UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM 10-K

(Mark One)
[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934
                  For the fiscal year ended December 31, 2001

                                       OR

[ ]     TRANSITION  REPORT  PURSUANT  TO  SECTION 13 OR 15 (d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

                          Commission file number 0-8187

                             Greenbriar Corporation
             (Exact name of Registrant as specified in its charter)

                   Nevada                                        75-2399477
      (State or other jurisdiction of                          (IRS Employer
       Incorporation or organization)                        Identification No.)

14185 Dallas Parkway, Suite 650, Dallas, Texas                      75254
   (Address of principal executive offices)                       (Zip Code)

Registrant's telephone number, including area code: (972) 407-8400

Securities registered pursuant to Section 12(b) of the Act:
                                                          Name of Each Exchange
    Title of Each Class                                    on Which Registered
    -------------------                                   ---------------------
Common Stock, $.01 par value                             American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark  whether the issuer (1) filed all reports  required to be
filed by Section 13 or 15(d) of the  Securities  Exchange Act of 1934 during the
past 12 months (or for such shorter  period that the issuer 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 there  is no  disclosure  of  delinquent  filers  in
response to Item 405 of Regulation S-K contained in this form, and no disclosure
will be contained,  to the best of issuer'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. [X]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
issuer,  computed by reference to the closing sales price on March 28, 2002, was
approximately $3,464,000

At March 28, 2002, the issuer had  outstanding  approximately  359,000 shares of
par value $.01 Common Stock.

Documents Incorporated by Reference:
Registrant's definitive proxy statement pertaining to the 2002 Annual Meeting of
Stockholders (the "Proxy Statement") and filed or to be filed not later than 120
days after the end of the fiscal year pursuant to Regulation 14A is incorporated
herein by reference in Part III.

<PAGE>

                             GREENBRIAR CORPORATION
                       Index to Annual Report on Form 10-K
                       Fiscal year ended December 31, 2001


Part I.........................................................................3

   ITEM 1: DESCRIPTION OF BUSINESS.............................................3
   ITEM 2: DESCRIPTION OF PROPERTIES..........................................13
   ITEM 3: LEGAL PROCEEDINGS..................................................13
   ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................14
   ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...........15
   ITEM 6: SELECTED FINANCIAL DATA............................................15
   ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION..........16
   ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........21
   ITEM 8: FINANCIAL STATEMENTS...............................................21
   ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
   FINANCIAL DISCLOSURE.......................................................22

Part III......................................................................23

   ITEMS 10-13:  DIRECTORS AND EXECUTIVE OFFICERS, EXECUTIVE COMPENSATION,
   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND  MANAGEMENT AND
   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................23

Part IV.......................................................................24

   ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
   ON FORM 8-K................................................................24




                                       2
<PAGE>

                                     PART I

ITEM 1: DESCRIPTION OF BUSINESS
-------------------------------

Overview and Background of Assisted Living Operations

Greenbriar Corporation,  its subsidiaries and affiliates (the "Company") operate
assisted and full service  independent living communities  designed to serve the
needs of the elderly  population.  Assisted living residents  generally comprise
frail elderly persons who require assistance with the activities of daily living
such as ambulation,  bathing,  eating, personal hygiene,  grooming and dressing,
but  who  do  not  generally   require  more  expensive  skilled  nursing  care.
Independent  living residents  typically require only occasional  assistance but
receive  other  support  services.  In addition,  the Company also  develops and
operates  communities for residents suffering from Alzheimer's or other forms of
dementia, a growing specialty within the assisted living industry.  Finally, the
Company  is  involved  in the  identification  and  acquisition  of real  estate
properties,  primarily in the retirement  housing and assisted living  industry,
enhancing the value of these  properties by proper  operations and marketing and
reselling  these  properties  for their  appreciated  value  while  retaining  a
management contract, if desirable, for their continuing operation.

As of March 28, 2002, the Company operated 16 communities in nine states, with a
capacity of 1,281 residents, consisting of seven communities that are owned four
that are leased and five that are managed under contract to one of the Company's
subsidiaries for third party owners.



The Assisted Living Industry

The Company  believes that the assisted living industry has become the preferred
alternative to meet the growing demand for a cost-effective  setting in which to
care  for the  elderly  who do not  require  more  intensive  medical  attention
provided by a skilled  nursing center but who cannot live  independently  due to
physical or  cognitive  frailties.  In general,  assisted  living  represents  a
combination  of housing,  general  support  services and full time personal care
services  designed to aid elderly  residents with the activities of daily living
("ADLs") on a scheduled and unscheduled  basis. Many assisted living communities
also provide  assistance to residents with low acuity medical needs or may offer
higher levels of personal assistance for incontinent residents or residents with
Alzheimer's  disease or other forms of dementia.  Another  growing  trend in the
industry  is the  provision  of care for  higher  levels of  acuity.  Generally,
assisted  living  residents  have  higher  levels  of  need  than  residents  of
independent  retirement  communities  but lower levels than residents in skilled
nursing centers. The Company believes that assisted living is one of the fastest
growing  segments of elderly care and will  continue to  experience  significant
growth due to the following:

     Consumer  Preference  -  The  Company  believes  that  assisted  living  is
     increasingly  becoming the setting  preferred by prospective  residents and
     their  families  in which to care for the frail  elderly.  Assisted  living
     offers residents  greater  independence in a residential  setting which the
     Company  believes results in a higher quality of life than that experienced
     in more institutional or clinical settings such as skilled nursing centers.
     According to the National Center for Assisted  Living,  there are more than
     28,000 assisted living residences in the U.S. housing more than one million
     people.

     Demographic & Social Trends - The target market for the Company's  services
     is,  generally,  persons 75 years and  older,  one of the  fastest  growing
     segments of the U.S.  population (the average age of a resident in Assisted
     Living is typically age 84 or older and that resident is either  widowed or
     single).  According  to the U.S.  Census  Bureau,  the  portion of the U.S.
     population   age  75  and  older  will  have   increased  by  28.7%,   from


                                       3
<PAGE>

     approximately  13.0  million in 1990 to over 16.8 million by the year 2000,
     and the number of person's  age 85 and older is expected to have  increased
     37.3%  during the 1990s.  This age group is  projected to increase by 33.2%
     between  the years 2000 and 2010.  It is  estimated  by the  United  States
     Bureau of census that  approximately  50% of the population of seniors over
     age 85 need  assistance  with ADLs and  approximately  50% of such  seniors
     develop  Alzheimer's  disease  or other  forms of  dementia.  According  to
     Claritas,  Inc.,  a nationally  recognized  demographics  provider,  59% of
     householders  over age 80 in 2000 had incomes of $15,000 and above and 40 %
     had incomes of $25,000 and above.  Accordingly,  the Company  believes that
     the  number  of  seniors  who are able to afford  high-quality  residential
     environments, such as those offered by the Company, has increased in recent
     years.  According  to a 1998 study by the  National  Investment  Conference
     (NIC),  reported  incomes and net worth of  residents  in  assisted  living
     communities are substantially  lower than currently presumed by feasibility
     standards and industry benchmarks ($25,000 or more annual income). However,
     the same study states that  residents are more willing to spend down assets
     and family members are providing more assistance than previously estimated.
     If the study is correct,  this has dramatic  implications for the future of
     the industry as it indicates that the industry's  potential market could be
     two to three  times  larger  than  previously  thought.  Because  of severe
     overbuilding  in many markets,  the NIC  prediction  has not been proved or
     disproved at this time.

     Lower Average Cost - The Company  believes that the average  annual cost to
     residents  receiving  assisted living care in the Company's  communities is
     significantly  less than the cost of  receiving  similar  care in a skilled
     nursing center.

     Changing  Supply of  Long-term  Care Beds - Most of the states in which the
     Company  currently  operates  have enacted  certificate  of need ("CON") or
     similar  legislation  that restricts the supply of licensed  nursing center
     beds.  These laws generally  limit the  construction of nursing centers and
     the addition of beds or services to existing nursing centers, thus limiting
     the available  supply of traditional  nursing home beds. In addition,  some
     long-term  care centers have  started to convert  traditional  nursing home
     beds into sub-acute beds. The Company also believes that high  construction
     costs  and  limits  on  government  reimbursement  for  the  full  cost  of
     construction  and  start-up  expenses  will also  constrain  the growth and
     supply of traditional  nursing home centers and beds.  The Company  expects
     that this  tightening  supply of nursing beds coupled with the aging of the
     population   will  create  an   increasing   demand  for  assisted   living
     communities.  Finally,  changes in Medicare reimbursement  regulations have
     had a very negative impact on the nursing home industry.  A high percentage
     of nursing homes are in bankruptcy and many have closed,  further  reducing
     the number of  available  beds and  discouraging  development  of new beds.
     However,  upscale  private  nursing homes seem to be experiencing an upturn
     and new  construction of private pay nursing homes appears to be increasing
     in some markets.


Business Strategy

The Company has historically had two sources of revenue and earnings.  The first
is  earnings  from  operations  and the second is gain on sales of  assets.  The
Company  has a business  strategy of  acquiring  undervalued  assisted  and full
service retirement communities,  enhancing their value and selling the property.
Whenever possible the Company will maintain a management contract to operate the
property for a fee. The Company  conducts the  management  of the  properties it
owns or leases as well as those it manages for others  through its wholly  owned
subsidiary. Senior Living Management, Inc.

The Company  believes that  significant  growth  opportunities  exist to provide
assisted  living and full  service  independent  living  services to the rapidly
growing elderly  population.  In addition,  due to a series of setback that have
plagued the industry, including overbuilding,  higher than anticipated operating
costs,  quicker  turnover of residents  than  anticipated  and  difficulties  in
obtaining  insurance  there is a number of properties  available to be purchased
at, what the Company believes to be attractive prices.


                                       4
<PAGE>

As  discussed  more fully in  Management's  Discussion  and  Analysis or Plan of
Operations (See Item: 7) the Company plans on  participating in the acquisitions
of properties through limited  partnership  interests in partnerships  formed in
conjunction with officers of the Company.

The Company's top management has extensive  acquisition  experience and contacts
in the assisted and full service independent living industry.

Acquisition  Strategy - In  reviewing  acquisition  opportunities,  the  Company
considers,  among other things, the competitive  climate, the current reputation
of the community or its operator,  the quality of its  management,  the need and
costs to reposition the community in the marketplace,  the construction  quality
and any need for  renovations of the community and the opportunity to improve or
enhance a  community's  operating  results.  The Company  also sells some of the
communities  it acquires when they no longer fit with the  Company's  long-range
strategy.

Operating  Strategy  -The  Company  seeks to improve  the  profitability  of its
communities through continued enhancement of its operations. The majority of the
Company's   communities   are   operated   and   marketed   on  a   private-pay,
single-occupancy  basis.  The Company provides limited double occupancy in which
residents are  non-related  people who are usually  state-assisted.  Most of the
Company's  state-assisted residents are in Texas and North Carolina communities.
Most of the  states  now have a  currently  operating  Medicaid  waiver  program
(allowing a state to set its own  disbursement  standards  for Medicaid  funds -
such as payment for assisted living services).

The Company  believes  that the  assisted  living  industry  will  continue as a
private-pay   industry  for  the  foreseeable   future,   but  may  become  more
price-sensitive  as more people need assisted  living for longer  periods due to
increased life spans.  Costs of caring for an aging America may become more of a
private-pay  and  state-assisted  partnership  than currently  exists.  However,
although  Medicaid  coverage is common and becoming  more so,  participation  is
still low.

In the past the Company  used the same  development  strategy  for special  care
units in combined  Alzheimer's  and assisted  living  communities  and dedicated
special care communities.  Using this strategy,  the units and common space were
designed for flexibility so that they could be marketed as single  occupancy but
also be used as double  occupancy - again,  based on market demand.  The Company
believes  that this  occupancy-flexible  development  strategy  will  provide an
advantage  over its  competitors  who do not have units and common  space  large
enough to readily accommodate double occupancy. The Company's operating strategy
is to  achieve  and  sustain a strong  competitive  position  within  its chosen
markets as well as to continue to enhance the performance of its operations. The
Company seeks to enhance  current  operations by (i)  maintaining  and improving
occupancy rates at its communities (ii)  opportunistically  increasing  resident
service  fees,  (iii)  improving  operating   efficiencies  and  (iv)  improving
marketing positioning.

Offer Residents  Customized Care and Service Packages - The Company  continually
seeks  to  expand  its  range of  services  to meet  the  evolving  needs of its
residents.  The Company  offers each of its  residents a  personalized  assisted
living  service plan which may include any  combination  of basic  support care,
personal  care,  supplemental  services,   wellness  services  and,  if  needed,
Alzheimer's  and  special  care  services,  all subject to the level of services
allowed to be offered by the licensing in place at each  community.  The Company
offers  services  on both a "point  for  services  basis"  and "level of service
basis." Charges for services are based on each community's price structure.  The
Company uses active  participation of the resident,  the responsible  party, the
resident's  personal  physician  and other  appropriate  support team members in
determining the level of care needed on an individual  basis,  whether using the
point or level of service system.  As a result,  the Company believes that it is
able  to  maximize  customer  satisfaction  while  avoiding  the  high  cost  of
delivering all services to all residents without regard for need or choice.  The
care plan for each  resident is reviewed  and updated at least  quarterly by the
resident, the resident's family and the resident's physician.

Maintain  and Improve  Occupancy  Rates - The Company also seeks to maintain and
improve  occupancy  rates by  continuing  to (i) attract new  residents  through
marketing  programs  directed  towards  family  decision  makers,  namely  adult
children of potential  residents,  (ii) actively seek referrals from  hospitals,


                                       5
<PAGE>

rehabilitation  hospitals,  physicians,  clinics,  home healthcare  agencies and
other acute and  sub-acute  healthcare  providers  in the markets  served by the
Company and (iii) develop new market niches such as respite care, adult day care
and other specialty care programs sought by caregivers.

Selectively  Increase  Service  Pricing Levels - The Company  regularly  reviews
opportunities  to increase  resident  service fees within its existing  markets,
while maintaining  competitive market positions.  In keeping with this strategy,
the Company will  continue to offer high  quality  assisted  living  services at
average to above average prices and generally target private-pay residents.  The
Company's  private-pay residents are typically seniors who can afford to pay for
services  from both  their  own and their  family's  financial  resources.  Such
resources may include social security, investments,  proceeds from the sale of a
residence,  contributions  from  family  members  and  insurance  proceeds  from
long-term care insurance policies.

Improve  Operating  Efficiencies  - The Company  seeks to improve the  operating
results of its  communities  by actively  monitoring  and managing its operating
costs. In addition,  the Company believes that concentrating  communities within
selected  geographic  regions  may  enable  the  Company  to  achieve  operating
efficiencies  through  economies  of  scale,  reducing  corporate  and  regional
overhead and providing for more effective  management  supervision and financial
controls.  The Company has also become a member of HPSI, a nationwide purchasing
group, to further leverage its ability to reduce and control purchasing costs.

Offer  Alzheimer's  and Other  Dementia  Services  - As of March 30,  2001,  the
Company  had 11  communities  with  distinct  special  care  wings  specifically
designed to serve the needs of individuals  with  Alzheimer's  disease and other
forms of dementia.  In some of its existing  communities,  the Company  plans to
convert a portion of its existing units into a distinct  Alzheimer's  wing which
will allow the Company to offer  services to the  elderly  with these  diseases,
will  create an  opportunity  for  residents  to remain  longer  within the same
community  and will allow  special  security  and  support for  Alzheimer's  and
dementia  residents.   The  Company's   experience  indicates  that  Alzheimer's
residents  often  respond  better by  sharing a suite with  another  Alzheimer's
resident  rather  than  being in a single  occupancy  suite.  Consequently,  the
Company's Alzheimer's programs are designed to allow double occupancy,  although
rooms are available for single occupancy.


Assisted Living Services

The Company offers a wide range of full service  retirement and assisted  living
care and services to its  residents.  The  residents are allowed to select among
the services  offered beyond basic support services and are charged only for the
specific  services or level of services they need.  The services  offered by the
Company can generally be categorized as follows:

     Basic Support Services - These services include providing up to three meals
     per day in a common dining room, special dietary planning, laundry, general
     housekeeping,  organized  social  and  other  activities,   transportation,
     maintenance,  utilities (except telephone),  security and 24-hour emergency
     call monitoring.

     Supplemental Services - These services include performing,  coordinating or
     assisting with bill paying,  banking,  personal  shopping,  transportation,
     appointments, pet care and reminder services.

     Personal Care Services - These services include  providing  assistance with
     activities of daily living (the ADL's) such as ambulation, bathing, eating,
     dressing, personal hygiene and grooming.

     Wellness   Services  -  These   services   include   assistance   with  the
     administration  of medication and health  monitoring by a nurse,  which are
     provided as permitted by government regulation.

     Alzheimer's and Special Care Services - Alzheimer's  care includes a higher
     24-hour  staff ratio to provide  oversight and  around-the-clock  scheduled
     activities.  An  Alzheimer's  care  wing is  secured  from  the rest of the
     building.


                                       6
<PAGE>
<TABLE>
<CAPTION>

Properties

Operating  Communities - The following table sets forth certain information with
respect to communities that were operated or managed by the Company at March 28,
2002. The Company  considers its  communities to be in good operating  condition
and suitable for the purpose for which they are being used.

                                                                                        Community
                                                         Care               Resident   Operations
           Community                  Location           Level     Units   Capacity(1)  Commenced    Ownership
-----------------------------------------------------------------------------------------------------------------
<S>                             <C>                    <C>          <C>        <C>       <C>        <C>
Camelot Retirement              Harlingen, TX              S         57        57        Sep-94      Owned (2)
Countrytime Inn                 Kings Mountain, NC        FE         25        42        Jun-95      Owned (2)
Crown Pointe                    Corona, CA             S, FE, DC    163        168       Jan-93     Managed(5)
Corinthians Assisted Living     Carrollton, TX          FE, DC       55        65        Jan-02     Managed(5)
Corinthians Retirement          Carrollton TX              S        126        126       Oct-01     Managed(5)
Graybrier                       Southern Pines, NC      FE, DC       55        95        Feb-94      Owned (2)
Greenbriar at Muskogee          Muskogee, OK              FE         48        48        Mar-97      Owned (2)
Greenbriar at Sherman           Sherman, TX             FE, DC       48        53        Mar-98      Owned (2)
Neawanna by the Sea             Seaside, OR              S, FE       58        58        Jan-90     Leased (4,6)
Oak Park, Ft Worth              Fort Worth, TX            FE        150        150       Jan-98     Managed(5)
Pacific Pointe                  King City, OR              S        114        114       Jan-93     Leased (3)
Sweetwater Springs              Lithia Springs, GA      FE, DC       48        48        Oct-96     Leased (7)
Villa del Rey Roswell           Roswell, NM              S, FE      135        132       Oct-88     Leased (4,6)
Wedgwood Terrace                Lewiston, ID            FE, DC       38        47        Nov-95     Managed(5)
Windsor House Florence          Florence, SC            FE, DC       26        37        Sep-98      Owned (2)
Windsor House Greenville        Greenville, SC          FE, DC       31        41        Nov-97      Owned (2)
Total
</TABLE>

    Key:

     S    basic support and supplemental services are offered.

     FE   basic support,  supplemental,  personal care and wellness services are
          offered ("Frail Elderly").

     DC   Alzheimer's and special care services are offered ("Dementia Care").



     (1)  Reflects  licensed  capacity for Assisted Living and Dementia Care and
          actual number of units for Independent Living.

     (2)  Subject to first mortgage.  Historically, each community has generally
          been  pledged as  collateral  on a single  mortgage  and deed of trust
          securing a note payable to a bank, financial  institution,  individual
          or other lender.  The mortgages and deeds of trust mature between 2002
          and 2037 and  bear  interest  at fixed  and  variable  interest  rates
          ranging from 7.5% to 14.5% as of December 31, 2001. Future communities
          owned  and  mortgaged  by  the  Company  will  likely  be  pledged  as
          collateral  for mortgage  credit lines,  which relate to more than one
          community. See Item 7,"Management's Discussion and Analysis or Plan of
          Operation - Liquidity and Capital Resources."

     (3)  Leased from a partnership. Initial lease term is 10 years, expiring in
          2012. The Company is responsible  for all costs  including  repairs to
          the community,  property taxes and other direct operating costs of the
          community.  The lease includes clauses that allow for rent to increase
          over time based on a specified schedule.

     (4)  Community is leased from a Real Estate Investment Trust. The lease was
          part of a sale - leaseback  transaction.  The lease  commenced in 1994
          and  expires  in 2009.  The  Company  has an  option to  purchase  the
          community  in 2004 and in 2009 for an amount  equal to the  greater of
          the  sales  price  or  the  current   replacement   cost  less  actual
          depreciation.

     (5)  The Company's wholly owned subsidiary Senior Living  Management,  Inc.
          or one of SLM's subsidiaries (SLM) managed the property under contract
          to a third party owner.

     (6)  Company owns 49% of lessee. Victor L. Lund, a director of the Company,
          owns the other 51%,  and the  Company  has an option to  purchase  his
          interests in these entities for $10,000.

     (7)  Leased from a REIT for 15 years expiring in 2011.


                                       7
<PAGE>

Repair and Maintenance - The Company  conducts  routine repairs and maintenance,
as needed,  of its  communities  on a regular  basis.  Several of the  Company's
communities  have been in  operation  for ten years or more.  The Company has no
other  current  plans for  significant  expenditures  relating  to its  existing
communities and considers them to be in good repair and working order.


Community Description

The Company's existing communities as of March 28, 2002 range in size from 25 to
163 units, are from one to three stories and from 25,000 to 150,000 square feet.
Most communities have a large family room, usually equipped with a fireplace,  a
spacious open dining area, library, TV room,  commercial kitchen,  beauty salon,
laundry and indoor and outdoor recreational areas. Units generally range in size
from  approximately  330 to 400 square feet for a studio unit, 470 to 650 square
feet for a one-bedroom  unit and 680 to 850 square feet for a two-bedroom  unit.
Assisted  living  units,  among  other  amenities,  typically  include a private
bathroom,  kitchenette,  closets,  living and sleeping  areas,  a lockable door,
emergency call system,  individual room temperature  controls and fire alarm and
sprinkler systems.

Alzheimer's  care units are  approximately  the same size as studios and contain
only sleeping,  limited storage and, in some units,  bathroom areas. Most do not
have emergency call systems but do have sprinkler and fire alarm systems.


Operations

The day-to-day operations of each community are managed by an Executive Director
who is responsible for all operations of the community, including overseeing the
quality  of  care  and  services,  marketing,  coordinating  social  activities,
monitoring  financial  performance and ensuring  appropriate  maintenance of the
grounds and building. The Company also consults with outside providers,  such as
pharmacists and dieticians,  to assist  residents with medication  review,  menu
planning and  response to any special  dietary  needs.  Personal  care,  dietary
services,  housekeeping  and laundry  services are  performed  primarily by line
staff who are either  part or  full-time  employees  of the  Company and who are
trained to  perform a variety  of such  services.  Part or  full-time  employees
perform  most  building  maintenance  services,  while third  party  contractors
generally perform elevator, HVAC maintenance and landscaping services.

The Company's  senior  management  and other  personnel,  located at the Dallas,
Texas home office, provide support services to each of the Company's regions and
its communities,  including  development of operational  standards,  budgets and
quality assurance  programs,  recruiting,  training and financial and accounting
and data  processing  services  such as accounts  payable,  billing and payroll.
Corporate  personnel,  regional directors of operations and community  executive
directors  collaborate with respect to the  establishment of community goals and
strategies,  quality  assurance  oversight,  development of Company policies and
procedures,  development and  implementation  of new programs,  cash management,
human resource management and community development.

The Company has attracted and continues to seek highly dedicated and experienced
personnel.  The Company has created  formal  training  programs  accompanied  by
review and evaluation  procedures to help ensure quality care for its residents.
The Company  believes  that  education,  training  and  development  enhance the
effectiveness of its employees.  All employees are required to complete training
programs which include a core curriculum  comprised of personal care basics, job
related  specific  training,  Alzheimer's  disease  processes,  first aid,  fire
safety, nutrition,  infection control and customer service.  Executive Directors
receive  training in all of these areas,  plus marketing,  community  relations,
healthcare  management  and fiscal  management.  In addition  to some  classroom
training,  the  Company's  communities  provide  new  employees  with on the job
training, utilizing experienced staff as trainers and mentors.


                                       8
<PAGE>

Quality Assurance

The Company  coordinates  quality assurance  programs at each of its communities
through its  corporate  headquarters  staff and through its regional  operations
staff. A commitment to quality assurance is designed to achieve a high degree of
resident and family member  satisfaction  with the care and services the Company
provides.  In  addition  to  ongoing  training  and  performance  reviews of all
employees, the Company's quality control measures include:

Philosophy  of  Management-  The  Company's   philosophy  of  management  is  to
demonstrate  by its actions and require  from its  employees  high  standards of
personal  integrity,  to develop a climate of openness and trust, to demonstrate
respect  for  human  dignity  in every  circumstance,  to be  supportive  in all
relationships,  to promote teamwork by involving  employees in the management of
their own work and to promote the free expression of ideas and opinions..

Family and Resident  Feedback - The Company surveys residents on an annual basis
to monitor  the  quality of  services  provided  to  residents  and the level of
satisfaction  of  residents  and  their  families.   The  Company  is  presently
implementing  surveys of family  members of  residents to monitor the quality of
services.  The  chairman,  president and chief  executive  officer is personally
involved  in  resident   satisfaction   surveys  on  a  routine  basis  and  the
investigation and resolution of resident and family complaints.

Regular Community Inspections - Community inspections are conducted by corporate
personnel  (including the vice president of construction  and  maintenance,  the
vice president of operations and the director of medical  services) and regional
staff on a regular basis. These inspections cover the appearance of the exterior
and grounds, the appearance and cleanliness of the interior, the professionalism
and  friendliness of staff,  resident care plans,  the quality of activities and
the dining program, observance of residents in their daily living activities and
compliance with governmental regulations.  A detailed community audit program is
used  to  ensure  the  inspections  are  thorough  and  to  facilitate  required
corrective action.


Marketing

The Company's marketing and sales efforts are undertaken at corporate,  regional
and local levels.  These efforts are intended to create awareness of a community
and  its  services  among  prospective  residents,  their  families,  other  key
decision-makers and professional  referral sources. The Company develops overall
strategies for promoting its communities throughout its markets and continuously
assesses  the success of these  efforts.  Most  communities  have,  on staff,  a
community relations  coordinator dedicated to sales and marketing activities and
is guided and  trained by  corporate  and  operational  personnel.  For  smaller
communities who do not have a community  relation's  coordinator,  the Executive
Director performs the sales and marketing functions.

The  Company  engages in  traditional  types of  marketing  activities,  such as
special  events,  direct  mailings,  print  advertising,  signs and yellow  page
advertising. These marketing activities and media advertisements are directed to
potential  residents and their adult  children,  who often  comprise the primary
decision  makers for placing a frail  elderly  relative  in an  assisted  living
setting.


Government Regulation

Healthcare is an area of extensive and frequent  regulatory change. The assisted
living  industry is relatively  new and,  accordingly,  the manner and extent to
which it is  regulated  at the Federal and state levels are evolving at a steady
pace. Currently,  most states have a licensure category or statute that uses the
term "assisted living." Several states are proposing regulations using the term.
More than forty states have specific language in statute,  licensure regulations
(including states with draft  regulations) or Medicaid policy that addresses the
philosophy of assisted  living.  Several states have or are reviewing  licensure
regulations  and  increasing  the role of sta te  personnel  in  monitoring  and
controlling the assisted living industry.


                                       9
<PAGE>

Currently, assisted living and Alzheimer's care communities are not specifically
regulated as such by the Federal Government.  However, the Company's communities
are  subject to  regulation  and  licensing  by state and local  health,  social
service  agencies  and  other  regulatory   authorities.   Although   regulatory
requirements vary from state to state,  these  requirements  generally  address,
among other things,  staff  education,  training and records;  staffing  levels;
community    services,    including    administration    and   assistance   with
self-administration of medication;  physical community specifications;  size and
furnishing of community units and common areas;  food and housekeeping  services
and emergency evacuation plans and resident rights and responsibilities. Most of
the Company's  communities  are required to possess  state  licenses in order to
provide the levels and types of services  that they offer.  A limited  number of
the Company's communities are not required to possess such licenses because they
do not supply care and/or supervision to an extent requiring them to be licensed
under their respective state's laws. The Company's  communities are also subject
to various state and local building codes and other ordinances, including safety
codes. Management anticipates that states establishing regulatory frameworks for
assisted  living  communities  will  require the  licensing  of assisted  living
communities  and  will  establish  varying  requirements  with  respect  to such
licensing.  The Company  has  obtained  all  required  licenses  for each of its
communities. Each of the Company's licenses must be renewed annually.

Currently,  only  a  few  states  have  CON  requirements  for  assisted  living
communities.  If  Federal  and  state  reimbursement  increase  or  overbuilding
continues in the industry  other states may initiate CON  requirements.  This is
not  happening  at this  time and  there  is  significant  overbuilding  in many
markets.  Consequently  most  major  companies  have  either  stopped or greatly
reduced their development programs.  Conversely,  small operators and individual
entrepreneurs continue to build, even in overbuilt markets.

Like healthcare  centers,  assisted  living  communities are subject to periodic
survey  or  inspection  by  governmental  authorities.  From time to time in the
ordinary  course of  business,  the Company  receives  deficiency  reports.  The
Company reviews such reports and takes appropriate  corrective action.  Although
most  inspection  deficiencies  are resolved  through a plan of correction,  the
reviewing  agency  typically  is  authorized  to take action  against a licensed
community where  deficiencies are noted in the inspection  process.  Such action
may include  imposition of fines,  imposition of a  provisional  or  conditional
license or suspension or revocation of a license or other sanctions. Any failure
by the  Company to comply  with  applicable  requirements  could have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.  The  Company  believes  that  its  communities  are in  substantial
compliance with all applicable regulatory requirements.

As  noted  earlier,   the  Company   participates  in  Federally   funded  state
reimbursement programs. However, the Company expects the bulk of its revenues to
come from private payments.

The Americans with Disabilities Act ("ADA"),  enacted July 26, 1990, has had and
will continue to have a major effect on the full service residential  retirement
and assisted living industry. The communities acquired by the Company must be in
compliance with this act. The Fair Housing Amendments Act of 1988 also prohibits
discrimination  against the handicapped in the sale or rental of a dwelling,  or
in  the  provision  of  services  in  connection  with  such  a  dwelling.  This
intensifies the need to be in compliance with ADA.

Regulation  of the  industry  is  likely  to  increase,  particularly  for those
providers  accepting  Medicaid  reimbursements.  Federal  and state  governments
regulate  various aspects of the Company's  business.  The Company is subject to
Federal  and state  anti-remuneration  laws,  such as the  Federal  health  care
program  anti-kickback law that governs various types of financial  arrangements
among  health  care  providers  and others who may be in a position  to refer or
recommend  patients to these  providers.  This law prohibits direct and indirect
payments  that are intended to induce the referral of patients to, the arranging
of services  by, or the  recommending  of a  particular  provider of health care
items or services.  The Federal health care program  anti-kickback  law has been
interpreted  to apply to some  contractual  relationships  between  health  care
providers and sources of patient referral. Similar state laws vary from state to
state,  are  sometimes  vague  and have  rarely  been  interpreted  by courts or
regulatory  agencies.  Violation  of these laws can  result in loss of  license,
civil or criminal  penalties and exclusion of health care providers or suppliers
from furnishing covered items or services to beneficiaries of the Federal health
care  program.  The Company  cannot be sure that these laws will be  interpreted
consistently with its practices.


                                       10
<PAGE>

The  Company is subject to the Fair Labor  Standards  Act,  which  governs  such
matters as minimum  wage,  overtime and other  working  conditions.  Many of the
Company's  employees are paid at rates  related to the Federal  minimum wage and
accordingly,  increases  in the minimum wage will result in an increase in labor
costs.

In compliance  with underlying  state bond financing,  rents at one community in
Oregon must be approved by an agency of the state.

Management  is not aware of any  non-compliance  by the Company with  applicable
regulatory  requirements  that  would  have a  material  adverse  effect  on the
Company's financial condition or results of operations.


Competition

The long-term care industry is highly  competitive  and the assisted  living and
Alzheimer's  care  businesses  in  particular  have and will  continue to become
increasingly competitive in the future. The Company competes with other assisted
living companies and numerous other companies  providing  similar long-term care
alternatives such as home healthcare agencies, community-based service programs,
retirement  communities and convalescent  centers (nursing homes).  In addition,
the Company competes with a number of tax-exempt  nonprofit  organizations which
can finance  capital  expenditures on a tax-exempt  basis or receive  charitable
contributions  unavailable  to the Company and which are  generally  exempt from
income tax. In most markets  where the Company  operates or plans to operate the
level of competition  is rapidly  increasing  both from  regional,  national and
local providers. The Company expects this trend to continue and many markets are
already  overbuilt  and more will be overbuilt in the future.  If  reimbursement
programs,  such  as the  Medicaid  waiver  program,  increase,  assisted  living
competition  will grow from  existing and new  companies  focusing  primarily on
assisted living.  Nursing home centers that provide  long-term care services are
also a source of  competition  for the  Company,  particularly  with  respect to
Alzheimer's  care  services.   Many  of  the  Company's  present  and  potential
competitors have, or may have access to, greater financial, management and other
resources than those of the Company.  There can be no assurance that competitive
pressures will not have a material adverse effect on the Company.

The Company  competes with other  providers of elderly  residential  care on the
basis of the breadth and quality of its services, the quality of its communities
and on price. The Company believes that it competes favorably in these areas and
in its  recruitment  and retention of qualified  personnel and reputation  among
local  referral  sources.  The Company  also  competes  with other  providers of
long-term care in the acquisition and development of additional communities.

The Company also competes with other  providers of long-term  care in attracting
and retaining  qualified and skilled personnel.  In recent years, the healthcare
industry has experienced a shortage of qualified healthcare  professionals.  The
Company's  operations require some  professionally  certified (RN or LPN) staff,
primarily  for  supervision  of care  staff.  While the Company has been able to
retain  the  services  of an  adequate  number  of  professionals  to staff  its
communities  appropriately and maintain its standards of quality care, there can
be no  assurance  that  continued  shortages  will not affect the ability of the
Company to maintain the desired staffing levels.  In some markets,  non-licensed
staff has become a recruitment  challenge.  Unemployment rates are significantly
below the national average in a few markets.


Insurance

The provision of personal and  healthcare  services  entails an inherent risk of
liability  compared to more institutional  long-term care communities.  Assisted
living communities of the type operated by the Company,  especially its dementia
care  communities,  offer  residents a greater degree of  independence  in their
daily lives.  This increased  level of  independence,  however,  may subject the
resident  and the  Company  to  certain  risks  that  would be  reduced  in more
institutionalized  settings. The Company currently maintains liability insurance
intended to cover such  claims that it believes is adequate  based on the nature
of the risks, its historical experience and industry standards. The Company also
carries  property  insurance on each community in amounts that it believes to be
adequate and standard in the industry.


                                       11
<PAGE>

Environmental Matters

Under  various  Federal,  state and local  environmental  laws,  ordinances  and
regulations,  a current or  previous  owner or  operator  of real  estate may be
required to investigate and clean up hazardous or toxic  substances or petroleum
product  releases  at the  property,  and may be held  liable to a  governmental
entity or to third parties for property damage and for  investigation  and clean
up costs  incurred by such parties in connection  with the  contamination.  Such
laws typically impose clean up  responsibility  and liability  without regard to
whether the owner or operator knew of or caused the presence of the contaminants
and the liability  under such laws has been  interpreted to be joint and several
unless the harm is divisible and there is a reasonable  basis for  allocation of
responsibility.  The costs of  investigation,  remediation  or  removal  of such
substances may be substantial and the presence of such substances or the failure
to remediate  properly such property may adversely affect the owner's ability to
sell or lease the  property or to borrow using the  property as  collateral.  In
addition,  some  environmental  laws create a lien on the  contaminated  site in
favor of the government  for damages and costs it incurs in connection  with the
contamination. Persons who arrange for the disposal or treatment of hazardous or
toxic  substances  also may be liable for the costs of removal or  redemption of
such  substances  at the  disposal or treatment  community,  whether or not such
community is owned or operated by that person or corporation. Finally, the owner
or operator of a site may be subject to common law claims by third parties based
on damages and costs resulting from environmental contamination emanating from a
site.

The Company has  conducted  environmental  assessments  on most of its  existing
communities  that it operates  plus one community it leases.  These  assessments
have not revealed any  environmental  liability that the Company  believes would
have a material adverse effect on the Company's  business,  assets or results of
operations  nor is the Company aware of any such  environmental  liability.  The
Company owns seven  communities that have been operated for periods ranging from
2 to 19 years for which  environmental  assessments have not been obtained.  The
Company  believes that all of its  communities are in compliance in all material
respects  with all Federal,  state and local laws,  ordinances  and  regulations
regarding hazardous or toxic substances or petroleum  products.  The Company has
not been notified by any governmental authority,  and is not otherwise aware, of
any material  non-compliance,  liability or claim relating to hazardous or toxic
substances or petroleum products in connection with any of its communities.


Control by Insiders

As of March 28, 2002, the Company's officers,  directors and affiliated entities
owning more than 5% of the Company's  outstanding stock owned  approximately 56%
of the outstanding shares of Common Stock. Mr. James R. Gilley, President, Chief
Executive Officer and Chairman of the Board of the Company,  and one corporation
wholly  owned  by him  and  his  spouse,  beneficially  owned  an  aggregate  of
approximately  24.2% of the outstanding Common Stock of the Company.  Mr. Victor
L. Lund, a director of the Company and the founder of Wedgwood  retirement  Inns
(a company acquired by the Company in 1996),  beneficially  owned  approximately
16.6% of the outstanding shares of Common Stock. Mr. Floyd Rhoades,  as a result
of the stock he received when the Company  purchased  American Care Communities,
Inc.,  beneficially  owns 8.6% of the Company's  outstanding  stock. Mr. William
Shirley,  due  principally  from  the sale to the  Company  of  assisted  living
communities,  beneficially  owns  approximately  6.5% of the outstanding  Common
Stock of the Company.  Accordingly,  such individuals will have the ability,  by
voting their shares in concert,  to significantly  influence (i) the election of
the Company's Board of Directors and, thus, the direction and future  operations
of the  Company,  and (ii) the  outcome of all other  matters  submitted  to the
Company's stockholders, including mergers, consolidations and the sale of all or
substantially all of the Company's assets. In addition,  the Company's  officers
and directors,  including James R. Gilley,  currently hold options or conversion
rights to acquire  78,900  shares of Common  Stock.  The issuance of  additional
shares of Common Stock  pursuant to the exercise of these stock options  granted
under the Company's  stock option plan would  increase the number of shares held
by the Company's executive officers and directors in the future.


                                       12
<PAGE>

Anti-Takeover Provisions

The Company's Articles of Incorporation and Bylaws contain,  among other things,
provisions (i)  establishing a classified board of directors with staggered term
of service (ii) authorizing  shares of preferred stock with respect to which the
Board of Directors has the power to fix the rights, preferences,  privileges and
restrictions  without  any  further  vote or  action by the  stockholders  (iii)
requiring  holders  of at  least  80% of the  outstanding  Common  Stock to join
together in requesting a special  meeting of stockholders  and (iv)  prohibiting
removal of a director  other than for "cause" and then only if the holders of at
least 80% of the outstanding Common Stock vote for such removal.  The Company is
also  subject to Sections  78.411-78.444  of the Nevada  Revised  Statutes  (the
"Control Act") which in general prohibits any business combination involving the
Company  and a person  that  beneficially  owns  10% or more of the  outstanding
Common  Stock or an  affiliate  or  associate of the Company who within the past
three years was the beneficial owner, directly or indirectly,  or 10% or more of
the  outstanding  Common  Stock,   except  under  certain   circumstances.   The
application of the Control Act and/or the  provisions of the Company's  Articles
of   Incorporation   and  Bylaws  could  delay,   deter  or  prevent  a  merger,
consolidation,  tender offer or other business  combination or change of control
involving  the  Company  that some or a majority of the  Company's  stockholders
might  consider to be in their  personal  best  interests,  including  offers or
attempted takeovers that might otherwise result in such stockholders receiving a
premium over the market price of the Common Stock and may  adversely  affect the
market price of and the voting and other rights of, the holders of Common Stock.


Employees

At March 28, 2002, the Company  employed 450 employees,  including 310 full-time
and  140  part-time   employees.   The  Company   believes  it  maintains   good
relationships  with  its  employees.   None  of  the  Company's   employees  are
represented by a collective bargaining group.


Corporate Offices

The Company's  principal  office is  approximately  12,000 square feet of leased
space in Dallas,  Texas.  The lease  extends  through  April  2006.  The Company
believes  the leased  space will meet the  Company's  needs for the  foreseeable
future.


ITEM 2: DESCRIPTION OF PROPERTIES
---------------------------------

See Item 1 for a discussion of properties owned or leased by the Company.


ITEM 3: LEGAL PROCEEDINGS
-------------------------


LSOF Pooled Equity L.P. vs. Greenbriar Corporation

In LSOF Pooled Equity L.P. vs. Greenbriar Corporation,  Cause # 00-08824,  162nd
Judicial District Court of Dallas County,  Texas the plaintiff seeks to have the
court affirm that its action taken on October 30, 2001 to convert its  preferred
stock into approximately 80% of Greenbriar outstanding common stock was proper.

In October 2001 the parties  entered into a settlement  agreement and On January
7, 2002 the court issued an order  dismissing  the lawsuit.  For a discussion of
the terms of the settlement see Item 7 of this document.


                                       13
<PAGE>

Lifestyles, Senior Housing Managers, LLC v. Greenbriar et al

In 1995 Lifestyles  Senior Housing  Managers,  LLC  (Lifestyles)  entered into a
contract  to  manage an  assisted  living  community  in  Seaside,  OR leased by
Neawanna by the Sea, LP (Neawanna).  In March 2000 Lifestyles organized and held
a meeting  with the  executive  director of Neawanna for the purpose of offering
her the position of manager of an assisted living  community not affiliated with
Greenbriar. Greenbriar believes the action of Lifestyles represented a breach of
their  fiduciary duty as the manager and  terminated  the  management  contract.
Lifestyles  contended  their  termination  was  unjustified,  sought  damages of
approximately   $800,000  and  demanded  the  matter  be  submitted  to  binding
arbitration,  which is called for in the management  contract.  The  arbitration
hearing  was held on February  19-21,  2001.  On April 9, 2001,  the Company was
notified that the arbitration panel had awarded Lifestyles  $498,000 for damages
plus expenses.

One of the terms of the Neawanna  lease is that any  unsatisfied  debt exceeding
$250,000 is an event of default. Rather than lose the lease on Neawanna, on July
12,  2001 Villa Del Rey - Seaside,  Inc.  and  Neawanna  By The Sea LP filed for
Chapter 11 bankruptcy  protection in the United States  Bankruptcy Court for The
District of Nevada.  In addition Villa del Rey - Roswell LP filed for Chapter 11
in the same court.  Although  unrelated to the Lifestyles matter Villa Del Rey -
Roswell  LP  has  a  lease  for  an   assisted   living   community,   which  is
cross-collateralized with the lease held by Neawanna by the Sea, LP.

Lifestyles  and the Company  have  reached an  agreement  in principle to have a
subsidiary  of  the  Company  purchase  Lifestyles  judgment  award  and  if the
agreement  is finalized a request will be made to the court to release the three
entities from bankruptcy. If, however the parties are unsuccessful in concluding
a settlement  agreement it is anticipated that a plan of reorganization  will be
filed with the court in the second quarter of 2002. In 2000 the Company recorded
as an  expense  the  arbitration  award  received  by  Lifestyle.  The  cost  of
purchasing the  arbitration  award from  Lifestyles will be less than the amount
recorded.

Other

The Company has been named as defendant in other lawsuits in the ordinary course
of business.  Management  is of the opinion that these  lawsuits will not have a
material effect on the financial condition,  results of operations or cash flows
of the Company.


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

The Company held its annual  meeting on December  28, 2001.  At that meeting the
shareholders re-elected two members to the Board of Directors.

                                       14

<PAGE>
<TABLE>
<CAPTION>

                                     PART II


ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
----------------------------------------------------------------

The Company's Common Stock is traded under the symbol "GBR" and is listed on the
American Stock Exchange.  The high and low closing sales prices of the Company's
Common Stock on the American  Stock  Exchange  during the last two fiscal years,
adjusted  for the  December  2001  reverse  split  and the  January  2002  stock
dividend:

                                        2001                       2000
                                   High       Low             High       Low
                                 -----------------          -----------------

         First Quarter           $11.80       5.20          $79.60      13.80
         Second Quarter           11.00       5.00           32.60         20
         Third Quarter             7.00       5.20           26.20      12.60
         Fourth Quarter           15.28       4.20           17.60       5.00

The Company has not paid cash  dividends on its Common Stock during at least the
last ten  fiscal  years and it has been the  Company's  practice  to retain  all
earnings  to pay down  long-term  debt and to finance the future  expansion  and
development  of its business.  Any  determination  to pay cash  dividends in the
future will be at the discretion of the Board of Directors and will be dependent
on  the  Company's  financial  condition,  results  of  operations,  contractual
restrictions, capital requirements, business prospects and such other factors as
the Board of Directors deems relevant. The Company's ability to pay dividends in
the  future  may be  limited  by the terms of future  debt  financing  and other
arrangements.

The closing  price on the Company's  common stock on March 26, 2002,  was $21.50
per share.  As of  February  28,  2002,  there were 513 holders of record of the
Company's common stock.


ITEM 6: SELECTED FINANCIAL DATA
-------------------------------

                                                    2001         2000         1999         1998         1997
                                                  ---------    ---------    ---------    ---------    ---------
<S>                                                   <C>          <C>          <C>          <C>          <C>
     Operating revenue                            $  30,861    $  41,261    $  41,260    $  53,521    $  38,979
     Operating expenses                              33,528       46,311       38,323       55,216       39,958
                                                  ---------    ---------    ---------    ---------    ---------
     Operating profit (loss)                         (2,667)      (5,050)       2,937       (1,695)        (979)

     Earnings (loss) from continuing operations
     before income taxes                          $   9,242    $ (10,623)   $      82    $ (10,602)   $ (10,297)

     Earnings (loss) per common share
     Basic and diluted                            $   15.53    $  (39.17)   $  (12.33)   $  (37.20)   $  (18.42)

     BALANCE SHEET DATA:
     Total assets                                 $  44,022    $ 102,588    $ 119,908    $ 130,353    $ 151,243
     Long-term debt                                  16,693       50,887       50,477       58,154       54,851
     Total liabilities                               34,753       68,944       69,425       78,516       88,726
     Preferred stock redemption obligation             --         26,988       27,763       21,748         --
     Total stockholders' equity                       9,269        6,656       22,720       30,089       62,517
</TABLE>


                                       15
<PAGE>

ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
-----------------------------------------------------------------


Overview

During  1994 the  Company  began a series of steps to focus its  business on the
development,  management  and  ownership  of  assisted  living  properties.  The
Company's  historical  businesses  during  the past  five  years  have  included
ownership and operation of skilled nursing and retirement  centers,  real estate
investments and the manufacture and leasing of electric convenience vehicles and
wheelchairs.  The nursing and retirement centers, convenience vehicle businesses
and real estate  investments  have been sold.  During  1994,  the Company  began
independently to develop its assisted living business, began construction of its
first  assisted  living  community  in July 1995,  and opened that  community to
residents on May 30, 1996.  In order to increase the  Company's  presence in the
assisted living industry,  create  geographic  diversity and obtain  experienced
personnel,  the Company  acquired  Wedgwood  Retirement Inn Corp. in March 1996,
American Care in December 1996, the Windsor Group  (Windsor) in October 1997 and
Villa  Residential  Care Homes (VRCH) in December  1997. As of December 31, 1998
the Company operated 31 communities that it either owned or managed.

In December  1997 the Company sold Series F and Series G  convertible  preferred
shares  for  $22,000,000  less  selling  and  offering  costs of  $453,000.  The
preferred  stockholders  received a cash dividend of 6% payable  quarterly.  The
sale  was to  Lone  Star  Opportunity  Fund,  L.P.  Subsequent  to  the  initial
transaction  the preferred  stock was sold or  transferred to LSOF Pooled Equity
L.P. ("LSOF"). The agreement provided for 6% dividend and a mandatory conversion
on January 13, 2001.

In connection with the sale of the preferred  stock, the Company entered into an
agreement  which provides  that, on the date of conversion,  if the value of the
Company's  common  stock has not  increased  at the annual  rate of at least 14%
during the period the preferred shares are outstanding,  the Company is required
to make a cash payment ("Cash Payment") to the preferred  stockholders  equal to
the market price deficiency on the shares received upon  conversion.  At January
13,  2001,  a Cash  Payment  of  approximately  $27,167,000  would have been due
assuming conversion took place on that date.

In  October  2000 a dispute  arose  between  the  parties as to the terms of the
conversion  into common  stock.  That dispute  lead to a lawsuit  being filed by
LSOF.

On October 5, 2001 the parties  entered into a  settlement  agreement to resolve
all  differences  between the parties.  The  settlement  resulted in the Company
repurchasing all of LSOF's interest in the Company and LSOF releasing all claims
in exchange for  $4,000,000  in cash and the  conveyance  of 11 of the Company's
assisted living  properties.  LSOF assumed the mortgage debt associated with the
properties. In addition, the Company released LSOF from any claims it might have
had. The amount owed to LSOF was $27,167,000  and the mortgages  assumed by LSOF
were  $36,981,000.  After factoring in the book value of the property,  the cash
paid and all expenses of the transaction the Company recorded a net gain on sale
of  assets  of  approximately  $16,129,000.  Prior  to the  settlement  and  the
ultimately  litigious  dispute  with  LSOF  it had  been  the  Company's  stated
intention to sell or refinance  properties to pay LSOF the amount it was due. By
entering  into this  settlement  the Company  was able to settle its  obligation
without the cost and effort of selling and or refinancing  the properties to end
a lawsuit  which was  proving  very  costly  in both  professional  fees and the
distraction of senior management from the operations and growth of the Company.

During  2001 the  Company  identified  four  properties  that  were not  meeting
performance  expectations.  These  properties are in a geographic  region where,
after  the  transfer  of  communities  to  LSOF,  the  Company  does  not have a
significant  presence.  The Company has engaged a regional operator to assist in
the  operations of three of the properties and has entered into a one-year lease
with this operator for the additional  property.  If the approvals from existing
lenders can be obtained it is anticipated  that three of the properties  will be
sold to this operator.

During 2001 the Company sold three  properties to  not-for-profit  organizations
and subsidiaries of the Company entered into long-term  management contracts for


                                       16
<PAGE>

the properties.  The properties were sold for cash and approximately  $6,400,000
in tax-free  bonds paying 9.5%  interest.  The future  payments on the bonds and
their interest are limited to cash  generated  from the  properties  either from
operations,  refinancing  or sale of the  properties.  The Company has  deferred
gains in the amount of  $6,090,000.  The deferred  gains and any interest on the
bonds will be recognized as cash is received.

In January  1997 the  Company  negotiated  employment  contracts  with the Chief
Executive Officer (CEO) and Chief Financial  Officer (CFO) of the Company.  Both
individuals  had  been  employed  by the  Company  since  1989.  The  employment
contracts called for combined salaries of $640,000 per year and provided that if
the contracts were  terminated or amended the  individuals  would be entitled to
cash payment of three years salary for the CEO and two years salary for the CFO.
In light of the reduced size of the Company the  independent  directors  and the
officers in October 2001 agreed to modify the employment agreements with the two
officers.  The two  officers  have each  agreed to  continue  their roles in the
Company for $12,000 per year for three years.  The  revisions  in the  contracts
triggered the contract termination payments requiring the Company to immediately
pay the two officers  $1,740,000.  However,  the two  officers  agreed to accept
non-interest-bearing  notes due  December  31,  2004.  These notes have  certain
acceleration  provisions  if the  Company  violates  the  terms  of the  revised
contracts.

In the future the two officers will participate with the Company in partnerships
or other entities formed to acquire and sell real estate  properties  during the
period of their contracts. The Company believes that this arrangement will allow
it to  maintain  experienced  senior  management  at a fixed  cost that will not
overburden  its  resources  while  at  the  same  time  allowing  it to  realize
significant profits through management fees,  operating profits and the ultimate
sale of the properties.

It is anticipated that the Company will acquire  additional  properties  through
investments  in  third  party  entities,  which  for  the  most  part,  will  be
partnerships.  The Company may or may not be the controlling  party with respect
to these investments.  It is anticipated that the two senior officers will bring
potential  acquisitions  and  financing  to  Greenbriar  whereby the Company can
choose to participate or not.

The Company conducts its property  management  operations through its subsidiary
Senior Living  Management,  Inc (SLM). SLM expects to manage  properties,  for a
fee,  which are owned or leased by the Company or are owned by  partnerships  or
other entities where Greenbriar is an investor.  To a far lesser degree SLM will
manage properties for independent third parties.

In October 2001 the Company became a limited partner in Corinthians  Real Estate
Investors LP (CREI), a partnership formed to acquire two properties. The general
partner is a limited liability  corporation  whose  controlling  member is James
Gilley.  Mr.  Gilley is also CEO of the  Company.  Greenbriar  is a 56%  limited
partner.  Mr. Gilley is a 26% limited  partner and Mr. Bertcher (CFO) is a 10.5%
limited  partner.  The remaining  7.5% is held by other Company  employees and a
third party  attorney.  In October  2001 the  partnership  acquired a retirement
community  and in January  2002 it acquired an assisted  living  community.  The
seller  of the  retirement  community  received  $7,500,000  in  cash  from  the
partnership and a $1,600,000 note from the Company. CREI is obligated to pay the
Company the $1,600,000 that the Company has agreed to pay the seller. The seller
of the assisted living community received $2,800,000 in cash. The cash component
for both  acquisitions  was financed  through third party loans  obtained by the
partnership.  In total the partnership  borrowed  approximately  $11,500,000 for
purchase costs,  closing costs and working  capital.  The Company has guaranteed
both loans.  As of December 31, 2001 the Company had  advanced  the  partnership
approximately $311,000. The advance was repaid in January at 8% interest for all
days outstanding. SLM has entered into a management contract with CREI to manage
both properties.



Critical Accounting Policies and Estimates

The Company's  discussion and analysis of its financial condition and results of
operations are based upon the Company's Consolidated Financial Statements, which
have been prepared in accordance with accounting  principles  generally accepted
in the United States.  Certain of the Company's  accounting policies require the
application of judgment in selecting the appropriate assumptions for calculating


                                       17
<PAGE>

financial estimates. By their nature, these judgments are subject to an inherent
degree  of  uncertainty.  These  judgments  and  estimates  are  based  upon the
Company's historical experience,  current trends, and information available from
other sources that are believed to be reasonable  under the  circumstances,  the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources.  Actual
results  may  differ  from  these  estimates  under  different   assumptions  or
conditions.

The  Company  believes  the  following  critical  accounting  policies  are more
significant  to the  judgments  and  estimates  used in the  preparation  of its
consolidated  financial statements.  Revisions in such estimates are recorded in
the period in which the facts that give rise to the revisions become known.

                              Assets Held For Sale

The Company  determines the fair value, net of cost of disposal,  of an asset on
the date  management  determines  that the asset is to be sold, and the asset is
recorded at the lower of its fair value,  net of cost of  disposal,  or carrying
value  on that  date.  The  Company  periodically  reevaluates  such  assets  to
determine  if the assets are still  recorded at the lower of fair value,  net of
cost of disposal, or carrying value. The Company currently has three communities
held for sale.  The actual  sales  price  could  differ  significantly  from the
Company's estimates.

                               Deferred Tax Assets

Significant  management  judgment is required in  determining  the provision for
income taxes,  deferred tax assets and liabilities  and any valuation  allowance
recorded  against net  deferred  tax assets.  The future  recoverability  of the
Company's  net deferred tax assets is dependent  upon the  generation  of future
taxable  income prior to the expiration of the loss  carryforwards.  The Company
believes that it will generate  future  taxable  income to fully utilize the net
deferred tax assets.



Fiscal 2001 as Compared to Fiscal 2000

Revenues and  Operating  Expenses  from  Assisted  Living  Operations.  Revenues
decreased to  $30,861,000  in 2001 compared to  $41,261,000  in 2000.  Community
operating expenses,  which consist of assisted living operations expense,  lease
expense and depreciation and amortization,  were $25,417,000 in 2001 as compared
to $33,402,000 in 2000. During 2001 the Company gave LSOF 11 communities as part
of the settlement in October 2001, sold three communities to a not-for-profit in
April,  June and August of 2001,  entered into a sub  management  agreement  for
three  communities  in November,  leased one  community in November and sold one
community  to a third  party in April.  The  decrease in  operating  revenue and
expenses is due almost  entirely to the  reduction in the number of  communities
operated by the Company.

Corporate General and Administrative Expenses. These expenses were $4,875,000 in
2001 as compared to  $5,448,000 in 2000.  The decrease in the corporate  general
and  administrative  expenses between 2001 and 2000 is primarily a result of the
decrease  in salaries  and related  personal  expenses  .Due to the  significant
reduction  in the number of  communities  operated  by the Company the number of
employees on the  corporate  staff was  reduced.  Also reduced were the overhead
costs associated with personnel. In addition in October the salaries for the two
senior officers was reduced.

Write-off of Impaired Assets and Related Expenses. As noted above the Company is
attempting  to sell three  communities  and based upon the terms of the  pending
transaction  Company  has  reduced  the  carrying  value of the  communities  by
$1,887,000.

Interest and Dividend Income.  Interest and dividend income was $265,000 in 2001
as compared to $406,000 in 2000.  The  reduction in interest and dividend is due
to a net reduction in the notes that generated the interest income.


                                       18
<PAGE>

Interest Expenses. These expenses decreased to $4,958,000 in 2001 as compared to
$5,759,000 in 2000. Approximately $1,000,000 of the decrease is a result of the
disposition of owned communities throughout 2001. There was an increase in
interest expense in 2001 for additional notes due to the conversion of the
Series D preferred stock to a note. The Series D preferred stock was held by
Sylvia Gilley, the wife of the Company's CEO. The preferred stock was issued to
Mrs. Gilley in 1996 to assist the Company in completing an acquisition. As the
holder of preferred stock Mrs. Gilley received dividends, which are not
deductible for tax purposes. As a note the interest paid will provide the
Company with a tax deduction. The note matures on July 1, 2003. Because the note
was a conversion of preferred stock the same corporate limitations regarding the
redemption of preferred stock will apply to the note

Other income (expense),  net. Other income (expense) was $16,602,000 in 2001 The
Company  recorded a gain of  $16,129,000  due to the  settlement  with LSOF. The
balance  of the other  income  represents  the net gain on the  properties  sold
during 2001.


Fiscal 2000 as Compared to Fiscal 1999

Revenues and  Operating  Expenses  from  Assisted  Living  Operations.  Revenues
increased to  $41,261,000  in 2000 compared to  $41,260,000  in 1999.  Community
operating  expenses,  which consist of assisted living community expense,  lease
expense and depreciation and amortization,  were $33,402,000 in 2000 as compared
to  $34,010,000  in 1999.  There were two  communities  disposed  of in 1999 and
another two communities disposed of in 2000. The revenue and community operating
expenses  for  these  four  communities  in  1999  and  2000  respectively  were
$2,948,000 and $2,776,000  compared to $995,000 and  $1,210,000.  In addition to
the decrease in revenue and community operating expenses from the disposition of
these four communities,  there has been an increase in the same store revenue in
2000 that is  attributable  to an increase  in both  census and  average  rental
rates. This increase in census has also resulted in a corresponding  increase in
community operating  expenses.  The community operating expense margin increased
from 18% in 1999 to 19% in 2000.

Corporate General and Administrative Expenses. These expenses were $5,448,000 in
2000 as compared to  $4,313,000 in 1999.  The increase in the corporate  general
and  administrative  expenses between 2000 and 1999 is primarily a result of the
increase in corporate legal expenses associated with the ongoing litigation with
LSOF  and the  arbitration  award in the  Lifestyles,  Senior  Housing  Managers
matter.   See  further   discussion  of  legal  proceedings  at  Item  3:  Legal
Proceedings.

Write-off of Impaired Assets and Related Expenses. In 2000, the Company recorded
a write-off of impaired assets and related expenses of $7,461,000.

In 1992 the Company sold four nursing homes to Southern Care  Corporation  and a
subsidiary  of the Company  entered  into a  management  agreement to manage the
nursing homes.  In 1994 Southern Care  terminated  the management  agreement and
informed  the Company  that they  believed the notes due to the Company from the
sale of the  nursing  homes in 1992 were  invalid.  The  matter  has been in the
courts  since 1995 and legal issues were  resolved in June 2000 when  Greenbriar
was awarded a judgment of $18,688,000 for the notes,  interest,  amounts due for
the  management  contract  and  reimbursement  of legal  fees.  The assets had a
recorded value of $4,525,000.

The Company was informed that the financial  condition of the four nursing homes
had deteriorated,  that they failed to make the mortgage  payment,  and that the
first  mortgage  holder  foreclosed on the property in June 2000. The Company is
actively pursuing  collection of its judgment from Southern Care as well as from
its  officers,   directors  and  a  third  party  trustee.  However,  under  the
circumstances  the  Company is writing  off the entire  $4,525,000  (see Item 3:
Legal Proceedings for more information regarding Southern Care).


                                       19
<PAGE>

The Company decided in 2000 to dispose of two assisted living communities, which
did not meet operating performance expectations.  These communities were written
down to net  realizable  value at June 30, 2000.  One of these  communities  was
disposed of in the quarter ending  September 30, 2000.  Also, a third  community
whose  operations  have  deteriorated  was  written  down based on  management's
estimate  of future  cash flows  pursuant  to the  provisions  of  Statement  of
Financial   Accounting  Standards  No.  121.  In  addition  certain  receivables
associated   with  these   properties   were  written  off.   These  write  offs
substantially  account for the remainder of the write-off of impaired assets and
related expenses

Interest and Dividend Income.  Interest and dividend income was $406,000 in 2000
as  compared to $599,000  in 1999.  In the fourth  quarter of 1999,  the Company
entered into an agreement to sell its preferred  stock in New Life  Corporation.
Prior to this agreement, the Company had been receiving quarterly cash dividends
on this preferred stock.

Interest Expenses. These expenses increased to $5,759,000 in 2000 as compared to
$5,632,000  in 1999.  Interest  expense  decreased  $275,000  as a result of the
disposition  of two owned  communities  in 1999.  The increase in 2000  interest
expense for communities  owned in both 1999 and 2000 is a result of the increase
in variable interest rates throughout 2000.

Other income  (expense),  net. Other income (expense) was ($220,000) in 2000 and
$2,178,000  in 1999.  The 2000 expense of  ($220,000) is the result of a gain on
the divestiture of assets in the amount of $49,000 and the minority  interest in
one community of ($359,000) as well as the  amortization  of deferred  income of
$72,000.  The  divestiture of assets  included three parcels of raw land and two
communities that did not meet the Company's long-term strategies.

The 1999  income is  primarily  the result of the  divestiture  of  assets.  The
preferred stock  investment in New Life Corporation was disposed of resulting in
a gain of  $2,166,000.  In addition,  the  disposition  of two  assisted  living
communities that did not meet the Company's  long-term  strategies resulted in a
loss of ($186,000).


Liquidity and Capital Resources

At December 31, 2001,  the Company had current  assets of $3,874,000 and current
liabilities of $6,941,000.

Included in current  liabilities is a $3,360,000 mortgage for an assisted living
community,  which matures in October 2002. The Company intends to refinance that
mortgage on a long-term basis prior to its maturity date.

During  2001  the  Company  reduced  it  long-term  debt  from   $50,887,000  to
$16,693,000.  The reduction was due to the sale of properties  and the repayment
of the mortgages  related to the  properties.  The reduction was also due to the
settlement  with LSOF,  which assumed the mortgage debt on eleven  properties it
received as  settlement  of a  preferred  stock  obligation.  In addition to the
mortgage  obligation  the agreement with LSOF removed the obligation the Company
had to repay LSOF a Preferred Stock Redemption Obligation, which at December 31,
2000 was $26,988,000. The LSOF settlement required a cash payment of $4,000,000.
The Company used net proceeds from the sale of properties to make this payment.

In January 2001, the Company sold their  corporate  office  building in Addison,
Texas and received net cash proceeds of  $1,477,772.  The  corporate  office was
relocated to leased space in April 2001

In January 2001 the Company sold certain garden homes and related  property that
was adjacent to a community in Harlingen, TX and received net cash of $866,280.

On July 1,  2001  the  Company  converted  the  Series  D  Preferred  Stock to a
$3,375,000  note, which matures on July 1, 2003. In addition the Company settled
employment  contracts  with two officers by issuing notes  totaling  $1,740,000,
discounted at 8.52% to $1,349,000 which mature on December 31, 2004.


                                       20
<PAGE>

Future  development  activities  of the Company  are  dependent  upon  obtaining
capital and financing through various means,  including  financing obtained from
sale/leaseback  transactions,   construction  financing,  long-term  state  bond
financing, debt or equity offerings and, to the extent available, cash generated
from  operations.  There can be no  assurance  that the Company  will be able to
obtain adequate capital to finance its projected growth.


Effect of Inflation

The  Company's  principal  sources  of  revenues  are from  resident  fees  from
Company-owned  or leased  assisted  living  communities and management fees from
communities  operated by the Company for third  parties.  The  operation  of the
communities  is affected by rental rates that are highly  dependent  upon market
conditions and the  competitive  environment in the areas where the  communities
are located. Compensation to employees is the principal cost element relative to
the  operations of the  communities.  Although the Company has not  historically
experienced  any adverse  effects of  inflation  on salaries or other  operating
expenses,  there can be no  assurance  that such  trends  will  continue or that
should inflationary pressures arise that the Company will be able to offset such
costs by increasing rental rates or management fees.


Forward Looking Statements

"Safe Harbor"  Statement under the Private  Securities  Litigation Reform Act of
1995:  A number of the matters and subject  areas  discussed in this filing that
are not  historical or current facts deal with potential  future  circumstances,
operations,  and prospects.  The discussion of such matters and subject areas is
qualified  by  the  inherent   risks  and   uncertainties   surrounding   future
expectations   generally,   and  also  may  materially  differ  from  Greenbriar
Corporation's actual future experience involving any one or more of such matters
and subject  areas  relating to interest  rate  fluctuations,  ability to obtain
adequate debt and equity financing, demand, pricing, competition,  construction,
licensing,  permitting,  construction delays on new developments contractual and
licensure, and other delays on the disposition,  transition, or restructuring of
currently or previously  owned,  leased or managed  communities in the Company's
portfolio,  and the ability of the Company to  continue  managing  its costs and
cash flow while maintaining high occupancy rates and market rate assisted living
charges in its assisted living communities. Greenbriar Corporation has attempted
to identify, in context,  certain of the factors that they currently believe may
cause  actual  future   experience   and  results  to  differ  from   Greenbriar
Corporation's  current  expectations  regarding  the relevant  matter or subject
area.  These and other risks and  uncertainties  are  detailed in the  Company's
reports  filed with the  Securities  and Exchange  Commission  (SEC),  including
Greenbriar  Corporation's  Annual Reports on Form 10-K and Quarterly  Reports on
Form 10-Q.

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------

The Company is subject to market risk from exposure to changes in interest rates
based on its financing,  investing, and cash management activities.  The Company
utilizes a  balanced  mix of debt  maturities  along  with both  fixed-rate  and
variable-rate  debt to manage its exposures to changes in interest  rates.  (See
Management's Discussion and Analysis - Liquidity and Capital Resources appearing
elsewhere  in this Form 10-K.) If market  interest  rates  average 1% (100 basis
points) more in 2002 than they did in 2001, the Company's interest expense would
increase and income before income taxes would decrease by approximately  $50,000
based on the amount of debt  outstanding  at December 31, 2001. The Company does
not expect changes in interest rates to have a material effect on income or cash
flows  for  existing  properties  in  fiscal  2002,  although  there  can  be no
assurances that interest rates will not significantly change.


ITEM 8: FINANCIAL STATEMENTS
----------------------------

The financial statements required by this Item begin at page F-1 hereof.


                                       21
<PAGE>

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

None.


                                       22
<PAGE>


                                    PART III

ITEMS 10-13: DIRECTORS AND EXECUTIVE OFFICERS, EXECUTIVE COMPENSATION,  SECURITY
--------------------------------------------------------------------------------
             OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND MANAGEMENT AND CERTAIN
             -------------------------------------------------------------------
             RELATIONSHIPS AND RELATED TRANSACTIONS
             --------------------------------------

The information  required by Items 10, 11, 12and 13 is incorporated by reference
into this Form 10-K from the Company's definitive Proxy Statement for its Annual
Meeting of Stockholders, which definitive Proxy Statement the Company intends to
file within 120 days after its fiscal year-end.


                                       23
<PAGE>

                                     PART IV

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

     (a)  The following documents are filed as a part of the report:

          (1)  FINANCIAL  STATEMENTS:  The following financial statements of the
               Registrant  and the  Report  of  Independent  Public  Accountants
               therein are filled as part of this Report on Form 10-K:

               Report of Independent Certified Public Accountants............F-1
               Consolidated Balance Sheets...................................F-2
               Consolidated Statement of Operations..........................F-4
               Consolidated Statement of Changes in Stockholders' Equity.....F-5
               Consolidated Statements of Cash Flows.........................F-6
               Notes to Consolidated Financial Statements....................F-7

          (2)  FINANCIAL   STATEMENT   SCHEDULES:   Other  financial   statement
               schedules have been omitted because the  information  required to
               be set forth therein is not applicable, is immaterial or is shown
               in the consolidated financial statements or notes thereto.

     (b)  REPORTS ON FORM 8-K:  Form 8-K filed on January  26,  2001,  regarding
          additional events in the LSOF litigation. Form 8-K filed on August 10,
          2001  regarding  issuance  of Series H  Preferred  Stock,  the  Master
          Settlement  Agreement  between the Company and LSOF Pooled Equity,  LP
          and the conversion of Series D Preferred Stock to a promissory note.

     (c)  Exhibits: The following exhibits are filed as part of, or incorporated
          by reference into, this Report on Form 10-K:

          Exhibit
          Number    Description of Exhibit
          ----------------------------------------------------------------------

          2.1.1     Stock  Purchase  Agreement  between Villa  Residential  Care
                    Homes,  Inc.,   William  A.  Shirley,   Jr.  and  Greenbriar
                    Corporation   ("Registrant")  (filed  as  Exhibit  2.1.1  to
                    Registrant's Form 8-K Current Report on January 13, 1998 and
                    incorporated herein by this reference).
          2.1.2     Exchange    Agreement   between   Villa   Residential   Care
                    Homes-Corpus Christi South, L.P. and Greenbriar  Corporation
                    ("Registrant")  (filed as Exhibit 2.1.2 to Registrant's Form
                    8-K  Current  Report on January  13,  1998 and  incorporated
                    herein by this reference).
          2.1.3     Exchange    Agreement   between   Villa   Residential   Care
                    Homes-Granbury,     L.P.    and    Greenbriar    Corporation
                    ("Registrant")  (filed as Exhibit 2.1.3 to Registrant's Form
                    8-K  Current  Report on January  13,  1998 and  incorporated
                    herein by this reference).
          2.1.4     Exchange  Agreement between Villa Residential Care Homes-Oak
                    Park, L.P. and Greenbriar Corporation  ("Registrant") (filed
                    as Exhibit 2.1.4 to Registrant's  Form 8-K Current Report on
                    January 13, 1998 and incorporated herein by this reference).
          2.1.5     Exchange Agreement between Villa Residential Care Homes-Fort
                    Worth East, L.P. and Greenbriar  Corporation  ("Registrant")
                    (filed as Exhibit  2.1.5 to  Registrant's  Form 8-K  Current
                    Report on January 13, 1998 and  incorporated  herein by this
                    reference).
          2.1.6     Exchange Agreement between William A. Shirley,  Jr., Lucy M.
                    Brody  and C. Kent  Harrington  and  Greenbriar  Corporation
                    ("Registrant")  (filed as Exhibit 2.1.6 to Registrant's Form
                    8-K  Current  Report on January  13,  1998 and  incorporated
                    herein by this reference).
          2.1.7*    Certificate  of Decrease  in  Authorized  and Issued  Shares
                    dated  November 27, 2001, and filed with the State of Nevada
                    on November 30, 2001.


                                       24
<PAGE>

          2.2.1     Stock Purchase Agreement between Lone Star Opportunity Fund,
                    L.P.  and  Greenbriar  Corporation  ("Registrant")  filed as
                    Exhibit 2.2.1 of Registrant's Form 10-KSB for the year ended
                    December 31, 1997.
          2.2.4     Form of Registration Rights Agreement between Registrant and
                    Lone Star Opportunity Fund, L.P. as regards 1,400,000 shares
                    of Registrant's Series F Senior Convertible  Preferred Stock
                    and  800,000   shares  of   Registrant's   Series  G  Senior
                    Non-Voting   Preferred  Stock  filed  as  Exhibit  2.2.4  of
                    Registrant's  Form  10-KSB for the year ended  December  31,
                    1997.
          2.2.5     Agreement  between  Lone Star  Opportunity  Fund,  L.P.  and
                    Registrant  regarding certain minimum values of Registrant's
                    stock filed as Exhibit 2.2.5 of Registrant's Form 10-KSB for
                    the year ended December 31, 1997.
          3.1       Articles of Incorporation  of Medical Resource  Companies of
                    America ("Registrant") (filed as Exhibit 3.1 to Registrant's
                    Form S-4 Registration Statement,  Registration No. 33-55968,
                    and incorporated herein by this reference).
          3.1.1     Restated    Articles   of    Incorporation   of   Greenbriar
                    Corporation.
          3.2       Bylaws of Registrant  (filed as Exhibit 3.2 to  Registrant's
                    Form S-4 Registration Statement,  Registration No. 33-55968,
                    and incorporated herein by this reference).
          3.2.1     Amendment to Section 3.1 of the Bylaws of Registrant adopted
                    upon  approval  of the  Merger  (filed as  Exhibit  3.2.1 to
                    Registrant's Form S-4 Registration  Statement,  Registration
                    No. 33-55968, and incorporated herein by this reference).
          3.3       Certificate of Decrease in Authorized and Issued Shares.
          4.1.2     Certificate  of  Designations,  Preferences  and  Rights  of
                    Preferred Stock dated May 7, 1993,  relating to Registrant's
                    Series  B  Preferred   Stock  (filed  as  Exhibit  4.1.2  to
                    Registrant's Form S-3 Registration  Statement,  Registration
                    No. 33-64840, and incorporated herein by this reference.
          4.1.4     Certificate  of  Designations,  Preferences  and  Rights  of
                    Preferred   Stock   dated  March  15,   1996,   relating  to
                    Registrants' Series D Preferred Stock.
          4.1.6     Certificate of Voting Powers, Designations,  Preferences and
                    Rights of Registrant's Series F Senior Convertible Preferred
                    Stock dated  December  31, 1997,  filed as Exhibit  2.2.2 of
                    Registrant's  Form  10-KSB for the year ended  December  31,
                    1997.
          4.1.7     Certificate of Voting Powers, Designations,  Preferences and
                    Rights   of   Registrant's   Series  G   Senior   Non-Voting
                    Convertible  Preferred Stock dated December 31, 1997,  filed
                    as Exhibit  2.2.3 of  Registrant's  Form 10-KSB for the year
                    ended December 31, 1997.
          10.3.2    Form of $62,500  Promissory  Note dated  December  27,  1991
                    payable to Registrant by Gene S. Bertcher  representing  the
                    purchase price for 250,000 shares (50,000 post December 1995
                    shares)  of  Registrant's  Common  Stock  (filed as  Exhibit
                    10.3.2  to  Registrant's  Form S-4  Registration  Statement,
                    Registration No. 33-55968,  and incorporated  herein by this
                    reference).
          10.3.3    Form of Renewal of  Promissory  Note dated  October 14, 1992
                    extending   the  maturity  date  of  the   Promissory   Note
                    referenced  in Exhibit  10.3.2  (filed as Exhibit  10.3.3 to
                    Registrant's Form S-4 Registration  Statement,  Registration
                    No. 33-55968, and incorporated herein by this reference).
          10.3.4    Form of Security  Agreement - Pledge  (Nonrecourse)  between
                    Gene S. Bertcher and Registrant securing the Promissory Note
                    referenced in Exhibit  13.3.2.  (Filed as Exhibit  10.3.4 to
                    Registrant's Form S-4 Registration  Statement,  Registration
                    No. 33-55968, and incorporated herein by this reference).
          10.4.2    Form of $75,000  Promissory  Note  dated  October  12,  1992
                    payable to Registrant by Robert L. Griffis  representing the
                    purchase price for 150,000 shares (30,000 post December 1995
                    shares)  of  Registrant's  Common  Stock  (filed as  Exhibit
                    10.4.2  to  Registrant's  Form S-4  Registration  Statement,
                    Registration No. 33-55968,  and incorporated  herein by this
                    reference).


                                       25
<PAGE>

          10.4.3    Form of Security  Agreement - Pledge  (Nonrecourse)  between
                    Registrant  and Robert L. Griffis  securing  the  Promissory
                    Note  referenced in Exhibit  10.4.2 (filed as Exhibit 10.4.3
                    to   Registrant's    Form   S-4   Registration    Statement,
                    Registration No. 33-55968,  and incorporated  herein by this
                    reference).
          10.6.1    Form of Stock Option to purchase 100,000 shares (20,000 post
                    December 1995 shares) of Registrant's Common Stock issued to
                    Oscar Smith on October 1, 1992  (filed as Exhibit  10.6.1 to
                    Registrant's Form S-4 Registration  Statement,  Registration
                    No. 33-55968, and incorporated herein by this reference).
          10.6.2    Form of  $50,000  Promissory  Note  dated  October  1,  1992
                    payable  to  Registrant  by  Oscar  Smith  representing  the
                    purchase price for 100,000 shares (20,000 post December 1995
                    shares)  of  Registrant's  Common  Stock  (filed as  Exhibit
                    10.6.2  to  Registrant's  Form S-4  Registration  Statement,
                    Registration No. 33-55968,  and incorporated  herein by this
                    reference).
          10.6.3    Form of Security  Agreement - Pledge  (Nonrecourse)  between
                    Registrant  and Oscar Smith  securing  the  Promissory  Note
                    referenced  in Exhibit  10.6.2  (filed as Exhibit  10.6.3 to
                    Registrant's Form S-4 Registration  Statement,  Registration
                    No. 33-55968, and incorporated herein by this reference).
          10.7.1    Form of Stock Option to purchase  80,000 shares (16,000 post
                    December 1995 shares) of Registrant's Common Stock issued to
                    Lonnie  Yarbrough  on  October  12,  1992  (filed as Exhibit
                    10.7.1  to  Registrant's  Form S-4  Registration  Statement,
                    Registration No. 33-55968,  and incorporated  herein by this
                    reference).
          10.7.2    Form of $40,000  Promissory  Note  dated  October  12,  1992
                    payable to Registrant by Lonnie  Yarbrough  representing the
                    purchase  price for 80,000 shares (16,000 post December 1995
                    shares)  of  Registrant's  Common  Stock  (filed as  Exhibit
                    10.7.2  to  Registrant's  Form S-4  Registration  Statement,
                    Registration No. 33-55968,  and incorporated  herein by this
                    reference).
          10.7.3    Form of Security Agreement - Pledge  (non-recourse)  between
                    Registrant and Lonnie Yarbrough securing the Promissory Note
                    referenced  in Exhibit  10.7.2  (filed as Exhibit  10.7.3 to
                    Registrant's Form S-4 Registration  Statement,  Registration
                    No. 33-55968, and incorporated herein by this reference).
          10.9.6    Form of $62,500  promissory  note dated  December  29, 1994,
                    payable  to  Registrant  by  L.A.  Tuttle  representing  the
                    purchase  price of 50,000 shares  (10,000 post December 1995
                    shares)  of  Registrant's  Common  Stock  (filed as  Exhibit
                    10.9.6  to  Registrant's  Form  10-KSB  for the  year  ended
                    December 31, 1994).
          10.9.7    Form of Security  Agreement-Pledge  between  Registrant  and
                    L.A.  Tuttle  securing  the  promissory  note  reference  in
                    Exhibit 10.9.6 (filed as Exhibit 10.9.7 to Registrant's Form
                    10-KSB for the year ended December 31, 1994).
          10.13.1   Registrant's  1992 Stock Option Plan (filed as Exhibit 10.13
                    to   Registrant's    Form   S-4   Registration    Statement,
                    Registration No. 33-55968,  and incorporated  herein by this
                    reference).
          10.13.2   Registrant's 1997 Stock Option Plan (filed as Exhibit 4.1 to
                    Registrant's Form S-8 Registration  Statement,  Registration
                    No. 333-33985 and incorporated herein by this reference).
          10.13.3   Registrant's 2000 Stock Option Plan (filed as Exhibit 4.1 to
                    Registrant's Form S-8 Registration  Statement,  Registration
                    No. 333-50868 and incorporated herein by this reference).
          10.21.1   Extended and  Consolidated  Promissory Note in the principal
                    amount of $5,700,000 dated effective May 23, 1992 payable by
                    JRG Investment Co., Inc. to M.S. Holding Co. Corp. (filed as
                    Exhibit  10.22.1  to  Registrant's   Form  S-4  Registration
                    Statement,   Registration  No.  33-55968,  and  incorporated
                    herein by this reference).
          10.22.2   Extended and  Consolidated  Pledge Agreement dated effective
                    May 23,  1992  between JRG  Investment  Co.,  Inc.  and M.S.
                    Holding Co. Corp.  securing the Note  referenced  in Exhibit
                    10.22.1 (filed as Exhibit 10.22.2 to  Registrant's  Form S-4
                    Registration  Statement,   Registration  No.  33-55968,  and
                    incorporated herein by this reference).


                                       26
<PAGE>

          10.22.3   Pledge  Agreement  dated as of May 23, 1992 between James R.
                    Gilley and M.S. Holding Co. Corp.  (filed as Exhibit 10.22.3
                    to   Registrant's    Form   S-4   Registration    Statement,
                    Registration No. 33-55968,  and incorporated  herein by this
                    reference).
          10.22.4   Irrevocable  Proxy from James R. Gilley to M.S.  Holding Co.
                    Corp.  relating to shares of capital stock of JRG Investment
                    Co., Inc. (filed as Exhibit 10.22.4 to Registrant's Form S-4
                    Registration  Statement,   Registration  No.  33-55968,  and
                    incorporated herein by this reference).
          10.22.5   Blank  Assignment  and  Power  of  Attorney  signed  by  JRG
                    Investment  Co.,  Inc.  relating  to  482,000  (96,400  post
                    December 1995 shares)  shares of  Registrant's  Common Stock
                    (filed  as  Exhibit   10.22.5  to   Registrant's   Form  S-4
                    Registration  Statement,   Registration  No.  33-55968,  and
                    incorporated herein by this reference).
          10.22.6   Blank  Assignment  and  Power  of  Attorney  signed  by  JRG
                    Investment Co., Inc.  relating to 1,268,000  shares (236,600
                    post  December  1995  shares) of  Registrant's  Common Stock
                    (filed  as  Exhibit   10.22.6  to   Registrant's   Form  S-4
                    Registration  Statement,   Registration  No.  33-55968,  and
                    incorporated herein by this reference).
          10.22.7   Three Blank Assignments and Powers of Attorney signed by JRG
                    Investment  Co.,  Inc.,  each  relating  to  600,000  shares
                    (120,000 post December 1995 shares) of  Registrant's  Common
                    Stock  (filed as Exhibit  10.22.7 to  Registrant's  Form S-4
                    Registration  Statement,   Registration  No.  33-55968,  and
                    incorporated herein by this reference).
          10.22.8   Blank  Assignment  and  Power  of  Attorney  signed  by  JRG
                    Investment  Co.,  Inc.   relating  to  2,281,818  shares  of
                    Registrant's  Common  Stock  (filed as  Exhibit  10.22.8  to
                    Registrant's Form S-4 Registration  Statement,  Registration
                    No. 33-55968, and incorporated herein by this reference).
          10.22.9   Blank  Assignment  and  Power  of  Attorney  signed  by  JRG
                    Investment   Co.,  Inc.   relating  to  905,557   shares  of
                    Registrant's  Series A  Preferred  Stock  (filed as  Exhibit
                    10.22.9 to  Registrant's  Form S-4  Registration  Statement,
                    Registration No. 33-55968,  and incorporated  herein by this
                    reference).
          10.37     Employment Agreements dated December 31, 1996
          10.37.1*  Modified  Employment  Contract between the Company and James
                    R. Gilley
          10.37.2*  Modified Employment Contract between the Company and Gene S.
                    Bertcher
          10.38     Stock  Purchase  Warrant  dated  December  31, 1996  between
                    registrant and The April Trust
          10.39     Portfolio Divestiture Agreement between certain subsidiaries
                    of the Company, the Company, Health Care REIT and HCRI Texas
                    Properties, Ltd.
          21.1*     Subsidiaries of Registrant.
          23.1*     Consent of Grant Thornton.
          *         Filed herewith.



                                       27
<PAGE>

SIGNATURES

In accordance  with Section 13 or 15(d) of the  Securities  Exchange Act of 1934
(the "Act"),  the Company has duly caused this Annual  Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.


                                               GREENBRIAR CORPORATION



March 29, 2002                                 by:  /s/ Gene S. Bertcher
                                                    ----------------------------
                                                    Gene S. Bertcher
                                                    Executive Vice President and
                                                    Chief Financial Officer
                                                    (Principal Financial and
                                                    Accounting Officer)


                                       28
<PAGE>

SIGNATURES

In  accordance  with  Section  13 or 15(d) of the  Securities  Act of 1934,  the
Registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.


                                 GREENBRIAR CORPORATION


March 29, 2002                by: /s/James R. Gilley
                                  ----------------------------------------------
                                  James R. Gilley,  President,  Chief  Executive
                                  Officer and Chairman of the Board of Directors



In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.



March 29, 2002                    /s/  James R. Gilley
                                  ----------------------------------------------
                                  James R. Gilley,  President,  Chief  Executive
                                  Officer and Chairman of the Board of Directors

March 29, 2002                    /s/  Don C. Benton
                                  ----------------------------------------------
                                  Don C. Benton, Director

March 29, 2002                    /s/  Gene S. Bertcher
                                  ----------------------------------------------
                                  Gene S. Bertcher,  Executive  Vice  President,
                                  Chief Financial Officer and Director

March 29, 2002                    /s/  Victor L. Lund
                                  ----------------------------------------------
                                  Victor L. Lund, Director


                                       29

<PAGE>

               Report of Independent Certified Public Accountants




Board of Directors and Stockholders
Greenbriar Corporation


We have  audited the  accompanying  consolidated  balance  sheets of  Greenbriar
Corporation  and  subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of operations,  changes in stockholders' equity and cash
flows for each of the three years in the period ended  December 31, 2001.  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 auditing standards generally accepted
in the  United  States of  America.  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 our audits  provide a reasonable
basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  consolidated  financial  position  of  Greenbriar
Corporation  and  subsidiaries  as of  December  31,  2001  and  2000,  and  the
consolidated  results of their operations and their  consolidated cash flows for
each of the three years in the period ended  December 31,  2001,  in  conformity
with accounting principles generally accepted in the United States of America.


GRANT THORNTON, LLP
Dallas, Texas
March 28, 2002



<PAGE>

                     Greenbriar Corporation and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS
                             (Amounts in thousands)

                                  December 31,



                   ASSETS                                   2001         2000
                                                          ---------    ---------

CURRENT ASSETS
    Cash and cash equivalents                             $   1,246    $   2,287
    Short-term investments                                    1,098         --
    Accounts receivable - trade                                 106          470
    Receivables from affiliated partnership                     311         --
    Prepaid expenses                                            572          845
    Other current assets                                        541          260
                                                          ---------    ---------

               Total current assets                           3,874        3,862

NOTES RECEIVABLE, from sale of properties                     6,400         --
    Less deferred gains                                      (6,090)        --
                                                          ---------    ---------
                                                                310         --

NOTE RECEIVABLE FROM AFFILIATE PARTNERSHIP                    1,600         --

PROPERTY AND EQUIPMENT, AT COST
    Land and improvements                                     4,430        9,716
    Buildings and improvements                               32,675       75,723
    Equipment and furnishings                                 3,134        6,615
                                                          ---------    ---------
                                                             40,239       92,054
    Less accumulated depreciation and amortization            6,498       12,410
                                                          ---------    ---------
                                                             33,741       79,644

DEFERRED INCOME TAX BENEFIT                                   2,350        4,750

DEPOSITS                                                      1,730        3,834

LEASE RIGHTS AND OTHER INTANGIBLES                             --          9,347

OTHER ASSETS                                                    417        1,151
                                                          ---------    ---------

                                                          $  44,022    $ 102,588
                                                          =========    =========


                                      F-2

<PAGE>
<TABLE>
<CAPTION>

                     Greenbriar Corporation and Subsidiaries

                     CONSOLIDATED BALANCE SHEETS - CONTINUED
                  (Amounts in thousands, except share amounts)

                                  December 31,



    LIABILITIES AND STOCKHOLDERS' EQUITY                              2001         2000
                                                                    ---------    ---------
<S>                                                                 <C>          <C>
CURRENT LIABILITIES
    Current maturities of long-term debt                            $   4,316    $   2,538
    Accounts payable - trade                                            1,042        1,445
    Accrued expenses                                                    1,116        1,934
    Other current liabilities                                             467          668
                                                                    ---------    ---------

               Total current liabilities                                6,941        6,585

LONG-TERM DEBT, including amounts to related
    parties of $4,724,000                                              16,693       50,887

FINANCING OBLIGATIONS                                                  10,815       10,815

OTHER LONG-TERM LIABILITIES                                               304          657
                                                                    ---------    ---------

               Total liabilities                                       34,753       68,944

PREFERRED STOCK REDEMPTION OBLIGATION                                    --         26,988

STOCKHOLDERS' EQUITY
    Preferred stock; liquidation value of $100                              1          254
    Common stock, $.20 par value; authorized, 4,000,000
       shares; issued and outstanding, 359 and 365 shares in 2001
       and 2000, respectively                                              75           76
    Additional paid-in capital                                         56,828       60,219
    Accumulated deficit                                               (45,268)     (51,526)
                                                                    ---------    ---------
                                                                       11,636        9,023
    Less employee stock purchase notes receivable                      (2,367)      (2,367)
                                                                    ---------    ---------
                                                                        9,269        6,656
                                                                    ---------    ---------

                                                                    $  44,022    $ 102,588
                                                                    =========    =========
</TABLE>


        The accompanying notes are an integral part of these statements.

                                       F-3
<PAGE>
<TABLE>
<CAPTION>

                     Greenbriar Corporation and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Amounts in thousands, except per share data)

                             Year ended December 31,


                                                         2001        2000        1999
                                                        --------    --------    --------
<S>                                                     <C>         <C>         <C>
Revenue
    Assisted living operations                          $ 30,861    $ 41,261    $ 41,260

Operating expenses
    Assisted living operations                            19,484      24,750      24,836
    Lease expense                                          3,139       4,912       5,197
    Facility depreciation and amortization                 2,794       3,740       3,977
    Termination of employment contracts                    1,349        --          --
    General and administrative                             4,875       5,448       4,313
    Write-down of assets                                   1,887       7,461        --
                                                        --------    --------    --------
                                                          33,528      46,311      38,323
                                                        --------    --------    --------

                  Operating profit (loss)                 (2,667)     (5,050)      2,937

Other income (expense)
    Interest and dividend income                             265         406         599
    Interest expense                                      (4,958)     (5,759)     (5,632)
    Other income (expense), net                           16,602        (220)      2,178
                                                        --------    --------    --------
                                                          11,909      (5,573)     (2,855)
                                                        --------    --------    --------
                  Earnings (loss) before income taxes      9,242     (10,623)         82

Income tax expense                                         2,824        --          --
                                                        --------    --------    --------

                  NET EARNINGS (LOSS)                      6,418     (10,623)         82

Preferred stock dividend requirement                        (160)     (4,105)     (4,720)
                                                        --------    --------    --------

Net earnings (loss) allocable to common stockholders    $  6,258    $(14,728)   $ (4,638)
                                                        ========    ========    ========

Earnings (loss) per share
    Basic and diluted                                   $  15.53    $ (39.17)   $ (12.33)

Weighted average number of common shares outstanding:
    Basic and diluted                                        403         376         376
</TABLE>


        The accompanying notes are an integral part of these statements.

                                       F-4

<PAGE>
<TABLE>
<CAPTION>

                     Greenbriar Corporation and Subsidiaries

            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                             (Amounts in thousands)


                                                                                                                  Stock
                                                 Preferred stock       Common stock      Additional             purchase
                                              -------------------   -------------------   paid in  Accumulated   notes
                                               Shares     Amount     Shares     Amount    capital    deficit   receivable   Total
                                              --------   --------   --------   --------   --------   --------   --------   --------
<S>                                           <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Balances at January 1, 1999                      2,876   $    289        365   $     76   $ 64,261   $(32,170)  $ (2,367)  $ 30,089

    Dividends on preferred stock, including
       accretion of $3,080                        --         --         --         --        3,080     (4,710)      --       (1,630)
    Accretion of redemption obligation -
       preferred stock                            --         --         --         --       (6,015)      --         --       (6,015)
    Escrow stock released                         --         --         --         --          194       --         --          194
    Net earnings                                  --         --         --         --         --           82       --           82
                                              --------   --------   --------   --------   --------   --------   --------   --------

Balance at December 31, 1999                     2,876        289        365         76     61,520    (36,798)    (2,367)    22,720

    Dividends on preferred stock, including
       accretion of $2,649                        --         --         --         --        2,649     (4,105)      --       (1,456)
    Redemption of preferred stock                 (355)       (35)      --         --       (4,725)      --         --       (4,760)
    Reduction of redemption obligation -
       preferred stock                            --         --         --         --          775       --         --          775
    Net loss                                      --         --         --         --         --      (10,623)      --      (10,623)
                                              --------   --------   --------   --------   --------   --------   --------   --------

Balance at December 31, 2000                     2,521        254        365         76     60,219    (51,526)    (2,367)     6,656

    Accretion of redemption obligation -
       preferred stock                            --         --         --         --         (179)      --         --         (179)
    Conversion of preferred stock to
       common stock                             (1,845)      (185)        53         11        174       --         --         --
    Conversion of preferred stock
       to debt                                    (675)       (68)      --         --       (3,307)      --         --       (3,375)
    Dividends on preferred stock                  --         --         --         --         --         (160)      --         (160)
    Common stock acquired                         --         --          (59)       (12)       (79)      --         --          (91)
    Net earnings                                  --         --         --         --         --        6,418       --        6,418
                                              --------   --------   --------   --------   --------   --------   --------   --------

Balance at December 31, 2001                         1   $      1        359   $     75   $ 56,828   $(45,268)  $ (2,367)  $  9,269
                                              ========   ========   ========   ========   ========   ========   ========   ========
</TABLE>

         The accompanying notes are an integral part of this statement.

                                       F-5
<PAGE>
<TABLE>
<CAPTION>

                     Greenbriar Corporation and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)



                                                                          Year ended December 31,
                                                                      --------------------------------
                                                                       2001        2000        1999
                                                                      --------    --------    --------
<S>                                                                   <C>         <C>         <C>
Cash flows from operating activities
    Net earnings (loss)                                               $  6,418    $(10,623)   $     82
    Adjustments to reconcile net earnings (loss) to net
       cash provided by (used in) operating activities
          Depreciation and amortization                                  2,329       3,740       3,977
          Gain on sale of properties                                   (16,635)        (49)       --
          Employment contract termination                                1,349        --             0
          Gain on sale of investment                                      --          --        (2,166)
          Write down of impaired assets                                  1,887       7,461         186
          Deferred income taxes                                          2,400        --          --
          Changes in operating assets and liabilities
                Accounts receivable - trade                                252        (288)        266
                Other current and noncurrent assets                        809        (750)       (367)
                Accounts payable and other liabilities                  (1,391)        750      (1,570
                                                                      --------    --------    --------

                  Net cash provided by (used in)
                    operating activities                                (2,582)        241         408

Cash flows from investing activities
    Purchase of property and equipment                                 (24,294)     (1,796)     (1,764)
    Proceeds from sale of investments                                     --          --         4,331
    Purchase of investments                                             (1,098)       --          --
    Proceeds from sales of properties                                   33,550       1,014       1,861
                                                                      --------    --------    --------

                   Net cash provided by (used in)
                      investing activities                               8,158        (782)      4,428

Cash flows from financing activities
    Proceeds from borrowings                                            15,788       3,956       2,290
    Payments on debt                                                   (18,045)     (3,725)     (2,706)
    Dividends on preferred stock                                          (160)     (1,457)     (1,630)
    Extinguishment of preferred stock redemption obligation             (4,200)     (4,760)       --
                                                                      --------    --------    --------

                Net cash provided by (used in) financing activities     (6,617)     (5,986)     (2,046)
                                                                      --------    --------    --------

                Net increase (decrease) in cash
                   and cash equivalents                                 (1,041)     (6,527)      2,790

Cash and cash equivalents at beginning of year                           2,287       8,814       6,024
                                                                      --------    --------    --------

Cash and cash equivalents at end of year                              $  1,246    $  2,287    $  8,814
                                                                      ========    ========    ========
</TABLE>


        The accompanying notes are an integral part of these statements.

                                       F-6

<PAGE>

                     Greenbriar Corporation and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


     Nature of Operations
     --------------------

     Greenbriar  Corporation's business consists of development and operation of
     assisted  living  communities  located  throughout  the  United  States  of
     America,  that  provide  housing,  healthcare,   hospitality  and  personal
     services to elderly  individuals.  At December 31, 2001, the Company had 11
     communities  in  operation  in seven  states.  Five other  communities  are
     managed.

     A summary of the significant accounting policies applied in the preparation
     of the accompanying consolidated financial statements follows:

     Principles of Consolidation
     ---------------------------

     The consolidated  financial  statements  include the accounts of Greenbriar
     Corporation and its majority-owned subsidiaries (collectively, the Company)
     and are prepared on the basis of accounting  principles  generally accepted
     in the United States of America. All significant intercompany  transactions
     and accounts have been eliminated.

     Assisted Living Community Revenue
     ---------------------------------

     Assisted  living  community  revenue  is  reported  at  the  estimated  net
     realizable   value  based  upon  expected  amounts  to  be  recovered  from
     residents,  third party payors, and others for services rendered.  Services
     provided  by certain of the  Company's  communities  are  reimbursed  under
     various state assistance plans.

     Depreciation
     ------------

     Depreciation  is provided for in amounts  sufficient  to relate the cost of
     property and equipment to operations  over their  estimated  service lives,
     ranging from 3 to 40 years.  Depreciation is computed by the  straight-line
     method.

     Use of Estimates
     ----------------

     In preparing financial statements in conformity with accounting  principles
     generally accepted in the United States of America,  management is required
     to make  estimates  and  assumptions  that affect the  reported  amounts of
     assets  and  liabilities  and  the  disclosure  of  contingent  assets  and
     liabilities  at the  date of the  financial  statements  and  revenues  and
     expenses  during the  reporting  period.  Actual  results could differ from
     those estimates.

     Cash Equivalents
     ----------------

     The Company considers all short-term  deposits and money market investments
     with a maturity of less than three months to be cash equivalents.

                                      F-7

<PAGE>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         - Continued


     Impairment of Notes Receivable
     ------------------------------

     Notes  receivable  are  identified  as impaired  when it is  probable  that
     interest and principal will not be collected  according to the  contractual
     terms of the note  agreements.  The accrual of interest is  discontinued on
     such  notes,  and no income is  recognized  until all past due  amounts  of
     principal and interest are recovered in full.

     Impairment of Long-Lived Assets
     -------------------------------

     The  Company  reviews  its  long-lived  assets  and  certain   identifiable
     intangibles for impairment when events or changes in circumstances indicate
     that the carrying amount of the assets may not be recoverable. In reviewing
     recoverability,  the Company  estimates  the future cash flows  expected to
     result from use of the assets and eventually  disposing of them. If the sum
     of the  expected  future  cash flows  (undiscounted  and  without  interest
     charges) is less than the carrying  amount of the asset, an impairment loss
     is recognized based on the asset's fair value.

     The  Company  determines  the fair  value of assets to be  disposed  of and
     records  the  asset  at the  lower of fair  value  less  disposal  costs or
     carrying value. Assets are not depreciated while held for disposal.

     Stock Options
     -------------

     The Company has elected to follow  Accounting  Principles Board Opinion No.
     25,  Accounting  for  Stock  Issued  to  Employees  (APB  25)  and  related
     interpretations in accounting for its employee stock options. Under APB 25,
     if the exercise  price of employee stock options equals the market price of
     the  underlying  stock on the date of grant,  no  compensation  expense  is
     recorded.  The  Company  has  adopted  the  disclosure-only  provisions  of
     Statement  of  Financial  Accounting  Standards  No. 123,  "Accounting  for
     Stock-Based Compensation" (SFAS 123).

     Lease Rights and Other Intangibles
     ----------------------------------

     Lease rights are  amortized by the  straight-line  method over the lives of
     the related leases. Goodwill is being amortized by the straight-line method
     over a period of fifteen years.

     Earnings (Loss) Per Common Share
     --------------------------------

     Basic  earnings  (loss) per common share is based on the  weighted  average
     number of common shares outstanding. Diluted earnings per share is computed
     based on the weighted average number of common shares  outstanding plus the
     number of  additional  common  shares that would have been  outstanding  if
     dilutive  potential common shares had been issued.  In 2001, 2000 and 1999,
     stock  options  for  approximately   70,000,  70,000  and  113,000  shares,
     respectively,  were excluded from diluted shares outstanding  because their
     effect was anti-dilutive.

                                      F-8
<PAGE>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
         - Continued

     Investment in Partnership
     -------------------------

     The Company  accounts for its investment in  partnership,  in which it is a
     limited partner, by the equity method of accounting.

     Stock Split and Stock Dividend
     ------------------------------

     The Company  declared a  one-for-twenty-five  reverse stock split effective
     December 1, 2001.  Due to the reduced  stock float  available in the public
     market,  the  Company  declared a  twenty-five  percent  stock  dividend to
     stockholders  of record  on  January  25,  2002.  All  share  data has been
     restated to give effect to the stock split and stock dividend.

     New Accounting Pronouncements
     -----------------------------

     In July 2001, the Financial  Accounting  Standards  Board  ("FASB")  issued
     Statement of Financial Accounting Standards No. 141, Business  Combinations
     ("SFAS  141"),  and  Statement of Financial  Accounting  Standards No. 142,
     Goodwill and Intangible Assets ("SFAS 142"). SFAS 141 requires all business
     combinations  initiated  after  June 30,  2001 be  accounted  for under the
     purchase  method.   SFAS  141  supercedes  APB  Opinion  No.  16,  Business
     Combinations,  and  Statement of  Financial  Accounting  Standards  No. 38,
     Accounting for Preacquisition  Contingencies of Purchased Enterprises,  and
     is effective for all business  combinations  initiated after June 30, 2001.
     SFAS 142  addresses  the  financial  accounting  and reporting for acquired
     goodwill and other intangible assets.  Under the new rules, a company is no
     longer  required  to amortize  goodwill  and other  intangible  assets with
     indefinite  lives,  but will be subject to periodic testing for impairment.
     SFAS 142 supercedes APB Opinion No. 17,  Intangible Assets and is effective
     January 1, 2002.

     In  September  2001,  the FASB issued  Statement  of  Financial  Accounting
     Standards No. 144,  Accounting for the Impairment or Disposal of Long-Lived
     Assets ("SFAS 144"). SFAS 144 established a single accounting model for the
     impairment  or  disposal  of  long-lived  assets,   including  discontinued
     operations.

     The Company will adopt these  statements as of January 1, 2002 and does not
     expect that the adoption  will have a material  impact on its  consolidated
     results of operations or financial position.

                                      F-9

<PAGE>
<TABLE>
<CAPTION>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE B - CASH FLOW INFORMATION

     Supplemental information on cash flows is as follows (in thousands):

                                                                      Year ended December 31,
                                                                     ------------------------
                                                                      2001     2000     1999
                                                                     ------   ------   ------
<S>                                                                  <C>      <C>      <C>
     Interest paid                                                   $4,958   $5,752   $5,613
     Income taxes paid                                                   82       13      170

     Noncash investing and financing activities (in thousands):
        Assets transferred in settlement of preferred stock
            redemption obligations, net of mortgage loans
            of $36,981                                                6,837     --       --
        Notes received from sale of assets                            6,400     --       --
        Note given in connection with purchase of
            property by affiliated partnership                        1,600     --       --
        Common stock received in payment of note receivable              80     --       --
        Common stock received in settlement of preferred stock
            obligation                                                   11     --       --


NOTE C - EMPLOYEE STOCK PURCHASE NOTES RECEIVABLE

                                                                       December 31,
                                                                     ---------------
                                                                      2001     2000
                                                                     ------   ------
                                                                      (In thousands)
     Note from James R. Gilley, chief executive officer, principal
         and interest at 5.50%, due November 2008                    $2,250   $2,250

     Others                                                             117      117
                                                                     ------   ------

                                                                     $2,367   $2,367
                                                                     ======   ======
</TABLE>


     All stock purchase notes are  collateralized by common stock of the Company
     and are  presented in the balance sheet as a deduction  from  stockholders'
     equity.

                                      F-10

<PAGE>

                    Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE D - NOTES RECEIVABLE FROM SALE OF PROPERTY

     During 2001, the Company sold three  properties for cash of $30,804,000 and
     $6,400,000 of tax-free notes bearing  interest at 9.5%. The notes mature on
     April 1, 2032, March 20, 2037, and August 1, 2031, respectively.

     The  repayment  of the notes is limited to the cash flow of the  respective
     communities  either from  operations  refinancing  or sale. The Company has
     deferred gains in the amount of $6,090,000. The deferred gains and interest
     income will be recognized as cash is received.


NOTE E - LEASE RIGHTS AND OTHER INTANGIBLES

     Lease rights and other intangibles consist of the following (in thousands):

                                                                   December 31,
                                                                 ---------------
                                                                  2001     2000
                                                                 ------   ------
     Lease rights, net of accumulated amortization of
        $1,458 in 2000                                           $ --     $3,447
     Lease buyout options                                          --      5,607
     Goodwill                                                      --        293
                                                                 ------   ------

                                                                 $ --     $9,347
                                                                 ======   ======

     In 2001, the Company  exercised its lease buyout options and the properties
     were sold or  transferred  to LSOF (Note M). The related  lease  rights and
     goodwill were charged against the gain on disposition.

                                      F-11

<PAGE>

                    Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE F - EMPLOYMENT CONTRACT TERMINATIONS

     In January 1997, the Company negotiated employment contracts with the Chief
     Executive  Officer (CEO) and Chief Financial  Officer (CFO) of the Company.
     Both  individuals  had  been  employed  by  the  Company  since  1989.  The
     employment  contracts  called for combined  annual salaries of $640,000 per
     year and provided  that, if the contracts were  terminated or amended,  the
     individuals would be entitled to cash payment of three years salary for the
     CEO and two years  salary for the CFO. In light of the reduced  size of the
     Company, the independent  directors and the officers in October 2001 agreed
     to modify the employment agreements with the two officers. The two officers
     have each  agreed to  continue  their  roles in the Company for $12,000 per
     year for three years.  The  revisions in the contracts  triggered  contract
     termination  payments  requiring  the  Company to  immediately  pay the two
     officers   $1,740,000.   However,   the  two  officers   agreed  to  accept
     non-interest  bearing notes due December 31, 2004. These notes have certain
     acceleration  provisions  if the Company  violates the terms of the revised
     employment contracts. For accounting purposes, interest has been imputed on
     the notes at 8.5%,  resulting in a discount of $391,000.  The net amount of
     the notes of $1,349,000 was expensed in 2001.

                                      F-12

<PAGE>

                    Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE G - AFFILIATED PARTNERSHIPS

     In October 2001, the Company became a limited  partner in Corinthians  Real
     Estate Investors LP (CREI), a partnership formed to acquire two properties.
     The general partner is a limited  liability  corporation  whose controlling
     member is James Gilley. Mr. Gilley is also CEO of the Company.  The Company
     is a 56% limited  partner.  Mr.  Gilley has a 25.9%  interest,  the general
     partner has a .1% interest,  the Company's  chief  financial  officer has a
     10.5%  interest,   and  other  employees  of  the  Company  have  interests
     aggregating  7.5%. In October 2001, the  Partnership  acquired a retirement
     community for approximately  $9,100,000 and in January 2002, it acquired an
     assisted living community for approximately $2,800,000.

     The Company issued a $1,600,000  note to the seller as partial  payment for
     the purchase of the retirement community. The balance of the purchase price
     was  funded  by  borrowings  by CREI  from a third  party in the  amount of
     $7,840,000,  which was  guaranteed by the Company.  CREI gave the Company a
     $1,600,000 note in consideration for payment of that amount of the purchase
     price.  The note bears interest at 8.75% and is due December 30, 2003. CREI
     also has debt in the amount of  3,975,000  collateralized  by the  assisted
     living community that has been guaranteed by the Company.

     The  Company  accounts  for its  investment  in CREI by the equity  method.
     However,  because of its guaranty of the debt of CREI, the Company  records
     100% of the losses of CREI,  which were $95,947 for 2001. The Company had a
     receivable  of 311,000 at December 31,  2001,  resulting  from  advances to
     CREI.

     Following are unaudited condensed financial  statements of CREI at December
     31, 2001 and the period from October 1, 2001 through  December 31, 2001 (in
     thousands):

                                  Balance Sheet

     Current assets                                                     $    93
     Property and equipment                                               9,358
     Other assets                                                           361
                                                                        -------

                                                                        $ 9,812

     Current liabilities                                                $    67
     Other liabilities                                                      401
     Note payable to Greenbriar Corporation                               1,600
     Mortgage payable                                                     7,840
                                                                        -------
                                                                          9,908
     Partners' deficit                                                      (96)
                                                                        -------

                                                                        $ 9,812

                                      F-13

<PAGE>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE G - AFFILIATED PARTNERSHIPS - Continued

                             Statement of Operations

     Revenue                                                              $ 347

     Expenses
        Operating                                                           171
        Depreciation                                                         46
        General and administrative                                           22
        Interest                                                            204
                                                                          -----
                                                                            443

        Net loss                                                          $ (96)
                                                                          =====


NOTE H - FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following  methods and assumptions were used to estimate the fair value
     of each  class of  financial  instruments  for which it is  practicable  to
     estimate values at December 31, 2001 and 2000:

     Cash and cash  equivalents - The carrying  amount  approximates  fair value
     because of the short maturity of these instruments.

     Long-term  debt  - The  fair  value  of the  Company's  long-term  debt  is
     estimated  based on  market  rates  for the  same or  similar  issues.  The
     carrying value of long-term debt approximates its fair value.

     Notes  receivable - The fair value of the note receivable from an affiliate
     partnership  is  estimated  to  approximate  fair value  based on its short
     maturity.  It is  not  practical  to  estimate  the  fair  value  of  notes
     receivable  from sale of  properties  because no quoted  market  exists and
     there are no comparable debt instruments to provide a basis for valuation.


                                      F-14

<PAGE>
<TABLE>
<CAPTION>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE I - LONG-TERM DEBT

     Long-term debt is comprised of the following (in thousands):

                                                                                       December 31,
                                                                                     -----------------
                                                                                      2001      2000
                                                                                     -------   -------
     <S>                                                                             <C>       <C>
     Notes payable to financial institutions maturing through 2015; fixed and
        variable interest rates ranging from 5.25% to 10.5% ; collateralized
        by real property, fixtures, equipment and the assignment of rents            $ 8,947   $27,991

     Notes payable to individuals and companies maturing through 2023;
        variable and fixed interest rates ranging from 7% to 8.75%;
        collateralized by real property, personal property, fixtures,
        equipment and the assignment
        of rents                                                                       1,655     4,477

     Note payable to the Redevelopment Agency of the City of Corona,
        California, payable into a sinking fund semi-annually in increasing
        amounts from $65 to $420 through May 1, 2015; variable interest rate
        of 5.5% at December 31, 2000; collateralized by personal
        property, land, fixtures and rents                                              --       6,895

     Mortgage notes payable to a financial institutions maturing through 2010;
        interest rates ranging from 7.5% through 14.5%; collateralized by real
        property and equipment                                                         5,253    13,972

     Notes payable to wife of Chief Executive Officer, bearing interest at 10% and
        maturing on July 1, 2003                                                       3,375      --

     Notes payable to executive officers, noninterest-bearing at 8.5% and maturing
        December 31, 2004, net of discount of $391  representing  interest
        imputed at 8.5%                                                                1,349      --


     Line of credit with bank, bearing interest at 7.94% and maturing
        April 1, 2002; collateralized by certificates of deposit                         430        90
                                                                                     -------   -------
                                                                                      21,009    53,425
        Less current maturities                                                        4,316     2,538
                                                                                     -------   -------

                                                                                     $16,693   $50,887
                                                                                     =======   =======
</TABLE>

                                      F-15

<PAGE>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE I - LONG-TERM DEBT - Continued

     Aggregate  annual  principal  maturities of long-term  debt at December 31,
     2001 are as follows (in thousands):

      2002                                                               $ 4,316
      2003                                                                 5,474
      2004                                                                 1,867
      2005                                                                   529
      2006                                                                   314
      Thereafter                                                           8,509
                                                                         -------

                                                                         $21,009


NOTE J - FINANCING OBLIGATIONS

     The  Company   operates  two   communities   that  are   financed   through
     sale-leaseback   obligations.   At  the  end  of  the  tenth  year  of  the
     fifteen-year  leases, the Company has options to repurchase the communities
     for the greater of the sales prices or their current replacement costs less
     depreciation  plus land at current fair market values.  Accordingly,  these
     transactions  have been  accounted for as  financings,  and the Company has
     recorded the proceeds from the sales as financing  obligations,  classified
     the  lease  payments  as  interest  expense  and  continues  to  carry  the
     communities on its books and record depreciation.  Payments under the lease
     agreements are $1,167,000 for each year through 2009.


NOTE K - OPERATING LEASES

     The Company leases certain  communities under operating leases which expire
     through 2011 and has operating  leases for equipment and office space.  The
     leases  generally  provide that the Company pay property taxes,  insurance,
     and maintenance.

     Future  minimum  payments  following  December  31, 2001 are as follows (in
     thousands):

      2002                                                               $ 1,581
      2003                                                                 1,661
      2004                                                                 1,661
      2005                                                                 1,661
      2006                                                                 1,467
      Thereafter                                                           8,169
                                                                         -------

                                                                         $16,200

     Lease  expense  in  2001,  2000 and 1999 was  $2,315,  $4,911  and  $5,196,
     respectively.

                                      F-16
<PAGE>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE L - INCOME TAXES

     At December 31, 2001, the Company had net operating loss  carryforwards  of
     approximately  $19,300,000,  which expire  between 2002 and 2020.  However,
     approximately  $7,900,000 of these net operating  loss  carryforwards  have
     limitations that restrict  utilization to approximately  $1,530,000 for any
     one year.

     The  following  is a summary of the  components  of income tax  expense (in
     thousands):

                                                               Year ended
                                                              December 31,
                                                        ------------------------
                                                         2001     2000     1999
                                                        ------   ------   ------

     Current - state                                    $  424   $ --     $ --
     Deferred - federal                                  2,400     --       --
                                                        ------   ------   ------

                                                        $2,824   $ --     $ --
                                                        ======   ======   ======

     Deferred tax assets and  liabilities  were  comprised of the  following (in
     thousands):

                                                               December 31,
                                                           --------------------
                                                            2001        2000
                                                           --------    --------
     Deferred tax assets:
        Net operating loss carryforwards                   $  6,554    $ 12,784
        Note receivable                                         680         680
        Alternative minimum tax credit carryforwards            235         235
        Accounts receivable                                      20          32
        Accrued expenses                                        604         798
        Financing obligations                                 1,802       1,802
        Other                                                   493         550
                                                           --------    --------

        Total deferred tax assets                            10,388      16,881

     Deferred tax liabilities - property and equipment       (5,021)     (8,791)
     Valuation allowance                                     (3,017)     (3,340)
                                                           --------    --------

        Net deferred tax asset                             $  2,350    $  4,750
                                                           ========    ========

                                      F-17


<PAGE>
<TABLE>
<CAPTION>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE L - INCOME TAXES - Continued

     Following is a reconciliation  of income tax expense with the amount of tax
     computed at the federal statutory rate of 34% (in thousands):

                                                           Year ended December 31,
                                                        ----------------------------
                                                         2001       2000       1999
                                                        ------    -------    -------
<S>                                                     <C>       <C>        <C>
     Tax expense (benefit) at the statutory rate        $ 3,142    $(3,612)   $    27
     State taxes net of federal benefit                     380       --         --
     Expiration of carryforwards                           --          433       --
     Change in deferred tax asset valuation allowance      (323)     2,244        (49)
     Nondeductible loss on write-down of properties        --          400       --
     Nondeductible amortization                            --          150         15
     Other                                                 (375)       385          7
                                                        -------    -------    -------

     Tax expense                                        $ 2,824    $  --      $  --
                                                        =======    =======    =======
</TABLE>


     Changes in the deferred tax  valuation  allowance  result from  assessments
     made  by the  Company  each  year of its  expected  future  taxable  income
     available to absorb its carryforwards. The Company believes that it is more
     likely than not that the net  deferred  tax asset at  December  31, 2001 of
     $2,350,000  will  be  realized.  However,  this  evaluation  is  inherently
     subjective as it requires  estimates  that are  susceptible  to significant
     revision as more information becomes available.  Accordingly,  the ultimate
     realization  of the net  deferred tax asset could be less than the carrying
     amount.


                                      F-18

<PAGE>
<TABLE>
<CAPTION>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE M- STOCKHOLDERS' EQUITY

     Preferred Stock

     Preferred stock consists of the following (amounts in thousands, except per
     share amounts):

                                                                                               Year ended
                                                                                              December 31,
                                                                                           -----------------
                                                                                             2001      2000
                                                                                           -------   -------
<S>                                                                                        <C>       <C>
     Series B cumulative convertible preferred stock, $.10 par value; liquidation
        value of $100; authorized, 100 shares; issued and outstanding, 1 share             $     1   $     1

     Series D cumulative convertible preferred stock, $.10 par value; liquidation
        value of $3,375; authorized, issued and outstanding, 675 shares in 2000                --         68

     Series F voting cumulative convertible preferred stock, $.10 par value; liquidation
        value of $14,000; authorized, issued and outstanding, 1,400 shares at
        December 31, 2000                                                                      --        140

     Series G cumulative convertible preferred stock, $.10 par value;
        liquidation value of $4,450; authorized, 800 shares; issued and
        outstanding,
        445 and 800 shares at December 31, 2001 and 2000, respectively                         --         45
                                                                                           -------   -------

                                                                                           $     1   $   254
                                                                                           =======   =======
</TABLE>


                                      F-19

<PAGE>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE M- STOCKHOLDERS' EQUITY - Continued

     The Series B preferred stock has a liquidation  value of $100 per share and
     is  convertible  into  common  stock  over  a  ten-year  period  at  prices
     escalating  from  $500  per  share  in 1993 to  $1,111  per  share by 2001.
     Dividends  at a rate of 6% are payable in cash or  preferred  shares at the
     option of the Company.

     The Series D preferred  stock had a  liquidation  value of $5 per share and
     was convertible into common stock at $200 per share. Dividends were payable
     in cash at a rate of 9.5%. The stock was exchanged for a $3,375,000 note in
     2001. See Note I.

     The Series F and Series G preferred shares were sold to LSOF Pooled Equity,
     L.P.  (LSOF) in December  1997 for  $22,000,000,  less selling and offering
     costs of $716,000. In connection with the sale, the Company entered into an
     agreement  which provided that, on the date of conversion,  if the value of
     the Company's  common stock has not increased at an annual rate of at least
     14% during the period the preferred shares are outstanding,  the Company is
     required  to make a cash  payment  (the Cash  Payment) to LSOF equal to the
     market price deficiency on the shares received upon conversion.  Conversion
     was required by January 2001.

     The 14% guaranteed return was accreted by a charge to accumulated  deficit.
     The amount of the Cash Payment that would be required  assuming  conversion
     at each balance  sheet date is  transferred  from  stockholders'  equity to
     Preferred Stock Redemption Obligation.

     During  2000,  the Company  made  payments  totaling  $4,760,000  to redeem
     355,150  shares of the Series G preferred  stock,  pursuant to an agreement
     that it would redeem additional shares from the proceeds generated from the
     sale of assets or from refinancings.

     The Company  received a notice dated  October 30, 2000 from LSOF,  advising
     that it was electing to convert the  outstanding  shares of preferred stock
     into common stock.  Such notice set forth LSOF's position that, as a result
     of certain  employee  stock options  issued by the Company,  the conversion
     price of the preferred stock had been reduced from $350 per share to $13.80
     per share,  and that the Company was required to issue 1,373,768  shares of
     common stock upon conversion.

     The Company did not agree that the conversion price should be adjusted, and
     LSOF brought a lawsuit  against the Company.  In October 2001, LSOF and the
     Company entered into a settlement agreement. Pursuant to the agreement, (1)
     the Company  transferred 11 assisted living  communities to LSOF subject to
     the  assumption  by  LSOF of debt in the  amount  of  $36,981,000,  (2) the
     Company paid LSOF  $4,000,000 in cash, (3) LSOF  transferred to the Company
     the 53,000  common shares  received  upon  conversion of the Series F and G
     preferred  shares,  (4)  the  Preferred  Stock  Redemption   Obligation  of
     $27,167,000  was  cancelled,  and (5) each  agreed to  release  all  claims
     against the other.  The Company  recognized  a gain of  $16,129,000  on the
     transfer of assets to LSOF.

                                      F-20

<PAGE>
<TABLE>
<CAPTION>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE M - STOCKHOLDERS' EQUITY - Continued

     Stock Options
     -------------

     In 1992, the Company established a long-term incentive plan (the 1993 Plan)
     for the benefit of certain key employees. Under the 1993 Plan, up to 10,875
     shares of the  Company's  common stock are reserved for  issuance.  Options
     granted to employees under the 1993 Plan become  exercisable  over a period
     as  determined  by the Company and may be  exercised  up to a maximum of 10
     years  from date of grant.  In 1997,  the  Company  adopted  the 1997 Stock
     Option Plan,  under which up to 25,000 shares of the Company's common stock
     are  reserve for  issuance.  In 2000,  the  Company  adopted the 2000 Stock
     Option Plan,  under which up to 25,000 shares of the Company's common stock
     are reserve for issuance.

     The  Company has also  granted  options to an officer  during 1996  through
     2001,  aggregating  50,000 shares not covered by either plan. These options
     were granted at market, were exercisable  immediately,  and expire 10 years
     from date of grant.

     SFAS 123 requires disclosure of pro forma net earnings (loss) and pro forma
     net earnings  (loss) per share as if the fair value method had been applied
     in measuring compensation cost for stock-based awards.

     Reported  and pro forma net  earnings  (loss) and net  earnings  (loss) per
     share amounts are set forth below (in thousands, except per share data):

                                                              2001        2000        1999
                                                            ---------   ---------   ---------
<S>                                                         <C>         <C>         <C>
     Net earnings (loss) allocable to common stockholders
          As reported                                       $   6,258   $(14,728)   $( 4,638)
          Pro forma                                             5,889   $(15,080)   $ (5,287)

     Net earnings (loss) per share
          As reported                                           15.53   $ (39.17)   $ (12.33)
          Pro forma                                             14.61   $ (40.11)   $ (14.06)
</TABLE>


     The fair value of these  options was  estimated  at the date of grant using
     the Black-Scholes option pricing model with the following  weighted-average
     assumptions:  no dividends;  expected volatility of 317 percent in 2001, 87
     percent for 2000, and 83 percent for 1999;  risk-free interest rates of 5.0
     percent  for 2001,  5.6 percent  for 2000,  and 6.1  percent for 1999;  and
     weighted average expected lives of 6.8 years.


                                      F-21

<PAGE>
<TABLE>
<CAPTION>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE M - STOCKHOLDERS' EQUITY - Continued

     Information with respect to stock option activity is as follows:

                                                                       Weighted
                                                                        average
                                                                       exercise
                                                          Shares         price
                                                        ----------    ----------
     Outstanding at January 1, 1999                         60,800    $   245.80
        Granted                                             53,090         27.40
        Forfeitures                                           (275)       403.80
                                                        ----------    ----------

     Outstanding at December 31, 1999                      113,615    $   144.20

        Granted                                             10,000          7.60
        Cancelled, rescinded, or annulled                  (53,090)        65.40
        Forfeitures                                           (100)       315.00
                                                        ----------    ----------

     Outstanding at December 31, 2000                       70,425    $   183.80

        Granted                                             10,000         12.80
                                                        ----------    ----------

     Outstanding at December 31, 2001                       80,425    $   162.56
                                                        ==========    ==========

     Options exercisable at December 31, 1999               91,747    $   169.20
                                                        ==========    ==========

     Options exercisable at December 31, 2000               70,250    $   183.20
                                                        ==========    ==========

     Options exercisable at December 31, 2001               80,425    $   162.56
                                                        ==========    ==========

     Weighted  average fair value per share of options granted during 2001, 2000
     and 1999 was $7.60, $6.00 and $22.29, respectively.

     Additional information about stock options outstanding at December 31, 2001
     is summarized as follows:

                                            Options outstanding and exercisable
                                 ------------------------------------------------------
                                                    Weighted average
                                      Number            remaining      Weighted average
     Range of exercise prices      outstanding      contractual life    exercise price
     ------------------------    ----------------   ----------------   ----------------
<S>                              <C>                <C>                <C>
     $7.50 to $13.80                       30,000                9.0   $          11.37
     $13.81 to $50.00                      10,000                7.0              50.00
     $200.00 to $265.60                    17,900                4.6             240.84
     $350.00 to $403.80                    22.525                5.4             351.70
                                 ----------------   ----------------   ----------------

                                           80,425                6.8   $         162.56
                                 ================   ================   ================
</TABLE>

                                      F-22

<PAGE>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE N - OTHER INCOME (EXPENSE)

    Other income (expenses) consists of the following: (amounts in thousands)

                                                    Year ended December 31,
                                               --------------------------------
                                                2001        2000        1999
                                               --------    --------    --------

     Gain (loss) on sale of properties         $ 16,635    $   --      $   (186)
     Gain on sale of investments                   --          --         2,166
     Other                                          (33)       (220)        198
                                               --------    --------    --------

                                               $ 16,602    $   (220)   $  2,178
                                               ========    ========    ========


NOTE O - WRITE-OFF OF IMPAIRED ASSETS

     In 1992,  the Company sold four nursing homes to Southern Care  Corporation
     (Southern  Care), and a subsidiary of the Company entered into a management
     agreement to manage the nursing homes.  In 1994,  Southern Care  terminated
     the  management  agreement  and informed the Company that they believed the
     notes due to the Company  from the sale of the  nursing  homes in 1992 were
     invalid. The matter has been in the courts since 1995 and legal issues were
     resolved in June 2000 when Greenbriar was awarded a judgment of $18,688,000
     for the  notes,  interest,  amounts  due for the  management  contract  and
     reimbursement of legal fees. The assets had a recorded value of $4,525,000.

     The  Company  was  informed  during 2000 that the  financial  condition  of
     Southern Care had deteriorated, that it was delinquent on mortgage payments
     on the homes, and that the first mortgage holder foreclosed on the homes in
     June 2000. The Company is actively pursuing collection of its judgment from
     Southern  Care as well as from its  officers,  directors  and a third party
     trustee.  However, under the circumstances,  the Company is writing off the
     entire $4,525,000.

     The Company decided to dispose of two assisted  living  communities in 2000
     that were not meeting operating performance expectations. These communities
     were written down to net  realizable  value at June 30, 2000.  One of these
     communities  was disposed of in the quarter ending  September 30, 2000 with
     no additional write-off required.  Also, a third community whose operations
     have deteriorated was written down based on management's estimate of future
     cash flows pursuant to the provisions of Statement of Financial  Accounting
     Standards No. 121. In addition,  certain receivables  associated with these
     properties were written off. These write-offs substantially account for the
     remainder of the write-off of impaired assets and related expenses.

     During 2001, the Company  identified  four properties that were not meeting
     performance  expectations.  These  properties  are in a  geographic  region
     where,  after the transfer to LSOF, the Company does not have a significant
     presence.  The  Company  has  engaged a regional  operator to assist in the
     operations of three of the properties and has entered into a one-year lease
     with this  operator  for an  additional  property.  If the  approvals  from
     existing  lenders can be obtained,  it is  anticipated  that three of these
     properties  will be  sold to this  operator.  In the  fourth  quarter,  the
     Company  wrote  these  properties  down to their  net  realizable  value of
     $5,066,000 with a charge to earnings of $1,887,000.

                                      F-23

<PAGE>
<TABLE>
<CAPTION>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE P - CONTINGENCIES

     The  Company is  defendant  in various  lawsuits  generally  arising in the
     ordinary  course of business.  Management  of the Company is of the opinion
     that these  lawsuits  will not have a material  effect on the  consolidated
     results of operations, cash flows or financial position of the Company.

     As discussed  in Note G, the Company is guarantor of debt of an  affiliated
     partnership in the amount of $11,815,000 at March 28, 2002.


NOTE Q - QUARTERLY DATA (UNAUDITED)

                                                                          Year ended December 31, 2001
                                                                --------------------------------------------
                                                                  First      Second       Third       Fourth
                                                                 Quarter     Quarter     Quarter      Quarter
                                                                --------    --------    --------    --------
<S>                                                             <C>         <C>         <C>         <C>
     Revenue                                                    $  9,976    $  9,247    $  8,186    $  3,452
     Operating expenses                                            9,207       9,387       7,770       7,164
     Net earnings (loss)                                            (276)     (1,611)       (480)      8,785
     Preferred stock dividend requirement                            (80)        (80)       --          --
     Net earnings (loss) allocable to common shareholders           (356)     (1,691)       (480)      8,785
     Net earnings (loss) per common share - basic and diluted       (.85)      (4.05)      (1.15)      24.51

                                                                          Year ended December 31, 2000
                                                                --------------------------------------------
                                                                  First      Second       Third      Fourth
                                                                 Quarter     Quarter     Quarter     Quarter
                                                                --------    --------    --------    --------
     Revenue                                                    $ 10,522    $ 10,319    $ 10,263    $ 10,157
     Operating expenses                                            9,635      16,885       9,409      10,382
     Net loss                                                       (619)     (7,990)       (571)     (1,443)
     Preferred stock dividend requirement                         (1,047)     (1,028)     (1,028)     (1,002)
     Loss allocable to common shareholders                        (1,396)     (9,018)     (1,599)     (2,715)
     Loss per common share - basic and diluted                     (3.80)     (23.98)      (4.19)      (7.20)
</TABLE>


                                      F-24