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, 2000

                                       OR

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

                          Commission file number 0-8187

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

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

        4265 Kellway Circle, Addison, Texas                  75001
     (Address of principal executive offices)             (Zip Code)

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

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

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

Indicate by check mark  whether the issuer (1) filed all reports  required to be
filed by Section 13 or 15(d) of the  Securities  Exchange Act of 1934 during the
past 12 months (or for such shorter  period that the issuer was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.

                                 YES [X] NO [ ]

Indicate  by check  mark if there  is no  disclosure  of  delinquent  filers  in
response to Item 405 of Regulation S-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 29, 2001, was
approximately $1,360,000.

At March 30, 2001, the issuer had outstanding  approximately 8,320,000 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, 2000


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................15

Part II.......................................................................16

   ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...........16
   ITEM 6: SELECTED FINANCIAL DATA............................................16
   ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION..........17
   ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........21
   ITEM 8: FINANCIAL STATEMENTS...............................................21
   ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE...............................................21

Part III......................................................................22

   ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS..................................22
   ITEM 11: EXECUTIVE COMPENSATION............................................23
   ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....28
   ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................30

Part IV.......................................................................32

   ITEM 14: EXHIBITS AND REPORTS ON FORM 8-K..................................32






                                       2

<PAGE>

                                     PART I

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

Overview and Background of Assisted Living Operations

Greenbriar  Corporation  (the  "Company")  is an assisted  living  company  that
operates assisted and full service  independent living  communities  designed to
serve the needs of the elderly  population.  Assisted living residents generally
comprise  frail elderly  persons who require  assistance  with the activities of
daily living such as ambulation, bathing, eating, personal hygiene, grooming and
dressing,  but who do not generally require more expensive skilled nursing care.
Independent  living residents  typically require only occasional  assistance but
receive  other  support  services.  In addition,  the Company also  develops and
operates  communities for residents suffering from Alzheimer's or other forms of
dementia, a growing specialty within the assisted living industry.

As of March 30, 2001, the Company  operated 28 communities in 10 states,  with a
capacity of 2,221 residents,  consisting of 18 communities that are owned and 10
that are leased from third parties.

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

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


The Assisted Living Industry

The Company  believes that the assisted living industry has become the preferred
alternative to meet the growing demand for a cost-effective  setting in which to
care for the elderly who do not require  the more  intensive  medical  attention
provided by a skilled  nursing center but who cannot live  independently  due to
physical or  cognitive  frailties.  In general,  assisted  living  represents  a
combination of housing, general support services and 24 hour a day personal care
services  designed to aid elderly  residents with the activities of daily living
("ADLs") on a scheduled and unscheduled  basis. Many assisted living communities
may also provide  assistance to residents  with low acuity  medical needs or may
offer  higher  levels  of  personal  assistance  for  incontinent  residents  or
residents with  Alzheimer's  disease or other forms of dementia.  There are some
assisted living communities, and this is a growing trend, which provide care for
higher levels of acuity. Generally, assisted living residents have higher levels
of need than residents of independent  retirement  communities  but lower levels
than residents in skilled nursing centers.  Annual  expenditures in the assisted
living industry have been estimated to be approximately  $18 billion,  including
communities  ranging  from  "board  and care" to  full-service  assisted  living
communities such as those operated by the Company.

The Company believes that assisted living is one of the fastest growing segments
of elderly care and will continue to experience significant growth due to the
following:

         Consumer  Preference - The Company  believes  that  assisted  living is
         increasingly  becoming the setting  preferred by prospective  residents
         and their  families  in which to care for the frail  elderly.  Assisted
         living offers residents greater  independence in a residential  setting
         which the  Company  believes  results in a higher  quality of life than
         that  experienced in more  institutional  or clinical  settings such as
         skilled nursing centers.  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
         the year 2000,  and the number of persons  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

                                       3

<PAGE>

         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.  These laws limit the available supply of traditional  nursing
         home beds.  In addition,  some  long-term  care centers have started to
         convert  traditional nursing home beds into sub-acute beds. The Company
         also  believes  that high  construction  costs and limits on government
         reimbursement  for the full cost of construction and start-up  expenses
         will also constrain the growth and supply of  traditional  nursing home
         centers and beds. The Company  expects that this  tightening  supply of
         nursing beds coupled  with the aging of the  population  will create an
         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  believes that  significant  growth  opportunities  exist to provide
assisted  living and full  service  independent  living  services to the rapidly
growing elderly population.  The Company has expanded its operations through the
acquisition of assisted living and full service  independent  living  companies.
The Company also seeks to improve the  profitability of its communities  through
continued enhancement of its operations.

The  majority  of the  Company's  communities  are  operated  and  marketed on a
private-pay,  single-occupancy basis. Double occupancy residents are non-related
people who are  usually  state-assisted.  Most of the  Company's  state-assisted
residents are in Texas and North  Carolina  communities.  Most of the states now
have a currently  operating Medicaid waiver program (allowing a state to set its
own  disbursement  standards  for Medicaid  funds - such as payment for assisted
living services).  North Carolina was a pioneer in supporting the development of
assisted  living  as one way of  containing  the cost of  caring  for its  aging
population and has one of the best assisted  living  reimbursement  rates in the
nation.

The Company  believes  that the  assisted  living  industry  will  continue as a
private-pay   industry  for  the  foreseeable   future,   but  may  become  more
price-sensitive  as more people need assisted  living for longer  periods due to
increased life spans.  Costs of caring for an aging America may become more of a
private-pay  and  state-assisted  partnership  than currently  exists.  However,
although  Medicaid  coverage is common and becoming  more so,  participation  is
still  low.  Texas had only  approximately  1,634  people  participating  in its
Medicaid  assisted living program in 2000. This number  increased to 2,135 as of
February 28, 2001.

The Company is no longer pursuing growth by new development but in the past used
the same development strategy for special care units in combined Alzheimer's and
assisted living  communities and dedicated special care communities.  Using this
strategy,  the units and common space were designed for flexibility so that they
could be  primarily  single  occupancy  but also be used as double  occupancy  -
again, based on market demand. The Company believes that this occupancy-flexible
development  strategy will provide an advantage over its  competitors who do not
have  units  and  common  space  large  enough  to  readily  accommodate  double
occupancy.

The Company's top management has extensive  acquisition  experience and contacts
in the  assisted  and full  service  independent  living  industry.  The Company
believes that growing by  acquisition  is the best way to meet its growth goals.
The full service  independent  living retirement and assisted living industry is
very fragmented and still primarily a single proprietor business.

                                       4

<PAGE>

Acquisition Strategy - The Company may acquire one or more communities or entire
assisted living and full service  independent  living retirement  companies as a
means of entry  into new  markets  and may also  make  acquisitions  within  its
existing  regions  to gain  further  market  share  and  leverage  its  existing
operating infrastructure.  In reviewing acquisition  opportunities,  the Company
considers,  among other things, the competitive  climate, the current reputation
of the community or its operator,  the quality of its  management,  the need and
costs to reposition the community in the marketplace,  the construction  quality
and any need for  renovations of the community and the opportunity to improve or
enhance a  community's  operating  results.  The Company  also sells some of the
communities  it acquires when they no longer fit with the  Company's  long-range
strategy.

Operating Strategy - The Company's  operating strategy is to achieve and sustain
a strong  competitive  position within its chosen markets as well as to continue
to enhance the  performance  of its  operations.  The  Company  seeks to enhance
current  operations  by (i)  maintaining  and improving  occupancy  rates at its
communities (ii)  opportunistically  increasing  resident service fees and (iii)
improving operating efficiencies.

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

Maintain  and Improve  Occupancy  Rates - The Company also seeks to maintain and
improve  occupancy  rates by  continuing  to (i) attract new  residents  through
marketing  programs  directed  towards  family  decision  makers,  namely  adult
children of potential  residents,  (ii) actively seek referrals from  hospitals,
rehabilitation  hospitals,  physicians,  clinics,  home healthcare  agencies and
other acute and  sub-acute  healthcare  providers  in the markets  served by the
Company and (iii) develop new market niches such as respite care, adult day care
and other specialty care programs sought by caregivers.

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

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

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

Assisted Living Services

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

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


                                       5
<PAGE>

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

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

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

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




                                       6
<PAGE>
<TABLE>
<CAPTION>

Properties

Operating  Communities - The following table sets forth certain information with
respect to communities  that were operated by the Company at March 30, 2001. The
Company owns or leases these communities.  The Company considers its communities
to be in good  operating  condition  and suitable for the purpose for which they
are being used.

                                                                                        Community
                                                         Care               Resident   Operations
        Community                  Location              Level     Units   Capacity(1)  Commenced    Ownership
----------------------------------------------------------------------------------------------------------------
<S>                             <C>                    <C>        <C>       <C>          <C>        <C>
Berne Village                   New Bern, NC           S, FE, DC    151       174        Oct-93      Owned (2)
Camelot                         Harlingen, TX              S         57        57        Sep-94      Owned (2)
Camelot Assisted Living         Harlingen, TX           FE, DC       83        99        Jan-98     Leased (3)
Countrytime Inn                 Kings Mountain, NC        FE         25        42        Jun-95      Owned (2)
Crown Pointe                    Corona, CA             S, FE, DC    163       168        Jan-93     Owned (2,5)
Graybrier                       Southern Pines, NC      FE, DC       55        95        Feb-94      Owned (2)
Greenbriar at Denison           Denison, TX             FE, DC       44        52        May-96      Owned (2)
Greenbriar at Muskogee          Muskogee, OK              FE         48        48        Mar-97      Owned (2)
Greenbriar at Sherman           Sherman, TX               FE         48        53        Mar-98      Owned (2)
La Villa                        Roswell, NM             FE, DC       82        91        Nov-96     Leased (3)
Meadowbrook Place               Baker, OR                 FE         50        50        Dec-92      Owned (2)
Neawanna by the Sea             Seaside, OR              S, FE       58        58        Jan-90     Leased (4,6)
Oak Park, Ft Worth              Fort Worth, TX            FE        150       150        Jan-98     Leased (3)
Pacific Pointe                  King City, OR              S        114       114        Jan-93     Leased (3)
Palm House                      Fort Worth, TX             S        155       154         1985      Leased (3)
Rose Garden Estates             Ritzville, WA             FE         21        21        Nov-95      Owned (2)
Rose Tara Plantation            King, NC                  FE         38        65        Sep-94      Owned (2)
Summer Hill                     Oak Harbor, WA            FE         59        61        Feb-94      Owned (2)
Sweetwater Springs              Lithia Springs, GA      FE, DC       48        48        Oct-96     Leased (7)
The Terrace                     Portland, OR              FE         65        65        May-91      Owned
Villa del Rey Merced            Merced, CA                 S         92        92        Dec-79     Leased (8)
Villa del Rey Roswell           Roswell, NM                S        135       132        Oct-88     Leased (4,6)
Villa del Rey Visalia           Visalia, CA                S         98        98        Dec-79     Leased (8)
Villa del Sol                   Roswell, NM                S         12        12        Dec-95      Owned (2)
Wedgwood Terrace                Lewiston, ID            FE, DC       38        47        Nov-95      Owned (2)
Windsor House Florence          Florence, SC            FE, DC       26        37        Sep-98      Owned (2)
Windsor House Greenville        Greenville, SC          FE, DC       31        41        Nov-97      Owned (2)
Windsor House West              Spartanburg, SC         FE, DC       76        97         1991       Owned (2)
-----------------------------------------------------------------------------------------------------------------
Total                                                             2,022     2,221

</TABLE>

Key:

S        basic support and supplemental services are offered.

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

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



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

(2)      Subject to first mortgage.  Historically,  each community has generally
         been  pledged  as  collateral  on a  single  mortgage  or deed of trust
         securing a note payable to a bank, financial institution, individual or
         other lender.  The mortgages and deeds of trust mature between 2000 and
         2037 and bear  interest at fixed and variable  interest  rates  ranging
         from 7.5% to 11.35% as of December 31, 2000. The Crown Pointe community
         is subject to a mortgage and note payable to the  Redevelopment  Agency
         of the City of  Corona,  California,  is  payable  into a sinking  fund
         semi-annually  in increasing  amounts from $65,000 to $420,000  through
         May 2015, and bears interest at a variable interest rate equal to 5.55%
         at December 31, 2000.  Future  communities  owned and  mortgaged by the
         Company will likely be pledged as collateral for mortgage credit lines,
         which  relate  to more  than one  community.  See Item  7,"Management's
         Discussion  and Analysis or Plan of  Operation - Liquidity  and Capital
         Resources."


                                       7
<PAGE>

(3)      Leased from third party individuals or partnership. Initial lease terms
         generally range from 10 to 20 years,  and mature between 2002 and 2011.
         The  Company  is  responsible  for all costs  including  repairs to the
         community,  property  taxes and  other  direct  operating  costs of the
         community.  Leases  generally  include  clauses  that allow for rent to
         increase  over time based on a specified  schedule or on an increase in
         the  consumer  price  index.  Generally,  the  Company has an option to
         purchase the community  after a specified  period,  or at expiration of
         the lease, at a price generally equal to market value.

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

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

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

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

(8)      Company leases on a month-to-month  basis with a 90-day notice required
         by either party to terminate the lease.



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 30, 2001 range in size from 12 to
163 units, are from one to three stories and from 10,000 to 150,000 square feet.
Most communities have a large family room, usually equipped with a fireplace,  a
spacious open dining area, library, TV room,  commercial kitchen,  beauty salon,
laundry and indoor and outdoor recreational areas. Units generally range in size
from  approximately  330 to 400 square feet for a studio unit, 470 to 650 square
feet for a one-bedroom  unit and 680 to 850 square feet for a two-bedroom  unit.
Assisted  living  units,  among  other  amenities,  typically  include a private
bathroom,  kitchenette,  closets,  living and sleeping  areas,  a lockable door,
emergency call system,  individual room temperature  controls and fire alarm and
sprinkler systems.

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


Operations

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

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

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


                                       8
<PAGE>

Quality Assurance

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

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

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

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

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

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


Marketing

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

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


Government Regulation

Healthcare is an area of extensive and frequent  regulatory change. The assisted
living  industry is relatively  new and,  accordingly,  the manner and extent to
which it is  regulated  at the Federal and state  levels is 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,  including  Texas  and North
Carolina have or are reviewing licensure  regulations and increasing the role of
state personnel in monitoring and controlling the assisted living industry.


                                       9
<PAGE>

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

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

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

As noted earlier,  the Company  participates in Federal and state  reimbursement
programs.  However,  the Company  expects the bulk of its  revenues to come from
private payments. The Americans with Disabilities Act ("ADA"),  enacted July 26,
1990,  has had and will  continue  to have a major  effect  on the full  service
residential retirement and assisted living industry. The communities acquired by
the Company must be in compliance with this act. The Fair Housing Amendments Act
of 1988 also  prohibits  discrimination  against the  handicapped in the sale or
rental of a dwelling,  or in the provision of services in connection with such a
dwelling. This intensifies the need to be in compliance with ADA.

Regulation  of the  industry  is  likely  to  increase,  particularly  for those
providers  accepting  Medicaid  reimbursements.  Federal  and state  governments
regulate  various aspects of the Company's  business.  The Company is subject to
Federal  and state  anti-remuneration  laws,  such as the  Federal  health  care
program  anti-kickback law 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.  Two  other  communities
financed  with  loans   guaranteed  by  the  Department  of  Housing  and  Urban
Development ("HUD") have rents requiring approval by HUD.

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


                                       10
<PAGE>

Competition

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

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

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


Insurance

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


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  or is the Company  aware of any such  environmental  liability.  The
Company owns nine communities that have been operated for periods ranging from 2
to 19 years for which  environmental  assessments  have not been  obtained.  The
Company  believes that all of its  communities are in compliance in all material
respects  with all Federal,  state and local laws,  ordinances  and  regulations
regarding hazardous or toxic substances or petroleum  products.  The Company has
not been notified by any governmental authority,  and is not otherwise aware, of
any material  non-compliance,  liability or claim relating to hazardous or toxic
substances or petroleum products in connection with any of its communities.


                                       11
<PAGE>

Control by Insiders

As of March 30, 2001, the Company's officers,  directors and affiliated entities
owning more than 5% of the Company's outstanding stock owned approximately 45.5%
of the outstanding shares of Common Stock. Mr. James R. Gilley, President, Chief
Executive Officer and Chairman of the Board of the Company,  and one corporation
wholly  owned  by him  and  his  spouse,  beneficially  owned  an  aggregate  of
approximately  25.9% of the outstanding Common Stock of the Company.  Mr. Victor
L. Lund,  a director  of the  Company  and the  founder of  Wedgwood  (a company
acquired by the Company in 1996),  beneficially owned approximately 14.6% of the
outstanding  shares of Common  Stock.  Mr.  William  Shirley,  a director of the
Company,  due  principally  from  the sale to the  Company  of  assisted  living
communities,  beneficially owns approximately 5% of the outstanding Common Stock
of the Company.  In addition,  the Gilley family owns series D Voting  Preferred
Stock,  which is the  equivalent of 675,000  Voting  Shares.  Accordingly,  such
individuals  will have the  ability,  by voting  their  shares  in  concert,  to
significantly  influence  (i) the election of the  Company's  Board of Directors
and,  thus,  the  direction and future  operations of the Company,  and (ii) the
outcome of all other matters submitted to the Company's stockholders,  including
mergers,  consolidations  and  the  sale  of  all  or  substantially  all of the
Company's assets. In addition,  the Company's officers and directors,  including
James R.  Gilley,  currently  hold  options  or  conversion  rights  to  acquire
1,168,000  shares of Common Stock.  The issuance of additional  shares of Common
Stock  pursuant  to the  exercise  of these  stock  options  granted  under  the
Company's  stock  option  plan would  increase  the number of shares held by the
Company's executive officers and directors in the future.


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 30, 2001, the Company employed 1091 employees,  including 746 full-time
and  345  part-time   employees.   The  Company   believes  it  maintains   good
relationships  with  its  employees.   None  of  the  Company's   employees  are
represented by a collective bargaining group.


Corporate Offices

The Company's  principal office is a 27,500 square foot building that it owns in
Addison,  Texas.  The Company has sold this office building in the first quarter
of 2001 and will be  relocating  to  approximately  12,000 square feet of leased
space  in  Addison,  Texas in April of 2001.  The  leased  space  will  meet the
Company's needs for the foreseeable future.


                                       12
<PAGE>

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

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


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

The  Company  is  involved  from  time to time in  legal  proceedings  that  are
incidental to its business.  The  following are the legal  proceedings  that are
pending at March 30, 2001.


LSOF Pooled Equity L.P. vs Greenbriar Corporation

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

In December  1997 the Company sold Series F and Series G  convertible  preferred
shares for $22,000,000 less selling and offering costs of $453,000.  Payment was
received on January 13, 1998. The preferred stockholders receive a cash dividend
of 6%  payable  quarterly.  The sale was to Lone  Star  Opportunity  Fund,  L.P.
Subsequent  to  the  initial   transaction  the  preferred  stock  was  sold  or
transferred to LSOF Pooled Equity L.P. ("LSOF").

In  connection  with the sale,  the  Company  entered  into an  agreement  which
provides that, on the date of conversion,  if the value of the Company's  common
stock has not increased at the annual rate of at least 14% during the period the
preferred shares are outstanding, the Company is required to make a cash payment
("Cash  Payment")  to the  preferred  stockholders  equal  to the  market  price
deficiency on the shares received upon conversion.

In January  2000  Greenbriar  and the  preferred  stockholders  entered  into an
agreement whereby  Greenbriar would redeem the Series F & G preferred stock from
proceeds  generated  from  the  sale or  refinancing  of  certain  assets  ("the
redemption agreement").  In connection with the redemption agreement the Company
paid LSOF a total of $4,760,000 during 2000.

The  original  agreement  provides the Series F & G preferred  stockholders  the
option to convert beginning January 13, 2000. The agreement further provides for
a mandatory  redemption on January 13, 2001.  Greenbriar received a notice dated
October 30,  2000,  from LSOF  advising  that they were  electing to convert the
outstanding  shares of preferred stock into common stock.  Such notice set forth
the holder'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  $17.50  per share to $0.69 per  share,  and that the  Company  must  issue
27,502,855  shares of common stock upon conversion.  If such shares were issued,
they would  constitute  approximately  80% of the Company's  outstanding  common
stock and represent a change in the control of Greenbriar.  The Company would be
forced to obtain  stockholder  approval of the issuance of such a large block of
common  stock or face a  delisting  of its common  stock on the  American  Stock
Exchange. In the event such conversion occurred, the Company's obligation to pay
the  holder  the Cash  Payment  distribution  that is due upon a  conversion  or
redemption of preferred stock would be reduced from approximately $27,166,000 to
approximately $8,600,000.

The Company  believes  that the  conversion  price was not  properly  subject to
adjustment and, if the holder were to have converted,  it would be at the $17.50
conversion  price  stated in the terms of the  preferred  stock  agreement.  The
Company's  position is based, in part,  upon the holder's  failure to follow all
procedures  for  adjustment  and  conversion  at the  adjusted  price and on the
Company's  rescission of the employee  stock options that were the basis for the
holder's purported adjustment.

LSOF filed a declaratory  judgment  action in the State District Court in Dallas
County, Texas seeking a finding that it is entitled to a $0.69 conversion price.
The Company filed specific denials and affirmative defenses and counterclaims in
defense of such action,  seeking, among other things, a contrary ruling that the
conversion price was not adjusted.

On January 11, 2001,  the  preferred  stockholder  filed an  application  in the
lawsuit filed in October, to obtain a temporary restraining order to prevent the
Company from  converting  the  preferred  stock into common stock at the rate of
$17.50 per share  pursuant to the mandatory  conversion  clause of the preferred
stock, appointing any new board members or from engaging in any transactions not
in the ordinary course of business. The court denied the injunction on the basis
that the plaintiff had adequate  legal  remedies and had failed to show that the
Registrant was threatening to take any immediate actions to the detriment of the
plaintiff.

On January 13, 2001,  the Company  took the action  mandated by the terms of the
Series F and G Convertible Preferred Stock to convert the shares of Series F and
G Convertible  Preferred Stock remaining  outstanding  into 1,054,202  shares of
common stock and  acknowledged  its obligation to pay the holder the approximate
$27,166,000   "make-whole"   amount  as  funds  for  repayment  become  lawfully
available.

                                       13
<PAGE>

On January 15, 2001,  the Company  received a notice dated January 12, 2001 from
the former holder of the  preferred  stock to the effect that the Company was in
default of the  Preferred  Stock  Purchase  Agreement  for  failing to provide a
quarterly  compliance  certificate,  failing to meet various financial covenants
and  failing to notify the holder of such  defaults.  LSOF  contends  that these
alleged breaches of covenants triggered penalty dividends under the terms of the
preferred  stock and that  Greenbriar's  failure to pay those penalty  dividends
entitles the LSOF to appoint 70% of the Board of Directors. The Company disputes
all such defaults and alternatively  claims that such defaults have been waived,
reformed or that LSOF is  estopped  from  asserting  them.  The Company  further
disputes  that any penalty  dividends  were due under the terms of the preferred
stock agreement.

The State  District  Court ("the Court") has set July 23, 2001 as the trial date
for this matter.

On March 29, 2001, the Court considered a motion brought by LSOF seeking partial
summary  judgment on certain  issues.  On April 5, 2001,  the judge in this case
signed an order granting LSOF's motion as follows:

         (a)      The  correct  conversion  price of the  Series F and  Series G
                  Preferred  Stock was $0.69 per share  based upon  Greenbriar's
                  issuance of $0.69 per share options.

         (b)      LSOF's  Conversion  Notice  complied with the  requirement for
                  conversion under the Certificates of Designation.

         (c)      The  conversion   price  remained  $0.69  per  share  even  if
                  Greenbriar  rescinded  the $0.69 per share  options after LSOF
                  served  its  conversion  notice  based on $0.69  per  share of
                  Greenbriar common stock.

The Company has filed a Motion for Reconsideration and the judge has scheduled a
hearing for April 19,  2001.  Should the Company not prevail in its motion,  the
order  signed  on April 5,  will be a  material  factor at the trial on July 23,
2001.


Southern Care Corp. vs Greenbriar, et al.

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

In a matter before the same court the plaintiff and the Company,  in 1995,  each
filed for summary  judgment  as to whether a  $6,700,000  indebtedness  had been
discharged.   On  December  3,  1997  the  Georgia  Court  of  Appeals   granted
Greenbriar's  motion  for  summary  judgment  where  they  determined  that  the
indebtedness had not been discharged. In February 1998 the Georgia Supreme Court
refused to hear the matter. The plaintiff  subsequently asked the Superior Court
to review the matter again.

On June 19, 2000 the Superior Court of Chatham County entered a judgment whereby
all the claims by the plaintiff  were  dismissed  with prejudice and any and all
pending  motions  filed by the  plaintiff in these cases were denied.  The court
further ruled that Greenbriar was entitled to the $6,700,000  indebtedness  plus
interest  thereon,  unpaid  management  fees and  attorney's  fees. The judgment
totaled $18,688,000.


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

In 1995 Lifestyles  Senior Housing  Managers,  LLC  (Lifestyles)  entered into a
contract to manage an assisted living community in Seaside, OR named Neawanna By
the Sea (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
believes  their  termination  was  unjustified,  seeks damages of  approximately
$800,000 and demanded the matter be submitted to binding  arbitration,  which is
called for in the  management  contract.  The  arbitration  hearing  was held on
February  19-21,  2001.  On April 9, 2001,  the  Company was  notified  that the
arbitration panel had awarded  Lifestyles  $400,000.  The Company is considering
its legal  options but has recorded the award to  Lifestyles  as well as related
legal fees and other costs in its financial statement for 2000.

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


                                       14
<PAGE>

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

No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter of the year ended December 31, 2000.







                                       15
<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:

                                    2000                       1999
                               High        Low            High        Low
                            ---------------------      ---------------------

        First Quarter          $3.98      $ .69           $3.25      $2.06
        Second Quarter          1.63       1.00            2.50       2.00
        Third Quarter           1.31        .63            2.13       1.63
        Fourth Quarter           .88        .25            1.63        .50

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

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

The closing price on the Company's  common stock on March 5, 2001, was $0.40 per
share. As of March 28, 2001, there were 2,412 holders of record of the Company's
common stock.


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

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

                                               2000         1999         1998         1997         1996
                                             ---------    ---------    ---------    ---------    ---------
<S>                                          <C>          <C>          <C>          <C>          <C>
Operating revenue                            $  41,261    $  41,260    $  53,521    $  38,979    $  29,785
Operating expenses                              38,850       38,323       55,216       39,958       34,719
Write down of assets                             7,461         --           --           --           --
                                             ---------    ---------    ---------    ---------    ---------
Operating profit (loss)                         (5,050)       2,937       (1,695)        (979)      (4,934)

Earnings (loss) from continuing operations
before income taxes                          $ (10,623)   $      82    $ (10,602)   $ (10,297)   $  (7,995)

Basic and diluted loss per common share
                                             $   (1.96)   $    (.62)   $   (1.86)   $    (.92)   $    (.99)

BALANCE SHEET DATA:
Total assets                                 $ 102,588    $ 119,908    $ 130,353    $ 151,243    $ 116,701
Long-term debt                               $  50,887    $  50,477    $  58,154    $  54,851    $  54,717
Total liabilities                            $  68,944    $  69,425    $  78,516    $  88,726    $  80,549
Preferred stock redemption obligation        $  26,988    $  27,763    $  21,748         --           --
Total stockholders' equity                   $   6,656    $  22,720    $  30,089    $  62,517    $  36,152

</TABLE>

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


Overview

During  1994 the  Company  began a series of steps to focus its  business on the
development,  management  and  ownership  of  assisted  living  properties.  The
Company's  historical  businesses  during  the past  five  years  have  included
ownership and operation of skilled nursing and retirement  centers,  real estate
investments  and manufacture  and leasing of electric  convenience  vehicles and
wheelchairs.  The nursing and retirement centers, convenience vehicle businesses
and real estate  investments  have been sold.  During  1994,  the Company  began
independently to develop its assisted living business, began construction of its
first  assisted  living  community  in July 1995,  and opened that  community to
residents  on May 30, 1996.  By July 1, 1996,  the Company  (not  including  the
communities of Wedgwood and American Care) had three additional  assisted living
communities under  construction.  In order to increase the Company's presence in
the assisted living industry, create geographic diversity and obtain experienced
personnel,  the  Company  acquired  Wedgwood  in March  1996,  American  Care in
December  1996,  Windsor  in  October  1997 and  Villa  in  December  1997.  The
acquisitions  of  Wedgwood,  Windsor  and  Villa  have  been  accounted  for  as
purchases, and the historical financial statements of the Company do not include
any revenues or earnings  (losses)  attributed to those  operations prior to the
acquisition.  The American Care  acquisition has been accounted for as a pooling
of interests and,  accordingly,  the Company's  financial  statements  have been
restated to include the accounts and operations of American Care for all periods
prior  to the  acquisition.  At  December  31,  1997  the  Company  operated  55
communities that were owned, leased or managed for third parties.

                                       16
<PAGE>

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

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

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

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

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

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


Fiscal 2000 as Compared to Fiscal 1999

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

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

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



                                       17
<PAGE>

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

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

The Company decided in 2000 to dispose of two assisted living communities, which
are 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.  Also,  a third
community  whose  operations  have   deteriorated  was  written  down  based  on
management's  estimate  of future  cash  flows  pursuant  to the  provisions  of
Statement  of  Financial  Accounting  Standards  No. 121.  In  addition  certain
receivables  associated with these properties were written off. These write offs
substantially  account for the remainder of the write-off of impaired assets and
related expenses

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

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

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

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


Fiscal 1999 as Compared to Fiscal 1998

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

Corporate General and Administrative Expenses. These expenses were $4,313,000 in
1999 as compared to $5,292,000 in 1998.  The decrease in the expense is a result
of the reorganization of the regional and corporate offices that resulted in the
elimination  of one of the  regional  offices and a reduction  in the  corporate
staff in the third quarter of 1998.

Interest and Dividend Income.  Interest and dividend income was $599,000 in 1999
as compared to $1,094,000  in 1998.  In the first  quarter of 1998,  the Company
received  proceeds from the sale of preferred stock of $22,000,000.  These funds
were used  during 1998 to fund  operations  and pay down debt.  The  decrease in
interest  income in 1999 is due to less cash available for investment  purposes.
In  addition,  in the  fourth  quarter  of 1999,  the  Company  entered  into an
agreement to sell its  preferred  stock in New Life  Corporation.  Prior to this
agreement,  the Company had been  receiving  quarterly  cash  dividends  on this
preferred stock.


                                       18
<PAGE>

Interest Expenses. These expenses decreased to $5,632,000 in 1999 as compared to
$6,432,000 in 1998. The decrease is reflective of the sale of an owned community
in the third quarter of 1998 as well as the payoff of  approximately  $2,500,000
of debt in the first quarter of 1998.

Other income (expense),  net. Other income for 1999 was $2,178,000.  This income
is  primarily  the  result of the  divestiture  of  assets.  A  preferred  stock
investment in another company was disposed of resulting in a gain of $2,166,000.
In addition,  the  disposition of two assisted living  communities  that did not
meet the Company's long-term strategies resulted in a loss of ($186,000).

The other income (expense) for 1998 was  ($3,009,000).  This expense is a result
of the  divestiture of 22 communities  in six separate  transactions  with third
parties and the  termination  of 3 agreements  to manage  communities  for third
parties. Nine leased communities in North Carolina,  whose primary reimbursement
source  was  Medicaid,  were  transferred  to a  Florida  based  company  for no
consideration. The leases on two other North Carolina communities, whose primary
pay or source was  Medicaid,  were  terminated.  One other owned North  Carolina
community was sold to a company for proceeds of $5,800,000.  A leased  community
in Florida was sold to a Tennessee based company for proceeds of $375,000. Eight
leased  communities in Texas, whose primary  reimbursement  source was Medicaid,
were  transferred  to a Fort Worth based company.  One other owned  community in
Oregon was subleased to a local operator.

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

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


Liquidity and Capital Resources

At December 31, 2000,  the Company had current  assets of $3,862,000 and current
liabilities of $6,585,000.

In December  1997 the Company sold Series F and Series G  convertible  preferred
shares for $22,000,000 less selling and offering costs of $453,000.  Payment was
received on January 13, 1998. The preferred stockholders receive a cash dividend
of 6%  payable  quarterly.  The sale was to Lone  Star  Opportunity  Fund,  L.P.
Subsequent  to  the  initial   transaction  the  preferred  stock  was  sold  or
transferred to LSOF Pooled Equity L.P. ("LSOF").

In  connection  with the sale,  the  Company  entered  into an  agreement  which
provides that, on the date of conversion,  if the value of the Company's  common
stock has not increased at the annual rate of at least 14% during the period the
preferred shares are outstanding, the Company is required to make a cash payment
("Cash  Payment")  to the  preferred  stockholders  equal  to the  market  price
deficiency on the shares received upon conversion.

The 14% guaranteed return is being accreted by a charge to accumulated  deficit.
The amount of the Cash Payment  that would be required  assuming  conversion  at
each  balance  sheet  date  will be  transferred  from  stockholders  equity  to
temporary  equity.  At  December  31,  2000,  a Cash  Payment  of  approximately
$26,988,000 would have been due assuming conversion took place on that date.

In January  2000  Greenbriar  and the  preferred  stockholders  entered  into an
agreement whereby  Greenbriar would redeem the Series F & G preferred stock from
proceeds  generated  from  the  sale or  refinancing  of  certain  assets  ("the
redemption agreement").  In connection with the redemption agreement the Company
paid LSOF a total of $4,760,000 during 2000.

The  original  agreement  provides the Series F & G preferred  stockholders  the
option to convert beginning January 13, 2000. The agreement further provides for
a mandatory  redemption on January 13, 2001.  Greenbriar received a notice dated
October 30,  2000,  from LSOF  advising  that they were  electing to convert the
outstanding  shares of preferred stock into common stock. Such notice sets forth
the holder'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  $17.50  per share to $0.69 per  share,  and that the  Company  must  issue
27,502,855  shares of common stock upon conversion.  If such shares were issued,
they  would  constitute  approximately  80% of the  Company's  common  stock and
represent a change in the control of Greenbriar.  The Company would be forced to
obtain  stockholder  approval  of the  issuance  of such a large block of common
stock or face a delisting of its common stock on the American Stock Exchange. In
the event such conversion  occurred,  the Company's obligation to pay the holder
the  "make-whole"  distribution  that is due upon a conversion  or redemption of
preferred stock would be reduced from approximately $27,166,000 to approximately
$8,600,000.

The Company  believes  that the  conversion  price was not  properly  subject to
adjustment, and, if the holder were to have converted, it would be at the $17.50
conversion  price  stated in the terms of the  preferred  stock  agreement.  The
Company's  position is based, in part,  upon the holder's  failure to follow all
procedures  for  adjustment  and  conversion at the adjusted  price,  and on the
Company's  rescission of the employee  stock options that were the basis for the
holder's purported adjustment.

                                       19
<PAGE>

LSOF filed a declaratory  judgment  action in the State District Court in Dallas
County, Texas seeking a finding that it is entitled to a $0.69 conversion price.
The Company filed specific denials and affirmative defenses and counterclaims in
defense of such action,  seeking, among other things, a contrary ruling that the
conversion  price was not  adjusted  (see  Item 3:  Legal  Proceedings  for more
information on LSOF).

On January 13, 2001,  the Company  took the action  mandated by the terms of the
Series F and G Convertible Preferred Stock to convert the shares of Series F and
G Convertible  Preferred Stock remaining  outstanding  into 1,054,202  shares of
common stock and  acknowledged  its obligation to pay the holder the approximate
$27,166,000   Cash  Payment  amount  as  funds  for  repayment  become  lawfully
available.

Although the preferred  stock has been  converted to common stock the Company is
still  obligated to pay LSOF the Cash Payment amount.  If Greenbriar  ultimately
prevails in its dispute with LSOF the amount owed is approximately  $27,166,000.
Greenbriar  is continuing  its plan to sell or refinance its existing  assets to
repay  LSOF.  Although  there  can be no  assurance  that  the  Company  will be
successful, at current interest rates and property values Greenbriar believes it
can  obtain  sufficient  cash to meet all its  financial  obligations  including
repaying LSOF.

Subsequent  to December  31,  2000,  the  Company  sold their  corporate  office
building in Addison,  Texas and received net cash  proceeds of  $1,477,772.  The
corporate office will be relocating in April 2001 to approximately 10,000 square
feet of leased  space in Addison,  Texas.  In  addition,  the Company  also sold
certain  garden  homes  and  related  property  that  was  adjacent  to  Camelot
Retirement subsequent to December 31, 2000 and received net cash of $866,280.

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


Effect of Inflation

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


Forward Looking Statements

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

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

The Company is subject to market risk from exposure to changes in interest rates
based on its financing,  investing, and cash management activities.  The Company
utilizes a  balanced  mix of debt  maturities  along  with both  fixed-rate  and
variable-rate  debt to manage its exposures to changes in interest  rates.  (See
Management's Discussion and Analysis - Liquidity and Capital Resources appearing
elsewhere  in this Form 10-K.) If market  interest  rates  average 1% (100 basis
points) more in 2001 than they did in 2000, the Company's interest expense would
increase and income before income taxes would decrease by approximately $300,000
based on the amount of debt  outstanding at December  31,2000.  The Company does
not expect changes in interest rates to have a material effect on income or cash
flows in fiscal 2001,  although  there can be no assurances  that interest rates
will not significantly change.

                                       20
<PAGE>

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.







                                       21
<PAGE>

                                    PART III

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


Directors and Business Experience
Class I
Term expires in 2001
--------------------

James R. Gilley            Mr.  Gilley has been  Chairman of the  Company  since
Age 66                     November 1989 and was  President and Chief  Executive
                           Officer from November  1989 until  December 16, 1996.
                           He was  re-elected as President  and Chief  Executive
                           Officer on October 2, 1998.

Gene S.  Bertcher          Mr. Bertcher has been Executive Vice President, Chief
Age 52                     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

Paul G.  Chrysson          Mr. Chrysson has been a director of the Company since
Age 46                     May 1995.  He is President of C.B.  Development  Co.,
                           Inc.,  a North  Carolina  real  estate  developer,  a
                           position  he  has  held  for  over  five  years.  Mr.
                           Chrysson  is a member of the boards of  directors  of
                           Boddie-Noell    Properties,    Inc.    and   Wachovia
                           Bank-Forsyth  County,  Winston-Salem,  North Carolina
                           and has served on the  boards of  various  charitable
                           organizations.  He has been a  licensed  real  estate
                           agent  since  1974 and a  licensed  contractor  since
                           1978.

Class II
Term expires in 2002
--------------------

Matthew G.  Gallins        Mr.  Gallins has been a director of the Company since
Age 44                     June  1994.  Since  1990,  Mr.  Gallins  has  been  a
                           director,  President and Chief Operations  Officer of
                           Gallins  Vending  Company,   Inc.,  a  food  services
                           vending  company.   He  is  a  director  of  Southern
                           Community Bank in  Winston-Salem,  North Carolina and
                           has  served  on  the  boards  of  various  charitable
                           organizations.

Victor L.  Lund            Mr.  Lund has been a director  of the  Company  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  since
Age 46                     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.

William A.  Shirley, Jr.   Mr.  Shirley has been a director of the Company since
Age 57                     1998.  He was Chairman of the Board and  President of
                           Villa  Residential  Care Homes,  Inc. from 1989 until
                           its  acquisition by the Company on December 31, 1997.
                           Mr.  Shirley is  President of Pascal  Enterprises,  a
                           real estate  investment  company  wholly owned by Mr.
                           Shirley.


                                       22
<PAGE>

Other Executive Officers and Business Experience

Robert L.  Griffis         Mr.  Griffis has been Senior  Vice  President  of the
Age 65                     Company since  November  1992,  Secretary  since June
                           1994  and  was  a  director   from  June  1994  until
                           September  1996. For the nine years prior to becoming
                           an officer of the  Company,  he was  involved  in the
                           healthcare  industry,  as Senior  Vice  President  of
                           Retirement   Corporation  of  America,   Senior  Vice
                           President of National  Heritage,  Inc.,  President of
                           Health  Resources,  Inc.,  President of the long term
                           care  division of Clinitex  Corp.  and,  from 1991 to
                           1992, as a consultant to the Company.


Organization of the Board of directors

The board of directors has the following committees:

             Committee                           Members
             ---------                           -------

             Executive                           James R. Gilley - Chairman
                                                 Victor L. Lund
                                                 Paul G. Chrysson

             Audit                               Matthew G. Gallins - Chairman
                                                 Paul G. Chrysson
                                                 William A. Shirley, Jr.

             Compensation Committee              Matthew G. Gallins, Chairman
                                                 Don C. Benton
                                                 Paul G. Chrysson

             Conflicts of Interest               Paul G. Chrysson - Chairman
                                                 Don C. Benton
                                                 Matthew G. Gallins

The executive  committee conducts the normal business  operations of the Company
and  acts  as the  nominating  committee.  The  audit  committee  recommends  an
independent auditor for the Company,  consults with such independent auditor and
reviews the Company's financial statements. The compensation committee fixes the
compensation  of officers and key employees of the Company and  administers  the
Company's stock option plans. The conflicts of interest  committee  receives and
investigates any reports of or perceived conflicts of interest in any activities
undertaken by the Company.

The board of directors met once and approved four actions by unanimous  consent,
the audit  committee  met once and the  compensation  committee  met once during
2000.


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.



                                       23
<PAGE>
<TABLE>
<CAPTION>

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, 2000,  1999 and 1998 to the
Chief Executive  Officer of the Company and to the other  executive  officers of
the Company whose total annual salary in 2000 exceeded  $100,000,  the number of
options  granted  to any of  such  persons  during  2000  and the  value  of the
unexercised options held by any of such persons on December 31, 2000.

                           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)
-----------------------------  ----  -------------- ------------ ---------------

James R. Gilley,               2000     $460,000       200,000       $5,500
Chairman, President and Chief  1999      479,000       200,000        6,500
Executive Officer              1998      414,000       200,000        6,500


Gene S. Bertcher,              2000      185,000             -       $4,500
Executive Vice President and   1999      198,000       200,000        4,500
Chief Financial Officer        1998      162,000       100,000            -


Robert L. Griffis,             2000      100,000             -            -
Senior Vice President          1999      111,000             -            -
                               1998       90,000        30,000            -


(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
---------------    -----------    -------------    -----------    ----------

James R. Gilley      200,000           100%           $0.38        12/31/10


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



                                                                            Value of Unexercised
                                               Number of Securities             In-the-Money
                      Shares                  Underlying Unexercised          Options at 1999
                     Acquired      Value      Options at 1999 FY-End              FY-End
      Name         on Exercise   Realized   Exercisable  Unexercisable   Exercisable  Unexercisable
      ----         -----------   --------   -----------  -------------   -----------  -------------
<S>                <C>           <C>        <C>          <C>             <C>          <C>
James R. Gilley         --           --       1,000,000         --          --              --

Gene S. Bertcher        --           --          20,000         --          --              --

</TABLE>

Stock Option Plan

The compensation  committee 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 217,500 shares of common stock for
issuance under the 1992 Plan, 500,000 shares of common stock under the 1997 Plan
and 500,000  shares of common  stock  under the 2000 Plan.  As of March 26, 2001
options have been granted for 188,000  shares  reserved  under the 1992 Plan. No
options are issued for the 1997 or 2000 Plans.

                                       24
<PAGE>

Compensation of Directors

The Company pays each  director a fee of $2,500 per year,  plus a meeting fee of
$1,000 for each board meeting attended.

Employment Agreements

The  Company  has an  employment  agreement  with  James  R.  Gilley,  Chairman,
President and Chief Executive Officer, dated January 1, 1997 that provides for a
three-year  term that  recommences  each day. The agreement  provides for a base
salary of $460,000 and 200,000  fully vested  non-qualified  stock  options each
year through 2000 in lieu of any cash bonus.  The  agreement  may be  terminated
only upon resignation, mutual consent or for good cause.

The Company has an employment  agreement with Gene S.  Bertcher,  Executive Vice
President and Chief  Financial  Officer.  The agreement,  dated January 1, 1997,
provides for a two-year term that recommences  each day. The agreement  provides
for compensation of $180,000 per year, discretionary bonus and may be terminated
early only upon resignation, mutual consent or for good cause.

Compensation Committee Report

The  compensation  paid to the  Company's  executive  officers is  reviewed  and
approved annually by the compensation  committee of the board of directors.  The
compensation  committee  consists  entirely of non-employee  directors.  Current
members of the committee are Messrs.  Benton,  Chrysson and Gallins. In addition
to approving  annual  compensation  for the Company's  executive  officers,  the
compensation  committee approves any incentive awards for executive officers and
other key employees, any stock option grants and additional benefits such as the
Company's 401(k) plan.

The  Company's  compensation   philosophy  is  to  attract,  retain  and  reward
executives  who have shown they are capable of leading the Company in  achieving
its  business   objectives  and  performance  goals.  These  objectives  include
preserving and increasing the Company's  asset value;  positioning the Company's
operations  in  geographic   markets  offering  long  term,   profitable  growth
opportunities;  preserving  and  enhancing  stockholder  value and  keeping  the
Company competitive in its marketing and operations. The accomplishment of these
objectives  is measured  against  conditions  prevalent in the  assisted  living
industry.  In recent  years the  industry  has grown to be a highly  competitive
industry for residents,  real estate and services in a rapidly changing regional
and national environment.

The  compensation  committee  determined  that the  primary  forms of  executive
compensation should be base salary and stock options. The Company's  performance
is a key  consideration  (to the  extent  that  such  performance  can be fairly
attributed  or  related  to an  executive's  performance)  and each  executive's
responsibilities and capabilities are key considerations.  The committee strives
to keep executive base salaries  competitive  for comparable  positions in other
corporations  where  possible.  In addition,  the  committee  believes in equity
compensation   wherein  executives  will  be  additionally   rewarded  based  on
increasing the Company's  stockholder  value.  Base salaries are predicated on a
number of factors, including:

o        recommendation of the Chief Executive Officer;
o        knowledge of similarly situated executives at other companies;
o        the executive's position and responsibilities within the Company;
o        the compensation  committee's  subjective evaluation of the executive's
         contribution to the Company's performance;
o        the executive's experience and
o        the term of the executive's tenure with the Company.

Chief Executive Officer Compensation

James R.  Gilley,  President  and Chief  Executive  Officer,  has an  employment
agreement with the Company  providing,  among other things,  his base salary and
other  benefits.  As  a  result,  the  compensation  committee  did  not  review
compensation for the Chief Executive Officer position.

Compensation Committee

Matthew Gallins, Chairman
Don Benton
Paul Chrysson



                                       25
<PAGE>

                                PERFORMANCE GRAPH

The following graph compares the cumulative total return on a $100 investment in
the Company's common stock on December 31, 1996 through December 31, 2000, 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 500 index and 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,  ARV Assisted Living,  Inc.,  Assisted Living Concepts,
Inc.,  Emeritus  Corporation,  Regent Assisted Living, Inc. and Sunrise Assisted
Living, Inc.


                                       26
<PAGE>
<TABLE>
<CAPTION>

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

The following table sets forth as of March 26, 2001,  certain  information  with
respect to all stockholders  known by the Company to own beneficially  more than
5% of the  outstanding  common stock and Series D preferred stock (which are the
only  outstanding  classes 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 and Series D preferred  stock owned
beneficially by each director,  director nominee,  and current executive officer
whose  compensation  from the  Company  in 2000  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.

                                        Preferred Stock                              Common Stock
                                   -----------------------         ---------------------------------------------
                                                                                             Number of shares
                                                                                              Assuming Full
                                      Number       Percent          Number     Percent   Conversion of Preferred   Percent
 Name and Address                       of            of              of          of            Stock and            of
 of Beneficial Owner                  Shares       Series           Shares      Class      Options by Holder        Class
 -------------------------------   ----------      -------          ---------  -------   -----------------------   -------
<S>                                <C>             <C>              <C>        <C>       <C>                       <C>

                                   Series D Preferred Stock(1)

James R.  Gilley(2 & 3)               675,000         100%          2,340,851    24.8%           2,678,351           27.4%
4265 Kellway Circle
Addison TX 75001

Sylvia M.  Gilley(2 & 3)              675,000         100%          2,340,851    24.8%           2,678,351           27.4%
6211 Georgian Court
Dallas TX 75240

Victor L.  Lund(4)                       --            --           1,214,961    14.6%           1,214,961           14.6%
816 NE 87th Avenue
Vancouver WA 98664

Floyd B.  Rhoades(5)                     --            --             951,820    11.2%             951,820           11.2%
95 Argonaut Street
Aliso Viego CA 92656

Gene S.  Bertcher(6)                     --            --              66,000      *                66,000             *
4265 Kellway Circle
Addison TX 75001

Robert L.  Griffis(7)                    --            --              30,000      *                30,000             *
4265 Kellway Circle
Addison TX 75001

Matthew G.  Gallins(8)                   --            --              10,000      *                10,000             *
715 Stadium Drive
Winston-Salem NC 27101

Paul G.  Chrysson(8)                     --            --              10,000      *                10,000             *
1045 Burke Street
Winston-Salem NC 27101

Don C.  Benton(8)                        --            --              10,000      *                10,000             *
Arrowhead Ranch
Route 1
Clarksville, TX  75246

William A.  Shirley, Jr.(9)              --            --             412,435     5.0%             412,435            5.0%
2621 State Street
Dallas TX 75204

LSOF Pooled Equity, LP(10)               --            --           1,054,202    12.7%           1,054,202           12.7%
600 N Pearl Street, Suite 1550
Dallas TX 75201

American Realty Trust, Inc.(11)
10670 North Central Expressway           --            --              97,500     1.2%              97,500            1.2%
Suite 300
Dallas TX 75231

Basic Capital Management,                --            --             141,260     1.7%             141,260            1.7%
Inc.(11)
10670 North Central Expressway
Suite 600
Dallas TX 75231

Nevada Sea Investments, Inc.(11)         --            --              72,800      *                72,800             *
10670 North Central Expressway
Suite 501
Dallas TX 75231

International Health Products,           --            --             249,085     3.0%             249,085            3.0%
Inc.(11)
10670 North Central Expressway
Suite 410
Dallas TX 75231

Davister Corporation (11)                --            --             251,200     3.0%             251,200            3.0%
10670 North Central Expressway
Suite 410
Dallas TX 75231

Institutional Capital                    --            --             242,500     2.9%             242,500            2.9%
Corporation (11)
10670 North Central Expressway
Suite 411
Dallas TX 75231

All executive officers and            675,000         100%          4,094,247    50.0%           4,431,747           52.0%
directors as a group(1 & 2)
(eight persons)

</TABLE>


                                       27
<PAGE>

* Less than one percent

(1)      Represents Series D preferred stock,  which votes with common stock and
         Series B  preferred  stock as one class.  Series D  preferred  stock is
         convertible  into common  stock at a rate of one share of common  stock
         for two shares of Series D preferred stock.

(2)      The shares are owned by a grantor trust for the benefit of Mr. and Mrs.
         Gilley. Sylvia M. Gilley is the spouse of James R. Gilley.

(3)      Consists of 500,000  shares of common  stock  owned by JRG  Investments
         Co.,  Inc.,  a  corporation  wholly  owned by James R. Gilley  ("JRG");
         732,851 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 200,000 shares of common stock at $0.38 per share, exercisable
         through  December  31,  2010;  options to James R.  Gilley to  purchase
         200,000  shares of  common  stock at  $13.275  per  share,  exercisable
         through  December  31,  2006;  options to James R.  Gilley to  purchase
         200,000 shares of common stock at $17.50 per share, exercisable through
         December  31,  2007;  options to James R.  Gilley to  purchase  200,000
         shares of common stock at $2.50 per share, exercisable through December
         31,  2008;  options to James R.  Gilley to purchase  200,000  shares of
         common stock at $0.69 per share exercisable  through December 31, 2009;
         a warrant to purchase 108,000 shares at an exercise price of $10.00 per
         share,  exercisable through October 1, 2006, owned by the grantor trust
         for the benefit of Mr. and Mrs.  Gilley;  and 536,000  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.  Of the shares of common stock owned by the grantor  trust,
         200,000  shares were acquired by the trust from the Company in November
         1993 in consideration of a $2,250,000 partial recourse  promissory note
         executed by the grantor trust and Mr. Gilley (as  co-maker).  This note
         bears interest at an annual rate of 5.5% until November 2008,  when the
         entire principal  balance and all accrued interest are due. The 200,000
         shares  purchased  by the grantor  trust  collateralize  the note.  The
         grantor trust and Mr. Gilley (as co-maker) have personal  recourse only
         for the first 20% of the principal balance.

(4)      Consists of 1,214,961 shares of common stock owned by Mr. Lund.

(5)      Consists  of  751,820  shares of  common  stock  owned by Mr.  Rhoades,
         options to Mr.,  Rhoades to purchase  200,000 shares of common stock at
         $17.50 per share,  and 1,192  shares owned by his spouse.  Mr.  Rhoades
         disclaims beneficial ownership of shares owned by his spouse.

(6)      Consists of 46,000 shares of common stock issued for  promissory  notes
         of $92,500, for which 13,000 shares are currently pledged as collateral
         and options to purchase  20,000  shares of common  stock for $11.25 per
         share, all of which are vested.

(7)      In  November  1992,  Mr.  Griffis  obtained a loan from the Company for
         $75,000 that was used to exercise  options to purchase 30,000 shares of
         the  Company's  common  stock.  The  shares  purchased  by Mr.  Griffis
         collateralize the loan.


(8)      Consists  of  options to  purchase  10,000  shares of common  stock for
         $17.75 per share.

(9)      Includes 412,435 shares of common stock owned of record by Mr. Shirley.


(10)     In  accordance  with the terms of  conversion  in the  preferred  stock
         agreement  dated  January 13, 1998 on January 13, 2001 the Series F & G
         Preferred  Stock issued by  Greenbriar  was  converted  into  1,054,202
         shares of Greenbriar common stock. The holder of the preferred stock is
         disputing  the  conversion.  They  maintain a  conversion  occurred  on
         October 30, 2000 and they were entitled to receive  27,502,855  shares.
         This  matter  is  currently   being   litigated   (see  Item  3:  Legal
         Proceedings,  Item  7:  Management  Discussion  and  Analysis  and  the
         footnotes to the financial statements).

(11)     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 311,560  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 1,054,345 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.


                                       28
<PAGE>

ITEM 13: 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 1997 fiscal year.

On November 19, 1993 the Company sold 200,000  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  ($11.25) 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  20% 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.  Such note bears  interest  at the 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 such note to November
18, 2008.

Gene S. Bertcher and Robert L. Griffis, officers of the Company, are indebted to
the Company for an  aggregate of $92,500 and  $75,000,  respectively,  for notes
issued in payment for shares of Common Stock.  Mr.  Bertcher's notes are secured
by a pledge of 13,000 shares of common stock.  Mr. Griffis' note is secured by a
pledge of his 30,000  shares.  Such notes bear  interest  at a rate equal to any
cash or stock dividends  declared on the purchased stock and are due in a single
installment for each such note on or before October 1, 2002.

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  675,000  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.  The Series D
preferred  stock is convertible  into  unregistered  shares of common stock at a
ratio of one share of common  stock for two shares of Series D preferred  stock.
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.

The Company  agreed to register the shares of common stock into which the Series
D preferred stock is convertible under limited  circumstances,  as follows:  the
Company  agreed  to give  the  holders  of  such  shares  the  right  to  demand
registration  of all or a portion of the common stock upon  conversion  provided
holders  of at least a  majority  of the  shares  join in such  demand;  and the
Company  agreed to give the holders of common  stock  "piggy-back"  registration
rights to  include  all or a  portion  of the  shares in any other  registration
statement  filed by the Company under the Securities Act (other than on Form S-8
or Form S-4),  subject to certain  rights of the Company not to include all or a
portion of such shares under certain  circumstances.  The Company  agreed to pay
all expenses of the demand or  piggyback  registration  other than  underwriting
fees, discounts and commissions.

The Company  agreed to register the shares of common stock into which the Series
E preferred stock was converted, in connection with the Wedgwood Acquisition,  a
large   percentage   of  which  is  held  by  Victor  L.  Lund,   under  limited
circumstances,  as  follows:  commencing  two  years  after the  closing  of the
Wedgwood Acquisition,  the Company agreed to give the holders of such shares the
right to demand registration of all or a portion of the common stock provided at
least a majority of the shares  join in such  demand and the  Company  agreed to
give the holders of the common stock "piggy-back" registration rights to include
all or a portion of the shares in any other registration  statement filed by the
Company under the Securities  Act (other than on Form S-8 or Form S-4),  subject
to certain  rights of the Company not to include all or a portion of such shares
under  certain  circumstances.  The  Company  agreed to pay all  expenses of the
demand or piggyback  registration,  other than underwriting fees,  discounts and
commissions.  In connection with the Wedgwood  Acquisition,  the Company entered
into a Construction  Management  Agreement with Victor L. Lund pursuant to which
Mr. Lund  agreed to serve,  for three years  following  closing of the  Wedgwood
Acquisition,  as a construction  manager to oversee construction for the Company
of up to 20 assisted living facilities, including those that provide Alzheimer's
care, during the term of the agreement.  The Construction  Management  Agreement
was terminated by mutual  agreement in October 1997.  Mr. Lund received  monthly
fees based on the  percentage of completion of each facility with a total fee of
$150,000 for each facility successfully  completed,  less any distributions paid
to Mr. Lund from any partnership or limited  liability Company in which Mr. Lund
and the Company both own equity  interests.  Mr. Lund was responsible for paying
the costs of any construction  supervisors or similar on-site personnel employed
by him to satisfy  his  oversight  duties to the  Company.  Mr.  Lund owns a 51%
equity  interest  and the  Company  owns a 49% equity  interest  in two  limited
partnerships.  The Company has an option to buy Mr.  Lund's  interests  in these
partnerships for $10,000.


                                       29
<PAGE>

In 1996 The April Trust purchased a Stock Purchase  Warrant from an unaffiliated
holder to purchase 108,000 shares of common stock at an exercise price of $12.98
per share. That warrant contains  anti-dilution clauses requiring a reduction in
the  exercise  price to adjust for any  issuance of common stock at a price less
than the exercise  price,  which had occurred and would occur in connection with
the  merger  with  American   Care.  To  eliminate  any  future   conflicts  and
negotiations  of changes in the exercise  price,  the warrant was amended to fix
the exercise price at $10.00 and to extend the termination date until October 1,
2006.

On January 13, 1998, Lone Star  Opportunity  Fund, L.P. ("Lone Star")  purchased
1,400,000  shares of Series F  preferred  stock and  800,000  shares of Series G
preferred  stock for an aggregate  purchase price of  $22,000,000.  In the first
quarter of 2000 the Company  redeemed  267,000  shares of the Series G Preferred
Stock. The outstanding  Series F preferred stock and Series G preferred stock is
convertible  into  1,104,572  shares  of common  stock.  The  Company  agreed to
register the shares of common stock into which the Series F preferred  stock and
Series G  preferred  stock  are  convertible  under  limited  circumstances,  as
follows:  the  Company  agreed to give the  holders of such  shares the right to
demand  registration  on two  occasions  of all or a portion of the common stock
upon  conversion  provided  holders of at least a majority of the shares join in
such demand and the  aggregate  offering  price is equal to at least $3 million;
the Company agreed to give the holders of common stock "piggyback"  registration
rights to  include  all or a  portion  of the  shares in any other  registration
statement  filed by the Company under the Securities Act (other than on Form S-8
or Form S-4),  subject to certain  rights of the Company not to include all or a
portion of such shares under certain  circumstances;  and the Company  agreed to
register the shares on Form S-3 upon conversion, if Form S-3 is available to the
Company,  as long as the aggregate  offering price for the shares  registered on
such Form S-3 were at least equal to $3 million and  provided  the Company  will
not be  required  to effect  more than one  registration  on Form S-3 during any
twelve  month  period.  The  Company  agreed to pay all  expenses of any demand,
piggyback or Form S-3 registration,  other than underwriting fees, discounts and
commissions.

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 the
conflict of interest committee,  which is comprised of non-management members of
the board of directors of the Company.  All of the transactions  described above
were approved.




                                       30
<PAGE>

                                     PART IV

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

(d)      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-8

         (2)   FINANCIAL STATEMENT SCHEDULES: 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.

(e)      REPORTS ON FORM 8-k:  Form 8-K filed on November 14,  2000,  disclosing
         under Item 1: Changes in Control of Registrant, a dispute in litigation
         over the number of shares to which LSOF Pooled Equity, L.P. is entitled
         upon conversion of preferred stock into common stock.

(f)      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).

          2.2.1     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.



                                       31
<PAGE>

         Exhibit
         Number                   Description of Exhibit
         --------   ------------------------------------------------------------
          2.2.4     Form of Registration Rights Agreement between Registrant and
                    Lone Star Opportunity Fund, L.P. as regards 1,400,000 shares
                    of Registrant's Series F Senior Convertible  Preferred Stock
                    and  800,000   shares  of   Registrant's   Series  G  Senior
                    Non-Voting   Preferred  Stock  filed  as  Exhibit  2.2.4  of
                    Registrant's  Form  10-KSB for the year ended  December  31,
                    1997.

          2.2.5     Agreement  between  Lone Star  Opportunity  Fund,  L.P.  and
                    Registrant  regarding certain minimum values of Registrant's
                    stock filed as Exhibit 2.2.5 of Registrant's Form 10-KSB for
                    the year ended December 31, 1997.

          3.1       Articles of Incorporation  of Medical Resource  Companies of
                    America ("Registrant") (filed as Exhibit 3.1 to Registrant's
                    Form S-4 Registration Statement,  Registration No. 33-55968,
                    and incorporated herein by this reference).

          3.1.1     Restated    Articles   of    Incorporation   of   Greenbriar
                    Corporation.

          3.2       Bylaws of Registrant  (filed as Exhibit 3.2 to  Registrant's
                    Form S-4 Registration Statement,  Registration No. 33-55968,
                    and incorporated herein by this reference).

          3.2.1     Amendment to Section 3.1 of the Bylaws of Registrant adopted
                    upon  approval  of the  Merger  (filed as  Exhibit  3.2.1 to
                    Registrant's Form S-4 Registration  Statement,  Registration
                    No. 33-55968, and incorporated herein by this reference).

          3.3       Certificate of Decrease in Authorized and Issued Shares.

          4.1.2     Certificate  of  Designations,  Preferences  and  Rights  of
                    Preferred Stock dated May 7, 1993,  relating to Registrant's
                    Series  B  Preferred   Stock  (filed  as  Exhibit  4.1.2  to
                    Registrant's Form S-3 Registration  Statement,  Registration
                    No. 33-64840, and incorporated herein by this reference.

          4.1.4     Certificate  of  Designations,  Preferences  and  Rights  of
                    Preferred   Stock   dated  March  15,   1996,   relating  to
                    Registrants' Series D Preferred Stock.

          4.1.6     Certificate of Voting Powers, Designations,  Preferences and
                    Rights of Registrant's Series F Senior Convertible Preferred
                    Stock dated  December  31, 1997,  filed as Exhibit  2.2.2 of
                    Registrant's  Form  10-KSB for the year ended  December  31,
                    1997.

          4.1.7     Certificate of Voting Powers, Designations,  Preferences and
                    Rights   of   Registrant's   Series  G   Senior   Non-Voting
                    Convertible  Preferred Stock dated December 31, 1997,  filed
                    as Exhibit  2.2.3 of  Registrant's  Form 10-KSB for the year
                    ended December 31, 1997.

          10.3.2    Form of $62,500  Promissory  Note dated  December  27,  1991
                    payable to Registrant by Gene S. Bertcher  representing  the
                    purchase price for 250,000 shares (50,000 post December 1995
                    shares)  of  Registrant's  Common  Stock  (filed as  Exhibit
                    10.3.2  to  Registrant's  Form S-4  Registration  Statement,
                    Registration No. 33-55968,  and incorporated  herein by this
                    reference).

          10.3.3    Form of Renewal of  Promissory  Note dated  October 14, 1992
                    extending   the  maturity  date  of  the   Promissory   Note
                    referenced  in Exhibit  10.3.2  (filed as Exhibit  10.3.3 to
                    Registrant's Form S-4 Registration  Statement,  Registration
                    No. 33-55968, and incorporated herein by this reference).

          10.3.4    Form of Security  Agreement - Pledge  (Nonrecourse)  between
                    Gene S. Bertcher and Registrant securing the Promissory Note
                    referenced in Exhibit  13.3.2.  (Filed as Exhibit  10.3.4 to
                    Registrant's Form S-4 Registration  Statement,  Registration
                    No. 33-55968, and incorporated herein by this reference).

          10.4.2    Form of $75,000  Promissory  Note  dated  October  12,  1992
                    payable to Registrant by Robert L. Griffis  representing the
                    purchase price for 150,000 shares (30,000 post December 1995
                    shares)  of  Registrant's  Common  Stock  (filed as  Exhibit
                    10.4.2  to  Registrant's  Form S-4  Registration  Statement,
                    Registration No. 33-55968,  and incorporated  herein by this
                    reference).

          10.4.3    Form of Security  Agreement - Pledge  (Nonrecourse)  between
                    Registrant  and Robert L. Griffis  securing  the  Promissory
                    Note  referenced in Exhibit  10.4.2 (filed as Exhibit 10.4.3
                    to   Registrant's    Form   S-4   Registration    Statement,
                    Registration No. 33-55968,  and incorporated  herein by this
                    reference).



                                       32
<PAGE>

         Exhibit
         Number                   Description of Exhibit
         --------   ------------------------------------------------------------
          10.6.1    Form of Stock Option to purchase 100,000 shares (20,000 post
                    December 1995 shares) of Registrant's Common Stock issued to
                    Oscar Smith on October 1, 1992  (filed as Exhibit  10.6.1 to
                    Registrant's Form S-4 Registration  Statement,  Registration
                    No. 33-55968, and incorporated herein by this reference).

          10.6.2    Form of  $50,000  Promissory  Note  dated  October  1,  1992
                    payable  to  Registrant  by  Oscar  Smith  representing  the
                    purchase price for 100,000 shares (20,000 post December 1995
                    shares)  of  Registrant's  Common  Stock  (filed as  Exhibit
                    10.6.2  to  Registrant's  Form S-4  Registration  Statement,
                    Registration No. 33-55968,  and incorporated  herein by this
                    reference).

          10.6.3    Form of Security  Agreement - Pledge  (Nonrecourse)  between
                    Registrant  and Oscar Smith  securing  the  Promissory  Note
                    referenced  in Exhibit  10.6.2  (filed as Exhibit  10.6.3 to
                    Registrant's Form S-4 Registration  Statement,  Registration
                    No. 33-55968, and incorporated herein by this reference).

          10.7.1    Form of Stock Option to purchase  80,000 shares (16,000 post
                    December 1995 shares) of Registrant's Common Stock issued to
                    Lonnie  Yarbrough  on  October  12,  1992  (filed as Exhibit
                    10.7.1  to  Registrant's  Form S-4  Registration  Statement,
                    Registration No. 33-55968,  and incorporated  herein by this
                    reference).

          10.7.2    Form of $40,000  Promissory  Note  dated  October  12,  1992
                    payable to Registrant by Lonnie  Yarbrough  representing the
                    purchase  price for 80,000 shares (16,000 post December 1995
                    shares)  of  Registrant's  Common  Stock  (filed as  Exhibit
                    10.7.2  to  Registrant's  Form S-4  Registration  Statement,
                    Registration No. 33-55968,  and incorporated  herein by this
                    reference).

          10.7.3    Form of Security Agreement - Pledge  (non-recourse)  between
                    Registrant and Lonnie Yarbrough securing the Promissory Note
                    referenced  in Exhibit  10.7.2  (filed as Exhibit  10.7.3 to
                    Registrant's Form S-4 Registration  Statement,  Registration
                    No. 33-55968, and incorporated herein by this reference).

          10.9.6    Form of $62,500  promissory  note dated  December  29, 1994,
                    payable  to  Registrant  by  L.A.  Tuttle  representing  the
                    purchase  price of 50,000 shares  (10,000 post December 1995
                    shares)  of  Registrant's  Common  Stock  (filed as  Exhibit
                    10.9.6  to  Registrant's  Form  10-KSB  for the  year  ended
                    December 31, 1994).

          10.9.7    Form of Security  Agreement-Pledge  between  Registrant  and
                    L.A.  Tuttle  securing  the  promissory  note  reference  in
                    Exhibit 10.9.6 (filed as Exhibit 10.9.7 to Registrant's Form
                    10-KSB for the year ended December 31, 1994).

          10.13.1   Registrant's  1992 Stock Option Plan (filed as Exhibit 10.13
                    to   Registrant's    Form   S-4   Registration    Statement,
                    Registration No. 33-55968,  and incorporated  herein by this
                    reference).

          10.13.2   Registrant's 1997 Stock Option Plan (filed as Exhibit 4.1 to
                    Registrant's Form S-8 Registration  Statement,  Registration
                    No. 333-33985 and incorporated herein by this reference).

          10.13.3   Registrant's 2000 Stock Option Plan (filed as Exhibit 4.1 to
                    Registrant's Form S-8 Registration  Statement,  Registration
                    No. 333-50868 and incorporated herein by this reference).

          10.21.1   Extended and  Consolidated  Promissory Note in the principal
                    amount of $5,700,000 dated effective May 23, 1992 payable by
                    JRG Investment Co., Inc. to M.S. Holding Co. Corp. (filed as
                    Exhibit  10.22.1  to  Registrant's   Form  S-4  Registration
                    Statement,   Registration  No.  33-55968,  and  incorporated
                    herein by this reference).

          10.22.2   Extended and  Consolidated  Pledge Agreement dated effective
                    May 23,  1992  between JRG  Investment  Co.,  Inc.  and M.S.
                    Holding Co. Corp.  securing the Note  referenced  in Exhibit
                    10.22.1 (filed as Exhibit 10.22.2 to  Registrant's  Form S-4
                    Registration  Statement,   Registration  No.  33-55968,  and
                    incorporated herein by this reference).

          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).



                                       33
<PAGE>

         Exhibit
         Number                   Description of Exhibit
         --------   ------------------------------------------------------------
          10.22.4   Irrevocable  Proxy from James R. Gilley to M.S.  Holding Co.
                    Corp.  relating to shares of capital stock of JRG Investment
                    Co., Inc. (filed as Exhibit 10.22.4 to Registrant's Form S-4
                    Registration  Statement,   Registration  No.  33-55968,  and
                    incorporated herein by this reference).

          10.22.5   Blank  Assignment  and  Power  of  Attorney  signed  by  JRG
                    Investment  Co.,  Inc.  relating  to  482,000  (96,400  post
                    December 1995 shares)  shares of  Registrant's  Common Stock
                    (filed  as  Exhibit   10.22.5  to   Registrant's   Form  S-4
                    Registration  Statement,   Registration  No.  33-55968,  and
                    incorporated herein by this reference).

          10.22.6   Blank  Assignment  and  Power  of  Attorney  signed  by  JRG
                    Investment Co., Inc.  relating to 1,268,000  shares (236,600
                    post  December  1995  shares) of  Registrant's  Common Stock
                    (filed  as  Exhibit   10.22.6  to   Registrant's   Form  S-4
                    Registration  Statement,   Registration  No.  33-55968,  and
                    incorporated herein by this reference).

          10.22.7   Three Blank Assignments and Powers of Attorney signed by JRG
                    Investment  Co.,  Inc.,  each  relating  to  600,000  shares
                    (120,000 post December 1995 shares) of  Registrant's  Common
                    Stock  (filed as Exhibit  10.22.7 to  Registrant's  Form S-4
                    Registration  Statement,   Registration  No.  33-55968,  and
                    incorporated herein by this reference).

          10.22.8   Blank  Assignment  and  Power  of  Attorney  signed  by  JRG
                    Investment  Co.,  Inc.   relating  to  2,281,818  shares  of
                    Registrant's  Common  Stock  (filed as  Exhibit  10.22.8  to
                    Registrant's Form S-4 Registration  Statement,  Registration
                    No. 33-55968, and incorporated herein by this reference).

          10.22.9   Blank  Assignment  and  Power  of  Attorney  signed  by  JRG
                    Investment   Co.,  Inc.   relating  to  905,557   shares  of
                    Registrant's  Series A  Preferred  Stock  (filed as  Exhibit
                    10.22.9 to  Registrant's  Form S-4  Registration  Statement,
                    Registration No. 33-55968,  and incorporated  herein by this
                    reference).

          10.37     Employment Agreements dated December 31, 1996

          10.38     Stock  Purchase  Warrant  dated  December  31, 1996  between
                    registrant and The April Trust 10.39* Portfolio  Divestiture
                    Agreement between certain  subsidiaries of the Company,  the
                    Company, Health Care REIT and HCRI Texas Properties, Ltd.

          21.1*     Subsidiaries of Registrant.

          23.1*     Consent of Grant Thornton.

          *         Filed herewith.




                                       34
<PAGE>


SIGNATURES

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


                                               GREENBRIAR CORPORATION



March 30, 2001                                 By:  /s/ Gene S. Bertcher
                                                    ----------------------------
                                                    Gene S. Bertcher
                                                    Executive Vice President and
                                                    Chief Financial Officer
                                                    (Principal Financial and
                                                    Accounting Officer)







                                       35
<PAGE>

SIGNATURES

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


                         GREENBRIAR CORPORATION


March 30, 2001           By: /s/James R. Gilley
                             ---------------------------------------------------
                             James R. Gilley, President, Chief Executive Officer
                             and Chairman of the Board of Directors


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



      March 30, 2001         /s/  James R. Gilley
                             --------------------
                             James R. Gilley, President, Chief Executive Officer
                             and Chairman of the Board of Directors

      March 30, 2001         /s/  Don C. Benton
                             ------------------
                             Don C. Benton, Director

      March 30, 2001         /s/  Gene S. Bertcher
                             ---------------------
                             Gene S. Bertcher, Executive Vice President, Chief
                             Financial Officer and Director

      March 30, 2001         /s/  Paul G. Chrysson
                             ---------------------
                             Paul G. Chrysson, Director

      March 30, 2001         /s/  Matthew G. Gallins
                             -----------------------
                             Matthew G. Gallins, Director

      March 30, 2001         /s/  Victor L. Lund
                             -------------------
                             Victor L. Lund, Director

      March 30, 2001         /s/  William A. Shirley, Jr.
                             ----------------------------
                             William A. Shirley, Jr., Director





                                       36
<PAGE>

               Report of Independent Certified Public Accountants




Board of Directors and Stockholders
Greenbriar Corporation


We have  audited the  accompanying  consolidated  balance  sheets of  Greenbriar
Corporation  and  subsidiaries as of December 31, 2000 and 1999, 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, 2000.  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,  2000  and  1999,  and  the
consolidated  results of their operations and their  consolidated cash flows for
each of the three years in the period ended  December 31,  2000,  in  conformity
with accounting principles generally accepted in the United States of America.



/s/  Grant Thornton, L.L.P.
---------------------------
Dallas, Texas
March 29, 2001, except for Note K, as to
         which the date is April 5, 2001



                                      F-1

<PAGE>

                     Greenbriar Corporation and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS
                             (Amounts in thousands)

                                  December 31,



                   ASSETS                             2000       1999
                                                     --------   --------

CURRENT ASSETS
    Cash and cash equivalents                        $  2,287   $  8,814
    Accounts receivable - trade                           470        182
    Other current assets                                1,105        848
                                                     --------   --------

               Total current assets                     3,862      9,844

DEFERRED INCOME TAX BENEFIT                             4,750      4,750

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

PROPERTY AND EQUIPMENT, AT COST
    Land and improvements                               9,716     11,179
    Buildings and improvements                         75,723     76,848
    Equipment and furnishings                           6,615      6,586
                                                     --------   --------
                                                       92,054     94,613
    Less accumulated depreciation and amortization     12,410      9,888
                                                     --------   --------
                                                       79,644     84,725

DEPOSITS                                                3,834      3,907

LEASE RIGHTS AND OTHER INTANGIBLES                      9,347     10,439

OTHER ASSETS                                            1,151      2,626
                                                     --------   --------

                                                     $102,588   $119,908
                                                     ========   ========






        The accompanying notes are an integral part of these statements.

                                       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                             2000         1999
                                                                   ---------    ---------
<S>                                                                <C>          <C>
CURRENT LIABILITIES
    Current maturities of long-term debt                           $   2,538    $   3,317
    Accounts payable - trade                                           1,445        2,072
    Accrued expenses                                                   1,934        1,345
    Other current liabilities                                            668          678
                                                                   ---------    ---------

               Total current liabilities                               6,585        7,412

LONG-TERM DEBT                                                        50,887       50,477

FINANCING OBLIGATIONS                                                 10,815       10,815

OTHER LONG-TERM LIABILITIES                                              657          721
                                                                   ---------    ---------

               Total liabilities                                      68,944       69,425

PREFERRED STOCK REDEMPTION OBLIGATION                                 26,988       27,763

STOCKHOLDERS' EQUITY
    Preferred stock; liquidation value of $3,475                         254          289
    Common stock, $.01 par value; authorized, 20,000,000 shares;
       issued and outstanding, 7,514,000 shares                           76           76
    Additional paid-in capital                                        60,219       61,520
    Accumulated deficit                                              (51,526)     (36,798)
                                                                   ---------    ---------
                                                                       9,023       25,087
    Less stock purchase notes receivable (including $2,250 from
       related parties)                                               (2,367)      (2,367)
                                                                   ---------    ---------
                                                                       6,656       22,720
                                                                   ---------    ---------

                                                                   $ 102,588    $ 119,908
                                                                   =========    =========

</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 data)

                             Year ended December 31,


                                                             2000        1999        1998
                                                            --------    --------    --------
<S>                                                         <C>         <C>         <C>
Revenue
    Assisted living operations                              $ 41,261    $ 41,260    $ 53,428
    Other                                                       --          --            93
                                                            --------    --------    --------
                                                              41,261      41,260      53,521
Operating expenses
    Assisted living operations                                24,750      24,836      35,965
    Lease expense                                              4,912       5,197       9,552
    Facility depreciation and amortization                     3,740       3,977       4,407
    General and administrative                                 5,448       4,313       5,292
    Write-down of properties                                   7,461        --           560
                                                            --------    --------    --------
                                                              46,311      38,323      55,776
                                                            --------    --------    --------
               Operating profit (loss)                        (5,050)      2,937      (2,255)

Other income (expense)
    Interest and dividend income                                 406         599       1,094
    Interest expense                                          (5,759)     (5,632)     (6,432)
    Other income (expense), net                                 (220)      2,178      (3,009)
                                                            --------    --------    --------
                                                              (5,573)     (2,855)     (8,347)
                                                            --------    --------    --------
               Earnings (loss) from continuing operations
                   before income taxes                       (10,623)         82     (10,602)

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

               Earnings (loss) from continuing operations    (10,623)         82      (8,706)

Discontinued operations
    Loss from operations, net of income taxes                   --          --           (34)
    Loss on disposal, net of income taxes                       --          --          (169)
                                                            --------    --------    --------

               NET EARNINGS (LOSS)                           (10,623)         82      (8,909)

Preferred stock dividend requirement                          (4,105)     (4,720)     (4,600)
                                                            --------    --------    --------

Loss allocable to common stockholders                       $(14,728)   $ (4,638)   $(13,509)
                                                            ========    ========    ========

Loss per share - basic and diluted
    Continuing operations                                   $  (1.96)   $   (.62)   $  (1.83)
    Discontinued operations                                     --          --          (.03)
                                                            --------    --------    --------

    Net loss                                                $  (1.96)   $   (.62)   $  (1.86)
                                                            ========    ========    ========

Weighted average number of common shares outstanding           7,514       7,514       7,275

</TABLE>

         The accompanying notes are an integral part of this statement.

                                       F-4

<PAGE>
<TABLE>
<CAPTION>

                     Greenbriar Corporation and Subsidiaries

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


                                                        Preferred stock          Common stock      Additional
                                                     --------------------    --------------------    paid in   Accumulated
                                                      Shares      Amount      Shares      Amount     capital     deficit
                                                     --------    --------    --------    --------   --------    --------
<S>                                                  <C>         <C>         <C>         <C>        <C>         <C>
Balances at January 1, 1998                             2,876    $    289       7,300    $     73   $ 83,339    $(18,669)

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

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

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

Balance at December 31, 1999                            2,876         289       7,514          76     61,520     (36,798)

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

Balance at December 31, 2000                            2,521    $    254       7,514    $     76   $ 60,219    $(51,526)
                                                     ========    ========    ========    ========   ========    ========

                                                      Stock
                                                     purchase
                                                       notes
                                                    receivable     Total
                                                     --------    --------

Balances at January 1, 1998                          $ (2,515)   $ 62,517

    Issuance of common stock                             --           437
    Purchase of common stock                             --          (471)
    Dividends on preferred stock, including
       accretion of $2,970                               --        (1,622)
    Issuance costs for preferred stock                   --          (263)
    Accretion of redemption obligation - preferred
       stock                                             --       (21,748)
    Reduction of stock purchase notes receivable          148         148
    Net loss                                             --        (8,909)
                                                     --------    --------

Balance at December 31, 1998                           (2,367)     30,089

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

Balance at December 31, 1999                           (2,367)     22,720

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

Balance at December 31, 2000                         $ (2,367)   $  6,656
                                                     ========    ========

</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,
                                                                --------------------------------
                                                                 2000        1999        1998
                                                                --------    --------    --------
<S>                                                             <C>         <C>         <C>

Cash flows from operating activities
Net earnings (loss)                                             $(10,623)   $     82    $ (8,909)
Adjustments to reconcile net earnings (loss) to net
   cash provided by (used in) operating activities
      Discontinued operations                                       --          --           203
      Depreciation and amortization                                3,740       3,977       4,407
      Gain on sale of assets                                         (49)       --          --
      Gain on sale of investment                                    --        (2,166)       --
      Loss on write down of impaired assets                        7,461        --           560
      Loss on sales of assets                                       --           186       2,924
      Deferred income taxes                                         --          --        (2,118)
      Changes in operating assets and liabilities
            Accounts receivable                                     (288)        266         714
            Other current and noncurrent assets                     (750)       (367)     (3,206)
            Accounts payable and other liabilities                   750      (1,570)       (312)
                                                                --------    --------    --------

              Net cash provided by (used in)
                operating activities of continuing operations        241         408      (5,737)

Net cash provided by operating activities
   of discontinued operations                                       --          --            93
                                                                --------    --------    --------

              Net cash provided by (used in)
                operating activities                                 241         408      (5,644)

</TABLE>


         The accompanying notes are an integral part of this statement.

                                       F-6

<PAGE>
<TABLE>
<CAPTION>

                     Greenbriar Corporation and Subsidiaries

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




                                                             Year ended December 31,
                                                        --------------------------------
                                                         2000        1999        1998
                                                        --------    --------    --------
<S>                                                     <C>         <C>         <C>
Cash flows from investing activities
    Purchase of property and equipment                    (1,796)     (1,764)     (4,843)
    Investing activities of discontinued operations         --          --         1,500
    Proceeds from sale of investments                       --         4,331        --
    Proceeds from sale of property                         1,014       1,861        --
                                                        --------    --------    --------

                   Net cash provided by (used in)
                      investing activities                  (782)      4,428      (3,343)

Cash flows from financing activities
    Proceeds from borrowings                               3,956       2,290      18,539
    Payments on debt                                      (3,725)     (2,706)    (23,195)
    Dividends on preferred stock                          (1,457)     (1,630)     (1,622)
    Purchase and retirement of common stock                 --          --          (471)
    Collection of stock subscription receivable             --          --        21,737
    Redemption of preferred stock and preferred stock
       redemption obligation                              (4,760)       --          --
                                                        --------    --------    --------

                Net cash provided by (used in)
                   financing activities                   (5,986)     (2,046)     14,988
                                                        --------    --------    --------

                NET INCREASE (DECREASE) IN CASH
                   AND CASH EQUIVALENTS                   (6,527)      2,790       6,001

Cash and cash equivalents at beginning of year             8,814       6,024          23
                                                        --------    --------    --------

Cash and cash equivalents at end of year                $  2,287    $  8,814    $  6,024
                                                        ========    ========    ========

</TABLE>



        The accompanying notes are an integral part of these statements.

                                       F-7

<PAGE>

                     Greenbriar Corporation and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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

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

    Greenbriar  Corporation's  business consists of development and operation of
    assisted living communities located throughout the United States of America,
    which provide  housing,  healthcare,  hospitality  and personal  services to
    elderly individuals. At December 31, 2000, the Company had 28 communities in
    operation in 10 states with a total capacity for 2,221 residents.

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

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

    The  consolidated  financial  statements  include the accounts of Greenbriar
    Corporation and its majority-owned subsidiaries (collectively,  the Company)
    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-8

<PAGE>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



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

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

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

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

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

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

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

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

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

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

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

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

    Basic  earnings  (loss) per common  share is based on the  weighted  average
    number of common shares outstanding.  Diluted earnings per share is computed
    based on the weighted  average number of common shares  outstanding plus the
    number of  additional  common  shares  that would have been  outstanding  if
    dilutive  potential  common shares had been issued.  In 2000, 1999 and 1998,
    stock options for 1,208,500,  1,216,000 and 1,000,000 shares,  respectively,
    were  excluded  from diluted  shares  outstanding  because  their effect was
    anti-dilutive.




                                      F-9

<PAGE>
<TABLE>
<CAPTION>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE B - DISCONTINUED OPERATIONS

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

    The  operations  of the  non-assisted  living real estate  segment have been
    presented  in  the   accompanying   financial   statements  as  discontinued
    operations. The operating results of these segments for 1998 were as follows
    (in  thousands):  revenues of $170, loss before income taxes of $34, and net
    loss of $34.


NOTE C - CASH FLOW INFORMATION

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

                                                                              Year ended December 31,
                                                                        ---------------------------------
                                                                         2000         1999          1998
                                                                        ------       ------        ------
<S>                                                                     <C>          <C>           <C>
     Supplemental cash flow information
        Interest paid                                                   $5,752       $5,613        $6,333
        Income taxes paid                                                   13          170            25


NOTE D - STOCK PURCHASE NOTES RECEIVABLE

                                                                                          December 31,
                                                                                       2000         1999
                                                                                      ------       -----
                                                                                           (In thousands)
       Related party
          Note from James R. Gilley, chief executive officer, principal
              and interest at 5.50%, due November 2008                                $2,250       $2,250

       Other                                                                             117          117
                                                                                      ------       ------

                                                                                      $2,367       $2,367
                                                                                      ======       ======

</TABLE>

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



                                      F-10

<PAGE>
<TABLE>
<CAPTION>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE E - LEASE RIGHTS AND OTHER INTANGIBLES

    Lease rights and other intangibles consist of the following:

                                                                           December 31,
                                                                        2000        1999
                                                                       -------     -------
<S>                                                                    <C>         <C>
       Lease rights, net of accumulated amortization of $1,458 and
          $1,259 in 2000 and 1999                                      $ 3,447     $ 4,958
       Lease buyout options                                              5,607       5,157
       Goodwill                                                            293         324
                                                                       -------     -------

                                                                       $ 9,347     $10,439
                                                                       =======     =======

</TABLE>

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

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

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


NOTE F - 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, 2000 and 1999:

    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.

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




                                      F-11

<PAGE>
<TABLE>
<CAPTION>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE G - DEBT

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

                                                                                                   December 31,
                                                                                                2000          1999
                                                                                              -------       -------
<S>                                                                                           <C>           <C>
       Notes payable to financial institutions maturing through 2018; fixed and
          variable interest rates ranging from 7.5% to 11.75% ; collateralized
          by property, fixtures, equipment and the assignment of rents                        $27,991       $27,488

       Notes payable to individuals and companies maturing through 2022;
          variable and fixed interest rates ranging from 7% to 12%;
          collateralized by real property, personal property, fixtures,
          equipment and the assignment
          of rents                                                                              4,477         4,572

       Note payable to the Redevelopment Agency of the City of Corona,
          California, payable into a sinking fund semi-annually in increasing
          amounts from $65 to $420 through May 1, 2015; variable interest rate
          of 5.5% at December 31, 2000; collateralized by personal
          property, land, fixtures and rents                                                    6,895         7,110

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

       Other                                                                                       90           652
                                                                                              -------       -------
                                                                                               53,425        53,794
          Less current maturities                                                               2,538         3,317
                                                                                              -------       -------

                                                                                              $50,887       $50,477
                                                                                              =======       =======

    Aggregate annual principal maturities of long-term debt at December 31, 2000
are as follows (in thousands):

          2001                                                                                              $ 2,538
          2002                                                                                                8,842
          2003                                                                                               14,670
          2004                                                                                                  780
          2005                                                                                                  837
          Thereafter                                                                                         25,758
                                                                                                            -------

                                                                                                            $53,425

</TABLE>

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


                                      F-12

<PAGE>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE H - FINANCING OBLIGATIONS

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


NOTE I - OPERATING LEASES

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

    Future  minimum  payments  following  December  31,  2000 are as follows (in
    thousands):

          2001                                  $ 3,894
          2002                                    3,860
          2003                                    3,296
          2004                                    3,350
          2005                                    3,403
          Thereafter                             13,497
                                                -------

                                                $31,300

    Lease  expense  in  2000,  1999 and 1998  was  $4,911,706,  $5,196,893,  and
    $9,551,525, respectively.


NOTE J - INCOME TAXES

    At December 31, 2000,  the Company had net operating loss  carryforwards  of
    approximately  $48,000,000  which  expire  between  2002 and 2020.  However,
    approximately  $11,000,000  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 (benefit)
    from continuing operations (in thousands):

                                                  Year ended
                                                 December 31,
                                     ----------------------------------------
                                      2000            1999              1998
                                     -------         -------           -------

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

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




                                      F-13

<PAGE>
<TABLE>
<CAPTION>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE J - INCOME TAXES - Continued

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

                                                               December 31,
                                                            2000         1999
                                                           -------      -------
       Deferred tax assets:
          Net operating loss carryforwards                 $12,784      $10,450
          Note receivable                                      680        1,462
          Alternative minimum tax credit carryforwards         235          235
          Charitable contribution carryforwards                  5          438
          Accounts receivable                                   32           85
          Accrued expenses                                     798          426
          Financing obligations                              1,802        1,802
          Other                                                545          754
                                                           -------      -------

          Total deferred tax assets                         16,881       15,652

       Deferred tax liabilities - property and equipment    (8,791)      (9,806)
          Valuation allowance                               (3,340)      (1,096)
                                                           -------      -------

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


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

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


                                                             Year ended December 31,
                                                          -----------------------------
                                                           2000       1999       1998
                                                          -------    -------    -------
<S>                                                       <C>        <C>        <C>
       Tax expense (benefit) at the statutory rate        $(3,612)   $    27    $(3,605)
       Expiration of carryforwards                            433       --         --
       Change in deferred tax asset valuation allowance     2,244        (49)     1,520
       Nondeductible loss on write-down of properties         400       --         --
       Nondeductible amortization                             150         15         15
       Other                                                  385          7        174
                                                          -------    -------    -------

       Tax benefit                                        $  --      $  --      $(1,896)
                                                          =======    =======    =======

</TABLE>

                                      F-14

<PAGE>
<TABLE>
<CAPTION>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE J - INCOME TAXES - Continued

    Changes in the deferred tax valuation allowance result from assessments made
    by the Company each year of its expected future taxable income  available to
    absorb  its  carryforwards.   In  the  third  quarter  of  1998,  management
    determined  that the  Company's  operating  results  were less than what was
    initially  expected in its  profitability  model.  Accordingly,  the Company
    began  providing  a  valuation  allowance  for  the  deferred  tax  benefits
    resulting from losses  occurring after that date. The Company  believes that
    it is more likely than not that the net  deferred  tax asset at December 31,
    2000 of  $4,750,000  will  be  recovered  from  future  sale of  properties.
    However,  this evaluation is inherently  subjective as it requires estimates
    that are  susceptible to significant  revision as more  information  becomes
    available.


NOTE K - STOCKHOLDERS' EQUITY

    Preferred Stock

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

                                                                                                     Year ended
                                                                                                    December 31,
                                                                                                 2000          1999
                                                                                                 ----          ----
<S>                                                                                              <C>           <C>
      Series B cumulative convertible preferred stock, $.10 par value; liquidation
         value of $100; authorized, 100 shares; issued and outstanding, 1 share                  $  1          $  1

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

      Series F voting cumulative convertible preferred stock, $.10 par value; liquidation
         value of $14,000; authorized, issued and outstanding, 1,400 shares at
         December 31, 2000 and 1999                                                               140           140

      Series G cumulative convertible preferred stock, $.10 par value; liquidation
         value of $4,450 and $8,000; authorized, 800 shares; issued and outstanding, 445 and
         800 shares at December 31, 2000 and 1999, respectively.                                   45            80
                                                                                                 ----          ----

                                                                                                 $254          $289
                                                                                                 ====          ====

</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  $25.00 per share in 1993 to $55.55 per share by 2001.  Dividends  at a
    rate of 6% are  payable  in cash or  preferred  shares at the  option of the
    Company.

    The Series D preferred stock has a liquidation  value of $5 per share and is
    convertible into common stock at $10.00 per share.  Dividends are payable in
    cash at a rate of 9.5%.


                                      F-15

<PAGE>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE K - STOCKHOLDERS' EQUITY - Continued

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

    The Series G preferred  stock has a  liquidation  value of $10.00 per share,
    which is less than the amount  recorded for the Preferred  Stock  Redemption
    Obligation,  and each share is convertible  into .57 shares of common stock.
    The  holder has the option to  convert  beginning  in January  2000 and must
    convert by January 2001. Dividends are payable in cash at a rate of 6%.

    The Series F and Series G preferred  shares were sold to LSOF Pooled Equity,
    L.P. (LSOF) one investor in December 1997 for $22,000,000,  less selling and
    offering  costs of  $716,000.  Payment  was  received  in January  1998.  In
    connection  with the sale,  the  Company  entered  into an  agreement  which
    provides  that,  on the date of  conversion,  if the value of the  Company's
    common stock has not  increased at an annual rate of at least 14% during the
    period the preferred shares are outstanding, the Company is required to make
    a cash  payment  (the  Cash  Payment)  to LSOF  equal  to the  market  price
    deficiency on the shares received upon conversion.

    The 14% guaranteed  return is accreted by a charge to  accumulated  deficit.
    The amount of the Cash Payment that would be required assuming conversion at
    each  balance  sheet  date  is  transferred  from  stockholders'  equity  to
    Preferred Stock Redemption Obligation.  At December 31, 2000, a Cash Payment
    of $27,565,000 would have been due assuming conversion took place.

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

    The Company  received a notice dated October 30, 2000,  from LSOF,  advising
    that it was electing to convert the  outstanding  shares of preferred  stock
    into common stock.  Such notice sets 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 $17.50 per share to $0.69
    per share, and that the Company must issue 27,475,362 shares of common stock
    upon  conversion.   If  such  shares  were  issued,  they  would  constitute
    approximately  80% of the  Company's  common stock and represent a change in
    control of the  Company.  The  Company  is  required  to obtain  stockholder
    approval of the  issuance  of such a large  block of common  stock or face a
    delisting of its common stock on the American Stock  Exchange.  In the event
    such conversion occurred, the Company's obligation for the cash payment that
    is due upon a conversion or  redemption of preferred  stock would be reduced
    from  approximately  $27,000,000 recorded.



                                      F-16

<PAGE>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE K - STOCKHOLDERS' EQUITY - Continued

    The Company  believes that the conversion  price was not properly subject to
    adjustment,  and, if the holder were to convert,  it would be at the current
    $17.50  conversion  price.  The Company's  position is based,  in part, upon
    LSOF's failure to follow all procedures for adjustment and conversion at the
    adjusted price, and on the Company's recission of the employee stock options
    that were the basis for the holder's purported adjustment.  LSOF has filed a
    declaratory  judgment  action in the State  District Court in Dallas County,
    Texas seeking a finding that it is entitled to a $0.69 conversion price. The
    Company  intends to defend such  action and seek a contrary  ruling that the
    conversion price was not adjusted.

    On January 13, 2001,  the Company  took the action  mandated by the terms of
    the  Series  F and  G  preferred  stock  to  convert  the  shares  remaining
    outstanding  into  1,054,202  shares of common  stock and  acknowledged  its
    obligation  to pay the holder the  approximate  $27,166,000  cash payment as
    funds for repayment become lawfully available.

    On January 15, 2001,  the Company  received a notice LSOF to the effect that
    the Company was in default of the  Preferred  Stock  Purchase  Agreement for
    failing  to  provide a  quarterly  compliance  certificate,  failing to meet
    various  financial  covenants  and  failing  to  notify  the  holder of such
    defaults.  LSOF contends that these alleged breaches of covenants  triggered
    penalty  dividends of $1.20 per share under the terms of the preferred stock
    and that Greenbriar's  failure to pay those penalty  dividends  entitles the
    LSOF to appoint 70% of the Board of Directors. The Company disputes all such
    defaults  and  alternatively  claims that such  defaults  have been  waived,
    reformed or that the holder is estopped  from  asserting  them.  The Company
    further disputes that any penalty  dividends were due under the terms of the
    preferred  stock  agreement.  Any penalty  dividends  paid would  reduce the
    amount of the cash payment.

    The State  District  Court has set July 23,  2001 as the trial date for this
    matter.

    On March 29, 2001,  the Court  considered  a motion  brought by LSOF seeking
    partial summary  judgment on certain issues.  On April 5, 2001, the judge in
    this case signed an order granting LSOF's motion as follows:

        (a) The correct  conversion price of the Series F and Series G preferred
            stock was $0.69 per share based upon Greenbriar's  issuance of $0.69
            per share options.

        (b) LSOF's   Conversion   Notice   complied  with  the  requirement  for
            conversion under the Certificates of Designation.

    The  Company  has  filed a Motion  for  Reconsideration  and the  judge  has
    scheduled  a hearing for April 19,  2001.  Should the Company not prevail in
    its  motion,  the order  signed on April 5 will be a material  factor at the
    trial  on July  23,  2001.  The  conversion  of the  Series  F and  Series G
    preferred stock at $0.69 per share would result in LSOF owning approximately
    79% of the  Company's  outstanding  stock,  based on the  number  of  shares
    outstanding at December 31, 2000.



                                      F-17

<PAGE>
<TABLE>
<CAPTION>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE K - STOCKHOLDERS' EQUITY - Continued

    Other
    -----

    In  connection  with the  acquisition  of certain  lease  rights in 1997,  a
    wholly-owned  partnership  issued  partnership  units  to  the  seller.  The
    partnership  units are  convertible  into  536,990  shares of the  Company's
    common  stock.  For  accounting  purposes,  the common shares into which the
    operating  units will be converted have been included in outstanding  common
    shares.  Subsequent  to December 31, 2000,  255,200  shares of the Company's
    stock was issued upon conversion.

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

    In 1992, the Company  established a long-term incentive plan (the 1993 Plan)
    for the benefit of certain key employees. Under the 1993 Plan, up to 217,500
    shares of the  Company's  common stock are reserved  for  issuance.  Options
    granted to employees under the 1993 Plan become exercisable over a period as
    determined  by the Company and may be  exercised up to a maximum of 10 years
    from date of grant. In 1997, the Company adopted the 1997 Stock Option Plan,
    under which up to 500,000  shares of the Company's  common stock are reserve
    for issuance. In 2000, the Company adopted the 2000 Stock Option Plan, under
    which up to 500,000  shares of the  Company's  common  stock are reserve for
    issuance.

    The Company has also granted options to an officer during 1996 through 2000,
    aggregating  1,000,000 shares not covered by either plan. These options were
    granted at market,  were exercisable  immediately,  and expire 10 years from
    date of grant.

    SFAS 123 requires  disclosure of pro forma net earnings (loss) and pro forma
    net  earnings  (loss) per share as if the fair value method had been applied
    in measuring  compensation cost for stock-based awards granted after January
    1, 1995.  The pro forma amounts are not  necessarily  representative  of the
    effects of stock-based  awards on future pro forma net income (loss) and pro
    forma net income (loss) per share  because  those pro forma amounts  exclude
    the pro forma compensation expense related to unvested stock options granted
    before 1995.

    Reported and pro forma net loss and net loss per share amounts are set forth
    below (in thousands, except per share data):
                                                                                      2000        1999      1998
                                                                                     --------    --------  --------
<S>                                                                                  <C>         <C>       <C>
         Net loss allocable to common stockholders (amounts in thousands)
              As reported                                                            $(14,728)   $ (4,638)  $(13,509)
              Pro forma                                                              $(15,080)   $ (5,287)  $(13,937)

         Net loss per share
              As reported                                                             $(1.96)      $(.62)    $(1.86)
              Pro forma                                                               $(2.00)      $(.78)    $(1.92)

</TABLE>

    The fair value of these options was estimated at the date of grant using the
    Black-Scholes  option  pricing  model  with the  following  weighted-average
    assumptions:  expected  volatility  of 87 percent  for 2000,  83 percent for
    1999, and 100 percent for 1998,  risk-free interest rates of 5.6 percent for
    2000, 6.1 percent for 1999, and 5.5 percent for 1998; no dividend yield; and
    weighted average expected lives of 7.3 years.


                                      F-18

<PAGE>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE K - STOCKHOLDERS' EQUITY - Continued

    Information with respect to options outstanding at December 31, 2000, and
    changes for 1998 - 2000 is as follows:

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

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

       Options exercisable at
          December 31, 1998                      1,199,333           $12.29
                                                 =========           ======

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

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

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

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

    Weighted  average  fair value per share of options  granted  during 1999 was
    $1.11.



                                      F-20

<PAGE>
<TABLE>
<CAPTION>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE K - STOCKHOLDERS' EQUITY - Continued

                                                              2000
                                                   ---------------------------
                                                                      Weighted
                                                                       average
                                                                      exercise
                                                      Shares            price
                                                   ----------         --------
       Outstanding at beginning of year             2,272,300            $7.21
          Granted                                     200,000              .38
          Cancelled, rescinded, and annulled       (1,061,800)            3.27
          Forfeitures                                  (2,000)           15.75
                                                   ----------            -----

       Outstanding at end of year                   1,408,500            $9.19
                                                   ==========            =====

       Options exercisable at
          December 31, 2000                         1,405,000            $9.16
                                                   ==========            =====

    Weighted  average  fair value per share of options  granted  during 2000 was
    $.30.

    Additional  information about stock options outstanding at December 31, 2000
    is summarized as follows:

                                                                         Options outstanding
                                                   ----------------------------------------------------------------
                                                                        Weighted average
                                                       Number                 remaining            Weighted average
       Range of exercise prices                    outstanding         contractual life             exercise price
       ------------------------                    -----------        ------------------           ----------------
<S>    <C>                                         <C>                <C>                          <C>
       $.38 to $.69                                    400,000                 9.5                       .53
       $2.00 to $3.00                                  200,000                 8.0                      2.50
       $10.00 to $14.00                                358,000                 5.6                     12.04
       $15.00 to $21.00                                450,500                 6.5                     17.58
                                                     ---------

                                                     1,408,500
                                                     =========
                                                                                  Options exercisable
                                                                      ---------------------------------------------
                                                                          Number                   Weighted average
       Range of exercise prices                                       exercisable                   exercise price
       ------------------------                                       -----------                  ----------------

       $.38 to $.69                                                       400,000                        .53
       $2.00 to $3.00                                                     200,000                       2.50
       $10.00 to $14.00                                                   358,000                      12.04
       $15.00 to $21.00                                                   447,000                      17.56
                                                                        ---------

                                                                        1,405,000
                                                                        =========

</TABLE>

                                      F-20

<PAGE>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE L - OTHER INCOME (EXPENSE)

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

                                                 Year ended December 31,
                                        --------------------------------------
                                         2000           1999             1998
                                        ------         ------           ------

       Gain on sale of investments      $  -           $2,166          $   -
       Loss on sale of property            -             (186)          (2,924)
       Other                              (220)           198              (85)
                                        ------         ------          -------

                                        $ (220)        $2,178          $(3,009)
                                        ======         ======          =======

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

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


NOTE M - WRITE-OFF OF IMPAIRED ASSETS

    At June 30, 2000,  the Company  recorded a write-off of impaired  assets and
    related expenses of $7,461,000.

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

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


                                      F-21

<PAGE>
<TABLE>
<CAPTION>

                     Greenbriar Corporation and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED



NOTE M - WRITE-OFF OF IMPAIRED ASSETS - Continued

    The Company decided to dispose of two assisted living  communities which are
    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.


NOTE N - CONTINGENCIES

    The  Company is  defendant  in  various  lawsuits  generally  arising in the
    ordinary  course of  business.  Management  of the Company is of the opinion
    that  these  lawsuits  will not have a material  effect on the  consolidated
    results of operations,  cash flows or financial position of the Company. See
    Note K  regarding  litigation  with the  holder of the Series F and Series G
    preferred stock.


NOTE O - QUARTERLY DATA (UNAUDITED)

                                                                       Year ended December 31, 2000
                                                       ------------------------------------------------------------
                                                         First            Second          Third            Fourth
                                                        Quarter          Quarter         Quarter          Quarter
                                                       ---------        ---------       ---------        ---------
<S>                                                    <C>              <C>             <C>              <C>
          Revenue                                        $10,522          $10,319         $10,263          $10,157
          Operating expenses                               9,635           16,885           9,409           10,382
          Net loss                                          (619)          (7,990)           (571)          (1,443)
          Preferred stock dividend requirement            (1,047)          (1,028)         (1,028)          (1,002)
          Loss allocable to common shareholders           (1,396)          (9,018)         (1,599)          (2,715)
          Loss per common share - basic
             and diluted                                    (.19)          (1.20)            (.21)            (.36)

                                                                       Year ended December 31, 1999
                                                       ------------------------------------------------------------
                                                         First            Second          Third             Fourth
                                                        Quarter          Quarter         Quarter           Quarter
                                                       ---------        ---------       ---------         ---------

          Revenue                                        $10,159          $10,292         $10,421          $10,388
          Operating expenses                               9,488            9,671           9,709            9,455
          Net earnings (loss)                               (465)            (576)           (786)           1,909
          Preferred stock dividend requirement            (1,169)          (1,177)         (1,189)          (1,185)
          Loss allocable to common shareholders           (1,634)          (1,753)         (1,975)             724
          Loss per common share- basic
             and diluted                                    (.22)           (.24)            (.27)            (.10)


</TABLE>


                                      F-22