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, 1999

                                      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.)

        4265 Kellway Circle, Addison, Texas                   75001
     (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-B 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, 2000,
was approximately $8,150,000.

At March 28, 2000, the issuer had outstanding approximately 6,995,000 shares
of par value $.01 Common Stock.

Documents Incorporated by Reference:

Part III of this Annual Report on Form 10-K incorporates certain information
by reference from the definitive Proxy Statement for the registrant's Annual
Meeting of Stockholders to be held on June 2, 2000.


<PAGE>
                            GREENBRIAR CORPORATION

                      Index to Annual Report on Form 10-K

                      Fiscal year ended December 31, 1999

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

Part II......................................................................15

   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.......20
   ITEM 8: FINANCIAL STATEMENTS..............................................20
   ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
            ACCOUNTING AND FINANCIAL DISCLOSURE..............................20

Part III.....................................................................21

   ITEMS 10-13:..............................................................21

Part IV......................................................................22

   ITEM 14: EXHIBITS AND REPORTS ON FORM 8-K.................................22

                                      2
<PAGE>

                                    PART I

ITEM 1: DESCRIPTION OF BUSINESS

     Overview and Background of Assisted Living Operations

     Greenbriar Corporation (the "Company") is an assisted living company that
     operates 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.

     As of March 28, 2000, the Company operated 29 communities in 10 states,
     with a capacity of 2,317 residents, consisting of 18 communities that are
     owned and 11 that are leased from third parties. A third party manages
     one property the Company leases.

     The Company existed from 1974 until 1989 as a real estate investment
     trust. In late 1989, control of the Company changed to current
     management, who undertook to dispose of its properties and establish a
     new focus on services and products for the elderly. In 1991 the Company
     was reorganized as a Nevada Corporation. Until 1994, the Company's
     business was the acquisition, operation and sale of retirement, nursing
     and other healthcare communities, as well as commercial real estate and
     the manufacture and sale or lease of mobility assistance equipment. In
     1994 the Company decided to change its business emphasis to the assisted
     living industry and, by early 1996, sold its existing nursing homes and
     retirement centers, most of its commercial real estate and its mobility
     equipment subsidiaries.

     In 1995 the Company began developing and constructing assisted living
     communities. However, the significant growth that subsequently occurred
     was through acquisitions that were completed in 1996 and 1997.

     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 the 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 24 hour a day 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 may
     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. There are
     some assisted living communities, and this seems to be a growing trend,
     who provide 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. Annual expenditures in the assisted living industry have been
     estimated to be approximately $17 billion, including communities ranging
     from "board and care" to full-service assisted living communities such as
     those operated by the Company.

     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.

                                      3
<PAGE>

         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 approximately 13.0 million in 1990 to over
         16.8 million by the year 2000, and the number of persons age 85 and
         older is expected to increase 39.3% 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, 42 % of householders
         over age 80 in 1999 had incomes of $15,000 and above and 38 % 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, 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 and higher in
         income annually). However, the same study states that residents are
         more willing to spend down assets and family members are providing
         more assistance than previously thought. 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.

         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. These laws limit 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 increased 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.

     Business Strategy

     The Company believes that significant growth opportunities exist to
     provide assisted living and full service independent living services to
     the rapidly growing elderly population. The Company has expanded its
     operations through the acquisition of assisted living and full service
     independent living companies. The Company also 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. Double occupancy 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.
     Texas is one of 33 states that have a Medicaid waiver program currently
     operating (allowing a state to use set its own disbursement standards for
     Medicaid funds - such as payment for assisted living services). North
     Carolina was a pioneer in supporting the development of assisted living
     as one way of containing the cost of caring for its aging population and
     has one of the best assisted living reimbursement rates in the nation.

     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

                                      4
<PAGE>

     than currently exists. However, although Medicaid coverage is common and
     becoming more so, participation is still low. Texas had only
     approximately 1300 people participating in its Medicaid assisted living
     program in 1998. This number increased to 1634 as of February 29, 2000.

     The Company is no longer pursuing growth by new development but in the
     past 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 can be primarily 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 top management has extensive acquisition experience and
     contacts in the assisted and full service independent living industry.
     The Company believes that building by acquisition is the best way to meet
     its growth goals. The full service independent living retirement and
     assisted living industry is very fragmented and still primarily a single
     proprietor business.

     Acquisition Strategy - The Company may acquire one or more communities or
     entire assisted living and full service independent living retirement
     companies as a means of entry into new markets and may also make
     acquisitions within its existing regions to gain further market share and
     leverage its existing operating infrastructure. 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 its operating
     results. The Company also sells some of the communities it acquires when
     they don't fit with the Company's long range strategy.

     Operating Strategy - 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 and (iii) improving operating efficiencies.

     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 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, 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

                                      5
<PAGE>

     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 is also able
     to obtain volume discounts through enhanced purchasing power for a
     variety of items including food, supplies, insurance, equipment and other
     items.

     Offer Alzheimer's and Other Dementia Services - As of March 28, 2000, 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 this disease and other forms of dementia, will create an
     opportunity for residents to remain longer within the same community and
     will allow special security and support for Alzheimer's 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. The Alzheimer's care wing is secured from the
         rest of the building.

     Properties

     Operating Communities - The following table sets forth certain
     information with respect to communities that were operated by the Company
     at March 28, 2000. The Company owns or leases these communities. The
     Company considers its communities to be in good operating condition and
     suitable for the purpose for which they are being used.

                                      6
<PAGE>
<TABLE>
<CAPTION>

                                                        EXISTING COMMUNITIES

                                                                                        Community
                                                          Care               Resident   Operations
            Community                  Location           Level     Units   Capacity(1) Commenced     Ownership
  -----------------------------------------------------------------------------------------------------------------
<S>                              <C>                    <C>          <C>       <C>        <C>         <C>
  Berne Village                  New Bern, NC           S, FE, DC    153       162        Oct-93      Owned (2)
  Camelot                        Harlingen, TX              S         57        57        Sep-94      Owned (2)
  Camelot Assisted Living        Harlingen, TX           FE, DC       83        99        Jan-98      Leased (3)
  Countrytime Inn                Kings Mountain, NC      FE, DC       31        56        Jun-95      Owned (2)
  Crown Pointe                   Corona, CA               S, FE      163       168        Jan-93      Owned (2,5)
  Graybrier                      Southern Pines, NC      FE, DC       55        95        Feb-94      Owned (2)
  Greenbriar at Denison          Denison, TX             FE, DC       44        52        May-96      Owned (2)
  Greenbriar at Muskogee         Muskogee, OK              FE         48        48        Mar-97      Owned (2)
  Greenbriar at Sherman          Sherman, TX               FE         48        53        Mar-98      Owned (2)
  La Villa                       Roswell, NM             FE, DC       82        91        Nov-96      Leased (3)
  Meadowbrook Place              Baker, OR                 FE         50        50        Dec-92      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      Leased (3)
  Pacific Pointe                 King City, OR              S        114       114        Jan-93      Leased (3)
  Palm House                     Fort Worth, TX             S        155       154         1985       Leased (3)
  Rose Garden Estates            Ritzville, WA             FE         21        21        Nov-95      Owned (2)
  Rose Tara Plantation           King, NC                  FE         38        65        Sep-94      Owned (2)
  Summer Hill                    Oak Harbor, WA            FE         59        61        Feb-94      Owned (2)
  Sweetwater Springs             Lithia Springs, GA      FE, DC       48        48        Oct-96      Leased (7)
  Tandy                          Fort Worth, TX            FE         84        94         1984       Leased (3)
  The Terrace                    Portland, OR              FE         65        65        May-91      Owned
  Villa del Rey Merced           Merced, CA                 S         92        92        Dec-79      Leased (3)
  Villa del Rey Roswell          Roswell, NM                S        135       132        Oct-88      Leased (4,6)
  Villa del Rey Visalia          Visalia, CA                S         98        98        Dec-79      Leased (3)
  Villa del Sol                  Roswell, NM                S         12        12        Dec-95      Owned (2)
  Wedgwood Terrace               Lewiston, ID            FE, DC       38        47        Nov-95      Owned (2)
  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)
  Windsor House West             Spartanburg, SC         FE, DC       76        97         1991       Owned (2)
  -----------------------------------------------------------------------------------------------------------------
  Total                                                              2114      2317
</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 or
              deed of trust securing a note payable to a bank, financial
              institution, individual or other lender. The mortgages and deeds
              of trust mature between 2000 and 2037 and bear interest at fixed
              and variable interest rates ranging from 7.5% to 11.35% as of
              December 31, 1999. The Crown Pointe community is subject to a
              mortgage and note payable to the Redevelopment Agency of the
              City of Corona, California, is payable into a sinking fund
              semi-annually in increasing amounts from $65,000 to $420,000
              through May 2015, and bears interest at a variable interest rate
              equal to 4.85% at December 31, 1999. 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 6. "Management's Discussion and Analysis
              or Plan of Operation - Liquidity and Capital Resources."

                                      7
<PAGE>

        (3)   Leased from third party individuals or partnership. Initial
              lease terms generally range from 10 to 20 years, and mature
              between 2000 and 2011. The Company is responsible for all costs
              including repairs to the community, property taxes and other
              direct operating costs of the community. Leases generally
              include clauses that allow for rent to increase over time based
              on a specified schedule or on an increase in the consumer price
              index. Generally, the Company has an option to purchase the
              community after a specified period, or at expiration of the
              lease, at a price generally equal to market value.

        (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)   Company owns 60% of real estate and the lessee.

        (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.

     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, 2000 range in size
     from 12 to 163 units, are from one to three stories and from 10,000 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 of the 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. Most building maintenance services are
     performed by part or full-time employees, while elevator, HVAC
     maintenance and landscaping services are generally performed by third
     party contractors.

     The Company's senior management and other personnel, located at the
     Addison, 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,


                                      8
<PAGE>

     community relations, healthcare management, life skills programming 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.

     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:

     The Greenbriar Way - At Greenbriar the foremost mission is excellence in
     service to residents. To that end, the Company's leadership dedicates
     itself to excellence in the supervision and professional development of
     employees whose day-to-day duty is to provide that service.

     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.

     The Greenbriar Chaplaincy Program - The Company has employed a Chaplain
     as a consultant and he has established a "Spirituality in Aging" program
     that helps the Company's goal of meeting the emotional and spiritual
     needs of its residents, their families, and the employees of Greenbriar.
     The Chaplain is available for immediate support on a toll free number and
     visits the Company's communities on a scheduled basis to conduct training
     seminars for residents, families, employees and the public.

     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 residents' family members of residents
     to monitor the quality of services. The Company also plans to establish a
     toll free customer response telephone line to encourage feedback from
     residents, family members and visitors to its communities. 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 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 corporate marketing staff develops overall strategies for promoting
     the Company's 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 who is guided and trained by corporate marketing personnel.
     For smaller communities who do not have a community relations
     coordinator, the Executive Director performs the sales and marketing
     functions.

     The Company engages in traditional types of marketing activities, such as
     in 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.

                                      9
<PAGE>

     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 is
     evolving at a steady pace. Currently, twenty-seven states have a
     licensure category or statute that uses the term "assisted living."
     Several states are proposing regulations using the term. Thirty-five
     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, including
     Texas and North Carolina have or are reviewing licensure regulations and
     increasing the role of state personnel in monitoring and controlling the
     assisted living industry.

     In the states in which the Company operates, a license is not required to
     provide basic support services. 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 reimbursements increase or there is
     overbuilding 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 program. 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 Federal and 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 which
     governs various types of financial arrangements among health care
     providers and others who may be in a position to refer or


                                      10
<PAGE>

     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 licensure, 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.

     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. Four
     other communities financed with loans guaranteed by the Department of
     Housing and Urban Development ("HUD") have rents requiring approval by
     HUD.

     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 some
     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 price. The Company believes that it competes favorably in
     these areas and in its recruitment and retention of qualified healthcare
     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
     have become a recruitment challenge. Unemployment rates are significantly
     below the national average in a few markets.

                                      11
<PAGE>

     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 which 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.

     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 that
     is operated by a third party. 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
     or is the Company aware of any such environmental liability. The Company
     owns nine 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, 2000, the Company's officers, directors and affiliated
     entities owning more than 5% of the Company's outstanding stock owned
     approximately 59% 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 30.8% of the outstanding
     Common Stock of the Company. Mr. Victor L. Lund, a director of the
     Company and the founder of Wedgwood (a company acquired by the Company in
     1996), beneficially owned approximately 17.4% of the outstanding shares
     of Common Stock. Floyd B. Rhoades, a director of the Company and founder
     of American Care (a company acquired by the Company in 1996),
     beneficially owned approximately 10.8% of the outstanding shares of
     Common Stock. In addition, the Gilley family owns series D Voting
     Preferred Stock, which is the equivalent of 675,000 Voting Shares.
     Accordingly, such individuals will have the ability, by voting their
     shares in concert, to control or 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,

                                      12
<PAGE>

     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
     1,445,500 shares of Common Stock, certain of which options are subject to
     vesting requirements. The issuance of additional shares of Common Stock
     pursuant to the exercise of these stock options granted to management
     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.

     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, 2000, the Company employed 1080 employees, including 757
     full-time and 323 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 a 27,500 square foot building that it
     owns in Addison, Texas. The Company's Addison office 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

     The Company is involved from time to time in legal proceedings that are
     incidental to its business. The following are the legal proceedings that
     are pending at March 28, 2000.

     Southern Care Corp. vs Greenbriar, et al.

     In Southern Care Corp. v. Medical Resource Companies of America, (former
     name of Greenbriar) Civil Action No. 94-1132-K, Superior Court of Chatham
     County, Georgia, the plaintiff seeks damages exceeding $1,500,000
     relating to the management and operation of four nursing homes the
     Company sold to plaintiff. The Company has filed a counterclaim for
     breach of the management contract between the homes and a Company
     subsidiary.

                                      13
<PAGE>

     The Company does not believe it has breached any obligation to Plaintiff
     regarding management of the nursing homes and does not believe Plaintiff
     will prevail on the merits, although there can be no assurance in this
     regard. At the same time that Plaintiff unilaterally and without notice
     terminated the management contract, the Plaintiff also claimed that
     indebtedness of approximately $6.7 million assigned to the Company was
     discharged.

     In 1995 the plaintiff and the Company each filed cross motions for
     summary judgment on the issue of whether the indebtedness was discharged.
     On December 3, 1997 the Georgia Court of Appeals granted Greenbriar's
     motion for summary judgment where they determined that the indebtedness
     was not discharged. In February 1998 the Georgia Supreme Court refused to
     hear the matter. The amount of indebtedness, including accrued interest,
     is approximately $12 million. The Company's basis for financial statement
     purposes in the indebtedness, net of related deferred gains, is
     approximately $ 3.6 million.

     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 of the Company.

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

     No matters were submitted to a vote of security holders during the fourth
     quarter of the year ended December 31, 1999.

                                      14
<PAGE>

                                    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:

                                   1999               1998
                              High      Low      High      Low
                            ----------------   ----------------

           First Quarter      $3.25    $2.06    $17.38   $13.75
           Second Quarter      2.50     2.00     12.88     8.94
           Third Quarter       2.13     1.63      8.75     1.63
           Fourth Quarter      1.63      .50      3.94     1.37

     The Company has not paid cash dividends on its Common Stock during at
     least the last ten fiscal years and, for the foreseeable future, the
     Company expects to retain all earnings 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.

     No dividends can be paid on the Company's common stock if dividends are
     in arrears on the Company's preferred stock.

     The closing price on the Company's common stock on March 28, 2000, was
     $2.25 per share. As of March 28, 2000, there were 2,438 holders of record
     of the Company's common stock.

ITEM 6: SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>

                                                          (Amounts in thousands, except per share data)
                                                                 For the Years Ended December 31,

<S>                                           <C>            <C>           <C>           <C>           <C>
                                                  1999           1998          1997          1996          1995
                                              -------------- ------------- ------------- ------------- --------------
Operating revenue                             $    41,260    $    53,521   $    38,979   $    29,785   $     7,964
Operating expenses                                 38,323         55,216        39,958        34,719         9,568
                                              -------------- ------------- ------------- ------------- --------------
Operating income (loss)                             2,937         (1,695)         (979)       (4,934)       (1,604)

Income (loss) from continuing
operations before income taxes                $        82    $   (10,602)  $   (10,297)  $    (7,995)  $     5,286

Basic and diluted income (loss) per
common share                                  $      (.62)   $     (1.86)  $      (.92)  $      (.99)  $      1.04

BALANCE SHEET DATA:
Total assets                                  $   119,908    $   130,353   $   151,243   $   116,701   $    47,756
Long-term debt                                $    50,477    $    58,154   $    54,851   $    54,717   $    16,485
Total liabilities                             $    69,425    $    78,516   $    88,726   $    80,549   $    23,131
Preferred stock redemption obligation         $    27,763    $    21,748        -             -              -
Total stockholders equity                     $    22,720    $    30,089   $    62,517   $    36,152   $    24,625
</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 manufacture and leasing of electric
     convenience vehicles and wheelchairs. The nursing and retirement centers
     and convenience vehicle businesses have been sold and the real estate
     investments are being liquidated. 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. By July 1, 1996, the Company (not
     including the communities of Wedgwood and American Care) had three
     additional assisted living communities under construction. In order to
     increase the Company's presence in the assisted living industry, create
     geographic diversity and obtain experienced personnel, the Company
     acquired Wedgwood in March 1996, American Care in December 1996, Windsor
     in October 1997 and Villa in December 1997. The acquisitions of Wedgwood,
     Windsor and Villa have been accounted for as purchases, and the
     historical financial statements of the Company do not include any
     revenues or earnings (losses) attributed to those operations prior to the
     acquisition. The American Care acquisition has been accounted for as a
     pooling of interests and, accordingly, the Company's financial statements
     have been restated to include the accounts and operations of American
     Care for all periods prior to the acquisition. At December 31, 1997 the
     Company operated 55 communities which were owned, leased or managed for
     third parties.

     During the third quarter of 1998 the Company made several strategic
     decisions as to its future direction. It was decided that the Company
     redirect itself with the following objectives:

     o Terminate existing management contracts whereby the Company would
       manage communities for a fee. As of January 1, 1998 the Company had 2
       such contracts.

     o Reduce the percentage of residents in the Company's communities who
       were dependent on direct assistance from governmental agencies for
       payment of their fees. As of January 1, 1998 approximately 50% of the
       residents at the Company's communities received government assistance.

     o Move toward direct ownership of the communities operated by the Company
       as opposed to long term lease arrangements. As of January 1, 1998
       approximately 50% of the Company's communities were operated under
       long-term lease arrangements.

     o Divest communities with limited future profit potential or geographic
       locations that were isolated from other Company operations.

     As of December 31, 1998 the Company had terminated its management
     contracts to manage for others and reduced to 31 the number of
     Communities that it operated. In 1999 the Company disposed of one
     community that was subleased to a local operator. The Company owned or
     had current options to purchase all but five of its communities. The
     percentage of residents who were private pay was approximately 90%.

     Fiscal 1999 as Compared to Fiscal 1998

     Revenues and Operating Expenses from Assisted Living Operations. Revenues
     decreased to $41,260,000 in 1999 compared to $53,521,000 in 1998.
     Community operating expenses, which consist of assisted living community
     expense, lease expense and depreciation and amortization, were
     $34,010,000 in 1999 as compared to $49,924,000 in 1998. The primary
     reason for the decrease was the disposition of twenty-two communities
     during 1998 that did not meet the Company's strategic objectives. The
     revenues and related expenses for these communities for 1998 were
     $14,879,000 and $16,490,000 respectively. After consideration of these
     dispositions, the increases in both revenue and expenses are a result of
     increased census at the existing communities.

     Corporate General and Administrative Expenses. These expenses were
     $4,313,000 in 1999 as compared to $5,292,000 in 1998. The decrease in the
     expense is a result of the reorganization of the regional and corporate

                                      16
<PAGE>

     offices that resulted in the elimination of one of the regional offices
     and a reduction in the corporate staff in the third quarter of 1998.

     Interest and Dividend Income. Interest and dividend income was $599,000
     in 1999 as compared to $1,094,000 in 1998. In the first quarter of 1998,
     the Company received proceeds from the sale of preferred stock of
     $22,000,000. These funds were used during 1998 to fund operations and pay
     down debt. The decrease in interest income in 1999 is due to less cash
     available for investment purposes. In addition, 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 decreased to $5,632,000 in 1999 as
     compared to $6,432,000 in 1998. The decrease is reflective of the sale of
     an owned community in the third quarter of 1998 as well as the payoff of
     approximately $2,500,000 of debt in the first quarter of 1998.

     Other income (expense), net. Other income for 1999 was $2,178,000. This
     income is primarily the result of the divestiture of assets. A preferred
     stock investment in another company 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).

     The other income (loss) for 1998 was ($3,569,000). This expense is a
     result of the divestiture of 22 communities in six separate transactions
     with third parties and the termination of 3 agreements to manage
     communities for third parties. Nine leased communities in North Carolina,
     whose primary reimbursement source was Medicaid, were transferred to a
     Florida based company for no consideration. The leases on two other North
     Carolina communities, whose primary pay or source was Medicaid, were
     terminated. One other owned North Carolina community was sold to a
     company for proceeds of $5,800,000. A leased community in Florida was
     sold to a Tennessee based company for proceeds of $375,000. Eight leased
     communities in Texas, whose primary reimbursement source was Medicaid
     were transferred to a Fort Worth based company. One other owned community
     in Oregon was subleased to a local operator.

     The transaction involving the transfer of the eight Texas leased
     communities was a three party transaction since all of the eight
     communities were leased from one REIT. In this transaction, the Company
     obtained an option to purchase the remaining five communities leased from
     this REIT for $28,000,000.

     The loss on these divestitures is a result of the book values of these
     properties being in excess of any consideration received.

     Fiscal 1998 as Compared to Fiscal 1997

     Revenues and Operating Expenses from Assisted Living Operations. Revenues
     increased to $53,521,000 in 1998 as compared to $38,979,000 in 1997.
     Community operating expenses, which consist of assisted living community
     expense, lease expense and depreciation and amortization, were
     $49,924,000 in 1998 as compared to $34,306,000 in 1997. The primary
     reason for the increase was the acquisitions of Windsor and Villa.
     Windsor and Villa were acquired in the fourth quarter of 1997 in
     transactions that were accounted for as purchases. The revenue and
     related expenses for the communities acquired through these acquisitions
     are not included in the amounts for 1997. The revenues and related
     expenses for these communities for 1998 were $12,651,000 and $9,746,000
     respectively. The balance of the increase is due to the opening by the
     Company of new communities during 1998 and increased census at the
     existing communities.

     Corporate General and Administrative Expenses. These expenses were
     $5,292,000 in 1998 as compared to $5,652,000 in 1997. The overall
     decrease, despite the growth of the Company, was due to the
     reorganization of the regional and corporate office that resulted in the
     elimination of one of the regional offices and a reduction in Corporate
     staff in the third quarter of 1998.

     Interest and Dividend Income. Interest and dividend income was $1,094,000
     in 1998 as compared to $479,000 in 1997. In the first quarter of 1998,
     the Company received proceeds from the sale of preferred stock of
     $22,000,000. The increase in interest and dividend income is due to an
     increase in cash available for investment purposes.

                                      17
<PAGE>

     Interest Expenses. These expenses decreased to $6,432,000 in 1998 as
     compared to $6,801,000 in 1997. The decrease is reflective of the sale of
     an owned community in 1998 as well as the payoff of approximately
     $2,500,000 of debt in the first quarter of 1998.

     Other Income (Expense). Other income (expense) for 1998 was ($3,569,000).
     This expense is a result of the divestiture of 22 communities in six
     separate transactions with third parties and the termination of 3
     agreements to manage communities for third parties. Nine leased
     communities in North Carolina, whose primary reimbursement source was
     Medicaid, were transferred to a Florida based company for no
     consideration. The leases on two other North Carolina communities, whose
     primary pay or source was Medicaid, were terminated. One other owned
     North Carolina community was sold to a company for proceeds of
     $5,800,000. A leased community in Florida was sold to a Tennessee based
     company for proceeds of $375,000. Eight leased communities in Texas,
     whose primary reimbursement source was Medicaid were transferred to a
     Fort Worth based company. One other owned community in Oregon was
     subleased to a local operator.

     The transaction involving the transfer of the eight Texas leased
     communities was a three party transaction since all of the eight
     communities were leased from one REIT. In this transaction, the Company
     obtained an option to purchase the remaining five communities leased from
     this REIT for $28,000,000.

     The loss on these divestitures is a result of the book values of these
     properties being in excess of any consideration received.

     Discontinued Operations. Earnings from discontinued operations consist of
     real estate operations that are classified for sale. The real estate
     operations had a net operating loss of ($34,000) in 1998 and net
     operating income of $153,000 in 1997. The decrease in 1998 was the result
     of the sales of the North Carolina shopping center in April of 1997 and a
     Georgia shopping center in June of 1998. The sale in 1998 resulted in a
     loss of ($169,000) net of income tax.

     Liquidity and Capital Resources

     At December 31, 1999, the Company had current assets of $10,108,000 and
     current liabilities of $7,676,000.

     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. Payment was received in January 1998.

     In connection with the sale, 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.

     The 14% guaranteed return is being accreted by a charge to accumulated
     deficit. The amount of the Cash Payment that would be required assuming
     conversion at each balance sheet date will be transferred from
     stockholders equity to temporary equity. At December 31, 1999, a Cash
     Payment of $27,763,000 would have been due assuming conversion took
     place.

     In January and February 2000 the Company made payments totaling
     $3,500,000 to redeem a portion of the preferred stock.

     In conjunction with the $3,500,000 payment noted above Greenbriar and the
     preferred stockholders have an agreement whereby Greenbriar would redeem
     the Series F & G preferred stock from proceeds generated from the sale or
     refinancing of certain assets. The original agreement provides the Series
     F & G preferred stockholders the option to convert beginning January
     2000. Management of Greenbriar believes that the preferred stockholders
     have no plans to exercise their early conversion rights however there can
     be no assurance that such an event will not occur

     The Company is proceeding with a plan to refinance its existing portfolio
     of communities. At current interest rates and property values the Company
     believes it can refinance its existing communities and if necessary sell
     certain communities and obtain cash sufficient to meet the potential Cash
     Payment. In addition the Company will seek out

                                      18
<PAGE>

     additional third party financing. While the Company believes it will be
     able to meet any potential Cash Payment requirement there can be no
     assurance that the Company's plan will be successful.

     At December 31, 1999 and since the date of issuance of the Series F and G
     preferred stock, the Company was not in compliance with one of the
     financial ratio covenants of the stock purchase agreement. The Company
     believes this situation stems from a computational mistake that was made
     at the time this particular ratio test was originally determined.

     The Company has brought this mistake to the attention of the
     representative of the preferred shareholder and anticipates that the
     ratio will be modified to reflect the original intentions of the parties.
     The representatives have not indicated to the Company that they consider
     that a default has occurred. However, an event of default (1) permits the
     holder to elect a number of persons to the board of directors that will
     constitute 70% of the board, (2) gives the holder, upon giving the
     Company written notice of an event of default, the right (Put Right) to
     require the Company to repurchase, "out of funds legally available
     therefor," any or all of the preferred stock for an amount equal to the
     liquidation value ($22,000,000 in the aggregate) plus accumulated but
     unpaid dividends, plus a premium of 20%, and (3) entitles the holder to
     additional dividends of $1.20 per share (an aggregate of $660,000 per
     quarter). Any additional dividends paid pursuant to this provision would
     reduce the amount of the Cash Payment resulting from the aforementioned
     14% guaranteed return.

     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
     press release 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.

                                      19
<PAGE>

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 2000 than
     they did in 1999, the Company's interest expense would increase and
     income before income taxes would decrease by approximately $300,000. The
     Company does not expect changes in interest rates to have a material
     effect on income or cash flows in fiscal 2000, 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.

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

     None.


                                      20
<PAGE>

                                   PART III

ITEMS 10-13:

     The information required by Items 9, 10, 11 and 12 is incorporated by
     reference into this Form 10-K from the Company's definitive Proxy
     Statement for its Annual Meeting of Stockholders to be held June 2, 2000,
     which definitive Proxy Statement will be filed with the Securities and
     Exchange Commission on or before April 28, 2000.

                                      21
<PAGE>

                                    PART IV

ITEM 14: EXHIBITS AND REPORTS ON FORM 8-K

   (a)   The following exhibits required to be filed by Item 601 of Regulation
         S-B are filed as part of this Annual Report on Form 10-KSB:

         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).

         2.2.1      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.

         2.2.6      Agreement on Form of Promissory Note between Registrant
                    and Lone Star Opportunity Fund, L.P filed as Exhibit 2.2.6
                    of Registrant's Form 10-KSB for the year ended December
                    31, 1997.

         2.2.7      Form of Promissory Note agreed to by Registrant and Lone
                    Star Opportunity Fund, L.P. filed as Exhibit 2.2.7 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).

                                      22
<PAGE>

         Exhibit
         Number     Description of Exhibit
         ----------------------------------------------------------------------
         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        Certificate of Designations, Preferences and Rights of
                    Preferred Stock dated October 7, 1992 relating to
                    Registrant's Series A Preferred Stock (filed as Exhibit
                    4.1 to Registrant's Form S-4 Registration Statement,
                    Registration No. 33-55968, and incorporated herein by this
                    reference).

         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).

         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).

                                      23
<PAGE>
         Exhibit
         Number     Description of Exhibit
         ----------------------------------------------------------------------
         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 (Nonrecourse) 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).

         10.8.1     Form of Stock Option to purchase 80,000 shares (16,000
                    post December 1995 shares) of Registrant's Common Stock
                    issued to Dennis McGuire on October 1, 1992 (filed as
                    Exhibit 10.8.1 to Registrant's Form S-4 Registration
                    Statement, Registration No. 33-55968, and incorporated
                    herein by this reference).

         10.8.2     Form of $40,000 Promissory Note dated October 1, 1992
                    payable to Registrant by Dennis McGuire representing the
                    purchase price for 80,000 shares (16,000 post December
                    1995 shares) of Registrant's Common Stock (filed as
                    Exhibit 10.8.2 to Registrant's Form S-4 Registration
                    Statement, Registration No. 33-55968, and incorporated
                    herein by this reference).

         10.8.3     Form of Security Agreement - Pledge (Nonrecourse) between
                    Registrant and Dennis McGuire securing the Promissory Note
                    referenced in Exhibit 10.8.2 (filed as Exhibit 10.8.3 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      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).

         10.21.1    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).

         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).

                                      24
<PAGE>

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

         10.38      Stock Purchase Warrant dated December 31, 1996 between
                    registrant and The April Trust

         21.1*      Subsidiaries of Registrant.

         23.1*      Consent of Grant Thornton.

         27.1*      Financial Data Schedule required by Item 601(c) of
                    Regulation S-K. * Filed herewith.

     (b) Reports on Form 8-K - none


                                      25
<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 28, 2000                        By:  /s/ Gene S. Bertcher
                                           -------------------------------------
                                               Gene S. Bertcher
                                                 Executive Vice President and
                                                 Chief Financial Officer
                                                 (Principal Financial and
                                                 Accounting Officer)


                                      26
<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 28, 2000                        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.
<TABLE>
<CAPTION>

<S>                       <C>
      March 28, 2000      /s/  James R. Gilley
                          --------------------
                               James R. Gilley, President, Chief Executive Officer
                               and Chairman of the Board of Directors

      March 28, 2000      /s/  Don C. Benton
                          ------------------
                               Don C. Benton, Director

      March 28, 2000      /s/  Gene S. Bertcher
                          ---------------------
                               Gene S. Bertcher, Executive Vice President, Chief
                               Financial Officer and Director

      March 28, 2000      /s/  Paul G. Chrysson
                          ---------------------
                               Paul G. Chrysson, Director

      March 28, 2000      /s/  Matthew G. Gallins
                          -----------------------
                               Matthew G. Gallins, Director

      March 28, 2000      /s/  Victor L. Lund
                          -------------------
                               Victor L. Lund, Director

      March 28, 2000      /s/  Michael E. McMurray
                          ------------------------
                          Michael E. McMurray, Director

      March 28, 2000      /s/  William A. Shirley, Jr.
                          ----------------------------
                          William A. Shirley, Jr., Director
</TABLE>

                                      27
<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, 1999 and 1998, 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, 1999.
These financial statements are the responsibility of the Company's management.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.

GRANT THORNTON LLP

Dallas, Texas
March 16, 2000

                                     F-1
<PAGE>

                            Greenbriar Corporation

                          CONSOLIDATED BALANCE SHEETS
                            (Amounts in thousands)

                                 December 31,

                   ASSETS                                   1999         1998
                                                           ------       ------

CURRENT ASSETS

    Cash and cash equivalents                             $ 8,814      $ 6,024
    Accounts receivable - trade                               182          448
    Other current assets                                      848        1,851
                                                             ----       ------

               Total current assets                         9,844        8,323

REAL ESTATE OPERATIONS HELD FOR SALE,
    at lower of cost or market                                 -         1,000

DEFERRED INCOME TAX BENEFIT                                 4,750        4,750

INVESTMENT IN SECURITIES, AT COST                              -         2,046

MORTGAGE NOTE RECEIVABLE, net of deferred
    gain of $3,083                                          3,617        3,617

PROPERTY AND EQUIPMENT, AT COST

    Land and improvements                                  11,179       11,651
    Buildings and improvements                             76,848       84,097
    Equipment and furnishings                               6,586        5,996
                                                           ------       ------
                                                           94,613      101,744
    Less accumulated depreciation                           9,888        7,921
                                                           ------       ------
                                                           84,725       93,823

DEPOSITS                                                    3,907        3,422

LEASE RIGHTS AND OTHER INTANGIBLES                         10,439       11,096

OTHER ASSETS                                                2,626        2,276
                                                           ------       ------
                                                         $119,908     $130,353
                                                          =======      =======

                                     F-2
<PAGE>

                            Greenbriar Corporation

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

                                 December 31,

    LIABILITIES AND STOCKHOLDERS' EQUITY                      1999        1998
                                                             ------      ------
CURRENT LIABILITIES
    Current maturities of long-term debt                    $ 3,317     $ 2,278
    Accounts payable - trade                                  2,072       1,787
    Accrued expenses                                          1,345       2,471
    Other current liabilities                                   678       1,266
                                                               ----      ------

               Total current liabilities                      7,412       7,802

MORTGAGE NOTE COLLATERALIZED BY
    REAL ESTATE HELD FOR SALE                                     -          883

LONG-TERM DEBT                                               50,477       58,154

FINANCING OBLIGATIONS                                        10,815      10,815

OTHER LONG-TERM LIABILITIES                                     721         862
                                                               ----        ----

               Total liabilities                             69,425      78,516

PREFERRED STOCK REDEMPTION OBLIGATION                        27,763      21,748

STOCKHOLDERS' EQUITY

    Preferred stock                                             289         289
    Common stock, $.01 par value; authorized,
       20,000 shares; issued and outstanding,                    76          76
       7,514 shares
    Additional paid-in capital                               61,520      64,261
    Accumulated deficit                                     (36,798)    (32,170)
                                                            -------     -------
                                                             25,087      32,446
    Less stock purchase notes receivable
       (including $2,250 from related parties)               (2,367)     (2,367)
                                                            -------     -------
                                                             22,720      30,089
                                                            -------     -------

                                                           $119,908    $130,353
                                                            =======     =======


       The accompanying notes are an integral part of these statements.

                                      F-3


<PAGE>
<TABLE>
<CAPTION>

                            Greenbriar Corporation

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

                            Year ended December 31,

                                                                       1999             1998              1997
                                                                      ------           ------            ------
Revenue

<S>                                                                   <C>            <C>               <C>
    Assisted living operations                                        41,260         $ 53,428          $ 38,824
    Other                                                                 -                93               155
                                                                         ---              ---              ----
                                                                      41,260           53,521            38,979
Operating expenses

    Assisted living operations                                        24,836           35,965            26,310
    Lease expense                                                      5,197            9,552             4,663
    Facility depreciation and amortization                             3,977            4,407             3,333
    General and administrative                                         4,313            5,292             5,652
                                                                      ------           ------            ------
                                                                      38,323           55,216            39,958
                                                                      ------          -------           -------
               Operating profit (loss)                                 2,937           (1,695)             (979)

Other income (expense)
    Interest and dividend income                                         599            1,094               479
    Interest expense                                                  (5,632)          (6,432)           (6,801)
    Other income (expense), net                                        2,178           (3,569)           (2,996)
                                                                      ------          -------           -------
                                                                      (2,855)          (9,110)           (9,318)
                                                                      ------          -------           -------
               Earnings (loss) from continuing operations
                   before income taxes                                    82          (10,602)          (10,297)

Income tax benefit                                                        -            (1,896)           (4,115)
                                                                       -----          -------           -------

               Earnings (loss) from continuing operations                 82           (8,706)           (6,182)

Discontinued operations
    Earnings (loss) from operations, net of income taxes                  -               (34)              153
    Gain (loss) on disposal, net of income taxes                          -              (169)              322
                                                                       -----            -----              ----

               NET EARNINGS (LOSS)                                        82           (8,909)           (5,707)

Preferred stock dividend requirement                                  (4,720)          (4,600)             (334)
                                                                     -------          -------             -----

Loss allocable to common stockholders                               $ (4,638)        $(13,509)          $(6,041)
                                                                     =======          =======            ======

Earnings (loss) per share - basic and diluted
    Continuing operations                                              $(.62)          $(1.83)            $(.99)
    Discontinued operations                                               -              (.03)              .07
                                                                       -----            -----              ----

    Net loss                                                           $(.62)          $(1.86)            $(.92)
                                                                      ======            =====              ====

Weighted average number of common shares outstanding                   7,514            7,275             6,582
</TABLE>

       The accompanying notes are an integral part of these statements.

                                      F-4

<PAGE>

<TABLE>
<CAPTION>

                            Greenbriar Corporation

           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                            (Amounts in thousands)
                                                                                                                Stock
                                                                                       Additional              purchase
                                                  Preferred stock      Common stock     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, 1997                         690    $  70     6,471     $ 65    $51,232     $(12,642)   $(2,573)   $ 36,152

    Issuance of common stock under stock
       option plans                                  -        -         28       -         318           -          -          318
    Issuance of common stock for acquisitions        -        -        851        8     12,919           -          -       12,927
    Issuance of preferred stock                   2,200      220        -        -      21,327           -          -       21,547
    Purchase of common stock                         -        -       (125)      (1)    (2,408)          -          -       (2,409)
    Payments on stock purchase notes receivable      -        -         -        -           -            -         58          58
    Conversion of preferred stock                   (14)      (1)       75        1          -            -         -           -
    Dividends on preferred stock                     -        -         -        -           -         (320)        -         (320)
    Net loss                                         -        -         -        -           -       (5,707)        -       (5,707)
    Other                                            -        -         -        -         (49)           -         -          (49)
                                                    ---      ---        ---      ---      ----          ---        ---        ----

Balances at December 31, 1997                     2,876      289      7,300      73     83,339      (18,669)    (2,515)     62,517

    Issuance of common stock                         -        -         250       2        435           -          -          437
    Purchase of common stock                         -        -         (36       1       (472)          -          -         (471)
    Dividends on preferred stock, including
       acretion of $2,970                            -        -          -        -      2,970       (4,592)        -       (1,622)
    Issuance costs for preferred stock               -        -          -        -       (263)          -          -         (263)
    Redemption obligation - preferred stock          -        -          -        -    (21,748)          -          -      (21,748)
    Reduction of stock purchase notes receivable     -        -          -        -          -            -        148         148
    Net loss                                         -        -          -        -          -       (8,909)        -       (8,909)
                                                    ---      ---        ---      ---       ---      -------        ---     -------

Balance at December 31, 1998                      2,876      289      7,514      76     64,261      (32,170)    (2,367)     30,089

    Dividends on preferred stock, including
       accertion of $3,080                           -        -          -        -      3,080       (4,710)        -       (1,630)
    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      7,514     $76    $61,520     $(36,798)   $(2,367)   $ 22,720
                                                  =====     ====      =====      ==     ======      =======     ======     =======
</TABLE>

        The accompanying notes are an integral part of this statement.

                                      F-5

<PAGE>
<TABLE>
<CAPTION>

                            Greenbriar Corporation

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (Amounts in thousands)

                                                                                  Year ended December 31,
                                                                          -----------------------------------------
                                                                           1999             1998              1997
                                                                          ------           ------            ------
<S>                                                                       <C>             <C>              <C>
Cash flows from operating activities
    Net earnings (loss)                                                     $ 82          $(8,909)         $ (5,707)
    Adjustments to reconcile net earnings (loss) to net
       cash used in operating activities
          Discontinued operations                                             -               203              (475)
          Depreciation and amortization                                    3,977            4,407             3,333
          Gain on settlement of litigation                                    -                -             (2,409)
          Gain on sale of investment                                      (2,166)              -                 -
          Loss on sale of assets                                             186            2,924                -
          Write down of property                                              -               560                -
          Write-off of note receivable                                        -                -              2,000
          Write-off of investment securities                                  -                -              2,100
          Stock dividends on investment securities                            -                -                (39)
          Deferred income taxes                                               -            (2,118)           (4,115)
          Changes in operating assets and liabilities,
             net of effect of acquisitions
                Accounts receivable                                          266              714              (572)
                Other current and noncurrent assets                         (367)          (3,206)            1,338
                Accounts payable and other liabilities                    (1,570)            (312)           (2,007)
                                                                          ------            -----            ------

                  Net cash used in operating activities of
                      continuing operations                                  408           (5,737)           (6,553)

    Net cash provided by (used in) operating activities
       of discontinued operations                                             -                93                66
                                                                             ---              ---               ---

                  Net cash provided by (used in)
                         operating activities                                408           (5,644)           (6,487)
</TABLE>

                                      F-6
<PAGE>

<TABLE>
<CAPTION>
                            Greenbriar Corporation

               CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
                            (Amounts in thousands)

                                                                                 Year ended December 31,
                                                                       -----------------------------------------
                                                                        1999             1998              1997
                                                                       ------           ------            ------

<S>                                                                   <C>              <C>               <C>
Cash flows from investing activities
    Collections of notes receivable                                   $    -           $    -              $ 126
    Purchase of property and equipment                                 (1,764)          (4,843)           (3,970)
    Investing activities of discontinued operations                        -             1,500             2,941
    Proceeds from sale of investments                                   4,331               -                 -
    Proceeds from sale of property                                      1,861               -                 -
                                                                       ------              ---               ---

                   Net cash used in investing activities                4,428           (3,343)             (903)

Cash flows from financing activities
    Proceeds from borrowings                                            2,290           18,539             4,705
    Payments on debt                                                   (2,706)         (23,195)              (17)
    Dividends on preferred stock                                       (1,630)          (1,622)             (320)
    Purchase and retirement of common stock                                -              (471)               -
    Exercise of stock options                                              -                -                318
    Financing activities of discontinued operations                        -                -                 (8)
    Collection of stock subscription receivable                            -            21,737                -
    Other                                                                  -                -                (49)
                                                                          ---              ---              ----

                Net cash provided by financing activities              (2,046)          14,988             4,629
                                                                       ------          -------            ------

                NET INCREASE (DECREASE) IN CASH
                   AND CASH EQUIVALENTS                                 2,790            6,001            (2,761)

Cash and cash equivalents at beginning of year                          6,024               23             2,784
                                                                       ------              ---            ------

Cash and cash equivalents at end of year                              $ 8,814          $ 6,024           $    23
                                                                       ======           ======            ======
</TABLE>

       The accompanying notes are an integral part of these statements.

                                      F-7
<PAGE>

                            Greenbriar Corporation

                  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, which
    provide housing, hospitality and personal and healthcare services to
    elderly individuals. At December 31, 1999, the Company had 30 communities
    in operation in 10 states with a total capacity for 2,390 residents.

    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). 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 generally accepted
    accounting principles, 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.

                                     F-8
<PAGE>

                            Greenbriar Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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

    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.

    Impairment of Notes Receivable

    A note receivable is identified as impaired when it is probable that
    interest and principal will not be collected according to the contractual
    terms of the note agreement. 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.

    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 1999,
    1998 and 1997, stock options for 1,612,000, 1,000,000 and 587,500,
    respectively, were excluded from diluted shares outstanding because their
    effect was anti-dilutive.

                                     F-9
<PAGE>

                            Greenbriar Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE B - ACQUISITIONS AND DISPOSITIONS

    Acquisitions

    Windsor Group LLC and Affiliates

    In October 1997, the Company acquired all of the assets and liabilities of
    Windsor Group LLC (Windsor) and all of the common stock of three companies
    who were affiliates of Windsor. The business of these companies consists
    of the operation of three assisted living communities in South Carolina.
    Consideration given was 158,500 shares of the Company's common stock
    valued at approximately $2,533,000. Assets acquired were valued at
    approximately $12,100,000 and liabilities assumed were approximately
    $9,567,000. The operations of Windsor and affiliates have been reflected
    in the consolidated financial statements of the Company since October 1,
    1997.

    Villa Residential Care Homes, Inc.

    On December 31, 1997, the Company acquired all of the outstanding common
    stock of Villa Residential Care Homes, Inc. (Villa). Additionally, through
    a newly created partnership, the Company acquired lease rights and assumed
    certain liabilities of a number of entities affiliated with Villa. The
    business of these entities consists of the operation of 12 assisted-living
    communities throughout Texas. Consideration given was 184,476 shares of
    the Company's common stock and 10,464,321 units of the partnership valued
    at approximately $10,394,000. The operating partnership units are
    convertible after a one-year holding period into 536,990 shares of the
    Company's common stock. For accounting purposes, the common shares into
    which the operating units will be converted have been included in
    outstanding common shares. Assets acquired, which consist primarily of
    lease rights, were valued at $11,100,000 and liabilities assumed were
    approximately $706,000.

NOTE C - DISCONTINUED OPERATIONS

    In 1996, the Company entered into negotiations to sell its remaining
    non-assisted living real estate assets. Accordingly, the Company's
    non-assisted living real estate operations have been reflected as
    discontinued operations. In 1997, the Company sold one of its real estate
    assets and recorded a gain of $491,000, less applicable income taxes of
    $169,000. In 1998, the Company sold one of its real estate assets and
    recorded a loss of $255,370, less applicable income tax benefits of
    $86,000.

                                     F-10
<PAGE>


                            Greenbriar Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE C - DISCONTINUED OPERATIONS - Continued

    The operations of the non-assisted living real estate segment have been
    presented in the accompanying financial statements as discontinued
    operations.

     Summarized operating results of these segments are as follows (in
     thousands):

                                                            Year ended
                                                            December 31,
                                                          ----------------
                                                          1998        1997
                                                          ----        ----
       Revenues                                           $170        $702
                                                           ===         ===

       Earnings (loss) before income taxes                $(34)       $235

       Income tax expense                                   -           82
                                                           ---         ---

             Net earnings (loss)                          $(34)       $153
                                                           ===         ===


NOTE D - CASH FLOW INFORMATION

    Supplemental information on cash flows and noncash investing and financing
    transactions is as follows (in thousands):
<TABLE>
<CAPTION>

                                                                                  Year ended December 31,
                                                                            ---------------------------------
                                                                             1999         1998         1997
                                                                            ------       ------       ------
<S>                                                                         <C>         <C>          <C>
     Supplemental cash flow information
        Interest paid                                                       $5,613      $ 6,333      $ 6,981
        Income taxes paid                                                      170           25           23

     Supplemental data on noncash investing and financing activities
           Preferred stock subscribed                                           -            -        22,000
           Purchase of common stock in exchange for
              assumption of liabilities                                         -            -         2,409

           Businesses acquired

               Fair value of assets acquired                                $   -       $    -       $23,200
               Common stock issued                                              -            -       (12,927)
                                                                            ------          ---       -------

                       Liabilities assumed                                  $   -       $    -       $10,273
                                                                            ======          ===       =======
</TABLE>

                                     F-11
<PAGE>

                            Greenbriar Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE E - NOTES RECEIVABLE
<TABLE>
<CAPTION>

    Stock Purchase Notes

                                                                                          December 31,

                                                                                     1999              19978
                                                                                    ------            ------
                                                                                         (In thousands)
<S>                                                                                 <C>               <C>

       Related party

          Note from James R. Gilley, chief executive officer, principal
              and interest at 5-1/2%, due November 2003                             $2,250            $2,250

       Other                                                                           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.

<TABLE>
<CAPTION>
    Mortgage Notes

                                                                                        December 31,

                                                                                     1999              1998
                                                                                    ------            ------
                                                                                         (In thousands)
<S>                                                                                 <C>               <C>

       Mortgage notes receivable consist of amounts due from a corporation
          and bear interest at 14% per annum, payable annually.  The notes
          are due in 2021 and are collateralized by a third lien on real property   $6,700            $6,700

                 Less deferred gain                                                  3,083             3,083
                                                                                     -----             -----

                                                                                    $3,617            $3,617
                                                                                     =====             =====
</TABLE>
     In connection with certain litigation in which the Company is defendant,
     the maker of the aforementioned note stopped making the interest payments
     required under the note. As a result, the Company has ceased recording
     the accrual of interest income. Had the Company been accruing interest on
     this note, the amount recognized would have been approximately $900,000
     per annum.

     Based on the value of the underlying collateral at December 31, 1999, no
     impairment reserve is required for this note.

     The maker of the aforementioned note has previously issued Series B Bonds
     which are collateralized by a second lien on the real property. In March
     2000 the Company acquired the outstanding Series B Bonds from a related
     party for $329,668.

                                     F-12
<PAGE>

                            Greenbriar Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE F - LEASE RIGHTS AND OTHER INTANGIBLES

    Lease rights and other intangibles consist of the following:

<TABLE>
<CAPTION>
                                                                                December 31,
                                                                            ------------------------
                                                                             1999              1998
                                                                            ------            ------
<S>                                                                         <C>              <C>

       Lease rights, net of accumulated amortization of $1,259 and
          $798 in 1999 and 1998                                            $ 4,958           $ 5,419
       Lease buyout options                                                  5,157             5,157
       Goodwill                                                                324               520
                                                                              ----             -----

                                                                           $10,439           $11,096
                                                                            ======            ======
</TABLE>

     In December 31, 1998, the Company exchanged its operating lease rights on
     eight assisted living communities for options to purchase five assisted
     living communities (the Option Communities) currently being leased and
     operated by the Company. The purchase price under the options is the
     lessor's acquisition cost, and the options are exercisable from December
     1999 through December 2001.

     The lease agreements on the Option Communities have implicit interest
     rates of approximately 12%. The Company believes that financing of
     assisted living communities can be obtained at this time at interest
     rates substantially less than 12%.

     For financial statement purposes, the capitalized costs related to the
     eight leases exchanged in 1998 of $5,157,000 were allocated to the Option
     Communities as Lease Buyout Options. No gain or loss was recorded. Upon
     exercise of the purchase options, these costs will be amortized over the
     term of the related debt.

NOTE G - 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, 1999 and 1998:

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

     Investment in securities - The investment in securities consists of
     convertible preferred stock of a private company. Fair value, based on
     estimated future discounted cash flows, approximates carrying value.

     Mortgage note receivable - The mortgage note receivable consists of a
     $6,700,000 note with a stated interest rate of 14% due in 2021 from
     Southern Care Corp. Although the note is in default due to non-payment of
     interest, management believes the value of the underlying collateral is
     adequate to recover the carrying value.

     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.

     Accounts receivable and payable - trade and note payable - affiliate -
     The carrying amount approximates fair value because of their short
     maturity.

                                     F-13
<PAGE>

                            Greenbriar Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>

NOTE H - DEBT

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

                                                                                           December 31,
                                                                                       --------------------
                                                                                        1999          1998
                                                                                       ------        ------
<S>                                                                                   <C>            <C>
       Notes payable to financial institutions maturing through 2018; fixed
          and variable interest rates ranging from 7.5% to 11.75%;
          collateralized by property, fixtures, equipment and the
          assignment of rents                                                         $25,681        $32,176

       Notes payable to individuals and companies maturing through 2022;
          variable and fixed interest rates ranging from 7% to 12%;
          collateralized by real property, personal property, fixtures,
          equipment and the assignment of rents

                                                                                        4,572          4,741

       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 5.4% at December 31, 1998; collateralized by personal
          property, land, fixtures and rents                                            7,110          7,310

       Notes payable to financial institution                                                             -

       Mortgage note payable to a financial institution maturing in 2003;
          interest at 8.86%; collateralized by property and equipment                  13,972         14,028

       Other                                                                            2,459          2,177
                                                                                       ------         ------
                                                                                       53,794         60,432
          Less current maturities                                                       3,317          2,278
                                                                                       ------         ------

                                                                                      $50,477        $58,154
                                                                                       ======         ======
</TABLE>

    Aggregate annual principal maturities of long-term debt at December 31,
1999 are as follows (in thousands):

          2000                                          $ 3,317
          2001                                            3,663
          2002                                            8,676
          2003                                           14,631
          2004                                              763
          Thereafter                                     22,744
                                                         ------

                                                        $53,794

    Certain of the loan agreements contain various restrictive covenants,
    which require, among others things, the maintenance of certain financial
    ratios, as defined.

                                     F-14
<PAGE>
                            Greenbriar Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE I - 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 for each of
     the year through 2001.

NOTE J - OPERATING LEASES

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

     Future minimum payments following December 31, 1999 are as follows (in
     thousands):

          2000                                           $ 5,032
          2001                                             4,345
          2002                                             4,320
          2003                                             3,766
          2004                                             3,278
          Thereafter                                      18,863
                                                          ------
                                                         $39,604

     Lease expense in 1999 and 1998 was $5,196,893 and $9,551,525,
     respectively. Certain leases contain rent escalation clauses which are
     based upon future events or changes in indices.

                                     F-15
<PAGE>
                            Greenbriar Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE K - INCOME TAXES

     At December 31, 1999, the Company had net operating loss carryforwards of
     approximately $31,000,000 which expire between 2002 and 2019. However,
     approximately $8,300,000 of these net operating loss carryforwards have
     limitations that restrict utilization to approximately $1,600,000 for any
     one year.

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

                                                     Year ended December 31,
                                            --------------------------------
                                             1999          1998          1997
                                            ------        ------        ------

          Current                             $ -          $ 222        $   -
          Deferred                              -         (2,118)       (4,115)
                                               ---        ------        ------

                                              $ -        $(1,896)      $(4,115)
                                               ===        ======        ======

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

                                                              December 31,
                                                          --------------------
                                                           1999          1998
                                                          ------        ------

       Deferred tax assets:
          Net operating loss carryforwards               $10,450     $10,473
          Note receivable                                  1,462       1,462
          Alternative minimum tax credit carryforwards       235         235
          Charitable contribution carryforwards              438         438
          Accounts receivable                                 85         240
          Accrued expenses                                   426         685
          Financing obligations                            1,802       1,802
          Other                                              754         211
                                                            ----        ----

          Total deferred tax assets                       15,652      15,546

       Deferred tax liabilities - property and equipment  (9,806)     (9,276)
       Valuation allowance                                (1,096)     (1,520)
                                                         -------      ------

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

     In 1999, the Company determined that its net operating loss carryforwards
     should be approximately $1,200,000 less than the amount reported at
     December 31, 1998, primarily as a result of an Internal Revenue Service
     examination. The amount of the related deferred tax asset has been
     accordingly reduced by $424,000 at December 31, 1999. A corresponding
     reduction was made in the valuation allowance.

                                     F-16
<PAGE>

                            Greenbriar Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE K - INCOME TAXES - Continued

     Following is a reconciliation of income tax expense from continuing
     operations with the amount of tax computed at the federal statutory rate
     of 34% (in thousands):
<TABLE>
<CAPTION>


                                                                  Year ended December 31,
                                                              -----------------------------
                                                               1999        1998        1997
                                                              ------      ------      ------

<S>                                                           <C>        <C>         <C>
       Tax expense (benefit) at the statutory rate            $ 27       $(3,605)    $(3,501)
       Change in deferred tax asset valuation allowance         -          1,520        (418)
       Other                                                   (27)          189        (196)
                                                               ---          ----       -----

       Tax benefit                                            $ -        $(1,896)    $(4,115)
                                                               ===        ======      ======
</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. In the third quarter of 1998,
     management determined that the Company's operating results were less than
     what was initially expected in its profitability model. Accordingly, the
     Company began providing a valuation allowance for the deferred tax
     benefits resulting from losses occurring after that date. The Company
     believes that it is more likely than not that the net deferred tax asset
     at December 31, 1999 of $4,750,000 will be recovered from future
     operations. However, this evaluation is inherently subjective as it
     requires estimates that are susceptible to significant revision as more
     information becomes available.

NOTE L - STOCKHOLDERS' EQUITY

    Preferred Stock

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

<TABLE>
<CAPTION>
                                                                                                    Year ended
                                                                                                    December 31,
                                                                                                 ------------------
                                                                                                 1999          1998
                                                                                                 ----          ----
<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                           68            68

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

      Series G cumulative convertible preferred stock, $.10 par value; liquidation
         value of $8,000; authorized, issued and outstanding, 800 shares                           80            80
                                                                                                  ---           ---

                                                                                                 $289          $289
                                                                                                  ===           ===
</TABLE>


                                     F-17
<PAGE>

                            Greenbriar Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE L - 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 $25.00 per share in 1993 to $55.55 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 has a liquidation value of $5 per share and
     is convertible into common stock at $10.00 per share. Dividends are
     payable in cash at a rate of 9.5%.

     The Series F voting preferred stock has a liquidation value of $10.00 per
     share and each share is convertible into .57 shares of common stock. The
     Series F shareholders have the rights, as a class, to elect one member of
     the Company's board of directors and to approve or reject certain
     transactions, including any mergers or spin-offs involving the Company.
     The holder has the option to convert beginning in January 2000 and must
     convert by January 2001. Dividends are payable in cash at a rate of 6%.

     The Series G preferred stock has a liquidation value of $10.00 per share
     and each share is convertible into .57 shares of common stock. The holder
     has the option to convert beginning in January 2000 and must convert by
     January 2001. Dividends are payable in cash at a rate of 6%.

     The Series F and Series G preferred shares were sold to one investor in
     December 1997 for $22,000,000, less selling and offering costs of
     $716,000. Payment was received in January 1998. In connection with the
     sale, 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 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 the preferred stockholders equal to the
     market price deficiency on the shares received upon conversion.

     The 14% guaranteed return is 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. At December 31, 1999, a Cash
     Payment of $27,763,000 would have been due assuming conversion took
     place.

     At December 31, 1999 and since the date of issuance of the Series F and G
     preferred stock, the Company was not in compliance with one of the
     financial ratio covenants of the stock purchase agreement. The Company
     believes this situation stems from a computational mistake that was made
     at the time this particular ratio test was originally determined. The
     Company has brought this mistake to the attention of representatives of
     the preferred shareholder and anticipates that the ratio will be modified
     to reflect the original intentions of the parties. The representatives
     have not indicated to the Company that they consider that a default has
     occurred, However, an event of default (1) permits the holder to elect a
     number of persons to the board of directors that will constitute 70% of
     the board, (2) gives the holder, upon giving the Company written notice
     of an event of default, the right (Put Right) to require the Company to
     repurchase, "out of funds legally available therefor," any or all of the
     preferred stock for an amount equal to the liquidation value ($22,000,000
     in the aggregate) plus accumulated but unpaid dividends, plus a premium
     of 20%, and (3) entitles the holder to additional dividends of $1.20 per
     share (an aggregate of $660,000 per quarter). Any additional dividends
     paid pursuant to this provision would reduce the amount of the Cash
     Payment resulting from the aforementioned 14% guaranteed return.

                                     F-18
<PAGE>

                            Greenbriar Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE L - STOCKHOLDERS' EQUITY - Continued

     In January and February 2000, the Company made payments totaling
     $3,500,000 to redeem a portion of the Series G preferred stock. In
     conjunction with the payments, the Company entered into an agreement
     whereby (1) it will redeem additional shares from the proceeds generated
     from the sale of assets or from refinancings and (2) it would limit
     capital expenditures until all the shares have been redeemed.

     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 217,500 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 500,000
     shares of the Company's common stock are reserve for issuance.

     The Company has also granted options to officers during 1996, 1997, and
     1998 aggregating 1,000,000 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 based method had
     been applied in measuring compensation cost for stock-based awards
     granted after January 1, 1995. The pro forma amounts are not necessarily
     representative of the effects of stock-based awards on future pro forma
     net income (loss) and pro forma net income (loss) per share because those
     pro forma amounts exclude the pro forma compensation expense related to
     unvested stock options granted before 1995.

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

                                                                                    1999       1998       1997
                                                                                   ------     ------     ------
<S>                                                                               <C>       <C>         <C>
         Net loss allocable to common stockholders (amounts in thousands)
              As reported                                                         $(4,638)  $(13,509)   $(6,041)
              Pro forma                                                           $(5,287)  $(13,937)   $(8,696)

         Net loss per share
              As reported                                                           $(.62)    $(1.86)    $ (.92)
              Pro forma                                                             $(.78)    $(1.92)    $(1.32)
</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: expected volatility of 83 percent for 1999,
     100 percent for 1998 and 37 percent for 1997, risk-free interest rates of
     6.1 percent for 1999, 5.5 percent for 1998 and 5.9 percent for 1997; no
     dividend yield; and weighted average expected lives of 7.3 years.

                                     F-19
<PAGE>

                            Greenbriar Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE L - STOCKHOLDERS' EQUITY - Continued

     Information with respect to options outstanding at December 31, 1999, and
     changes for 1997 - 1999 is as follows:

                                                         1997
                                                --------------------------
                                                                  Weighted
                                                                  average
                                                                 exercise
                                                 Shares             price
                                                 -------           -------
       Outstanding at beginning of year          587,500            $12.20
          Granted                                440,000             17.52
          Exercised                              (27,500)            11.59
                                                --------             -----

       Outstanding at end of year              1,000,000            $14.20
                                               =========             =====

       Options exercisable at

          December 31, 1997                      992,000            $14.23
                                                ========             =====

     Weighted average fair value per share of options granted during 1997 was
     $9.14.

                                                           1998
                                               ---------------------------
                                                                  Weighted
                                                                  average
                                                                 exercise
                                                 Shares             price
                                               ---------         ---------
       Outstanding at beginning of year        1,000,000            $14.23
          Granted                                216,000              2.96
          Exercised                                   -                 -
                                                     ---               ---

       Outstanding at end of year              1,216,000            $12.36
                                               =========             =====

       Options exercisable at

          December 31, 1998                    1,199,333            $12.29
                                               =========             =====

     Weighted average fair value per share of options granted during 1998 was
     $2.14.

                                     F-20
<PAGE>

                            Greenbriar Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE L - STOCKHOLDERS' EQUITY - Continued

                                                          1999
                                               ---------------------------
                                                                 Weighted
                                                                  average
                                                                 exercise
                                                  Shares            price
                                                 --------          -------
       Outstanding at beginning of year         1,216,000           $12.29
          Granted                               1,061,800             1.37
          Cancelled                                (5,500)           20.19
                                                  -------            -----

       Outstanding at end of year               2,272,300           $ 7.21
                                                =========            =====

       Options exercisable at
          December 31, 1999                     1,834,933           $ 8.46
                                                =========            =====

     Weighted average fair value per share of options granted during 1999 was
     $1.37.

     Additional information about stock options outstanding at December 31,
     1999 is summarized as follows:
<TABLE>
<CAPTION>

                                                     Options outstanding
                                    --------------------------------------------------------
                                                     Weighted average
                                        Number           remaining         Weighted average
       Range of exercise prices     outstanding      contractual life       exercise price
       ------------------------     -----------     ------------------     ----------------

<S>                                   <C>                    <C>                <C>
       $.50 to $.75                     660,000              8.4                 .69
       $2.00 to $3.00                   601,800              6.3                2.50
       $10.00 to $14.00                 558,000              4.5               11.58
       $15.00 to $21.00                 452,500              7.5               17.58
                                       --------

                                      2,272,300
                                      =========

                                                 Options exercisable
                                        ----------   ----------------
                                         Number      Weighted average
       Range of exercise prices        exercisable    exercise price
       ------------------------        -----------   ----------------

       $50 to $.75                         460,000           .69
       $2.00 to $3.00                      373,933          2.50
       $10.00 to $14.00                    552,000         11.58
       $15.00 to $21.00                    449,000         17.56
                                          --------

                                         1,834,933
                                         ---------
</TABLE>

<PAGE>

                            Greenbriar Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>

NOTE M - OTHER INCOME (EXPENSE)

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

                                                                 Year ended December 31,
                                                       ---------------------------------
                                                         1999             1998              1997
                                                        ------           ------            ------

<S>                                                     <C>              <C>               <C>
       Gain on sale of securities                       $2,166           $   -               $ -
       Loss on sale of property                           (186)          (2,924)               -
       Write-off of note receivable                         -                -             (2,000)
       Write-off of investment securities                   -                -             (2,100)
       Gain on settlement of litigation                     -                -              2,409
       Prepayment penalty on mortgage note payable          -                -             (1,300)
       Write down of property                               -              (560)               -
       Other                                               198              (85)               (5)
                                                          ----             ----               ---

                                                        $2,178          $(3,569)          $(2,996)
                                                         =====           ======            ======
</TABLE>

     In December 1997, management determined that it was in the best interests
     of the Company to exchange a note receivable of $2,000,000 for certain of
     the borrower's trade receivables. Due to the uncertainty as to the value
     of the trade receivables the Company has fully written off the note and
     has placed no value on the trade receivables. Further, the Company has
     preferred stock of the borrower which was carried at $2,100,000. Due to
     deteriorating financial condition of the borrower the Company has fully
     written off its investment.

     When the Company acquired Wedgwood Retirement Inns, Inc. in March of
     1996, certain representations were made by the seller. Subsequent to the
     acquisition two lawsuits were filed against the Company and the seller.
     In October 1997, the Company and the seller entered into an agreement
     whereby the Company would indemnify the seller for any damages resulting
     from the lawsuits and agreed to assume responsibility for all legal fees
     associated with the lawsuits. In return, the seller agreed to give the
     Company 125,000 shares of its common stock. Subsequent to the agreement,
     both the defendants were awarded a summary judgment and a directed
     verdict, including legal fees, by the respective courts. The Company has
     recorded a gain on the transaction of the fair market value of the stock,
     net of legal fees.

     In October 1997, the Company agreed to an early payoff on a loan on three
     of its communities. The loan, which was refinanced at a lower rate of
     interest, had a prepayment penalty of $1,300,000.

     In 1998, management decided to reduce the percentage of residents in the
     Company's communities who were dependent on direct assistance from
     government agencies for payment of their fees, and to dispose of certain
     communities that were not profitable. As a result, the Company (1) sold
     two communities located in North Carolina and Florida to third parties
     for consideration of $6,175,000, (2) assigned the leases on eleven
     communities located in North Carolina and Texas to third parties for no
     consideration, (3) terminated the leases on two properties located in
     North Carolina, and (4) subleased one property located in Oregon to a
     third party. The aforementioned sales and disposals resulted in an
     aggregate loss of $2,924,000.

     In November of 1999 the Company sold investments in preferred stock which
     resulted in a gain of $2,166,000.

                                     F-22
<PAGE>

                            Greenbriar Corporation

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE N - 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.

NOTE O - FOURTH QUARTER ADJUSTMENTS

     During the fourth quarter of 1998, the Company wrote down property by
     approximately $560,000.

     During the fourth quarter of 1997, the Company wrote off a note
     receivable and an investment in securities in the aggregate amount of
     $4,100,000. See Note M.