AMERICAN HEALTHCHOICE INC /NY/, 10KSB40, 2000-01-13

AMERICAN HEALTHCHOICE INC /NY/
10KSB40, 2000-01-13
OFFICES & CLINICS OF DOCTORS OF MEDICINE

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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from _____. to ___..__
Commission File Number: 000-26740

AMERICAN HEALTHCHOICE, INC.
(Name of small business issuer in its charter)

New York 11-2931252
(State or other jurisdiction
of incorporation or organization I.R.S. Employer Identification No.)

1300 W. Walnut Hill Lane, Suite 275 Irving, Texas 75038
(Address of principal executive offices) (Zip Code)

Issuer's telephone number: (972) 751-1900

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of class)

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

Check if disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year: $4,808,559

State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the price
at which the common equity was sold, or the average bid and asked
prices of such common equity, as of a specified date within the past 60
days. (See definition of affiliate in Rule 12b-2 of the Exchange Act).
$237,000 as of December 31, 1999*.
<PAGE>
(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS)

Check whether the issuer has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act
after the distribution of securities under a plan confirmed by a court.
Yes__ No X

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
As of December 31, 1999, the Registrant had 28,144,259 shares
outstanding of common stock.

* Based on the last reported price of an actual transaction in
Registrant's common stock on December 31, 1999 and reports of
beneficial ownership filed by directors and executive officers
of Registrant and by beneficial owners of more than 5% of the
outstanding shares of common stock of Registrant; however, such
determination of shares owned by affiliates does not constitute
an admission of affiliate status or beneficial interest in
shares of Registrant's common stock.

DOCUMENTS INCORPORATED BY REFERENCE
None

Transitional Small Business Disclosure
Format (Check one)
Yes_. No..X

<PAGE>
AMERICAN HEALTHCHOICE, INC.

FORM 10-KSB

TABLE OF CONTENTS

Page
----
PART I

Item 1. Description of Business........................... 1

Item 2. Description of Property........................... 7

Item 3. Legal Proceedings................................. 7

Item 4. Submission of Matters to a Vote of Security Holders 9

PART II

Item 5. Market for Common Equity and Related Stockholder Matters 10

Item 6. Management's Discussion and Analysis or Plan of Operation 11

Item 7. Financial Statements.............................. 14

Item 8. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure............. 32

PART III

Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act.................................... 33

Item 10. Executive Compensation............................ 35

Item 11. Security Ownership of Certain Beneficial Owners and
Management...................................... 39

Item 12. Certain Relationships and Related Transactions.... 40

Item 13. Exhibits and Reports on Form 8-K.................. 41

Signatures ............................................. 44

<PAGE>

PART I

ITEM 1. DESCRIPTION OF BUSINESS

History

American HealthChoice, Inc., a New York corporation formerly known
as Paudan, Inc. (together with its subsidiaries, the "Company"), was
incorporated on September 14, 1988 and was initially formed with the
intent of acquiring a suitable business that management determined had
potential for future growth. Until March 1995 the Company had no
operations. On March 31, 1995, the Company underwent a comprehensive
reorganization by acquiring American HealthChoice, Inc., a Delaware
corporation ("American HealthChoice (DE)"), formed in 1993 to organize
and acquire primary care clinics and to provide, on an ongoing basis,
comprehensive management services. At the time of this transaction
American HealthChoice (DE) operated six clinics which provided medical,
chiropractic, diagnostic and physical therapy services in Texas and
Louisiana. The Company acquired American HealthChoice (DE) in a
reverse acquisition in exchange for 4,962,000 shares of the Company's
$0.001 par value common stock. In connection with the reorganization,
the stockholders of American HealthChoice (DE) acquired 91.6 % of the
voting shares of the Company. The Company changed its name from
Paudan, Inc. to American HealthChoice, Inc. during fiscal year 1995.

General

The Company owns, operates and manages eleven clinics. Ten are
primary care clinics, of which three are medical clinics and seven are
chiropractic clinics. The Company also has a physical therapy facility
at its largest chiropractic clinic. The clinics are located in Texas,
Louisiana and Georgia. The clinic locations are leased except for one
clinic in San Antonio. See Item 2 "Description of Property." At
September 30, 1999 the Company had a total of 65 employees. Of this
number 25 were employed by the Company's medical clinics, 33 by the
chiropractic and physical therapy clinics, and 7 at the Company's
corporate office.

All key employee/providers serve pursuant to employment contracts
covering compensation, benefits, terms of one year or more and, in some
cases, agreements not to compete upon termination. All compensation is
based upon fixed salaries as set forth in employment contracts for
identifiable services. Some of these employee/providers are eligible
for a bonus; however, bonuses are tied directly to the employee's
performance within the clinic and are not based on referrals.
<PAGE>
The Company depends upon third party payors for reimbursement of
approximately 95% of patient services. The Company believes that this
percentage is comparable to other organizations providing comparable
patient services. The Company receives reimbursement for medical
services from many managed care companies including Health Maintenance
Organizations (HMOs), Preferred Provider Organizations (PPOs), other
health care plans, and to a lesser extent from Medicare and Medicaid.
A substantial percentage of reimbursements for services are received
from patient insurance settlements administered by attorneys
representing the patients.

The address of the Company's principal office is 1300 West Walnut
Hill Lane, Suite 275, Irving, Texas 75038. The Company's telephone
number is (972) 751-1900 and its fax number is (972) 751-1901.

Business Strategy

The Company's business strategy is as follows:

Current Profitability. The Company completed the sale of the
Norcross, Georgia clinic in February 1999 and returned the Conyers,
Georgia clinic to the previous owner in December 1999. After the
planned sale of the McDonough, Georgia clinic at the end of January
2000, the remaining clinics will be exclusively in Texas and Louisiana.
As of December 31, 1999, all clinics are profitable and cash flow
positive. In addition, Management has taken further steps to reduce
corporate overhead during fiscal year 1999. Before reflecting non-
recurring expenses related to the Bankruptcy proceedings, the Company's
operations are currently breakeven. See "Recent Developments"

Growth. Over the past two years, the profit margins on personal
injury and workers compensation services have proven to be
significantly higher than those for services provided to patients under
managed care contracts. The recent favorable court ruling effecting
telemarketing in Texas should allow the Company to increase the number
of patients at the existing clinics requiring these types of services.
Also, the Company plans to acquire other established clinics in Texas
from individual doctors, who provide these same services. The Company
will only consider acquiring clinics that are profitable and cash flow
positive. In this regard, the Company has developed an acquisition
model that requires the seller to meet predetermined cash flow targets
over a three-year period before receiving 100% of the purchase price.

Reorganization. The Company is currently operating as a debtor in
possession pursuant to the provisions of Chapter 11 of the United
States Bankruptcy Code. Management intends to file a Disclosure
Statement and Plan of Reorganization on or before February 15, 2000.
The Plan will include the acquisition of three clinics, an infusion of
between $1,000,000 and $2,000,000 in new equity, restructuring of the
current debenture debt to equity or debt convertible to equity at a
fixed price, and a payment plan for other pre-bankruptcy liabilities.

<PAGE>
Primary Sources of Company Revenue

The Company derives its revenue from several different sources,
including managed care plans e.g. HMOs, PPOs, Medicaid/Medicare,
indemnity plans, insurance settlements from third party payors and
self-pay. The company strives to diversify its patient base and hence
its revenue sources so that any one clinic is not dependent upon one
source of revenue. In the past, this has caused problems for the
Company from loss of Medicaid claims, change in marketing laws, and
clinics dependent on one doctor. To correct these problems, the
Company has made concerted efforts to diversify its patient base at
each clinic. Where the patient base could not be diversified and was
incurring ongoing losses, the Company divested the clinic through sale
or closure. The Company now believes each clinic is not as susceptible
to changes in a particular revenue source. The primary sources of
revenue for the Company are as follows:

Patient Insurance Settlements. The Company's chiropractic clinics
derive a significant portion of their revenue from insurance
settlements to injured patients treated by the clinic. The medical
clinics receive some revenue from patient insurance settlements but are
not necessarily dependent on these types of settlements. Typically, a
patient seeks treatment from a clinic based on representations by
his/her attorney or insurance company that payment for treating the
patient will be forthcoming upon proof the patient is entitled to the
patient's medical claims. The representations are usually in the form
of a Letter of Protection (LOP) or a Personal Injury Payment (PIP) from
the patient/insured's insurance policy. Based on these
representations, the clinic will treat the patient without requiring
payment at the time services are rendered.

Due to the nature of proving and documenting the patient claims,
the patient's medical bill may not be paid at the time services are
rendered. The delay in payment is usually under one year but can be
significantly extended past one year if the attorney and insurance
company go to trial over the patient's claims. Upon an agreement to
pay the patient's claims, the clinic is then paid.

Since many insurance settlements are a compromise between the
insurance company and the patient, often the Company must take a lesser
amount than the original fees for services rendered. In some
instances, if the patient is under a LOP and their attorney decides not
to pursue the claim, then the clinic may have to write the account off
as bad debt. The Company believes that accounts receivable from
patient settlements have been adequately reserved to account for the
reduced collections. See Item 6-"Management Discussion and Analysis or
Plan of Operation."

Health Plans. These plans traditionally market health benefit
coverage to employer groups, who provide such benefits to their
employees such as HMOs or PPOs or other health care plans. Employees
can usually enroll their spouses and dependents as well. Many times
employers will pay for all or nearly all of the cost of covering the
employee through a health plan. Some employers will pay for all of the
cost of dependent coverage, while others require the employee to pay
for some or all of dependent coverage.
<PAGE>
Currently, the Company contracts with a number of managed care
companies to provide patient care for the employees who enroll under
their health care plans. All of the Company's medical clinics derive a
significant amount of revenue from these plans. Under many of these
plans, the clinics' agree to accept predetermined fees for
corresponding services rendered. None of the medical clinics are
dependent on any one plan because each clinic has patients enrolled in
a variety of plans.

Once services are rendered to the patient, the clinic generates a
bill for the patient and his/her insurance company. The patient
usually makes a nominal co-payment and then the clinic files the
remaining claim with the applicable insurance company. Payments from
the insurance company usually take less than thirty days. Due to
patient registration procedures and set fees predetermined by the
insurance company, the Company can predict the revenue earned for the
services rendered. If the clinic's service fees exceed the amounts set
by the insurance companies, then the excess amount is either paid by
the patient or written off as bad debt.

If the provider, usually a physician, is not enrolled
(credentialed) in the managed care plan, then the plan may not pay for
the services performed for their patient. If a particular clinic
experiences turnover of physicians, it must get the new provider
(physician) credentialed with each patient's plan. This process takes
time, and in the interim, the clinic may treat the patient for no
charge as a courtesy until the new provider (physician) receives
credentials from the various plans.

Medicare/Medicaid. The federal government, through the Health
Care Financing Administration ("HCFA"), allows federally qualified
medical organizations to enter into agreements to provide all covered
medical services to Medicare/Medicaid beneficiaries who choose to
enroll in the program. None of the Company's clinics are solely
dependent on payments from Medicare/Medicaid, nor does any one clinic
derive a material portion of its revenue from Medicare/Medicaid.

Self-pay. All of the Company's clinics involve some level of
self-pay. Self-pay is simply that the patient is responsible for
payment at the time the services are rendered. The amount of self-
paying patients varies widely depending on the specifics of a clinic,
its location, and the patient base.

Chiropractic Services

The Company currently owns and operates seven primary care
chiropractic clinics, which are located in suburban areas and serve the
general population for their surrounding communities. The services are
based on preventative treatment and treatment of the nerve system and
body structure, such as the spinal column. Most of the chiropractic
clinics have a chiropractor that is complemented with the appropriate
support staff.
<PAGE>
The Company's patient base is developed through its reputation for
quality treatment, patient referrals, printed advertisements, and
special promotion such as open houses, circulars, community
participation, etc. The Company obtains significant referrals due to
its willingness to work with patients and their insurance company or
attorney to provide treatment during the pendency of the patient's
injury settlement.

Chiropractic service is a highly competitive business in which the
Company competes with numerous chiropractors in the same suburban
areas. Most, if not all of the Company's competition comes from
privately owned chiropractic clinics, usually owned by the treating
doctor.

In recent years, there have been significant changes in the health
care industry affecting chiropractic services. Pressures to reduce
costs and show profits has forced some managed care plans to exclude
chiropractic treatment or institute procedures that can discourage a
patient to utilize their health care plan. Additionally, in September
1997 the State of Texas implemented new regulations that govern
marketing of medical services. The Company adjusted its marketing
efforts to ensure compliance with the changes in the new marketing
laws. Specifically, the Company ceased its telemarketing efforts and
strengthened its audit procedures to ensure any new patient referrals
meet the requirements of the new law. Citing First Amendment
protection of commercial speech, the United States Court of Appeals,
5th Circuit, ruled in September 1999 that the 1997 amendments to the
Texas statutes, which prohibited direct telemarketing of accident
victims, were unconstitutional. The Company has reestablished
telemarketing procedures at its Texas clinics and expects an increase
in the number of patients seeking treatment. See "Recent Developments."

The marketing services offered by the Company are designed to
assist the clinics in developing a patient base through promoting the
clinics' services. The Company provides advice and assistance to the
clinics for marketing and advertising. The Company believes that
marketing must be integrated into all aspects of the clinic operations
including finance and office administration. The Company's patient
base is developed through its reputation for quality treatment, patient
referrals, printed advertisements, and special promotion such as
discounts, free initial examinations, open houses, circulars, community
participation, etc. The Company obtains significant referrals due to
its willingness to work with patients and their insurance company or
attorney to provide treatment during the pendency of the patient's
injury settlement. As a result, the Company believes the total
management of the clinics provides the economies of scale to develop
the clinic and provides the best use of these services, therefore,
giving it a competitive advantage over a privately owned clinic.

Although the Company believes that the services and benefits it
offers to providers make the Company an attractive purchaser of such
practices, there can be no assurance that the Company will be able to
compete effectively with competitors on terms beneficial to the
Company.
<PAGE>

Medical Services

The Company owned and operated four primary care medical clinics
as of September 30, 1999. The Conyers, Georgia clinic was returned to
the former owner on December 3, 1999, and the McDonough, Georgia clinic
is under a letter of intent for purchase with the sale expected to
close on January 31, 2000. The two remaining medical clinics are
located in San Antonio.

The Southcross clinic has a significant number of patients who are
enrolled with a variety of different managed care plans. The patient
source for this clinic comes from people familiar with the clinic's
location, the provider's reputation, managed care plans, commercial
contracts, referrals from attorneys, other providers, and general
advertising. The San Pedro clinic services are almost exclusively
personal injury and worker compensation cases. The patient source for
this clinic comes from attorney referrals and chiropractic clinics,
including company owned clinics in San Antonio.

Government Regulation

As a participant in the health care industry, the Company's
operations are subject to extensive and increasing regulation by a
number of governmental entities at the federal, state and local levels.
The Company is also subject to laws and regulations relating to
business corporations in general. The Company believes its operations
are in material compliance with applicable laws. Nevertheless, because
of the structure of the Company's relationship with physicians and
clinics, many aspects of the Company's business operations have not
been the subject of state or federal regulatory interpretation and
there can be no assurance that the health care regulatory environment
will not change so as to restrict or otherwise adversely affect the
Company's or the affiliated physician's existing operations or possible
expansion.

The laws of many states prohibit business corporations such as the
Company from practicing medicine and employing physicians to practice
medicine. The Company performs services that do not impose any
requirements that would violate the ethics applicable to the practice
of medicine or violate any law. The laws in most states regarding the
corporate practice of medicine have been subjected to limited judicial
and regulatory interpretation and, therefore, no assurance can be given
that the Company's activities will be found to be in compliance, if
challenged.
<PAGE>
In addition to prohibiting the practice of medicine, numerous
states prohibit entities like the Company from engaging in certain
health care related activities such as fee-splitting with physicians.
For example, Florida enacted its Patient Self-Referral Act in April
1992 that severely restricts patient referrals for certain services,
prohibits mark-ups of certain procedures, requires disclosure of
ownership in businesses to which patients are referred and places other
regulations on health care providers. The Company believes it is likely
that other states will adopt similar legislation. Accordingly,
expansion of the Company's operations into Florida and other states
could lead to structural and organizational modifications of the
Company's form of relationships with physician groups. Such changes,
if any, could have an adverse effect on the Company.

Certain provisions of the Social Security Act, commonly referred
to as the "Anti-Kickback Statute," prohibit the offer, payment,
solicitation, or receipt of any form of remuneration in return for the
referral of Medicare state health program patients or patient care
opportunities, or in return for the recommendation, arrangement,
purchase, lease or order of items or services that are covered by
Medicare or state health programs. The Anti-Kickback Statute is broad
in scope and has been broadly interpreted by courts in many
jurisdictions. Read literally, the statute places at risk many
legitimate business arrangements, potentially subjecting such
arrangements to lengthy, expensive investigations and prosecutions
initiated by federal and state governmental officials. Many states
have adopted similar prohibitions against payments intended to induce
referrals of Medicaid and other third party payor patients. The
Company believes that it is not in a position to make or influence the
referral of patients of services reimbursed under government programs
to the physician groups and, therefore, believes its operations do not
violate the Anti-Kickback Statute.

In July 1991, in part to address concerns regarding the Anti-
Kickback Statute, the federal government published regulations that
provide exceptions, or "safe harbors," for transactions that will be
deemed not to violate the Anti-Kickback Statute. Among the safe
harbors included in the regulations were provisions relating to the
sale of practitioner practices, management and personal services
agreements, and employee relationships. Additional safe harbors were
published in September 1993 offering new protections under the Anti-
Kickback Statute to eight activities, including referrals within group
practices consisting of active investors. The Anti-Kickback statute
was amended in 1996 to simply exclude all risk-sharing arrangements
from the scope of the statute. In July 1998, the Office of Inspector
General ("OIG") issued a final rule establishing a process allowing
entities to obtain formal guidance regarding the application of the
Anti-Kickback statute, the safe harbor provisions, and other OIG health
care fraud and abuse sanctions. The Company does not believe it is in
violation of the Anti-Kickback Statute, even though its operations do
not fit within any of the existing or proposed safe harbors. To help
ensure compliance, the Company owns its clinics and contractually sets
forth terms of provider (employee) compensation, severely limits its
providers' investment and ownership in related companies, and prohibits
referrals for compensation.
<PAGE>
Significant prohibitions against physician referrals were enacted
by Congress in the Omnibus Budget Reconciliation Act of 1993. These
prohibitions, commonly known as "Stark II," amended prior physician
self-referral legislation know as "Stark I" by dramatically enlarging
the field of physician owned or physician interested entities to which
the referral prohibitions apply. Effective January 1, 1995, Stark II
prohibits, subject to certain exemptions, a physician or a member of
his immediate family from referring Medicare or Medicaid patients to an
entity providing "designated health services" in which the physician
has an ownership or investment interest, or with which the physician
has entered into a compensation arrangement including the physician's
own group practice. The designated health services include radiology
and other diagnostic services, radiation therapy services: physical and
occupational therapy services, durable medical equipment, parenteral
and enteral nutrients, equipment, and supplies, prosthetics, orthotics,
outpatient prescription drugs, home health services, and inpatient and
outpatient hospital services. The penalties for violating Stark II
include a prohibition on payment by these government programs and civil
penalties of as much as $15,000 for each violative referral and
$100,000 for participation in a "circumvention scheme." The Company
believes that its activities are not in violation of Stark I or Stark
II because it has no referral relationships for the small amount of
Medicaid/Medicare work that is does. However, the Stark legislation is
broad and ambiguous and interpretative regulations clarifying the
provisions of Stark II have not been issued. While the Company
believes it is in compliance with the Stark legislation, future
regulations could require the Company to modify the form of its
relationships with physicians and clinics.

There are also state and federal civil and criminal statutes
imposing substantial penalties, including civil and criminal fines and
imprisonment, on health care providers which fraudulently or wrongfully
bill governmental or other third party payors for health care services.
The federal law prohibiting false billings allows a private person to
bring a civil action in the name of the United States government for
violations of its provision. The Company believes it is in material
compliance with such laws, but there is no assurance that the Company's
activities will not be challenged or scrutinized by governmental
authorities. Moreover, technical Medicare and other reimbursement
rules affect the structure of physician billing arrangements. The
Company believes it is in material compliance with such regulations,
although regulatory authorities may differ and in such event the
Company may have to modify its relationship with physicians and
clinics. Noncompliance with such regulations may adversely affect the
operation of the Company and subject it to penalties and additional
costs.
<PAGE>
Laws in all states regulate the business of insurance and the
operation of HMOs. Many states also regulate the establishment and
operation of networks of health care providers. While these laws do
not generally apply to the hiring and contracting of physicians by
other health care providers or to companies which participate in
capitated arrangements, there can be no assurance that regulatory
authorities of the states in which the Company operates would not apply
these laws to require licensure of the Company's operations as an
insurer, as an HMO or as a provider network. The Company believes that
it is in compliance with these laws in the states in which it does
business, but there can be no assurance that future interpretations of
insurance laws and health care network laws by the regulatory
authorities in these states or in the states into which the Company may
expand will not require licensure or a restructuring of some or all of
the Company's operations.

Recent Developments

In September 1999, the United States Court of Appeals, 5th
Circuit, ruled that the 1997 amendments to the Texas statutes, that
prohibited direct telemarketing of accident victims, were
unconstitutional. In response to this ruling, the Company has
reestablished telemarketing procedures at its Texas clinics and expects
an increase in the number of patients seeking treatment. The Company
has also implemented additional control procedures to ensure continuing
compliance with all regulations.

On October 19, 1999, American HealthChoice, Inc., the parent
company, and AHC Physicians Corporation, Inc., a subsidiary that owns
the Georgia clinics, filed Chapter 11 Bankruptcy Petitions with the
United States Bankruptcy Court, Northern District of Texas, Dallas
Division (Case No. 99-37314). The Company elected to file the
petitions for two primary reasons. First, it was unable to restructure
terms of the September 1997 and August 1998 Debenture Agreements, which
would have allowed for new funding to acquire profitable clinics.
Second, in early October 1999, the Company received an adverse ruling
on the Futch lawsuit. See Item 3 "Legal Proceedings." On December 6,
1999, the Bankruptcy Court granted the Company authority to continue
operating under a cash collateral budget through February 29, 2000.
The Company forecasts positive cash flow for the approved budget period
including sufficient cash to pay professional fees approved by the
Bankruptcy Court. The Company intends to file a Plan of Reorganization
and Disclosure Statement by February 15, 2000.

On December 3, 1999 an order was entered by the Bankruptcy Court
to return the Conyers clinic to the previous owner in settlement of a
lawsuit. See Item 3 "Legal Proceedings". In compliance with the order,
the Company will record an asset writeoff of accounts receivable and
equipment of approximately $130,000, and un-amortized goodwill of
approximately $130,000. However, the Company will recognize a gain on
disposition of approximately $30,000 after debt extinguishment of
$290,000. Also on January 3, 2000, the Company executed a letter of
intent to sell the McDonough clinic, excluding accounts receivable, for
$67,500 on January 31, 2000. The sales price approximates the book
value of the clinic equipment.

<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY

The Company leases approximately 3,500 square feet in an office
building in Irving, Texas at a monthly rent $5,300 for use as its
principal headquarters. The Company currently owns a parcel of land in
San Antonio, Texas, on which the Company's Southcross clinic is
located.

The Company owns, operates and manages eleven clinics. Ten are
primary care clinics, of which three are medical clinics and seven are
chiropractic clinics. The Company also has a physical therapy facility
at its largest chiropractic clinic. The following table lists the
clinics, locations, monthly rents, services provided, and date acquired
or commenced operation by the Company.
<TABLE>

Clinics in Operation Location Monthly Services Date Acquired
in Fiscal 1999 Rent Provided
- -------------------- --------------- ------- ----------------- -------------
<S> <C> <C> <C> <C>
United Health Katy, TX $3,400 Chiropractic & October 1994
Services physical therapy

United Health San Antonio, TX $2,300 Chiropractic & July 1994
Services (Wurzbach) physical therapy

United Health San Antonio, TX $1,000 Chiropractic & October 1994
Services (San Pedro) physical therapy

Nationwide Sports & San Antonio, TX $1,000 Physical therapy October 1994
Injury (Bandera)

United Health San Antonio, TX $1,900 Chiropractic October 1994
Services (Bandera)

San Pedro Clinic San Antonio, TX $1,100 Primary medical October 1994
care

Southcross Clinic San Antonio, TX owned urgent & primary December 1995
medical care

United Chiropractic New Orleans, LA $1,600 Chiropractic July 1994
(New Orleans East)

United Chiropractic New Orleans, LA $1,200 Chiropractic July 1994
(Uptown)

Peachtree Corners Norcross, GA sold urgent & primary July 1995
Medical Center* medical care

Peachtree Medical Conyers, GA returned urgent & primary February 1996
Center of Conyers** medical care

Peachtree Medical McDonough, GA $4,900 Primary medical February 1996
Center of McDonough care

Valley Family Health McAllen, TX $2,500 Chiropractic January 1996
Center

Total rent $20,900

* Clinic sold in second quarter of fiscal 1999.
** Clinic returned to previous owner in October 1999.
</TABLE>
<PAGE>
ITEM 3. LEGAL PROCEEDINGS

The Company settled its litigation with a service supplier over
unpaid invoices. There are two suits filed November 1997 and September
1997, respectively. The cases were: SmithKline Beecham Clinical Labs
v. American HealthChoice, Inc., filed in the County Court of Bexar
County at Law No. 5, San Antonio, Texas, and State District Court,
162nd Judicial District, Dallas County, Texas. On February 3, 1999,
the Company executed a settlement with the supplier on the San Antonio
case. On May 12, 1999, the Company executed a settlement with the
supplier on the Dallas case. The amount of the settlement for both
cases was less than the liability recorded on September 30, 1998.

The Company settled its litigation with a service supplier over
unpaid invoices. The case was: McKesson General Medical v. American
HealthChoice, Inc., filed in the County Court of Dallas County at Law
No. 2, Dallas, Texas. On January 25, 1999, the Company executed a
settlement agreement with the supplier. The amount of the settlement
was less than the liability recorded on September 30, 1998.

The Company is engaged in litigation with the doctor who managed
the Norcross, Georgia clinic. The Company found it necessary to
terminate the managing doctor. The managing doctor then filed a claim
against the Company in July 1997 for breach of contract and sought an
injunction to prevent the Company from enforcing its non-compete
clause. The Court declined to enter a temporary restraining order
against enforcement of the non-compete clause. The Company filed a
counter claim against the doctor, primarily for losses the Company
sustained while he managed the clinic. The case was: Malcolm P. Dulock
v. AHC Physicians Corporation, Inc., filed in the Superior Court of
Gwinnett County, Georgia. The doctor filed a Chapter 13 Bankruptcy
Petition on January 29, 1999 in the United States Bankruptcy Court for
the Northern District of Georgia. As of December 31, 1999, there has
been no further communication from the plaintiff or the Bankruptcy
Court. The Company has elected to offset principal amount of the note
payable to Dulock against the remaining accounts receivable of the
Norcross clinic, which was sold in February 1999.
<PAGE>
The Company is engaged in litigation with an equipment lessor.
The suit was filed October 14, 1998. The plaintiff alleges that the
Company is the guarantor for a company called Corrective Vision Center
that went out of business. The case was: Advanta Business Services
Corp., v. American HealthChoice, Inc., filed in the County Civil Court
of Harris County at Law No. 4, Harris County, Texas. Advanta won a
decision for the full amount of the suit at a summary judgement hearing
on January 20, 1999. Any further action by the plaintiff has been
stayed by the Chapter 11 Bankruptcy Petition filed by the Company on
October 19, 1999.

The Company settled its litigation with an equipment lessor for a
prefab trailer used as an office at a clinic in San Antonio, Texas.
The suit was filed December 3, 1998. The plaintiff alleged default for
nonpayment of a lease and claimed rights under the lease. The case
was: Sanwa Business Credit Corp., v. American HealthChoice, Inc., filed
in the State District Court, 125th Judicial District, Harris County,
Texas. On February 11, 1999, the Company executed a settlement with
the lessor. The amount of the settlement was less than the liability
recorded on September 30, 1998.

One former doctor and two physicians assistants who worked at the
Norcross, Georgia clinic have filed a law suit naming the Company as a
codefendant. The one doctor and one of the physician assistants worked
at the clinic prior to the Company purchasing the clinic. The other
physicians assistant left the clinic within one year of the Company's
purchase. The claim alleges a right to the account receivable for
patients the doctors treated at the clinic that were collected after
the doctors' employment ended with the clinic. The Company denies any
liability and intends to cross claim against the former managing doctor
of the clinic. The case was: Susan Johnson, Gilberto Martorell, and
Henry Heard v. American HealthChoice, Inc., dba Peachtree Corners
Medical Center, and Malcolm Dulock, filed in the Superior Court of
Gwinnett County, Georgia. Any further action in the case has been
stayed by the Chapter 11 Bankruptcy Petition filed by the Company on
October 19, 1999.

The Company was served a Complaint on January 26, 1998 alleging
unspecified damages arising from trademark infringement and related
claims. The Company has retained a law firm and is currently
evaluating the allegations. The case was: Unihealth v. American
HealthChoice, Inc., filed in the United States District Court, Southern
District of Texas, Houston Division. The claim was settled on February
12, 1999 for an immaterial amount.
<PAGE>
A person claiming to have performed certain services in formation
of the Company has sued claiming he is due a larger percentage of the
Company stock than what he received. The Company was served notice on
March 29, 1998 and has retained a law firm to seek a dismissal or in
the alternative a change of venue. The case is Stewart v. American
HealthChoice, Inc. filed in the United States District Court, Middle
District of Florida, Tampa Division. Any further action in the case
has been stayed by the Chapter 11 Bankruptcy Petition filed by the
Company on October 19, 1999.

The Company is engaged in litigation filed on February 23, 1998
with a former landlord at a location where the Company closed a clinic
for breach of lease. The Company answered and counter claimed against
landlord for landlord's failure to perform under the agreement. The
case is: Assist, Inc., v. American HealthChoice, Inc., filed in State
District Court, 285th Judicial District, Bexar County, Texas. Any
further action in the case has been stayed by the Chapter 11 Bankruptcy
Petition filed by the Company on October 19, 1999.

The Company was engaged in litigation filed on May 14, 1998 with a
former landlord at a location where the Company closed a clinic for
breach of lease. The Company answered and counter claimed against
landlord for landlord's failure to perform under the agreement. The
case was: Dale Baldauf and Marylyn D. Frank v. American HealthChoice,
Inc., and Trevino, Roman & Assoc., filed in State District Court, 138th
Judicial District, Cameron County, Texas. The litigation was settled
in August 1999.

The Company was engaged in litigation with the former owner of the
Conyers, Georgia medical clinic for defaulting on a security agreement
and note payable in connection with the purchase of the clinic in
January 1996. The case was: William A. Futch v. American HealthChoice,
Inc. and AHC Physicians Corporation, Inc. filed January 20, 1999 in the
Superior Court of Rockdale County, State of Georgia. After
unsuccessful negotiations to settle the suit, Futch obtained a writ of
possession and seized the assets of the clinic on October 2, 1999.
After AHC Physicians Corporation, Inc. and American HealthChoice, Inc.
filed a Chapter 11 Bankruptcy Petition on October 19, 1999, the case
was removed to the United States Bankruptcy Court, Northern District of
Texas, Dallas Division. The litigation was settled on December 3, 1999
by a Court Order returning the clinic assets to Futch for a full
release of all claims and monies against American HealthChoice, Inc.
and AHC Physicians Corporation, Inc.

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

No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended
September 30, 1999.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information. During the four quarters ended September 30,
1998, the Company's common stock was listed on The Nasdaq SmallCap
Market under the symbol "AHIC". The common stock was delisted by The
Nasdaq Stock Market on December 1, 1998. From December 3, 1998 to the
present, the common has been quoted on the OTC Bulletin Board under the
symbol "AHIC".

The following table presents the high and low bid prices for each
quarter:

Quarter Ended High Bid Low Bid
------------------ -------- -------
December 31, 1997 $6.125 $4.00
March 31, 1998 $4.625 $0.375
June 30, 1998 $0.50 $0.125
September 30, 1998 $0.94 $0.0625
December 31, 1998 $0.063 $0.0156
March 31, 1999 $0.0625 $0.0156
June 30, 1999 $0.2969 $0.0312
September 30, 1999 $0.0938 $0.0156

Holders. Based on information provided by the Company's transfer
agent, the Company had approximately 100 holders of record of its
common stock at September 30, 1999.

Dividends. The Company has paid no cash dividends since its
inception, and it is unlikely that any cash dividend will be paid in
the future. The declaration in the future of any cash or stock
dividends will be at the discretion of the Board depending upon the
earnings, capital requirements and financial position of the Company,
general economic conditions and other pertinent factors. There are no
dividend restrictions in any creditor or other agreement to which the
Company is a party.

<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Results of Operations

The following summary of earnings and related discussion of the
results of operations should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included elsewhere
in this document.

<TABLE>
Years Ended September 30,

1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net Patient Revenues $ 9,756,000 $ 7,226,000 $ 4,809,000
Operating Expenses:
Compensation and benefits 9,161,000 6,009,000 3,771,000
Allowance for doubtful at
closed clinics - - 1,848,000
General and administrative 3,392,000 2,716,000 1,517,000
Rent 1,084,000 880,000 430,000
Other 1,488,000 248,000 170,000
---------- ---------- ----------
Total Operating Expense 15,125,000 9,853,000 7,736,000
Other Income (Expense):
Interest expense and other
costs of borrowing (2,668,000) (732,000) (611,000)
Other income (expense), net 949,000 (419,000) 693,000
---------- ---------- ----------
Total Other Income (Expense) (1,719,000) (1,151,000) 83,000
---------- ---------- ----------
Loss Before Income Taxes $(7,088,000) $(3,778,000) $(2,844,000)
========== ========== ==========
</TABLE>

Fiscal Ended September 30, 1999 Compared to Fiscal Ended September 30, 1998

Net Patient Revenues. For the fiscal year ended September 30,
1999, net patient revenues decreased from $7,226,000 for the same
period in 1998 to $4,809,000 in 1999. The decrease was a result of the
closure or sale of five clinics in fiscal 1998 and the sale of the
Norcross clinic. Approximately $1,800,000 of the decrease is
attributable to the Norcross clinic sale as of December 31, 1998.

Compensation and Benefits. For the fiscal year ended September
30, 1999, compensation and benefits decreased from $6,009,000 in 1998
to $3,771,000 in 1999. The decrease, which exceeded the comparable
percentage decrease in revenues, was due primarily to personnel
reductions related to closure of unprofitable clinics in fiscal 1998
and the sale of the Norcross clinic. Approximately $1,500,000 of the
decrease is attributable to the Norcross clinic sale as of December 31,
1998.
<PAGE>
Allowance for Doubtful Accounts at Closed Clinics. The Company
closed five clinics in fiscal 1998 and established allowances for
doubtful accounts at September 30, 1998 based on historical collection
experience. However, actual collections during the twelve months ended
September 30, 1999 have been less than projected. The $1,848,000
additional allowance reflects this shortfall in collections on accounts
receivable at these closed clinics and, in addition, less than
anticipated collections of certain one-year and older accounts
receivable for the Norcross clinic.

General and Administrative. For the fiscal year ended September
30, 1999, general and administrative expense decreased from $2,716,000
in 1998 to $1,517,000 in 1999. Approximately $350,000 of the decrease
is attributable to the Norcross clinic sale as of December 31, 1998 and
approximately $200,000 is attributable to reduced marketing and
advertising. The remainder of the decrease is due to overall
reductions in administrative expenses including legal and travel.

Rent. For the fiscal year ended September 30, 1999, rent
decreased $450,000 from $880,000 in 1998 to $430,000 in 1999. The
decrease was due to clinic closures and the sale of the Norcross
clinic.

Other Income and Expense. Other income in 1999 of $693,000 is
attributable to a $272,000 gain recognized on the Norcross clinic sale
in February 1999 and a $485,000 gain on expiration of options and
warrants during the fiscal year. Other expense of $419,000 in fiscal
1998 is primarily attributable to establishment of a 100% reserve for a
note receivable in the amount of $225,000 related to the Company's
investment in an eye clinic.

Fiscal Year Ended September 30, 1998 Compared to Fiscal Year Ended
September 30, 1997

Net Patient Revenues. For fiscal year ended September 30, 1998,
net patient revenues decreased from $9,756,000 for the same period in
1997 to $7,226,000 in 1998. The decrease was a result of the closure
or sale of five clinics in fiscal 1998 and reductions in revenues from
chiropractic clinics due to new regulations in the State of Texas that
govern marketing of medical services. Approximately $1,000,000 of the
decrease was attributable to reduced volume of patient insurance
settlements as a result of the changes in Texas marketing laws.

Compensation and Benefits. For the fiscal year ended September
30, 1998, compensation and benefits decreased from $9,161,000 in 1997
to $6,009,000 in 1998. The decrease, which exceeded the comparable
percentage decrease in revenues, was due primarily to personnel
reductions related to closure of unprofitable clinics in the second
half of fiscal 1997 and additional closures in fiscal 1998.
<PAGE>
General and Administrative. For the fiscal year ended September
30, 1998, general and administrative expense decreased from $3,392,000
for fiscal year 1997 to $2,716,000 in 1998. Approximately $300,000 of
the decrease was attributable to reduced legal and professional
expenses due to fewer pending suits and more legal projects assigned to
in-house counsel, and another $300,000 is related to reductions in
advertising and promotion of the chiropractic clinics due to new
regulations by the State of Texas that govern marketing of medical
services.

Rent. For the fiscal year ended September 30, 1998, rent
decreased $204,000 from $1,084,000 in 1997 to $880,000 in 1998. The
decrease was primarily due to clinic closures in the second half of
fiscal 1997.

Other Operating Expense. For the fiscal year ended September 30,
1998, other operating expenses decreased $1,240,000 from $1,488,000 in
fiscal 1997 to $248,000 in 1998. This classification includes
depreciation and amortization of $247,000 in 1998 and $236,000 in 1997.
In addition, fiscal year 1997 included $1,252,000 for loan acquisition
costs and loss on settlement of debt.

Other Income and Expense. In fiscal year 1998, interest expense
and other costs of borrowing were $732,000 compared to $2,668,000 in
fiscal year 1997. The decrease of $1,936,000 is primarily due to the
reduction of one-time financing costs from $2,138,000 in 1997 to
$300,000 in 1998. New proceeds from debentures and notes payable were
approximately $11,000,000 in 1997 compared to approximately $2,000,000
in 1998. Other expense of $419,000 in fiscal 1998 is primarily
attributable to establishment of a 100% reserve for a note receivable
in the amount of $225,000 related to the Company's investment in an eye
clinic.

Liquidity and Capital Resources

For the fiscal year ended September 30, 1999, net cash used in
operating activities was $660,000 as compared to $1,343,000 for the
twelve months ended September 30, 1998. The decrease of $683,000 is
primarily attributable to the sale of the Norcross clinic, which had an
operating loss of $300,000 in 1999 compared to a $600,000 operating
loss in 1998. The net cash used in operating activities for 1999 was
funded by bridge loans and proceeds from the Norcross sale.

Net cash provided by investing activities for the year ended
September 30, 1999, of $379,000 is primarily attributable to the
$285,000 proceeds from the sale of the Norcross clinic.

Net cash provided by financing activities for the year ended
September 30, 1999 was $141,000 resulting primarily from $287,500 in
proceeds from notes payable.
<PAGE>
After the sale of the Norcross clinic in February 1999 and some
improvement in the profits from the chiropractic clinics, the Company
continued to incur cash operating losses of approximately $40,000 per
month. From January to September 1999, certain officers and directors,
and a beneficial owner of more than 5% of the common stock advanced
$287,5000 in bridge loans in anticipation of the Company obtaining new
funding to complete an acquisition of profitable chiropractic clinics
in Texas. However, the Company was unable to restructure terms of the
September 1997 and August 1998 debenture agreements, which would have
allowed for new funding under terms satisfactory to the Company and the
prospective seller. Also, in early October 1999, the Company received
an adverse ruling on the Futch lawsuit. See Item 3 "Legal
Proceedings". As a result of these two events, the Board of Directors
elected to file individual voluntary bankruptcy petitions under Chapter
11 of the United States Bankruptcy Code for American HealthChoice,
Inc., the parent company, and its subsidiary, AHC Physicians
Corporation Inc., the owner of the Georgia medical clinics.

The Company intends to file a Plan of Reorganization before
February 15, 2000, which will include a favorable restructuring of the
debenture agreements and the acquisition of profitable chiropractic
clinics. If the proposed plan is confirmed by the Bankruptcy Court,
after approval by the creditors and other parties in interest, the
Company hopes to achieve profitable operations and generate sufficient
cash flow to meet all obligations and fund future growth.

Year 2000 Issue

All of the Company's critical operating and accounting systems were
Year 2000 compliant by December 31, 1999. The Company incurred
approximately $20,000 for new equipment to meet all Year 2000
requirements.

Forward-Looking Information

This report contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of
the Company's management as well as assumptions made by and information
currently available to the Company's management. When used in the
report, words such as "anticipate," "believe," "estimate," "expect,"
"intend," "should," and similar expressions, as they relate to the
Company or its management, identify forward-looking statements. Such
statements reflect the current views of the Company with respect to
future events and are subject to certain risks, uncertainties, and
assumptions relating to the operations, results of operations,
liquidity, and growth strategy of the Company, including competitive
factors and pricing pressures, changes in legal and regulatory
requirements, interest rate fluctuations, and general economic
conditions, as well as other factors described in this report. Should
one or more of the risks materialize, or should underlying assumptions
prove incorrect, actual results or outcomes may vary materially from
those described herein as anticipated, believed, estimated, expected,
or intended.

<PAGE>

ITEM 7. FINANCIAL STATEMENTS

AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES

INDEX

Page
----
FINANCIAL STATEMENTS:

Independent Auditor Report 15

Consolidated Balance Sheet - September 30, 1999 16

Consolidated Statements of Operations - Years Ended 17
September 30, 1998 and 1999

Consolidated Statement of Stockholders' Equity - Years 18
Ended September 30, 1998 and 1999

Consolidated Statements of Cash Flows - Years Ended 19
September 30, 1998 and 1999

Notes to Consolidated Financial Statements 20

<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors
American HealthChoice, Inc. and subsidiaries

We have audited the accompanying consolidated balance sheet of American
HealthChoice, Inc. and subsidiaries as of September 30, 1999, and the
related consolidated statements of operations, stockholders' equity,
and cash flows for each of the two years in the period ended September
30,1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of American HealthChoice, Inc. and subsidiaries as of
September 30, 1999, and the results of their operations and their cash
flows for each of the two years in the period ended September 30, 1999
year in conformity with generally accepted accounting principles.

The accompanying consolidated financial statements as of and for the
year ended September 30, 1999 have been prepared assuming that American
HealthChoice, Inc. will continue as a going concern. As more fully
described in Note 2, the Company has incurred recurring losses. This
condition raises substantial doubt about the Company's ability to
continue as a going concern. Management's resolution in regard to this
matter is also described in Note 2. The consolidated financial
statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the
outcome of this uncertainty.

Lane Gorman Trubitt, L.L.P.
Dallas, Texas
December 30, 1999
Except for last paragraph of note 18,
as to which date is January 12, 2000

<PAGE>
<TABLE>
AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999

ASSETS
<S> <C>
Current Assets:
Cash $ 28,862
Accounts receivable, less allowance 5,162,930
for doubtful accounts of $ 6,917,116
Advances and notes receivable 199,524
Other current assets 53,512
----------
Total current assets 5,444,828

Property and equipment, net 794,467
Goodwill, net 130,434
Other assets 23,868
----------
Total assets $ 6,393,597
==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Current portion of notes payable $ 726,414
Current portion of capital lease obligations 229,914
Accrued payroll and payroll taxes 332,437
Accounts payable and accrued expenses 1,306,653
----------
Total current liabilities 2,595,418

Convertible debentures 3,385,000
Notes payable, less current portion -
Capital lease obligations, less current portion 71,663
----------
Total liabilities 6,052,081

Commitments

Stockholders' Equity:
Preferred stock, $.001 par value; 5,000,000
shares authorized; none issued -
Common stock, $.001 par value; 115,000,000 shares authorized;
28,144,259 shares issued and outstanding 28,144
Options to acquire common stock 200,104
Additional paid-in capital 13,363,290
Accumulated deficit (13,250,022)
----------
Total stockholders' equity 341,516
----------
Total liabilities and stockholders' equity $ 6,393,597
==========

See accompanying notes to these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended September 30,
1998 1999
--------- ---------
<S> <C> <C>
Net Patient Revenues $ 7,226,113 $ 4,808,559

Operating Expenses:
Compensation and benefits 6,009,141 3,770,514
Allowance for doubtful accounts at
closed clinics - 1,848,000
Depreciation and amortization 247,392 170,348
General and administrative 2,715,744 1,517,158
Rent expense 880,301 429,601
--------- ---------
Total operating expenses 9,852,578 7,735,621

Other Income (Expense):
Gain on sale of clinic - 272,350
Interest expense and other costs of borrowing (731,796) (611,166)
Other expense (477,757) (24,440)
Other income 58,500 446,430
--------- ---------
Total other income (expenses) (1,151,053) 83,174
--------- ---------
Net Loss $(3,777,518) $(2,843,888)
========= =========

Basic and Diluted Net Loss Per Share $ (0.33) $ (0.12)

Weighted Average Common Shares Outstanding 11,554,428 22,924,169

See accompanying notes to these consolidated financial statements.

</TABLE>
<PAGE>
<TABLE>
AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1999

Option to Additional
Common Stock Acquire Paid-in Accumulated
Shares Amount Common Capital Deficit Total
Stock
---------- ------ -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at September 30,1997 9,870,614 $ 9,871 $ 685,664 $12,003,258 $ (6,628,616) $ 6,070,177
Common stock issued in connection
with debenture conversion 3,218,296 3,218 - 1,286,717 - 1,289,935
Common stock issued in
connection with bridge loan 1,500,000 1,500 - 186,000 - 187,500
Common stock issued in connection
with employment incentives 89,487 90 - 24,044 - 24,134
Return to company (158,765) (159) - (624,979) - (625,138)
Net loss - - - - (3,777,518) (3,777,518)
---------- ------ -------- ---------- ----------- ----------
Balances at September 30,1998 14,519,632 14,520 685,664 12,875,040 (10,406,134) 3,169,090

Common stock issued in connection
with debenture conversion 1,826,825 1,826 - 79,974 - 81,800
Common stock issued in connection
with directors notes payable conversion 8,525,864 8,526 - 179,044 - 187,570
Common stock issued in
connection with bridge loans 2,941,938 2,942 - 209,558 - 212,500
Common stock issued in connection
with consulting agreement 250,000 250 - 12,250 - 12,500
Common stock issued in connection
with employment incentives 80,000 80 - 7,424 - 7,504
Gain recognized on expiration of
warrants and options - - (485,560) - - (485,560)
Net loss - - - - (2,843,888) (2,843,888)
---------- ------ -------- ---------- ----------- ----------
Balances at September 30,1999 28,144,259 $28,144 $ 200,104 $13,363,290 $(13,250,022) $ 341,516
========== ====== ======== ========== =========== ==========

See accompanying notes to these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years Ended September 30
1998 1999
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $(3,777,518) $(2,843,888)
Adjustments to reconcile net loss to
net cash used in operating activities:
Allowance for doubtful accounts 3,204,031 3,781,900
Gain on sale of Norcross clinic assets - (272,350)
Depreciation and amortization 247,392 170,348
Notes payable financing costs - 110,483
Loss on disposal of equipment - 44,413
Stock transactions:
Stock issued in connection with financing
transactions 232,435 212,500
Employee compensation-stock 24,134 7,504
Consulting fees-stock - 12,500
Gain on expiration of options and warrants - (485,560)
Write-off of notes receivable 292,770 -
Fees deducted from debenture proceeds 607,491 -
Change in operating assets and liabilities, net:
Accounts receivable-trade (2,290,075) (1,816,709)
Other current assets 51,601 (26,262)
Accounts payable and accrued expenses 95,752 443,347
Income taxes payable (31,625) -
--------- ---------
Net cash used in operating activities (1,343,612) (661,774)

Cash Flows From Investing Activities:
Advances and notes receivable, net (246,551) 98,696
Property and equipment, net 153,261 (4,406)
Other assets (8,408) -
Proceeds from sale of Norcross clinic assets - 285,000
--------- ---------
Net cash provided by (used in) investing (101,698) 379,290
activities

Cash Flows From Financing Activities:
Proceeds from notes payable 150,000 287,500
Proceeds from debentures 1,193,103 -
Payments on notes payable and capital leases (850,899) (146,049)
--------- ---------
Net cash provided by financing activities 492,204 141,451
--------- ---------

Net Decrease In Cash (953,106) (141,033)
Cash At Beginning Of Year 1,123,001 169,895
--------- ---------
Cash At End Of Year $ 169,895 $ 28,862
========= =========
<PAGE>
Supplemental Disclosure Of Cash Flow Information:
Interest paid $ 278,684 $ 32,000

Supplemental Disclosure Of Non-cash Transactions:
Offset accounts payable against accounts
receivable - 236,600
Conversion of notes payable to directors
into stock - 187,570
Offset notes payable against goodwill and
accounts receivable - 252,959
Payoff of old debenture with proceeds from
new debenture 1,584,406 -
Conversion of debenture into stock 1,245,000 55,594
Reinstate notes payable to directors in
connection with return of stock to company 625,138 -
Debenture Payment offset against proceeds
from Norcoss sale - 665,000

See accompanying notes to these consolidated financial statements.

</TABLE>
<PAGE>

AMERICAN HEALTHCHOICE, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

Organization - American HealthChoice, Inc. and subsidiaries (the
Company) consists of a parent company and eleven clinics providing
medical, physical therapy, and chiropractic services in San Antonio,
McAllen, and Houston, Texas, New Orleans, Louisiana and in the metro
area of Atlanta, Georgia. Substantially all of the Company's revenues
are derived from chiropractic, physical therapy and medical services
provided to individuals living in the vicinity of the clinics.

Consolidation Policy - The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All material inter-company accounts and transactions
have been eliminated in consolidation.

Net Patient Revenues - Revenue is recognized upon performance of
services. Substantially all of the Company's revenues are derived from
personal injury claims and claims filed on major medical policies,
worker's compensation policies, Medicare or Medicaid. Allowances for
discounts on services provided are recognized in the periods the
related revenue is earned. Allowances are maintained at levels
considered appropriate by management based upon historical charge-off
experience and other factors deemed pertinent by management. Fiscal
1999 and 1998 net patient revenues; as a percentage of total revenues,
for medical and chiropractic, including physical therapy services
amounted to 55% and 45%, 45% and 55%, respectively.

Cash Equivalents - For purposes of the statements of cash flows, the
Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. The Company
maintains its accounts at financial institutions located in Texas,
Louisiana, and Georgia. The bank accounts are insured by the Federal
Deposit Insurance Corporation up to $100,000.

Capital Leases - The assets and related obligations for property and
equipment under capital leases are initially recorded at an amount
equal to the present value of future minimum lease payments. Assets
under capital leases are amortized over the life of the lease or useful
life of the assets. Interest expense is accrued on the basis of the
outstanding obligations under capital leases.

Advertising Costs - The Company's policy is to expense all advertising
costs in the period in which advertising first takes place. Advertising
expense was approximately $117,000 and $323,000 for the years ended
September 30, 1999 and 1998 respectively.

Property and Equipment, net - Property and equipment are stated at cost
less accumulated depreciation. Depreciation is provided over the
estimated useful lives of the related assets, primarily using straight-
line methods.
<PAGE>
Income taxes - The Company accounts for income taxes under Financial
Accounting Standards Board (FASB) Statement No. 109, "Accounting for
Income Taxes." FASB Statement No. 109 requires that deferred income
taxes be recorded on a liability method for temporary differences
between the financial reporting and tax bases of a company's assets and
liabilities, as adjusted when new tax rates are enacted.

Goodwill - Goodwill arose from the Company's acquisitions of various
clinics and is being amortized using the straight-line method over 20
years. During 1999 goodwill of approxiamately $275,000 was written
down as a part of disposing or closing clinics.

Recent Accounting Pronouncements _ There were no authoritative
pronouncements adopted in the years ended September30, 1999 and 1998
that had a material effect on the Company's consolidated financial
statements.

The Financial Accounting Standards Board has released FAS 134,
"Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage loans Held for Sale by a Mortgage Banking
Enterprise," FAS 135, "Recission of FASB Statement No. 75 and Technical
Corrections," FAS 136, "Transfers of Assets to a Not-for-Profit or
Charitable trust That Raises or Holds Contributions for Others," and
FAS 137, "Accounting for Derivative Instruments and Hedging Activities-
Deferral of the Effective date of FASB Statement No. 133." The Company
believes that the impact of these new standards will not have a
material effect on the Company's consolidated financial position,
results of operations or disclosures.

Use of Estimates - In preparing the Company's consolidated financial
statements, management is required to make estimates and assumptions
that effect the amounts reported in these financial statements and
accompanying notes. Actual results could differ from those estimates.
The accounts receivable allowance is a significant estimate.

Earnings per Share - Basic earnings per share are computed using the
weighted-average number of common shares outstanding. Diluted earnings
per share are computed using the weighted-average common shares
outstanding after giving effect to potential common stock from stock
options based on the treasury stock method, plus other potentially
dilutive securities outstanding. If the result of assumed conversions
is dilutive, net earnings are adjusted for the interest expense on the
convertible debt, while the average shares of common stock outstanding
are increased.

The potentially dilutive securities held at September 30, 1999 and 1998
were convertible debentures and stock options, discussed in footnotes 9
and 13, respectively. For both years presented, the effect of the
assumed conversion of these securities was anti-dilutive.

2. Recurring Losses

For the twelve months ended September 30, 1999, the Company incurred a
net loss of $2,843,888 compared to a net loss of $3,777,518 for the
twelve months ended September 30, 1998. Although the fiscal 1999 loss
represents a significant improvement over fiscal 1998, the Company has
been unable to generate sufficient cash flow from operations to fund
its operating requirements.
<PAGE>
The Company's largest medical clinic, located in Norcross, Georgia,
which had incurred losses of approximately $560,000 in fiscal 1998, was
sold in February 1999. See Footnote 4 "Divestitures." After the sale
of the Norcross clinic and some improvement in the profits from the
chiropractic clinics, the Company continued to incur cash operating
losses of approximately $40,000 per month. From January to September
1999, certain officers and directors, and a beneficial owner of more
than 5% of the common stock advanced $287,500 in bridge loans in
anticipation of the Company obtaining new funding to complete an
acquisition of profitable chiropractic clinics in Texas. See Footnote
7 (Related Parties). However, the Company was unable to restructure
terms of the September 1997 and August 1998 debenture agreements,
which would have allowed for new funding under terms satisfactory to
the Company and the prospective seller. Also, in early October 1999,
the Company received an adverse ruling on the Futch lawsuit. See
Footnote 17 "Legal Proceedings". As a result of these two events, the
Company elected to file voluntary bankruptcy petitions under Chapter 11
of the United States Bankruptcy Code for American HealthChoice, Inc.,
the parent company, and AHC Physicians Corporation Inc., the owner of
the Georgia medical clinics.

The Company intends to file a Plan of Reorganization before February
15, 2000, which will include a favorable restructuring of the debenture
agreements and the acquisition of profitable chiropractic clinics. If
the proposed plan is confirmed by the Bankruptcy Court, after approval
by the creditors and other parties of interest, the Company hopes to
become profitable and generate sufficient cash flow to meet all
obligations and fund future growth.

3. Property and Equipment

Property and equipment consists of the following:

Useful September
Life 1999
---------- ----------
Land - $ 120,000
Building and leasehold improvements 2-39 years 232,697
Furniture and equipment, including
equipment under capital leases 5-15 years 1,291,601
Less accumulated depreciation and
amortization (849,831)
----------
$ 794,467
==========
The following is a summary of equipment
under capital leases:
Equipment $ 627,910
Less accumulated amortization (303,493)
----------
$ 324,417
==========

Substantially all assets leased are pledged as collateral under the
existing capital lease agreements.
<PAGE>

4. Divestitures

In June 1998, as the result of an arbitration settlement, the Company
returned the assets of the Peachtree Medical Center Northside Clinic to
the original seller. Operating assets of approximately $188,000 were
offset by a note payable of approximately $172,000 resulting in a loss
on settlement of $16,000.

In June 1998 the Company sold the assets of the ACME Brownsville
Chiropractic Clinic to an unrelated entity for a $250,000 note
receivable. The transaction resulted in loss on sale of $18,000.

On February 12, 1999, the Company executed an asset purchase agreement
to sell substantially all the assets of the Norcross, Georgia clinic
for $1,075,000; payable $950,000 in cash and a note for $125,000 due
January 31, 2000. The Company used $665,000 of the cash proceeds to
redeem 8% Cumulative Convertible Debentures issued September 1997 in a
Regulation S offering. The book value of the assets sold was $802,650
as of December 31, 1998 comprised of $227,750 in accounts receivable
less than six months old, $355,400 in inventory and equipment, and
$219,500 of un-amortized goodwill attributable to the purchase of the
clinic in 1996. The Company retained $227,750 in accounts receivable
less than six months old and all accounts receivable older than six
months.

5. Advances and Notes Receivable

In September 1998, as the result of a bankruptcy filing, the Company
elected to provide a 100% reserve against a note receivable of $225,000
related to the Company's investment in an eye care clinic. The charge
is included in other expenses for 1998.

The $250,000 note received as consideration for the assets of the ACME
Brownsville Chiropractic Clinic in June 1998 bears interest at 8% and
is payable in 60 monthly installments of $5,069 and is secured by the
assets of the clinic. The principal due at September 30, 1999 was
$46,512. As a result of common stock issued in connection with bridge
loans in fiscal 1999, the holder of this note became beneficial owner
of more than 5% of the common stock as of September 30, 1999. See
Footnote 7 "Related Party Transactions."

In connection with the sale of the Norcross clinic in February 1999,
the Company received a note in the amount of $125,000 due January 31,
2000.

<PAGE>
6. Notes Payable

Description 9/30/98 9/30/99
-------- --------
1. Demand notes payable to two directors in
connection with the return of 158,765 shares
of common stock. Interest rate is 8%. $ 375,138 $ 187,568

2. Notes payable to physicians in connection
with the Metropolitan clinic acquisition.
Interest rates range from 8% to 10%.
Monthly payments, including interest, range
from $2,133 to $9,161 over periods ranging
from five to seven years. Collateral is
accounts receivable and equipment. 353,878 313,699

3. Unsecured notes payable to former owner of
Norcross, Georgia Clinic. Interest rate is 8%. 93,290 -

4. Notes payable to former owner of one of the
Metropolitan clinics. 109,669 -

5. Bridge loans - 212,500

Other notes payable 10,175 12,647
-------- --------
942,150 726,414
Current maturities (701,341) (726,414)
-------- --------
Long-term notes payable $ 240,809 $ -
======== ========

1. On December 17, 1998, the president and CEO, and a principal
shareholder and board member, agreed to exchange $132,012 and
$55,558, respectively, of notes payable for 6,000,523 and
2,525,341 shares of common stock, respectively. The market
price at the date of election was $0.022 per share.

2. The note payable to the physician, who was the former owner
of the McDonough Clinic with a principal balance of $26,180 at
September 30, 1998, was paid off in June 1999. The note payable
to the physician, who was the former owner of the Conyers Clinic
with a principal balance of $327,698 at September 30, 1998 and
$313,699 at September 30, 1999. The doctor filed a lawsuit for
nonpayment March 1999. On December 3, 1999, the Bankruptcy Court
approved a settlement whereby the clinic assets were conveyed to
the physician in full settlement of claims against the Company.
See Footnote 7 "Related Party Transactions." The principal
balance of the note exceeded the book value of the clinic assets
by approximately $50,000.
<PAGE>
3. The Company has been engaged in litigation with the former
owner of the Norcross clinic, Malcom Dulock, since July 1997.
In May 1999, Dulock filed a Chapter 7 Bankruptcy. Since, the
bankruptcy estate has not asserted a claim, the Company has
elected to offset principal amount of note payable against the
remaining accounts receivable of the Norcross clinic, which was
sold in February 1999.

4. In connection with the acquisition of Metropolitan clinic in
McDonough, Georgia in January 1996, the Company assumed a note
held by a doctor who was a previous owner of the clinic. The
doctor has not pursued payment on the note at any time over the
last two years. The Company has elected to writeoff the note as
a offset to goodwill attributable to the purchase in the amount
of $57,500 and the remainder of $52,200 as an offset to accounts
receivable.

5. From January to September 1999, certain officers and
directors, and a beneficial owner of more than 5% of the common
stock advanced $287,5000 in bridge loans in anticipation of the
Company obtaining new funding to complete an acquisition of
profitable chiropractic clinics in Texas. The Company's
President and CEO made loans in the principal amount of $80,000.
A beneficial owner of more than 5% of the common stock advanced
$175,000 of the total amount. See Footnote 7 "Related Party
Transactions." Three additional loans in the total amount of
$25,000 were made by two directors of the Company. The
remaining loan in the amount of $7,500 was made by an unrelated
party. Consideration for these loans in the amount of $32,500
was an equivalent value in common stock computed using the share
price on the date of the loan. In this regard, the Company
issued 693,453 restricted common shares at share prices ranging
from $0.035 to $0.08.

7. Related Party Transactions

The President and Chief Executive Officer of the Company, provided
bridge loans between June and August 1999 in the aggregate amount of
$80,000. As additional consideration for making the loans in the
amount of $55,000, an equivalent value in common stock was issued,
computed using the share price on the date of the loan. In this
regard, the Company issued 598,485 restricted common shares at share
prices ranging from $0.06 to $0.11. Bridge loans in the amount of
$80,000 remained outstanding at September 30, 1999.
<PAGE>
Mainstream Enterprises LLC ("Mainstream"), a beneficial owner of more
than 5% of the outstanding stock at September 30, 1999, also provided
bridge loans to the Company between January and July 1999 in the
aggregate amount of $175,000. Mainstream first loaned the Company
$25,000 on January 1, 1999. Consideration for this loan was the
forgiveness of a $5,069 monthly installment payment on a note
receivable from Mainstream related to the sale of a clinic owned by the
Company in Brownsville, Texas in June 1998. This loan was settled as
of March 31, 1999 by an offset for equivalent amount due the Company
for corporate office expenses. Mainstream loaned the Company an
additional $25,000 on April 8, 1999. Consideration for this loan was
the forgiveness of a $5,069 monthly installment payment on the note
receivable for each month the loan remained outstanding. This loan was
settled on September 30, 1999 by an offset to the note receivable in
the amount of $25,000 related to the sale of a clinic to Mainstream
(see below) and six monthly installment payments totaling $30,414.
Between April 30, 1999 and July 8 1999, Mainstream provided six
additional bridge loans in the aggregate of $125,000. As additional
consideration for making these loans, an equivalent value in common
stock was issued, computed using the share price on the date of the
loan. In this regard, the Company issued 1,650,000 restricted common
shares at share prices ranging from $0.04 to $0.10. Bridge loans in
the amount of $100,000 remained outstanding at September 30, 1999.

Between August 20 and 29, 1999, Mainstream made advance principal
payments in the amount of $75,000 on the note receivable related to the
sale of the Brownsville clinic. Consideration for these advance
payments was the forgiveness of $75,000 in principal on the note
receivable.

On September 30, 1999, the Company sold a chiropractic clinic located
in San Antonio, which had been open for approximately four months, to
Mainstream for $50,000. The sales price approximated the value of
accounts receivable at September 30, 1999. A bridge loan dated April
8, 1999 in the amount of $25,000 and a bridge loan dated May 25, 1999
in the amount of $25,000 were used as an offset to the sales price.
<PAGE>
8. Commitments

Rent expense for the years ended September 30, 1998 and 1999 amounted
to approximately $880,000 and $430,000 respectively. The Company also
leases equipment under capital leases with interest rates ranging from
9.2% to 19.2%. Future minimum lease payments under operating leases
with terms in excess of one year and capital leases are as follows:

Year ended September 30, Operating Capital
------------------------ -------- --------
2000 $ 110,091 $ 301,957
2001 68,937 38,243
2002 - 38,243
2003 - -
2004 - -
-------- --------
Total minimum lease payments $ 179,028 378,443
========
Future interest (76,866)
--------
301,577
Less current portion (229,914)
--------
Non-current portion $ 71,663
========

The Company has a three-year employment agreement ending June 1, 2000
with its chief executive officer. In the event of termination of the
agreement for any reason, he will be entitled to a severance pay equal
to six months of his full salary. After a change of control of the
Company, as defined in the employment agreement, if the chief executive
officer's employment is terminated, he terminates his employment, his
duties are changed or certain other specified events take place, he
will be entitled to a severance payment equal to twice his effective
annual compensation, together with a continuation of all employee
benefits for two years.

9. Convertible Debentures

In September 1997, the Company sold two 8% Cumulative Convertible
Debentures in the aggregate amount of $3,550,000 in a Regulation S
offering. The Debentures are convertible after 82 days at a conversion
price equal to eighty (80%) of the average closing bid price of the
shares of common stock of the Company as quoted on the Nasdaq SmallCap
Market for the five (5) trading days preceding the date of conversion.
The interest on the note is payable in cash or in kind as shares. An
investment banking firm received $461,500 for all fees. Financing
costs including interest for the debentures was recorded in the fourth
quarter of fiscal 1997. Between February 16, 1998 and August 14, 1998
$1,245,000 of Debentures and $44,935 in accrued interest were converted
for 3,218,296 shares of common stock. The conversion price per share
ranged from $1.25 to $0.0625 per share.
<PAGE>
In August 1998 the Company sold 8% Cumulative Convertible Debentures in
the aggregate amount of $3,385,000 in a Regulation D offering to four
limited partnerships not affiliated with the Company. The debentures
are convertible at a conversion price equal to eighty (80%) of the
average of the closing bid price of the shares of common stock of the
Company as quoted on the Nasdaq SmallCap Market for the five (5)
trading days preceding the date of conversion, provided no holder may
covert an amount of Debentures which would result in the holder and its
affiliates beneficially owning more than 4.9% of the outstanding shares
of common stock of the Company. The Debentures are payable in full on
August 24, 2001 (the "Maturity Date"), and may be partially converted
from time to time into Common Stock until the Maturity Date. The
Company may prepay the debentures at any time, and any debentures
remaining unpaid at the Maturity Date will automatically be converted
into shares of Common Stock at the conversion rate, regardless whether
any holder or its affiliates would then own more than 4.9% of the
outstanding shares of Common Stock. The Company has pledged all of its
tangible and intangible personal property as security for repayment of
the Debentures. Following is a summary of Debenture activity for the
years ended September 30, 1998 and September 30, 1999:

<TABLE>
Reg. S Reg. D Total
---------- ---------- ----------
<S> <C> <C> <C>
Principal balance at
September 30, 1997 $ 3,550,000 $ - $ 3,550,000
Conversion for common shares (1,245,000) - (1,245,000)
Proceeds from Regulation D
offering (1,584,406) 3,385,000 1,800,594
---------- ---------- ----------
Principal balance at
September 30, 1998 720,594 3,385,000 4,105,594
Conversion for common shares (55,594) - (55,594)
Cash Payment (665,000) - (665,000)
---------- ---------- ----------
Principal balance at
September 30, 1999 $ - $ 3,385,000 $ 3,385,000
========== ========== ==========

</TABLE>

10. Stockholders' Equity

Between February 16, 1998 and August 14, 1998, the Company issued
3,218,296 shares of common stock for the conversion of $1,245,000 of
debentures and $44,935 in accrued interest. The conversion price per
share ranged from $1.25 to $0.0625 per share.

In July 1998 the Company obtained a $50,000 bridge loan from a
stockholder and a $100,000 bridge loan from an unrelated company. The
Company issued 500,000 and 1,000,000 shares of common stock,
respectively, as partial consideration for the loan. The price per
share was $0.125. The loan was paid off in August 1998 from the
proceeds of the 8% convertible debentures.
<PAGE>
In fiscal year 1998, the Company issued 89,487 shares of common stock
to employees for employment bonuses and incentive awards including
50,000 shares to the President and CEO. The price per share ranged
from $0.0625 to $0.1875.

In fiscal year 1998, the president and CEO, and a principal shareholder
and board member, returned 111,739 and 47,026 shares of common stock to
treasury, respectively, in consideration for the reinstatement of notes
payable in the amounts payable of $439,973 and $185,165, respectively.
$250,000 of the proceeds from the 8% convertible debentures was used
to repay $175,950 and $74,050, respectively.

On December 17, 1998, the president and CEO, and a principal
shareholder and board member, agreed to exchange $132,012 and $55,558,
respectively, of notes payable for common stock. The Company issued
6,000,523 and 2,525,341 shares of common stock, respectively, at $0.022
per share, which was the market price at the date of election.

In fiscal year 1999, the Company issued 1,826,825 shares of common
stock for the conversion of $55,594 of debentures and $26,206 in
accrued interest. The conversion price per share ranged from $0.06 to
$0.022 per share.

In fiscal year 1999, the Company issued 2,941,938 shares of common
stock in connection with bridge loans in the amount of $212,500. See
Footnote 6 "Notes Payable" and Footnote 7 "Related Party Transaction."

In fiscal year 1999, the Company issued 80,000 shares of common stock
to employees for employment bonuses and incentive awards including
50,000 shares to the President and CEO. The price per share was
$0.0938.

In August 1999, the Company issued 250,000 shares of common stock in
connection with a consulting agreement at $.05 per share.

The holders of any preferred stock, which might be issued, shall have
such rights, preferences and privileges as may be determined by the
Company's board of directors. Currently there are no holders of
preferred stock.

11. Concentration of Credit Risk

In the normal course of providing health care services, the Company may
extend credit to patients without requiring collateral. Each
individual's ability to pay balances due the Company is assessed and
reserves are established to provide for management's estimate of
uncollectible balances. Future revenues of the Company are largely
dependent on third-party payors and private insurance companies,
especially in instances where the Company accepts assignment.
<PAGE>
The Company's trade receivables at September 30, 1998 and 1999 consist
of the following, stated as a percentage of total accounts receivable:

1998 1999
---- ----
Personal injury claims 23% 78%
Medical claims filed with insurance
companies 34 13
Medicare/Medicaid claims 4 -
Workman's compensation claims 19 8
Other claims 20 1
---- ----
100% 100%

12. Income Taxes

There are two components of income tax provision, current and deferred.
Current income tax provisions approximate taxes to be paid or refunded
for the applicable period. Balance sheet amounts of deferred taxes are
recognized on the temporary differences between the bases of assets and
liabilities as measured by tax laws and their bases as reported in the
financial statements. The measurement of deferred tax assets is
reduced if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized. Deferred tax
expense or benefit is then recognized for the change in deferred tax
liabilities or assets between periods.

The principal differences resulting in deferred taxes are the financial
statement bases versus the tax base of allowance for doubtful accounts,
amortization of goodwill, vacation accrual, employee stock options, and
section 481 adjustment due to a change from cash to accrual for tax
purposes in fiscal year 1997.

The deferred tax assets and liabilities in the consolidated balance
sheet at September 30, 1999 are as follows:

<TABLE>
Assets: Current Non-current
-------- ----------
<S> <C> <C>
Vacation accrual $ 31,235 $ -
Goodwill 262,578 -
Contributions carry-forwards - 9,224
Net operating loss carry-forwards - 5,566,425
-------- ----------
293,813 5,575,649
Liabilities:
Employee stock options - (225,121)
Section 481 adjustment (574,264) -
-------- ----------
(574,264) (225,121)
-------- ----------
Deferred tax assets (liabilities), net (280,451) 5,350,528
Less valuation allowance 280,451 (5,350,528)
-------- ----------
$ - $ -
======== ==========
</TABLE>
<PAGE>
At September 30, 1999, the Company has net operating loss and
contribution carry forwards of approximately $14,844,000 and $25,000,
respectively, to offset future taxable income. These carry forwards
expire through the year 2014.

A valuation allowance was established to reduce the net deferred tax
asset for the amounts that will more likely than not be realized. This
reduction is primarily necessary due to the uncertainty of the
Company's ability to utilize all of the net operating loss carry
forwards.

13. Stock Options and Warrants

In August 1995, the Company adopted its 1995 Employee Stock Option Plan
(the "Employee Plan") under which options to purchase shares of common
stock may be issued to employees and consultants of the Company. The
Company reserved 1,000,000 shares of Common Stock for issuance under
the Employee Plan. Also in August 1995, the Company adopted the 1995
Non-Employee Director Stock Option Plan (the "Director Plan") which
provides for the grant of options to directors of up to 250,000 shares
that do not qualify as "incentive stock options" under the Internal
Revenue Code of 1986.

The following schedule summarizes the changes in the Employee Plan and
the Director Plan for the two years ended September 30, 1999:
<TABLE>
Option Price
--------------------------
Number of Per Share Total Option
Shares Price
------- ---------- ----------
<S> <C> <C> <C>
Outstanding at September 30, 1997 737,833 $2.00-$3.00 $ 1,634,800
(297,500 exercisable)

For the year ended September 30,1998:
Granted 200,000 $0.28 56,200
Exercised - - -
------- ---------
Outstanding at September 30, 1998 937,833 $0.28-$3.00 1,691,000
(937,833 exercisable)

For the year ended September 30, 1999:
Granted 200,000 $0.09 18,800
Granted (1) 710,000 $0.05 35,500
Cancelled (1) 710,000 $0.28-$2.34 1,179,400
Expired 3,333 $3.00 10,000
Exercised - - -
--------- ---------
Outstanding at September 30, 1999 1,134,500 $0.05-$2.00 $ 555,900
(1,134,500 exercisable) ========= =========
</TABLE>

(1) On December 17, 1998, the Board of Directors passed
a resolution to lower the exercise price on 610,000 options
under the Employee Plan and 100,000 under the Director Plan
to $0.05 per share. The reduction in the price per share
for the Director Plan options resulted in other income of
$92,542.
<PAGE>
The Company granted an investment group the right to acquire an option
to acquire common stock at specified prices over a defined period of
time. The agreement provided for each option to be issued in exchange
for $100,000, which amount will be applied to the purchase of common
stock, when and if the option is exercised. The following is a summary
of the terms of the transaction:

Last Nonrefundable Possible
Option Fee To Total Exercise
Purchase Acquire Exercise Price
Date Option Price Per Share
------------------ -------- -------- ------
March 18, 1996 $ 100,000 $ 750,000 $ 2.25
June 18, 1996 $ 100,000 $ 750,000 $ 4.90
September 18, 1996 $ 100,000 $ 750,000 $ 4.90
December 18, 1996 $ 100,000 $ 750,000 $ 4.90

As of September 30, 1999, the investment group has exercised all
options under the first option, 128,827 options under the second
option, and 99,277 under the third option. The remaining options
available under the second and third options expired during the year
ended September 30, 1998. The 153,061 remaining options under the
fourth option, expired on December 18, 1998.

On March 19, 1997, the Company issued 1,000,000 warrants to purchase
common stock at $2.375 per share. On April 22, 1997, an additional
400,000 warrants to purchase common stock at $3.00 per share. The
warrants were issued in connection with the issuance of $2,600,000 of
8% convertible debentures. The warrants expired April 14, 1999. On
December 17, 1998, the Board of Directors passed a resolution to cancel
the 1,000,000 warrants issued on March 19, 1997, resulting in other
income of $236,945. The remaining 400,000 warrants expired in April
1999, resulting in other income of $56,073.

In compliance with SFAS No. 123, the Company recognizes and measures
compensation costs related to the Employee Plan utilizing the intrinsic
value based method. Accordingly, no compensation cost has been
recorded. Had compensation expense been determined on the fair value
of awards granted, net loss and loss per share would have been as
follows:

1999 1998
---- ----
As Reported Pro forma As Reported Pro forma
----------- ---------- ----------- -----------
Net loss $(2,843,888) $(2,862,480) $(3,777,518) $(3,832,495)
Loss per share $ (0.12) $ (0.12) $ (0.33) $ (0.33)

The fair value of all options and warrants are estimated using the
Black-Scholes option-pricing model with the following assumptions: risk
free interest rate 5.5% for 1999 and 5.3% for 1998; expected life 3
years; expected volatility 298% for 1999 and 260% for 1998; dividend
yield 0%. The fair values generated by the Black-Scholes model may
not be indicative of the future benefit, if any, which may be received
by the holders. The weighted average exercise price for all options
outstanding was $0.49 and $1.80 as of September 30, 1999 and 1998,
respectively. Since certain options have an indeterminable expiration,
the weighted average expiration date could not be determined.
<PAGE>

14. Stock Purchase Plans

In August 1995, the Company adopted its 1995 Employee Stock Purchase
Plan (the "Stock Purchase Plan"), effective October 1, 1995, which
allows employees to acquire common stock of the Company at 85% of its
fair market value from payroll deductions received from the employees.
The Company has reserved a total of 250,000 shares of its common stock
to be sold to eligible employees under the Stock Purchase Plan. As of
September 30, 1998, no employees were participating in the Stock
Purchase Plan. In July 1997, the Company adopted its 1997 Executive
Stock Bonus Plan ("Executive Stock Bonus Plan") under which options to
purchase shares of common stock may be issued to employees of the
Company. The Company reserved 260,870 shares of Common Stock for
issuance under the Executive Bonus Plan. As of September 30, 1999,
190,475 shares have been issued under the Executive Stock Bonus Plan.

15. Consultant Stock Plans

In March 1997, the Company authorized for issuance 200,000 shares of
Common Stock pursuant to a consulting agreement ("Consultant Plan 1").
In August 1997, the Company reserved 250,000 shares of Common Stock for
issuance to other consultants ("Consultant Plan 2"). Consultant Plan 2
expires December 31, 1999. As of September 30, 1999, 200,000 shares
have been issued under Consultant Plan 1 and 40,000 shares under
Consultant Plan 2.The Company issued two consultant stock plans under
an S-8 SEC registration.

16. Disclosures About Fair Value of Financial Instruments

Generally, the fair value of financial instruments classified as
current assets or liabilities approximate carrying value due to the
short-term maturity of the instruments. The fair value of long-term
debt and capital lease instruments was based on current borrowing rates
available for financing with similar terms and maturities. The
carrying amount and fair value amounts of long-term debt were $726,414
and $718,000 and capital lease obligations were $301,577 and $310,100
respectively, at September 30, 1999.

17. Legal Proceedings

On April 14, 1998, the American Arbitration Association, Atlanta Ga.,
issued an award to the Company concerning its Northside clinic located
in Atlanta, Georgia, against the doctor who was the original seller of
that clinic. The doctor alleged contract default by the Company and
was claiming all rights to this clinic. The Company contended that
there was a valid settlement agreement concerning the alleged breach of
contract. The arbitrator found there was a valid settlement agreement
and issued a ruling in accordance with the reported terms of the
settlement agreement. In sum, the award makes the doctor responsible
for all sums and accounts due for operating expenses after March 10,
1996. Further, the award bars the doctor from making any claims
against the Company for the promissory note and guarantee given by the
Company, and the doctor's employment contract. In exchange, the
Company returned the clinic and accounts receivable collected by the
Company.
<PAGE>
The Company settled its litigation with a service supplier over unpaid
invoices. There are two suits filed November 1997 and September 1997,
respectively. The cases were: SmithKline Beecham Clinical Labs v.
American HealthChoice, Inc., filed in the County Court of Bexar County
at Law No. 5, San Antonio, Texas, and State District Court, 162nd
Judicial District, Dallas County, Texas. On February 3, 1999, the
Company executed a settlement with the supplier on the San Antonio
case. On May 12, 1999, the Company executed a settlement with the
supplier on the Dallas case. The amount of the settlement for both
cases was less than the liability recorded on September 30, 1998.

The Company settled its litigation with a service supplier over unpaid
invoices. The case was: McKesson General Medical v. American
HealthChoice, Inc., filed in the County Court of Dallas County at Law
No. 2, Dallas, Texas. On January 25, 1999, the Company executed a
settlement agreement with the supplier. The amount of the settlement
was less than the liability recorded on September 30, 1998.

The Company is engaged in litigation with an equipment lessor. The
suit was filed October 14, 1998. The plaintiff alleges that the
Company is the guarantor for a company called Corrective Vision Center
that went out of business. The case was: Advanta Business Services
Corp., v. American HealthChoice, Inc., filed in the County Civil Court
of Harris County at Law No. 4, Harris County, Texas. Advanta won a
decision for the full amount of the suit at a summary judgement hearing
on January 20, 1999. Any further action by the plaintiff has been
stayed by the Chapter 11 Bankruptcy Petition filed by the Company on
October 19, 1999.

The Company settled its litigation with an equipment lessor. The suit
was filed October 6, 1998. The plaintiff alleged default for nonpayment
of a lease and claimed rights under the lease. The case was: CIT
Group/Equipment Financing, Inc., v. American HealthChoice, Inc., filed
in the State District Court, 68th Judicial District, Dallas County,
Texas. On April 15, 1999, the Company executed a settlement with the
lessor. The amount of the settlement was less than the liability
recorded on September 30, 1998.
<PAGE>
The Company settled its litigation with an equipment lessor for a
prefab trailer used as an office at a clinic in San Antonio, Texas.
The suit was filed December 3, 1998. The plaintiff alleged default for
nonpayment of a lease and claimed rights under the lease. The case
was: Sanwa Business Credit Corp., v. American HealthChoice, Inc., filed
in the State District Court, 125th Judicial District, Harris County,
Texas. On February 11, 1999, the Company executed a settlement with
the lessor. The amount of the settlement was less than the liability
recorded on September 30, 1998.

A person claiming to have performed certain services in formation of
the Company has sued claiming he is due a larger percentage of the
Company stock than what he received. The Company was served notice on
March 29, 1998 and has retained a law firm to seek a dismissal or in
the alternative a change of venue. The case is Stewart v. American
HealthChoice, Inc. filed in the United States District Court, Middle
District of Florida, Tampa Division. Any further action in the case
has been stayed by the Chapter 11 Bankruptcy Petition filed by the
Company on October 19, 1999.

The Company settled its litigation with the group from which the
Company purchased four Atlanta, Georgia area clinics. The claim
alleged failure to pay on the promissory note for the purchase of the
clinics and to enforce stock pledge obligations. The suit was filed
April 14, 1998. The case was Metropolitan Health Care v. American
HealthChoice, Inc. filed in the United States Bankruptcy Court,
Northern District of Georgia, Atlanta Division. The claim was
dismissed on April 20, 1999 with the consent of all parties.
<PAGE>
The Company is engaged in litigation filed on February 23, 1998 with a
former landlord at a location where the Company closed a clinic for
breach of lease. The Company answered and counter claimed against
landlord for landlord's failure to perform under the agreement. The
case is: Assist, Inc., v. American HealthChoice, Inc., filed in State
District Court, 285th Judicial District, Bexar County, Texas. Any
further action in the case has been stayed by the Chapter 11 Bankruptcy
Petition filed by the Company on October 19, 1999.

The Company has been named in other litigation. In managements
judgement the matters do not involve material amounts of exposure for
the Company.
<PAGE>

18. Subsequent Events

On October 19, 1999, American HealthChoice, Inc., the parent company,
and AHC Physicians Corporation, Inc., a subsidiary and owner of the
Georgia clinics, filed Chapter 11 Bankruptcy Petitions with the United
States Bankruptcy Court, Northern District of Texas, Dallas Division
(Case No. 99-37314). The Company elected to file the petitions for two
primary reasons. First, it was unable to restructure terms of the
September 1997 and August 1998 Debenture Agreements, which would have
allowed for new funding to acquire profitable clinics. Second, in
early October 1999, the Company received an adverse ruling on the Futch
lawsuit. See Footnote 17 "Legal Proceedings." On December 6, 1999,
the Bankruptcy Court granted the Company authority to continue
operating under a cash collateral budget through February 29, 2000.
The Company forecasts positive cash flow for the budget period
including sufficient cash to pay professional fees approved by the
Bankruptcy Court. The Company intends to file a Plan of Reorganization
and Disclosure Statement by February 15, 2000.

In compliance with the Bankruptcy Court Order regarding the return of
the Conyers clinic, the Company will record an asset writeoff of
accounts receivable and equipment of approximately $130,000, and un-
amortized goodwill of approximately $130,000. However, the Company
will recognize a gain on disposition of approximately $30,000 after
debt extinguishment of $290,000. Also on January 3, 2000, the Company
executed a letter of intent to sell the McDonough clinic, excluding
accounts receivable, for $67,500 on January 31, 2000. The sales price
approximates the book value of the clinic equipment.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None to report
<PAGE>

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

The following table sets forth information regarding the executive
officers and directors of the Company.

Name Age Position Since
---------------------- --- ------------------- -----------

Joseph W. Stucki, D.C. 41 President, Chief March 1995
Executive Officer
and Chairman of the
Board of Directors

Jay R. Stucki 39 Chief Financial December
Officer, Vice 1996
President, Secretary (Resigned
and General Counsel January 1999)

John C. Stuecheli 52 Chief Financial January
Officer, Vice 1999
President
and Secretary

Jeffrey Jones, D.C. 38 Director March 1995

Michael R. Smith, M.D. 41 Director December 1996

John V. Mansfield 52 Director June 1998

James Roberts 40 Director June 1998

Joseph W. Stucki, D.C. Dr. Stucki is Chairman of the Board of
Directors, Chief Executive Officer and President of the Company. Dr.
Stucki has been a licensed chiropractor for approximately 16 years. In
May 1983, he founded United Chiropractic Clinics, Inc. and, as its
Chairman and President, purchased or developed and opened approximately
84 multi-disciplined clinics (chiropractic, medical, physical
therapist, massage therapist, etc.). From 1988 through 1995, Dr.
Stucki served as Chairman and Chief Executive Officer of United Health
Services. United Health Services developed approximately 150
franchises throughout the United States. Dr. Stucki has been a
consultant to health care organizations on various issues including
practice management, strategic development, and mergers and
acquisitions. Dr. Stucki has authored several papers and manuals on
practice management and has been a guest speaker on health care issues.
Dr. Stucki is a member of various national, state, and local
organizations.
<PAGE>
Jay R. Stucki. Mr. Stucki became Chief Financial Officer, Vice
President of Finance and Secretary of the Company in June 1997. Mr.
Stucki was first employed by the Company in December 1996 as General
Counsel. Mr. Stucki was in public administration for approximately 13
years, last serving as the Director of Aviation for the Jacksonville
Port Authority, Florida. Mr. Stucki obtained his Juris Doctor from
Oklahoma City School of Law. He also has a masters in business
administration from the University of Texas-Odessa, and a bachelor of
business administration from the University of Albuquerque.

John C. Stuecheli Mr. Stuecheli became Chief Financial Officer,
Vice President of Finance and Secretary of the Company in January 1999.
Mr. Stuecheli was first employed by the Company in November 1998 as
Controller. From November 1996 to October 1998, Mr. Stuecheli was Vice
President of Finance and Chief Financial Officer for Irata, Inc., a
manufacturer and operator of photo booths and other vending equipment.
From September 1993 to October 1996, he was an independent consultant
specializing in financial restructuring.

Jeffrey Jones, D.C. Dr. Jones is a Director of the Company. He
is the Clinic Director of the United Chiropractic Uptown Clinic, New
Orleans, Louisiana, owned by a subsidiary of the Company. He obtained
his Louisiana Doctor of Chiropractic license in July 1985, and began
his association with the United Chiropractic Uptown clinic shortly
thereafter. In the past, Dr. Jones has acted as Regional Manager of
other United Clinics in the greater New Orleans area. He is a member
of the Chiropractic Association of Louisiana, The Union of Chiropractic
Physicians and the American Chiropractic Association.

Michael R. Smith, M.D. Dr. Smith became a Director of the Company
in December 1996. Dr. Smith, a practicing physician board certified in
family practice, has been employed by the Company since September 1994.
He provides medical services at certain of the Company's clinics and
serves as the Medical Director for the Company's Texas clinics. He
also serves on the Board of Directors of AHC Physicians Corporation,
Inc., a subsidiary of the Company. From June 1992 through August 1994,
Dr. Smith was an employee and then partner at the Texas Trauma
Rehabilitation Association. Dr. Smith graduated from The University of
Texas Medical Branch in 1984.

John V. Mansfield. Mr. Mansfield became a Director of the Company
in June 1998. He has been the President and Chief Executive Officer of
Harland Properties, Inc. since February 1992, and of Axis Care Group,
Inc. since May 1997, two privately owned companies located in London,
Ontario. Harland Properties, Inc. is engaged in the business of real
property management, development and consulting, and Axis Care Group,
Inc. is engaged in the business of medical services management.

James Roberts. Mr. Roberts became a Director of the Company in
June 1998. He has been the President of Health Dental Plus, Inc. since
September 1993. Health Dental Plus, Inc. is engaged in the marketing
of dental benefits plans to employer groups and individuals.

Dr. Joseph W. Stucki and Jay R. Stucki are brothers.
<PAGE>
Members of the Company's Board of Directors are elected to hold
office until the next meeting of stockholders and until their
successors are elected and qualified. Officers are elected to serve
subject to the discretion of the Board of Directors until their
successors are appointed and have qualified.

The committees of the Company's Board of Directors are as follows:

Audit Committee John V. Mansfield, Chairman
James Roberts

Compensation Committee James Roberts, Chairman
John V. Mansfield
Dr. Joseph W. Stucki

The Company does not have a Nominating Committee.

Compliance With Section 16(a) Of The Securities Exchange Act Of 1934

Section 16(a) of the Securities Exchange Act of 1934 requires that
the Company's officers and directors, and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities
file reports of ownership and changes in ownership with the Securities
and Exchange Commission ("SEC") and with the exchange on which the
Company's securities are traded. Such reporting persons are required by
SEC regulation to furnish the Company with copies of all Section 16(a)
forms so filed.

Based solely on a review of Forms 3, 4 and 5 and amendments
thereto furnished to the Company pursuant to Rule 16a-3(e) promulgated
under the Securities Exchange Act of 1934, or upon written
representations received by the Company, the Company is not aware of
any failure by an officer, director or beneficial owner of more than
10% of the Company's common stock to file timely with the Securities
and Exchange Commission any Forms 3, 4 or 5 relating to the fiscal year
ended September 30, 1999.

<PAGE>
ITEM 10. EXECUTIVE COMPENSATION

Executive Compensation

The following table sets forth information concerning all cash and
non-cash compensation awarded to, earned by, or paid to the Company's
Chief Executive Officer and the other named executive officer for the
last three fiscal years. No other executive officer of the Company who
was serving at the end of fiscal 1999 earned more than $100,000 of
annual base compensation for services in all capacities to the Company
and its subsidiaries.
<TABLE>
Summary Compensation Table
Long-Term Compensation
-----------------------
Fiscal Under-lying
Year Annual Restricted Securities All other
Name and Principal Ending Compensation Stock Options Compensation
Position September Salary Awards ($) (#) ($)
30 ($)
-------------------- ---- ---------- ----------- ---------- ------
<S> <C> <C> <C> <C> <C>
Dr. Joseph W. Stucki 1999 262,950 4,690 (1) 200,000(5) 55,000 (6)

Chairman of the 1998 262,950 14,050 (1)
Board, President and
Chief Executive 1997 235,815 117,000 (1)
Officer

Jay R. Stucki 1999 100,000 (2) 2,814 (3) 600,000(5)

Vice President, 1998 169,717 (2) 8,430 (3) 200,000
Chief Financial
Officer,
Secretary and 1997 83,109 (2) 70,200 (3) 200,000
General Counsel

John C. Stuecheli 1999 62,500

Vice President, 1998 - (4)
Chief Financial
Officer
and Secretary 1997 - (4)
</TABLE>
___________________________
(1) Dr. Stucki is entitled to a stock bonus of 50,000 shares on June 1
of each year of his employment agreement. The closing bid prices
per share on June 1, 1997, 1998 and 1999 were $2.34, $0.281 and
$0.0938, respectively. The employment agreement also gives him
the right to receive an option for 500,000 shares, at an exercise
price of $0.05 per share, upon the Company achieving three
consecutive quarters of profit or upon termination of employment
for any reason in connection with a change of control. See
"Employment Agreements", below.
<PAGE>
(2) Includes $47,817 and $3,487 in 1998 and 1997, respectively, for
payment of student loans pursuant to his employment agreement.
Mr. Stucki resigned his position as Vice President, Chief
Financial Officer and Secretary on December 31, 1998 and as
General Counsel on July 31, 1999. See "Employment Agreements",
below.

(3) Mr. Stucki was entitled to a stock bonus of 30,000 shares on June
1 of each year of his employment agreement. The closing bid
prices per share on June 1, 1997, 1998 and 1999 were $2.34, $0.281
and $0.0938, respectively. The employment agreement also gave him
the right to receive an option for 200,000 shares on each June 1.

(4) Mr. Stuecheli assumed his position as Vice President, Chief
Financial Officer and Secretary of the Company on January 1, 1999.
The Company did not employ Mr. Stuecheli in fiscal 1997 or 1998.
See "Employment Agreements", below.

(5) On December 17, 1998, the Board of Directors passed a resolution
to lower the exercise price to $0.05 per share on 610,000 options
outstanding under the 1995 Employee Stock Plan (the "Employee
Plan") and 100,000 options outstanding under the 1995 Non-Employee
Stock Option Plan (the "Director Plan"). The exercise price on
150,000 options held by Dr. Stucki under the Employee Plan was
lowered from $2.00 per share and 50,000 options under the Director
Plan was lowered from $2.34. For disclosure purposes, the
aforementioned 200,000 repriced options are reported as grants to
Dr. Stucki in fiscal year 1999. The exercise price on 200,000
options held by Mr. Stucki was reduced from $2.34 and 200,000
options reduced from $0.281. For disclosure purposes, the
aforementioned 400,000 repriced options are reported as grants to
Mr. Stucki in fiscal year 1999 in addition to the 200,000 new
options granted on June 1, 1999 under his employment agreement.

(6) Value of common stock issued as additional consideration for
bridge loans.

Stock Option and Stock Purchase Plans

The following tables set forth the number of options granted to
the Company's Chief Executive Officer and the other named executive
officer during fiscal 1999 and the value of the unexercised options
held by them at September 30, 1999.
<PAGE>
<TABLE>

Option/SAR Grants in Last Fiscal Year

Number of % of
Securities Total
Under- Options/
lying SARs
Options/ Granted Exercise
SARs to or Base
Granted Employees Price Expiration
Name (#) In Fiscal Year ($/Sh) Date
-------------------- ----------- ------------ ----- -----------
<S> <C> <C> <C> <C>
Dr. Joseph W. Stucki 150,000 (1) 16% $0.05 9/1/01

Dr. Joseph W. Stucki 50,000 (1) 5% $0.05 Indefinite

Jay R. Stucki 200,000 (1) 22% $0.05 6/1/02

Jay R. Stucki 200,000 (1) 22% $0.05 6/1/03

Jay R. Stucki 200,000 22% $0.09 6/1/04
____________________

(1) On December 17, 1998, the Board of Directors passed a resolution
to lower the exercise price to $0.05 per share on 610,000 options
outstanding under the 1995 Employee Stock Plan (the "Employee
Plan") and 100,000 options outstanding under the 1995 Non-Employee
Stock Option Plan (the "Director Plan"). The exercise price on
150,000 options held by Dr. Stucki under the Employee Plan was
lowered from $2.00 per share and 50,000 options under the Director
Plan was lowered from $2.34. For disclosure purposes, the
aforementioned 200,000 repriced options are reported as grants in
fiscal year 1999 for Dr. Stucki. The exercise price on 200,000
options held by Mr. Stucki was reduced from $2.34 and 200,000
options reduced from $0.281. For disclosure purposes, the
aforementioned 400,000 repriced options are reported as grants in
fiscal year 1999 for Mr. Stucki in addition to the 200,000 options
granted on June 1, 1999 under his employment agreement.

<PAGE>
Aggregate Option/SAR Exercises in Last Fiscal Year
And Fiscal 1998 Year-End Option/SAR Values

Number of
Securities Value of
Underlying Unexercised
Unexercised In-the Money
Options/SARs Options/SARs
At FY-End (#) At FY-End (#)

Shares Value Exercisable/ Exercisable/
Name Acquired on Realized Unexercisable Unexercisable
Exercise (#) ($)
-------------------- ------------ -------- -------------- -------------
Dr. Joseph W. Stucki None None 200,000/ - - (1)

Jay R. Stucki None None 600,000/ - - (1)
____________________
(1) All options are vested. Value is based on the closing price per
share on December 31, 1999 as quoted on the OTC Bulletin Board of
$0.02. None of the options were in-the-money on December 31,
1999.

Employee Benefit Plans

In August 1995, the Company adopted its 1995 Employee Stock Option
Plan (the "Employee Plan") under which options to purchase shares of
Common Stock may be issued to employees and consultants of the Company.
The Company reserved 1,000,000 shares of Common Stock for issuance
under the Employee Plan. Also in August 1995, the Company adopted the
1995 Non-Employee Director Stock Option Plan (the "Director Plan")
which provides for the grant of options to directors of up to 250,000
shares that do not qualify as "incentive stock options" under the
Internal Revenue Code of 1986. In addition, the Company adopted its
1995 Employee Stock Purchase Plan (the "Stock Purchase Plan"),
effective October 1, 1995, which allows employees to acquire Common
Stock of the Company at 85% of its fair market value from payroll
deductions received from the employees. The Company has reserved a
total of 250,000 shares of its Common Stock to be sold to eligible
employees under the Stock Purchase Plan. In October 1996, the Board of
Directors amended each of the Employee Plan, the Director Plan, and the
Stock Purchase Plan to clarify various matters concerning the
administration of such plans. In March 1997, the Company authorized
for issuance 200,000 shares of Common Stock pursuant to a consulting
agreement ("Consultant Plan 1"). In July 1997, the Company adopted its
1997 Executive Stock Bonus Plan ("Executive Stock Bonus Plan") under
which options to purchase shares of Common Stock may be issued to
employees of the Company. The Company reserved 260,8700 shares of
Common Stock for issuance under the Executive Bonus Plan. In August
1997, the Company reserved 250,000 shares of Common Stock for issuance
to other consultants ("Consultant Plan 2"). The following table
presents the number of shares issued or options granted under each of
the Plans as of September 30, 1999:
<PAGE>

</TABLE>
<TABLE>
Plan Options Option Shares
Granted/Shares Exercised
Issued
------------- ------- ---------
<S> <C> <C>
Employee Plan 884,500 0

Director Plan 250,000 0

Stock Purchase Plan 0 0

Executive Stock 190,475 0
Bonus Plan

Consultant Plan 1 200,000 0

Consultant Plan 2 40,000 0

</TABLE>
Compensation of Directors

The Company pays its Directors $1,500 for each Board of Director
meeting attended in person and $250 for each telephonic Board meeting.
The Company reimburses all Directors for reasonable out-of-pocket
expenses incurred in connection with attending Board of Director
meetings. Pursuant to the Director Plan, any new Director elected to
the Board of Directors is to receive a 10-year option to purchase
10,000 shares of Common Stock at an exercise price determined by the
Board of Directors at the time of grant. If a non-employee Director is
re-elected, such Director is to receive, upon such re-election, a 10-
year option to purchase 5,000 shares of Common Stock at an exercise
price determined by the Board of Directors at the time of grant. As of
September 30, 1999, no options have been granted under the Director
Plan except for a one-time grant of options to purchase 100,000 shares
granted to a former Director. See "-Employment Agreements" for a
discussion of the compensation paid to Dr. Jeffrey Jones as an employee
of the Company. Dr. Michael R. Smith was paid a salary of $140,000 as
an employee of the Company for the fiscal year ended September 30,
1999.
<PAGE>
Employment Contracts

Effective June 1, 1997, the Company entered into a three-year
employment agreement with Dr. Joseph W. Stucki to serve as President
and Chief Executive Officer of the Company for an annual base salary of
$250,000. In addition, he is entitled to a stock bonus of 50,000
shares at the beginning of each year of the employment agreement and
has the right to receive an option for 500,000 shares of Common Stock,
at an exercise price of $2.34 per share, upon the Company achieving
three consecutive quarters of profit or upon termination of employment
for any reason in connection with a change of control. Dr. Stucki is
also entitled to a car allowance of $1,000 per month and reimbursement
of up to $1,500 per year for continuing professional education. In the
event of termination of the agreement for any reason by the Company or
Dr. Stucki, he will be entitled to a severance pay equal to six months
of his full salary. After a change of control of the Company, as
defined in the employment agreement, if Dr. Stucki's employment is
terminated, he terminates his employment, his duties are changed or
certain other specified events take place, he will be entitled to a
severance payment equal to twice his effective annual compensation,
together with a continuation of all employee benefits for two years.

The Company had two agreements with respect to Jay R. Stucki, one
for legal services and one as Chief Financial Officer (CFO). Mr.
Stucki agreed to forgo the base salary as general counsel while
operating in the combined positions. The CFO agreement expires June 1,
1999, subject to automatic renewal for successive one year periods
unless either party provided 90-day notice of cancellation prior to
expiration of the then current term, and the legal services agreement
expired September 30, 1998, subject to automatic renewal for successive
one year periods unless either party gave notice of cancellation.
Under the CFO agreement, Mr. Stucki receives $120,000 in annual
compensation and is entitled to receive 30,000 shares of common stock
and options to purchase 200,000 shares of common stock on each June 1
anniversary date of the Agreement. He is also entitled to standard
employee benefits and reimbursement for continuing professional
education expenses. Under the legal services agreement, Mr. Stucki was
entitled to annual base compensation of $75,000 (foregone while serving
as CFO), and the Company agreed to pay his student loans in the amount
of approximately $58,570, which was treated as compensation in fiscal
1997 and 1998. Under the CFO agreement, Mr. Stucki is entitled to his
base salary for the remainder of the term if the agreement is
terminated by the Company without cause. The parties intend to phase
Mr. Stucki out of the CFO position at the end of the current contract.
<PAGE>
Effective July 1, 1994, United Chiropractic Clinic of Uptown,
Inc., a subsidiary of the Company, entered into an employment agreement
with Dr. Jeffrey Jones as a clinic director providing chiropractic
services at the New Orleans Uptown clinic. The agreement was for an
initial term of three years, and is automatically renewed for
consecutive one year terms unless the Company provides written notice
of nonrenewal not less than 90 days prior to the expiration of the then
current term. Dr. Jones also may terminate the agreement at any time
upon 30 days' written notice, and the Company can terminate the
agreement for cause, as defined in the agreement. Dr. Jones gave
notice in March 1997 that he was not renewing the employment agreement,
although the Company and he have continued to perform under the terms
of the employment agreement, and the Company believes the agreement is
in effect. In December 1998 both parties agreed to renegotiate the
contract. A one year covenant not to compete commences upon the
effective date of termination. Under the agreement, Dr. Jones received
compensation of $500,000 in fiscal 1998 and $210,000 in fiscal 1999.
He is also entitled to standard employee benefits and a term life
insurance policy of $500,000.

On November 2, 1998, the Company entered into an employment
contract with John C. Stuecheli to be the Chief Financial Officer and
Secretary effective January 1, 1999. The agreement is for an initial
term of one year and shall be extended by twelve months if either party
fails to give sixty (60) days notice of cancellation prior to the
expiration date. Under terms of the agreement Mr. Stuecheli is
entitled to annual compensation of $75,000. He is also entitled to
standard employee benefits. In December 1999 both parties agreed to
renegotiate the contract.

<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding the ownership
of the Company's Common stock as of December 31, 1999, by (i) each
known beneficial owner of more than five percent (5%) of the
outstanding Common Stock, (ii) each Director, (iii) each executive
officer, and (iv) the executive officers and Directors as a group. All
share numbers are provided based on information supplied to management
of the Company by the respective individuals and members of the group.
Unless otherwise indicated, each of the stockholders has sole voting
and investment power with respect to the shares beneficially owned.

Number of Percent of
Shares Class
--------- ------
Mainstream Enterprises LLC 1,650,000 5.9%
1300 West Walnut Hill Lane, Suite 275
Irving, Texas 75038

Joseph W. Stucki, D.C.(1) 9,331,328 32.7%
1300 West Walnut Hill Lane, Suite 275
Irving, Texas 75038

Jeffrey Jones, D.C.(2) 3,717,516 12.9%
807 S. Carrollton Avenue
New Orleans, Louisiana 70118

John C. Stuecheli - -
1300 West Walnut Hill Lane Suite 275
Irving, Texas 75038

Michael R. Smith, M.D. 371,167 1.3%
3930 E. Southcross
San Antonio, Texas 78222

James Roberts 9,500 *
6712 Biltmore Pl.
Plano, Texas 75023

John V. Mansfield - -
10956 Big Canoe
Big Canoe, Georgia 30143

Officers and Directors as a group 13,284,511 46.7%
(6 persons)
__________________________
* Less than one percent.
(1) Dr. Stucki is the Chief Executive Officer, President and Chairman
of the Board of Directors of the Company. The number of shares
reported includes 200,000 shares issuable upon exercise of options
at $0.05 per share, which are currently exercisable.

(2) Dr. Jones is a Director of the Company. The number of shares
reported includes 110,000 shares issuable upon exercise of options
at $0.05 per share, which are currently exercisable.

<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Dr. J. W. Stucki, the Chief Executive Officer, President and
Chairman of the Board of Directors of the Company, provided bridge
loans to the Company between June and August 1999 in the aggregate
amount of $80,000. As additional consideration for making loans in the
amount of $55,000, an equivalent value in common stock was issued,
computed using the share price on the date of the loan. In this
regard, the Company issued 598,485 restricted common shares at share
prices ranging from $0.06 to $0.11. Bridge loans in the amount of
$80,000 remained outstanding at September 30, 1999.

Mainstream Enterprises LLC ("Mainstream"), a beneficial owner of
more than 5% of the outstanding stock at September 30, 1999, also
provided bridge loans to the Company between January and July 1999 in
the aggregate amount of $175,000. Mainstream first loaned the Company
$25,000 on January 1, 1999. Consideration for this loan was the
forgiveness of a $5,069 monthly installment payment on a note
receivable from Mainstream related to the sale of a clinic owned by the
Company in Brownsville, Texas in June 1998. This loan was settled as
of March 31, 1999 by an offset for equivalent amount due the Company
for corporate office expenses. Mainstream loaned the Company an
additional $25,000 on April 8, 1999. Consideration for this loan was
the forgiveness of a $5,069 monthly installment payment on the note
receivable for each month the loan remained outstanding. This loan was
settled on September 30, 1999 by an offset to the note receivable in
the amount of $25,000 related to the sale of a clinic to Mainstream
(see below) and six monthly installment payments totaling $30,414.
Between April 30, 1999 and July 8 1999, Mainstream provided six
additional bridge loans in the aggregate of $125,000. As additional
consideration for making these loans an equivalent value in common
stock was issued, computed using the share price on the date of the
loan. In this regard, the Company issued 1,650,000 restricted common
shares at share prices ranging from $0.04 to $0.10. Bridge loans in
the amount of $100,000 remained outstanding at September 30, 1999.

On September 30, 1999, the Company sold a chiropractic clinic
located in San Antonio, which had been open for approximately four
months, to Mainstream for $50,000. The sales price approximated the
value of the accounts receivable at September 30, 1999. A bridge loan
dated April 8, 1999 in the amount of $25,000 and a bridge loan dated
May 25, 1999 in the amount of $25,000 were used as an offset to the
sales price.
<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits Required by Item 601

(1) The following financial statements are filed herewith in Item 7

(i) Consolidated Balance sheet as of September 30, 1999
(ii) Consolidated Statements of Operations for the years
ended September 30, 1999 and 1998.
(iii) Consolidated Statement of Stockholders' Equity for
the years ended September 30, 1999 and 1998.
(iv) Consolidated Statements of Cash Flows for the years
ended September 30, 1999 and 1998.
(v) Notes to Consolidated Financial Statements.

(2)
3.1 Certificate of Incorporation of American HealthChoice,
Inc. (incorporated by reference to Exhibit 4.1 to
Registration Statement on Form SB-2, Registration
Number 33-09311, filed on July 31, 1996)

3.2 Certificate of Amendment to Certificate of Incorporation
of American HealthChoice, Inc. (incorporated by
reference to Exhibit 3.2 to Form 10-KSB, file number
000-26740, filed for the fiscal year ended September 30,
1996).

3.3 Bylaws of American HealthChoice, Inc. (incorporated by
reference to Exhibit 3.3 to Form 10-KSB, file number
000- 26740, filed for the fiscal year ended September
30, 1996).

4.1 Form of Debenture for $3,385,000 of 8% convertible
debentures due August 24, 2001 (incorporated by
reference to Exhibit (c)(ii) to Current Report on
Form 8-K dated August 24, 1998).

4.2 Form of Subscription Agreement between the Registrant
and the holders of the debentures referenced in Exhibit
4.1 (incorporated by reference to Exhibit (c)(ii) to
Current Report on Form 8-K dated August 24, 1998).

4.3 Form of Security Agreement entered into between the
Registrant and the holders of the debentures referenced
in Exhibit 4.1 (incorporated by reference to Exhibit
(c)(ii) to Current Report on Form 8-K dated August 24,
1998).

4.4 Form of Registrations Rights Agreement between the
Registrant and the holders of the debentures referenced
in Exhibit 4.1 (incorporated by reference to Exhibit
(c)(ii) to Current Report on Form 8-K dated August 24,
1998).
<PAGE>
10.1 Employment Agreement for General Counsel dated December
16, 1996, between American HealthChoice, Inc. and Jay R.
Stucki. (incorporated by reference to Exhibit 10.1 to
Form 10-KSB, file number 000-26740, filed for the fiscal
year ended September 30, 1997).

10.2 Employment Agreement for Chief Financial Officer
dated June 1,1997 between American HealthChoice, Inc. and
Jay R. Stucki. (incorporated by reference to Exhibit 10.2
to Form 10-KSB, file number 000-26740, filed for the
fiscal year ended September 30, 1997).

10.3 1995 Non-Employee Director Stock Option Plan
(incorporated by reference to Exhibit 10.1 to Form
10-QSB, file number 33-30677-NY, filed for the quarter
ended June 30, 1995).

10.4 1995 Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.3 to Form 10-QSB, file number
33-30677-NY, filed for the quarter ended June 30,1995).

10.5 1995 Employee Stock Option Plan Amendment 1996-1.
(incorporated by reference to Exhibit 10.8 to Form 10-
QSB, file number 000-26740, filed for the quarter ended
June 30, 1995).

10.6 1995 Non-Employee Director Plan Amendment
1996-1. (incorporated by reference to Exhibit
10.9 to Form 10-KSB, file number 000-26740, filed
for the fiscal year ended September 30, 1996).

10.7 1995 Employee Stock Purchase Plan Amendment
1996-1. (incorporated by reference to Exhibit
10.10 to Form 10-KSB, file number 000-26740, filed
for the fiscal year ended September 30, 1996).

10.8 1997 Consultant Stock Plan, (incorporated by reference
to Form S-8 file number 333-26065, filed for the quarter
ended March 31, 1997).

10.9 1997 Consultant Stock Plan, (incorporated by reference
to Form S-8 file number 333-35581, filed for the quarter
ended September 30, 1997).

10.10 1997 Executive Bonus Plan, (incorporated by reference
to Form S-8 file number 333-36475, filed for the quarter
ended September 30, 1997).

10.11 Loan and Security Agreement dated December 30, 1996
between DVI Business Credit Corporation and American
HealthChoice, Inc. (incorporated by reference to
Exhibit 10.11 to Form 10-KSB, file number 000-26740,
filed for the fiscal year ended September,30, 1996).

10.12 Investor Agreement dated March 19, 1997 between
Wingate LLC and American HealthChoice, Inc.
(incorporated by reference to Exhibit 10.12 to Form
10-KSB, file number 000-26740, filed for the fiscal year
ended September 30, 1997).
<PAGE>
10.13 Employment Agreement for Chief Executive Officer
dated June 1, 1997 between American HealthChoice, Inc.
and Dr. Wes Stucki (incorporated by reference to Exhibit
10.13 to Form 10-KSB, file number 000-26740, filed for
the fiscal year ended September 30, 1998).

10.14 Asset Purchase Agreement dated February 12, 1999
between AHC Physicians Corporation and Georgia Clinic
LLC (incorporated by reference file number 000-26740,
filed for the fiscal quarter ended March 31,1999).

10.15 Demand Note dated June 10, 1999 between American
HealthChoice, Inc. and Dr. J. W. Stucki*

10.16 Demand Note dated June 25, 1999 between American
HealthChoice, Inc. and Dr. J. W. Stucki*

10.17 Demand Note dated April 30, 1999 between American
HealthChoice, Inc. and Mainstream Enterprises, LLC*

10.18 Demand Note dated May 25, 1999 between American
HealthChoice, Inc. and Mainstream Enterprises, LLC*

10.19 Demand Note dated May 10, 1999 between American
HealthChoice, Inc. and Mainstream Enterprises, LLC*

10.20 Demand Note dated June 15, 1999 between American
HealthChoice, Inc. and Mainstream Enterprises, LLC*

10.21 Demand Note dated July 1, 1999 between American
HealthChoice, Inc. and Mainstream Enterprises, LLC*

10.22 Demand Note dated July 10, 1999 between American
HealthChoice, Inc. and Mainstream Enterprises, LLC*

10.23 Demand Note dated August 8, 1999 between American
HealthChoice, Inc. and Dr. J. W. Stucki*

21 List of Subsidiaries of American HealthChoice, Inc.*

27 Financial Data Schedule*

* Filed herewith

(b) The Company did not file any reports on Form 8-K during the quarter
ended September 30, 1999.
<PAGE>

SIGNATURES

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

AMERICAN HEALTHCHOICE, INC.

Date: January 13, 2000 By: /s/ Dr. J.W. Stucki
Dr. J.W. Stucki, Chief Executive
Officer and President

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.

Signature Title Date
------------------- ---------------------------------- ----------------
/s/ Dr. J.W. Stucki Chief Executive Officer, President
Dr. J.W. Stucki and Chairman of the Board
(Principal Executive Officer) January 13, 2000

/s/ John C. Stuecheli Chief Financial Officer and
John C. Stuecheli Vice President-Finance
(Principal Financial and
Accounting Officer) January 13, 2000

/s/ John V. Mansfield Director, Chairman of
John V. Mansfield Audit Committee January 13, 2000

/s/ James Roberts Director
James Roberts January 13, 2000

/s/ Dr. Jeff Jones Director
Dr. Jeff Jones January 13, 2000

/s/ Dr. Michael Smith Director
Dr. Michael Smith January 13, 2000

EXHIBIT 10.15

DEMAND NOTE

$30,000 USD Date: June 10, 1999

FOR VALUE RECEIVED, the undersigned promises to pay to the order
of Dr. Joseph W. Stucki (the "Payee"), at such place as holder of this
note will designate, in lawful money of the United States of America,
and as hereinafter provided, the principal sum of thirty thousand
dollars, with no interest on the part of a said principal amount.

The Principal of this Note will be payable in sixty days or as
otherwise agreed to between Payor and Payee. The Payor reserves the
right to deduct any portion of the payment from debt owed to Payor. The
undersigned will have the right and privilege of prepaying all or any
part of this note at any time without notice or penalty.

In no event will the aggregate of the interest on this note, and
any other amounts paid by the undersigned in connection with this note
which would under Applicable Law be deemed "interest," ever exceed the
maximum amount of interest that, under Applicable Law, could be
lawfully charged on this note, The holder and the undersigned
specifically intend and agree to limit contractually the interest
payable of this note to not more than an amount determined at the
Maximum Rate. Therefore, none of the terms of this note will ever be
construed to create a contract to pay interest at a rate in excess of
the Maximum Rate, and neither the undersigned nor any other liable
parties here for will ever are liable for interest in excess of that
determined at the Maximum Rate, and the provisions of this paragraph
control over all other provisions of this note. If any amount of
interest taken or received by the holder hereof will be in excess of
the maximum amount of interest that, under Applicable Law, could
lawfully have been collected on this note, then the excess will be
deemed to have been the result of a mathematical error by the parties
hereto and will be applied as a credit against the then unpaid
principal amount on the note or refunded promptly to the undersigned,
at the holder's option. All amounts paid or agreed to be paid in
connection with the indebtedness evidenced by this note that would
under Applicable Law be deemed "interest" will, to the extent permitted
by Applicable Law, be amortized, prorated, allocated and spread
throughout the full term of this note.

This note will become immediately due and payable, at the option
of the holder hereof, without presentment or demand or any notice to
the undersigned or any other person obligated hereon, upon the default
in the payment of any installment of the principal hereof or any
interest hereon when due.
<PAGE>
In the event this note, or any part hereof, is collected by suit
or through the Probate or Bankruptcy Court or through any other
judicial proceeding, by an attorney of if this note or any installment
thereof is not paid at maturity, however such maturity may be brought
about, or when due, and this note is placed in the hands of an attorney
for collection after maturity, then the undersigned agrees and promises
to pay, in addition to all other amounts owing hereunder, a reasonable
attorney's fee for collection.

The undersigned and each maker, surety and endorser of this note
expressly waive all notices, of demand or otherwise, presentations for
payment, notices of intention to accelerate the maturity, protest and
notice of protest, as to this note and as to each, every and all
installments hereof, and further agree that it will not be necessary
for any holder hereof, in order to enforce payment of this note, to
first institute suites or exhaust its remedies against any maker of
other liable here for, and each consents that the Payee or other holder
of this note may at any time, and from time to time, upon request of or
by agreement with any of the same, extend the date of maturity hereof
or change the time or method of payments without notice to any of the
other makers, sureties or endorsers, who will remain bound for the
payment hereof.

Payor:
American HealthChoice, Inc

/s/ John Stuecheli
John Stuecheli, CFO

EXHIBIT 10.16

DEMAND NOTE

$25,000 USD Date: June 25, 1999

FOR VALUE RECEIVED, the undersigned promises to pay to the order
of Dr. Joseph W. Stucki (the "Payee"), at such place as holder of this
note will designate, in lawful money of the United States of America,
and as hereinafter provided, the principal sum of twenty five thousand
dollars, with no interest on the part of a said principal amount.

Payor:
American HealthChoice, Inc

/s/ John Stuecheli
John Stuecheli, CFO

EXHIBIT 10.17

DEMAND NOTE

$30,000 USD Date: April 30, 1999

FOR VALUE RECEIVED, the undersigned promises to pay to the order
of Mainstream Enterprises, LLC (the "Payee"), at such place as holder
of this note will designate, in lawful money of the United States of
America, and as hereinafter provided, the principal sum of thirty
thousand dollars, with no interest on the part of a said principal
amount.

"Applicable Law" means the applicable law, if any, of the State of
Texas or of the United States of America in effect from time to time
which lawfully then permits the charging and collection of the highest
permissible lawful nonusers rate of interest on this note. "Maximum
Rate" means the maximum lawful nonuser's rate of interest, if any,
which under Applicable Law the holder hereof is permitted to charge the
undersigned on this note from time to time.
<PAGE>
This note will become immediately due and payable, at the option
of the holder hereof, without presentment or demand or any notice to
the undersigned or any other person obligated hereon, upon the default
in the payment of any installment of the principal hereof or any
interest hereon when due.

In the event this note, or any part hereof, is collected by suit
or through the Probate or Bankruptcy Court or through any other
judicial proceeding, by an attorney of if this note or any installment
thereof is not paid at maturity, however such maturity may be brought
about, or when due, and this note is placed in the hands of an attorney
for collection after maturity, then the undersigned agrees and promises
to pay, in addition to all other amounts owing hereunder, a reasonable
attorney's fee for collection.

Payor:
American HealthChoice, Inc

/s/ Dr. J.W. Stucki
Dr. J.W. Stucki, President

EXHIBIT 10.18

DEMAND NOTE

$25,000 USD Date: May 25, 1999

FOR VALUE RECEIVED, the undersigned promises to pay to the order
of Mainstream Enterprises, LLC (the "Payee"), at such place as holder
of this note will designate, in lawful money of the United States of
America, and as hereinafter provided, the principal sum of twenty five
thousand dollars, with no interest on the part of a said principal
amount.

Payor:
American HealthChoice, Inc

/s/ Dr. J. W. Stucki
Dr. J.W. Stucki, President

EXHIBIT 10.19

DEMAND NOTE

$5,000 USD Date: May 10, 1999

FOR VALUE RECEIVED, the undersigned promises to pay to the order
of Mainstream Enterprises, LLC (the "Payee"), at such place as holder
of this note will designate, in lawful money of the United States of
America, and as hereinafter provided, the principal sum of five
thousand dollars, with no interest on the part of a said principal
amount.

Payor:
American HealthChoice, Inc

___________________
Dr. J.W. Stucki, President

EXHIBIT 10.20

DEMAND NOTE

$25,000 USD Date: June 15, 1999

FOR VALUE RECEIVED, the undersigned promises to pay to the order
of Mainstream Enterprises, LLC (the "Payee"), at such place as holder
of this note will designate, in lawful money of the United States of
America, and as hereinafter provided, the principal sum of twenty five
thousand dollars, with no interest on the part of a said principal
amount.

Payor:
American HealthChoice, Inc

/s/ Dr. J.W. Stucki
Dr. J.W. Stucki, President

EXHIBIT 10.21

DEMAND NOTE

$15,000 USD Date: July 1, 1999

FOR VALUE RECEIVED, the undersigned promises to pay to the order
of Mainstream Enterprises, LLC (the "Payee"), at such place as holder
of this note will designate, in lawful money of the United States of
America, and as hereinafter provided, the principal sum of fifteen
thousand dollars, with no interest on the part of a said principal
amount.

Payor:
American HealthChoice, Inc

/s/ Dr. J.W. Stucki
Dr. J.W. Stucki, President

EXHIBIT 10.22

DEMAND NOTE

$50,000 USD Date: July 10, 1999

FOR VALUE RECEIVED, the undersigned promises to pay to the order
of Mainstream Enterprises, LLC (the "Payee"), at such place as holder
of this note will designate, in lawful money of the United States of
America, and as hereinafter provided, the principal sum of fifty
thousand dollars, with no interest on the part of a said principal
amount.

Payor:
American HealthChoice, Inc

/s/ Dr. J.W. Stucki
Dr. J.W. Stucki, President

EXHIBIT 10.23

DEMAND NOTE

$25,000 USD Date: August 8, 1999

FOR VALUE RECEIVED, the undersigned promises to pay to the order
of Dr. J. W. Stucki (the "Payee"), at such place as holder of this note
will designate, in lawful money of the United States of America, and as
hereinafter provided, the principal sum of twenty five thousand
dollars, with no interest on the part of a said principal amount.

Payor:
American HealthChoice, Inc

/s/ John Stuecheli
John Stuecheli, CFO

EXHIBIT 21

Subsidiaries of American HealthChoice, Inc.

Subsidiary Clinic
1. AHC Chiropractic Clinics, Inc., a Bandera, Wurzbach, San Pedro
Texas corporation & Katy Chiropractic
AHC Physicians Corporation, Inc., a San Pedro & Southcross
Texas corporation medical
AHC Physicians Corporation, Inc., a Peachtree, Conyers &
Georgia corporation McDonough medical
Total Medical Diagnostics, Inc., a
Delaware corporation Inactive
Nationwide Sports and Injury, Inc., a
Texas corporation Bandera Physical therapy
United Chiropractic Clinics of Uptown,
Inc., a Louisiana corporation Uptown
New Orleans East Chiropractic Clinics,
Inc., a Louisiana corporation New Orleans East
AHC Clinic Management, L.L.C., a Texas
limited liability company Inactive
AHI Management, Inc., a Texas
corporation Corporate office
Diagnostic Services, Inc., a Texas
corporation Inactive
Katy Sports Injury and Rehab,
Incorporated, a Texas corporation Inactive
Pacific Chiropractic (San Pedro),
Incorporated, d/b/a United Chiropractic
Clinic, a Texas corporation Inactive
Apple Chiropractic Clinic of Wurzbach,
Incorporated, a Texas corporation Inactive
Valley Family Health Center, L.L.C., a
Texas limited liability company Valley Family chiropractic

<ARTICLE> 5
<MULTIPLIER> 1

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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
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<RECEIVABLES> 12,080,046
<ALLOWANCES> 6,917,116
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0
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<COMMON> 28,144
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<TOTAL-LIABILITY-AND-EQUITY> 6,393,597
<SALES> 4,808,559
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