,050 | )      |   |        | (1,055 | )     
|                                                 |                                  |                |        |         |        |         |        |         |        |   |        |        |        |   |        |       
|                                                 |                                  | Total expenses |        |         | (3,200 | )       |        |         | (2,946 | ) |        |        | (9,066 | ) |        |        | (8,700 | )
|                                                 |                                  |                |        |         |        |         |        |         |        |   |        |        |        |   |        |       
|Net income for operations                        |                                  | $              | 487    |         |        | $       | 28     |         |        | $ | 864    |        |        | $ | 429    |       
|                                                 |                                  |                |        |         |        |         |        |         |        |   |        |        |        |   |        |       
|Average exchange rate ($ per A$)                 |                                  | $              | 0.5518 |         |        | $       | 0.5086 |         |        | $ | 0.5216 |        |        | $ | 0.5310 |       

|                                                                                |  |         |         |            |  |   |         | 
|------------------------------------------------------------------------------- |  | ------- | ------- | ---------- |  | - | ------- | 
|                                                                                |  | May 31, |         | August 31,
|Selected Balance Sheet Information as of:                                       |  | 2002    |         | 2001      
|                                                                                |  |         |         |           
|Investments in real estate subject to triple-net
    lease, net of depreciation |  | $       | 100,767 |            |  | $ | 92,508  | 
|Total assets                                                                    |  |         | 130,278 |            |  |   | 116,535 | 
|Non-recourse debt borrowings                                                    |  |         | 96,206  |            |  |   | 91,243  | 
|Total liabilities                                                               |  |         | 113,194 |            |  |   | 102,686 | 
|Total unit holders equity                                                      |  |         | 17,084  |            |  |   | 13,849  | 
|Exchange rate ($ per A$)                                                        |  | $       | 0.5644  |            |  | $ | 0.5766  | 

The functional currency of Principal-Australia is
the Australian dollar. In accordance with FASB 52, the
balance sheet amounts are translated at the period end exchange
rate and the income statement amounts are translated at the
average exchange rate for the period.

In April 2002, the Company sold a 7% interest in
Principal-Australia to a third-party for net proceeds of
approximately $1.5 million. An additional 500,000 units in
Principal-Australia were issued simultaneously, resulting in the
Companys new ownership percentage in Principal-Australia
being reduced to 38.46%. The Company will realize a gain on sale
of partial interest in Principal-Australia of approximately $423
in the third quarter of the current fiscal year. The
Companys ownership percentage in Principal-Australia for
the three-month and nine-month periods ending June 30, 2001
and for the periods prior to the sale of interest in April 2002
was 47%.

Note D  Other Investments

The Company (until December 1, 2000) held
approximately 47% of the outstanding common shares of Essex
Healthcare Corporation (Essex), an Atlanta-based
private operator of skilled nursing facilities. Essexs
primary activities are in Ohio. The Company accounted for this
investment using the equity method.

10



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##### Table of Contents



OMEGA WORLDWIDE, INC.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

On December 1, 2000, the Company sold its
interest in Essex for $325, which approximated book value. The
Company recorded its proportionate share of Essexs
earnings of $26 during the first quarter of fiscal year 2001.

Note E  Earnings Per
Share

Earnings per share are computed based on the
weighted average number of common shares outstanding during the
period. Diluted earnings per share amounts reflect the dilutive
effect of stock options, (two and none for the three-month and
nine-month periods ended June 30, 2002 and none for the
three-month and nine-month periods ended June 30, 2001,
respectively). The assumed conversion of shares of preferred
stock is antidilutive.

Note F  Credit Facilities

The Companys outstanding indebtedness
consists of the following:

|                           |  |               |       |                    |  |   |        |  
|-------------------------- |  | ------------- | ----- | ------------------ |  | - | ------ | -
|                           |  | June 30, 2002 |       | September 30, 2001
|                           |  |               |       |                   
|(1) Loan due May 2012      |  | $             | 1,334 |                    |  | $ | 1,822  |  
|(2) Loan due February 2003 |  |               |      |                    |  |   | 674    |  
|(3) Loan due May 2012      |  |               | 1,026 |                    |  |   | 1,605  |  
|                           |  |               |       |                    |  |   |        |  
|                           |  |               | 2,360 |                    |  |   | 4,101  |  
|Less current maturities    |  |               | (236  | )                  |  |   | (2,514 | )
|                           |  |               |       |                    |  |   |        |  
|Long-term debt             |  | $             | 2,124 |                    |  | $ | 1,587  |  
|                           |  |               |       |                    |  |   |        |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Idun has a loan with a bank that is secured by
    the business and assets of a nursing home subsidiary and carries
    an interest rate of Libor plus 2%. Prior to May 2002, the loan
    was due on demand and the interest rate on this loan was at 2.5%
    above the banks base lending rate. (6.42% and 8.37%
    interest at June 30, 2002 and September 30, 2001,
    respectively). The loan is being amortized over its life and
    requires quarterly payments of $47.
|   
|(2) | Iduns secured bank loan has been repaid in
    full. The interest on this loan was at a floating interest rate
    of LIBOR plus 2% (7.33% interest at September 30, 2001).                                                                                                                                                                                                                                                                                                       
|   
|(3) | Idun has a loan with a bank that is secured by
    the business and assets of a nursing home company and carries a
    floating interest rate of LIBOR plus 2% (6.42% and 7.33%
    interest at June 30, 2002 and September 30, 2001,
    respectively). The loan is being amortized over its life and
    requires quarterly payments of approximately $38.                                                                                                                       

The Company guarantees none of the loans of Idun.
Substantially all of the Iduns plant, property and
equipment are collateral for its lease obligations and the above
loans.

The principal payment in each of the five years
following June 30, 2002 is set forth below:

|                                  |  |   |       | 
|--------------------------------- |  | - | ----- | 
|Within one year                   |  | $ | 236   | 
|After one and within two years    |  |   | 236   | 
|After two and within three years  |  |   | 236   | 
|After three and within four years |  |   | 236   | 
|After four and within five years  |  |   | 236   | 
|After five years                  |  |   | 1,180 | 
|                                  |  |   |       | 
|                                  |  | $ | 2,360 | 
|                                  |  |   |       | 

11



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##### Table of Contents



OMEGA WORLDWIDE, INC.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Note G  Related Party
Transactions

The Company, through its subsidiary Idun, leases
nursing homes throughout the United Kingdom under operating
leases from Principal-UK that expire at various dates through
the year 2035. Iduns rent expense on leases with
Principal-UK was approximately $4.1 million and
$3.4 million for the three-month periods ended
June 30, 2002 and 2001, respectively, and approximately
$11.0 and $10.3 million for each of the nine-month periods
ended June 30, 2002 and 2001, respectively. These rent
expenses are included in cost of patient services.

Future minimum lease expenses accounted for under
US GAAP under operating leases from Principal-UK as of
June 30, 2002 are as follows:

|           |  |   |         | 
|---------- |  | - | ------- | 
|2002       |  | $ | 17,414  | 
|2003       |  |   | 17,415  | 
|2004       |  |   | 17,415  | 
|2005       |  |   | 17,415  | 
|2006       |  |   | 16,235  | 
|Thereafter |  |   | 305,213 | 
|           |  |   |         | 
|           |  | $ | 391,107 | 
|           |  |   |         | 

Pursuant to the provision of a Services Agreement
between Omega Healthcare Investors, Inc. (Omega
Healthcare) and the Company, prior to November 2000 the
Company paid Omega Healthcare a quarterly fee of $38 for the use
of common office facilities. The quarterly fee was amended in
November 2000 to $33 per quarter and again in January 2002
to $6 per quarter. Incurred expenses for the three-month
periods ended June 30, 2002 and 2001 were approximately $6
and $33, respectively, and for the nine-month periods ended
June 30, 2002 and 2001 were approximately $39 and $67,
respectively.

Omega Healthcare holds preferred shares in the
Company of $2.6 million at June 30, 2002. The
preferred shares are entitled to cumulative undeclared dividends
of $884 prior to any distribution to common shareholders.

Fees from services provided to Principal-UK for
the three-month periods ended June 30, 2002 and 2001 are
$988 and $1,056, respectively, and for the nine-month periods
ended June 30, 2002 and 2001 are $2,928 and $3,199,
respectively.

Fees from services provided to
Principal-Australia for the three-month periods ended
June 30, 2002 and 2001 are $336 and $309, respectively, and
for the nine-month periods ended June 30, 2002 and 2001 are
$1,009 and $899, respectively.

Note H  Income Taxes

During the period ended March 31, 2002, the
Company deemed a tax refund (current income tax benefit) and a
deferred tax liability (deferred income tax provision) of $4,200
to be recognizable related to the uncollectability of
intercompany balances of consolidated subsidiaries. Subsequent
to June 30, 2002, the Company has collected approximately
$3,156 of the tax refund due.

Note I  Subsequent Events

On August 1, 2002, the Company announced
that it had entered into a definitive merger agreement with Four
Seasons Health Care Limited (Four Seasons) and a
wholly-owned subsidiary of Four Seasons providing for the
acquisition of all of the outstanding shares of common stock of
the Company for $3.32 per

12



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##### Table of Contents



OMEGA WORLDWIDE, INC.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

share. A tender offer by Four Seasons was
commenced on August 7, 2002 for all of the outstanding
shares of the Company, which tender offer is scheduled to expire
September 5, 2002. The merger is currently expected to be
completed during the Companys third quarter of 2002.

Acceptance of the tender offer by the
shareholders of at least a majority of the outstanding shares of
common stock of the Company is a condition, among others, to
closing the tender offer. Certain large shareholders and the
directors and officers of the Company holding approximately 40%
of the outstanding shares of common stock of the Company have
agreed to tender their shares to Four Seasons or one of its
affiliates.

The transaction also involves, and is condition
upon; inter alia, the cash purchase by Four Seasons of at least
90% of the shares of Principal-UK not held by the Company (which
is approximately 67% of the outstanding shares of Principal-UK).
Persons holding all of the outstanding shares of Principal-UK
have entered into binding agreements to sell their interest to
Four Seasons or one of its affiliates. Details regarding this
transaction are included in the Companys 14-D9 filing with
the Securities and Exchange Commission on August 7, 2002.

Item 2  Managements
Discussion and Analysis of Financial Condition and Results of
Operations

Safe Harbor Statement under the
United States Private Securities Litigation Reform Act of 1995.
Statements that are not historical facts contained in
Managements Discussion and Analysis are forward-looking
statements that involve risks and uncertainties that could cause
actual results to differ from projected results. Some of the
factors that could cause actual results to differ materially
include: the financial strength of the operators of the
facilities owned by the Companys investees as it affects
their continuing ability to meet their obligations under the
terms of the lease agreements; changes in operators or ownership
of operators; government policy relating to the healthcare
industry, including changes in the reimbursement levels;
operators continued eligibility to participate in the
government sponsored payment programs; changes in reimbursement
by other third-party payors; occupancy levels at the facilities;
the availability and cost of capital of the Company and its
investees; the strength and financial resources of competitors
of the Company and investees; the ability of investees to make
additional real estate investments at attractive yields; and the
ability of investees to obtain debt and equity capital at
reasonable costs.

Following is a discussion and analysis of the
Companys consolidated results of operations, financial
condition and liquidity and capital resources. The discussion
should be read in conjunction with the unaudited condensed
consolidated financial statements and accompanying footnotes
(Dollars in thousands).

Results of Operations

The Company generates income from four primary
sources: (1) fee income from providing investment advisory
and management services; (2) interest income from providing
financing to companies in the healthcare and healthcare
financing industries; (3) operating nursing homes in the
United Kingdom through its wholly-owned subsidiary, Idun; and
(4) equity in earnings of companies in the healthcare and
healthcare financing industries.

Most of the Companys operations are in the
United Kingdom and they transact business in the British Pound
Sterling (£). Results are translated to United
States dollar (US$) at an average exchange rate for
the period. For the three-month and nine-month periods ending
June 30, 2002, the £ relative to the US$ has
strengthened approximately 3% and has been approximately the
same from the comparable period last year, respectively and has
strengthened approximately 3% and 4%, respectively since
September 30, 2001.

13



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##### Table of Contents



OMEGA WORLDWIDE, INC.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Revenues

Patient services revenue from the Idun operations
was $38,552 for the quarter ending June 30, 2002 compared
with $35,463 for the quarter ending June 30, 2001. For the
nine-month periods ending June 30, 2002 and 2001, patient
service revenues were $111,255 and $104,778, respectively. The
average occupancy rate for the quarter was 90.4% compared to
90.0% for the comparable period last year. The increase in
revenue for both the three-month and nine-month periods ending
June 30, 2002 was the result of growth of approximately 1%
in available beds under Iduns management and approximately
2% growth in beds occupied. In addition, Idun achieved an
increase in the average weekly fee per bed of approximately 3%.
Idun returned to profitability this quarter under accounting
principles generally accepted in the United States (US
GAAP) with a profit of approximately $695.

Fee income from Principal-UK for the quarter
ending June 30, 2002 was $988 compared with $1,056 for the
same period in 2001. For the nine-month period ending
June 30, 2002 fee income from Principal-UK was $2,928
compared to $3,199 for the comparable period last year. The
decrease primarily relates to the reduction in assets under
management that are defined by UK GAAP. At June 30, 2002
assets under management totaled £283.0 million
compared with £306.0 million at June 30, 2001.
The terms of the Companys agreement with Principal-UK
calls for a fee equal to 90 basis points multiplied by the value
of Principal-UKs invested assets under management by the
Company as computed using UK GAAP. Notice has been served by
Principal-UK seeking to terminate the fee agreement on
December 31, 2002. The Companys underlying asset
management and advisory contracts with the Trustees of
Principal-UK bonds continue on similar terms to the fee
arrangement with Principal-UK until after the maturity of the
bonds between 2025 and 2029.

Fee income from Principal-Australia for the
quarter ending June 30, 2002 was $336 compared with $309
for the same period in 2001. For the nine-month period ending
June 30, 2002 fee income from Principal-Australia was
$1,009 compared to $899 for the comparable period last year. The
increase primarily relates to the increase in assets under
management that are defined by Australian GAAP. At June 30,
2002 assets under management totaled A$241 million compared
with A$220 million at June 30, 2001. The terms of the
Companys agreement with Principal-Australia calls for a
fee equal to 90 basis points multiplied by the value of
Principal-Australias invested assets under management by
the Company as computed using Australian GAAP.

Interest income from Principal-UK for the quarter
ending June 30, 2002 was $1,011 compared with $876 for the
same period in 2001. For the nine-month period ending
June 30, 2002 interest income from Principal-UK was $3,019
compared with $2,721 for the comparable period last year.
Interest income from Principal-UK is earned on
£15.0 million of subordinated debt and temporary
advances to Principal-UK. The subordinated debt with
Principal-UK matured on June 29, 2001. Additionally, since
June 29, 2001, the interest rate for the subordinated debt
has been 15.93% under the terms of the agreement. Prior to
June 29, 2001, the interest rate was at 12.93% from
July 1, 2000 to June 29, 2001. As a result of the
higher interest rate, the subordinated debt earned an additional
$121 and $450 in interest in the three-month and nine-month
periods ending June 30, 2002, respectively, compared to the
same period last year. The increase in interest earned on the
subordinated debt was partially offset by the reduction in
interest earned from temporary advances which declined $180 in
the nine-month periods ending June 30, 2002 compared to the
same period last year. Average temporary advance balances were
£4.1 million and £5.8 million for the
nine-month periods ending June 30, 2002 and 2001,
respectively. Commencing March 5, 2001, the interest on
temporary advances is at 9.00% on the first
£4.3 million of advances (approximately
$6.6 million) and 15.00% on the advances in excess of
£4.3 million, with the maximum temporary advance limit
of £7.0 million (approximately $10.7 million).
Prior to March 5, 2001, interest on temporary advances was
fixed at 9.25%.

14



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##### Table of Contents



OMEGA WORLDWIDE, INC.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Expenses

Direct cost of patient services is incurred in
running the Idun subsidiarys nursing homes in the United
Kingdom. Direct cost of patient services was $37,857 for the
quarter ending June 30, 2002 compared with $35,724 for the
quarter ending June 30, 2001. For the nine-month periods
ending June 30, 2002 and 2001, direct cost of patient
services were $111,557 and $106,566, respectively. The long-term
nature of the Companys operating leases for Principal-UK
homes with scheduled rent increases, resulted in significant
non-cash rent expense under US GAAP ($748 and $840 for the
three-month periods ending June 30, 2002 and 2001,
respectively, and, $1,985 and $2,544 for the nine-month periods
ending June 30, 2002 and 2001, respectively). The Company
has made progress during the last twenty-nine months as direct
cost of patient services as a percentage of patient service
revenues declined under US GAAP to 100.3% for the nine-month
period ending June 30, 2002 compared with 101.7% for the
same period in 2001.

Direct costs of asset management for the
nine-month period ending June 30, 2002 increased by $160
from the comparable period last year. The increase was primarily
the result of an increase in UK and Australian payroll costs of
$283, which were offset by decreases in UK occupancy costs
(decline of $47), and a decline in UK and Australian travel
expenses (decline of $79) for the nine-month period ending
June 30, 2002 compared with the comparable period last year.

General, administrative and other expenses
increased $1,118 for the nine-month period ending June 30,
2002 from the comparable period last year. The current years
increase is attributable to the loss in value in the
Companys foreign currency forward contracts of $1,167 and
the increase in director fees and expenses of $227. These
increased expenses were partially offset by the decline in
payroll costs of $46, reduced provisions for bad debts of $71
and a reduction in professional services (legal and accounting
fees) of $55 for the nine-month period ending June 30, 2002
compared with the comparable period last year.

Interest expense for the nine-month period ending
June 30, 2002 was $182 compared with $466 for the same
period in 2001. During the nine-month period ending
June 30, 2001, the Companys interest expense included
the expense from the Companys bank credit agreement. This
bank credit agreement was paid off in June 2001. In the current
year, Idun used restricted cash to paid off one of its bank
loans and had further reductions in other bank loans.

The Company has reached an agreement with certain
former employees, including the former president, to pay them
severance payments upon their termination of employment under
certain terms of their employment agreements, as defined. The
total amount of severance agreement expense for the nine-month
periods ending June 30, 2002 was $1,626, respectively.

During the quarter ending March 31, 2002,
the Company recognized a foreign currency exchange loss in the
quarter of $740 due to the uncollectability of intercompany
balances of consolidated subsidiaries. Previously, most of this
loss, which resulted from of the decline in the British Pound
Sterling in relation to the United States dollar, was recorded
in accumulated other comprehensive loss in the Companys
balance sheet.

Non-recurring expenses for the three-month period
ending June 30, 2002 and 2001 were $586 and $552,
respectively. For the nine-month period ending June 30,
2002 and 2001 non-recurring expenses were $630 and $683,
respectively. Non-recurring expenses represent the cost of legal
advice and settlement costs incurred in pursuing strategic
alternatives for the Company.

Other

Equity in earnings of Principal-UK decreased to
$473 in the current year quarter from $556 in the prior year
quarter. Equity in earnings of Principal-UK for the nine-month
period decreased to $983 in the current year from $1,560 in the
comparable period last year. The Companys ownership
percentage in Principal-UK has remained constant at 33.375%. The
decrease in income on a year to year basis is due to a
non-recurring

15



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##### Table of Contents



OMEGA WORLDWIDE, INC.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

gain from interest-rate hedge instruments of
approximately $593 included in the results of Principal-UK last
year and the write-down of certain loan notes receivable and
other receivable balances of approximately $1,708 in the current
quarter of this fiscal year.

Equity in earnings of Principal-Australia
increased to $213 in the current year quarter from $13 in the
prior year quarter. Equity in earnings of Principal-Australia
for the nine-month period increased to $393 in the current year
from $179 in the comparable period last year. The increase in
income for the nine-month period is due to improved performance
of Principal-Australia through new investments made during the
last twelve months which increased the rental income and a
reduction in its operating expenses.

In April 2002, the Company sold a 7% interest in
Principal-Australia to a third-party for net proceeds of
approximately $1,500. An additional 500,000 units in
Principal-Australia were issued simultaneously, resulting in the
Companys new ownership percentage in Principal-Australia
being reduced to 38.46%. The Company realized a gain on sale of
partial interest in Principal-Australia of approximately $423
during the three-month period ending June 30, 2002. The
Companys ownership percentage in Principal-Australia for
the three-month and nine-month periods ending June 30,
2001, and for the periods prior to the sale of interest in April
2002 was 47%.

Until December 1, 2000, the Company held
approximately 47% of the common shares of Essex, an
Atlanta-based private operator of skilled nursing facilities.
The Companys proportionate share of Essexs income
was $26 for the three-month period ending December 31,
2000. In December 2000, the Company sold its interest in Essex
for $325, which approximated book value.

During the quarter ending March 31, 2002,
the Company recognized an impairment on its investment in
Principal-UK of $1,000 based upon the Companys estimate of
fair value. No further impairment was necessary this quarter.

The Companys effective tax rate on a
year-to-date basis varies from the federal statutory rate of 34%
due to the benefit of available foreign tax credits on equity in
earnings of Principal-UK, which is reported after UK tax expense.

Liquidity and Capital Resources

The following summarizes the Companys
future contractual cash obligations:

|                        |  |                        |         |           |  |           |        |           |  |       |        |  |  |   |        |  |  |   |         | 
|----------------------- |  | ---------------------- | ------- | --------- |  | --------- | ------ | --------- |  | ----- | ------ |  |  | - | ------ |  |  | - | ------- | 
|                        |  |                       
|                        |  | Payments Due by Period
|                        |  |                       
|                        |  |                        |         | Less than |  |           |        | After 5  
|Contractual Obligations |  | Total                  |         | 1 Year    |  | 2-3 Years |        | 4-5 Years |  | Years
|                        |  |                        |         |           |  |           |        |           |  |      
|Long-term debt(1)       |  | $                      | 2,360   |           |  | $         | 236    |           |  | $     | 472    |  |  | $ | 472    |  |  | $ | 1,180   | 
|Operating leases(2)     |  |                        | 359,019 |           |  |           | 15,088 |           |  |       | 31,071 |  |  |   | 27,078 |  |  |   | 285,782 | 
|                        |  |                        |         |           |  |           |        |           |  |       |        |  |  |   |        |  |  |   |         | 
|Total contractual cash  |  | $                      | 361,379 |           |  | $         | 15,324 |           |  | $     | 31,543 |  |  | $ | 27,550 |  |  | $ | 286,962 | 
|                        |  |                        |         |           |  |           |        |           |  |       |        |  |  |   |        |  |  |   |         | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | All of the Companys $2.4 million of
    outstanding debt at June 30, 2002 is the obligation of
    Idun. The Company plans to utilize cash flows from Iduns
    operations to make the required debt payments.                                                                                                                                                         
|   
|(2) | The Company, through its subsidiary Idun, leases
    nursing homes throughout the United Kingdom under operating
    leases from Principal-UK which expire at various dates through
    the year 2035. The terms of these leases are consistent with the
    terms provided to third parties. Idun plans to utilize cash flow
    from operations to fund lease payments.

The Company has cash on hand which together with
expected future cash flows is sufficient to meets its
short-term and long-term obligations. Since January 2002,
Principal-UK has not paid fees due to the Company in respect of
management services provided to Principal-UK in the amount of
$259. At June 30,

16



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##### Table of Contents



OMEGA WORLDWIDE, INC.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

2002, the Company is due, but has not received,
interest from Principal-UK in respect of subordinated notes and
temporary unsecured advances amounting to $2,188. The Company
expects to receive these amounts in due course.

As of May 31, 2002, Principal-UK has
$68.9 million of mortgage, loan and subordinated notes
payable past due, including $28.1 million due to the
Company. Principal-UK is currently in negotiations with its
lenders to extend the maturity dates and terms of the notes. If
Principal-UK is unable to extend the maturity dates and terms
with these lenders, Principal-UK will look to (1) obtain
alternative financing from other financial institutions, or
(2) the potential sale of certain assets as sources of cash
to repay the amounts outstanding under such mortgage, loan and
notes payable. Although Principal-UK continues to maintain its
periodic payment requirements to its third-party mortgage and
other loan providers, there can be no assurance that one or all
of the affected lenders will not demand payment of such
indebtedness immediately. This condition raises doubt about
Principal-UKs ability to continue as a going concern. The
Companys financial statements do not include any
adjustments to reflect the possible future effect on the
recoverability In respect of the subordinated notes and
temporary unsecured advances made to Principal-UK of $29,382 at
June 30, 2002, that may result from the outcome to the
uncertainty of Principal-UKs ability to continue as a
going concern. The realization of the subordinated notes and
temporary unsecured advances to and the Companys
investment in Principal-UK is dependent upon the resolution of
this uncertainty.

The Company does not anticipate any changes in
the availability or terms of its financing in the near future.
In addition, the Company does not anticipate any increase in
costs or change in the availability in its insurance coverage.

Impact of Recently Issued Accounting
Standards

In June 2001, the FASB issued SFAS No. 141,
Business Combinations(FAS 141), and
No. 142, Goodwill and Other Intangible Assets(FAS 142). FAS 141 requires that the
purchase method of accounting be used for all business
combinations initiated after June 30, 2001. FAS 141
also includes guidance on the initial recognition and
measurement of goodwill and other intangible assets arising from
business combinations completed after June 30, 2001.
FAS 142 prohibits the amortization of goodwill and
intangible assets with indefinite useful lives. FAS 142
requires that these assets be reviewed for impairment at least
annually. Intangible assets with finite lives will continue to
be amortized over their useful lives. Additionally, FAS 142
requires that goodwill included in the carrying value of equity
method investments no longer be amortized.

The Company applied FAS 142 beginning
October 1, 2001. The Company tested goodwill for impairment
using the two-step process prescribed in FAS 142. The first step
is a screen for potential impairment, while the second step
measures the amount of the impairment, if any. Based upon the
results of its review, the Company has determined there is no
goodwill impairment.

In October 2001, the FASB issued Statement
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets(FAS 144). FAS 144
supersedes FASB Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, however it retains the fundamental provisions
of that statement related to the recognition and measurement of
the impairment of long-lived assets to be held and
used. In addition, FAS 144 provides more guidance on
estimating cash flows when performing a recoverability test,
requires that a long-lived asset to be disposed of other than by
sale (e.g. abandoned) be classified as held and used
until it is disposed of, and establishes more restrictive
criteria to classify an asset as held for sale.
FAS 144 is effective for year-ends beginning after
December 15, 2001, but the Company adopted the FAS 144
effective October 1, 2001.

17



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##### Table of Contents



OMEGA WORLDWIDE, INC.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|        |                                                              
|------- | -------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosure
    About Market Risk

The Company is exposed to various market risks.
Market risk is the potential loss arising from adverse changes
in market interest rates and prices, such as short-term
borrowing and foreign currency exchange rates. The Company does
not enter into derivatives or other financial instruments for
trading or speculative purposes. The Company enters into forward
foreign currency contracts principally to manage its exposure to
currency fluctuations in its investments denominated in foreign
currencies, thereby limiting the Companys risk that would
otherwise result from changes in exchange rates. At
June 30, 2002, the Company had outstanding an Australian
dollar forward currency contract to exchange A$11.0 million
Australian dollars for $6.7 million to mature on
July 3, 2003. From time to time, the Company may also
obtain forward foreign currency contracts for its foreign
currency exposure relative to temporary loans to Principal-UK
and Idun, however at June 30, 2002, the Company had no such
forward currency contracts. Because of the Companys
foreign exchange contracts, its sensitivity to foreign exchange
currency exposure is considered partially mitigated. Most
components of the Companys income are earned in currencies
other than the U.S. dollar and are subject to fluctuation.

Iduns lease expense is subject to annual
inflation adjustments, which would be partially offset by
increased equity in earnings of Principal-UK as most of its
leases have annual inflation adjustments and Idun leases a
number of its facilities from Principal-UK.

The following table provides information about
the Companys (through Idun) loans payable and the
sensitivity to changes in interest rates:

|                                  |  |                                       |      |      |  |      |      |      |  |      |      |            |  |       |      |   |  |   |      |   |  |   |       |   |  |   |       |  
|--------------------------------- |  | ------------------------------------- | ---- | ---- |  | ---- | ---- | ---- |  | ---- | ---- | ---------- |  | ----- | ---- | - |  | - | ---- | - |  | - | ----- | - |  | - | ----- | -
|                                  |  |                                      
|                                  |  | Principal Amount by Expected Maturity
|                                  |  | Average Interest Rate                
|                                  |  |                                      
|                                  |  | 2002                                  |      | 2003 |  | 2004 |      | 2005 |  | 2006 |      | Thereafter |  | Total
|                                  |  |                                       |      |      |  |      |      |      |  |      |      |            |  |      
|Variable rate amount              |  | $                                     | 236  |      |  | $    | 236  |      |  | $    | 236  |            |  | $     | 236  |   |  | $ | 236  |   |  | $ | 1,180 |   |  | $ | 2,360 |  
|Weighted-average interest rate(1) |  |                                       | 6.42 | %    |  |      | 6.42 | %    |  |      | 6.42 | %          |  |       | 6.42 | % |  |   | 6.42 | % |  |   | 6.42  | % |  |   | 6.42  | %



---



|    |                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The weighted average interest rates are based
    upon the rates in effect as of June 30, 2002. See
    Note F to the Companys consolidated financial
    statements for additional information.

Foreign Currency Exchange Rate Risk

A significant portion of the Companys
assets are denominated in either British pound sterling
(£) or the Australian dollar (A$).
The following summarizes these assets and their carrying amounts
at June 30, 2002:

|                                                   |       |   |        |        | 
|-------------------------------------------------- | ----- | - | ------ | ------ | 
|Net operating assets of Idun (£)                   |       | $ | 9,863  |       
|Investment in and advances to Principal-UK
    (£) |       |   | 36,340 |       
|Other UK assets (£)                                |       |   | 2,769  |       
|Investment in Principal-Australia (A$)             |       |   | 6,571  |       
|                                                   |       |   |        |       
|                                                   | Total |   | $      | 55,543 | 
|                                                   |       |   |        |       

Interest Rate Risk

All of the $2.4 million in debt outstanding
at June 30, 2002 fluctuates with LIBOR. The remaining debt,
net of restricted cash on deposit is $2.0 million. At these
levels, a 1% increase in the LIBOR rate will result in a net
annual increase in expense of $24 to the Company.

18



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##### Table of Contents



OMEGA WORLDWIDE, INC.


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Inflation Indices Risk

In addition to being subject to inflation
increases in its operating costs and corresponding increases in
its revenues, Iduns lease expense is subject to annual
inflation adjustments based on the increase in consumer indices
in the United Kingdom. Annual adjustments, to the extent such
amounts exceed minimum levels reflected in the straight-line
rent computation, will increase Iduns lease expense.
Principal-UK will have a corresponding benefit in lease income
as most of its leases contain similar clauses.

19



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##### Table of Contents



PART II  OTHER
INFORMATION

Item 1.     Legal
Proceedings

None

Item 2.     Change
in Securities and Use of Proceeds

None

Item 3.     Defaults
upon Senior Securities

None

Item 4.     Submission
of Matters to a Vote of Security Holders

On May 2, 2002, the Company held its Annual
Meeting for the election of directors. Ronald S. Elder was
reelected as a director of the Company with 7,167,403 votes to
reelect and 222,194 votes withheld.

Item 5.     Other
Information

James P. Flaherty term as a Director expired on
May 2, 2002.

Item 6.     Exhibits
and Reports on Form 8-K:

(a) Exhibits  the following
exhibits are filed herewith:

|        |      |             |  |                                                                                                                                                                                                    
|------- | ---- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      | Description
|        |      |            
|        | 4.1  |             |  | Amendment to the Rights Agreement, dated
    July 17, 2002, between Omega Worldwide, Inc. and First
    Chicago Trust Company of New York.                                                         
|        | 4.2  |             |  | Second Amendment to the Rights Agreement, dated
    August 1, 2002, between Omega Worldwide, Inc. and EquiServe
    Trust Company, N.A. (successor to First Chicago Trust Company of
    New York).
|        | 10.1 |             |  | Amendment to Employment Agreement, dated July 1,
    2002, between Omega Worldwide, Inc. and Ronald Sharp Elder.                                                                                   
|        | 10.2 |             |  | Amendment to Employment Agreement, dated
    May 24, 2002, between Omega (UK) Limited and Mark D.
    Gosling.                                                                                     
|        | 10.3 |             |  | Amendment to Employment Agreement, dated
    May 24, 2002, between Omega (UK) Limited and John Storey.                                                                                             
|        | 99.1 |             |  | Section 906 Certification.                                                                                                                                                                         

(b) Reports on Form 8-K

The following report on Form 8-K was filed
since June 30, 2002:



| |                                                                                 
| | --------------------------------------------------------------------------------
| | Current report on Form 8-K dated
    August 6, 2002 with the following exhibits:



| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | Merger Agreement between Four Seasons Health Care
    Limited and the Company, dated August 1, 2002.

20



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##### Table of Contents








SIGNATURES


Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned hereunto duly
authorized.



| |                      
| | ---------------------
| | OMEGA WORLDWIDE, INC.
| | Registrant           



| |    |                                                                 
| | -- | ----------------------------------------------------------------
| | By | /s/ RONALD S. ELDER 
     ______________________________________

| |                                     
| | ------------------------------------
| | Ronald S. Elder                     
| | Chief Executive Officer and Director



| |    |                                                                 
| | -- | ----------------------------------------------------------------
| | By | /s/ MARK D. GOSLING 
     ______________________________________

| |                             
| | ----------------------------
| | Mark D. Gosling             
| | Vice President and Treasurer

August 14, 2002

21



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##### Table of Contents



EXHIBIT INDEX



|4.1  |  | Amendment to the Rights
Agreement, dated July 17, 2002, between Omega Worldwide, Inc. and First Chicago Trust Company of New York.                                                     
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|4.2  |  | Second Amendment to the Rights
Agreement, dated August 1, 2002, between Omega Worldwide, Inc. and Equiserve Trust Company, N.A. (successor to First Chicago Trust Company of New York).
|    
|10.1 |  | Amendment to Employment
Agreement, dated July 1, 2002, between Omega
Worldwide and Ronald Sharp Elder.                                                                                 
|    
|10.2 |  | Amendment to Employment
Agreement, dated May 24, 2002, between Omega (UK) Limited and Mark D.
Gosling.                                                                                 
|    
|10.3 |  | Amendment to Employment
Agreement, dated May 24, 2002, between Omega (UK) Limited and John Storey.                                                                                     
|    
|99.1 |  | Section 906 Certification.