##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q

(Mark One)

x


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended December 31, 2001



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(State or other jurisdiction) of
	incorporation or organization) |  | 38-3382537(IRS Employer Identification No.)

900 Victors Way, Suite 345, Ann Arbor, MI
48108

(Address of principal executive offices)


(734) 887-0300

(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
ü  No

Indicate the number
of shares outstanding of each of the issuers classes of
common stock as of December 31, 2001

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









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TABLE OF CONTENTS



|                                                                                                |  |  |  |  |  |  |  | 
|----------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|PART 1 -- FINANCIAL INFORMATION                                                                
|Item 1. Financial Statements                                                                   
|CONDENSED CONSOLIDATED BALANCE SHEETS                                                          
|CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS                                                
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                                
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                           
|Item 2 -- Managements Discussion and Analysis of Financial Condition and Results of Operations
|PART II -- OTHER INFORMATION                                                                   
|Item 1.Legal Proceedings                                                                       
|Item 2.Change in Securities and Use of Proceeds                                                
|Item 3.Defaults upon Senior Securities                                                         
|Item 4.Submission of Matters to a Vote of Security Holders                                     
|Item 5.Other Information                                                                       
|Item 6.Exhibits and Reports on Form 8-K:                                                       
|SIGNATURES                                                                                     



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OMEGA WORLDWIDE, INC.

FORM 10-Q

December 31, 2001

INDEX

|        |  |                                                                                        |                                                       |          |    |   | 
|------- |  | -------------------------------------------------------------------------------------- | ----------------------------------------------------- | -------- | -- | - | 
|        |  |                                                                                        |                                                       | Page No. |   
|        |  |                                                                                        |                                                       |          |   
|PART I  |  | Financial Information                                                                  |                                                       |          |    |  
|Item 1. |  | Financial Statements:                                                                  |                                                       |          |    |  
|        |  | Condensed Consolidated Balance Sheets                                                  |                                                       |          |    |  
|        |  |                                                                                        | December 31, 2001 (unaudited) and
	September 30, 2001 |          |    | 2 | 
|        |  | Condensed Consolidated Statements of Operations
	(unaudited)                          |                                                       |          |    |  
|        |  |                                                                                        | Three-month periods ended December 31, 2001
	and 2000 |          |    | 3 | 
|        |  | Condensed Consolidated Statements of Cash Flows
	(unaudited)                          |                                                       |          |    |  
|        |  |                                                                                        | Three-month periods ended December 31, 2001
	and 2000 |          |    | 4 | 
|        |  | Notes to Condensed Consolidated Financial
	Statements                                  |                                                       |          |    |  
|        |  |                                                                                        | December 31, 2001 (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                             |                                                       |          | 16 |  
|       
|PART II |  | Other Information                                                                      |                                                       |          |    |  
|       
|Item 1. |  | Legal Proceedings                                                                      |                                                       |          | 18 |  
|       
|Item 2. |  | Change in Securities and Use of Proceeds                                               |                                                       |          | 18 |  
|       
|Item 3. |  | Defaults upon Senior Securities                                                        |                                                       |          | 18 |  
|       
|Item 4. |  | Submission of Matters to a Vote of Security
	Holders                                   |                                                       |          | 18 |  
|       
|Item 5. |  | Other Information                                                                      |                                                       |          | 18 |  
|       
|Item 6. |  | Exhibits and Reports on Form 8-K                                                       |                                                       |          | 18 |  



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PART 1  FINANCIAL
INFORMATION







Item 1. Financial
Statements


OMEGA WORLDWIDE, INC.






CONDENSED CONSOLIDATED BALANCE
SHEETS


Unaudited

(In Thousands, Except Par Values)

|                                                                                                   |                                       |                                                                     |                                            |        |               |        |        |        |       |        | 
|-------------------------------------------------------------------------------------------------- | ------------------------------------- | ------------------------------------------------------------------- | ------------------------------------------ | ------ | ------------- | ------ | ------ | ------ | ----- | ------ | 
|                                                                                                   |                                       | December 31,                                                        |                                            |        | September 30, |       
|                                                                                                   |                                       | 2001                                                                |                                            |        | 2001          |       
|                                                                                                   |                                       |                                                                     |                                            |        |               |       
|                                                                                                   |                                       | (Unaudited)                                                         |                                            |        | (Audited)     |       
|ASSETS                                                                                             |                                       |                                                                     |                                            |        |               |        |        |       
|Current Assets:                                                                                    |                                       |                                                                     |                                            |        |               |        |        |       
|                                                                                                   | Cash and short-term investments       |                                                                     | $                                          | 4,903  |               |        | $      | 6,184  |      
|                                                                                                   | Restricted cash                       |                                                                     |                                            | 2,174  |               |        |        | 2,211  |      
|                                                                                                   | Patient receivables                   |                                                                     |                                            | 7,476  |               |        |        | 9,602  |      
|                                                                                                   | Prepaid expenses                      |                                                                     |                                            | 2,532  |               |        |        | 2,577  |      
|                                                                                                   | Other current assets                  |                                                                     |                                            | 1,838  |               |        |        | 1,022  |      
|                                                                                                   |                                       |                                                                     |                                            |        |               |       
|                                                                                                   |                                       |                                                                     | Total Current Assets                       |        |               | 18,923 |        |        |       | 21,596 | 
|Plant, property and equipment, net of accumulated
	depreciation of $2,822 and $2,509, respectively |                                       |                                                                     | 14,005                                     |        |               |        | 13,950 |       
|Investments in and advances to Principal
	Healthcare Finance Limited                               |                                       |                                                                     | 36,315                                     |        |               |        | 36,689 |       
|Investments in Principal Healthcare Finance Trust                                                  |                                       |                                                                     | 6,258                                      |        |               |        | 6,523  |       
|Rent deposits                                                                                      |                                       |                                                                     | 3,546                                      |        |               |        | 3,670  |       
|Other assets                                                                                       |                                       |                                                                     | 3,653                                      |        |               |        | 3,740  |       
|                                                                                                   |                                       |                                                                     |                                            |        |               |       
|                                                                                                   |                                       |                                                                     | 63,777                                     |        |               |        | 64,572 |       
|                                                                                                   |                                       |                                                                     |                                            |        |               |       
|                                                                                                   |                                       |                                                                     | Total Assets                               |        | $             | 82,700 |        |        | $     | 86,168 | 
|                                                                                                   |                                       |                                                                     |                                            |        |               |       
|LIABILITIES AND SHAREHOLDERS
	EQUITY                                                              |                                       |                                                                     |                                            |        |               |        |        |       
|Current Liabilities:                                                                               |                                       |                                                                     |                                            |        |               |        |        |       
|                                                                                                   | Short-term debt                       |                                                                     | $                                          | 2,337  |               |        | $      | 2,514  |      
|                                                                                                   | Accounts payable and accrued expenses |                                                                     |                                            | 14,917 |               |        |        | 16,270 |      
|                                                                                                   | Accrued income taxes                  |                                                                     |                                            |       |               |        |        | 82     |      
|                                                                                                   | Deferred income                       |                                                                     |                                            | 672    |               |        |        | 1,027  |      
|                                                                                                   |                                       |                                                                     |                                            |        |               |       
|                                                                                                   |                                       |                                                                     | Total Current Liabilities                  |        |               | 17,926 |        |        |       | 19,893 | 
|Long-term debt                                                                                     |                                       |                                                                     | 1,496                                      |        |               |        | 1,587  |       
|Other long-term liabilities                                                                        |                                       |                                                                     | 177                                        |        |               |        | 208    |       
|                                                                                                   |                                       |                                                                     |                                            |        |               |       
|                                                                                                   |                                       |                                                                     | Total Liabilities                          |        |               | 19,599 |        |        |       | 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
	December 31, and September 30, 2001 |                                            |        | 1,236         |        |        |        | 1,236 |       
|                                                                                                   | Additional paid-in capital            |                                                                     |                                            | 53,181 |               |        |        | 53,181 |      
|                                                                                                   | Retained earnings                     |                                                                     |                                            | 8,113  |               |        |        | 7,761  |      
|                                                                                                   | Accumulated other comprehensive loss  |                                                                     |                                            | (2,029 | )             |        |        | (298   | )    
|                                                                                                   |                                       |                                                                     |                                            |        |               |       
|                                                                                                   |                                       |                                                                     | Total Shareholders Equity                 |        |               | 63,101 |        |        |       | 64,480 | 
|                                                                                                   |                                       |                                                                     |                                            |        |               |       
|                                                                                                   |                                       |                                                                     | Total Liabilities and Shareholders Equity |        | $             | 82,700 |        |        | $     | 86,168 | 
|                                                                                                   |                                       |                                                                     |                                            |        |               |       

See notes to condensed consolidated financial
statements.

2



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OMEGA WORLDWIDE, INC.






CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


Unaudited

(In Thousands, Except Per Share
Amounts)

|                                                            |                                                    |                                      |                                                         |        |       |         |        |        |     |     | 
|----------------------------------------------------------- | -------------------------------------------------- | ------------------------------------ | ------------------------------------------------------- | ------ | ----- | ------- | ------ | ------ | --- | --- | 
|                                                            |                                                    |                                     
|                                                            |                                                    | Three Months Ended                   |                                                        
|                                                            |                                                    | December 31,                         |                                                        
|                                                            |                                                    |                                      |                                                        
|                                                            |                                                    | 2001                                 |                                                         |        | 2000  |        
|                                                            |                                                    |                                      |                                                         |        |       |        
|Revenues:                                                   |                                                    |                                      |                                                         |        |       |         |        |       
|                                                            | Patient services revenue                           |                                      | $                                                       | 37,014 |       |         | $      | 34,788 |    
|                                                            | Fee income  Principal Healthcare
	Finance Limited |                                      |                                                         | 1,019  |       |         |        | 1,090  |    
|                                                            | Fee income  Principal Healthcare
	Finance Trust   |                                      |                                                         | 335    |       |         |        | 285    |    
|                                                            | Interest Income:                                   |                                      |                                                         |        |       |         |        |        |    
|                                                            |                                                    | Principal Healthcare Finance Limited |                                                         |        | 1,020 |         |        |        | 967 |    
|                                                            |                                                    | Short-term investments               |                                                         |        | 167   |         |        |        | 160 |    
|                                                            |                                                    |                                      |                                                         |        |       |        
|                                                            |                                                    |                                      | 39,555                                                  |        |       |         | 37,290 |       
|Expenses:                                                   |                                                    |                                      |                                                         |        |       |         |        |       
|                                                            | Direct cost of patient services                    |                                      |                                                         | 36,880 |       |         |        | 35,173 |    
|                                                            | Direct costs of asset management                   |                                      |                                                         | 589    |       |         |        | 680    |    
|                                                            | Interest expense                                   |                                      |                                                         | 72     |       |         |        | 231    |    
|                                                            | General,administrative and other expenses          |                                      |                                                         | 628    |       |         |        | 495    |    
|                                                            | Severance agreement expense                        |                                      |                                                         | 1,602  |       |         |        |       |    
|                                                            | Non-recurring expense                              |                                      |                                                         | 18     |       |         |        |       |    
|                                                            |                                                    |                                      |                                                         |        |       |        
|                                                            |                                                    |                                      | 39,789                                                  |        |       |         | 36,579 |       
|                                                            |                                                    |                                      |                                                         |        |       |        
|Earnings (loss) before equity earnings and
	income taxes    |                                                    |                                      | (234                                                    | )      |       |         | 711    |       
|Equity in earnings of Principal Healthcare
	Finance Limited |                                                    |                                      | 473                                                     |        |       |         | 400    |       
|Equity in earnings of Principal Healthcare
	Finance Trust   |                                                    |                                      | 113                                                     |        |       |         | 104    |       
|Equity in earnings of Essex Healthcare Corporation          |                                                    |                                      |                                                        |        |       |         | 26     |       
|                                                            |                                                    |                                      |                                                         |        |       |        
|Operating income                                            |                                                    |                                      | 352                                                     |        |       |         | 1,241  |       
|Income tax (provision) benefit                              |                                                    |                                      |                                                        |        |       |         | (278   | )     
|                                                            |                                                    |                                      |                                                         |        |       |        
|Net earnings                                                |                                                    |                                      | 352                                                     |        |       |         | 963    |       
|Net earnings allocated to preferred stock
	dividends        |                                                    |                                      | (52                                                     | )      |       |         | (52    | )     
|                                                            |                                                    |                                      |                                                         |        |       |        
|Net earnings available to common shareholders               |                                                    | $                                    | 300                                                     |        |       | $       | 911    |       
|                                                            |                                                    |                                      |                                                         |        |       |        
|Earnings per common share, basic                            |                                                    |                                      | $0.02                                                   |        |       | $       | 0.07   |       
|                                                            |                                                    |                                      |                                                         |        |       |        
|Earnings per common share, diluted                          |                                                    |                                      | $0.02                                                   |        |       | $       | 0.07   |       
|                                                            |                                                    |                                      |                                                         |        |       |        
|Average shares outstanding, basic                           |                                                    |                                      | 12,355                                                  |        |       |         | 12,341 |       
|                                                            |                                                    |                                      |                                                         |        |       |        
|Average shares outstanding, diluted                         |                                                    |                                      | 12,355                                                  |        |       |         | 12,341 |       
|                                                            |                                                    |                                      |                                                         |        |       |        
|                                                            |                                                    |                                      | Total comprehensive income (loss), net of income
	taxes |        |       | $(1,379 | )      |        | $   | 747 | 
|                                                            |                                                    |                                      |                                                         |        |       |        

See notes to condensed consolidated financial
statements.

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OMEGA WORLDWIDE, INC.






CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


Unaudited

(In Thousands)

|                                                     |                                                                                                |                                                             |        |      |      |   |        |        |        |  
|---------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | ------ | ---- | ---- | - | ------ | ------ | ------ | -
|                                                     |                                                                                                |                                                            
|                                                     |                                                                                                | Three Months Ended                                          |       
|                                                     |                                                                                                | December 31,                                                |       
|                                                     |                                                                                                |                                                             |       
|                                                     |                                                                                                | 2001                                                        |        |      | 2000 |  
|                                                     |                                                                                                |                                                             |        |      |      |  
|Operating activities:                                |                                                                                                |                                                             |        |      |      |   |        |       
|                                                     | Net earnings                                                                                   |                                                             | $      | 352  |      |   | $      | 963    |       
|                                                     | Adjustments to reconcile net earnings to net cash
	provided by (used in) operating activities: |                                                             |        |      |      |   |        |        |       
|                                                     |                                                                                                | Equity in earnings of Principal Healthcare
	Finance Limited |        |      | (473 | ) |        |        | (400   | )
|                                                     |                                                                                                | Equity in earnings of Principal Healthcare
	Finance Trust   |        |      | (113 | ) |        |        | (104   | )
|                                                     |                                                                                                | Equity in earnings of Essex Healthcare Corporation          |        |      |     |   |        |        | (26    | )
|                                                     |                                                                                                | Straight-line rent adjustment                               |        |      | 775  |   |        |        | 849    |  
|                                                     |                                                                                                | Depreciation and amortization                               |        |      | 405  |   |        |        | 349    |  
|                                                     |                                                                                                | Payments of Federal and foreign taxes                       |        |      | (868 | ) |        |        | (75    | )
|                                                     |                                                                                                | Net change in operating assets and liabilities              |        |      | (698 | ) |        |        | (1,616 | )
|                                                     |                                                                                                | Foreign currency translation                                |        |      | 648  |   |        |        |       |  
|                                                     |                                                                                                |                                                             |        |      |      |  
|Net cash provided by (used in) operating
	activities |                                                                                                |                                                             | 28     |      |      |   | (60    | )     
|Cash flows from financing activities:                |                                                                                                |                                                             |        |      |      |   |        |       
|                                                     | Repayment of revolving warehouse facility drawn
	by subsidiary                                 |                                                             |        | (128 | )    |   |        | (254   | )     
|                                                     | Repayment of long-term borrowings by subsidiary                                                |                                                             |        | (60  | )    |   |        | (203   | )     
|                                                     | Repayments of revolving credit facility with bank                                              |                                                             |        |     |      |   |        | (2,000 | )     
|                                                     |                                                                                                |                                                             |        |      |      |  
|Net cash used in financing activities                |                                                                                                |                                                             | (188   | )    |      |   | (2,457 | )     
|Cash flows from investing activities:                |                                                                                                |                                                             |        |      |      |   |        |       
|                                                     | Acquisition of plant, property and equipment by
	subsidiaries                                  |                                                             |        | (721 | )    |   |        | (699   | )     
|                                                     | Decrease (increase) in restricted cash                                                         |                                                             |        | 37   |      |   |        | (52    | )     
|                                                     | Repayments from (temporary advances to) Principal
	Healthcare Finance Limited                  |                                                             |        | (445 | )    |   |        | 2,036  |       
|                                                     | Proceeds from sale of Essex Healthcare investment                                              |                                                             |        |     |      |   |        | 325    |       
|                                                     | Proceeds from repayment of note receivable                                                     |                                                             |        |     |      |   |        | 50     |       
|                                                     | Other                                                                                          |                                                             |        | 8    |      |   |        | (14    | )     
|                                                     |                                                                                                |                                                             |        |      |      |  
|Net cash provided by (used in) investing
	activities |                                                                                                |                                                             | (1,121 | )    |      |   | 1,646  |       
|                                                     |                                                                                                |                                                             |        |      |      |  
|Decrease in cash and short-term investments          |                                                                                                | $                                                           | (1,281 | )    |      | $ | (871   | )     
|                                                     |                                                                                                |                                                             |        |      |      |  

See notes to condensed consolidated financial
statements.

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OMEGA WORLDWIDE, INC.






NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS


Unaudited

December 31, 2001

(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 period ended December 31, 2001 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
$1,785 supporting Iduns debt (See Note F). In
addition, the Company has $389 of other restricted cash.

NON-RECURRING EXPENSES

As previously announced, the Company has been
exploring ways to boost shareholder value. The cost of legal
advice related to the process and analyzing the previously
announced offer by a third party to purchase the Companys
investment in Principal Healthcare Finance Limited
(Principal-UK) totaled $18 for the three-month
period ended December 31, 2001.

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 amount of severance agreement expense for the three-month
period ending December 31, 2001 is $1,602.

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##### Table of Contents



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
(FAS 133). 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 based on the type
of hedge transaction. Gains or losses on derivative instruments
reported in other comprehensive income must be reclassified as
earnings in the period in which earnings are affected by the
underlying hedged item, and the ineffective portion of all
hedges is recognized in other income (expense) in the statements
of earnings in the current period. These new standards may
result in additional volatility in reported earnings, other
comprehensive income (loss) and accumulated other comprehensive
income (loss). These rules became effective for the Company on
October 1, 2000 and did not have a significant effect on
the Companys consolidated results of operations or
financial position upon adoption.

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

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

TRANSLATION

Translation of currencies for foreign subsidiary
financial information is computed pursuant to the provisions of
Financial Accounting Standards Board Statement 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 specific dates. During the three-months ended
December 31, 2001, the Company recorded a charge to
accumulated other comprehensive loss of $1,731 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 periods ended December 31, 2001 and
2000.

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

IMPACT ON RECENTLY ISSUED ACCOUNTING
STANDARDS

In June 2001, the Financial Accounting
Standards Board (FASB) issued Statements of
Financial Accounting Standards 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 combination completed after June 30, 2001.
FAS 142 prohibits the amortization of goodwill and
intangible assets with indefinite useful lives. FAS 142
requires that these assets be reviewed for impairment at least
annually. Intangible assets with finite lives will continue to
be amortized over their useful lives. Additionally, FAS 142
requires that goodwill included in the carrying value of equity
method investments no longer be amortized.

6



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The Company applied FAS 142 beginning
October 1, 2001. The Company will test 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. The Company expects to perform the first of
the required impairment tests of goodwill and indefinite lived
intangible assets in the second quarter of 2002. Any impairment
charge resulting from these transitional impairment tests will
be reflected as the cumulative effect of a change in accounting
principal in the second quarter of 2002. The Company has not yet
determined what the effect of these tests will be on the
earnings and financial position of the Company.

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, FAS144 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 and did not expect a 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 $21,773 and $22,040
at December 31, 2001 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 December 31, 2001.
In addition, temporary unsecured advances to Principal-UK in the
amount of $6,051 and $5,697 at December 31, 2001 and
September 30, 2001, respectively, with interest at 9.00%.
Included in interest income for the three-month periods ended
December 31, 2001 and 2000 is $1,020 and $967,
respectively, related to the subordinated loan receivable and
temporary unsecured advances to Principal-UK. The Company is
currently in negotiations with Principal-UK to extend the
maturity date and terms of the subordinated loan receivable and
the temporary unsecured advances. The Companys financial
statements do not include any adjustments to reflect the
possible future effects on the recoverability of the investments
in and advances made to Principal-UK of $36,315 at
December 31, 2001 that may result from the outcome to the
uncertainty of Principal-UKs ability to continue as a
going concern described below. The realization of the
subordinated loans to and the Companys investment in
Principal-UK is dependent upon the resolution of this
uncertainty.

7



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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 |       
|                                           |                                 |                          |       
|                                           |                                 | November 30,             |        |        | November 30, |  
|                                           |                                 | 2001                     |        |        | 2000         |  
|Selected operating results for the period: |                                 |                          |        |        |              |  
|Revenues:                                  |                                 |                          |        |        |              |   |        |       
|                                           | Rent income                     |                          | $      | 13,856 |              |   | $      | 13,860 |        
|                                           | Patient service revenue         |                          |        | 2,268  |              |   |        | 2,170  |        
|                                           | Interest income                 |                          |        | 49     |              |   |        | 32     |        
|                                           | Other income                    |                          |        | 1,035  |              |   |        | 1,036  |        
|                                           |                                 |                          |        |        |              |  
|                                           |                                 | Total revenues           |        |        | 17,208       |   |        |        | 17,098  |  
|Expenses:                                  |                                 |                          |        |        |              |   |        |       
|                                           | Interest expense                |                          |        | (9,032 | )            |   |        | (9,185 | )      
|                                           | Depreciation and amortization   |                          |        | (2,423 | )            |   |        | (2,507 | )      
|                                           | Direct cost of patient services |                          |        | (1,995 | )            |   |        | (2,140 | )      
|                                           | General and administrative      |                          |        | (1,734 | )            |   |        | (1,415 | )      
|                                           |                                 |                          |        |        |              |  
|                                           |                                 | Total expenses           |        |        | (15,184      | ) |        |        | (15,247 | )
|                                           |                                 |                          |        |        |              |  
|Income from operations before income taxes |                                 |                          | 2,024  |        |              |   | 1,851  |       
|Provision for income taxes                 |                                 |                          | (546   | )      |              |   | (592   | )     
|                                           |                                 |                          |        |        |              |  
|Net income from operations                 |                                 |                          | 1,478  |        |              |   | 1,259  |       
|                                           |                                 |                          |        |        |              |  
|Average exchange rate ($ per £)            |                                 | $                        | 1.4531 |        |              | $ | 1.4496 |       

|                                                                             |                            |              |         |         |            |   |         |         | 
|---------------------------------------------------------------------------- | -------------------------- | ------------ | ------- | ------- | ---------- | - | ------- | ------- | 
|                                                                             |                            | November 30, |         |         | August 31, |  
|                                                                             |                            | 2001         |         |         | 2001       |  
|Selected balance sheet information as of:                                    |                            |              |         |         |            |  
|Investments in real estate subject to triple-net
	lease, net of depreciation |                            | $            | 362,308 |         |            | $ | 371,917 |        
|                                                                             | Total assets               |              |         | 529,832 |            |   |         | 532,109 | 
|Non-recourse debt borrowings (1)                                             |                            |              | 431,420 |         |            |   | 440,795 |        
|                                                                             | Total liabilities          |              |         | 504,390 |            |   |         | 507,615 | 
|                                                                             | Total stockholders equity |              |         | 25,442  |            |   |         | 24,494  | 
|Exchange rate ($ per £)                                                      |                            |              | 1.4276  |         |            |   | 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 November 30, 2001 and August 31,
2001, Principal-UK has $67,716 and $69,141, respectively, of
mortgage, loan and subordinated notes payable past due,
including $27,823 and $27,648, respectively, due to the Company.
Principal-UK is currently in negotiations with its lenders,
including the Company, to extend the maturity dates and the
terms of the 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.

Although Principal-UK continues to maintain its
periodic payment requirements under the original terms of the
above indebtedness, 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

8



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##### Table of Contents



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 effective tax rates are 27% and 32% for the
three-month periods ending November 30, 2001 and 2000,
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 November 30,
2001 and 2000 are approximately $493 and $420 respectively.
Additionally, the Company has recorded a charge against earnings
of approximately $20 for the three-month periods ended
November 30, 2001 and 2000, 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.

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 |       
|                                                 |                                  |                          |       
|                                                 |                                  | November 30,             |        |        | November 30, |  
|                                                 |                                  | 2001                     |        |        | 2000         |  
|                                                 |                                  |                          |        |        |              |  
|Selected Operating Results for the period ended: |                                  |                          |        |        |              |   |        |       
|Revenues:                                        |                                  |                          |        |        |              |   |        |       
|                                                 | Rent income                      |                          | $      | 3,087  |              |   | $      | 2,914  |       
|                                                 | Interest income                  |                          |        | 46     |              |   |        | 155    |       
|                                                 | Other income                     |                          |        | 11     |              |   |        | 11     |       
|                                                 |                                  |                          |        |        |              |  
|                                                 |                                  | Total revenues           |        |        | 3,144        |   |        |        | 3,080  |  
|Expenses:                                        |                                  |                          |        |        |              |   |        |       
|                                                 | Interest expense                 |                          |        | (2,064 | )            |   |        | (1,947 | )     
|                                                 | Depreciation and amortization    |                          |        | (507   | )            |   |        | (490   | )     
|                                                 | Amortization of debt issue costs |                          |        | (28    | )            |   |        | (79    | )     
|                                                 | General and administrative       |                          |        | (310   | )            |   |        | (190   | )     
|                                                 |                                  |                          |        |        |              |  
|                                                 |                                  | Total expenses           |        |        | (2,909       | ) |        |        | (2,706 | )
|                                                 |                                  |                          |        |        |              |  
|Net income for operations                        |                                  | $                        | 235    |        |              | $ | 374    |       
|                                                 |                                  |                          |        |        |              |  
|Average exchange rate ($ per A$)                 |                                  |                          | 0.5120 |        |              |   | 0.6415 |       

|                                                                             |  |              |         |  |            |   |         | 
|---------------------------------------------------------------------------- |  | ------------ | ------- |  | ---------- | - | ------- | 
|                                                                             |  | November 30, |         |  | August 31, |  
|                                                                             |  | 2001         |         |  | 2001       |  
|                                                                             |  |              |         |  |            |  
|Selected Balance Sheet Information as of:                                    |  |              |         |  |            |   |         | 
|Investments in real estate subject to triple-net
	lease, net of depreciation |  | $            | 93,595  |  |            | $ | 92,508  | 
|Total assets                                                                 |  |              | 116,942 |  |            |   | 116,535 | 
|Non-recourse debt borrowings                                                 |  |              | 88,658  |  |            |   | 91,243  | 
|Total liabilities                                                            |  |              | 103,628 |  |            |   | 102,686 | 
|Total unit holders equity                                                   |  |              | 13,314  |  |            |   | 13,849  | 
|Exchange rate ($ per A$)                                                     |  |              | 0.5180  |  |            |   | 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.

9



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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s proportionate share
of Essexs earnings for the three-months ended
November 30, 2000 is $26.

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 period ended
December 31, 2001 and 2000, respectively). The assumed
conversion of shares of preferred stock is antidilutive.

Note F  Credit Facilities

The Companys outstanding indebtedness
consists of the following:

|                           |  |                   |        |   |                    |   |        |  
|-------------------------- |  | ----------------- | ------ | - | ------------------ | - | ------ | -
|                           |  | December 31, 2001 |        |   | September 30, 2001 |  
|                           |  |                   |        |   |                    |  
|(1) Loan due on demand     |  | $                 | 1,784  |   |                    | $ | 1,822  |  
|(2) Loan due February 2003 |  |                   | 504    |   |                    |   | 674    |  
|(3) Loan due February 2017 |  |                   | 1,545  |   |                    |   | 1,605  |  
|                           |  |                   |        |   |                    |  
|                           |  |                   | 3,833  |   |                    |   | 4,101  |  
|Less current maturities    |  |                   | (2,337 | ) |                    |   | (2,514 | )
|                           |  |                   |        |   |                    |  
|Long-term debt             |  | $                 | 1,496  |   |                    | $ | 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
	(7.59% and 8.37% interest at December 31 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% (6.41% and 7.33%
	interest at December 31 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% (6.41% and 7.33%
	interest at December 31 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 $1,785 included in Restricted Cash will be used
for partial payment of an as yet undetermined combination of
loans listed above.

The principal payment in each of the five years
following December 31, 2001 is set forth below:

|           |  |   |       | 
|---------- |  | - | ----- | 
|2002       |  | $ | 2,337 | 
|2003       |  |   | 97    | 
|2004       |  |   | 97    | 
|2005       |  |   | 97    | 
|2006       |  |   | 97    | 
|Thereafter |  |   | 1,108 | 
|           |  |   |      
|           |  | $ | 3,833 | 
|           |  |   |      

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##### Table of Contents



Note G  Related Party
Transactions

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. Iduns rent expense on leases with
Principal-UK was approximately $3.5 million and
$3.4 million for the three-month period ended
December 31, 2001 and 2000, respectively and is included in
cost of patient services.

Future minimum lease expenses accounted for under
US GAAP under operating leases from Principal-UK as of
December 31, 2001 are as follows:

|           |  |   |         | 
|---------- |  | - | ------- | 
|2002       |  | $ | 17,086  | 
|2003       |  |   | 17,055  | 
|2004       |  |   | 17,025  | 
|2005       |  |   | 16,994  | 
|2006       |  |   | 16,250  | 
|Thereafter |  | $ | 268,600 | 

Pursuant to the provision of a Services Agreement
between Omega Healthcare Investors, Inc. (Omega
Healthcare) and the Company, the Company pays 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. Incurred expenses for the three-month ended
December 31, 2001 and 2000 were approximately $33 and $34,
respectively.

Omega Healthcare holds preferred shares in the
Company of $2.6 million at December 31, 2001. The
preferred shares are entitled to cumulative undeclared dividends
of $780 prior to any distribution to common shareholders.

Fees from services provided to Principal-UK for
the three-month periods ended December 31, 2001 and 2000
are $1,019 and $1,090, respectively.

Fees from services provided to
Principal-Australia for the three-month periods ended
December 31, 2001 and 2000 are $335 and $285, respectively.






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

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##### Table of Contents



its wholly-owned subsidiary, Idun Health Care
Limited. (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 ($) at an average exchange rate for
the period. For the three-month period ending December 31,
2001, the £ relative to the US$ has been approximately the
same from the comparable period last year, and has declined
approximately 2% since September 30, 2001.

Revenues

Patient services revenue from the Idun operations
was $37.0 million for the quarter ending December 31,
2001 compared with $34.8 million for the quarter ending
December 31, 2000. The average occupancy rate for the
quarter was 90.9% compared to 89.8% for the comparable period
last year. 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. On an operating basis (patient
service revenue less direct cost of patient services), Idun
turned a profit under accounting principles generally accepted
in the United States (US GAAP) of approximately $134
in the quarter, the first time since its acquisition by the
Company.

Fee income from Principal-UK for the quarter
ending December 31, 2001 was $1,019 compared with $1,090
for the same period in 2000. The decrease primarily relates to
the reduction in assets under management that are defined by UK
GAAP. At December 31, 2001 assets under management totaled
£282.0 million compared with £312.0 million at
December 31, 2000. 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. The fee agreement with Principal-UK is scheduled to expire
on December 31, 2002. The Companys underlying asset
management and advisory contracts with the Trustees of
Principal-UK bonds continue on similar terms to the fee
arrangement with Principal-UK until the maturity of the bonds
between 2025 and 2029.

Fee income from Principal-Australia for the
quarter ending December 31, 2001 was $335.0 compared with
$285.0 for the same period in 2000. The increase primarily
relates to the increase in assets under management that are
defined by Australian GAAP. At December 31, 2001 assets
under management totaled A$246.0 million compared with
A$200.0 million at December 31, 2000. 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 December 31, 2001 was $1,020 compared with $967 for
the same period in 2000. 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. The Company believes that the
subordinated debt will be extended or refinanced. 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
$168.0 in interest in the three-month period ending
December 31, 2001 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 $116.0 in the three-month
period ending December 31, 2001 compared to the same period
last year. Average temporary advance balances were
£4.1 million and £7.3 million for the
three-month periods ending December 31, 2001 and 2000,
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 $10.0 million).
Prior to March 5, 2001, interest on temporary advances was
fixed at 9.25%.

12



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##### Table of Contents



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 $36.9 million
for the quarter ending December 31, 2001 compared with
$35.2 million for the quarter ending December 31,
2000. Minimum wage increases and increased costs of temporary
services and overtime have historically pushed costs up faster
than government-determined fees. In addition, the long-term
nature of the Companys operating leases for Principal-UK
homes with scheduled rent increases, results in significant
($500 and $849 for the three-month periods ending
December 31, 2001 and 2000, respectively) non-cash rent
expense under US GAAP. The Idun nursing homes were unprofitable
under previous management. The Company has made progress during
the last twenty-six months as direct cost of patient services as
a percentage of patient service revenues declined under US GAAP
to 99.6% for the three-month period ending December 31,
2001 compared with 101.1% for the same period in 2000, resulting
in Idun recording an operating profit (before interest expense)
of $134 under US GAAP during the three-month period ended
December 31, 2001.

Direct costs of asset management declined by $91
from the comparable period last year. The decrease was primarily
the result of a decrease in UK payroll costs (decline of $35)
and a decline in UK and Australian travel expenses (decline of
$44) for the quarter ended December 31, 2001 compared with
the comparable period last year.

General, administrative and other expenses
increased $133 from the comparable period last year. The current
period increase was attributable to: (1) an increase in
legal expense of $103, due to legal expenses incurred in
negotiations between the Company and Principal-UK on a possible
merger; (2) a loss in value of $75 in the Companys
foreign currency forward contracts; and (3) an increase in
Corporate travel expenses of $37. These increased expenses were
partially offset by the decline in payroll costs of $59 for the
quarter ended December 31, 2001 compared with the comparable
period last year.

Interest expense for the three-month period
ending December 31, 2000 was $72 compared with $231 for the
same period in 2000. During the three-month period ending
December 31, 2000, the Companys interest expense
included the expense from the Companys bank credit
agreement ($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
period ending December 31, 2001 is $1,602.

Non-recurring expenses in the current period are
$18. Non-recurring expenses represent costs incurred in pursuing
strategic alternatives for the Company.

Other

Equity in earnings of Principal-UK increased to
$473 in the current year quarter from $400 in the prior year
quarter. The Companys ownership percentage in Principal-UK
has remained constant at 33.375%. The increase in income for the
three-month period is due to an improved performance of
Principal-UK resulting from reductions in interest rates and
ongoing reductions in operating losses in Principal-UKs
care home operation subsidiaries. These savings have been partly
offset by increases in administrative expenses.

Equity in earnings of Principal-Australia
increased to $113 in the current year quarter from $104 in the
prior year quarter. The Companys ownership percentage in
Principal-Australian has remained constant at 47%. The increase
in income for the three-month period is due to improved
performance of Principal-Australia through new investments made
during the current quarter which increased the rental income for
the period.

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

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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.


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

Liquidity and Capital Resources

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

|                        |  |                        |         |           |        |   |        |           |       |   |           |  |  |         |        |  |  |   |         | 
|----------------------- |  | ---------------------- | ------- | --------- | ------ | - | ------ | --------- | ----- | - | --------- |  |  | ------- | ------ |  |  | - | ------- | 
|                        |  |                       
|                        |  | Payments Due by Period |        
|                        |  |                        |        
|                        |  |                        |         | Less than |        |   |        |           | After |  
|Contractual Obligations |  | Total                  |         |           | 1 Year |   |        | 1-3 Years |       |   | 4-5 Years |  |  | 5 Years |       
|                        |  |                        |         |           |        |   |        |           |       |   |           |  |  |         |       
|Long-term debt(1)       |  | $                      | 3,833   |           |        | $ | 2,337  |           |       | $ | 194       |  |  | $       | 194    |  |  | $ | 1,108   | 
|Operating leases(2)     |  |                        | 468,337 |           |        |   | 17,173 |           |       |   | 35,255    |  |  |         | 35,290 |  |  |   | 380,619 | 
|                        |  |                        |         |           |        |   |        |           |       |   |           |  |  |         |       
|Total contractual cash  |  | $                      | 472,170 |           |        | $ | 19,510 |           |       | $ | 35,449    |  |  | $       | 35,484 |  |  | $ | 381,727 | 
|                        |  |                        |         |           |        |   |        |           |       |   |           |  |  |         |       




|    |                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | All of the Companys $3.8 million of
	outstanding debt at December 31, 2001 is the obligation of
	Idun. The Company plans to utilize cash flows from 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 anticipates the need to invest
approximately $1.4 million of additional capital in Idun in
order to cover operations and fund required capital improvements
this fiscal year. The Company has sufficient cash on hand and
expects cash from fees and interest income, net of expenses to
be approximately $2.5 million in the current year.

As of November 30, 2001, Principal-UK has
$67.7 million of mortgage, loan and subordinated notes
payable past due, including $27.8 million due to the
Company and an additional $11.3 million due on that date or
by January 31, 2002. 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
payments requirements under the original terms of the above
indebtedness, 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 effects on the
recoverability of investment in advances made to Principal-UK of
$36.3 million at December 31, 2001 that may result
from the outcome to the above uncertainty. The realization of
the subordinated loans to and the Companys investment in
Principal-UK is dependent upon the resolution of this
uncertainty.

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

Impact of Recently Issued Accounting
Standards

In June 2001, the Financial Accounting
Standards Board (FASB) issued Statements of
Financial Accounting Standards 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 uses for all

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##### Table of Contents



business combinations initiated after
June 30, 2001. FAS 141 also includes guidance on the
initial recognition and measurement of goodwill and other
intangible assets arising from business combinations completed
after June 30, 2001. FAS 142 prohibits the
amortization of goodwill and intangible assets with indefinite
useful lives. FAS 142 requires that these assets be reviewed for
impairment at least annually. Intangible assets with finite
lives will continue to be amortized over their useful lives.
Additionally, FAS 142 requires that goodwill included in
the carrying value of equity method investments no longer be
amortized.


The Company applied FAS 142 beginning
October 1, 2001. The Company will test 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. The Company expects to perform the first of
the required impairment tests of goodwill and indefinite lived
intangible assets in the second quarter of 2002. Any impairment
charge resulting from these transitional impairment tests will
be reflected as the cumulative effect of a change in accounting
principal in the second quarter of 2002. The company has not yet
determined what the effect of these tests will be on the
earnings and financial position of the Company.

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, FAS144 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 and did not expect a material
impact on the consolidated financial statements.



|        |                                                           
|------- | ----------------------------------------------------------
|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
December 31, 2001, 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
December 31, 2001, 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.

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The following table provides information about
the Companys notes payable and the sensitivity to changes
in interest rates:

|                                  |  |                                       |       |   |      |   |      |      |  |   |      |   |  |      |      |   |            |   |      |       |  |   |       |   |  |   |       |  
|--------------------------------- |  | ------------------------------------- | ----- | - | ---- | - | ---- | ---- |  | - | ---- | - |  | ---- | ---- | - | ---------- | - | ---- | ----- |  | - | ----- | - |  | - | ----- | -
|                                  |  |                                      
|                                  |  | Principal Amount by Expected Maturity |      
|                                  |  | Average Interest Rate                 |      
|                                  |  |                                       |      
|                                  |  | 2002                                  |       |   | 2003 |   |      | 2004 |  |   | 2005 |   |  | 2006 |      |   | Thereafter |   |      | Total | 
|                                  |  |                                       |       |   |      |   |      |      |  |   |      |   |  |      |      |   |            |   |      |       | 
|Variable rate amount              |  | $                                     | 2,337 |   |      | $ | 97   |      |  | $ | 97   |   |  | $    | 97   |   |            | $ | 97   |       |  | $ | 1,108 |   |  | $ | 3,833 |  
|Weighted-average interest rate(1) |  |                                       | 7.31  | % |      |   | 6.41 | %    |  |   | 6.41 | % |  |      | 6.41 | % |            |   | 6.41 | %     |  |   | 6.41  | % |  |   | 6.96  | %




|    |                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The weighted average interest rates are based
	upon the rates in effect as of December 31, 2001. See
	Note G to the Companys consolidated financial
	statements for additional information.

Foreign Currency Exchange Rate Risk

A significant portion of the Companys
assets are denominated in either British pound sterling
(£) or the Australian dollar (A$).
The following summarizes these assets and their carrying amounts
at December 31, 2001:

|                                       |       |   |        |        | 
|-------------------------------------- | ----- | - | ------ | ------ | 
|Net operating assets of Idun(£)        |       | $ | 15,629 |       
|Investments in Principal-UK(£)         |       |   | 8,491  |       
|Loans in Principal-UK(£)               |       |   | 27,823 |       
|Other UK assets(£)                     |       |   | 2,800  |       
|Investments in Principal-Australia(A$) |       |   | 6,258  |       
|                                       |       |   |       
|                                       | Total |   | $      | 61,001 | 
|                                       |       |   |       

Interest Rate Risk.

All of the $3.8 million in debt outstanding
at December 31, 2001 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. 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.

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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


None






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


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

|        |      |  |             | 
|------- | ---- |  | ----------- | 
|Exhibit |      |  | Description
|        |      |  |            
|        | None |  |             | 

(b) Reports on Form 8-K 
none were filed

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SIGNATURES


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



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



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

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

February 14, 2002

18