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, 2002

                                       OR

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

                          Commission file number 0-8187

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

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

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

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

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

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

Indicate by check mark  whether the issuer (1) filed all reports  required to be
filed by Section 13 or 15(d) of the  Securities  Exchange Act of 1934 during the
past 12 months (or for such shorter  period that the issuer was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
                                 YES [X] NO [ ]

Indicate  by check  mark if there  is no  disclosure  of  delinquent  filers  in
response to Item 405 of Regulation S-K contained in this form, and no disclosure
will be contained,  to the best of issuer's  knowledge,  in definitive  proxy or
information  statements  incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
issuer,  computed by reference to the closing sales price on March 31, 2003, was
approximately $1,126,000.

At March 31, 2003, the issuer had  outstanding  approximately  343,900 shares of
par value $.01 Common Stock.

Documents Incorporated by Reference:
None

<PAGE>

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


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

   ITEM 1: DESCRIPTION OF BUSINESS.............................................3
   ITEM 2: DESCRIPTION OF PROPERTIES..........................................13
   ITEM 3: LEGAL PROCEEDINGS..................................................13
   ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................14
   ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...........15
   ITEM 6: SELECTED FINANCIAL DATA............................................15
   ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION..........16
   ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........20
   ITEM 8: FINANCIAL STATEMENTS...............................................20
   ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURE..............................................20

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

   ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS..................................21
   ITEM 11: EXECUTIVE COMPENSATION............................................22
   ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....25
   ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................27
   ITEM 14.  CONTROLS AND PROCEDURES..........................................28

Part IV.......................................................................29

   ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K...29




















                                       2
<PAGE>

                                     PART I

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

     Overview and Background of Operations

     Greenbriar Corporation, its subsidiaries and affiliates (the "Company") has
     evolved into a retirement  real estate  company  which  specializes  in the
     buying,  selling  and  leasing of  retirement  specific  real estate with a
     concentration  in the assisted living  industry.  The Company also 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..  When necessary,
     the Company enhances the value of these properties by proper operations and
     marketing.  The Company will then resell or lease these properties to third
     parties,  including  partnerships in which the Company has an interest,  at
     their appreciated value.

     As of March 31, 2003, the Company owned or leases four  communities in four
     states.  The Company operated three of the communities , with a capacity of
     252 residents,  and leases one community to a third party.  The Company had
     no interests in any partnerships that operated communities.




     The Assisted Living Industry

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

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

          Demographic  & Social  Trends - The target  market  for the  Company's
          services is, generally, persons 75 years and older, one of the fastest
          growing segments of the U.S. population (the average age of a resident
          in Assisted  Living is typically  age 84 or older and that resident is
          either widowed or single).  According to the U.S.  Census Bureau,  the
          portion of the U.S. population age 75 and older will have increased by
          28.7%, from approximately 13.0 million in 1990 to over 16.8 million by


                                       3
<PAGE>

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

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

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


     Business Strategy

     The Company has a business strategy of acquiring  undervalued  assisted and
     full service retirement  communities,  enhancing their value and selling or
     leasing the property to third parties,  including partnerships in which the
     Company has an  interest.  The Company  believes  that  significant  growth
     opportunities  still  exist to provide  assisted  living  and full  service
     independent living services to the rapidly growing elderly  population.  In
     addition,  due to a series of  setbacks  that have  plagued  the  industry,
     including  overbuilding;  higher than anticipated  operating costs; quicker
     turnover of  residents  than  anticipated  and  difficulties  in  obtaining
     insurance,  there are a number of  properties  available to be purchased at
     what the Company believes to be attractive prices.

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


                                       4
<PAGE>

     Acquisition  Strategy  -  When  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  and the opportunity to
     improve or enhance a community's  operating results. The Company intends to
     sell any of the  communities it acquires when they can be sold or leased at
     profit.

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

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

     The Company's  operating  strategy is to choose properties that can achieve
     and  sustain a strong  competitive  position  within  chosen  markets.  The
     Company  also  seeks  to  continue  to  enhance  the   performance  of  the
     communities  in  its  portfolio.  The  Company  seeks  to  enhance  current
     operations  by  (i)  maintaining  and  improving  occupancy  rates  at  its
     communities (ii) opportunistically  increasing resident service fees, (iii)
     improving operating efficiencies and (iv) improving market positioning.

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


                                       5
<PAGE>

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

     Offer  Alzheimer's and Other Dementia  Services - As of March 31, 2003, the
     Company   operated  two  communities   with  distinct  special  care  wings
     specifically  designed to serve the needs of individuals  with  Alzheimer's
     disease and other forms of dementia.  The  Company's  experience  indicates
     that  Alzheimer's  residents  often respond  better by sharing a suite with
     another Alzheimer's resident rather than being in a single occupancy suite.
     Consequently,  the  Company's  Alzheimer's  programs  are designed to allow
     double occupancy, although rooms are available for single occupancy.


     Assisted Living Services

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

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

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

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

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

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





















                                       6
<PAGE>
<TABLE>
<CAPTION>

     Properties

     Operating  Communities - The following table sets forth certain information
     with  respect to  communities  that were owned,  operated or managed by the
     Company at March 31, 2003. The Company  considers its  communities to be in
     good  operating  condition  and suitable for the purpose for which they are
     being used.

                                                                                   Community
                                                    Care               Resident    Operations
     Community                  Location            Level     Units   Capacity(1)   Commenced    Ownership
-------------------------------------------------------------------------------------------------------------
<S>                         <C>                     <C>         <C>      <C>         <C>         <C>
Graybrier                   Southern Pines, NC      FE, DC      55       90          Feb-94      Owned (2)
Pacific Pointe              King City, OR              S       114       114         Jan-93      Leased (3)
Sweetwater Springs          Lithia Springs, GA      FE, DC      48       48          Oct-96      Leased (4)
Windsor House Greenville    Greenville, SC          FE, DC      31       41          Nov-97      Owned (2)(5)
Total
</TABLE>

     Key:

          S    basic support and supplemental services are offered.

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

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


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

          (2)  Subject  to first  mortgage.  Historically,  each  community  has
               generally  been pledged as  collateral  on a single  mortgage and
               deed of  trust  securing  a note  payable  to a  bank,  financial
               institution,  individual or other lender. The mortgages and deeds
               of trust mature  between 2004 and 2037 and bear interest at fixed
               and  variable  interest  rates  ranging  from  7.5%  to 12% as of
               December 31, 2002

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

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

          (5)  Leased to a third party.



     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 31, 2003 range in size from
     31 to 113 units,  are from one to three  stories and from 20,800 to 106,250
     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.


                                       7
<PAGE>

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


     Operations

     In communities  in the Company's  portfolio,  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 Executive Director consults with outside providers,  such
     as pharmacists and dieticians,  to assist residents with medication review,
     menu planning and response to any special  dietary  needs.  Personal  care,
     dietary services, housekeeping and laundry services are performed primarily
     by line staff who are either part or full-time employees of the Company and
     who are trained to perform a variety of such  services.  Part or  full-time
     employees  perform most building  maintenance  services,  while third party
     contractors  generally perform  elevator,  HVAC maintenance and landscaping
     services.

     The Company's  senior  management and other personnel  provide some support
     services to each of the Company's  communities,  including  development  of
     operational standards, budgets and quality assurance programs,  recruiting,
     training and  financial,  accounting and data  processing  services such as
     accounts payable,  billing and payroll.  Corporate  personnel 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.  All  employees  are required to complete  training
     programs which include a core curriculum comprised of personal care basics,
     job related specific training,  Alzheimer's  disease processes,  first aid,
     fire safety, nutrition,  infection control and customer service.  Executive
     Directors receive training in all of these areas, plus marketing, community
     relations, healthcare management and fiscal management. In addition to some
     classroom training, the Company's communities provide new employees with on
     the job training, utilizing experienced staff as trainers and mentors.


     Quality Assurance

     A commitment  to quality  assurance is designed to achieve a high degree of
     resident  and family  member  satisfaction  with the care and  services the
     Company provides.  In addition to ongoing training and performance  reviews
     of all employees, the Company's quality control measures include:

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

     Regular  Community  Inspections  - Community  inspections  are conducted by
     corporate  personnel  (including  the vice  president of  construction  and
     maintenance,  the vice  president of operations and the director of medical
     services) 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.


                                       8
<PAGE>

     Marketing

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


     Government Regulation

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

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

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

     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.


                                       9
<PAGE>

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

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

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

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

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

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


     Competition

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


                                       10
<PAGE>

     a material adverse effect on the Company's portfolio.  However,  these same
     circumstances provide a substantial  opportunity for the Company to acquire
     communities at a price that will allow a profitable  resale or lease if the
     community  is operated  properly.  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.


     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  however the
     number  of  insurance   carriers  who  offer  such   insurance  is  rapidly
     diminishing  and the costs  continue to escalate.  The Company also carries
     property insurance on each communities.


     Environmental Matters

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

     The Company has conducted environmental assessments on most of its existing
     communities   that  it  operates  plus  one  community  it  leases.   These
     assessments have not revealed any environmental  liability that the Company
     believes would have a material  adverse  effect on the Company's  business,
     assets  or  results  of  operations  nor is the  Company  aware of any such
     environmental  liability.  The  Company  owns one  community  that has been
     operated for nine years for which an environmental  assessment has 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.


                                       11
<PAGE>

     Control by Insiders

     As of March 31, 2003,  the Company's  officers,  directors  and  affiliated
     entities  owning  more than 5% of the  Company's  outstanding  stock  owned
     approximately  56% of the  outstanding  shares of Common  Stock.  Sylvia M.
     Gilley,  widow of former  Chairman,  President and Chief Executive  Officer
     James  R.  Gilley,  and  one  corporation  wholly  owned  by  Mrs.  Gilley,
     beneficially  owned an aggregate of approximately  22.8% of the outstanding
     Common Stock of the Company.  Mr. Victor L. Lund, a director of the Company
     and the  founder of  Wedgwood  Retirement  Inns (a company  acquired by the
     Company in 1996), beneficially owned approximately 17.7% of the outstanding
     shares of Common  Stock.  Mr.  Floyd  Rhoades,  as a result of the stock he
     received  when the  Company  purchased  American  Care  Communities,  Inc.,
     beneficially  owns 9.1% of the Company's  outstanding  stock.  Mr.  William
     Shirley,  due  principally  from the sale to the Company of assisted living
     communities,  beneficially owns  approximately 6% of the outstanding Common
     Stock of the Company.  Accordingly, such individuals will have the ability,
     by voting  their  shares in concert,  to  significantly  influence  (i) the
     election of the Company's  Board of Directors  and, thus, the direction and
     future operations of the Company, and (ii) the outcome of all other matters
     submitted to the Company's stockholders,  including mergers, consolidations
     and the  sale  of all or  substantially  all of the  Company's  assets.  In
     addition,  the parties  listed above  currently  hold options or conversion
     rights to acquire 87,800 shares of Common Stock. The issuance of additional
     shares of Common  Stock  pursuant to the  exercise  of these stock  options
     granted under the Company's  stock option plan would increase the number of
     shares held by the Company's executive  officers,  directors and affiliated
     entities 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 31,  2003,  the  Company  employed  140  employees,  including  58
     full-time  and 82 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.


                                       12
<PAGE>

     Corporate Offices

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


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

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


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

     Lifestyles Senior Housing Managers, LLC

     In 1995 Lifestyles Senior Housing Managers, LLC (Lifestyles) entered into a
     contract to manage an assisted  living  community in Seaside,  OR, which is
     leased by  Neawanna  by the Sea,  LP  (Neawanna)  from a REIT.  In 1996 the
     Company acquired the lease for Neawanna. In March 2000 Lifestyles organized
     and held a meeting with the executive  director of Neawanna for the purpose
     of offering her the position of manager of an assisted living community not
     affiliated with  Greenbriar.  Greenbriar  believes the action of Lifestyles
     represented a breach of their  fiduciary duty as the manager and terminated
     the  management  contract.   Lifestyles  contended  their  termination  was
     unjustified.  The matter was taken to arbitration  and on April 9, 2001 the
     Company was  notified  that the  arbitration  panel had awarded  Lifestyles
     $498,000 for damages plus expenses.

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

     In  September  2002 the Company has entered  into an  agreement to sell its
     interest in VDR Roswell to an independent  third party. This same group has
     purchased  Lifestyles' claim regarding  Neawanna.  The Company is currently
     negotiating the sale of Neawanna to that group. In November 2002 all of the
     above  entities were released from  bankruptcy and Neawanna and VDR Roswell
     were sold.

     Internal Revenue Service Examination

     In 1991 the Company sold four nursing  homes to a not for profit entity who
     used  tax-free  bonds to finance the  purchase.  On September  18, 2002 the
     Company was notified by the Internal  Revenue  Service (IRS) that they have
     initiated an examination under Section 6700 of the Internal Revenue Code as
     it relates to the Company's  activities in connection with the issuance and
     sale of such bonds.

     The IRS  examination  is focused on whether the tax-free  bonds were issued
     inappropriately and whether certain  inappropriate  statements were made or
     furnished  with respect to the  excludability  of income or the securing of
     other tax  benefits.  If so, the IRS is  reviewing  whether the Company was
     involved.

     The Company did sell the properties and receive tax-free bonds. The Company
     subsequently  sold the bonds.  The  Company  believes  that it did  nothing
     inappropriate.  Both the  issuance of tax-free  bonds and their  subsequent
     sale are a highly  technical  area and the Company relied on the advice and
     reports of investment bankers, appraisers, attorneys, and outside certified
     public accountants.

     Other than the initial notice the Company has not been contacted by the IRS
     regarding this matter.


                                       13
<PAGE>

     Other

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


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

     The Company  held its annual  meeting on June 7, 2002.  At that meeting the
     shareholders re-elected two members to the Board of Directors.



























                                       14
<PAGE>
<TABLE>
<CAPTION>

                                     PART II


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

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

                                          2002                      2001
                                    High       Low            High        Low
                               ---------------------     ---------------------

        First Quarter             $24.50      12.50          $11.80       5.20
        Second Quarter             21.00       8.00           11.00       5.00
        Third Quarter               9.50       7.50            7.00       5.20
        Fourth Quarter             10.00       5.50           15.28       4.20

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

     The closing  price on the  Company's  common stock on March 31,  2003,  was
     $7.40 per share. As of March 31, 2003,  there were 508 holders of record of
     the Company's common stock.


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



                                                2002         2001         2000         1999         1998
                                             -------------------------------------------------------------
<S>                                          <C>          <C>          <C>          <C>          <C>
Operating revenue                            $   4,422    $  23,568    $  33,482    $  33,587    $  46,208
Operating expenses                               6,767       27,543        6,378       33,606       50,499
                                             -------------------------------------------------------------
Operating profit (loss)                         (2,345)      (3,975)     (10,115)         (19)      (4,291)

Earnings (loss) from continuing operations
before income taxes                          $  (2,996)   $   9,559    $ (10,115)   $     709    $ (10,357)

Income tax expense                                 749        2,824         --           --           --

    Earnings (loss) from continuing
    operations                                  (3,745)       6,735      (10,115)         709      (10,357)

    Loss from discontinued operations           (4,628)        (317)        (508)        (627)        (245)

    NET EARNINGS (LOSS)                         (8,373)       6,418      (10,623)          82      (10,602)

Earnings (loss) per common Share
Basic and diluted                            $  (23.32)   $   15.53    $  (39.17)   $  (12.33)   $  (37.20)

BALANCE SHEET DATA:
Total assets                                 $  12,624    $  44,022    $ 102,588    $ 119,908    $ 130,353
Long-term debt                                   8,479       16,693       50,887       50,477       58,154
Total liabilities                               11,273       34,753       68,944       69,425       78,516
Preferred stock redemption obligation             --           --         26,988       27,763       21,748
Total stockholders' equity                       1,351        9,269        6,656       22,720       30,089
</TABLE>


                                       15
<PAGE>

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


     Overview

     As of December  31, 2002 the Company owns or leases  three  communities  in
     three  states  with  a  capacity  of  257  residents,   consisting  of  two
     communities that are owned and one that is leased.  In addition the Company
     owns one community  that is operated by an  independent  third party with a
     capacity of 41 residents.

     Since 1996 the Company has owned,  leased and operated  assisted living and
     retirement  communities throughout the United States. During that period of
     time the Company has both acquired and sold over seventy  communities.  The
     acquiring and disposing of its real estate assets has been an integral part
     of the Company's business.

     During the past year the Company's  business  strategy has evolved into one
     of  focusing  on the real  estate  component  and  reducing  its  operating
     activities.  The  Company  objective  is to become an  investor  in various
     entities,  principally partnerships,  whose intent is to acquire properties
     and either sell,  lease or enter into joint venture  agreements  with third
     party operators with respect to these properties

     In October 2001 the company became a 56% limited  partner in a partnership,
     Corinthian  Real Estate  Investors LP (CREI),  which  acquired two assisted
     living  communities  in Carrollton,  TX. In September 2002 the  partnership
     sold its two properties for cash sufficient to pay off its debt plus a note
     for  $1,394,000.  The note is due in two years with interest of 12% payable
     monthly.  CREI owed the Company  $400,000  and settled  its  obligation  by
     giving the Company a $400,000 participation in the note.

     In January 2002 the Company became a 56% limited  partner in a partnership,
     Muskogee Real Estate Investors  (MREI),  which acquired two assisted living
     communities  in Muskogee,  OK,  including one  community  acquired from the
     Company.  In September 2002 the partnership leased the two Communities to a
     third party for three years.  The lease will  generate  positive  cash flow
     during the  three-year  lease period.  The lessee has committed to purchase
     the two properties  sometime  during the three-year  period for $6,000,000.
     The  current  debt on the  property  is  $4,000,000.  When the  purchase is
     completed the Company will receive 56% of $2,000,000 or $1,120,000.

     The Company has a note to Sylvia M. Gilley for $3,375,000  bearing interest
     at 10%. In November 2002, the Company  transferred its 56% interest in MREI
     to Sylvia M. Gilley in exchange for a reduction of  $1,120,000  on the debt
     and a one  year  extension  on the due date of the  Company's  note to Mrs.
     Gilley.

     In September 2002 the Company entered into an agreement with an independent
     third party to jointly  acquire  properties in the future.  The third party
     entity is affiliated with the various  entities that acquired or leased the
     properties  from CREI and MREI  mentioned  above.  Affiliates of this group
     also purchased properties in Harlingen, TX and Sherman, TX from the Company
     on September 30, 2002 and acquired the Company's  interest in entities that
     operated properties in Roswell NM and Seaside OR.

     The  agreement  provides  that  partnerships  formed by the Company will be
     allowed to participate in the acquisition of twelve communities and receive
     a 50% partnership interest. The Company has agreed to pay $660,000, payable
     at $55,000 per month from October 2002 through September 2003, to cover the
     due  diligence  expenses  incurred  by its partner in these  ventures.  The
     agreement  further provides that at any time during the twenty-four  months
     subsequent  to the  formation  of a  partnership  and  the  acquisition  of
     properties the third party can purchase the Company's  partnership interest
     in each of the 12 properties.



     Critical Accounting Policies and Estimates

     The  Company's  discussion  and  analysis of its  financial  condition  and
     results of operations are based upon the Company's  Consolidated  Financial
     Statements,   which  have  been  prepared  in  accordance  with  accounting
     principles  generally  accepted  in  the  United  States.  Certain  of  the
     Company's  accounting  policies  require  the  application  of  judgment in
     selecting the appropriate  assumptions for calculating financial estimates.
     By their  nature,  these  judgments  are subject to an  inherent  degree of
     uncertainty.  These  judgments  and  estimates are based upon the Company's


                                       16
<PAGE>

     historical experience, current trends, and information available from other
     sources that are believed to be  reasonable  under the  circumstances,  the
     results  of which form the basis for making  judgments  about the  carrying
     value of assets and  liabilities  that are not readily  apparent from other
     sources.  Actual results may differ from these  estimates  under  different
     assumptions or conditions.

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



     Deferred Tax Assets

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

     Fiscal 2002 as Compared to Fiscal 2001

     Revenues and Operating Expenses from Assisted Living  Operations.  Revenues
     decreased to $9,120,000 in 2002 compared to $30,861,000 in 2001.  Community
     operating  expenses,  which consist of assisted living operations  expense,
     lease expense and depreciation and amortization, were $8,070,000 in 2002 as
     compared to $25,417,000 in 2001.

     During the last six months of 2001 the Company  disposed of 11  Communities
     as part of  redemption of its Series E and F Preferred  Stock.  The Company
     also sold three  Communities to not for profit  organizations.  The Company
     also sold one  Community  and leased one  Community  to  independent  third
     parties. In addition the Company entered into a sub-management contract for
     three  properties  whereby the  sub-manager  is  retaining  the revenue and
     paying the expenses as their fee for being a sub-manager.  The  sub-manager
     also had an option to acquire the  communities  upon  approval of the third
     party lenders.  For reporting  purposes the Company for the duration of the
     sub  management  agreement  no longer  recorded  the revenue and  operating
     expenses of the three Communities. In May 2002 one of the properties with a
     sub-management  contract  was sold and one was  returned to the Company and
     immediately  leased to a third party.  The final property was shut down and
     is in the process of being turned over to the lender.

     During  the  first  quarter  of 2002  leases  held by the  company  for the
     operation  of two  properties  were  not  renewed.  As of May 31,  2002 one
     property was  contributed  to a partnership  in which the Company has a 56%
     limited  partnership  interest.  The partnership is accounted for using the
     equity method of accounting.

     On September  30, 2002 the company sold two  properties  and on November 1,
     2002 the  Company  sold two  subsidiaries  each of whom  owned an  assisted
     living property

     In October 2001 and May 2002 the Company  obtained 56% limited  partnership
     interests in two partnerships which own four communities. These communities
     are accounted  for using the equity method of accounting  and therefore the
     Company does not record the revenue and expenses of the communities.

     Overall the Company recorded revenue and expenses for 24 fewer  communities
     2002 than the  comparable  periods in the prior year.  The reduction in the
     revenue  and  operating  expenses  for 2002 as  compared  to 2001 is almost
     entirely due to the reduction in the number of Communities owned and leased
     by the company

     Corporate  General  and  Administrative   Expenses.   These  expenses  were
     $2,329,000 in 2002 as compared to  $4,875,000 in 2001.  The decrease in the
     corporate  general and  administrative  expenses is primarily a result of a
     decrease in salaries and related  payroll  expenses.  Due to a  significant
     reduction in the number of  Communities  operated by the Company the number
     of employees on the corporate staff was reduced.  In addition  salaries for
     members  of senior  management  have been  reduced.  Also  during  2001 the
     Company was incurring legal and professional fees with respect to a lawsuit
     with a preferred  shareholder in addition to its customary expenses.  Legal
     fees decreased by $1,55,052 in 2002 when compared to 2001.

     Write-off of Impaired Assets and Related Expenses.  During 2002 the Company
     wrote down the recorded value of a property it is attempting to sell.


                                       17
<PAGE>

     Interest and Dividend  Income  Interest and dividend income was $412,000 in
     2002 as compared to $212,000 in 2001. The increase in interest and dividend
     income is a result of interest  recorded on a  $1,600,000  note  receivable
     related to the Company's investment in the Corinthian Real Estate Investors
     L.P. in November 2001.

     Interest  Expenses.  These  expenses  decreased  to  $2,279,000  in 2001 as
     compared  to  $4,958,000  in 2000.  The  decrease is due  primarily  to the
     reduction in the number of Communities.

     Gain on Sale of Partnership  Interest In November the Company sold it's 56%
     interest  in MREI to  Sylvia M.  Gilley  in  exchange  for a  reduction  of
     $1,120,000  owed to Ms Gilley  and a one year  extension  on the  remaining
     portion of the note due her of $2,255,000.  The Company  recorded income of
     $930,000.

     Other Income Expenses: In September 2002 the Company entered into a venture
     with a third party to secure partnership  interests in future  acquisitions
     of assisted living  communities.  The agreement required the Company to pay
     $660,000  over the next twelve months to fund the cost of the due diligence
     for these acquisitions. There can be no assurance that this venture will be
     successful  and the  Company  has  therefore  charged  the  entire  cost to
     expense.  The Company  records its 56% investment CREI by the equity method
     of  accounting.  The  Company's  share  of the  operating  losses  of  this
     partnership  was  $621,000.  On  September  30,  2002  CREI  sold  it's two
     properties  to a third  party for a gain of  $2,315,000.  The  Company  has
     deferred recognition of its 56% participation in the gain.


     Discontinued  Operations In October 2001the Financial  Accounting  Standard
     Board issued  Statement of Financial  Accounting  Standards #144 Accounting
     for the  Impairment  or Disposal of long Lived  Assets.  (SFAS # 144).  The
     Company  adopted SFAS # 144 effective  January 1, 2002 which  resulted in a
     presentation  of the net operating  results of these  qualifies  properties
     sold  in  2002 as  (loss)  from  discontinued  operations  for all  periods
     presented. During 2002 the Company disposed of six properties.  Revenue for
     the six properties were approximately  $4,698,000 in 2002 and $7,293,000 in
     2001.   Operating  expenses  for  the  six  properties  were  approximately
     $5,325,000 in 2002 and $7,610,000 in 2001.

     The  loss on sale of  these  six  properties  in 2002  was  $4,001,000which
     includes income tax expense of $440,000.






     Fiscal 2001 as Compared to Fiscal 2000

     Revenues and Operating Expenses from Assisted Living  Operations.  Revenues
     decreased  to  $23,568,000  in  2001  compared  to  $33,482,000  in  2000 .
     Community operating  expenses,  which consist of assisted living operations
     expense, lease expense and depreciation and amortization,  were $19,432,000
     in 2001 as compared to  $26,951,000  in 2000.  During 2001 the Company gave
     LSOF 11 communities  as part of the settlement in October 2001,  sold three
     communities to a not-for-profit in April, June and August of 2001,  entered
     into a sub management  agreement for three communities in November,  leased
     one community in November and sold one community to a third party in April.
     The  decrease in operating  revenue and expenses is due almost  entirely to
     the reduction in the number of communities operated by the Company.

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

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

     Interest and Dividend Income.  Interest and dividend income was $212,000 in
     2001 as  compared  to  $254,000 in 2000.  The  reduction  in  interest  and
     dividend is due to a net reduction in the notes that generated the interest
     income.

     Interest  Expenses.  These  expenses  decreased  to  $3,280,000  in 2001 as
     compared to $3,771,000 in 2000. Approximately $1,000,000 of the decrease is
     a result of the disposition of owned communities throughout 2001. There was
     an  increase in interest  expense in 2001 for  additional  notes due to the
     conversion  of the  Series  D  preferred  stock  to a note.  The  Series  D


                                       18
<PAGE>

     preferred  stock was held by Sylvia Gilley,  the wife of the Company's CEO.
     The preferred stock was issued to Mrs. Gilley in 1996 to assist the Company
     in completing an acquisition.  As the holder of preferred stock Mrs. Gilley
     received  dividends,  which are not deductible for tax purposes.  As a note
     the interest paid will provide the Company with a tax  deduction.  The note
     matures on July 1, 2003.  Because the note was a  conversion  of  preferred
     stock the same corporate  limitations regarding the redemption of preferred
     stock will apply to the note

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

     Discontinued  Operations In October 2001the Financial  Accounting  Standard
     Board issued  Statement of Financial  Accounting  Standards #144 Accounting
     for the  Impairment  or Disposal of long Lived  Assets.  (SFAS # 144).  The
     Company  adopted SFAS # 144 effective  January 1, 2002 which  resulted in a
     presentation  of the net operating  results of these  qualifies  properties
     sold  in  2002 as  (loss)  from  discontinued  operations  for all  periods
     presented. During 2002 the Company disposed of six properties.  Revenue for
     the six properties were  approximately  $7293,000 in 2001 and $7,779,000 in
     2000.   Operating  expenses  for  the  six  properties  were  approximately
     $7,610,,000 in 2001 and $8,287,000 in 2001.



     Liquidity and Capital Resources

     At December  31, 2002 the Company  had  current  assets of  $2,048,000  and
     current liabilities of $1,501,000.

     During 2001 the Company  reduced its  long-term  debt from  $50,887,000  to
     $16,693,000.  During 2002 the Company further reduced its long-term debt to
     $8,986,000.  The reduction was due to the sale of properties, the repayment
     of  the  mortgages  related  to  the  properties  and  the  exchange  of  a
     partnership interest held by the Company for a reduction in debt.

     In December  2002 the company  satisfied a $1,600,000  note it owed a third
     party by exchanging it for a $1,600,000  note  receivable  the Company held
     from a third party.  The Company has guaranteed the original  creditor that
     the note will be paid. The note is due September 30, 2004.

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


     Effect of Inflation

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


     Forward Looking Statements

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


                                       19
<PAGE>

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

     Nearly all of the  Company's  debt is financed at fixed rates of  interest.
     Therefore,  the  Company  has  minimal  risk from  exposure  to  changes in
     interest rates.


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

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS
-----------------------------------------

     Directors and Business Experience
     Class I
     Term expires in 2004
     --------------------

     Gene S.  Bertcher           Due  to the  death  of  James  R.  Gilley,  the
     Age 54                      Company's   Chairman,   President   and   Chief
                                 Executive  Officer,  on December 30, 2002,  Mr.
                                 Bertcher  was  elected   President   and  Chief
                                 Executive  Officer  on  January  3,  2003.  Mr.
                                 Bertcher  has been  Executive  Vice  President,
                                 Chief  Financial  Officer and  Treasurer of the
                                 Company since  November 1989 and was a director
                                 from  November  1989 until  September  1996 and
                                 re-elected  to  the  board  in  1999.  He  is a
                                 certified public accountant

     Class II
     Term expires in 2005
     --------------------

     Victor L.  Lund             Mr.  Lund has been a  director  of the  Company
     Age 74                      since  1996.  He  founded  Wedgwood  Retirement
                                 Inns, Inc.  (Wedgwood) in 1977. Wedgwood became
                                 a wholly  owned  subsidiary  of the  Company on
                                 March  31,   1996.   For  most  of   Wedgwood's
                                 existence,  Mr. Lund was Chairman of the Board,
                                 President   and   Chief   Executive    Officer,
                                 positions  he held until the  Company  acquired
                                 Wedgwood.  He continues to serve as Chairman of
                                 the board of Wedgwood.

     Class III
     Term expires in 2003
     --------------------

     Don C.  Benton              Mr.  Benton has been a director  of the Company
     Age 47                      since  June  1994.  He  currently  serves  as a
                                 consultant  to  various  Twelve  Step  ministry
                                 programs.   He  was  Director  of  Twelve  Step
                                 Ministries, Lovers Lane United Methodist Church
                                 of Dallas  from 1991  until 1997 and has been a
                                 consultant   for   Spiritual   Counseling   and
                                 Education  for the  Addiction  Recovery  Center
                                 since 1993. He also served in that capacity for
                                 the Argyle Specialty Hospital.  Mr. Benton is a
                                 Licensed  Chemical  Dependency  Counselor and a
                                 Certified Alcohol and Drug Abuse Counselor.


     Other Executive Officers and Business Experience

     Oscar Smith                 Mr.  Smith has been  Secretary  of the  Company
     Age 60                      since December 2001. He has been Vice President
                                 of  the  Company  since  June  1994.  Prior  to
                                 joining  the  Company  he owned and  operated a
                                 multi-unit retail and manufacturing business in
                                 Norfolk, Virginia..


Organization of the Board of directors

The board of directors has the following committee:

                      Committee         Members
                      ---------         -------
                      Audit             Victor L. Lund - Chairman
                                        Don C. Benton


                                       21
<PAGE>

     Section 16(a) Beneficial Ownership Reporting Compliance

     Based  solely  upon a review of Forms 3, 4 and 5  furnished  to the Company
     pursuant to Rule 16a-3(e)  promulgated under the Securities Exchange Act of
     1934 (the "Exchange Act"), or upon written representations  received by the
     Company,  the Company is not aware of any failure by any director,  officer
     or beneficial  owner of more than 10% of the Company's common stock to file
     with the Securities and Exchange Commission, on a timely basis, any Form 3,
     4 or 5 relating to 1998.

ITEM 11: EXECUTIVE COMPENSATION
-------------------------------

     The  following  tables set forth the  compensation  paid by the Company for
     services rendered during the fiscal years ended December 31, 2002, 2001 and
     2000  to the  Chief  Executive  Officer  of the  Company  and to the  other
     executive  officers  of the  Company  whose  total  annual  salary  in 2002
     exceeded  $100,000,  the number of options  granted to any of such  persons
     during 2002 and the value of the  unexercised  options  held by any of such
     persons on December 31, 2002.
     <TABLE>
     <CAPTION>

                           Summary Compensation Table


                                                                Long Term
                                                              Compensation-
                                                                Number of
                                                                Shares of
      Name and                                   Annual       Common Stock         All
      Principal                               Compensation-    Underlying         Other
      Position                       Year        Salary          Options      Compensation(1)
      ---------                      ----     -------------   --------------  ---------------
      <S>                            <C>      <C>             <C>             <C>
     James R. Gilley,                2002        $12,000               -          $5,500
     Chairman, President and Chief   2001        386,000          10,000           8,000
     Executive Officer               2000        460,000          10,000           5,500


     Gene S. Bertcher,               2002         14,000             (Y)          $6,500
     Executive Vice President and    2001        155,000               -            8,00
     Chief Financial Officer         2000        185,000               -           4,500

</TABLE>

     (1)  Constitutes   directors'  fees  paid  by  the  Company  to  the  named
          individuals.

                               Option Grants Table
                       (Option Grants in Last Fiscal Year)



                Number of      Percent of
               Securities    Total Options
               Underlying      Granted to      Exercise or
                Options       Employees in     Base Price    Expiration
     Name       Granted        Fiscal Year      Per Share        Date
    -----      ----------   ---------------    -----------   -----------

                                       NONE


                                       22
<PAGE>
<TABLE>
<CAPTION>

                   Aggregated Option Exercises in Last Fiscal
                          Year and FY-End Option Values

                                                                                      Value of Unexercised
                                                          Number of Securities            In-the-Money
                                                         Underlying Unexercised         Options at 2002
                                                         Options at 2002 FY-End              FY-End
                           Shares Acquired     Value    -------------------------            ------
          Name               on Exercise     Realized   Exercisable Unexercisable   Exercisable Unexercisable
          ----             ---------------   --------   -------------------------   -------------------------
     <S>                   <C>               <C>        <C>                         <C>
     James R. Gilley            (Y)            (Y)        50,000         (Y)            (Y)           (Y)

     Gene S. Bertcher           (Y)            (Y)         1,000         (Y)            (Y)           (Y)
     </TABLE>

     Stock Option Plan

     The Board of Directors administers the Company's 1992 Stock Option Plan, as
     amended (the "1992 Plan"), 1997 Stock Option Plan (the "1997 Plan") and the
     2000 Stock Option Plan (the "2000 Plan") each of which  provides for grants
     of incentive and  non-qualified  stock  options to the Company's  executive
     officers, as well as its directors and other key employees, and consultants
     in the case of the 1997 Plan and 2000 Plan. Under the three Plans,  options
     are granted to provide  incentives  to  participants  to promote  long-term
     performance of the Company and specifically,  to retain and motivate senior
     management  in  achieving  a  sustained   increase  in  stockholder  value.
     Currently,  none  of the  Plans  has a  pre-set  formula  or  criteria  for
     determining  the number of options that may be granted.  The exercise price
     for an option granted is determined by the  compensation  committee,  in an
     amount not less than 100 percent of the fair market value of the  Company's
     common stock on the date of grant. The compensation  committee  reviews and
     evaluates the overall  compensation  package of the executive  officers and
     determines  the awards based on the overall  performance of the Company and
     the individual performance of the executive officers. The Company currently
     has reserved  10,875  shares of common  stock for  issuance  under the 1992
     Plan,  25,000  shares of common stock under the 1997 Plan and 25,000 shares
     of common stock under the 2000 Plan. As of March 31, 2003 options have been
     granted for all shares  reserved under the 1992 Plan. No options are issued
     for the 1997 or 2000 Plans.

     Compensation of Directors

     The Company pays each director a fee of $2,500 per year, plus a meeting fee
     of $2,000 for each board meeting attended.

     Audit Committee Report
     Due to the death of James R. Gilley and the resignation of S, Louis Jackson
     the Board of Directors currently has three members.  The Audit Committee is
     currently comprised of the two outside directors, Victor L. Lund and Donald
     C. Benton.  The Company  anticipates  that at least one additional  outside
     director will be added within the next sixty days.

















                                       23
<PAGE>


     PERFORMANCE GRAPH

          The following  graph  compares the  cumulative  total return on a $100
     investment  in the  company's  common  stock on December  31, 1998  through
     December 31, 2002,  based on the company's  closing stock price on December
     31, for each of those  years.  The same  information  is  provided  for the
     Standard & Poor's 500 index and,  from 1998  through  2002 for an  industry
     peer group1.





                               ][GRAPHIC OMITTED]
























1 The company  considers its peer group to be public companies whose business is
primarily  in  the  assisted  living  industry.   Those  companies  are  Alterra
Healthcare Corporation,  American Retirement  Corporation,  ARV Assisted Living,
Inc., Assisted Living Concepts,  Inc., Emeritus Corporation and Sunrise Assisted
Living, Inc.





                                       24
<PAGE>

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


     The following  table sets forth as of March 31, 2003,  certain  information
     with respect to all  stockholders  known by the company to own beneficially
     more than 5% of the outstanding common stock (which is the only outstanding
     class of  securities of the company,  except for Series B preferred  stock,
     the ownership of which is immaterial),  as well as information with respect
     to the company's common stock owned beneficially by each director, director
     nominee,  and current executive officer whose compensation from the company
     in 2001 exceeded $100,000, and by all directors and executive officers as a
     group.  Unless  otherwise  indicated,  each of these  stockholders has sole
     voting and investment power with respect to the shares  beneficially owned.
     All share  numbers  have been  adjusted  to reflect the  company's  one for
     twenty-five  reverse  stock split at the close of business on November  30,
     2001 and the company's one for four stock dividend on February 4, 2002.

                                                            Common Stock
                                           -------------------------------------
              Name and Address                           Number         Percent
            of Beneficial Owner                            of              of
                                                         Shares          Class
      --------------------------------------------------------------------------

      Sylvia M.  Gilley(1 & 2)                          153,843          35.1%
      6211 Georgian Court
      Dallas TX 75240

      Victor L.  Lund(3)                                 60,748          17.7%
      816 NE 87th Avenue
      Vancouver WA 98664

      Floyd B.  Rhoades(4)                               38,119          11.7%
      95 Argonaut Street
      Aliso Viego CA 92656

      Gene S.  Bertcher(5)                                2,650          >1.0%
      14185 Dallas Parkway, Suite 650
      Dallas TX 75254

      William A.  Shirley, Jr.(6)                        32,026           9.0%
      2621 State Street
      Dallas TX 75204

      Don C. Benton                                         -              -
      Arrowhead Ranch
      Route 1, Box 204
      Clarksville TX 75426

      American Realty Trust, Inc.(7)                      4,874           1.4%
      10670 North Central Expressway
      Suite 300
      Dallas TX 75231

      Basic Capital Management,                           7,063           2.1%
      Inc.(7)
      10670 North Central Expressway
      Suite 600
      Dallas TX 75231

      Nevada Sea Investments, Inc.(7)                     3,640           1.1%
      10670 North Central Expressway
      Suite 501
      Dallas TX 75231


                                             25
<PAGE>

      International Health Products,                     12,454           3.6%
      Inc.(7)
      10670 North Central Expressway
      Suite 410
      Dallas TX 75231

      Davister Corporation (7)                           12,560           3.7%
      10670 North Central Expressway
      Suite 410
      Dallas TX 75231

      Institutional Capital                              12,125           3.5%
      Corporation (7)
      10670 North Central Expressway
      Suite 411
      Dallas TX 75231

      All executive officers and                         62,891          18.4%
      directors as a group(five
      persons)

     (1) The  shares are owned by a grantor  trust for the  benefit of Sylvia M.
     Gilley, the widow of James R. Gilley.

     (2) Consists of 46,143 shares of common stock owned by JRG Investments Co.,
     Inc., a corporation  wholly owned by James R. Gilley ("JRG");  5,500 shares
     of common  stock  owned by a grantor  trust for the benefit of James R. and
     Sylvia M. Gilley;  options to James R. Gilley to purchase  10,000 shares of
     common stock at $265.60 per share,  exercisable  through December 31, 2006;
     options to James R. Gilley to  purchase  10,000  shares of common  stock at
     $350.00 per share,  exercisable through December 31, 2007; options to James
     R. Gilley to purchase  10,000  shares of common  stock at $50.00 per share,
     exercisable  through  December  31,  2008;  options  to James R.  Gilley to
     purchase  10,000  shares of common  stock at $13.80  per share  exercisable
     through  December 31, 2009;  options to James R. Gilley to purchase  10,000
     shares of common stock at $7.50 per share, exercisable through December 31,
     2010;  options to James R. Gilley to purchase 10,000 shares of common stock
     at $12.80 per share,  exercisable  through  December 31, 2011; a warrant to
     purchase   5,400  shares  at  an  exercise  price  of  $200.00  per  share,
     exercisable  through  October 1, 2006,  owned by the grantor  trust for the
     benefit of Mr. and Mrs. Gilley;  and 26,800 shares of common stock owned of
     record by Mrs. Gilley.  Other than shares owned by the grantor trust,  Mrs.
     Gilley disclaims any beneficial ownership of the shares owned by Mr. Gilley
     and JRG.  Mr.  Gilley and JRG disclaim  beneficial  ownership of the shares
     owned by Mrs.  Gilley.  Mr.  Gilley has pledged all of his shares in JRG to
     Institutional  Capital Corporation  (formerly known as MS Holding Corp.), a
     non-affiliated  entity,  as collateral  for repayment of a promissory  note
     payable  by JRG  to  Institutional  Capital  Corporation  in the  remaining
     principal  amount of  $2,996,373.  (3) Consists of 60,748  shares of common
     stock owned by Mr. Lund.

     (4) Consists of 31,341 shares of common stock owned by Mr. Rhoades, options
     to Mr.,  Rhoades to purchase  10,000  shares of common stock at $350.00 per
     share, and 58 shares owned by his spouse. Mr. Rhoades disclaims  beneficial
     ownership of shares owned by his spouse.

     (5)  Consists of 1,650  shares of common  stock owned by Mr.  Bertcher  and
     options to purchase 1,000 shares of common stock for $225.00 per share, all
     of which are vested.

     (6) Includes  20,622 shares of common stock owned of record by Mr.  Shirley
     and 11,404  shares of common  stock  which Mr.  Shirley  may  acquire  upon
     conversion of certain limited partnership units.

     (7) Based on a Schedule  13D,  dated April 8, 1998,  filed by each of these
     entities and by Gene E. Phillips, each of these entities owns of record the
     number of shares set forth for such  entity in the table  above and each of
     such entities and Mr.  Phillips  disclaim they filed such Schedule 13D as a
     "group". According to the Schedule 13D, Basic Capital Management,  Inc. may
     be deemed to beneficially own 15,578 shares,  including the shares owned of
     record by American Realty Trust, Inc. and Nevada Sea Investments, Inc., and
     Mr. Phillips may be deemed to  beneficially  own all 52,717 shares owned of
     record and  beneficially  by these six  entities.  In the Schedule 13D, Mr.
     Phillips does not affirm beneficial ownership of any of these shares.


                                       26
<PAGE>

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------

     Certain Relationships and Related Transactions

     The following  paragraphs describe certain transactions between the company
     and any  stockholder  beneficially  owning more than 5% of the  outstanding
     common  stock,  the  executive  officers  and  directors of the company and
     members  of the  immediate  family  or  affiliates  of any of  them,  which
     occurred since the beginning of the 1998 fiscal year.

     On November  19, 1993 the company  sold 10,000  unregistered  shares of its
     common stock to The April Trust,  a grantor  trust for the benefit of James
     R. Gilley, Chairman,  President and Chief Executive Officer of the company,
     and his wife,  at a price equal to the  closing  price of the shares on the
     American Stock Exchange on that date ($281.25) per share for  consideration
     consisting  of a  $2,250,000  promissory  note (for  which Mr.  Gilley is a
     co-maker) for the full purchase  price  thereof,  of which  $450,000 of the
     principal amount of the note is a recourse obligation of Mr. Gilley and the
     grantor trust and the balance of the note is  non-recourse.  The note bears
     interest at a rate of 5.5% per annum,  which  accrues and is payable  along
     with all principal  upon maturity on November 18, 2003, and is secured by a
     pledge of the stock back to the company to hold as  collateral  for payment
     of the note pending payment in full. On December 16,1996,  the compensation
     committee extended the due date of the note to November 18, 2008.

     Effective  December  31, 2002 April Trust and the Company  agreed to cancel
     the  $2,250,000  promissory  note.  The 10,000  shares were returned to the
     Company.  From an  unrelated  matter  the  Company  has a note due  James R
     Gilley's estate of $1,081,000. This note was reduced to $631,000 to reflect
     the $450,000 recourse portion of the $2,250,000 promissory note.

     Gene S.  Bertcher,  an officer of the company,  was indebted to the company
     for an aggregate of $92,500, for notes issued in 1993 as payment for shares
     of Common  Stock.  Mr.  Bertcher's  notes  were  secured by a pledge of 650
     shares of common  stock.  Such notes bore  interest  at a rate equal to any
     cash or stock  dividends  declared on the purchased stock and were due in a
     single  installment  for each such note on or before October 1, 2002.  Upon
     maturity  of the  note  the  stock  was  returned  to the  Company  in full
     satisfaction of the obligation.

     As part of the Wedgwood  Acquisition and as an accommodation to the sellers
     to assist them to help achieve a tax-free acquisition,  James R. Gilley and
     members of his  family  agreed to  contribute  a retail  property  in North
     Carolina  to the  company in exchange  for 27,000  shares of the  company's
     Series D preferred  stock.  Mr.  Gilley and his family had owned the retail
     property for over five years. The consideration received by James R. Gilley
     and  members  of his  family,  valued  at  $3,375,000,  was  based  upon an
     independent  appraisal of the North Carolina shopping center.  The Series D
     preferred stock is unregistered,  has no trading market unless converted to
     common  stock and is  entitled to one vote per share on all matters to come
     before a meeting of  stockholders.  The Series D  preferred  stock  bears a
     cumulative quarterly dividend of 9.5% per year, which approximates the cash
     flow Mr.  Gilley  and his family  members  were  receiving  from the retail
     property  prior to its  contribution  to the  company.  Mr.  Gilley and his
     family  members and  affiliates  transferred  all of the shares of Series D
     preferred  stock to The April Trust  effective  April 1997. On July 1, 2001
     the Series D Preferred Stock was converted to a note due June 30, 2004. The
     note bears interest at the rate of 10% per annum.

     The Company owned a 56% interest in a partnership, which owned two assisted
     living communities in Oklahoma.  The partnership leased the two communities
     to an  independent  third party for three  years and entered  into a future


                                       27
<PAGE>

     sales contract that obligated the leasee to purchase the two communities at
     the end of the lease.  If the  transaction  were  completed  as planned the
     Company would receive  $1,120,000 for its 56% interest.  To reduce its debt
     the Company  entered into an agreement with April Trust to transfer its 56%
     interest  to the April Trust in  exchange  for a  reduction  in the debt of
     $1,120,000, which reduced its obligation to April Trust to $2,255,000.

     It is anticipated that in the future the company's  executive officers will
     participate in the profits or losses derived from the company's involvement
     in real estate and senior living property  partnerships.  The company feels
     that allowing these officers to participate as partners  instead of drawing
     large  salaries  will  allow the  company to hold down its  overhead  while
     rewarding those executive officers who help the company prosper.

     It is the policy of the company that all  transactions  between the company
     and any officer or director,  or any of their affiliates,  must be approved
     by non-management  members of the board of directors of the company. All of
     the transactions described above were so approved.


ITEM 14.  CONTROLS AND PROCEDURES
---------------------------------

     Based on their most recent  evaluation,  which was completed within 90 days
     of the  filing  of  this  Form  10-K,  the  Chief  Executive  Officer/Chief
     Financial Officer has concluded that the Company's  disclosure controls and
     procedures  are  effective  to  insure  that  information  required  to  be
     disclosed in reports that the Company files or submits under the Securities
     Exchange Act of 1934 is recorded, processed, summarized and reported within
     the time periods specified in Securities and Exchange  Commission rules and
     forms. There were no significant changes in the Company's internal controls
     or other factors that could significantly  affect these disclosure controls
     subsequent to the date of the evaluation,  including any corrective actions
     with regard to significant deficiencies and material weaknesses.

















                                       28
<PAGE>

                                     PART IV

ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
------------------------------------------------------------------------

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

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

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

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

     (b)  REPORTS ON FORM 8-K:  The Company did not file any reports on Form 8-K
          during the quarterly period ended December 31, 2002.

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

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



                                       29
<PAGE>

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



                                       30
<PAGE>

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



                                       31
<PAGE>

          Exhibit
          Number    Description of Exhibit
          ----------------------------------------------------------------------
          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).
          10.22.4   Irrevocable  Proxy from James R. Gilley to M.S.  Holding Co.
                    Corp.  relating to shares of capital stock of JRG Investment
                    Co., Inc. (filed as Exhibit 10.22.4 to Registrant's Form S-4
                    Registration  Statement,   Registration  No.  33-55968,  and
                    incorporated herein by this reference).
          10.22.5   Blank  Assignment  and  Power  of  Attorney  signed  by  JRG
                    Investment  Co.,  Inc.  relating  to  482,000  (96,400  post
                    December 1995 shares)  shares of  Registrant's  Common Stock
                    (filed  as  Exhibit   10.22.5  to   Registrant's   Form  S-4
                    Registration  Statement,   Registration  No.  33-55968,  and
                    incorporated herein by this reference).
          10.22.6   Blank  Assignment  and  Power  of  Attorney  signed  by  JRG
                    Investment Co., Inc.  relating to 1,268,000  shares (236,600
                    post  December  1995  shares) of  Registrant's  Common Stock
                    (filed  as  Exhibit   10.22.6  to   Registrant's   Form  S-4
                    Registration  Statement,   Registration  No.  33-55968,  and
                    incorporated herein by this reference).
          10.22.7   Three Blank Assignments and Powers of Attorney signed by JRG
                    Investment  Co.,  Inc.,  each  relating  to  600,000  shares
                    (120,000 post December 1995 shares) of  Registrant's  Common
                    Stock  (filed as Exhibit  10.22.7 to  Registrant's  Form S-4
                    Registration  Statement,   Registration  No.  33-55968,  and
                    incorporated herein by this reference).
          10.22.8   Blank  Assignment  and  Power  of  Attorney  signed  by  JRG
                    Investment  Co.,  Inc.   relating  to  2,281,818  shares  of
                    Registrant's  Common  Stock  (filed as  Exhibit  10.22.8  to
                    Registrant's Form S-4 Registration  Statement,  Registration
                    No. 33-55968, and incorporated herein by this reference).
          10.22.9   Blank  Assignment  and  Power  of  Attorney  signed  by  JRG
                    Investment   Co.,  Inc.   relating  to  905,557   shares  of
                    Registrant's  Series A  Preferred  Stock  (filed as  Exhibit
                    10.22.9 to  Registrant's  Form S-4  Registration  Statement,
                    Registration No. 33-55968,  and incorporated  herein by this
                    reference).
          10.37     Employment Agreements dated December 31, 1996
          10.37.1   Modified  Employment  Contract between the Company and James
                    R. Gilley
          10.37.2   Modified Employment Contract between the Company and Gene S.
                    Bertcher
          10.38     Stock  Purchase  Warrant  dated  December  31, 1996  between
                    registrant and The April Trust
          10.39     Portfolio Divestiture Agreement between certain subsidiaries
                    of the Company, the Company, Health Care REIT and HCRI Texas
                    Properties, Ltd.
          21.1*     Subsidiaries of Registrant.
          23.1*     Consent of Grant Thornton.
          99.2*     Certification  pursuant to Section 906 of the Sarbanes-Oxley
                    Act

          *         Filed herewith.





                                       32
<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



April 11, 2003                                     by:  /s/ Gene S. Bertcher
                                                        ------------------------
                                                        Gene S. Bertcher
                                                        President and
                                                        Chief Financial Officer
                                                        (Principal Financial and
                                                        Accounting Officer)































                                       33
<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


April 11, 2003            by: /s/Gene S. Bertcher
                             ---------------------------------------------------
                            Gene S. Bertcher, 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.



     April 11, 2003         /s/  Don C. Benton
                            ----------------------------------------------------
                            Don C. Benton, Director

     April 11, 2003         /s/  Gene S. Bertcher
                            ----------------------------------------------------
                            Gene S. Bertcher, President, Chief Executive Officer
                            and Director

     April 11, 2003         /s/  Victor L. Lund
                            ----------------------------------------------------
                            Victor L. Lund, Director



<PAGE>

                             GREENBRIAR CORPORATION
                                DECEMBER 31, 2002

                                 CERTIFICATIONS

I, Gene S. Bertcher, Chief Executive Officer of Greenbriar Corporation,  certify
that:

1. I have reviewed  this annual  report on Form 10-K of  Greenbriar  Corporation
("Registrant");

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial condition,  results of operations,  and cash flows of the
Registrant as of, and for, the periods presented in this annual report;

4.  The  Registrant's  other  certifying  officer  and  I  are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

a) designed  such  disclosure  controls and  procedures  to ensure that material
information relating to the Registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this annual report is being prepared;

b) evaluated  the  effectiveness  of the  Registrant's  disclosure  controls and
procedures  as of a date  within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c) presented in this annual report our conclusions  about the  effectiveness  of
the  disclosure  controls  and  procedures  based  on our  evaluation  as of the
Evaluation Date.

5. The Registrant's other certifying officer and I have disclosed,  based on our
most recent evaluation,  to the Registrant's auditors and the audit committee of
the Registrant's board of directors:

a) all significant  deficiencies in the design or operation of internal controls
which  could  adversely  affect the  Registrant's  ability  to record,  process,
summarize and report  financial data and have  identified  for the  Registrant's
auditors any material weaknesses in internal controls; and

b) any  fraud,  whether  or not  material,  that  involves  management  or other
employees who have a significant role in the Registrant's internal controls; and

6. The Registrant's other certifying officer and I have indicated in this annual
report whether or not there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.





                              /s/ GENE S. BERTCHER
                     --------------------------------------
                                Gene S. Bertcher
                             Chief Executive Officer
                             Chief Financial Officer
                                 April 11, 2003


                                      34

 <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 (a Nevada  corporation) and subsidiaries as of December 31, 2002 and
2001,  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, 2002. These financial  statements are the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  consolidated  financial  position  of  Greenbriar
Corporation  and  subsidiaries  as of  December  31,  2002  and  2001,  and  the
consolidated  results of their operations and their  consolidated cash flows for
each of the three years in the period ended  December 31,  2002,  in  conformity
with accounting principles generally accepted in the United States of America.

As discussed in Note O to the consolidated  financial statements,  on January 1,
2002, the Company  adopted the  provisions of Statement of Financial  Accounting
Standards  No. 144  "Accounting  for the  Impairment  or Disposal of  Long-Lived
Assets."



/s/ Grant Thornton, LLP
-----------------------
Dallas, Texas
March 28, 2003



<PAGE>

                     Greenbriar Corporation and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS
                             (Amounts in thousands)

                                  December 31,



                   ASSETS                                    2002        2001
                                                           --------    --------

CURRENT ASSETS
    Cash and cash equivalents                              $    661    $  1,246
    Short-term investments                                     --         1,098
    Accounts receivable - trade                                  22         106
    Receivables from affiliated partnership                    --           311
    Notes receivable                                          1,238        --
    Prepaid expenses                                           --           572
    Other current assets, net                                   323         291
                                                           --------    --------

               Total current assets                           2,244       3,624

NOTES RECEIVABLE, from sale of properties                     7,997       6,400
    Less deferred gains                                      (6,127)     (6,090)
                                                           --------    --------
                                                              1,870         310

NOTE RECEIVABLE FROM AFFILIATE PARTNERSHIP                     --         1,600

PROPERTY AND EQUIPMENT, AT COST
    Land and improvements                                       678       4,430
    Buildings and improvements                                6,850      32,675
    Equipment and furnishings                                 1,387       3,134
                                                           --------    --------
                                                              8,915      40,239
    Less accumulated depreciation and amortization           (2,282)     (6,498)
                                                           --------    --------
                                                              6,633      33,741

DEFERRED INCOME TAX BENEFIT                                   1,161       2,350

DEPOSITS                                                        311       1,730

OTHER ASSETS, NET                                               405         667
                                                           --------    --------

                                                           $ 12,624    $ 44,022
                                                           ========    ========

                                      F-2




<PAGE>
<TABLE>
<CAPTION>

                     Greenbriar Corporation and Subsidiaries

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

                                  December 31,



    LIABILITIES AND STOCKHOLDERS' EQUITY                          2002        2001
                                                                --------    --------
<S>                                                             <C>         <C>
CURRENT LIABILITIES
    Current maturities of long-term debt                        $    113    $  4,316
    Accounts payable - trade                                         405       1,042
    Accrued expenses                                                 367       1,116
    Other current liabilities                                        668         467
                                                                --------    --------

               Total current liabilities                           1,553       6,941

LONG-TERM DEBT, including amounts to related
    parties of $2,853,000                                          8,479      16,693

INVESTMENT IN AFFILIATE                                               46          96

DEFERRED GAIN                                                        740        --

FINANCING OBLIGATIONS                                               --        10,815

OTHER LONG-TERM LIABILITIES                                          455         208
                                                                --------    --------

               Total liabilities                                  11,273      34,753

CONTINGENCIES

STOCKHOLDERS' EQUITY
    Preferred stock (liquidation value of $100)                        1           1
    Common stock, $.20 par value; authorized, 4,000,000
       shares; issued and outstanding, 344,000 shares in 2002
       and 359,000 in 2001                                            72          75
    Additional paid-in capital                                    54,923      56,828
    Accumulated deficit                                          (53,645)    (45,268)
                                                                --------    --------
                                                                   1,351      11,636
    Less stock purchase notes receivable                            --        (2,367)
                                                                --------    --------
                                                                   1,351       9,269
                                                                --------    --------

                                                                $ 12,624    $ 44,022
                                                                ========    ========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                       F-3


<PAGE>
<TABLE>
<CAPTION>

                     Greenbriar Corporation and Subsidiaries

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

                             Year ended December 31,


                                                                  2002         2001         2000
                                                               ---------    ---------    ---------
<S>                                                            <C>          <C>          <C>
Revenue
    Assisted living operations                                 $   4,422    $  23,568    $  33,482

Operating expenses
    Assisted living operations                                     2,233       15,006       19,892
    Lease expense 1,618                                            2,391        4,165
    Facility depreciation and amortization                           321        2,035        2,894
    Termination of employment contracts                             --          1,349         --
    General and administrative                                     2,329        4,875        5,448
    Write-down of assets                                             266        1,887        7,461
                                                               ---------    ---------    ---------
                                                                   6,767       27,543       39,860
                                                               ---------    ---------    ---------

                  Operating loss                                  (2,345)      (3,975)      (6,378)

Other income (expense)
    Interest and dividend income                                     412          212          254
    Interest expense                                                (840)      (3,280)      (3,771)
    Gain on sale of partnership interest - related party             930         --           --
    Other income (expense), net                                   (1,153)      16,602         (220)
                                                               ---------    ---------    ---------
                                                                    (651)      13,534       (3,737)
                                                               ---------    ---------    ---------

                  Earnings (loss) before income taxes             (2,996)       9,559      (10,115)

Income tax expense                                                   749        2,824         --
                                                               ---------    ---------    ---------

                  Earnings (loss) from continuing operations      (3,745)       6,735      (10,115)

Discontinued operations
    Loss from operations                                            (627)        (317)        (508)
    Loss on disposal, including taxes of $440                     (4,001)        --           --
                                                               ---------    ---------    ---------

                  Loss from discontinued operations               (4,628)        (317)        (508)
                                                               ---------    ---------    ---------

                  NET EARNINGS (LOSS)                             (8,373)       6,418      (10,623)

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

Net earnings (loss) allocable to common stockholders           $  (8,377)   $   6,258    $ (14,728)
                                                               =========    =========    =========

Basic and diluted earnings (loss) per share
    Continuing operations                                      $   (9.76)   $   16.32    $  (37.82)
    Discontinued operations                                       (13.57)        (.79)       (1.35)
                                                               ---------    ---------    ---------

                  Net earnings (loss) per share                $  (23.33)   $   15.53    $  (39.17)
                                                               =========    =========    =========

Weighted average number of common shares outstanding:
    Basic and diluted                                            359,000      403,000      376,000
</TABLE>


        The accompanying notes are an integral part of these statements.

                                       F-4

<PAGE>
<TABLE>
<CAPTION>

                     Greenbriar Corporation and Subsidiaries

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


                                                                                                                 Stock
                                           Preferred stock        Common stock        Additional               purchase
                                        --------------------   -------------------       paid in  Accumulated    notes
                                         Shares      Amount     Shares      Amount      capital    deficit    receivable    Total
                                        --------    --------   --------    --------    --------    --------    --------    --------
<S>                                     <C>         <C>        <C>         <C>         <C>         <C>         <C>         <C>
Balance at January 1, 2000                 2,876    $    289        365    $     76    $ 61,520    $(36,798)   $ (2,367)   $ 22,720

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

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

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

Balance at December 31, 2001                   1           1        359          75      56,828     (45,268)     (2,367)      9,269

  Write-off of stock purchase notes
     receivable                             --          --          (15)         (3)     (1,905)       --         1,905          (3)
  Dividend on preferred stock               --          --         --          --          --            (4)       --            (4)
  Other                                     --          --         --          --          --          --            12          12
  Stock purchase notes receivable
     reclassified as a reduction of
     related party debt                     --          --         --          --          --          --           450         450
  Net loss                                  --          --         --          --          --        (8,373)       --        (8,373)
                                        --------    --------   --------    --------    --------    --------    --------    --------

Balance at December 31, 2002                   1    $      1        344    $     72    $ 54,923    $(53,645)   $   --      $  1,351
                                        ========    ========   ========    ========    ========    ========    ========    ========
</TABLE>


         The accompanying notes are an integral part of this statement.

                                       F-5

<PAGE>
<TABLE>
<CAPTION>

                     Greenbriar Corporation and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)


                                                                   Year ended December 31,
                                                              --------------------------------
                                                                2002        2001        2000
                                                              --------    --------    --------
<S>                                                           <C>         <C>         <C>
Cash flows from operating activities
    Net earnings (loss)                                       $ (8,373)   $  6,418    $(10,623)
    Adjustments to reconcile net earnings (loss) to net
       cash provided by (used in) operating activities
          Depreciation and amortization                            321       2,329       3,740
          Loss from affiliate                                      612        --          --
          (Gain) loss on sale of properties                      3,561     (16,635)        (49)
          Employment contract termination                         --         1,349        --
          Write down of impaired assets                            266       1,887       7,461
          Deferred income taxes                                  1,189       2,400        --
          Changes in operating assets and liabilities
                Accounts receivable - trade                        395         252        (288)
                Other current and noncurrent assets               (927)        809        (750)
                Accounts payable and other liabilities            (929)     (1,391)        750
                                                              --------    --------    --------

                  Net cash provided by (used in)
                    operating activities                        (3,885)     (2,582)        241

Cash flows from investing activities
    Purchase of property and equipment                            (285)    (24,294)     (1,796)
    Proceeds from sale of investments                            1,098        --          --
    Purchase of investments                                       --        (1,098)       --
    Proceeds from sales of properties                            7,460      33,550       1,014
                                                              --------    --------    --------

                   Net cash provided by (used in)
                      investing activities                       8,273       8,158        (782)

Cash flows from financing activities
    Proceeds from borrowings                                     1,730      15,788       3,956
    Payments on debt                                            (6,699)    (18,045)     (3,725)
    Dividends on preferred stock                                    (4)       (160)     (1,457)
    Extinguishment of preferred stock redemption obligation       --        (4,200)     (4,760)
                                                              --------    --------    --------

                Net cash used in financing activities           (4,973)     (6,617)     (5,986)
                                                              --------    --------    --------

                Net increase (decrease) in cash
                   and cash equivalents                           (585)     (1,041)     (6,527)

Cash and cash equivalents at beginning of year                   1,246       2,287       8,814
                                                              --------    --------    --------

Cash and cash equivalents at end of year                      $    661    $  1,246    $  2,287
                                                              ========    ========    ========
</TABLE>


        The accompanying notes are an integral part of these statements.

                                       F-6

<PAGE>

                     Greenbriar Corporation and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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

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

     Greenbriar  Corporation's business consists of development and operation of
     assisted living communities that provide housing,  healthcare,  hospitality
     and personal  services to elderly  individuals.  At December 31, 2002,  the
     Company had three communities in operation in three states.

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

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

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

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

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

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

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

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

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


                                      F-7
<PAGE>

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
     ------------------------------

     Notes  receivable  are  identified  as impaired  when it is  probable  that
     interest and principal will not be collected  according to the  contractual
     terms of the note  agreements.  The accrual of interest is  discontinued on
     such  notes,  and no income is  recognized  until all past due  amounts  of
     principal  and interest are  recovered in full.  No notes were deemed to be
     impaired at December 31, 2001 and 2002.

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

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

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

     Reclassifications
     -----------------

     Certain  prior year  amounts  have been  reclassified  to conform  with the
     current year presentation.

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

     The Company has elected to follow  Accounting  Principles Board Opinion No.
     25,  Accounting  for Stock  Issued  to  Employees  (APB 25) in its  primary
     financial statements and has provided supplemental  disclosures required by
     Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting
     for  Stock-Based  Compensation"  and by Statement  of Financial  Accounting
     Standards No. 148,  "Accounting for  Stock-Based  Compensation - Transition
     and Disclosure an Amendment of SFAS No. 123."

     Options  were  granted  at market  during  2001 and 2000,  are  exercisable
     immediately, and expire 10 years from date of grant.

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


                                      F-8
<PAGE>
<TABLE>
<CAPTION>

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

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

                                                              2002        2001        2000
                                                            --------    --------    --------
     <S>                                                    <C>         <C>         <C>
     Net earnings (loss) allocable to common stockholders
          As reported                                       $ (8,377)   $  6,258    $(14,728)
          Deduct:  total stock-based compensation under
              fair value based method for all awards            (464)       (369)       (325)
                                                            --------    --------    --------

          Pro forma                                         $ (8,841)   $  5,889    $(15,080)
                                                            ========    ========    ========

     Net earnings (loss) per share
          As reported                                       $ (23.33)   $  15.53    $ (39.17)
          Pro forma                                         $ (24.63)   $  14.61    $ (40.11)
</TABLE>

     The fair value of these  options was  estimated at the date of grant during
     2001 and  2000  using  the  Black-Scholes  option  pricing  model  with the
     following weighted-average  assumptions: no dividends;  expected volatility
     of 317 percent in 2001, and 87 percent for 2000;  risk-free  interest rates
     of 5.0 percent for 2001,  and 5.6 percent for 2000;  and  weighted  average
     expected lives of 6.8 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 (loss) 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 2002,
     2001 and 2000, stock options for approximately  70,000 shares were excluded
     from diluted shares outstanding because their effect was anti-dilutive.

     Investment in Affiliate
     -----------------------

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


                                      F-9
<PAGE>

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

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

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

     Sales of Real Estate
     --------------------

     Gains on sales of real estate are  recognized  to the extent  permitted  by
     SFAS No. 66,  "Accounting for Sales of Real Estate." Until the requirements
     of SFAS No.  66 have  been  met for  full  profit  recognition,  sales  are
     accounted  for by the  installment  or cost recovery  method,  whichever is
     appropriate.

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

     In  October  2001,  the FASB  issued  SFAS  No.  144,  "Accounting  for the
     Impairment or Disposal of Long-Lived  Assets," which addresses how and when
     to  measure  impairment  on  long-lived  assets  and  how  to  account  for
     long-lived  assets that an entity plans to dispose of either  through sale,
     abandonment,  exchange, or distribution to owners. The Company adopted SFAS
     No. 144 as of January 1, 2002. See Note O for a discussion of the impact on
     the Company from the adoption of SFAS No. 144.

     In  January  2003,  the FASB  issued  FIN 46,  "Consolidation  of  Variable
     Interest Entities." FIN 46 clarifies the application of Accounting Research
     Bulletin 51, "Consolidated Financial Statements." For certain entities that
     do not  have  sufficient  equity  at risk for the  entity  to  finance  its
     activities  without  additional  subordinated  financial support from other
     parties or in which equity investors do not have the  characteristics  of a
     controlling  financial interest  ("variable interest  entities").  Variable
     interest  entities  within  the  scope  of FIN 46  will be  required  to be
     consolidated  by their primary  beneficiary.  The primary  beneficiary of a
     variable  interest  entity is  determined  to be the party  that  absorbs a
     majority  of the  entity's  expected  losses,  receives a  majority  of its
     expected returns,  or both. FIN 46 applies immediately to variable interest
     entities created after January 31, 2003, and to variable  interest entities
     in which an enterprise  obtains an interest  after that date. It applies in
     the first fiscal year or interim period  beginning  after June 15, 2003, to
     variable interest entities in which an enterprise holds a variable interest
     that it acquired before February 1, 2003. Our initial determination is that
     the adoption of the  provisions  of FIN 46 will not have a material  impact
     upon our financial condition or results of operations.



                                      F-10

<PAGE>

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

     In November  2002,  the FASB  issued  Interpretation  No. 45,  "Guarantor's
     Accounting and Disclosure  Requirements for Guarantees,  Including Indirect
     Guarantees of  Indebtedness  of Others" (FIN 45). FIN 45 requires that upon
     issuance of a guarantee,  a guarantor  must  recognize a liability  for the
     fair value of an obligation assumed under a guarantee. FIN 45 also requires
     additional  disclosures by a guarantor in its interim and annual  financial
     statements  about the obligations  associated with guarantees  issued.  The
     recognition provisions of FIN 45 are effective for any guarantees issued or
     modified after December 31, 2002. The disclosure requirements are effective
     for financial statements of interim or annual periods ending after December
     15, 2002. The adoption of FIN 45 is not expected to have a material  effect
     on the Company's financial position or results of operations.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
     Compensation  - Transition  and  Disclosure."  SFAS No. 148 amends SFAS No.
     123,  "Accounting for  Stock-Based  Compensation,"  to provide  alternative
     methods of transition for a voluntary change to the fair value based method
     of accounting for stock-based employee compensation.  In addition, SFAS No.
     148 amends the disclosure requirements of SFAS No. 123 to require prominent
     disclosures  in both  annual and  interim  financial  statements  about the
     method of accounting for stock-based  employee  compensation and the effect
     of the method  used on  reported  results.  SFAS No. 148 is  effective  for
     fiscal years  beginning  after  December 15, 2002.  The interim  disclosure
     provisions  are  effective  for  financial  reports  containing   financial
     statements  for interim  periods  beginning  after  December 15, 2002.  The
     Company has adopted the disclosure provisions of this statement.


NOTE B - CASH FLOW INFORMATION

     Supplemental information on cash flows is as follows (in thousands):
<TABLE>
<CAPTION>

                                                                   Year ended December 31,
                                                                  ------------------------
                                                                   2002     2001     2000
                                                                  ------   ------   ------
     <S>                                                          <C>      <C>      <C>
     Interest paid                                                $2,215   $4,958   $5,752
     Income taxes paid                                               129       82       13

     Noncash investing and financing activities (in thousands):
        Assets transferred in settlement of preferred stock
            redemption obligations, net of mortgage loans
            of $36,981                                              --      6,837     --
        Notes received from sale of assets                         1,050    6,400     --
        Note given in connection with purchase of
            property by affiliated partnership                              1,600     --
        Common stock received in payment of note receivable                    80     --
        Common stock received in settlement of preferred stock
            obligation                                                         11     --
</TABLE>



                                      F-11

<PAGE>
<TABLE>
<CAPTION>

NOTE C - EMPLOYEE STOCK PURCHASE NOTES RECEIVABLE

                                                                       December 31,
                                                                     ---------------
                                                                      2002     2001
                                                                     ------   ------
                                                                     (In thousands)
     <S>                                                             <C>      <C>
     Note from James R. Gilley, chief executive officer, principal
         and interest at 5.50%, due November 2008                    $ --     $2,250

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

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

     On November  19, 1993 the company  sold 10,000  unregistered  shares of its
     common stock to The April Trust,  a grantor  trust for the benefit of James
     R. Gilley,  former Chairman,  President and Chief Executive  Officer of the
     company,  and his wife, at a price equal to the closing price of the shares
     on the  American  Stock  Exchange  on that  date  ($281.25)  per  share for
     consideration  consisting  of a $2,250,000  promissory  note (for which Mr.
     Gilley  is a  co-maker)  for the  full  purchase  price  thereof,  of which
     $450,000 of the  principal  amount of the note is a recourse  obligation of
     Mr.  Gilley  and  the  grantor  trust,  and  the  balance  of the  note  is
     non-recourse.  The note bears  interest at a rate of 5.5% per annum,  which
     accrues and is payable along with all  principal  upon maturity on November
     18,  2008,  and is secured by a pledge of the stock back to the  company to
     hold as  collateral  for payment of the note pending  payment in full.  The
     stock  purchase note was presented in the balance sheet as a deduction from
     stockholders' equity as of December 31, 2001.

     Effective  December 31, 2002, the Company canceled the nonrecourse  portion
     of stock purchase note  receivable.  The 10,000 shares were returned to the
     Company.  The $450,000 recourse portion of the note was realized through an
     agreement  of the parties to offset the  Company's  receivable  against its
     note payable to Mr. Gilley.


NOTE D - DEFERRED GAINS ON SALE OF PROPERTY

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

     The  repayment  of the notes is limited to the cash flow of the  respective
     properties  either from  operations,  refinancing  or sale. The Company has
     deferred gains in the amount of $6,127,000 and $6,090,000 in 2002 and 2001,
     respectively.  The deferred gains and interest income will be recognized as
     cash is received.


                                      F-11

<PAGE>

NOTE E - EMPLOYMENT CONTRACT TERMINATIONS

     In January 1997, the Company negotiated employment contracts with the Chief
     Executive  Officer (CEO) and Chief Financial  Officer (CFO) of the Company.
     Both  individuals  had  been  employed  by  the  Company  since  1989.  The
     employment  contracts  called for combined  annual salaries of $640,000 per
     year and provided  that, if the contracts were  terminated or amended,  the
     individuals  would be entitled to a cash  payment of three years salary for
     the CEO and two years  salary for the CFO. In light of the reduced  size of
     the Company,  the  independent  directors  and the officers in October 2001
     agreed to modify the employment  agreements with the two officers.  The two
     officers each agreed to continue their roles in the Company for $12,000 per
     year for three years.  The  revisions in the contracts  triggered  contract
     termination  payments  requiring  the  Company to  immediately  pay the two
     officers   $1,740,000.   However,   the  two  officers   agreed  to  accept
     non-interest  bearing notes due December 31, 2004. These notes have certain
     acceleration  provisions  if the Company  violates the terms of the revised
     employment contracts. For accounting purposes, interest has been imputed on
     the notes at 8.5%,  resulting in a discount of $391,000.  The net amount of
     the notes of  $1,349,000  was expensed in 2001.  At December 31, 2002,  the
     balance of the notes payable, net of discount of $260,000, was $1,048,000.


NOTE F - AFFILIATED PARTNERSHIPS

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

     The  Company  issued a  $1,600,000  note to the  seller in 2001 as  partial
     payment for the purchase of the retirement community. CREI gave the Company
     a  $1,600,000  note in  consideration  for  payment  of that  amount of the
     purchase  price.  The note bears interest at 8.75% and was due December 30,
     2003.  The balance of the purchase  price was funded by  borrowings by CREI
     from a third party in the amount of $7,840,000, which was guaranteed by the
     Company.  CREI also had debt in the amount of  $3,975,000  at December  31,
     2001 collateralized by the assisted living community that was guaranteed by
     the Company. CREI paid both of the latter two amounts in 2002.

     The Company  accounts for its investment in CREI by the equity method.  The
     Company  recorded  losses  of  $692,338  and  $95,947  for 2002  and  2001,
     respectively.  The Company  had a  receivable  of $311,000 at December  31,
     2001, resulting from advances to CREI.

     In September 2002, CREI sold its two properties for cash and notes and paid
     off its debt. As part of the proceeds,  CREI received a note for $1,600,000
     which was transferred to the Company in satisfaction of its $1,600,000 note
     receivable  from  CREI.  CREI  also  assigned  to the  Company  a  $400,000
     participation in another note in payment of other CREI debt to the Company.


                                      F-12
<PAGE>

NOTE F - AFFILIATED PARTNERSHIPS - Continued

     The  Company  transferred  the  $1,600,000  note it received in 2002 to the
     original  owner of the  retirement  community  in payment of the  Company's
     $1,600,000 debt. The Company guaranteed payment of the $1,600,000 note.

     CREI recognized a gain on sale in the amount of $1,322,000. The Company has
     deferred  recognition  of its share  ($740,000)  of the gain because of the
     aforementioned  guaranty.  CREI has  deferred  a gain on sale in the amount
     $994,000 that will be recognized on the installment method.

     In January 2002 the Company became a 56% limited  partner in a partnership,
     Muskogee Real Estate Investors  (MREI),  which acquired two assisted living
     communities  in Muskogee,  OK,  including one  community  acquired from the
     Company. In September 2002 MREI leased the two communities to a third party
     for three years.  The lessee has  committed to purchase the two  properties
     during  the  three-year  period for  $6,000,000.  The  current  debt on the
     property is approximately $4,000,000.

     The Company had a note to Sylvia M.  Gilley,  wife of the former CEO of the
     Company, for $3,375,000.  In November 2002, the Company transferred its 56%
     interest in MREI to Mrs.  Gilley in exchange for a reduction of  $1,120,000
     on the debt and a one-year  extension on the due date of the Company's note
     to  Mrs.  Gilley.  The  Company  recognized  a  gain  of  $929,956  on  the
     transaction.

     The Company  accounted for its  investment in MREI using the equity method.
     The Company recorded income of $80,215 during 2002.

     In September 2002 the Company entered into an agreement with an independent
     third party to jointly  acquire  properties in the future.  The third party
     entity is affiliated with the various  entities that acquired or leased the
     properties  from CREI and MREI  mentioned  above.  Affiliates of this group
     also purchased properties in Harlingen, TX and Sherman, TX from the Company
     on September 30, 2002 and acquired the Company's  interest in entities that
     operated properties in Roswell, NM and Seaside, OR.

     The agreement  provides that the Company will be allowed to  participate in
     the  acquisition  of  twelve  communities  and  receive  a 50%  partnership
     interest.  The Company has agreed to pay  $660,000,  payable at $55,000 per
     month from October 2002 through  September 2003, to cover the due diligence
     expenses incurred by the third party. The Company's $660,000 obligation has
     been accrued and charged to expense in 2002. The agreement further provides
     that at any time during the twenty-four  months subsequent to the formation
     of a partnership  and the  acquisition of  properties,  the third party can
     purchase the  Company's  partnership  interest in each of the 12 properties
     for a stipulated amount per property.


                                      F-13

<PAGE>

NOTE F - AFFILIATED PARTNERSHIPS - Continued

     Following are unaudited condensed financial  statements of CREI at December
     31, 2001 and 2002 and the period from October 1, 2001 through  December 31,
     2001 and the year ended December 31, 2002 (in thousands):

                                 Balance Sheets

                                                               2002       2001
                                                             -------    -------

     Current assets                                          $    67    $    93
     Property and equipment                                     --        9,358
     Notes receivable                                            994       --
     Other assets                                                171        361
                                                             -------    -------

                                                             $ 1,232    $ 9,812
                                                             =======    =======

     Current liabilities                                     $   248    $    67
     Other liabilities                                          --          401
     Note payable to Greenbriar Corporation                     --        1,600
     Deferred gain                                               994       --
     Mortgage payable                                           --        7,840
                                                             -------    -------
                                                               1,242      9,908
     Partners' deficit                                           (10)       (96)
                                                             -------    -------

                                                             $ 1,232    $ 9,812
                                                             =======    =======

                            Statements of Operations

     Revenue                                                 $ 2,233    $   347

     Expenses
        Operating                                              1,284        171
        Depreciation                                             747         46
        General and administrative                               111         22
        Interest                                               1,328        204
                                                             -------    -------
                                                               3,470        443
                                                             -------    -------

     Gain on sale of properties                                1,322       --
                                                             -------    -------

        Net income (loss)                                    $    85    $   (96)
                                                             =======    =======


                                      F-14

<PAGE>
<TABLE>
<CAPTION>


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, 2002 and 2001:

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

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

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


NOTE H - LONG-TERM DEBT

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

                                                                                 December 31,
                                                                                ---------------
                                                                                 2002     2001
                                                                                ------   ------
    <S>                                                                         <C>      <C>
     Notes payable to financial institutions maturing through 2015; fixed and
        variable interest rates ranging from 5.25% to 10.5% ; collateralized
        by real property, fixtures, equipment and the assignment of rents       $3,956   $8,947

     Notes payable to individuals and companies maturing through 2023;
        variable and fixed interest rates ranging from 7% to 12%;
        collateralized by real property, personal property, fixtures,
        equipment and the assignment of rents                                    1,753    1,655

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

     Notes payable to wife of former Chief Executive Officer, bearing
        interest at 10% and maturing on July 1, 2004                             2,255    3,375

     Notes payable to executive officers, noninterest-bearing and maturing
        December 31, 2004, net of discount of $260 and $391 at December 31,
        2002 and 2001, respectively, representing interest imputed at 8.5%         598    1,349
</TABLE>



<PAGE>
<TABLE>
<CAPTION>

NOTE H - LONG-TERM DEBT

                                                                           December 31,
                                                                        -----------------
                                                                          2002       2001
                                                                        -------   -------
     <S>                                                                <C>       <C>
     Line of credit with bank, bearing interest at 7.94% and maturing
        April 1, 2002; collateralized by certificates of deposit        $  --     $   430

     Line of credit with bank, bearing interest at 8% and maturing
        March 31, 2005                                                       30      --
                                                                        -------   -------
                                                                          8,592    21,009
        Less current maturities                                             113     4,316
                                                                        -------   -------

                                                                        $ 8,479   $16,693
                                                                        =======   =======

     Aggregate  annual  principal  maturities of long-term  debt at December 31,
     2002 are as follows (in thousands):

          2003                                                                    $   113
          2004                                                                      5,154
          2005                                                                        131
          2006                                                                        143
          2007                                                                        922
          Thereafter                                                                2,579
                                                                                  -------
                                                                                  $ 9,042
                                                                                  =======
</TABLE>

NOTE I - FINANCING OBLIGATIONS

     The  Company   operated  two   communities   that  are   financed   through
     sale-leaseback   obligations.   At  the  end  of  the  tenth  year  of  the
     fifteen-year  leases, the Company has options to repurchase the communities
     for the greater of the sales prices or their current replacement costs less
     depreciation  plus land at current fair market values.  Accordingly,  these
     transactions  have been  accounted for as  financings,  and the Company has
     recorded the proceeds from the sales as financing  obligations,  classified
     the  lease  payments  as  interest  expense  and  continues  to  carry  the
     communities on its books and record depreciation.  Payments under the lease
     agreements  are $1,167,000 for each year through 2009. The Company sold its
     interest in entities that operated these communities during 2002.









                                      F-15
<PAGE>

NOTE J - OPERATING LEASES

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

     Future  minimum  payments  following  December  31, 2002 are as follows (in
     thousands):

          2003                                                          $  1,620
          2004                                                             1,620
          2005                                                             1,620
          2006                                                             1,426
          2007                                                             1,365
          Thereafter                                                       7,187
                                                                        --------
                                                                        $ 14,838
                                                                        ========

     Lease  expense  in  2002,  2001 and 2000 was  $1,650,  $3,139  and  $4,912,
     respectively.


NOTE K - INCOME TAXES

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

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

                                                             Year ended
                                                            December 31,
                                                  ------------------------------
                                                    2002       2001       2000
                                                  --------   --------   --------
     Current - state                              $   --     $    424   $   --
     Deferred - federal                                749      2,400       --
                                                  --------   --------   --------

                                                  $    749   $  2,824   $   --
                                                  ========   ========   ========








                                      F-16
<PAGE>
<TABLE>
<CAPTION>

NOTE K - INCOME TAXES - Continued

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

                                                               December 31,
                                                             2002        2001
                                                           --------    --------

     Deferred tax assets:
        Net operating loss carryforwards                   $  7,308    $  6,554
        Note receivable                                         680         680
        Alternative minimum tax credit carryforwards            235         235
        Accounts receivable                                    --            20
        Accrued expenses                                      2,285         604
        Financing obligations                                  --         1,802
        Other                                                   583         493
                                                           --------    --------

        Total deferred tax assets                            11,091      10,388

     Deferred tax liabilities - property and equipment       (3,198)     (5,021)
     Valuation allowance                                     (6,732)     (3,017)
                                                           --------    --------

        Net deferred tax asset                             $  1,161    $  2,350
                                                           ========    ========

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

                                                             Year ended December 31,
                                                         -----------------------------
                                                           2002       2001       2000
                                                         -------    -------    -------
<S>                                                      <C>        <C>        <C>
     Tax expense (benefit) at the statutory rate         $(1,019)   $ 3,250    $(3,439)
     State taxes net of federal benefit                     --          380       --
     Expiration of carryforwards                            --         --          433
     Change in deferred tax asset valuation allowance,
        attributable to continuing operations              1,768       (431)     2,071
     Nondeductible loss on write-down of properties         --         --          400
     Nondeductible amortization                             --         --          150
     Other                                                  --         (375)       385
                                                         -------    -------    -------

     Tax expense                                         $   749    $ 2,824    $  --
                                                         =======    =======    =======
</TABLE>

     Changes in the deferred tax  valuation  allowance  result from  assessments
     made  by the  Company  each  year of its  expected  future  taxable  income
     available to absorb its carryforwards. The Company believes that it is more
     likely than not that the net  deferred  tax asset at  December  31, 2002 of
     $1,161,000  will  be  realized.  However,  this  evaluation  is  inherently
     subjective as it requires  estimates  that are  susceptible  to significant
     revision as more information becomes available.  Accordingly,  the ultimate
     realization  of the net  deferred tax asset could be less than the carrying
     amount.





                                      F-17
<PAGE>
<TABLE>
<CAPTION>

NOTE L - STOCKHOLDERS' EQUITY

    Outstanding Preferred Stock

     Preferred stock consists of the following (amounts in thousands):

                                                                                         Year ended
                                                                                        December 31,
                                                                                       ---------------
                                                                                        2002     2001
                                                                                       ------   ------
     <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
                                                                                       ======   ======
</TABLE>

     The Series B preferred stock has a liquidation  value of $100 per share and
     is  convertible  into  common  stock  over  a  ten-year  period  at  prices
     escalating  from $500 per share in 1993 to  $1,111  per share by 2002.  The
     right to convert  expires  April 30,  2003.  Dividends  at a rate of 6% are
     payable in cash or preferred shares at the option of the Company.

     Preferred Stock Redemptions
     ---------------------------

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

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

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

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



                                      F-18
<PAGE>

NOTE L - STOCKHOLDERS' EQUITY - Continued

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

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

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

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

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





                                      F-19
<PAGE>

NOTE L - STOCKHOLDERS' EQUITY - Continued

     Information with respect to stock option activity is as follows:

                                                                      Weighted
                                                                       average
                                                                      exercise
                                                            Shares      price
                                                           --------    -------
     Outstanding at January 1, 2000                         113,615    $144.20

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

     Outstanding at December 31, 2000                        70,425    $183.80

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

     Outstanding at December 31, 2001                        80,425    $162.56

        Expired                                              (2,525)    365.15
                                                           --------    -------

     Outstanding at December 31, 2002                        77,900    $155.99
                                                           ========    =======

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

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

     Options exercisable at December 31, 2002                77,900    $155.99
                                                           ========    =======

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

     Additional information about stock options outstanding at December 31, 2002
     is summarized as follows:

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

     $7.50 to $13.80                30,000           8.0          $ 11.37
     $13.81 to $50.00               10,000           6.0            50.00
     $200.00 to $265.60             17,900           3.6           240.84
     $350.00                        20,000             5           350.00




                                      F-20

<PAGE>
<TABLE>
<CAPTION>

NOTE M - OTHER INCOME (EXPENSE)

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

                                                       Year ended December 31,
                                                  --------------------------------
                                                    2002        2001        2000
                                                  --------    --------    --------
<S>                                               <C>         <C>         <C>
    Gain on sale of properties                    $   --      $ 16,635    $   --
    Property acquisition due diligence expenses       (660)       --          --
    Other                                             (493)        (33)       (220)
                                                  --------    --------    --------

                                                  $ (1,153)   $ 16,602    $   (220)
                                                  ========    ========    ========
</TABLE>


NOTE N - WRITE-OFF OF IMPAIRED ASSETS

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

     The  Company  was  informed  during 2000 that the  financial  condition  of
     Southern Care had deteriorated, that it was delinquent on mortgage payments
     on the homes, and that the first mortgage holder foreclosed on the homes in
     June 2000. The Company wrote off the entire $4,525,000 during 2000.

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










                                      F-21

<PAGE>

NOTE N - WRITE-OFF OF IMPAIRED ASSETS - Continued

     During 2001, the Company  identified  four properties that were not meeting
     performance  expectations.  These  properties  are in a  geographic  region
     where,  after the transfer to LSOF, the Company does not have a significant
     presence. In the fourth quarter of 2001, the Company wrote these properties
     down to their net realizable  value of $5,066,000 with a charge to earnings
     of  $1,887,000.  One of these  properties  was sold in  2002.  The  Company
     continues to hold the other three properties.

     During 2002,  the Company  wrote off  $266,000  related to a property it is
     attempting to sell.


NOTE O - DISCONTINUED OPERATIONS AND SALES OF REAL ESTATE

     In October 2001,  the  Financial  Accounting  Standards  Board (the "FASB")
     issued  Statement  of  Financial  Accounting  Standards  ("SFAS")  No. 144,
     "Accounting for the Impairment or Disposal of Long-Lived  Assets." SFAS No.
     144  supersedes  FASB  SFAS No.  121,  "Accounting  for the  Impairment  of
     Long-Lived  Assets and for  Long-Lived  Assets to be  Disposed  Of" and the
     accounting  and  reporting  provisions  for  disposals  of a  segment  of a
     business as  addressed  in APB Opinion  No. 30,  "Reporting  the Results of
     Operations-Reporting  the  Effects of  Disposal of a Segment of a Business,
     and   Extraordinary,   Unusual  and   Infrequently   Occurring  Events  and
     Transactions".  SFAS No.  144  establishes  a single  accounting  model for
     long-lived  assets  to  be  disposed  of  by  sale  and  addresses  various
     implementation  issues of SFAS No. 121. In  addition,  SFAS No. 144 extends
     the reporting requirements of discontinued operations to include components
     of an entity that have either been  disposed of or are  classified  as held
     for sale. The Company adopted SFAS No. 144 as of January 1, 2002.

     During 2002, the Company  disposed of six properties.  Revenues for the six
     properties were $4,698,000,  $7,293,000,  and $7,779,000 in 2002, 2001, and
     2000, respectively.

     The Company's  adoption of SFAS No. 144 resulted in the presentation of the
     net operating  results of these qualifying  properties sold during 2002, as
     loss from discontinued operations for all periods presented. Losses on sale
     of these properties  totaling  $4,001,000  (including income tax expense of
     $440,000) are reflected as losses on sales of real estate from discontinued
     operations  in the  accompanying  consolidated  statements  of  operations.
     Financial  statements for 2000 and 2001 have been  reclassified  to reflect
     the operations of these properties as discontinued operations. The adoption
     of SFAS No. 144 did not have an impact on net earnings or loss.

     Pursuant to SFAS No. 144, the results of operations  and gains or losses on
     properties sold prior to the adoption of SFAS No. 144, are not reflected in
     discontinued   operations.   Therefore,  the  presentation  of  results  of
     operations for 2002 is not comparable with 2000 and 2001.






                                      F-22
<PAGE>
<TABLE>
<CAPTION>

NOTE P - CONTINGENCIES

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

    As discussed in Note F, the Company is guarantor of debt of a third party in
the amount of $1,600,000.


NOTE Q - QUARTERLY DATA (UNAUDITED)

     The table below reflects the Company's selected  quarterly  information for
     the years ended  December 31, 2002 and 2001.  Certain 2002 and 2001 amounts
     have  been   reclassified  to  conform  to  the  current   presentation  of
     discontinued operations.

                                                                    Year ended December 31, 2002
                                                               ----------------------------------------
                                                                First     Second      Third     Fourth
                                                               Quarter    Quarter    Quarter    Quarter
                                                               -------    -------    -------    -------
     <S>                                                       <C>        <C>        <C>        <C>
     Revenue                                                   $ 1,237    $ 1,185    $ 1,035    $   965
     Operating expenses                                          1,810      1,634      1,520      1,803
     Net loss                                                     (458)    (1,037)    (4,473)    (2,405)
     Loss allocable to common shareholders                        (458)    (1,037)    (4,473)    (2,405)
     Loss per common share - basic and diluted                   (1.28)     (2.89)    (12.46)     (6.69)

                                                                       Year ended December 31, 2001
                                                                ----------------------------------------
                                                                 First     Second      Third     Fourth
                                                                Quarter    Quarter    Quarter    Quarter
                                                                -------    -------    -------    -------
     Revenue                                                    $ 8,164    $ 7,448    $ 6,398    $ 1,558
     Operating expenses                                           8,122      8,278      6,604      4,539
     Net earnings (loss)                                           (276)    (1,611)      (480)     8,785
     Preferred stock dividend requirement                           (80)       (80)      --         --
     Net earnings (loss) allocable to common shareholders          (356)    (1,691)      (480)     8,785
     Net earnings (loss) per common share - basic and diluted      (.85)     (4.05)     (1.15)     24.51
</TABLE>



                                      F-23