OMEGA WORLDWIDE INC, 10-K/A, 2000-02-14

OMEGA WORLDWIDE INC
10-K/A, 2000-02-14
OPERATORS OF NONRESIDENTIAL BUILDINGS

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<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K/A

(MARK ONE)

|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999

| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 000-23953

OMEGA WORLDWIDE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

MARYLAND 38-3382537
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

900 VICTORS WAY, SUITE 345 48108
ANN ARBOR, MICHIGAN (Zip Code)
(Address of Principal Executive Offices)

Registrant's telephone number, including area code: 734-887-0300

Securities Registered Pursuant to Section 12 (b) of the Act:

Common Stock, $.10 Par Value

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 and 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 |X| No

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. | |

The aggregate market value of the voting stock of the registrant held
by non-affiliates was $48,846,130 based on the $4.656 closing price per share
for such stock on the NASDAQ National Market on December 31, 1999.

As of December 31, 1999, there were 12,276,000 shares outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for its Annual Meeting of
Shareholders which was filed with the Commission on January 11, 2000, are
incorporated herein by reference as indicated herein.

<PAGE> 2

PART I

ITEM 1 -- BUSINESS OF THE COMPANY

The business of the Company is to provide asset management services and
management advisory services, as well as equity and debt capital, to the
healthcare industry, particularly residential healthcare services to the
elderly. The Company has established financing activities in the United Kingdom
and the Commonwealth of Australia. Subsequent to September 30 the Company
acquired leasehold rights and other assets incidental to 119 nursing homes in
the United Kingdom.

The Company often provides seed equity and debt capital to enable the
establishment of operating or financing firms, identifying high quality
management personnel and providing financial support to such companies. The
intent of the Company is to invest in less than majority equity positions in
such firms, to provide continuing support while such firms are not public, and
to secure local capital as the major source of the growth capital for expansion
and development of such firms. The result is to enable such firms to access
capital markets in the locales in which services are provided.

It is the intent of the Company to develop a significant international
presence in healthcare services to the elderly, both in finance and operations,
and to undertake within the United States, operating or real estate activities
of a sort not possible for a healthcare Real Estate Investment Trust ("REIT").
The Company was established by and shares certain management personnel with
Omega Healthcare Investors, Inc. ("Omega"), a publicly traded REIT, which owns
and finances healthcare operating facilities in the United States.

The Company was established in November 1997 and began initial
operation as a separate entity on April 2, 1998, when Omega distributed shares
of the Company's common stock to Omega's existing shareholders. At the same
time, the Company undertook a primary offering and Omega undertook a secondary
offering of shares of the Company's common stock. Omega distributed 5.2 million
shares, sold 2.8 million shares (of which 500,000 shares were sold for the
account of the Company) and retained approximately 9.9% of the common shares
then outstanding, together with 260,000 preferred shares, in exchange for the
contribution to the Company of the following assets:

(a) 33.375% of the ordinary shares in Principal Healthcare
Finance Limited ("Principal-UK"), a Jersey corporation
which is engaged in investing in long-term care
facilities in the United Kingdom;

(b) Warrants to purchase 10,556,250 shares of Principal-UK;

(d) Miscellaneous other net assets stated at a net carrying
amount of $150,000.

Principal-UK is, as of the date of this report, the owner of 207
long-term care facilities, primarily purpose-built nursing homes, subject to
long-term, triple-net leases to 13 operating companies in the UK. Principal-UK's
revenues for the year ending August 31, 1999 totaled $61.8 million, assets
totaled $570 million and net earnings totaled $3.9 million. Principal-UK has
employed fixed-rate financing in which it attempts to match the term of assets
and liabilities. Its rental agreements provide annual increases in rentals in
30-year terms, generally in accordance with the British consumer price index.
Principal has financed its activities through the issuance of long-term,
fixed-rate securitized debt. Its initial securitization was issued in December
1997 in the amount of (Pound Sterling)150 million, repayable in the years 2025
and 2027. In March 1999 a second securitization was issued in the amount of
(Pound Sterling)122 million, repayable in the years 2027 and 2029. Pursuant to
the contract expiring on December 31, 2002, the Company provides management
services to Principal-UK for a fee equal to 0.9% of assets managed. In November
1999, Principal-UK declined to extend the contract for an additional year as
provided in its self extending clause. Both securitizations have maturities that
are consistent with the term of the leases with respect to the facilities
financed.

In June 1998, the Company acquired 100% of the units of Assisted Living
Unit Trust from FAI Insurances Limited, a life and health insurer in Australia,
and its subsidiary, Premier Care Australia (Holdings) Pty Limited, and changed
the name of the trust to Principal Healthcare Finance Trust
("Principal-Australia"). Principal-Australia is an

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Australian Unit Trust which owned, as of the date of acquisition by the Company,
ten long-term nursing homes and 480 assisted living units in New South Wales.
Initial long-term financing of A$127.9 million was completed in October 1999.
The amount is repayable in quarterly installments through 2027.

Principal-Australia net leased its assets to an affiliate of Moran
Health Care Group Pty Limited ("Moran"), the largest operator of long-term care
and assisted living facilities in Australia, for an initial term of 30 years. On
November 12, 1998, Principal-Australia completed the first phase of a three-part
purchase and leaseback transaction, also with Moran, which encompassed 30
long-term care facilities in Victoria, New South Wales and Western Australia. In
phase one of the transaction, an affiliate of Moran sold 25 homes to
Principal-Australia for A$80 million and immediately leased them back for an
initial 30-year term. Simultaneously, phase two of the agreement called for
Principal-Australia to acquire, upon completion and rent-up to stabilized
occupancy, five additional Victoria facilities from an affiliate of Moran for an
aggregate purchase price of A$10.5 million. Phase two was completed in March
1999. Phase three involves the advance by Principal-Australia of an additional
A$25 million to enable refurbishing and renovation of such of the initial
facilities as is necessary over a five-year period. The advance of funds in
excess of A$90 million is subject to the tenant achieving special performance
standards and operating profitability (rent coverage) over the period of the
commitment, which expires in October 2003. The Company provides management
services to Principal-Australia for a fee equal to 0.9% of assets managed. The
agreement extends through December 31, 2007.

The Company acquired, in connection with its initial establishment, an
interest in Essex Healthcare Corporation ("Essex") and an affiliate, Atrium
Living Centers, Inc. In August 1998, the Company invested an additional
$500,000, increasing its equity interest in Essex to 47%. Essex is an operator
of 13 long-term care facilities containing 1,400 beds in Ohio, which are leased
from independent third parties, and manages 33 facilities (approximately 1,800
beds) in Indiana, Michigan, Illinois and Texas.

In August 1998, the Company acquired from a subsidiary of Principal-UK
for (Pound Sterling)640,000 a 19.9% interest in Moran Healthcare (UK) Limited
("Moran UK"), the sole shareholder of Baneberry Healthcare ("Baneberry"), a UK
operating company engaged in the business of providing healthcare services in
Northern Ireland and England. Baneberry was previously financed by Principal-UK.
Moran (UK) is an affiliate of Moran, the operator of the long-term care
facilities in Australia that are owned by Principal-Australia.

Subsequent to year end, in October 1999, the Company, through a wholly
owned subsidiary, Idun Healthcare Ltd., acquired the operating subsidiaries of
Tamaris plc. The 48 subsidiaries acquired operate 119 nursing homes and three
pharmacies in England, Scotland and Northern Ireland.

EMPLOYEES

At November 15, 1999, the Company employed ten persons in its operating
office in London, England, three persons in its operating office in Sydney,
Australia, three persons at the Company's executive offices in Ann Arbor,
Michigan and 31 persons as shared employees with Omega at the Company's
executive offices in Ann Arbor, Michigan. The Company's Idun Healthcare Ltd.
employs approximately 8,700 employees in the operations it purchased in October
1999.

THE OPPORTUNITY AGREEMENT

The Company and Omega have entered into the Opportunity Agreement to
provide each other with rights to participate in certain transactions and make
certain investments. The Opportunity Agreement provides, subject to certain
terms, that, regardless of whether the following kinds of investments (each a
"Worldwide Opportunity") first come to the attention of the Company or Omega,
the Company will have the right to: (a) provide advisory services and/or
management services to any healthcare investors, wherever located; (b) acquire
or make debt and/or equity investments (through a joint venture or otherwise) in
any healthcare investor or in healthcare real estate-related assets outside the
United States; (c) make investments in any entity conducting healthcare
operations; and (d) make any other real estate, finance or other investments not
customarily undertaken by a qualified REIT. However, Omega will have the right,
regardless of whether the following kinds of investments (each a "REIT
Opportunity") first come to the attention of the Company or Omega, to: make any
investment within the United States (a) in real estate, real estate

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<PAGE> 4

mortgages, real estate derivatives or entities that invest exclusively in or
have a substantial portion of their assets in any of the foregoing, so long as
Omega's REIT status would not be jeopardized by the investment; and (b) that, if
made by a REIT, would not result in the termination of the REIT's status as a
REIT under Sections 856 through 860 of the Internal Revenue Code ("Code"). If
the Company declines to pursue a Worldwide Opportunity, it must offer that
opportunity to Omega, and if Omega declines to pursue a REIT Opportunity, it
must offer that opportunity to the Company. Each of the Company and Omega may
participate, in its discretion, in any REIT Opportunity or Worldwide Opportunity
that the other requests be pursued jointly. The terms upon which each of the
Company and Omega may elect to participate in such an opportunity will be
negotiated in good faith and must be mutually acceptable to the respective
boards of directors of the Company and Omega, with the affirmative votes of the
independent directors of the respective boards of directors of the Company and
Omega. Each of the Company and Omega, in its sole discretion, will make all
decisions as to whether to pursue transactions or investments. The determination
by each of the Company and Omega as to whether to pursue an investment or
transaction individually shall be made by the affirmative votes of the
independent director(s) of the board of directors of the Company or Omega. Each
of Omega and the Company has agreed to notify the other of and make available to
the other investment opportunities developed by such party or of which such
party becomes aware but is unable or unwilling to pursue. The Opportunity
Agreement has a term of ten years and automatically renews for successive
five-year terms unless terminated. Pursuant to the Opportunity Agreement, Omega
acquired 8% of the common shares of Principal-Australia.

Omega and the Company have entered into a Services Agreement pursuant
to which Omega provides shared management and other employees, office space and
administrative services to the Company. The Company reimburses Omega quarterly
for a portion of Omega's overhead expenses, such as rent, compensation and
utilities, based on a formula determined by dividing the value of the assets
managed by the Company at the end of each fiscal quarter by the sum of the value
of the assets of Omega and assets managed by the Company at the end of each
fiscal quarter.

INVESTMENT OBJECTIVES

The investment objectives of the Company are:

1. To extend its franchise value by providing and financing
long-term care services to the elderly.

2. To expand its asset management business by establishing new
financing entities and establishing relationships with strong
operating companies to extend and expand assets under
management.

3. To expand the Company's ability to provide financial capital
to develop, expand and consolidate nursing home operating
companies, primarily outside the United States.

4. To grow the capital value of the Company through prudent use
of leverage, extension of its franchise value and the
application of the intellectual capital of the Company to
investment opportunities in Europe, Australia, Asia and the
United States.

There is no expectation or intent in the near-term to pay a dividend on
common stock.

FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS.

The information required by this item is incorporated herein by
reference to the "Business Segment Information" footnote on page F-14 of the
Company's consolidated financial statements.

REGULATION OF THE HEALTHCARE INDUSTRY

The Company will invest in entities which own healthcare facilities
principally outside of the United States. Accordingly, the Company does not
intend to diversify its investments to reduce the risks associated with
investment in the healthcare industry. Future investments by the Company may be
on terms or conditions less favorable than the terms applicable to the Company's
initial investments. The operation of healthcare facilities is subject to
substantial regulation. In addition to other laws and regulations with which the
Company will be required to comply, the Company will be subject to laws that
govern financial arrangements between healthcare providers. Any failure to
comply with these laws or regulations could have an adverse effect on the
operations of the Company.

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Healthcare is an area of extensive governmental regulation and frequent
regulatory change. Operating companies in which the Company invests, as well as
the lessees and mortgagors of Principal-UK, Principal-Australia and similar
companies, are and will continue to be subject to extensive regulation. Changes
in laws or regulations or new interpretations of existing laws or regulations
can have a dramatic effect on the healthcare industry with respect to methods of
doing business, costs of doing business and revenues. Principal-UK and
Principal-Australia are attempting to develop and market a method of financing
for healthcare properties which is not, at present, widely accepted in the
United Kingdom, Australia or elsewhere, and the business of the Company may not
develop and grow as the Company anticipates.

The operating results of the healthcare facilities underlying the
investments of Principal-UK, Principal-Australia and operating companies in
which the Company invests will depend on various factors over which the Company
will have no control and which may affect the present or future cash flows of
the Company. Those factors include, without limitation, general economic
conditions, changes in supply of, or demand for, competing long-term healthcare
facilities, changes in occupancy levels, the ability of the lessees and
mortgagors of Principal-UK, Principal-Australia and similar companies in which
the Company invests through rate increases or otherwise to absorb increases in
operating expenses, changes in governmental regulations and changes in planning
(zoning) regulations.

A significant portion of the revenues of operating companies, including
the lessees of Principal-UK, Principal-Australia and similar companies in which
the Company invests, will be dependent upon payments from third party payors,
including private insurers and local and national governments. The levels of
revenues and profitability of such lessees, mortgagors and operating companies
may be affected by the continuing efforts of third party payors to contain or
reduce the cost of healthcare. Medical advances and changes in the method of
providing long-term healthcare services may significantly change the healthcare
needs of the elderly and thereby reduce the demand for long-term healthcare
facilities. Likewise, such advances and changes may make obsolete the healthcare
properties owned or financed by Principal-UK, Principal-Australia and similar
companies in which the Company invests.

Although Principal-UK plans to increase rapidly the number of
healthcare operators it finances, currently over 50% of Principal-UK's rents are
derived from rent payments received from two operators. Principal-Australia also
plans to increase the number of healthcare operators it finances, but presently
all of its assets are operated by and leased to affiliates of Moran. Thus, the
results of operations and financial condition of Principal-UK and
Principal-Australia will be dependent upon the ability of these tenants to meet
their obligations under their agreements with Principal-UK and
Principal-Australia.

Healthcare services, particularly those for the elderly outside the
United States, often have been provided by government or by not-for-profit
organizations, and the ability of the Company to extend its financing and
investment activities is premised upon additional changes in the way in which
healthcare services for the elderly will be provided in such countries as the
Company may invest. While the United Kingdom and the Commonwealth of Australia
have been advanced in permitting and encouraging the private for-profit sector
to develop healthcare services, there is no assurance that such encouragement
and permission will be available in other countries in which the Company may
desire to invest.

No assurance can be given that a lessee will exercise any option to
renew its lease upon the expiration of its term. In such an instance, the
Company may not be able to locate a qualified purchaser or qualified replacement
tenant for the healthcare properties in question, and as a result it would lose
a source of revenue while remaining responsible for payment of its obligations
incurred in financing such properties.

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DIRECTORS AND EXECUTIVE OFFICERS OF OMEGA WORLDWIDE

Set forth below is information regarding (i) current Directors of the
Company, who will serve until the term expires at the indicated annual meeting
of shareholders or until their successors are elected, and (ii) the current
executive officers of the Company, who are elected to serve at the discretion of
the Board of Directors.

<TABLE>
<CAPTION>
TERM
NAME EXPIRES AGE POSITIONS
---- ------- --- ---------
<S> <C> <C> <C>
Jacques Aigrain.................... 2001 45 Director
Essel W. Bailey, Jr................ 2002 55 Director, President and Chief Executive Officer
James E. Eden...................... 2000 62 Director
James P. Flaherty.................. 52 Chief Operating Officer
Thomas F. Franke................... 2001 70 Director
Anil Gupta......................... 2000 50 Director
Harold J. Kloosterman.............. 2002 57 Director
Bernard J. Korman.................. 2000 68 Director
Susan A. Kovach.................... 39 Vice President, General Counsel and Secretary
Edward Lowenthal................... 2001 54 Director
Edward C. Noble.................... 45 Vice President and Chief Financial Officer
Robert L. Parker................... 2002 65 Chairman of the Board of Directors
</TABLE>

Jacques Aigrain has been employed by J.P. Morgan and Company for 15
years. Mr. Aigrain is a managing director of J.P. Morgan and Company and joined
the firm's Investment Banking Committee in July 1998 and was also made co-head
of Global Mergers and Acquisitions, working from New York and London. For the
previous two years, Mr. Aigrain headed Morgan's Paris office, and from 1991
through 1996 served in the London office, where he was responsible for
transactions in the healthcare and chemical industries. Mr. Aigrain became a
director of the Company on July 7, 1998 and holds a Ph.D. in Economics from the
Sorbonne in Paris.

Mr. Bailey has been Chief Executive Officer of the Company since April
1998, as well as a Director since its formation in November 1997. Mr. Bailey
also has served as President and Chief Executive Officer of Omega, as well as a
Director of Omega since its formation in 1992, and he has served as Chairman of
the Board of Directors of Omega since 1995. Prior to forming Omega, he was a
Managing Director of Omega Capital, a healthcare investment partnership, from
1986 to 1992. Mr. Bailey was formerly a Director of Evergreen Healthcare, Inc.,
which was a NYSE listed company engaged in the operation of long-term healthcare
facilities, and of Vitalink Pharmacy Services, Inc., a NYSE listed company, and
the operator of institutional pharmacies serving the long-term care industry in
the United States. Mr. Bailey currently serves as Managing Director of
Principal-UK and of Principal-Australia.

Mr. Eden has been a Director of the Company since April 1998. He is
President and principal owner of Eden & Associates, Inc., which provides
consulting services to the senior living and long-term care industries. He is
also President and principal owner of Senior Living Properties, LLC, and serves
as Chairman and Chief Executive Officer of Oakwood Living Centers, Inc., which
owns and operates 7 nursing homes in Massachusetts and Virginia. From 1976 to
1992, he held various positions in healthcare at Marriott Corporation
ultimately, as Executive Vice President and General Manager of its Senior Living
Services Division. Mr. Eden is also a Director of Omega, the Alliance for Aging
Research and United Vanguard Homes.

Mr. Flaherty joined Omega in 1996 and was appointed Vice
President-International of Omega and Chief Executive of Omega (UK) Limited in
January 1997. Mr. Flaherty was appointed Chief Operating Officer of the Company
in April 1998. Before he joined Omega, Mr. Flaherty was Chairman of Black Rock
Capital Corporation, a leasing and merchant banking firm he founded in 1994.
From April 1991 until December 1993, Mr. Flaherty was Managing Partner of Pareto
Partners, a London based investment management firm. Prior to 1991, he was
employed by American Express Bank Ltd. in London and Geneva in a number of
senior management capacities and by State National Bank of Connecticut and its
successor, The Connecticut Bank & Trust Co.

Mr. Franke has been a Director of the Company since April 1998. He is
Chairman and principal owner of Cambridge Partners, Inc., an owner, developer
and manager of multifamily housing in Grand Rapids and Ann Arbor,

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Michigan. He is also the principal owner of private healthcare firms operating
in the United States and the United Kingdom and a private hotel firm in the
United Kingdom. Mr. Franke has been a Director of Omega since its formation in
1992, and since Principal-UK's formation in 1995, Mr. Franke has been a Director
of Principal-UK.

Dr. Anil K. Gupta has been a Director of the Company since July 7,
1998. He is Professor of Strategy, Organization and International Business at
the Robert H. Smith School of Business, The University of Maryland. He holds a
Doctor of Business Administration from Harvard Business School. Dr. Gupta served
as a director of Vitalink Pharmacy Services, Inc. from 1992 to 1998. Recipient
of numerous scholarly awards, he also provides consulting and executive training
to a number of multinational companies.

Mr. Kloosterman has been a Director of the Company since April 1998. He
also has been a Director of Omega since its formation in 1992 and was a Managing
Director of Omega Capital from 1986 to 1992. Mr. Kloosterman has been involved
in the acquisition, development and management of commercial and multi-family
properties since 1978. He has been a senior officer of LaSalle Partners, Inc.,
and in 1985 he formed Cambridge Partners, Inc., where he serves as President. At
Cambridge, he has been involved in the development and management of commercial,
apartment and condominium projects in Grand Rapids and Ann Arbor, Michigan and
in the Chicago area.

Mr. Korman has been a Director of the Company since April 1998. He is
Chairman of the Board of Trustees of Philadelphia Healthcare Trust, a
not-for-profit health care system, and of NutraMax Products, Inc., a public
consumer health care products company. He formerly was President, Chief
Executive Officer and Director of MEDIQ Incorporated (health care services) from
1977 to 1995. Mr. Korman has been a Director of Omega since 1993 and also is a
Director of the following public companies: The New America High Income Fund
(financial services), The Pep Boys, Inc. (auto supplies), and Kranzco Realty
Trust (real estate investment trust).

Ms. Kovach joined Omega in December 1997 as Vice President, General
Counsel and Secretary, and was appointed Vice President, General Counsel and
Secretary of the Company in April 1998. Prior to that she was a lawyer with
Dykema Gossett PLLC in Detroit, Michigan for 12 years, the last three years as a
senior member of the firm.

Mr. Lowenthal has served as a Director of the Company since April 1998.
He is President and Chief Executive Officer of Wellsford Real Properties, Inc.
(AMEX: WRP), a real estate merchant bank, and was President of the predecessor
of Wellsford Real Properties, Inc. since 1986. Mr. Lowenthal has been a Director
of Omega since 1995 and also serves as a Director of Equity Residential
Properties Trust and Great Lakes REIT, Inc. He also has served as a director of
United American Energy Corporation, a developer, owner and operator of energy
facilities, and Corporate Renaissance Group, Inc., a mutual fund.

Mr. Noble joined Worldwide in March 1999 as Vice President and Chief
Financial Officer. From 1995 to 1998, Mr. Noble was Chief Financial Officer of
the international group of Culligan Water Technologies, Inc., a manufacturer of
water treatment products. From 1991 to 1995, he was Assistant Treasurer for
Astrum International, Inc., a holding company in diverse industries.

Mr. Parker has served as Chairman of the Company's Board of Directors
since April 1998. He is a consultant to, and formerly was Chairman of Omega from
1992 to 1995 and Managing Director of Omega Capital from 1986 to 1992. From 1972
through 1983, Mr. Parker was a senior officer of Beverly Enterprises, the
largest operator of long-term care facilities in the United States. At the time
of his retirement in 1983, Mr. Parker was Executive Vice President of Beverly
Enterprises. Mr. Parker is a registered architect and is licensed in California
and Oklahoma. Mr. Parker also served as a Director of GranCare, Inc., a public
company engaged in the operation of long-term care facilities, from 1995 to
1997, and of Vitalink Pharmacy Services Inc., a publicly-traded institutional
pharmacy, during 1997. He has served as a director of Principal-UK since 1995,
and of First National Bank of Bethany, Oklahoma.

The Company believes that all filings required to be made pursuant to
Section 16(a) of the Securities Exchange Act of 1934 were timely made.

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ITEM 2 -- PROPERTIES

At September 30, 1998, the Company's real estate investments were in
purchased long-term care facilities located in New South Wales, Australia and
leased and operated by Moran. There are ten nursing homes with a total of 733
licensed beds (weighted average occupancy 99.1%), and the yield on this
investment is 10.0%. Eight of the properties also have a total of 480 assisted
living units. At September 30, 1999, the real estate investments described above
continue to be owned by its unconsolidated affiliate, Principal-Australia.

ITEM 3 -- LEGAL PROCEEDINGS

There were no legal proceedings pending as of September 30, 1999, or as
of the date of this report, to which the Company is a party or to which the
properties are subject.

ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to shareholders during the last quarter of
the year covered by this report.

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PART II

ITEM 5--MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The Company completed its IPO on April 2, 1998, and its common stock
began trading on the NASDAQ National Market System on April 10, 1998. Therefore,
data for the first and second quarters of the Company's fiscal year ended
September 30, 1998 does not exist. The Company's shares of common stock are
traded under the symbol OWWI. The following table sets forth, for the year ended
September 30, 1999 and the period ended September 30, 1998, the high and low
prices as reported by the NASDAQ National Market System:

<TABLE>
<CAPTION>
QUARTER HIGH LOW
------- ---- ---
<S> <C> <C>
April 10, 1998 through June 30, 1998........................................... $ 10.625 $ 6.875
July 1, 1998 through September 30, 1998........................................ $ 8.250 $ 4.000
October 1, 1998 through December 31, 1998...................................... $ 4.750 $ 3.500
January 1, 1999 through March 31, 1999......................................... $ 5.250 $ 3.438
April 1, 1999 through June 30, 1999............................................ $ 6.000 $ 3.563
July 1, 1999 through September 30, 1999........................................ $ 4.500 $ 4.000
</TABLE>

The closing price quoted on the NASDAQ National Market System on
December 31, 1999 was $4.656 per share. As of December 31, 1999, there were
12,276,000 shares of common stock outstanding with approximately 2,000
registered holders and approximately 12,000 beneficial owners.

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ITEM 6 - SELECTED FINANCIAL DATA

The following selected financial data should be used in conjunction
with the Company's consolidated financial statements appearing elsewhere herein
(in thousands, except per share data):

<TABLE>
<CAPTION>
Period from
Year Ended April 2, 1998 to
September 30, September 30,
1999 1998
------------- ----------------
<S> <C> <C>
OPERATING DATA
Revenues ............................................................ $ 14,753 $ 5,095
Operating Income .................................................... 6,414 2,429
Equity in earnings of Principal Healthcare Finance, Limited ......... 1,223 421
Equity in earnings of Principal Healthcare Finance Trust ............ 484 -
Equity in earnings (loss) of Essex Healthcare, Inc. ................. (282) 32
Gain on dilution of interest in Principal Healthcare Finance Trust... 951 -
Recognized Impairment of investment (Tamaris, plc) .................. (938) -
Income tax provision ................................................ (2,389) (927)
Net earnings ........................................................ 5,463 1,955
Net earnings available to common shareholders ....................... 5,255 1,851

Earnings per common share, basic .................................... 0.43 0.15
Earnings per common share, dilutive ................................. 0.43 0.15
Weighted average of shares outstanding, basic ....................... 12,261 12,255
Weighted average of shares outstanding, dilutive .................... 12,262 12,255
</TABLE>

<TABLE>
<CAPTION>
September 30,
-----------------------
1999 1998
-------- ---------
<S> <C> <C>
BALANCE SHEET DATA
Current assets ...................................................... $ 7,042 $21,567
Total assets ........................................................ 68,412 88,992
Current liabilities ................................................. 4,272 30,341
Long-term debt ...................................................... - -
Shareholders' equity ................................................ 64,140 58,651
</TABLE>

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MANAGEMENT'S DISCUSSION AND ANALYSIS

"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 audited consolidated
financial statements and notes thereto. The Company began operations on April 2,
1998. Accordingly, results through September 30, 1998 include six months of
activity, while results through September 30, 1999 include twelve months of
activity.

RESULTS OF OPERATIONS

The Company generates income from three 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; and (3) Equity in earnings of companies in the healthcare and
healthcare financing industries. Prior to April 1, 1999, the Company also
recorded rental income earned by its then wholly owned subsidiary,
Principal-Australia.

REVENUES

Advisory fees are earned from Principal-UK and Principal-Australia
based on assets (as defined) under management by the Company and its
subsidiaries. Assets subject to fees from Principal-UK increased from (Pound
Sterling)220 million at April 2, 1998 to (Pound Sterling)324 million at
September 30, 1999; 26% of this increase occurred during the current fiscal
year. Equivalent U.S. dollar amounts based on exchange rates in effect on those
dates were $367 million and $516 million, respectively. Prior to April 1, 1999,
fee income from Principal-Australia was eliminated in consolidation, but with
the dilution of the Company's interest to 47% (see below), they are now reported
separately. Principal-Australia's assets under management at September 30, 1999
were approximately A$171 million (US$109 million).

Interest income from Principal-UK has increased from prior years based
on increased advances to fund, temporarily, acquisitions by Principal-UK. The
average balance for the current year was approximately $18.6 million, compared
to $6.3 million for the six-month period last year.

EXPENSES

Direct costs of services provided are the costs associated with
generating fee income from Principal-UK and Principal-Australia. The increase
from the prior year monthly expense level is due to the opening of Omega
Australia to service Principal-Australia. The monthly increase in general and
administrative expenses and allocated expenses from Omega is reflective of the
growth in assets under management and increased usage of the services provided
by Omega. Interest expense was largely incurred at Principal-Australia when it
was a consolidated entity for purposes of funding its investments. In its most
recent quarter the Company was debt free, and interest expense of $50,000
relates to commitment fees on its line of credit.

10
<PAGE> 12

OTHER

Equity in earnings of Principal-UK increased from $421,000 in the prior
year to $1,223,000 in the current year. The Company's ownership percentage in
Principal-UK has remained constant at 33.375%. The increase in income is due to
improved performance of Principal-UK as its leased assets and their rents have
increased.

The equity in loss of Essex of $282,000 was largely due to
non-recurring costs associated with an unfavorable decision by a third-party
payor. Essex management continues to make progress in structuring operations to
be profitable under the new Medicare pay structure and in improving performance
at the several skilled nursing facilities that were acquired when they were
unprofitable. Essex has recorded profits in the two most recent quarters.

The Company has two other investments in skilled nursing home
operators, both located in the UK. Investments in Baneberry Healthcare Ltd. and
Tamaris, plc at September 30, 1999 represent less than 20% of the shares
outstanding of these companies and are held as investments. The Company does not
record income or loss from these operators, except to the extent of dividends
received. The investment cost of Baneberry approximates market value. As
Tamaris, plc, was traded on the London exchange and market value information was
readily available, fluctuations in market value were reported as adjustments to
total comprehensive income. Subsequent to year end the Company purchased all of
the operating subsidiaries of Tamaris, plc, see Note 17 to the Financial
Statements for further details.

As more fully described in the Form 8-K dated April 1, 1999, on April 1
Principal-Australia sold 7,500,000 newly issued shares to Omega and AMP, as well
as 875,000 additional shares to the Company, diluting the Company's ownership to
47%. The transaction created the one-time gain on dilution of interest in
Principal-Australia of $951,000, resulting in after tax earnings of $628,000, or
$0.05 per share.

As more fully described in Note 17 to the Financial Statements, the Company
reduced its investment in Tamaris, plc stock by $938,000, resulting in an after
tax recognized impairment of $657,000, or $0.05 per share

The Company's effective tax rate varies from the federal statutory rate
of 34% due to the benefit of available foreign tax credits.

LIQUIDITY AND CAPITAL RESOURCES

As of year end, the Company had cash and short-term investments of $5.7
million and availability of $25 million under the Company's bank revolving
credit facility. These funds are in excess of short-term operating requirements
of the Company and are available for further investments or expansion of the
Company's operations into other geographical areas. Subsequent to year end the
acquisition of Tamaris' operating entities by Idun and temporary working capital
requirements of Idun Health Care Ltd. were financed by this cash and a portion
of the revolving credit facility.

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 hedge 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 September 30, 1999, the Company had
outstanding a ten-year British pound sterling forward currency swap to exchange
(Pound Sterling)20,000,000 for $31,740,000 to mature on October 15, 2007, and a
five-year Australian dollar forward currency swap to exchange A$11.0 million
Australian dollars for $6,749,000 to mature on July 3, 2003. From time to time,
the Company may also obtain hedges for its foreign currency exposure relative to
temporary loans to Principal and the Trust. Because of the Company's foreign
exchange contracts, its sensitivity to foreign exchange currency exposure is
considered low.

11
<PAGE> 13

YEAR 2000 IMPLICATIONS

The Year 2000 compliance issue concerns the inability of certain
systems and devices to properly store dates beyond December 31, 1999. This could
result in system failures, malfunctions or miscalculations that disrupt normal
operations. This issue affects most companies and organizations, at least to the
extent that potential exposures must be evaluated.

The Company has reviewed risks with regard to the impact of outside
vendors' ability to operate, including Omega's services under the Services
Agreement, and the impact of tenants' ability to operate. Based upon information
available from technology vendors to date, Omega does not believe that there are
issues which could have a material effect upon its internal operations, its
technology infrastructure, information systems and software applications. In
those cases where there are compliance issues, these are considered to be minor
in nature and remedies are already identified. Expenditures for such remedies
have not and will not be material.

With respect to the Company's other material outside vendors, such as
its banks, the Company's assessment covered the compliance efforts of
significant vendors, the effects of potential non-compliance, and remedies that
may mitigate or obviate such effects as to the Company's business and
operations. Based upon its assessment of outside vendors, the Company does not
believe that there are issues which could have a material effect, but there can
be no assurances that such issues won't have a material effect on the Company.

12
<PAGE> 14

ITEM 7A--QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

These disclosures are included in Management's Discussion and Analysis of
Financial Condition and Results of Operations.

ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements and report of independent auditors are
filed as part of this report on pages F-1 through F-16.

ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

13
<PAGE> 15

PART III

ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Located in Part I as permitted by Instruction 3 to Item 401(b) of Regulation
S-K.

ITEM 11 -- EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the
Company's definitive proxy statement for the Annual Meeting of Shareholders to
be held on April 19, 2000, which was filed on January 11, 2000 with the
Securities and Exchange Commission pursuant to Regulation 14A.

ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to the
Company's definitive proxy statement for the Annual Meeting of Shareholders to
be held April 19, 2000, which was filed on January 11, 2000 with the Securities
and Exchange Commission pursuant to Regulation 14A.

14
<PAGE> 16

PART IV

ITEM 14 -- EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.

(a)(1) Listing of Consolidated Financial Statements

<TABLE>
<CAPTION>
TITLE OF DOCUMENT PAGE NUMBER
- ----------------- -----------
<S> <C>
Report of Independent Auditors............................................................................ F-1
Consolidated Balance Sheets as of September 30, 1999 and September 30, 1998............................... F-2
Consolidated Statements of Operations for the year ended September 30, 1999 and
for the period from April 2, 1998 to September 30, 1998.......................................... F-3
Consolidated Statements of Shareholders' Equity for the year ended September 30, 1999 and
for the period from April 2, 1998 to September 30, 1998.......................................... F-4
Consolidated Statements of Cash Flows the year ended September 30, 1999 and
for the period from April 2, 1998 to September 30, 1998.......................................... F-5
Notes to Consolidated Financial Statements................................................................ F-6
</TABLE>

(a)(2) Listing of Financial Statement Schedules. All schedules for
which provision is made in the applicable accounting regulation of the
Securities and Exchange Commission are not required under the related
instructions or are inapplicable and, therefore, have been omitted.

(a)(3) Listing of Exhibits - See Index to Exhibits beginning on Page 18
of this report.
(b) Reports on Form 8-K - none filed in the quarter ended September 30,
1999.
(c) Exhibits - See Index to Exhibits beginning on Page 18 of this
report.
(d) Financial Statement Schedules -- The following consolidated
financial statement schedule is included herein: None

<PAGE> 17
Report of Independent Auditors

Board of Directors
Omega Worldwide, Inc.

We have audited the accompanying consolidated balance sheets of Omega Worldwide,
Inc. and subsidiaries as of September 30, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year ended September 30, 1999 and the period from April 2, 1998
(commencement of operations) through September 30, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Omega
Worldwide, Inc. and subsidiaries at September 30, 1999 and 1998, and the
consolidated results of their operations and their cash flows for the year ended
September 30, 1999 and the period from April 2, 1998 through September 30, 1998
in conformity with generally accepted accounting principles.

As discussed Note 17, the Company's consolidated financial statements for the
year ended September 30, 1999 have been restated to reflect an
other-than-temporary decline in the carrying value of an investment in a
marketable equity security. Previously, the reduction in carrying value was
considered temporary.

/s/ Ernst & Young LLP

November 11, 1999, (Except for Note 17, as to which the date is February 10,
2000) Detroit, Michigan

F-1
<PAGE> 18

OMEGA WORLDWIDE, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUES)

ASSETS
September 30,
1999 1998
------- -------
<S> <C> <C>
Current Assets:
Cash and short-term investments .......................................................... $ 5,738 $10,281
Restricted cash .......................................................................... 389 9,330
Other .................................................................................... 915 1,956
------- -------
Total Current Assets .................................................................. 7,042 21,567

Land and buildings subject to triple-net lease, net of $157 of accumulated depreciation ...... -- 27,300
Investments in and temporary advances to Principal Healthcare Finance Limited ................ 48,842 37,902
Investment in Principal Healthcare Finance Trust ............................................. 6,619 --
Other assets ................................................................................. 5,909 2,223
------- -------
61,370 67,425
------- -------
Total Assets .......................................................................... $68,412 $88,992
======= =======

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
Accounts payable and accrued expenses .................................................... $ 1,177 $ 1,901
Accrued income taxes ..................................................................... 1,880 433
Deferred revenue ......................................................................... 1,215 --
Non-interest bearing deferred purchase obligation ........................................ -- 28,007
------- -------
Total Current Liabilities ............................................................. 4,272 30,341

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 - 12,266 shares in 1999 and 12,258 shares in 1998 ............................ 1,227 1,226
Additional paid-in capital ............................................................... 52,893 52,861
Retained earnings ........................................................................ 7,418 1,955
Accumulated other comprehensive income ................................................... 2 9
------- -------
Total Shareholders' Equity ............................................................ 64,140 58,651
------- -------
Total Liabilities and Shareholders' Equity ............................................ $68,412 $88,992
======= =======
</TABLE>

See notes to consolidated financial statements.

F-2
<PAGE> 19

OMEGA WORLDWIDE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Period from
April 2, 1998
(Commencement of
Year Ended Operations) to
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Revenues:
Fee income - Principal Healthcare Finance Limited ......................... $ 4,918 $ 1,920
Fee income - Principal Healthcare Finance Trust ........................... 405 --
Interest:
Principal Healthcare Finance Limited ................................. 4,761 1,784
Short-term investments ............................................... 663 347
Rent income ............................................................... 3,908 1,014
Other income .............................................................. 98 30
-------- --------
14,753 5,095

Expenses:
Direct costs of asset management services ................................. 2,494 1,113
General and administrative ................................................ 1,718 485
Allocated expenses from Omega Healthcare Investors, Inc. .................. 768 303
Imputed and other interest expense ........................................ 2,685 573
Provision for depreciation ................................................ 674 192
-------- --------
8,339 2,666
-------- --------
Earnings before equity earnings and income taxes ............................... 6,414 2,429
Equity in earnings of Principal Healthcare Finance Limited ..................... 1,223 421
Equity in earnings of Principal Healthcare Finance Trust ....................... 484 --
Equity in earnings (loss) of Essex Healthcare, Inc. ............................ (282) 32
Gain on dilution of interest in Principal Healthcare Finance Trust ............. 951 --
Recognized impairment of investment (Tamaris, plc) ............................. (938) --
-------- --------
Earnings before income taxes ................................................... 7,852 2,882
Provision for income taxes ..................................................... (2,389) (927)
-------- --------
Earnings before preferred stock dividends ...................................... 5,463 1,955
Preferred stock dividends ...................................................... (208) (104)
-------- --------
Net earnings available to common shareholders .................................. $ 5,255 $ 1,851
======== ========
Earnings per common share, basic ............................................... $ 0.43 $ 0.15
======== ========
Earnings per common share, diluted ............................................. $ 0.43 $ 0.15
======== ========
Average shares outstanding, basic .............................................. 12,261 12,255
======== ========
Average shares outstanding, diluted ............................................ 12,262 12,255
======== ========
Total comprehensive income, net of taxes ....................................... $ 5,456 $ 1,964
======== ========
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE> 20

OMEGA WORLDWIDE, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)

Accumulated
Additional Other
Common Paid-in Preferred Retained Comprehensive
Stock Capital Stock Earnings Income
--------- ----------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Issuance of stock:
Issuance of 8,500 common shares and 260
preferred shares to Omega Healthcare
Investors, Inc. .................................... $ 850 $25,802 $ 2,600 $ -- $ --
Proceeds from April 2, 1998 equity offering of
3,750 shares at $7.50 per share, net of
issuance costs of $750 ............................. 375 27,000 -- -- --
Grants of restricted stock (8 shares at
$7.50 per share) ................................... 1 59 -- -- --
Net earnings for 1998 ....................................... -- -- -- 1,955 --
Foreign currency translation adjustments .................... -- -- -- -- 9
-------------------------------------------------------
Balance at September 30, 1998 ............................... 1,226 52,861 2,600 1,955 9
Issuance of stock:
Grants of restricted stock (8 shares
at an average of $4.09 per share) .................. 1 32 -- -- --
Net earnings for 1999 ....................................... -- -- -- 5,463 --
Foreign currency translation adjustments .................... -- -- -- -- (7)
-------------------------------------------------------
Balance at September 30, 1999................................ $ 1,227 $52,893 $ 2,600 $ 7,418 $ 2
=======================================================
</TABLE>

See notes to consolidated financial statements.

F-4

<PAGE> 21

OMEGA WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)

Period from
April 2, 1998
(Commencement of
Year Ended Operations) to
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Operating activities:
Net earnings ............................................................................. $ 5,463 $ 1,955
Adjustments to reconcile net earnings to cash provided by operating activities:
Equity earnings in Principal Healthcare Finance Limited ................................ (1,223) (421)
Equity earnings in Principal Healthcare Finance Trust .................................. (484) --
Equity (earnings) loss in Essex Healthcare, Inc. ....................................... 282 (32)
Gain on dilution of interest in Principal Healthcare Finance Trust ..................... (951) --
Recognized impairment of investment in Tamaris, plc..................................... 938 --
Imputed interest ....................................................................... 1,146 573
Depreciation and amortization .......................................................... 903 192
Write-off of investment in AVC Holdings ................................................ 281 --
Other non-cash charges ................................................................. 402 92
Net change in operating assets and liabilities ........................................... 73 (106)
Foreign currency translation ............................................................. 7 (22)
-------- --------
Net cash provided by operating activities ................................................... 6,837 2,231

Cash flows provided by financing activities:
Proceeds from revolving warehouse facility drawn by Principal Healthcare Finance Trust ... 34,502 --
Proceeds from issuance of common stock ................................................... -- 27,375
Cash contributed by Omega in exchange for liabilities assumed ............................ -- 837
-------- --------
Net cash provided by financing activities ................................................... 34,502 28,212

Cash flows from investing activities:
Acquisition of real estate by Principal Healthcare Finance Trust ......................... (49,288) --
Decrease (increase) in restricted cash ................................................... 5,831 (9,330)
Temporary advances with Principal Healthcare Finance Limited ............................. (9,989) (8,379)
Temporary advances with Principal Healthcare Finance Trust ............................... 13,631 --
Dividends from Principal Healthcare Finance Limited ...................................... 272 --
Investment in Principal Healthcare Finance Trust ......................................... (1,108) --
Investment in Baneberry Healthcare Ltd. .................................................. (1,622) --
Investment in Tamaris, plc stock ......................................................... (2,842) --
Proceeds from repayment of secured loan .................................................. 102 --
Secured loan to individual ............................................................... -- (818)
Loan to Baneberry Healthcare Ltd. ........................................................ (228) --
Loan to an enterprise .................................................................... (465) --
Other .................................................................................... (176) (1,635)
-------- --------
Net cash used in investing activities ....................................................... (45,882) (20,162)
-------- --------
Increase (decrease) in cash and short-term investments ...................................... $ (4,543) $ 10,281
======== ========
</TABLE>

See notes to consolidated financial statements.

F-5

<PAGE> 22

OMEGA WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 1999 and 1998

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Omega Worldwide, Inc. (the "Company") was formed to provide investment
advisory and management services as well as equity and debt capital to the
healthcare industry, primarily in Europe and the Pacific Rim. On April 2, 1998,
the Company's registration statement became effective, and it offered 3,750,000
shares of common stock to the public at $7.50 per share. The Company received
$27,375,000, net of issuance costs of $750,000. Shares offered included 500,000
shares in a primary offering and 3,250,000 shares in a rights offering.
Operations commenced upon the effectiveness of the initial public offering.
Except for $1,000 invested by Omega Healthcare Investors, Inc. ("Omega") at the
date of formation (November 1997), there were no cash flow activities of the
Company from the date of formation to the date operations commenced.

Immediately prior to the offering of shares by the Company, Omega
contributed substantially all of its investment in Principal Healthcare Finance
Limited ("Principal-UK") to the Company. Assets contributed by Omega, which were
recorded by the Company at Omega's accounting basis, included a $23,805,000
subordinated loan to Principal-UK, 33.375% of the common stock of Principal-UK
with a carrying value of $5,297,000, 10,556,250 warrants and other net assets
totaling $150,000. Omega also assigned its interest in a management agreement
with Principal-UK in which the Company receives an annual fee of 0.9% of
Principal-UK's assets (as defined) for providing certain advisory services. In
exchange, Omega received 8,500,000 shares of common stock and 260,000 shares of
Class B preferred stock. Of the common stock received by Omega, approximately
5,200,000 shares were distributed pro rata to Omega's shareholders, and
approximately 2,300,000 were sold pursuant to the Company's registration
statement. Omega retained approximately 9.9% of the Company's common stock then
outstanding.

CONSOLIDATION

The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries after elimination of all material
inter-company accounts and transactions. Prior to April 1, 1999, the Company
owned 100% of Principal Healthcare Finance Trust ("Principal-Australia"). As
more fully explained in Note 3 and the report on Form 8-K dated April 1, 1999,
newly issued shares of Principal-Australia were issued to independent investors
resulting in the dilution of the Company's ownership to 47%.

Principal-Australia's financial results prior to April 1, 1999 are
included in the Company's results on a consolidated basis, while
Principal-Australia's results after April 1, 1999 are included in the Company's
results using the equity method of accounting.

The Company reports the results of those subsidiaries, for 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. Investments in 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.

CASH AND SHORT-TERM INVESTMENTS

Short-term investments consist of highly liquid investments with a
maturity date of three months or less when purchased. These investments are
stated at cost, which approximates fair value.

F-6
<PAGE> 23

REVENUE RECOGNITION

Rental income is recognized on a straight-line basis over the initial
terms of the related master lease. Such income includes periodic increases based
upon predetermined formulas as defined in the master lease. Fee income is
recognized as earned and is based on assets under management.

DEPRECIATION

Depreciable assets are recorded at cost. Depreciation expense is
calculated using the straight-line method over the estimated useful lives of the
depreciable asset. Estimated useful lives of depreciable assets range from 3 to
7 years for furniture, fixtures and equipment, and 40 years for buildings.

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 year end exchange rate and income statement amounts are translated at the
average annual rate. There are no material amounts of exchange gains or losses
included in the results of operations for 1999 or 1998.

FINANCIAL INSTRUMENTS

The Company has foreign exchange rate contracts which mitigate the risk
of currency movements. Any gain or loss on the contract offsets any losses or
gains, respectively, on its investments denominated in pounds sterling and
Australian dollars.

STOCK BASED COMPENSATION

The Company grants stock options to employees and directors with an
exercise price equal to the value of the shares at the date of the grant. In
accordance with the provisions of APB Opinion No. 25, Accounting for Stock
Issued to Employees, compensation expense is not recognized for these stock
option grants.

ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of the revenues and expenses during the
period. Actual results could differ from those estimates.

PRIOR PERIOD CLASSIFICATION

Certain prior year amounts have been reclassified to correspond with
the current year's presentation.

COMPREHENSIVE INCOME

Comprehensive income consists of the Company's earnings before
preferred stock dividends adjusted for the unrealized loss of investments, net
of tax and foreign currency translation adjustments.

F-7
<PAGE> 24

NOTE 2 - INVESTMENT IN PRINCIPAL HEALTHCARE FINANCE LIMITED (PRINCIPAL-UK)

As described in Note 1, the Company acquired 33.375% of Principal-UK's
voting ordinary shares in connection with the Omega distribution/exchange. The
Company accounts for its interest in Principal-UK using the equity method.
Principal-UK has a fiscal year end of August 31; therefore, the equity in
earnings of Principal-UK is recognized on a one-month lag. Principal-UK has $414
million and $377 million of real estate investments in long-term care facilities
as of August 31, 1999 and August 31, 1998, respectively. These facilities are
operated by independent operators and are located in the United Kingdom.
Substantially all of Principal-UK's real estate is pledged as collateral for
Principal-UK's debt agreements.

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

Year Ended Year Ended
August 31, 1999 August 31, 1998
----------------- -----------------
<S> <C> <C>
Selected Operating Results:
Revenues:
Rent income ................................... $ 55,693 $ 47,542
Interest income ............................... 6,107 2,991
Other income .................................. -- 509
-------- --------
Total revenues ........................... 61,800 51,042

Expenses:
Interest expense .............................. (39,149) (34,572)
Depreciation and amortization ................. (9,839) (7,202)
General and administrative .................... (5,880) (4,284)
-------- --------
Total expenses ........................... (54,868) (46,058)
-------- --------

Net income from operations ........................ 6,932 4,984
Non-operating income .............................. -- 1,406
-------- --------
Net income before income taxes and
extraordinary charge for prepayment
of debt ......................................... 6,932 6,390
Provision for income taxes ........................ (3,053) (2,283)
Extraordinary charge for prepayment of debt ....... -- (1,985)
-------- --------
Net income ........................................ $ 3,879 $ 2,122
======== ========
<CAPTION>

Selected Balance Sheet Information as of: August 31, 1999 August 31, 1998
----------------- -------------------
<S> <C> <C>
Investments in real estate subject to triple-net leases;
net of depreciation ........................... $395,533 $365,941
Total assets ...................................... 569,666 479,541
Non-recourse debt borrowings ...................... 478,233 396,282
Total liabilities ................................. 552,544 464,717
Total stockholders' equity ........................ 17,122 14,824
</TABLE>

The effective tax rates are 44% and 36% for the years ended August 31,
1999 and 1998, respectively. These rates differ from the UK tax rate primarily
because the provisions for depreciation and amortization are not deductible for
tax purposes in the United Kingdom. The Company's proportionate share of
Principal-UK's earnings for the year ended August 31, 1999 and the six-month
period ended August 31, 1998 are approximately $1,296,000 and $474,000,
respectively. Included in the Company's share of Principal-UK earnings during
the six-month period ended August 31, 1998, is $172,000 ($0.01 per share)
related to the non-recurring operating items realized by Principal-UK. The
Company has recorded a charge against earnings of approximately $73,000 for the
year ended August 31, 1999 and approximately $53,000 for the six month period
ended August 31, 1998, representing amortization over a ten-year period of the
excess of the Company's investment in Principal-UK of approximately

F-8
<PAGE> 25

$771,000 over its proportionate share of Principal-UK's underlying equity at the
date of acquisition. In January 1999, the Company received $272,000,
representing a 5-pence annual dividend declared by Principal-UK's Board of
Directors.

The Company also acquired a British Pound Sterling denominated
subordinated loan due December 31, 2000. The carrying amount of the loan is
$23.8 million and it bears interest at rates ranging from 12.55% to 12.93%
during the remaining term. The estimated fair value of the loan approximates
$24.7 million based on estimates of management and on coupon rates currently
prevailing for comparable loans.

The Company also received warrants to purchase 10,000,000 ordinary
shares of Principal-UK expiring June 30, 2001 at an exercise price of (Pound
Sterling)1.50 (approximately $2.55) per share and 556,250 ordinary shares of
Principal expiring December 31, 2000 at an exercise price of (Pound
Sterling)1.00 (approximately $1.60) per share. As to the warrants that expire in
December 2000, no value was assigned at the date of issuance because the
underlying securities were issued at their fair value at that date. As to the
warrants that expire in June 2001, the coupon rate for the subordinated debt was
the prevailing market rate on the date of the loan, and, therefore, the face
amount of the subordinated loans approximated its fair value on the date of
issuance. In addition, at the grant date the exercise price on these warrants
significantly exceeded the fair value of the stock on the date of issuance since
the warrants enabled the purchase of shares at (Pound Sterling)1.50, while the
current value of the shares at that time was approximately (Pound Sterling)1.00.
Based on these factors at the date of the loan, no value was ascribed to the
warrants. However, the estimated fair value of these warrants at September 30,
1999 approximates $8,758,000. In determining the estimated fair value, the
Company used a Black-Scholes pricing model with the following assumptions: risk
free interest rate of 6%; a volatility factor of 40%; and an average life of
five years from the date of grant.

NOTE 3 - PRINCIPAL HEALTHCARE FINANCE TRUST (PRINCIPAL-AUSTRALIA)

In June 1998 the Company acquired Assisted Living Unit Trust, an
Australian property trust that owns nursing homes, for a cash investment of $3
million plus a loan of $6.2 million and a guarantee of the entity's deferred
purchase obligation of $30 million. Concurrent with the acquisition, the
Assisted Living Unit Trust's name was changed to Principal Healthcare Finance
Trust. The investment in facilities approximated $30 million, which was paid in
June 1999. The investment in facilities and the deferred obligation are recorded
net of imputed interest at 8%. Imputed interest expense for the year ended
September 30, 1999 was $1,146,000 and for the six-month period ended September
30, 1998 was $573,000. Principal-Australia provided $9,330,000 in cash
collateral to secure a $30 million letter of credit obtained by the
Principal-Australia to provide funding for the deferred payment. The cash
collateral was classified as restricted cash.

In November 1998 Principal-Australia agreed to acquire and lease back
30 nursing homes in the Australian states of New South Wales, Queensland,
Western Australia and Victoria for $60 million. The transaction is in three
phases with the first phase closing in November 1998 and consisting of the
purchase of 25 facilities for approximately $49 million. The purchase of five
Victoria homes occurred in the second phase in March 1999 upon completion of
construction and the stabilized occupancy of the homes for an aggregate purchase
price of approximately $7 million. The final phase involves an additional $15
million investment encompassing the renovation and refurbishing of facilities
during a five-year period ending October 2003. This phase will assist the homes
to comply with physical plant regulations being implemented by the Commonwealth
of Australia. All disbursements subsequent to the first phase are conditioned
upon various levels of operating profitability and performance.

In April 1999, Principal-Australia sold 7,500,000 newly issued shares
to Omega and AMP Life Limited, as well as 875,000 additional shares to the
Company. Prior to the issuance of these shares, the Company owned 100% of
Principal-Australia. Issuance of the new shares reduced the Company's ownership
to 47% of shares outstanding. The transaction created a one-time gain on
dilution of interest in Principal-Australia of $951,000, resulting in after tax
earnings available to common shareholders of $628,000, or $0.05 per share.

As described in Note 1, the financial results of Principal-Australia
prior to April 1, 1999 are included in the Company's results on a consolidated
basis, while Principal-Australia's results after April 1, 1999 are included in
the Company's results using the equity method of accounting. Principal-Australia
has a fiscal year end of August 31; therefore, the equity in earnings of
Principal-Australia is recognized on a one-month lag. Included in consolidated
earnings is $484,000 of undistributed earnings of Principal-Australia,
representing the Company's share of Principal-Australia earnings for the period
from April 1, 1999 through August 31, 1999.

F-9
<PAGE> 26

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

Year Ended
Selected Operating Results: August 31, 1999
---------------
<S> <C>
Revenues:
Rent income .............................................................. $ 9,592
Interest and other income ................................................ 322
-------
Total revenues ...................................................... 9,914

Expenses:
Interest expense ......................................................... (5,203)
Depreciation and amortization ............................................ (1,856)
General and administrative ............................................... (932)
-------
Total expenses ...................................................... (7,991)
-------
Income from operations ......................................................... $ 1,923
=======
<CAPTION>

Selected Balance Sheet Information as of: August 31, 1999
---------------
<S> <C>
Investments in real estate subject to triple-net leases, net of depreciation.... $ 85,652
Total assets.................................................................... 96,986
Non-recourse debt borrowings.................................................... 75,815
Total liabilities............................................................... 82,215
Total unit holders' equity..................................................... 14,771
</TABLE>

NOTE 4 - ESSEX HEALTHCARE CORPORATION

On April 2, 1998, Omega contributed to the Company its holdings in the
preferred stock of Essex Healthcare Corporation ("Essex"), an Atlanta-based
private operator of skilled nursing facilities. The preferred stock was valued
at approximately $39,000. Essex's primary activities are in Ohio, where it
operates 13 long-term care and assisted living facilities (approximately 1,400
beds). It also manages 33 facilities (approximately 1,800 beds) in Indiana,
Michigan, Illinois and Texas. On July 30, 1998, the Company acquired 55,000
shares of Essex's common stock for $500,000 and converted its preferred stock
into 1,940 shares of common stock. The Company holds approximately 47% of the
outstanding common shares of Essex. The Company accounts for this investment
using the equity method.

The Company's proportionate share of Essex's loss for the year ended
August 31, 1999 is $282,000 and earnings of $32,000 for the six-month period
ended August 31, 1998.

NOTE 5 - LAND AND BUILDINGS

The real estate properties owned by Principal-Australia at September
30, 1998 were 10 long-term care facilities and 475 assisted living units and are
leased under the provisions of a 30-year master lease.

A summary of the Company's land and buildings subject to triple net
lease and related accumulated depreciation is as follows (in thousands):

September 30, 1998
------------------
<S> <C>
Land and buildings subject to triple-net lease....................... $ 27,457
Less accumulated depreciation........................................ (157)
--------
$ 27,300
========
</TABLE>

As a result of the Company's dilution of interest in
Principal-Australia to 47% at September 30, 1999, the Company no longer
consolidates Principal-Australia.

F-10
<PAGE> 27

NOTE 6 - SECURED LOANS

On May 28, 1998, the Company loaned $818,000 to an individual. The loan
is secured by the individuals' interest in Tamaris plc., an aged care operating
company in the United Kingdom. The loan bears interest at 10.5% and principal
payments are due through the year 2000. The carrying value of the loan at
September 30, 1999 and September 30, 1998 is $716,000 and $818,000 respectively.

On August 18, 1999, the Company loaned $465,000 to an enterprise. The
loan is secured by the enterprise's interest in Tamaris, plc. The loan bears
interest at 7.15% and principal and interest is due on demand. The carrying
value of the loan at September 30, 1999 is $465,000.

NOTE 7 - FINANCIAL INSTRUMENTS

The carrying amounts and fair values of the Company's financial
instruments are as follows:

1999 1998
------------------------ ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ---------- ------------ ----------
(In thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and short-term investments ..................... $ 5,738 $ 5,738 $10,281 $10,281
Restricted cash ..................................... 389 389 9,330 9,330
Subordinated loan to Principal-UK ................... 23,805 24,699 23,805 27,348
Temporary advances to Principal-UK .................. 18,368 18,368 8,379 8,379
Warrants for 10,556,250 Principal-UK shares ......... -- 8,758 -- 6,700
Secured loans ....................................... 1,181 1,181 818 856
------- ------- ------- -------
$49,481 $59,133 $52,613 $62,894
======= ======= ======= =======

Off Balance Sheet Financial Instruments:
Foreign currency contracts........................... $(1,629) $(1,629) $(1,789) $(1,789)
</TABLE>

Fair value estimates are subjective in nature and are dependent on a
number of important assumptions, including estimates of future cash flows,
risks, discount rates and relevant comparable market information associated with
each financial instrument. The use of different market assumptions and
estimation methodologies may have a material effect on the reported estimated
fair value amounts. Accordingly, the estimates presented above are not
necessarily indicative of the amounts the Company would realize in a current
market exchange.

The Company has forward contracts to hedge currency risks associated
with investments in Principal-UK and Principal-Australia. Pursuant to a ten-year
British pound sterling currency swap agreement, the Company is obligated to
exchange (Pound Sterling)20,000,000 for $31,740,000 on October 15, 2007. At
September 30, 1999, the Company is obligated to exchange A$11,000,000 at an
average rate of US$ 0.6135. The carrying amount of the investment in
Principal-UK, the subordinated loans/advances to Principal-UK, and the
investment in Principal-Australia, are based on the rates established in the
forward exchange contracts.

NOTE 8 - INCOME TAXES

Income tax expense differs from the amounts computed by applying the
U.S. Federal income tax rate of 34% to earnings before taxes as follows for the
year ended September 30, 1999 and the six-month period ended September 30, 1998
(in thousands):

1999 1998
---- ----
<S> <C> <C>
Computed expected tax expense .................................. $ 2,989 $ 979
Tax effect of equity in earnings of investments ................ (320) (143)
Other .......................................................... 1 91
------- -------
Total .............................................. $ 2,670 $ 927
======= =======
</TABLE>

F-11
<PAGE> 28

The tax basis of assets transferred from Omega to the Company exceeded
the book basis by approximately $36 million, resulting in a deferred tax asset
of approximately $12 million. Due to the uncertainties in realizing this
benefit, management has provided a valuation reserve against the full amount.

NOTE 9 - CREDIT FACILITIES

In November 1998, the Company entered into a revolving credit agreement
with a group of banks allowing for borrowings up to $25 million. Omega provided
a guarantee to the banks in consideration of a fee of 1%, plus an annual 25
basis point facility fee. The agreement is scheduled to expire on September 30,
2000. The Company also pays to the banks an unused facility fee of .40%.
Borrowings under the facility bear interest at LIBOR plus 1.350% or at the
Company's option, at the prime rate. At September 30, 1999, the Company has no
outstanding borrowings under the credit facility.

NOTE 10 - STOCK OPTIONS

Under the terms of the 1998 Stock Option and Restricted Plan (the
"Plan"), the Company reserved 750,000 shares of common stock for grants to be
issued during a period of up to 10 years. Directors, officers and key employees
are eligible in the Plan. Options for 99,000 and 648,000 shares have been
granted to eligible participants during the year ended September 30, 1999 and
the six-month period ended September 30, 1998, respectively. Additionally, 8,000
shares of restricted stock have been granted under the provisions of the Plan
during both the year ended September 30, 1999 and the six-month period ended
September 30, 1998. The vesting period on restricted stock is six months after
the date of grant and expense related to the restricted stock grants during 1999
and 1998 is $33,000 and $60,000 for the year ended September 30, 1999 and the
six-month period ended September 30, 1998, respectively.

The following is a summary of activity under the Plan.

Number of Exercise Weighted
Shares Price Average Price
------------ ------------ ------------
<S> <C> <C> <C>
Outstanding at April 2, 1998 ................................. -- $ -- $ --
Grants during 1998 ..................................... 648,000 5.688-7.500 7.479
Forfeited .............................................. (42,000) 7.500 7.500
-------- ------------- ------
Outstanding at September 30, 1998 ............................ 606,000 5.688-7.500 7.477
Granted during 1999 .................................... 99,000 4.000-4.688 4.521
Forfeited .............................................. (31,000) 4.688-7.500 7.100
-------- ------------- ------
Outstanding at September 30, 1999 ............................ 674,000 $ 4.000-7.500 $7.116
======== ============= ======
</TABLE>

In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (SFAS) No. 123, " Accounting for
Stock-Based Compensations." This standard prescribes a fair value based method
of accounting for employee stock options or similar equity instruments and
requires certain pro forma disclosures. For purpose of the pro forma disclosures
required under Statement 123, the estimated fair value of the options is
amortized to expense over the option's vesting period. The estimated weighted
average fair value of options granted approximates $204,000, and $2,000,000,
during the year ended September 30, 1999 and the six-month period ended
September 30, 1998, respectively. In determining the estimated fair value of the
Company's stock options as of the date of grant, a Black-Scholes option pricing
model was used with the following weighted-average assumptions: risk-free
interest rates of 6.0%; volatility factors of the expected market price of the
Company's common stock at 30%; and a weighted-average expected life of the
options of 7 years.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

F-12
<PAGE> 29

Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. The
Company's pro forma net earnings would be $5,084,000 and $1,784,000, and pro
forma earnings per common share, basic and diluted, would be $0.41 and $0.14,
for the year ended September 30, 1999 and the six-month period ending September
30, 1998, respectively.

NOTE 11 - PREFERRED STOCK

Effective April 2, 1998, the Company issued 260,000 shares of 8% Series
B Cumulative Preferred Stock ("Preferred Stock") at $1 par value per share to
Omega in connection with the terms of the agreement. Each share of Series B
Preferred converts to one share of the Company's Common Stock immediately after
Omega makes a distribution of the Series B Preferred to its shareholders or
otherwise transfers the shares to any unaffiliated third party. Dividends on the
Preferred Stock are payable annually based on liquidation value of $10 per
share.

NOTE 12 - NET EARNINGS PER SHARE

Net earnings per share are computed based on the weighted average
number of common shares outstanding during the period. Average shares
outstanding for the basic earnings per share were 12,261,000 for 1999, and
12,255,000 for 1998. The assumed conversion of shares of preferred stock is
currently antidilutive.

NOTE 13 - RELATED PARTY TRANSACTIONS

Pursuant to the provision of a Services Agreement between Omega and the
Company, indirect costs incurred by Omega, including compensation of shared
executive officers and relations support personnel, and costs incurred by Omega
for rent, insurance, telephone, utilities, supplies, maintenance and travel, are
allocated to the Company based upon the relationship of assets under the
Company's management to the combined total of those assets and Omega's assets.
Assets and costs in the formula are on a one-quarter lag basis. Allocated
expenses during the period ended September 30, 1999 and for the six-month period
ended September 30, 1998 were approximately $768,000 and $303,000, respectively.
Such allocations are based on estimates and formulas that management believes to
be reasonable.

Temporary unsecured advances to Principal-UK in the amount of
$18,368,000 and $8,379,000 are outstanding at September 30, 1999 and 1998,
respectively. Interest at 9.25% is paid on a monthly basis. Included in interest
income for the year ended September 30, 1999 and the six-month period ended
September 30, 1998 is $1,719,000 and $292,000, respectively, related to advances
to Principal-UK.

Interest on the subordinated loan to Principal-UK and fees from
services are $3,042,000 and $4,918,000, respectively, for the year ending
September 30, 1999, and $1,492,000 and $1,920,000, respectively, for the
six-month period ended September 30, 1998.

Fees from services provided to Principal-Australia for the period April
1, 1999 through September 30, 1999 are $405,000.

Interest expense relating to a bridge loan from Omega totaled $226,000
for the year ended September 30, 1999. This loan was repaid prior to December
31, 1998.

F-13

<PAGE> 30

NOTE 14 - BUSINESS SEGMENT INFORMATION

The Company provides investment advisory and management services, as
well as equity and debt capital to the healthcare industry, primarily in Europe
and the Pacific Rim. The Company emphasizes investments in firms, which provide
residential services to the elderly. The Company has established subsidiary
businesses, Omega (UK) Ltd. in London and Omega (Australia) Pty Ltd., in Sydney,
to manage, finance, and monitor investments in Europe and Australia/New Zealand,
respectively. Accordingly, the Company presently operates in three geographic
regions, the United States, United Kingdom and Australia.

The following is a summary of operations by geographic region for the year ended
September 30, 1999 and the six-months ended September 30, 1998.

1999 1998
------------ ------------
<S> <C> <C>
Revenue:
United States ........................... $ 5,369 $ 2,065
United Kingdom .......................... 4,918 1,920
Australia ............................... 4,466 1,110
-------- --------
Total ............................. $ 14,753 $ 5,095
======== ========

Operating income (expense):
United States ........................... $ 5,357 $ 2,643
United Kingdom .......................... 2,828 477
Australia ............................... 1,385 247
Corporate expenses ...................... (1,718) (485)
-------- --------
Total ............................. $ 7,852 $ 2,882
======== ========

Identifiable assets:
United States ........................... $ 67,921 $ 57,108
United Kingdom .......................... 113 131
Australia ............................... 378 31,753
-------- --------
Total ............................. $ 68,412 $ 88,992
======== ========
</TABLE>

Identifiable assets attributable to the United States include
approximately $45 million represented by cash, loans and investments denominated
in currencies other than the U.S. dollar.

F-14

<PAGE> 31

NOTE 15 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Following are details of changes in operating assets, liabilities and
other non-cash transactions for the year ending September 30, 1999 and the
six-month period ended September 30, 1998 (in thousands):

Increase (decrease) in cash from changes in operating assets and liabilities:

1999 1998
---- ----
<S> <C> <C>
Operating assets ............................................................... $ (3,310) $ (880)
Other liabilities .............................................................. 1,936 341
Accrued taxes .................................................................. 1,447 433
-------- --------
$ 73 $ (106)
======== ========

Noncash investing and financing transactions:
Contribution by Omega Healthcare Investors, Inc., excluding cash:
Investments ............................................................. $ -- $ 5,297
Loans ................................................................... -- 23,805
Other ................................................................... -- 150
Equity .................................................................. -- (29,252)
Acquisition of land and buildings subject to triple-net lease .............. -- (27,457)
Non-interest bearing deferred obligation ................................... -- 27,457
Income taxes paid during the period, net of refunds received ................... 923 600
Interest expense paid during the period ........................................ 1,627 --
Principal-Australia cash balance at April 1, 1999 .............................. 151 --
</TABLE>

NOTE 16 - QUARTERLY DATA (UNAUDITED)

The following is an unaudited summary of quarterly results of
operations for the years ended September 30, 1999 and the six-month period ended
September 30, 1998.

December 31 March 31 June 30 September 30
----------- -------- ------- ------------
(In thousands, except per share)
<S> <C> <C> <C> <C>
1999
Revenues ....................................................... $3,858 $5,269 $2,740 $2,886
Net earnings ................................................... 1,291 1,214 2,112 846
Net earnings available to common ............................... 1,239 1,162 2,060 794
Per Share Amounts:
Net earnings available to common, basic ........................ 0.10 0.10 0.16 0.07
Net earnings available to common, diluted ...................... 0.10 0.10 0.16 0.07

1998
Revenues ....................................................... $ -- $ -- $1,778 $3,317
Net earnings ................................................... -- -- 744 1,211
Net earnings available to common ............................... -- -- 692 1,159
Per Share Amounts:
Net earnings available to common, basic ........................ -- -- 0.06 0.09
Net earnings available to common, diluted ...................... -- -- 0.06 0.09
</TABLE>

F-15
<PAGE> 32

NOTE 17- INVESTMENT IN TAMARIS, PLC.

At September 30, 1999, the Company held 4,170,250 shares of Tamaris,
plc, a company traded on the London Stock Exchange. This investment represented
8.6% of the outstanding shares of Tamaris and was accounted for as an
"available-for-sale" security in accordance with Financial Accounting Standards
Board Statement No. 115. As of September 30, 1999, the difference between
historical cost of $2.8 million and market value of $1.9 million, (based upon
the last traded price on the London Stock Exchange), was recognized in
shareholders' equity on an after tax basis as an adjustment to Other
Comprehensive Income.

In October 1999, the Company, through its wholly owned subsidiary, Idun
Health Care Ltd., acquired 48 operating subsidiaries of Tamaris, plc. The 48
companies acquired operate 119 nursing homes located throughout England,
Scotland, and Northern Ireland. The purchase price consisted of cash of $1.7
million and all of the Company's shares of Tamaris, plc. The unaudited net book
value of the assets acquired was approximately $47 million and liabilities
assumed was approximately $38 million.

Management believes the transaction is economically favorable because
the net book value of the assets acquired substantially exceeded the cost of the
assets provided as consideration. Public trading of the Tamaris stock was
suspended on September 25, 1999, and trading has not resumed. Based on an
interpretation of FASB Statement No. 115, management determined that the
recording of the value of the Tamaris stock relinquished in the acquisition
should be based on the last quoted price of the security rather than the fair
value of the assets acquired. To meet this technical interpretation, a charge of
$938,000 ($657,000, net of tax) has been included in the Company's income
statement for the year ended September 30, 1999, rather than in Other
Comprehensive Income and has reduced fiscal 1999 net income by $657,000. The
restatement had no impact on previously reported shareholders' equity or cash
flows as of or for the year ended September 30, 1999.

F-16
<PAGE> 33

SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

OMEGA WORLDWIDE, INC.

By: /s/ ESSEL W. BAILEY, JR.
-------------------------------
Essel W. Bailey, Jr.
Chief Executive Officer

Dated: February 14, 2000

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities on the date indicated.

SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER

/s/ ESSEL W. BAILEY, JR.
- ----------------------------------- President, Chief Executive February 14, 2000
Essel W. Bailey, Jr. Officer, and Director

PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER

/s/ EDWARD C. NOBLE
- ----------------------------------- Vice President, Chief Financial Officer February 14, 2000
Edward C. Noble and Chief Accounting Officer

DIRECTORS
/s/ JACQUES AIGRAIN
- -----------------------------------
Jacques Aigrain Director February 14, 2000

/s/ JAMES A. EDEN
- -----------------------------------
James A. Eden Director February 14, 2000

/s/ THOMAS F. FRANKE
- -----------------------------------
Thomas F. Franke Director February 14, 2000

/s/ ANIL K. GUPTA
- -----------------------------------
Anil K. Gupta Director February 14, 2000

/s/ HAROLD J. KLOOSTERMAN
- -----------------------------------
Harold J. Kloosterman Director February 14, 2000

/s/ BERNARD J. KORMAN
- -----------------------------------
Bernard J. Korman Director February 14, 2000
</TABLE>

16
<PAGE> 34

SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ EDWARD LOWENTHAL
- -----------------------------------
Edward Lowenthal Director February 14, 2000

/s/ ROBERT L. PARKER
- -----------------------------------
Robert L. Parker Chairman of the Board February 14, 2000
</TABLE>

17
<PAGE> 35

INDEX TO EXHIBITS

Exhibit 3.1 Articles of Amendment and Restatement Incorporated by reference
to Exhibit 3.1 to Form S-1 Registration Statement

Exhibit 3.2 Amended and Restated Bylaws Incorporated by reference to Exhibit
3.2 to Form S-1 Registration Statement

Exhibit 3.3 Articles Supplementary for Series B Preferred Stock Incorporated
by reference to Exhibit 3.3 to Form S-1 Registration Statement

Exhibit 3.4 Articles Supplementary for Series A Preferred Stock Incorporated
by reference to Exhibit 3.4 to Form S-1 Registration Statement

Exhibit 10.1 Omega Worldwide, Inc. 1997 Stock Option and Restricted Stock Plan
Incorporated by reference to Exhibit 10.1 to Form S-1
Registration Statement

Exhibit 10.2 Opportunity Agreement between the Company and Omega dated April
1, 1998 Incorporated by reference to Exhibit 10.2 to Form S-1
Registration Statement

Exhibit 10.3 Services Agreement between the Company and Omega dated April 1,
1998 Incorporated by reference to Exhibit 10.3 to Form S-1
Registration Statement

Exhibit 10.4 Amended and Restated Advisory Agreement dated as of July 21, 1995
between the Company (as successor by assignment from Omega) and
Principal Incorporated by reference to Exhibit 10.5 to Form S-1
Registration Statement

Exhibit 10.5 Indemnification Agreements between the Company and its Directors
and Executive Officers Incorporated by reference to Exhibit 10.7
to form S-1 Registration Statement

Exhibit 10.6 Advisory Agreement between Omega (Australia) Pty Limited and
Principal Healthcare Finance Trust incorporated by reference to
Exhibit 10.6 to Form 10-K for the fiscal year ended September 30,
1998.

Exhibit 10.7 Form of Loan Agreement dated as of November 20, 1998 among the
Company, Fleet Bank, N.A., as Agent, and other financial
institutions named therein. Incorporated by reference to Exhibit
10.7 to Form 10-K for the fiscal year ended September 30, 1998.

Exhibit 10.8 Promissory Note executed by Principal-Australia to Omega and
Guaranty executed by the Company in favor of Omega Incorporated
by reference to Exhibit 10.3 to the Company's report on Form 8-K
filed on November 27, 1998

Exhibit 10.9 Transaction documents dated June 19, 1998 -- Incorporated by
reference to Exhibit 10.1 to the Company's report on Form 8-K
filed on July 2, 1998:

(a) Mortgage of Deposit between the Company and ABN AMRO
Facilities Australia Limited ("ABN Facilities")

(b) Bill Facility Agreement between Principal Pty and ABN
AMRO Australia Limited ("ABN Australia")

18
<PAGE> 36

(d) Redemption and Subscription Agreement among Premier
Care Australia (Holdings) Pty Limited, FAI Insurances
Limited ("FAI"), PHF No. 1 Pty Limited ("PHF No. 1"),
Tanoa Pty Limited ("Tanoa"), and Premier Care Australia
Pty Limited (now known as Principal Healthcare Finance
Pty Limited ("Principal Pty")

(e) Relationship Agreement among the Company, PHF No. 1 Pty
Limited, PHF No. 2 Pty Limited, Tanoa, Mindra Pty
Limited, Beheer-en Beleggingsmaatschappij Dilava BV,
Beheer-en Beleggingsmaatschappij Rocla BV, Moran Health
Care ("Australia") Pty Limited ("Moran Australia") and
Moran Health Care Group Pty Limited ("Moran")

(f) Deed of Mortgage and Annexure B to Mortgage between
Principal Pty and ABN Facilities

(g) Capital Contribution Agreement among Moran Australia,
Moran and Principal Pty

(h) NSW Lease between Principal Pty, as lessor, and Moran
Australia, as lessee

(i) Lease Guarantee between Moran and Principal Pty

(j) Indemnity Deed

(k) Procurement Agreement among Moran Australia, FAI,
Moran, Douglas John Moran, Greta Richmond Moran, Peter
Godfrey Moran and Shane Moran

(l) Mortgage of Shares between Moran and Principal Pty

Exhibit 10.10 Transaction documents dated April 16, 1999 with the following
exhibits. Incorporated by reference to Exhibit 10 to the
Company's report on Form 8-K filed on April 16, 1999.

(a) Form of Transaction Documents

(b) Subscription Deed, Principal Healthcare Finance Unit
Trust No. 1

(d) Deed of Loan, PHF No. 1 Pty Limited, AMP Life Limited,
Omega Worldwide, Inc.

(e) Principal Healthcare Finance Unit Trust No. 1, Term of
2004 Options

(f) Principal Healthcare Finance Unit Trust No. 2, Term of
2004 Options

(g) Advisory Agreement

Exhibit 10.11 Share Acquisition Agreement between Tamaris plc and the Company -
Incorporated by reference to Exhibit 10.1 to the Company's report
on Form 8-K filed on November 1, 1999

Exhibit 10.12 Amendment to Loan agreement dated as of November 20, 1998 among
the Company, Fleet Bank, N.A. as agent Incorporated by reference
to exhibit 10.12 to the Company's report on Form 10-K filed on
December 27, 1999.

Exhibit 10.13 Asset Administration deed between Principal Healthcare Finance
Pty Limited and Omega (Australia) Pty Limited dated as of
November 1, 1999 - Incorporated by reference to Exhibit 10.13 to
the Company's report on Form 10-K filed on December 27, 1999.

Exhibit 11 Statement re Computation of Per-Share Earnings - Filed herewith.

19
<PAGE> 37

Exhibit 12 Statement re Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends - Filed herewith

Exhibit 21 Subsidiaries of Registrant - Filed herewith

Exhibit 27 Financial Data Schedule - Filed herewith

Exhibit 99(a) Financial Statements of Principal Healthcare Finance Limited:
-Report of Auditors
-Consolidated Statement of operations for the years
ended August 31, 1999, 1998 and 1997
-Consolidated Balance Sheets as of August 31, 1999
and 1998
-Consolidated Statements of Shareholders' Equity for
the years ended August 31, 1999, 1998, and 1997
-Consolidated Statements of Cash Flows for the years
ended August 31, 1999, 1998, and 1997
-Notes to Consolidated Financial Statements
-Filed as Exhibit 99(A) to the Company's report
on Form 10-K filed December 27, 1999.

Exhibit 99(b) Proforma Financial Statements of Idun Health Care Limited (UK):
-Report of Independent Accountant
-Proforma Combined Profit and Loss Account for the
years ended March 31, 1999 and 1998
-Proforma Combined Balance Sheets as of March 31, 1999
and 1998
-Proforma Combined Cash Flow Statement for
the years ended March 31, 1999 and 1998
-Notes to the Proforma Financial Statements
-Filed as Exhibit 99(b) to the Company's report
on Form 10-K filed December 27, 1999.

<PAGE> 1
EXHIBIT 11

STATEMENT RE: COMPUTATION OF PER-SHARE EARNINGS

<TABLE>
<CAPTION>
FOR PERIOD ENDED
SEPTEMBER 30, 1999
------------------
<S> <C>
Net earnings available to common ................................ $ 5,255,000
===========

Average shares outstanding ...................................... 12,261,397
Basic net earnings per-share ......................................... $ 0.43
===========

Average shares outstanding ...................................... 12,261,397
Stock options incremental shares ................................ 791
-----------
Average shares outstanding, diluted ........................ 12,262,188

Diluted net earnings per-share ....................................... $ 0.43
===========

Diluted net earnings per-share assuming conversion of preferred stock:
Net earnings available to common ................................ $ 5,255,000
Preferred stock dividends for the period ........................ $ 208,000
-----------
Net earnings before preferred stock dividends ................... $ 5,463,000
===========
Average shares outstanding ...................................... 12,261,397
Assumed conversion of preferred stock ........................... 260,000
Stock options incremental shares ................................ 791
-----------
Total ........................................................... 12,522,188
===========

Per-share amount (anti-dilutive) ................................ $ 0.44
===========
</TABLE>

<PAGE> 1
EXHIBIT 12

RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS

PERIOD ENDED
SEPTEMBER 30, 1999
------------------
Ratio of earnings to fixed charges 4.88x

For purposes of calculating the ratio of earnings to combined fixed charges and
preferred stock dividends, net earnings has been added to combined fixed charges
and preferred stock dividends, and that sum has been divided by such charges.
Fixed charges consist of imputed interest expense. The Company has outstanding
260,000 shares of 8% Series B Cumulative Preferred Stock.

<PAGE> 1
EXHIBIT 21

LIST OF SIGNIFICANT SUBSIDIARIES
OMEGA WORLDWIDE, INC.

<TABLE>
<CAPTION>
Jurisdiction of
Names Incorporation
- ---------------------------- ----------------------
<S> <C>
Omega (UK) Limited ................................................................ England
Omega (Australia) Pty Limited ..................................................... Australia
Principal Healthcare Finance Unit Trust No.3....................................... Australia
Principal Healthcare Finance Unit Trust No.4....................................... Australia
PHF No.1 Pty Limited .............................................................. Australia
PHF No.2 Pty Limited .............................................................. Australia
Principal Healthcare Finance Pty Limited .......................................... Australia
Beheer-en Beleggingsmaatschappij Rocla BV ......................................... Netherlands
Beheer-en Beleggingsmaatschappij Dilava BV ........................................ Netherlands
Idun Health Care Limited .......................................................... United Kingdom

</TABLE>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-1-1999
<PERIOD-END> SEP-30-1999
<CASH> 6,127
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 915
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 68,412
<CURRENT-LIABILITIES> 4,272
<BONDS> 0
0
2,600
<COMMON> 1,227
<OTHER-SE> 60,313
<TOTAL-LIABILITY-AND-EQUITY> 68,412
<SALES> 0
<TOTAL-REVENUES> 14,753
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,339
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,852
<INCOME-TAX> 2,389
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,255
<EPS-BASIC> 0.43
<EPS-DILUTED> 0.43

</TABLE>