##### 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 March 31,
    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



---

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, Ann
Arbor, Michigan 48103

(Address of Principal Executive
Offices)                (Zip
Code)


(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 May 14,
2002.

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



---






---

TABLE OF CONTENTS



|                                                     |  |  |  |  |  |  |  | 
|---------------------------------------------------- |  |  |  |  |  |  |  | 
|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
|PART II OTHER INFORMATION                           
|SIGNATURES                                          
|Exhibit Index                                       
|Employment Agreement                                



---



##### Table of Contents



OMEGA WORLDWIDE, INC.

FORM 10-Q

March 31, 2002

INDEX

|                                 |  |                                                                                                                                       |  |          |    | 
|-------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | -- | 
|                                 |  |                                                                                                                                       |  | Page No. |   
|                                 |  |                                                                                                                                       |  |          |   
|PART I
    FINANCIAL INFORMATION
|Item 1.                          |  | Financial Statements:                                                                                                                 |  |          |    | 
|                                 |  | Condensed Consolidated Balance Sheets 
    March 31, 2002 (unaudited) and September 30, 2001                                         |  |          | 2  | 
|                                 |  | Condensed Consolidated Statements of Operations
    (unaudited)  Three-month and Six-month periods ended
    March 31, 2002 and 2001 |  |          | 3  | 
|                                 |  | Condensed Consolidated Statements of Cash Flows
    (unaudited)  Six-month periods ended March 31,
    2002 and 2001                 |  |          | 4  | 
|                                 |  | Notes to Condensed Consolidated Financial
    Statements March 31, 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                                                                         |  |          | 17 | 
|PART II
    OTHER INFORMATION   
|Item 1.                          |  | Legal Proceedings                                                                                                                     |  |          | 19 | 
|Item 2.                          |  | Change in Securities and Use of Proceeds                                                                                              |  |          | 19 | 
|Item 3.                          |  | Defaults upon Senior Securities                                                                                                       |  |          | 19 | 
|Item 4.                          |  | Submission of Matters to a Vote of
    Security Holders                                                                               |  |          | 19 | 
|Item 5.                          |  | Other Information                                                                                                                     |  |          | 19 | 
|Item 6.                          |  | Exhibits and Reports on Form 8-K                                                                                                      |  |          | 19 | 

1



---



##### Table of Contents








PART 1


FINANCIAL INFORMATION

Item 1.     Financial
statements

OMEGA WORLDWIDE, INC.






CONDENSED CONSOLIDATED BALANCE
SHEETS


Unaudited


|                                                                                                      |                                       |                                                                          |        |        |               |  |        |        |        | 
|----------------------------------------------------------------------------------------------------- | ------------------------------------- | ------------------------------------------------------------------------ | ------ | ------ | ------------- |  | ------ | ------ | ------ | 
|                                                                                                      |                                       | March 31,                                                                |        |        | September 30, | 
|                                                                                                      |                                       | 2002                                                                     |        |        | 2001          | 
|                                                                                                      |                                       |                                                                          |        |        |               | 
|                                                                                                      |                                       | (Unaudited)                                                              |        |        | (Audited)     | 
|                                                                                                      |                                       |                                                                         
|                                                                                                      |                                       | (In thousands, except par values)                                        |       
|ASSETS                                                                                               
|Current Assets:                                                                                       |                                       |                                                                          |        |        |               |  |        |       
|                                                                                                      | Cash and short-term investments       |                                                                          | $      | 3,506  |               |  | $      | 6,184  |       
|                                                                                                      | Restricted cash                       |                                                                          |        | 1,783  |               |  |        | 2,211  |       
|                                                                                                      | Patient receivables                   |                                                                          |        | 7,777  |               |  |        | 9,602  |       
|                                                                                                      | Prepaid expenses                      |                                                                          |        | 2,377  |               |  |        | 2,577  |       
|                                                                                                      | Current tax benefit receivable        |                                                                          |        | 4,200  |               |  |        |       |       
|                                                                                                      | Other current assets                  |                                                                          |        | 2,609  |               |  |        | 1,022  |       
|                                                                                                      |                                       |                                                                          |        |        |               | 
|                                                                                                      |                                       | Total Current Assets                                                     |        |        | 22,252        |  |        |        | 21,596 | 
|Plant, property and equipment, net of accumulated
    depreciation of $3,225 and $2,509, respectively |                                       |                                                                          | 14,362 |        |               |  | 13,950 |       
|Investments in and advances to Principal
    Healthcare Finance Limited                               |                                       |                                                                          | 34,881 |        |               |  | 36,689 |       
|Investments in Principal Healthcare Finance Trust                                                     |                                       |                                                                          | 6,390  |        |               |  | 6,523  |       
|Rent deposits                                                                                         |                                       |                                                                          | 3,563  |        |               |  | 3,670  |       
|Other assets                                                                                          |                                       |                                                                          | 3,465  |        |               |  | 3,740  |       
|                                                                                                      |                                       |                                                                          |        |        |               | 
|                                                                                                      |                                       |                                                                          | 62,661 |        |               |  | 64,572 |       
|                                                                                                      |                                       |                                                                          |        |        |               | 
|                                                                                                      |                                       | Total Assets                                                             |        | $      | 84,913        |  |        | $      | 86,168 | 
|                                                                                                      |                                       |                                                                          |        |        |               | 
|LIABILITIES AND SHAREHOLDERS
    EQUITY                                                             
|Current Liabilities:                                                                                  |                                       |                                                                          |        |        |               |  |        |       
|                                                                                                      | Short-term debt                       |                                                                          | $      | 2,383  |               |  | $      | 2,514  |       
|                                                                                                      | Accounts payable and accrued expenses |                                                                          |        | 13,964 |               |  |        | 16,270 |       
|                                                                                                      | Accrued income taxes                  |                                                                          |        |       |               |  |        | 82     |       
|                                                                                                      | Deferred income                       |                                                                          |        | 2,287  |               |  |        | 1,027  |       
|                                                                                                      |                                       |                                                                          |        |        |               | 
|                                                                                                      |                                       | Total Current Liabilities                                                |        |        | 18,634        |  |        |        | 19,893 | 
|Long-term debt                                                                                        |                                       |                                                                          | 1,446  |        |               |  | 1,587  |       
|Deferred income tax payable                                                                           |                                       |                                                                          | 4,200  |        |               |  |       |       
|Other long-term liabilities                                                                           |                                       |                                                                          | 184    |        |               |  | 208    |       
|                                                                                                      |                                       |                                                                          |        |        |               | 
|                                                                                                      |                                       | Total Liabilities                                                        |        |        | 24,464        |  |        |        | 21,688 | 
|                                                                                                      |                                       |                                                                          |        |        |               | 
|Shareholders Equity:                                                                                 |                                       |                                                                          |        |        |               |  |        |       
|                                                                                                      | Preferred Stock $1.00 par value:      |                                                                          |        |        |               |  |        |        |       
|                                                                                                      |                                       | Authorized  10,000 shares                                               |        |        |               |  |        |        |        | 
|                                                                                                      |                                       | Outstanding 260 Class B shares at
    liquidation value                  |        |        | 2,600         |  |        |        | 2,600  | 
|                                                                                                      | Common stock $.10 par value           |                                                                          |        |        |               |  |        |        |       
|                                                                                                      |                                       | Authorized  50,000 shares                                               |        |        |               |  |        |        |        | 
|                                                                                                      |                                       | Outstanding  12,355 shares at
    March 31, 2002 and September 30, 2001 |        |        | 1,236         |  |        |        | 1,236  | 
|                                                                                                      | Additional paid-in capital            |                                                                          |        | 53,181 |               |  |        | 53,181 |       
|                                                                                                      | Retained earnings                     |                                                                          |        | 5,745  |               |  |        | 7,761  |       
|                                                                                                      | Accumulated other comprehensive loss  |                                                                          |        | (2,313 | )             |  |        | (298   | )     
|                                                                                                      |                                       |                                                                          |        |        |               | 
|                                                                                                      |                                       | Total Shareholders Equity                                               |        |        | 60,449        |  |        |        | 64,480 | 
|                                                                                                      |                                       |                                                                          |        |        |               | 
|                                                                                                      |                                       | Total Liabilities and Shareholders Equity                               |        | $      | 84,913        |  |        | $      | 86,168 | 
|                                                                                                      |                                       |                                                                          |        |        |               | 

See notes to condensed consolidated financial
statements.

2



---



##### Table of Contents



OMEGA WORLDWIDE, INC.






CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


Unaudited


|                                                                                |                                                       |                                          |        |        |                  |   |        |        |     |   |        |        |       |   |        |        |       | 
|------------------------------------------------------------------------------- | ----------------------------------------------------- | ---------------------------------------- | ------ | ------ | ---------------- | - | ------ | ------ | --- | - | ------ | ------ | ----- | - | ------ | ------ | ----- | 
|                                                                                |                                                       |                                          |        |       
|                                                                                |                                                       | Three Months Ended                       |        |        | Six Months Ended |  
|                                                                                |                                                       | March 31,                                |        |        | March 31,        |  
|                                                                                |                                                       |                                          |        |        |                  |  
|                                                                                |                                                       | 2002                                     |        |        | 2001             |   |        | 2002   |     |   | 2001   |       
|                                                                                |                                                       |                                          |        |        |                  |   |        |        |     |   |        |       
|                                                                                |                                                       |                                         
|                                                                                |                                                       | (In Thousands, Except Per Share Amounts) |       
|Revenues:                                                                       |                                                       |                                          |        |        |                  |   |        |        |     |   |        |        |       |   |        |       
|                                                                                | Patient services revenue                              |                                          | $      | 35,689 |                  |   | $      | 34,527 |     |   | $      | 72,703 |       |   | $      | 69,315 |      
|                                                                                | Fee income  Principal Healthcare
    Finance Limited |                                          |        | 921    |                  |   |        | 1,053  |     |   |        | 1,940  |       |   |        | 2,143  |      
|                                                                                | Fee income  Principal Healthcare
    Finance Trust   |                                          |        | 338    |                  |   |        | 305    |     |   |        | 673    |       |   |        | 590    |      
|                                                                                | Interest Income:                                      |                                          |        |        |                  |   |        |        |     |   |        |        |       |   |        |        |      
|                                                                                |                                                       | Principal Healthcare Finance Limited     |        |        | 988              |   |        |        | 878 |   |        |        | 2,008 |   |        |        | 1,845 | 
|                                                                                |                                                       | Short-term investments                   |        |        | 48               |   |        |        | 149 |   |        |        | 215   |   |        |        | 309   | 
|                                                                                |                                                       |                                          |        |        |                  |   |        |        |     |   |        |       
|                                                                                |                                                       |                                          | 37,984 |        |                  |   | 36,912 |        |     |   | 77,539 |        |       |   | 74,202 |       
|Expenses:                                                                       |                                                       |                                          |        |        |                  |   |        |        |     |   |        |        |       |   |        |       
|                                                                                | Direct cost of patient services                       |                                          |        | 36,820 |                  |   |        | 35,669 |     |   |        | 73,700 |       |   |        | 70,842 |      
|                                                                                | Direct costs of asset management                      |                                          |        | 753    |                  |   |        | 683    |     |   |        | 1,342  |       |   |        | 1,363  |      
|                                                                                | Interest expense                                      |                                          |        | 59     |                  |   |        | 125    |     |   |        | 131    |       |   |        | 356    |      
|                                                                                | General, administrative and other expenses            |                                          |        | 1,034  |                  |   |        | 572    |     |   |        | 1,662  |       |   |        | 1,067  |      
|                                                                                | Severance agreement expense                           |                                          |        | 24     |                  |   |        |       |     |   |        | 1,626  |       |   |        |       |      
|                                                                                | Foreign currency exchange loss                        |                                          |        | 740    |                  |   |        |       |     |   |        | 740    |       |   |        |       |      
|                                                                                | Non-recurring expense                                 |                                          |        | 26     |                  |   |        | 131    |     |   |        | 44     |       |   |        | 131    |      
|                                                                                |                                                       |                                          |        |        |                  |   |        |        |     |   |        |       
|                                                                                |                                                       |                                          | 39,456 |        |                  |   | 37,180 |        |     |   | 79,245 |        |       |   | 73,759 |       
|                                                                                |                                                       |                                          |        |        |                  |   |        |        |     |   |        |       
|Earnings (loss) before equity earnings and income
    taxes                     |                                                       |                                          | (1,472 | )      |                  |   | (268   | )      |     |   | (1,706 | )      |       |   | 443    |       
|Equity in earnings of Principal Healthcare
    Finance Limited                  |                                                       |                                          | 37     |        |                  |   | 604    |        |     |   | 510    |        |       |   | 1,004  |       
|Equity in earnings of Principal Healthcare
    Finance Trust                    |                                                       |                                          | 67     |        |                  |   | 62     |        |     |   | 180    |        |       |   | 166    |       
|Equity in earnings of Essex Healthcare Corporation                              |                                                       |                                          |       |        |                  |   |       |        |     |   |       |        |       |   | 26     |       
|Recognized impairment on investment in Principal
    Healthcare Finance Limited |                                                       |                                          | (1,000 | )      |                  |   |       |        |     |   | (1,000 | )      |       |   |       |       
|                                                                                |                                                       |                                          |        |        |                  |   |        |        |     |   |        |       
|Operating income (loss)                                                         |                                                       |                                          | (2,368 | )      |                  |   | 398    |        |     |   | (2,016 | )      |       |   | 1,639  |       
|Income tax (provision) benefit                                                  |                                                       |                                          |       |        |                  |   | 70     |        |     |   |       |        |       |   | (208   | )     
|                                                                                |                                                       |                                          |        |        |                  |   |        |        |     |   |        |       
|Net earnings (loss)                                                             |                                                       |                                          | (2,368 | )      |                  |   | 468    |        |     |   | (2,016 | )      |       |   | 1,431  |       
|Net earnings allocated to preferred stock
    dividends                         |                                                       |                                          | (52    | )      |                  |   | (52    | )      |     |   | (104   | )      |       |   | (104   | )     
|                                                                                |                                                       |                                          |        |        |                  |   |        |        |     |   |        |       
|Net earnings (loss) available to common
    shareholders                        |                                                       | $                                        | (2,420 | )      |                  | $ | 416    |        |     | $ | (2,120 | )      |       | $ | 1,327  |       
|                                                                                |                                                       |                                          |        |        |                  |   |        |        |     |   |        |       
|Earnings (loss) per common share, basic                                         |                                                       | $                                        | (0.19  | )      |                  | $ | 0.04   |        |     | $ | (0.17  | )      |       | $ | 0.11   |       
|                                                                                |                                                       |                                          |        |        |                  |   |        |        |     |   |        |       
|Earnings (loss) per common share, diluted                                       |                                                       | $                                        | (0.19  | )      |                  | $ | 0.04   |        |     | $ | (0.17  | )      |       | $ | 0.11   |       
|                                                                                |                                                       |                                          |        |        |                  |   |        |        |     |   |        |       
|Average shares outstanding, basic                                               |                                                       |                                          | 12,355 |        |                  |   | 12,341 |        |     |   | 12,355 |        |       |   | 12,341 |       
|                                                                                |                                                       |                                          |        |        |                  |   |        |        |     |   |        |       
|Average shares outstanding, diluted                                             |                                                       |                                          | 12,355 |        |                  |   | 12,341 |        |     |   | 12,355 |        |       |   | 12,341 |       
|                                                                                |                                                       |                                          |        |        |                  |   |        |        |     |   |        |       
|Total comprehensive income (loss), net of income
    taxes                      |                                                       | $                                        | (2,652 | )      |                  | $ | 565    |        |     | $ | (4,031 | )      |       | $ | 1,312  |       
|                                                                                |                                                       |                                          |        |        |                  |   |        |        |     |   |        |       

See notes to condensed consolidated financial
statements.

3



---



##### Table of Contents



OMEGA WORLDWIDE, INC.






CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


Unaudited


|                                                        |                                                                                                          |                                                                                 |        |        |        |   |        |        |        |  
|------------------------------------------------------- | -------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | -
|                                                        |                                                                                                          |                                                                                
|                                                        |                                                                                                          | Six Months Ended                                                                |       
|                                                        |                                                                                                          | March 31,                                                                       |       
|                                                        |                                                                                                          |                                                                                 |       
|                                                        |                                                                                                          | 2002                                                                            |        |        | 2001   |  
|                                                        |                                                                                                          |                                                                                 |        |        |        |  
|                                                        |                                                                                                          |                                                                                
|                                                        |                                                                                                          | (In Thousands)                                                                  |       
|Operating activities:                                   |                                                                                                          |                                                                                 |        |        |        |   |        |       
|                                                        | Net earnings (loss)                                                                                      |                                                                                 | $      | (2,016 | )      |   | $      | 1,431  |       
|                                                        | Adjustments to reconcile net earnings (loss) to
    net cash provided by (used in) operating activities: |                                                                                 |        |        |        |   |        |        |       
|                                                        |                                                                                                          | Equity in earnings of Principal Healthcare
    Finance Limited                  |        |        | (510   | ) |        |        | (1,004 | )
|                                                        |                                                                                                          | Equity in earnings of Principal Healthcare
    Finance Trust                    |        |        | (180   | ) |        |        | (166   | )
|                                                        |                                                                                                          | Equity in earnings of Essex Healthcare Corporation                              |        |        |       |   |        |        | (26    | )
|                                                        |                                                                                                          | Straight-line rent adjustment                                                   |        |        | 1,241  |   |        |        | 1,709  |  
|                                                        |                                                                                                          | Depreciation and amortization                                                   |        |        | 835    |   |        |        | 720    |  
|                                                        |                                                                                                          | Recognized impairment on investment in Principal
    Healthcare Finance Limited |        |        | 1,000  |   |        |        |       |  
|                                                        |                                                                                                          | Other non-cash charges                                                          |        |        | 328    |   |        |        |       |  
|                                                        |                                                                                                          | Payments of Federal and foreign taxes                                           |        |        | (832   | ) |        |        | (390   | )
|                                                        |                                                                                                          | Net change in operating assets and liabilities                                  |        |        | (1,120 | ) |        |        | (1,210 | )
|                                                        |                                                                                                          | Foreign currency translation                                                    |        |        | 292    |   |        |        |       |  
|                                                        |                                                                                                          |                                                                                 |        |        |        |  
|Net cash provided by (used in) operating
    activities |                                                                                                          |                                                                                 | (962   | )      |        |   | 1,064  |       
|Cash flows from financing activities:                   |                                                                                                          |                                                                                 |        |        |        |   |        |       
|                                                        | Repayment of revolving warehouse facility drawn
    by subsidiary                                        |                                                                                 |        | (78    | )      |   |        | (255   | )     
|                                                        | Repayment of long-term borrowings by subsidiary                                                          |                                                                                 |        | (108   | )      |   |        | (415   | )     
|                                                        | Repayments of revolving credit facility with bank                                                        |                                                                                 |        |       |        |   |        | (3,500 | )     
|                                                        |                                                                                                          |                                                                                 |        |        |        |  
|Cash used in financing activities                       |                                                                                                          |                                                                                 | (186   | )      |        |   | (4,170 | )     
|Cash flows from investing activities:                   |                                                                                                          |                                                                                 |        |        |        |   |        |       
|                                                        | Acquisition of plant, property and equipment by
    subsidiaries                                         |                                                                                 |        | (1,497 | )      |   |        | (1,330 | )     
|                                                        | Decrease in restricted cash                                                                              |                                                                                 |        | 428    |        |   |        | 588    |       
|                                                        | Repayments from (temporary advances to) Principal
    Healthcare Finance Limited                         |                                                                                 |        | (445   | )      |   |        | 3,130  |       
|                                                        | Proceeds from sale of Essex Healthcare investment                                                        |                                                                                 |        |       |        |   |        | 325    |       
|                                                        | Dividends from affiliates                                                                                |                                                                                 |        |       |        |   |        | 183    |       
|                                                        | Other                                                                                                    |                                                                                 |        | (16    | )      |   |        | (122   | )     
|                                                        |                                                                                                          |                                                                                 |        |        |        |  
|Net cash provided by (used in) investing
    activities |                                                                                                          |                                                                                 | (1,530 | )      |        |   | 2,774  |       
|                                                        |                                                                                                          |                                                                                 |        |        |        |  
|Decrease in cash and short-term investments             |                                                                                                          | $                                                                               | (2,678 | )      |        | $ | (332   | )     
|                                                        |                                                                                                          |                                                                                 |        |        |        |  

See notes to condensed consolidated financial
statements.

4



---



##### Table of Contents



OMEGA WORLDWIDE, INC.






NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS


Unaudited


March 31, 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 six-month periods ended March 31,
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 an 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.

Restricted
Cash

The Companys wholly-owned subsidiary, Idun
Health Care Limited (Idun), has restricted cash of
$1,783 supporting Iduns debt (See Note F).

Non-Recurring
Expenses

As previously announced, the Company has been
exploring ways to maximize shareholder value. The cost of legal
advice related to the process totaled $26 and $131 for the
three-month periods ended March 31, 2002 and 2001,
respectively and $44 and $131 for the six-month periods ended
March 31, 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 three-month
and six-month periods ending March 31, 2002 are $24 and
$1,626, respectively.

5



---



##### Table of Contents



OMEGA WORLDWIDE, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 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 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, 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 six-month
periods ended March 31, 2002, the Company recorded a charge
to accumulated other comprehensive loss of $284 and $2,015,
respectively, due to changes in the period-end exchange rates.
There are no material amounts of exchange gains or losses
included in the results of operations for the three-month and
six-month periods ended March 31, 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



---



##### 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 $21,393 and $22,040
at March 31, 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 March 31, 2002. In addition,
the Company has temporary unsecured advances to Principal-UK in
the amount of $5,945 and $5,697 outstanding at March 31,
2002 and September 30, 2001, respectively, with interest at
9.00%. Included in interest income for the three-month periods
ended March 31, 2002 and 2001 is $988 and $878,
respectively, and $2,008 and $1,845 for the six-month periods
ended March 31, 2002 and 2001, respectively, related to the
subordinated loan receivable and temporary unsecured advances to
Principal-UK.

7



---



##### 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 Ended |        |        | Six-Month Period Ended |  
|                                                                                            |                                 |                          |        |        |                        |  
|                                                                                            |                                 | February 28,             |        |        | February 28,           |   |        | February 28, |         |   | February 28, |        
|                                                                                            |                                 | 2002                     |        |        | 2001                   |   |        | 2002         |         |   | 2001         |        
|                                                                                            |                                 |                          |        |        |                        |   |        |              |         |   |              |        
|Selected operating results for the period:                                                  |                                 |                          |        |        |                        |   |        |              |         |   |              |         |         |   |        |        
|Revenues:                                                                                   |                                 |                          |        |        |                        |   |        |              |         |   |              |         |         |   |        |        
|                                                                                            | Rent income                     |                          | $      | 13,563 |                        |   | $      | 13,894       |         |   | $            | 27,419  |         |   | $      | 27,754  |        
|                                                                                            | Patient service revenue         |                          |        | 2,244  |                        |   |        | 2,155        |         |   |              | 4,512   |         |   |        | 4,325   |        
|                                                                                            | Interest income                 |                          |        | 56     |                        |   |        | 32           |         |   |              | 105     |         |   |        | 64      |        
|                                                                                            | Other income                    |                          |        | 1,037  |                        |   |        | 1,543        |         |   |              | 2,072   |         |   |        | 2,579   |        
|                                                                                            |                                 |                          |        |        |                        |   |        |              |         |   |              |        
|                                                                                            |                                 | Total revenues           |        |        | 16,900                 |   |        |              | 17,624  |   |              |         | 34,108  |   |        |         | 34,722  |  
|Expenses:                                                                                   |                                 |                          |        |        |                        |   |        |              |         |   |              |         |         |   |        |        
|                                                                                            | Interest expense                |                          |        | (8,708 | )                      |   |        | (9,022       | )       |   |              | (17,740 | )       |   |        | (18,207 | )      
|                                                                                            | Depreciation and amortization   |                          |        | (2,537 | )                      |   |        | (2,491       | )       |   |              | (4,960  | )       |   |        | (4,998  | )      
|                                                                                            | Direct cost of patient services |                          |        | (1,933 | )                      |   |        | (2,333       | )       |   |              | (3,928  | )       |   |        | (4,473  | )      
|                                                                                            | General and administrative      |                          |        | (3,016 | )                      |   |        | (1,278       | )       |   |              | (4,750  | )       |   |        | (2,693  | )      
|                                                                                            |                                 |                          |        |        |                        |   |        |              |         |   |              |        
|                                                                                            |                                 | Total expenses           |        |        | (16,194                | ) |        |              | (15,124 | ) |              |         | (31,728 | ) |        |         | (30,371 | )
|                                                                                            |                                 |                          |        |        |                        |   |        |              |         |   |              |        
|Income from operations before income taxes                                                  |                                 |                          | 706    |        |                        |   | 2,500  |              |         |   | 2,730        |         |         |   | 4,351  |        
|Provision for income taxes                                                                  |                                 |                          | (534   | )      |                        |   | (628   | )            |         |   | (1,080       | )       |         |   | (1,220 | )      
|                                                                                            |                                 |                          |        |        |                        |   |        |              |         |   |              |        
|Net income from operations before cumulative
    effects of change in accounting principles |                                 | $                        | 172    |        |                        | $ | 1,872  |              |         | $ | 1,650        |         |         | $ | 3,131  |        
|                                                                                            |                                 |                          |        |        |                        |   |        |              |         |   |              |        
|Average exchange rate ($ per £)                                                             |                                 | $                        | 1.4225 |        |                        | $ | 1.4558 |              |         | $ | 1.4392       |         |         | $ | 1.4569 |        

|                                                                                |  |              |         |  |            |   |         |  |  |  |  |  |  |  |  | 
|------------------------------------------------------------------------------- |  | ------------ | ------- |  | ---------- | - | ------- |  |  |  |  |  |  |  |  | 
|                                                                                |  | February 28, |         |  | August 31, |   |         |  |  | 
|                                                                                |  | 2002         |         |  | 2001       |   |         |  |  | 
|                                                                                |  |              |         |  |            |   |         |  |  | 
|Selected balance sheet information as of:                                       |  |              |         |  |            |   |         |  |  |  |  |  |  |  |  | 
|Investments in real estate subject to triple-net
    lease, net of depreciation |  | $            | 360,017 |  |            | $ | 371,917 |  |  |  |  |  |  |  |  | 
|Total assets                                                                    |  |              | 521,910 |  |            |   | 532,109 |  |  |  |  |  |  |  |  | 
|Non-recourse debt borrowings(1)                                                 |  |              | 430,621 |  |            |   | 440,795 |  |  |  |  |  |  |  |  | 
|Total liabilities                                                               |  |              | 496,319 |  |            |   | 507,615 |  |  |  |  |  |  |  |  | 
|Total stockholders equity                                                      |  |              | 25,591  |  |            |   | 24,494  |  |  |  |  |  |  |  |  | 
|Exchange rate ($ per £)                                                         |  | $            | 1.4262  |  |            | $ | 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 February 28, 2002 and August 31,
2001, Principal-UK has $67,268 and $69,141, respectively, of
mortgage, loan and subordinated notes payable past due,
including $27,338 and $27,648, respectively, due to the Company
in respect of subordinated notes and temporary unsecured
advances. Principal-UK is currently in negotiations with its
lenders, including the Company, to extend the maturity dates and
the terms of the

8



---



##### Table of Contents



OMEGA WORLDWIDE, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 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 its 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 effect on
the recoverability in respect of the subordinated notes and
temporary unsecured advances made to Principal-UK of $27,338 at
March 31, 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 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 in Principal-UK
of $1,000 in the current quarter.

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 $84. At March 31,
2002, the Company is due, but has not received, interest from
Principal-UK in respect of subordinated notes and temporary
unsecured advances amounting to $1,216. The Company expects to
receive these amounts in due course.

The effective tax rates are 40% and 28% for the
six-month periods ending February 28, 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 February 28,
2002 and 2001 are approximately $57 and $624, respectively, and
approximately $550 and $1,044 for the six-month periods ending
February 28, 2002 and 2001, respectively. Finally, the
Company has recorded a charge against earnings of approximately
$20 for the three-month periods ended February 28, 2002 and
2001, respectively, and approximately $40 for the six-month
periods ending February 28, 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



---



##### 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:

|                                                 |                                  |                          |        |        |                        |   |        |              |        |   |              |        |        |   |        |        |        |  
|------------------------------------------------ | -------------------------------- | ------------------------ | ------ | ------ | ---------------------- | - | ------ | ------------ | ------ | - | ------------ | ------ | ------ | - | ------ | ------ | ------ | -
|                                                 |                                  |                          |        |       
|                                                 |                                  | Three-Month Period Ended |        |        | Six-Month Period Ended |  
|                                                 |                                  |                          |        |        |                        |  
|                                                 |                                  | February 28,             |        |        | February 28,           |   |        | February 28, |        |   | February 28, |       
|                                                 |                                  | 2002                     |        |        | 2001                   |   |        | 2002         |        |   | 2001         |       
|                                                 |                                  |                          |        |        |                        |   |        |              |        |   |              |       
|Selected Operating Results for the period ended: |                                  |                          |        |        |                        |   |        |              |        |   |              |        |        |   |        |       
|Revenues:                                        |                                  |                          |        |        |                        |   |        |              |        |   |              |        |        |   |        |       
|                                                 | Rent income                      |                          | $      | 3,059  |                        |   | $      | 2,997        |        |   | $            | 6,146  |        |   | $      | 5,926  |       
|                                                 | Interest income                  |                          |        | 30     |                        |   |        | 71           |        |   |              | 76     |        |   |        | 210    |       
|                                                 | Other income                     |                          |        | 10     |                        |   |        | 9            |        |   |              | 21     |        |   |        | 19     |       
|                                                 |                                  |                          |        |        |                        |   |        |              |        |   |              |       
|                                                 |                                  | Total revenues           |        |        | 3,099                  |   |        |              | 3,077  |   |              |        | 6,243  |   |        |        | 6,155  |  
|Expenses:                                        |                                  |                          |        |        |                        |   |        |              |        |   |              |        |        |   |        |       
|                                                 | Interest expense                 |                          |        | (2,070 | )                      |   |        | (2,037       | )      |   |              | (4,134 | )      |   |        | (4,037 | )     
|                                                 | Depreciation and amortization    |                          |        | (508   | )                      |   |        | (502         | )      |   |              | (1,015 | )      |   |        | (974   | )     
|                                                 | Amortization of debt issue costs |                          |        | (27    | )                      |   |        | (75          | )      |   |              | (55    | )      |   |        | (119   | )     
|                                                 | General and administrative       |                          |        | (352   | )                      |   |        | (332         | )      |   |              | (662   | )      |   |        | (624   | )     
|                                                 |                                  |                          |        |        |                        |   |        |              |        |   |              |       
|                                                 |                                  | Total expenses           |        |        | (2,957                 | ) |        |              | (2,946 | ) |              |        | (5,866 | ) |        |        | (5,754 | )
|                                                 |                                  |                          |        |        |                        |   |        |              |        |   |              |       
|Net income for operations                        |                                  | $                        | 142    |        |                        | $ | 131    |              |        | $ | 377          |        |        | $ | 401    |       
|                                                 |                                  |                          |        |        |                        |   |        |              |        |   |              |       
|Average exchange rate ($ per A$)                 |                                  | $                        | 0.5123 |        |                        | $ | 0.5389 |              |        | $ | 0.5113       |        |        | $ | 0.5404 |       

|                                                                                |  |              |         |  |            |   |         |  |  |  |  |  |  |  |  | 
|------------------------------------------------------------------------------- |  | ------------ | ------- |  | ---------- | - | ------- |  |  |  |  |  |  |  |  | 
|                                                                                |  | February 28, |         |  | August 31, |   |         |  |  | 
|                                                                                |  | 2002         |         |  | 2001       |   |         |  |  | 
|                                                                                |  |              |         |  |            |   |         |  |  | 
|Selected Balance Sheet Information as of:                                       |  |              |         |  |            |   |         |  |  |  |  |  |  |  |  | 
|Investments in real estate subject to triple-net
    lease, net of depreciation |  | $            | 92,865  |  |            | $ | 92,508  |  |  |  |  |  |  |  |  | 
|Total assets                                                                    |  |              | 117,764 |  |            |   | 116,535 |  |  |  |  |  |  |  |  | 
|Non-recourse debt borrowings                                                    |  |              | 88,069  |  |            |   | 91,243  |  |  |  |  |  |  |  |  | 
|Total liabilities                                                               |  |              | 104,167 |  |            |   | 102,686 |  |  |  |  |  |  |  |  | 
|Total unit holders equity                                                      |  |              | 13,597  |  |            |   | 13,849  |  |  |  |  |  |  |  |  | 
|Exchange rate ($ per A$)                                                        |  | $            | 0.5156  |  |            | $ | 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.

The Companys ownership percentage in
Principal-Australia has remained constant at 47% for the
three-month and six-month periods ended March 31, 2002 and
2001. 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 38.46%. The Company will realize a gain on its dilution of
interest in PHFT of approximately $372 in the next quarter of
this fiscal year.

10



---



##### Table of Contents



OMEGA WORLDWIDE, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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. 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, (none for the three-month and six-month periods
ended March 31, 2002 and 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:

|                          |  |                |        |   |                    |   |        |  
|------------------------- |  | -------------- | ------ | - | ------------------ | - | ------ | -
|                          |  | March 31, 2002 |        |   | September 30, 2001 |  
|                          |  |                |        |   |                    |  
|(1)Loan due on demand     |  | $              | 1,783  |   |                    | $ | 1,822  |  
|(2)Loan due February 2003 |  |                | 503    |   |                    |   | 674    |  
|(3)Loan due February 2017 |  |                | 1,543  |   |                    |   | 1,605  |  
|                          |  |                |        |   |                    |  
|                          |  |                | 3,829  |   |                    |   | 4,101  |  
|Less current maturities   |  |                | (2,383 | ) |                    |   | (2,514 | )
|                          |  |                |        |   |                    |  
|Long-term debt            |  | $              | 1,446  |   |                    | $ | 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 2.5% above the banks base lending rate
    (6.80% and 8.37% interest at March 31, 2002 and
    September 30, 2001, respectively).                                                                                
|   
|(2) | 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% (6.05% and 7.33%
    interest at March 31, 2002 and September 30, 2001,
    respectively). The loan is being amortized over its life and
    requires quarterly payments of approximately $157.
|   
|(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% (6.05% and 7.33%
    interest at March 31, 2002 and September 30, 2001,
    respectively). The loan is being amortized over its life and
    requires quarterly payments of approximately $24. 

The Company guarantees none of the loans of Idun.
Substantially all of the Iduns plant, property and
equipment and restricted cash are collateral for the above
loans. Cash of $1,783 included in Restricted Cash will be used
for partial payment of an as yet undetermined combination of
loans listed above.

11



---



##### Table of Contents



OMEGA WORLDWIDE, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The principal payment in each of the five years
following March 31, 2002 is set forth below:

|                                  |  |   |       | 
|--------------------------------- |  | - | ----- | 
|Within one year                   |  | $ | 2,383 | 
|After one and within two years    |  |   | 97    | 
|After two and within three years  |  |   | 97    | 
|After three and within four years |  |   | 97    | 
|After four and within five years  |  |   | 97    | 
|After five years                  |  |   | 1,058 | 
|                                  |  |   |      
|                                  |  | $ | 3,829 | 
|                                  |  |   |      

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 $3.4 million and
$3.5 million for the three-month periods ended
March 31, 2002 and 2001, respectively, and approximately
$6.9 million for each of the six-month periods ended
March 31, 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
March 31, 2002 are as follows:

|           |  |   |         | 
|---------- |  | - | ------- | 
|2002       |  | $ | 16,758  | 
|2003       |  |   | 16,970  | 
|2004       |  |   | 16,932  | 
|2005       |  |   | 16,893  | 
|2006       |  |   | 16,147  | 
|Thereafter |  |   | 265,438 | 
|           |  |   |        
|           |  | $ | 349,138 | 
|           |  |   |        

Pursuant to the provision of a Services Agreement
between Omega Healthcare Investors, Inc. (Omega
Healthcare) and the Company, 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
March 31, 2002 and 2001 were approximately $6 and $33,
respectively, and for the six-month periods ended March 31,
2002 and 2001 were approximately $39 and $67, respectively.

Omega Healthcare holds preferred shares in the
Company of $2.6 million at March 31, 2002. The
preferred shares are entitled to cumulative undeclared dividends
of $832 prior to any distribution to common shareholders.

Fees from services provided to Principal-UK for
the three-month periods ended March 31, 2002 and 2001 are
$921 and $1,053, respectively, and for the six-month periods
ended March 31, 2002 and 2001 are $1,940 and $2,143,
respectively.

Fees from services provided to
Principal-Australia for the three-month periods ended
March 31, 2002 and 2001 are $338 and $305, respectively,
and for the six-month periods ended March 31, 2002 and 2001
are $673 and $590, 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 uncollectibility of
intercompany balances of consolidated subsidiaries.

12



---



##### Table of Contents





|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|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$) at an average exchange rate for
the period. For the three-month and six-month periods ending
March 31, 2002, the £ relative to the US$ has been
approximately the same from the comparable period last year, and
has declined approximately 2% and 3%, respectively since
September 30, 2001.

Revenues

Patient services revenue from the Idun operations
was $35.7 million for the quarter ending March 31,
2002 compared with $34.5 million for the quarter ending
March 31, 2001. For the six-month periods ending
March 31, 2002 and 2001, patient service revenues were
$72.7 and $69.3 million, respectively. The average
occupancy rate for the quarter was 90.6% compared to 91.0% for
the comparable period last year. The increase in revenue for
both the three-month and six-month periods ending March 31,
2002 were the results of growth of available beds under
Iduns management and beds occupied, as well as an increase
in the average weekly fee per bed. In addition, the increase is
the result of ongoing efforts by management to improve the
occupancy rates of the homes located in England, which have
historically had lower occupancy percentages than those in
Scotland and Northern Ireland. Idun is committed to its
marketing efforts and improving the operations of the homes
under management.

Fee income from Principal-UK for the quarter
ending March 31, 2002 was $921 compared with $1,053 for the
same period in 2001. For the six-month period ending
March 31, 2002 fee income from Principal-UK was $1,940
compared to $2,143 for the comparable period last year. The
decrease primarily relates to the reduction in assets under
management that are defined by UK GAAP. At March 31, 2002
assets under management totaled £283.0 million
compared with £307.0 million at March 31, 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

13



---



##### Table of Contents



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 March 31, 2002 was $338.0 compared with
$305.0 for the same period in 2001. For the six-month period
ending March 31, 2002 fee income from Principal-Australia
was $673.0 compared to $590.0 for the comparable period last
year. The increase primarily relates to the increase in assets
under management that are defined by Australian GAAP. At
March 31, 2002 assets under management totaled A$241.0
million compared with A$204.0 million at March 31,
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 March 31, 2002 was $988 compared with $878 for the
same period in 2001. For the six-month period ending
March 31, 2002 interest income from Principal-UK was $2,008
compared with $1,845 for the comparable period last year.
Interest income from Principal-UK is earned on
£15.0 million of subordinated debt and temporary
advances as required by Principal-UK. The subordinated debt with
Principal-UK matured on June 29, 2001 and the Company is
currently in negotiations to extend the maturity and terms of
the subordinated debt. 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 $161.0 and $329.0 in
interest in the three-month and six-month periods ending
March 31, 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 $78.0 and $194.0 in the
three-month and six-month periods ending March 31, 2002
compared to the same period last year. Average temporary advance
balances were £4.1 million and £6.2 million
for the six-month periods ending March 31, 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
$6.1 million) and 15.00% on the advances in excess of
£4.3 million, with the maximum temporary advance limit
of £7.0 million (approximately $9.9 million).
Prior to March 5, 2001, interest on temporary advances was
fixed at 9.25%.

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 $36.8 million
for the quarter ending March 31, 2002 compared with
$35.7 million for the quarter ending March 31, 2001.
For the six-month periods ending March 31, 2002 and 2001,
direct cost of patient services were $73.7 million and
$70.8 million, respectively. Seasonal increases in utility
costs and higher building maintenance and insurance expenses led
to higher direct costs in the current quarter. In addition, 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 ($737 and $855
for the three-month periods ending March 31, 2002 and 2001,
respectively, and, $1,237 and $1,704 for the six-month periods
ending March 31, 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 101.4% for the six-month
period ending March 31, 2002 compared with 102.2% for the
same period in 2001.

Direct costs of asset management for the
six-month period ended March 31, 2002 declined by $21 from
the comparable period last year. The decrease was primarily the
result of a decrease in UK occupancy costs (decline of $47), a
decline in UK and Australian travel expenses (decline of $65)
and a decline in all other UK and Australian expenses (decline
of $14), offset by an increase in payroll costs ($105) for the
six-month period ended March 31, 2002 compared with the
comparable period last year.

General, administrative and other expenses
increased $595 for the six-month period ended March 31,
2002 from the comparable period last year. The current period
increase was attributable to: (1) an increase in legal
expense of $86, due to legal expenses incurred in negotiations
between the Company and Principal-UK

14



---



##### Table of Contents



on a possible merger; (2) an increase in the
loss in value of $175 in the Companys foreign currency
forward contracts; (3) additional provision for bad debts
of $328; (4) an increase in director fees and director
expenses of $80; (5) an increase in Corporate travel
expenses of $39 and (6) an increase in depreciation expense
of $19. These increased expenses were partially offset by the
decline in payroll costs of $130 for the six-month period ended
March 31, 2002 compared with the comparable period last
year.


Interest expense for the six-month period ending
March 31, 2002 was $131 compared with $356 for the same
period in 2001. During the six-month period ending
March 31, 2001, the Companys interest expense
included the expense from the Companys bank credit
agreement ($1.35 million at March 31, 2001 and
$2.85 million at December 31, 2000). This bank credit
agreement was paid off in June 2001.

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 three-month
and six-month periods ending March 31, 2002 was $24 and
$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 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
ended March 31, 2002 and 2001 were $26 and $131,
respectively. For the six-month period ending March 31, 2002 and
2001 non-recurring expenses were $44 and $131, respectively.
Non-recurring expenses represent costs incurred in pursuing
strategic alternatives for the Company.

Other

Equity in earnings of Principal-UK decreased to
$37 in the current year quarter from $604 in the prior year
quarter. Equity in earnings of Principal-UK for the six-month
period decreased to $510 in the current year from $1,004 the
comparable period last year. The Companys ownership
percentage in Principal-UK has remained constant at 33.375%. The
decrease in income is due to a non-recurring 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 receivables and other receivable balances of
approximately $1,379 in the current quarter of this fiscal year.

Equity in earnings of Principal-Australia
increased to $67 in the current year quarter from $62 in the
prior year quarter. Equity in earnings of Principal-Australia
for the six-month period increased to $180 in the current year
from $166 in the comparable period last year. The Companys
ownership percentage in Principal-Australian has remained
constant at 47% through March 31, 2002. The increase in income
for the six-month period is due to improved performance of
Principal-Australia through new investments made during the last
twelve months which increased the rental income for the period.

Subsequent to March 31, 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 were issued simultaneously, resulting in the
Companys new ownership percentage in Principal-Australia
being 38.46%.

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.

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. During the period ending March 31, 2002, the
Company deemed tax refund of $4.2 million

15



---



##### Table of Contents



(current income tax benefit) and a corresponding
deferred tax liability (deferred income tax provision) to be
recognizable related to the uncollectability of intercompany
balances of consolidated subsidiaries.


Liquidity and Capital Resources

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

|                        |  |                        |         |           |        |   |        |           |       |   |           |  |  |         |        |  |  |   |         | 
|----------------------- |  | ---------------------- | ------- | --------- | ------ | - | ------ | --------- | ----- | - | --------- |  |  | ------- | ------ |  |  | - | ------- | 
|                        |  |                       
|                        |  | Payments Due by Period |        
|                        |  |                        |        
|                        |  |                        |         | Less than |        |   |        |           | After |  
|Contractual Obligations |  | Total                  |         |           | 1 Year |   |        | 2-3 Years |       |   | 4-5 Years |  |  | 5 Years |       
|                        |  |                        |         |           |        |   |        |           |       |   |           |  |  |         |       
|Long-term debt(1)       |  | $                      | 3,829   |           |        | $ | 2,383  |           |       | $ | 194       |  |  | $       | 194    |  |  | $ | 1,058   | 
|Operating leases(2)     |  |                        | 348,685 |           |        |   | 13,975 |           |       |   | 28,706    |  |  |         | 29,027 |  |  |   | 277,012 | 
|                        |  |                        |         |           |        |   |        |           |       |   |           |  |  |         |       
|Total contractual cash  |  | $                      | 352,514 |           |        | $ | 16,323 |           |       | $ | 28,900    |  |  | $       | 29,221 |  |  | $ | 278,070 | 
|                        |  |                        |         |           |        |   |        |           |       |   |           |  |  |         |       



---



|    |                                                                                                                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | All of the Companys $3.8 million of
    outstanding debt at March 31, 2002 is the obligation of
    Idun. The Company plans to utilize cash flows from Iduns
    operations and restricted cash 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 meet its 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 $84. At
March 31, 2002, the Company is due, but has not received,
interest from Principal-UK in respect of subordinated notes and
temporary unsecured advances amounting to $1,216. The Company
expects to receive these amounts in due course.

As of February 28, 2002, Principal-UK has
$67.3 million of mortgage, loan and subordinated notes
payable past due, including $27.3 million due to the
Company. Principal-UK is currently in negotiations with its
lenders, including the Company, 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 $27,338 at
March 31, 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 of 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

16



---



##### Table of Contents



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.

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
March 31, 2002, the Company had outstanding a British pound
sterling forward currency contract to exchange
£20.0 million for $31.8 million to mature on
October 15, 2007, and 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
March 31, 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:

|                                  |  |                       |       |   |      |   |      |      |  |   |      |   |  |      |      |   |            |   |      |       |  |   |       |   |  |   |       |  
|--------------------------------- |  | --------------------- | ----- | - | ---- | - | ---- | ---- |  | - | ---- | - |  | ---- | ---- | - | ---------- | - | ---- | ----- |  | - | ----- | - |  | - | ----- | -
|                                  |  |                      
|                                  |  | Average Interest Rate |      
|                                  |  |                       |      
|                                  |  | 2002                  |       |   | 2003 |   |      | 2004 |  |   | 2005 |   |  | 2006 |      |   | Thereafter |   |      | Total | 
|                                  |  |                       |       |   |      |   |      |      |  |   |      |   |  |      |      |   |            |   |      |       | 
|Variable rate amount              |  | $                     | 2,383 |   |      | $ | 97   |      |  | $ | 97   |   |  | $    | 97   |   |            | $ | 97   |       |  | $ | 1,058 |   |  | $ | 3,829 |  
|Weighted-average interest rate(1) |  |                       | 6.61  | % |      |   | 6.05 | %    |  |   | 6.05 | % |  |      | 6.05 | % |            |   | 6.05 | %     |  |   | 6.05  | % |  |   | 6.40  | %



---



|    |                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The weighted average interest rates are based
    upon the rates in effect as of March 31, 2002. See
    Note F to the Companys consolidated financial
    statements for additional information.

17



---



##### Table of Contents



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 March 31, 2002:

|                                              |       |   |        |        | 
|--------------------------------------------- | ----- | - | ------ | ------ | 
|Net operating assets of Idun(£)               |       | $ | 14,992 |       
|Investment in and advances to Principal-UK(£) |       |   | 34,881 |       
|Other UK assets(£)                            |       |   | 2,413  |       
|Investment in Principal-Australia(A$)         |       |   | 6,390  |       
|                                              |       |   |       
|                                              | Total |   | $      | 58,676 | 
|                                              |       |   |       

Interest Rate Risk.

All of the $3.8 million in debt outstanding
at March 31, 2002 fluctuates with LIBOR or a similar
benchmark. In addition, the Companys return on its
$1.8 million of cash restricted as collateral to these
loans fluctuates with LIBOR and matches the weighted average
interest rate paid on Iduns loans. 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 $20.0 to the Company.

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.

18



---



##### 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

None

Item 5.Other
Information

Essel W. Bailey, Jr. resigned as Director
effective March 1, 2002.

Ronald S. Elder appointed as Chief Executive
Officer and Director effective February 13, 2002.

Thomas F. Franke resigned as Director effective
February 13, 2002.

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

(a) Exhibit  the following
exhibit is filed herewith:

|        |    |  |             |                                                                                                   
|------- | -- |  | ----------- | --------------------------------------------------------------------------------------------------
|Exhibit |    |  | Description
|        |    |  |            
|        | 10 |  |             | Employment Agreement, dated May 1, 2002,
    between Omega Worldwide, Inc. and Ronald Sharp Elder.

(b) Reports on Form 8-K:

The following report on Form 8-K was filed
since December 31, 2001:

Current report on Form 8-K dated
April 1, 2002 with the following exhibits:

|        |    |  |             |                                                                                                                              
|------- | -- |  | ----------- | -----------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |  | Description
|        |    |  |            
|        | 3  |  |             | Articles Supplementary Series C Preferred
    Stock date February 28, 2001.                                                  
|        | 10 |  |             | Share Exchange Agreement, dated February 28,
    2001, between Omega Worldwide, Inc. and Omega Healthcare
    Investors, Inc.
|        | 17 |  |             | Letter of resignation of Essel W. Bailey, Jr.
    dated March 25, 2002.                                                      

19



---



##### 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           

May 15, 2002



| |    |                    
| | -- | -------------------
| | 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

20



---



##### Table of Contents






Exhibit Index

|            |  |                     
|----------- |  | --------------------
|Exhibit No. |  | Description         
|            |  |                     
|Exhibit 10  |  | Employment Agreement