AMERICAN HEALTHCHOICE INC /NY/, 10KSB40, 2001-01-16

AMERICAN HEALTHCHOICE INC /NY/
10KSB40, 2001-01-16
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, 2000

[ ] 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 I.R.S. Employer Identification No.)
of incorporation or organization

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: $3,674,000

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). $1,200,000 as of
December 31, 2000*.
<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 [X] No [ ]

(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, 2000, the Registrant had 80,559,259 shares outstanding
of common stock.

* Based on the last reported price of an actual transaction in
Registrant's common stock on December 31, 2000 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........................................ 8

Item 4. Submission of Matters to a Vote of Security Holders...... 8

PART II

Item 5. Market for Common Equity and Related Stockholder Matters 9

Item 6. Management's Discussion and Analysis or Plan of Operation 10

Item 7. Financial Statements..................................... 13

Item 8. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure................. 31

PART III

Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act........................................... 32

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

Item 11. Security Ownership of Certain Beneficial
Owners and Management.................................. 38

Item 12. Certain Relationships and Related Transactions........... 39

Item 13. Exhibits and Reports on Form 8-K......................... 40

Signatures......................................................... 43

<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 thirteen clinics. Twelve are
primary care clinics, of which two are medical clinics and ten are
chiropractic clinics. The Company also has a physical therapy facility at
its largest chiropractic clinic. The clinics are located in Texas and
Louisiana. The clinic locations are leased except for one clinic in San
Antonio. See Item 2 "Description of Property." At September 30, 2000 the
Company had a total of 65 employees. Of this number 8 were employed by the
Company's medical clinics, 49 by the chiropractic and physical therapy
clinics, and 8 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.

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 patients with third party claims.
<PAGE>

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

Current Profitability. The Company achieved profitability in fiscal
2000 as a result of actions initiated in 1998 and completed in September
2000. In January of 2000 the Company completed the sale of the last of the
Georgia clinics acquired in 1996. Losses sustained at these clinics were
the primary reason for substantial operating losses reported by American
HealthChoice in fiscal years 1997, 1998 and 1999. In September 2000, the
Company acquired three established chiropractic clinics with gross patient
revenue of approximately $4,000,000 and earnings before interest, taxes,
depreciation and amortization ("EBITDA") of approximately $1,400,000 for the
twelve months ended December 31, 1999. Lastly, management has continued
steps begun in1998 to increase profitability at existing clinics and to
reduce corporate overhead.

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 1999 favorable court ruling effecting telemarketing in Texas has allowed
the Company to increase the number of patients at the existing clinics
requiring these types of services. 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.

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:
<PAGE>

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.

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.

<PAGE>
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 ten 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.

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.
<PAGE>

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.

Medical Services

The Company owns and operates two primary care medical clinics located
in San Antonio. The patient source for the Southcross 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.

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.
<PAGE>

Recent Developments

The Company acquired three established chiropractic clinics in
September 2000. Management is currently in the process of integrating the
operations of these clinics. Steps taken include the appointment of the
former owner of the acquired clinics to act as liaison for all marketing and
patient development efforts at the Texas clinics. This individual will
report to the president of American HealthChoice and work with the
individual clinic doctors. In addition, the corporate financial group is in
the process of implementing financial reporting and accounts receivable
collection procedures at the clinics.

The Company has recently negotiated new employment agreements with the
president and CEO, the chief financial officer and the clinic director of
one of its largest chiropractic clinics. These agreements include incentive
bonuses directly tied to the Company achieving projected EBITDA in fiscal
2001 and in future years. Management continues to focus on maximizing
clinic profitability and controlling expenses.

ITEM 2. DESCRIPTION OF PROPERTY

The Company leases approximately 3,500 square feet in an office
building in Irving, Texas at a monthly rent $6,500 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.

Clinics in Operation Location Monthly Services Date Acquired
in Fiscal 2000 Rent Provided
-------------------- --------------- ------- ----------------- --------------
<S> <C> <C> <C> <C>
United Chiropractic Katy, TX $3,600 Chiropractic & October 1994
Clinic physical therapy

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

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

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

United Chiropractic San Antonio, TX $2,000 Chiropractic October 1994
Clinic (Bandera)

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

Southcross Medical San Antonio, TX $2,000 Urgent & primary December 1995
Clinic 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 Medical Conyers, GA returned Urgent & primary February 1996
Center of Conyers** medical care

Peachtree Medical McDonough, GA sold Primary medical February 1996
Center of McDonough* care

Valley Family McAllen, TX $3,000 Chiropractic January 1996
Health Center

Valley Family San Benito, TX $900 Chiropractic September 2000
Health Center

Crosstown Corpus Christi, $1,000 Chiropractic September 2000
Chiropractic Clinic TX

Laredo Family Laredo, TX $3,900 Chiropractic September 2000
Health Clinic
------
Total rent $24,600
======

* Clinic sold in January 2000.
** Clinic returned to previous owner in October 1999.
</TABLE>
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

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. The Plan of Reorganization
approved the United States Bankruptcy Court in August 2000, allows the
plaintiffs to pursue their claim with the Company's malpractice insurance
carrier with no further obligation on the part of American HealthChoice.

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.
The case has been transferred to the United States Bankruptcy Court in
Dallas, Texas. A trial is scheduled in January 2001.

The Company was 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. The claim was disallowed by the
United States Bankruptcy Court.

The Company was engaged in litigation with an equipment lessor. The suit
was filed October 14, 1998. The plaintiff alleged 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. The plaintiff
failed to file a claim with the Bankruptcy Court and is barred from further
action.

The Company was served a complaint on December 7, 1999 alleging unspecified
damages arising from an alleged contract breach concerning the purchase of
the McAllen Texas clinic in 1996. The case was filed in the 16th District
Court, of Denton County, Texas. In connection with the Chapter 11
Bankruptcy, the case was transferred to the Bankruptcy Court in Dallas,
Texas. The case is scheduled for trial in January 2001. The Company
believes the Bankruptcy Court will dismiss the case for several reasons,
including the fact that the plaintiff failed to file a claim in the Chapter
11 Bankruptcy.
<PAGE>

The Company has been named in other litigation. In Management's judgement,
the matters do not involve material amounts of exposure for the Company.

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,
2000.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information. During the quarter ended December 31, 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, 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
December 31, 1999 $0.0469 $0.0156
March 31, 2000 $0.5156 $0.0156
June 30, 2000 $0.2344 $0.0938
September 30, 2000 $0.1562 $0.0469

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, 2000.

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

<TABLE>
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.

Years Ended September 30,

1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Net Patient Revenues $ 7,226,000 $ 4,809,000 $ 3,674,000
Operating Expenses:
Compensation and benefits 6,009,000 3,771,000 2,238,000
Allowance for doubtful accounts
at closed clinics - 1,848,000 -
General and administrative 2,716,000 1,517,000 817,000
Rent 880,000 430,000 282,000
Other 248,000 170,000 247,000
---------- ---------- ----------
Total Operating Expenses 9,853,000 7,736,000 3,584,000

Other Income (Expense):
Interest expense and other
costs of borrowing (732,000) (611,000) (12,000)
Other income (expense), net (419,000) 693,000 115,000
---------- ---------- ----------
Total Other Income (1,151,000) 83,000 103,000
---------- ---------- ----------
Income (Loss) Before
Income Taxes $(3,778,000) $(2,844,000) $ 193,000
========== ========== ==========
</TABLE>

Fiscal Ended September 30, 2000 Compared to Fiscal Ended September 30, 1999

Net Patient Revenues. For the fiscal year ended September 30, 2000,
net patient revenues decreased from $4,809,000 for the same period in 1999
to $3,674,000 in 2000. Approximately $1,326,000 of the decrease was
attributable to net patient revenue for the sold Georgia clinics. Net
patient revenue at clinics operated in both periods increased $20,000 in
2000 compared to 1999. Net patient revenue for clinics acquired in
September 2000 was $171,000.

Compensation and Benefits. For the fiscal year ended September 30,
2000, compensation and benefits decreased from $3,771,000 in 1999 to
$2,238,000 in 2000. Approximately $1,175,000 of the decrease was
attributable to compensation and benefits for the sold Georgia clinics.
Approximately $413,000 of the decrease was due to fewer clinic employees and
salary reductions taken by clinic physicians and executive officers in 2000.
Compensation and benefits for the clinics acquired in September 2000 was
$55,000.
<PAGE>

General and Administrative. For the fiscal year ended September 30,
2000, general and administrative expense decreased from $1,517,000 in 1999
to $817,000 in 2000. Approximately $554,000 of the decrease was
attributable to general and administrative expenses for the closed Georgia
clinics. An increase in marketing expense of $150,000 in 2000 compared to
1999 was offset by a $338,000 decrease in other general and administrative
expenses at clinics operated in both periods and at the corporate office.
General and administrative expense for the clinics acquired in September
2000 was $42,000.

Rent. For the fiscal year ended September 30, 2000, rent decreased
$148,000 from $430,000 in 1999 to $282,000 in 2000. Approximately $144,000
of the decrease was attributable to rent for the closed Georgia clinics.

Other Operating Expenses. For the fiscal year ended September 30,
2000, other operating expenses included $102,000 of reorganization expenses
and $145,000 of depreciation and amortization. For 1999 other operating
expenses included $170,000 of depreciation and amortization.

Other Income and Expense. Other income in 2000 included a $36,000 gain
related to the sale of the Georgia clinics and $79,000 in debt forgiveness
in connection with the Chapter 11 Bankruptcy. 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. Interest expense other costs of
borrowing decreased from $611,000 in 1999 to $12,000 in 2000 as a result of
the cessation of accrued interest on the $3,385,000 principal amount
debentures on October 19,1999.

Fiscal Year Ended September 30, 1999 Compared to Fiscal Year 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.

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.
<PAGE>

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.

Liquidity and Capital Resources

For the fiscal year ended September 30, 2000, net cash used in
operating activities was $123,000 as compared to $662,000 for the twelve
months ended September 30, 1999. The decrease of $539,000 was primarily
attributable to the improvement in operating results from a loss of
$2,844,000 in 1999 to a profit of $193,000 in 2000.

Net cash used by investing activities for the year ended September 30,
2000, of $696,000 was primarily attributable to the purchase of clinic
assets in September 2000. Net cash provided by investing activities for the
year ended September 30, 1999 is primarily attributable to proceeds from the
sale of clinic assets and was used to fund operating activities.

Net cash provided by financing activities for the year ended September
30, 2000 was $830,000, resulting primarily from $925,000 in proceeds from
notes payable. Net cash provided by financing activities for the year ended
September 30, 1999 was $141,000 resulting primarily from $287,000 in
proceeds from notes payable and was used to fund operating activities.

Based on continuing operating profit from clinics in operation for the
entire year of fiscal 2000 and incremental profit from the three clinics
acquired in September 2000, the Company anticipates that cash from operating
activities will be sufficient to fund the bankruptcy claim obligations of
$500,000 due in the next twelve months and anticipated working capital
requirements.

The Company may acquire additional established clinics in the next
twelve months. Funding for these acquisitions will be a combination of cash
and new issue common stock. Management does not anticipate any material
capital expenditures requiring cash in the next twelve months.

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.
<PAGE>

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 Auditors Report 14

Consolidated Balance Sheet - September 30, 2000 15

Consolidated Statements of Operations - Years Ended 16
September 30, 1999 and 2000

Consolidated Statement of Stockholders' Equity - Years 17
Ended September 30, 1999 and 2000

Consolidated Statements of Cash Flows - Years Ended 18
September 30, 1999 and 2000

Notes to Consolidated Financial Statements 19

<PAGE>

INDEPENDENT AUDITORS REPORT

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, 2000, and the
related consolidated statements of operations, stockholders' equity, and
cash flows for each of the two years in the period ended September 30, 2000.
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 auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
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,
2000, and the results of their operations and their cash flows for each of
the two years in the period ended September 30, 2000 year in conformity with
accounting principles generally accepted in the United States of America.

Lane Gorman Trubitt, L.L.P.
Dallas, Texas
January 5, 2001

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

CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000

ASSETS

<S> <C>
Current Assets:
Cash $ 40,701
Accounts receivable, less allowance for doubtful
of $7,733,745 7,430,581
Advances and notes receivable 74,822
Other current assets 34,763
--------------
Total current assets 7,580,867

Property and equipment, net 468,477
Goodwill, net 3,817,666
Other assets 242,613
--------------
Total assets $ 12,109,623
==============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Current portion of capital lease obligations $ 53,365
Current bankruptcy claims 446,800
Accrued payroll and payroll taxes 171,993
Accounts payable and accrued expenses 200,122
--------------
Total current liabilities 872,280

Convertible debentures 3,697,000
Notes payable 907,500
Long-term bankruptcy claims 761,250
Capital lease obligations, less current portion 12,500
--------------
Total liabilities 6,250,530

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; 71,144,259 shares issued and outstanding 71,144
Options to acquire common stock 200,104
Additional paid-in capital 18,645,290
Accumulated deficit (13,057,445)
--------------
Total stockholders' equity 5,859,093
--------------
Total liabilities and stockholders' equity $ 12,109,623
==============

See accompanying notes to these consolidated financial statements.

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

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended September 30,
1999 2000
---------- ----------
<S> <C> <C>
Net Patient Revenues $ 4,808,559 $ 3,674,003

Operating Expenses:
Compensation and benefits 3,770,514 2,238,643
Allowance for doubtful accounts at 1,848,000 -
closed clinics
Depreciation and amortization 170,348 144,674
General and administrative 1,517,158 817,155
Reorganization - 101,730
Rent 429,601 282,150
---------- ----------
Total operating expenses 7,735,621 3,584,352

Other Income (Expense):
Gain on sale of clinic 272,350 36,508
Interest expense and other costs of borrowing (611,166) (12,193)
Other expense (24,440) -
Other income 446,430 78,611
---------- ----------
Total other income (expenses) 83,174 102,926
---------- ----------
Net Income (Loss) $(2,843,888) $ 192,577
========== ==========

Basic and Diluted Net Income (Loss) Per $ (0.12) $ 0.01

Weighted Average Common Shares Outstanding 22,924,169 31,727,592

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, 1999 AND 2000

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 30,1998 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
Common stock issued in connection
with clinic acquisitions 34,000,000 34,000 - 5,066,000 - 5,100,000
Common stock issued in connection
with financing 9,000,000 9,000 - 216,000 - 225,000
Net income - - - - 192,577 192,577
-------------------------------------------------------------------------
Balances at September 30, 2000 71,144,259 $ 71,144 $200,104 $18,645,290 $(13,057,445) $ 5,859,093
=========================================================================

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,
1999 2000
---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $(2,843,888) $ 192,577
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Allowance for doubtful accounts 3,781,900 1,630,962
Gain on disposition of clinic assets (272,350) (36,508)
Depreciation and amortization 170,348 144,674
Expensing of notes payable financing costs 110,483 -
Loss on disposal of equipment 44,413 -
Stock transactions:
Stock issued in connection with
financing transactions 212,500 -
Employee compensation-stock 7,504 -
Consulting fees-stock 12,500 -
Gain on expiration of options and warrants (485,560) -

Change in operating assets and liabilities, net:
Accounts receivable-trade (1,816,709) (1,888,293)
Other current assets (26,262) 1,784
Accounts payable and accrued expenses 443,347 (167,822)
---------- ----------
Net cash used in operating activities (661,774) (122,626)
Cash Flows From Investing Activities:
Repayments on advances and notes receivable 98,696 125,000
Property and equipment (4,406) -
Purchase of clinic assets - (900,000)
Proceeds from sale of clinic assets 285,000 79,430
---------- ----------
Net cash provided by (used in) investing activities 379,290 (695,570)
Cash Flows From Financing Activities:
Proceeds from notes payable 287,500 925,000
Payments on notes payable and capital leases (146,049) (94,965)
---------- ----------
Net cash provided by financing activities 141,451 830,035
---------- ----------
Net Increase (Decrease) In Cash (141,033) 11,839
Cash At Beginning Of Year 169,895 28,862
---------- ----------
Cash At End Of Year $ 28,862 $ 40,701
========== ==========

<PAGE>
Supplemental Disclosure Of Cash Flow Information:
Interest paid $ 32,000 $ 2,500

Supplemental Disclosure Of Non-cash Transactions:
Offset accounts payable against accounts receivable 236,600 -
Issuance of stock as partial payment on notes
payable to directors 187,570 -
Offset notes payable against goodwill and accounts
receivable 252,959 -
Conversion of debenture and accrued interest
into stock 55,594 -
Debenture payment offset against proceeds from
Norcross clinic sale 665,000 -
Offset notes payable against accounts receivable,
equipment and goodwill - 289,534
Issuance of stock in connection with financing
activities - 225,000
Issuance of stock in connection with purchase of
clinic assets - 5,100,000
Return of capital lease assets to lessor - 91,288
Reclassify accrued interest to debentures - 312,000
Reclassify capital leases and notes payable to
bankruptcy claims - 420,897
Reclassify accounts payable and accrued expenses to
bankruptcy claims - 815,482
Conversion of capital lease assets to operating leases - 85,558

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 thirteen clinics providing medical,
physical therapy, and chiropractic services in San Antonio, McAllen, Laredo,
San Benito, Corpus Christi and Houston, Texas and New Orleans, Louisiana.
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 2000 and 1999 net patient revenues; as a
percentage of total revenues, for medical and chiropractic, including
physical therapy services amounted to 18% and 82%, 30% and 70%,
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 $264,000 and $117,000 for the years ended September 30,
2000 and 1999 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 three clinics
in September 2000 and is being amortized using the straight-line method over
10 years. During 2000, goodwill of approximately $130,000 was written off
as a part of disposing of or closing clinics.

Recent Accounting Pronouncements - There were no authoritative
pronouncements adopted in the years ended September 30, 2000 and 1999 that
had a material effect on the Company's consolidated financial statements.

The Financial Accounting Standards Board has released FAS 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities"(An
amendment of FASB Statement No. 133), FAS 139, "Recission of FASB Statement
No. 53 and amendments to FASB Statements No. 63, 89 and 121," and FAS 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" (A replacement of FASB Statement No. 125).
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, 2000 and 1999 were
convertible debentures and stock options. For 1999 the effect of the
assumed conversion of these securities was anti dilutive and for 2000 the
effect was immaterial.

2. Clinic Acquisitions

On September 1, 2000, the Company acquired for cash and stock all the
operating assets of three Texas chiropractic clinics located in Laredo, San
Benito and Corpus Christi. The total acquisition cost was $6,000,000 of
which $900,000 was paid in cash and $5,100,000 was paid through the issuance
of 34,000,000 shares of the Company's common stock.
<PAGE>

The Asset Sale and Purchase Agreement (the "Agreement") states that
20,000,000 shares from the 34,000,000 shares issued shall be placed in
escrow for possible redemption by the Company based on the Earnings before
Interest, Taxes, Depreciation and Amortization ("EBITDA") for the acquired
clinics during the two year period commencing September 1, 2000. If the
combined EBITDA of the acquired clinics for the year ended September 1, 2001
does not reach $1,500,000, the Company shall have the right to redeem a
proportionate number of 10,000,000 shares based on the percentage difference
between the actual EBITDA for the period and $1,500,000. The Company shall
have the same right of redemption based on an additional 10,000,000 shares
for the year ended September 30, 2002. In addition, the Agreement provides
for a purchase adjustment if the average daily closing bid price for the
common stock of the Company is below $.15 per share for the 90 trading days
before September 1, 2001 and September 1, 2002. A proportionate number of
additional shares will be issued for the difference between the actual
average share bid price and $.15 based on 24,000,000 shares and 10,000,000
at September 1, 2001 and September 1, 2002, respectively. The calculation
of additional shares to be issued shall be reduced for any shares redeemed
per the EBITDA adjustment.

The acquisition has been accounted for as a purchase. The excess of the
total acquisition cost over the fair value of the net assets acquired of
$3,850,000 is being amortized over ten years by the straight-line method.
The results of operations of the acquired clinics since the acquisition are
included in the consolidated financial statements. Unaudited pro forma
results of operations for the eight months ended August 31, 2000 and the
twelve months ended December 31, 1999 as though these clinics had been
acquired as of January 1, 1999 follow:

Twelve months ended Eight months ended
December 31, 1999 August 31, 2000
----------------- ---------------
Net revenue 6,999,000 4,172,000

Net income (loss) (1,734,000) 288,000

Basic and diluted earnings
(loss) per share (0.03) 0.00

The preceding amounts reflect adjustments for amortization of goodwill,
additional depreciation on revalued purchased assets, imputed interest on
borrowed funds and income taxes.
<PAGE>

3. Reorganization

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 a lawsuit. The Company filed a Disclosure
Statement and Plan of Reorganization on February 16, 2000. The Company's
Amended Joint Disclosure Statement was approved by the United States
Bankruptcy Court on April 6, 2000 and subsequently distributed to creditors
and other parties in interest. The Company's Amended Plan of Reorganization
(the "Plan")was confirmed by the United States Bankruptcy Court on August 8,
2000 and became effective September 9, 2000.

An important provision of the Plan was the acquisition of three established
clinics with expected gross annual revenue of $4,000,000 and projected
EBITDA of approximately $1,200,000. The purchase price is $6,000,000 with
$900,000 in cash and $2,100,000 in common stock at closing and the remainder
of $3,000,000 in common stock, which will be held in escrow until annual
cash flow targets are achieved over a two year period. The acquisition was
completed on September 1, 2000.

In addition, the Plan allows the holders of the August 1998 Convertible
Debenture, who are owed $3,385,000 face amount, plus accrued interest of
$312,000 as of October 19, 1999, to convert their debentures into 20,475,000
shares of common stock over a three year period ending August 24, 2003.

Certain capital lease assets were returned to the lessor and other capital
leases were converted to operating leases as part of the Plan. The
settlements with these lessors did not have a material effect on the
financial position or operating results of the Company. Bankruptcy claims
of other creditors and certain insiders in the amount of $516,000 and
$650,000, respectively, will be paid in full in three equal annual
installments beginning September 2001.

Shareholders of the Company's common stock as of October 19, 1999 will
exchange shares issued before the filing date for an equivalent number of
new shares as approved in the Plan.

The acquisition of the clinics in September 2000 and future working capital
requirements will be funded through an infusion of approximately $1,000,000
in new capital. The debenture conversions and the acquisition of the
clinics will increase the number of outstanding shares of common stock to
approximately 90 million.
<PAGE>

4. Property and Equipment

Property and equipment consists of the following:
September 30,
Useful Life 2000
----------- ----------
Land - $ 120,000
Building and leasehold improvements 2-39 years 73,263
Furniture and equipment, including
equipment under capital leases 5-15 years 953,711
Less accumulated depreciation and
amortization (678,497)
----------
$ 468,477
==========
The following is a summary of equipment
under capital leases:
Equipment $ 359,020
Less accumulated amortization (328,095)
----------
$ 30,925
==========

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

5. Clinic Divestitures

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.

On December 3, 1999 an order was entered by the Bankruptcy Court to return
the Conyers, Georgia clinic to the previous owner in settlement of a
lawsuit. In compliance with the order, the Company recorded an asset
writeoff of accounts receivable and equipment of $125,000, and un-amortized
goodwill of $130,000. In return, the previous owner agreed to cancellation
of a note payable in the amount of $290,000. As a result, the Company
recognized a gain on disposition of $35,000. On February 4, 2000, the
Bankruptcy Court approved the sale of the McDonough, Georgia clinic assets,
excluding accounts receivable, for a $67,500 cash payment. The sales price
approximates the book value of the clinic equipment.

The net revenue and operating income (loss) from the Georgia clinics were
approximately $234,000 and $1,000 for fiscal 2000, and $1,336,000 and
$(827,000) for 1999.
<PAGE>

6. Advances and Notes Receivable

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. The
note was paid in full in February 2000.

7. Notes Payable

Description 9/30/1999 9/30/2000
--------- ---------
1. Demand notes payable to two directors in
connection with the return of 158,765 shares
of common stock. Interest rate is 8%. $ 187,568 $ -

2. Notes payable to physician in connection with
the Metropolitan clinic acquisition.
Collateral is accounts receivable and equipment. 313,699 -

3. Bridge loans 212,500 7,500

4. Note payable - 900,000

Other notes payable 12,647 -
--------- ---------
726,414 907,500
Current maturities (726,414) -
--------- ---------
Long-term notes payable $ - $ 907,500
========= =========

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. The principal balance as of
October 19,1999 in the amount of $187,568 is included in bankruptcy
claims as of September 30, 2000.

2. The note payable is to the physician, who was the former owner of the
Conyers Clinic, with a principal balance of $313,699 at September 30,
1999. The doctor filed a lawsuit for nonpayment in 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. The principal balance of the note
exceeded the book value of the clinic assets by approximately
$35,000.
<PAGE>

3. 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
8 "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. The principal balance for related party bridge loans as of
October 19, 1999 in the amount of $205,000 is included in bankruptcy
claims as of September 30, 2000.

4. The note payable is to an investment group, in which certain officers
and directors, and a beneficial owner of more than 5% of the common
stock have a financial interest. The note bears interest at 8% per
annum and is due August 31, 2002. As additional consideration, the
investment group was issued 9,000,000 shares of restricted common
stock with a fair value of $0.025 per share. These financing costs
are in Other Assets as of September 30, 2000 and are being amortized
over the term of the loan. On December 15, 2000, the investment
group provided an additional loan of $50,000 and received 500,000
shares of common stock as additional consideration. See Footnote 8
"Related Party Transactions."

8. 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 to related parties 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 to Mainstream 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.

Belair Capital Group, Ltd. ("Belair"), a Nevada limited liability company,
is the holder of a $900,000 note payable issued in connection with the
acquisition of three clinics in September 2000. In addition, the Company
issued 9,000,000 shares of common stock to Belair as further consideration.
See Footnote 7 "Notes Payable" and Footnote 2 "Clinic Acquisitions." The
note payable of $900,000 and the 9,000,000 shares of common stock are the
sole assets of Belair. The following shareholders are also members of
Belair: the president and CEO (45% member interest), a principal shareholder
and board member (14% member interest), and the seller of the clinics, a
beneficial owner of more than 5% of the outstanding stock at September 30,
2000 (28% member interest). On December 15, 2000, Belair provided an
additional loan of $50,000 and received 500,000 shares of common stock as
additional consideration.

On October 1, 2000, the Company entered into new employment agreements with
the President and CEO, the Chief Financial Officer and, a director of the
Company, who is also the director at one of the New Orleans, Louisiana
clinics. As consideration for entering into these agreements, the Company
issued 5,200,000 shares of common stock to the President and CEO, 500,000
shares of common stock to the CFO and 3,215,000 shares to the director
<PAGE>

9. Commitments

Rent expense for the years ended September 30, 1999 and 2000 amounted to
approximately $430,000 and $282,000, respectively. The Company also leases
equipment under capital leases with interest rates ranging from 9.0% to
10.0%. 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
------------------------ -------- -------
2001 $ 300,400 $ 61,600
2002 200,600 13,950
2003 132,200 -
2004 29,400 -
2005 - -
-------- -------
Total minimum lease $ 662,600 75,550
========
Future interest (9,685)
-------
65,865
Less current portion (53,365)
-------
Non-current portion $ 12,500
=======

The Company has a three-year employment agreement ending September 30, 2003
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 one year.

10. 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 24,1999 $1,300,594 of Debentures and $71,141 in
accrued interest were converted for 5,045,121 shares of common stock. The
conversion price per share ranged from $1.25 to $0.022 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.

As part of the Plan of Reorganization confirmed by the United States
Bankruptcy Court on August 8, 2000 and effective September 9, 2000, the
holders of the August 1998 Regulation D Debentures agreed to replace
debentures in the principal amount of $3,385,000 and accrued interest of
$312,000 as of October 19, 1999 with new three year debentures dated August
24, 2000. The issuance of these new debentures replaced and superceded any
prior debt obligation of the Company to the holders of the Regulation D
debentures. The new debentures are convertible into 20,475,000 shares of
common stock at the holders option at any time during the term of the
debentures.

Per the new debenture agreement, in satisfaction of its obligation, the
Company issued 20,475,000 shares of common stock on September 19, 2000 to an
escrow trustee designated by the debenture holders. At any time during the
three period ended August 24, 2003, upon receipt of a conversion notice from
the debenture holders, the escrow trustee will instruct the Company's
transfer agent to issue a portion of the 20,475,000 shares in the name of
individual debenture holders. Pursuant to Section 1145 of the United States
Bankruptcy Code, the shares then issued to the debenture holders are exempt
from registration under the Securities Act of 1933. Upon conversion by the
debenture holders of a specified number of the 20,475,000 shares held by the
escrow trustee, the Company will transfer a proportionate amount in dollars
of the $3,697,000 principal of the new debentures to common stock and
additional paid in capital included in stockholders' equity. Until the time
of conversion, the debenture holders will have no shareholder rights as to
the 20,475,000 issued by the Company in settlement of its obligation in
September 2000.

<PAGE>
<TABLE>
Following is a summary of debenture activity for the year ended September
30, 2000:

New Reg. D Total
--------- ---------- ---------
<S> <C> <C> <C>
Principal balance at $ - $ 3,385,000 $3,385,000
September 30, 1999
Replacement of debentures per Plan 3,385,000 (3,385,000) -
Reclassify accrued interest 312,000 - 312,000
--------- ---------- ---------
Principal balance at
September 30, 2000 $3,697,000 $ - $3,697,000
========= ========== =========
</TABLE>

11. Stockholders' Equity

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 7
"Notes Payable" and Footnote 8 "Related Party Transactions."

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.

In September 2000, the Company issued 34,000,000 shares of common stock in
connection with the acquisition of clinics. See Footnote 2 "Clinic
Acquisition" and Footnote 8 "Related Party Transactions."

In September 2000, the Company issued 9,000,000 shares in connection with
financing related to the acquisition of clinics. See Footnote 2 "Clinic
Acquisition", Footnote 7 "Notes Payable" and Footnote 8 "Related Party
Transactions."

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.
<PAGE>

12. 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.

The Company's trade receivables at September 30, 1999 and 2000 consist of
the following, stated as a percentage of total accounts receivable:

1999 2000
---- ----
Personal injury claims 78% 68%
Medical claims filed with insurance companies 13 18
Workman's compensation claims 8 14
Other claims 1 -
---- ----
100% 100%
==== ====

13. 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 bases of 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 in the consolidated balance sheet at September 30,
2000 are as follows:

Current Non-current
-------- -----------
Vacation accrual $ 3,300 $ -
Goodwill - 46,900
Contributions carry-forwards - 1,500
Net operating loss carry-forwards - 5,169,100
-------- -----------
Total assets 3,300 5,217,500
Less valuation allowance (3,300) (5,217,500)
-------- -----------
$ - $ -
======= ===========
<PAGE>

At September 30, 2000, the Company has net operating loss and contribution
carry forwards of approximately $13,784,000 and $3,900, 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 restrictions in the Company's
ability to utilize all of the net operating loss carry forwards imposed
by Section 382 of the Internal Code due to ownership changes resulting
from clinic acquisitions in September 2000. See Footnote 2 "Clinic
Acquisitions."

14. 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.

<TABLE>
The following schedule summarizes the changes in the Employee Plan and the
Director Plan for the two years ended September 30, 2000:

Option Price
--------------------------
Number of Per Share Total Option
Shares Price
--------- ---------- ----------
<S> <C> <C> <C>
Outstanding at September 30, 1998 937,833 $0.28 - $3.00 $ 1,688,100
(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 - $2.34 553,000
(1,134,500 exercisable)

For the year ended September 30, 2000:
Granted 777,500 $0.05 38,900
Cancelled 675,000 $0.05 - $2.00 188,800
Expired - - -
Exercised - - -
--------- ----------
Outstanding at September 30, 2000 1,237,000 $0.05 - $2.34 $ 403,100
(1,237,000 exercisable) ========= ==========
<PAGE>

(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.

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 income (loss) and net income (loss) per share would have been
as follows:
2000 1999
---- ----
As Reported Pro forma As Reported Pro forma
----------- --------- ----------- -----------
Net income (loss) $ 192,577 $ 138,275 $(2,843,888) $(2,862,480)
Net income (loss)
per share $ 0.01 $ 0.00 $ (0.12) $ (0.12)
<PAGE>

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 5.75% for 2000 and 5.5% for 1999; expected life 5 years for
2000 and 3 years for 1999; expected volatility 265% for 2000 and 298% for
1999; 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 $0.33 and $0.49 as of September 30, 2000 and 1999,
respectively. Since certain options have an indeterminable expiration, the
weighted average expiration date could not be determined.

15. 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, 2000,
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, 2000, 190,475 shares have been issued under the Executive Stock Bonus
Plan.

16. 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 expired December
31, 1999. As of September 30, 2000, 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.

17. 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 fair value of the
convertible debentures was estimated at the market value of 20,415,000
shares of common stock into which the debentures are convertible.

Carrying Value Fair Value
-------------- ----------
Long-term debt 907,500 907,500
Capital lease obligations 65,865 65,865
Bankruptcy claims 1,208,050 1,042,705
Convertible debentures 3,697,000 1,433,250
<PAGE>

18. Legal Proceedings

The Company has been named in other litigation. In Management's judgement,
the matters do not involve material amounts of exposure for the Company.

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

John C. Stuecheli 53 Chief Financial January 1999
Officer, Vice President
and Secretary

Jeffrey Jones, D.C. 39 Director March 1995

Michael R. Smith, M.D. 42 Director December 1996

John V. Mansfield 53 Director June 1998

James Roberts 41 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 18 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.

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.
<PAGE>

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, was employed by the Company from September 1994 to December 2000.
He provided medical services at two of the Company's clinics and served as
the Medical Director for the Company's Texas clinics. He continues to serve
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 Capital LLC since May 1997.
Harland Properties, Inc., a privately owned located in London, Ontario, is
engaged in the business of real property management, development and
consulting. Axis Capital LLC, a privately owned located in Atlanta,
Georgia, provides advisory services for companies in transition, including
start-ups, turnarounds, new growth initiatives and mergers and acquisitions.

James Roberts. Mr. Roberts became a Director of the Company in June
1998. He has been the Managing Director of The Center For Church-Based
Training, located in Dallas, Texas, since February 1999. He was the
President of Health Dental Plus, Inc. from September 1993 to January 1999.
Center For Church-Based Training, a non-profit organization, provides
advisory services to churches and other religious organizations. Health
Dental Plus, Inc. is engaged in the marketing of dental benefits plans to
employer groups and individuals.

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.
<PAGE>

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 aware of the following failures to file by
reporting persons.

(1) Dr. J. W. Stucki failed to file a form 4 for the sale of 100,000
shares on December 31, 1999 with a transaction value of $2,000.
(2) Dr. J. W. Stucki failed to file a form 4 for the sale of 75,000
shares between January 19, and January 25, 2000 with a transaction
value of $21,000.
(3) Dr. J. W. Stucki failed to file a form 5 for the purchase of 36,150
shares between April 25, and May 25, 2000 with a transaction value
of $9,000.
(4) Dr. Jeff Jones failed to file a form 4 for the sale of 70,000
shares on December 30, 1999 with a transaction value of $1,400.
(5) Dr. Jeff Jones failed to file a form 5 for the purchase of 4,150
shares on May 16, 2000 with a transaction value of $1,000.
(6) Dr. Michael Smith failed to file a form 4 for the sale of 17,000
shares on April 8, 2000 with a transaction value of $8,000.

Late Form 5's for the above transactons will be filed by January 31, 2001.

<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 Chief Financial Officer for the last three fiscal
years. No other executive officer of the Company who was serving at the end
of fiscal 2000 earned more than $100,000 of annual base compensation for
services in all capacities to the Company and its subsidiaries.

</TABLE>
<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 2000 262,950
Chairman of the Board, 1999 262,950 4,690 (1) 200,000 (3) 55,000 (4)
President and Chief
Executive Officer 1998 262,950 14,050 (1)

John C. Stuecheli 2000 101,250 42,500 (5)
Vice President, Chief
Financial Officer 1999 62,500
and Secretary 1998 - (2)

</TABLE>
___________________________
(1) Dr. Stucki was entitled to a stock bonus of 50,000 shares on June 1 of
each year of his employment agreement for the three year period ended
May31, 2000. The closing bid prices per share on June 1, 1998 and 1999
were $0.281 and $0.0938, respectively.

(2) 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 1998.

(3) 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 re-
priced options are reported as grants to Dr. Stucki in fiscal year
1999.

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

(5) Options granted under the Employee Plan in connection with a salary
reduction during the pendency of Chapter 11 Bankruptcy.
<PAGE>

Stock Option and Stock Purchase Plans

The following tables set forth the number of options granted to the
Company's Chief Executive Officer and Chief Financial Officer during fiscal
2000 and the value of the unexercised options held by them at September 30,
2000.

<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>
John C. Stuecheli 42,500 5% $0.05 9/1/05

____________________

Aggregate Option/SAR Exercises in Last Fiscal Year
And Fiscal 2000 Year-End Option/SAR Values

Number of
Securities Value of
Underlying Unexercised
Unexercised In-the Money
Options/SARs Options/SARs
Shares At FY-End (#) At FY-End ($)
Acquired Value
On Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
-------------------- ------------ -------- -------------- -------------
<S> <C> <C> <C> <C>
Dr. Joseph None None 200,000/ - $ 3,000 (1)
W. Stucki

John C. None None 42,500/ - $ 637 (1)
Stuecheli
____________________

(1) All options are exercisable. Value is based on the closing price per
share on December 31, 2000 as quoted on the OTC Bulletin Board of
$0.065.
</TABLE>
<PAGE>

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, 2000:

<TABLE>
Options
Granted/Shares Option Shares
Plan Issued Exercised
------------- ------- ---------
<S> <C> <C>
Employee Plan 987,000 0

Director Plan 250,000 0

Stock Purchase Plan 0 0

Executive Stock Bonus Plan 190,475 0

Consultant Plan 1 200,000 0

Consultant Plan 2 40,000 0
</TABLE>
<PAGE>

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, 2000, 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, 2000.

Employment Agreements

Effective October 1, 2000, 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. As added consideration for entering into the employment
agreement, Dr. Stucki received 5,200,000 shares of common stock. The shares
bear a "Rule 144" restrictive legend and are valued at $0.025 per share,
which is the estimated fair market value as of October 1, 2000. In
addition, at the end of each year of employment he will receive a number of
shares of the Company's common stock equivalent to $50,000 and, if the
Company reports EBITDA of $1,000,000 or more for the fiscal year ended
September 30, 2001, he will receive a performance bonus of $20,000. 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
twelve 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.

Effective October 1, 2000, United Chiropractic Clinic of Uptown, Inc.,
a subsidiary of the Company, entered into a two year employment agreement
with Dr. Jeffrey Jones as a clinic director providing chiropractic services
at the New Orleans Uptown clinic for an annual base salary of $150,000. As
added consideration for entering into the employment agreement, Dr. Jones
received 3,215,000 shares of common stock. The shares bear a "Rule 144"
restrictive legend and are valued at $0.025 per share, which is the
estimated fair market value as of October 1, 2000. He is also entitled to
standard employee benefits and a term life insurance policy of $500,000.
<PAGE>

Effective October 1, 2000, the Company entered into a three-year
employment agreement with John C. Stuecheli to serve as Chief Financial
Officer and Secretary of the Company for an annual base salary of $110,000.
As added consideration for entering into the employment agreement, Mr.
Stuecheli received 500,000 shares of common stock. The shares bear a "Rule
144" restrictive legend and are valued at $0.025 per share, which is the
estimated fair market value as of October 1, 2000. In addition, if the
Company reports EBITDA of $1,000,000 or more for the fiscal year ended
September 30, 2001, he will receive a performance bonus of $10,000.

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, 2000, 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
---------- -----
David P. Voracek, D.C.(1) 34,204,091 42.5%
2025 Tartan Trail
Highland Village, Texas 75077

Joseph W. Stucki, D.C.(2) 18,700,478 23.2%
1300 West Walnut Hill Lane, Suite 275
Irving, Texas 75038

Jeffrey Jones, D.C.(3) 8,499,902 10.54%
807 S. Carrollton Avenue
New Orleans, Louisiana 70118

John C. Stuecheli.(4) 643,000 *
1300 West Walnut Hill Lane Suite 275
Irving, Texas 75038

Michael R. Smith, M.D. 371,167 *
118 Canyon Circle
Boerne, Texas 78006

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

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

Officers and Directors as 28,224,047 34.9%
a group (6 persons)
__________________________
* Less than one percent.
<PAGE>
(1) The number of shares reported includes 1,650,000 shares owned of record
by Mainstream Enterprises LLC, a limited liability company, of which
Dr. Voracek is the sole member, 4,553,571 shares owned of record by
Acme Corpus Chiropractic Clinic, LLC, a limited liability company, of
which Dr. Voracek is a 50% member, 10,200,000 shares owned of record by
Laredo Family Enterprises, LLC, a limited liability company, of which
Dr. Voracek is the sole member, 15,300,000 shares owned of record by
Acme Chiropractic, LLC, a limited liability company, of which Dr.
Voracek is the sole member, and 2,480,520 shares owned of record by
Belair Capital Group, Ltd., a limited liability company, in which Dr.
Voracek has a 26% member interest.

(2) Dr. Stucki is the Chief Executive Officer, President and Chairman of
the Board of Directors of the Company. The number of shares reported
includes 4,308,000 shares owned of record by Belair Capital Group,
Ltd., a limited liability company, in which Dr. Stucki has a 45% member
interest and 200,000 shares issuable upon exercise of options at $0.05
per share, which are currently exercisable.

(3) Dr. Jones is a Director of the Company. The number of shares reported
includes 1,586,480 shares owned of record by Belair Capital Group,
Ltd., a limited liability company, in which Dr. Jones has a 17% member
interest and 110,000 shares issuable upon exercise of options at $0.05
per share, which are currently exercisable.

(4) Mr. Stuecheli is the Chief Financial Officer and Secretary of the
Company. The number of shares owned includes 42,500 shares issuable
upon exercise of options at $0.05 per share, which are currently
exercisable.

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.
<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 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.

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, 2000
(ii) Consolidated Statements of Operations for the years
ended September 30, 2000 and 1999.
(iii) Consolidated Statement of Stockholders' Equity for
the years ended September 30, 2000 and 1999.
(iv) Consolidated Statements of Cash Flows for the years
ended September 30, 2000 and 1999.
(v) Notes to Consolidated Financial Statements.

(2)
2.1 Debtors American HealthChoice, Inc. and AHC Physicians
Corp., Inc. Amended Joint Plan of reorganization dated March
31, 2000 (incorporated by reference to Exhibit 2.1 to Current
Report on Form 8-K dated September 25, 2000).

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
referenceto 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>

4.5 Security Agreement dated August 19, 2000 between American
HealthChoice, Inc. and Southridge Capital LLC in its capacity
as collateral agent for Sovereign Partners, L.P., Dominion
Capital Fund, Ltd., Canadian Advantage Limited Partnership,
and Atlantis Capital Fund. (incorporated by reference to
Exhibit 4.1 to Current Report on Form 8-K dated September 25,
2000).

4.6 8% Senior Secured Convertible Debenture due August 19, 2003.
(incorporated by reference to Exhibit 4.2 to Current Report
on Form 8-K dated September 25, 2000).

4.7 Stock Trust and Escrow Agreement entered into as of August
19, 2000 by and between American HealthChoice, Inc.,
Sovereign Partners, L.P., Dominion Capital Fund, Ltd.,
Canadian Advantage Limited Partnership, Atlantis Capital Fund
and Krieger & Prager, LLP. (incorporated by reference to
Exhibit 4.3 to Current Report on Form 8-K dated September 25,
2000).

10.3 1995 Non-Employee Director Stock Option Plan (incorporated
by reference to Exhibit 10.1 to Form10-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).
<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 (incorporated by
reference to Exhibit 10.15 to Form 10-KSB, file number 000-
26740, filed for the fiscal year ended September 30, 1999).

10.16 Demand Note dated June 25, 1999 between American
HealthChoice, Inc. and Dr. J. W. Stucki (incorporated by
reference to Exhibit 10.16 to Form 10-KSB, file number 000-
26740, filed for the fiscal year ended September 30, 1999).

10.17 Demand Note dated April 30, 1999 between American
HealthChoice, Inc. and Mainstream Enterprises, LLC
(incorporated by reference to Exhibit 10.17 to Form 10-KSB,
file number 000-26740, filed for the fiscal year ended
September 30, 1999).

10.18 Demand Note dated May 25, 1999 between American
HealthChoice, Inc. and Mainstream Enterprises, LLC
(incorporated by reference to Exhibit 10.18 to Form 10-KSB,
file number 000-26740, filed for the fiscal year ended
September 30, 1999).

10.19 Demand Note dated May 10, 1999 between American
HealthChoice, Inc. and Mainstream Enterprises, LLC
(incorporated by reference to Exhibit 10.19 to Form 10-KSB,
file number 000-26740, filed for the fiscal year ended
September 30, 1999).

10.20 Demand Note dated June 15, 1999 between American
HealthChoice, Inc. and Mainstream Enterprises, LLC
(incorporated by reference to Exhibit 10.20 to Form 10-KSB,
file number 000-26740, filed for the fiscal year ended
September 30, 1999).

10.21 Demand Note dated July 1, 1999 between American
HealthChoice, Inc. and Mainstream Enterprises, LLC
(incorporated by reference to Exhibit 10.21 to Form 10-KSB,
file number 000-26740, filed for the fiscal year ended
September 30, 1999).

10.22 Demand Note dated July 10, 1999 between American
HealthChoice, Inc. and Mainstream Enterprises, LLC
(incorporated by reference to Exhibit 10.22 to Form 10-KSB,
file number 000-26740, filed for the fiscal year ended
September 30, 1999).
<PAGE>

10.23 Demand Note dated August 8, 1999 between American
HealthChoice, Inc. and Dr. J. W. Stucki (incorporated by
reference to Exhibit 10.23 to Form 10-KSB, file number 000-
26740, filed for the fiscal year ended September 30, 1999).

10.24 Asset Sale and Purchase Agreement dated September 1, 2000 by
and between Acme Corpus Chiropractic Clinic, LLC, Laredo
Family Enterprises, LLC, Acme Chiropractic Clinic, LLC and
American HealthChoice, Inc.*

10.25 Loan Agreement dated September 1, 2000 between Belair
Capital, Ltd. and American HealthChoice, Inc.*

10.26 Employment Agreement effective October 1, 2000 between Dr.
J. W. Stucki and American HealthChoice, Inc.*

10.27 Employment Agreement effective October 1, 2000 between Dr.
Jeffrey Jones and American HealthChoice, Inc.*

10.28 Employment Agreement effective October 1, 2000 between John
C. Stuecheli and American HealthChoice, Inc.*

10.29 Laredo Family Enterprises, LLC Financial Statements for the
twelve months ended December 31, 1999*

10.30 San Benito Chiropractic Clinic, LLC Financial Statements for
the twelve months ended December 31, 1999*

10.31 Acme Corpus Chiropractic Clinic, LLC Financial Statements
for the twelve months ended December 31, 1999*

21 List of Subsidiaries of American HealthChoice, Inc.*

23.1 Consent of Certified Public Accountants*

27 Financial Data Schedule*

* Filed herewith

(b) The Company filed a Form 8-K on September 25, 2000 relating to the
approval of the Plan of Reorganization.
<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 16, 2001 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 16, 2001

/s/ John C. Stuecheli Chief Financial Officer and
John C. Stuecheli Vice President-Finance
(Principal Financial and
Accounting Officer) January 16, 2001

/s/ John V. Mansfield Director, Chairman of Audit
John V. Mansfield Committee January 16, 2001

/s/ James Roberts Director
James Roberts January 16, 2001

/s/ Dr. Jeff Jones Director
Dr. Jeff Jones January 16, 2001

/s/ Dr. Michael Smith Director
Dr. Michael Smith January 16, 2001