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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-K/A

Amendment No. 1



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(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------



For the fiscal year ended December 31, 2004



or



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



For the transition period from
 to



Commission file number: 000-50802



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RADIATION THERAPY SERVICES, INC.

(Exact Name of Registrant as Specified in its Charter)



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|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|Florida                                                       |  | 65-0768951                         
|(State or Other Jurisdiction ofIncorporation or Organization) |  | (I.R.S. EmployerIdentification No.)
|                                                              | 
|2234 Colonial Boulevard Fort Myers, Florida                   |  | 33907                              
|(Address Of Principal Executive Offices)                      |  | (Zip Code)                         



(239) 931-7275

(Registrants Telephone Number, Including Area Code)



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



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



Common Stock, par value $.0001 per share

(Title of Class)



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Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 ̈



Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K/A or any amendment to this
Form 10-K/A. ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ̈No x



The aggregate market value of the shares of common stock of Radiation Therapy Services, Inc. held by non-affiliates based upon the closing price on June
30, 2004, was approximately $152.2 million.



As of February 1,
2005, the number of outstanding shares of common stock of Radiation Therapy Services, Inc. was 22,576,274.



DOCUMENTS INCORPORATED BY REFERENCE



Portions of the definitive proxy statement for our annual meeting of shareholders, which we expect to file with the Securities and Exchange Commission
within 120 days after December 31, 2004, are incorporated by reference into Part III of this report.



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Explanatory Note



The sole purpose of this Amendment No. 1 on Form 10-K/A to the Annual
Report of Form 10-K of Radiation Therapy Services, Inc. for the fiscal year ended December 31, 2004 is to correct and restate our previously issued consolidated financial statements for the fiscal years 2004, 2003, and 2002 and related disclosures
as described in Note 2 to the consolidated financial statements. We are correcting our lease accounting practices for certain leases with fixed-rent escalations to straight-line the expense of the escalations over the lease period and we are
correcting the depreciation expense for certain leasehold improvements over the lease period in accordance with generally accepted accounting principles as clarified by the Office of the Chief Accountant of the SEC on February 7, 2005 in a letter to
the American Institute of Certified Public Accountants. Additional information about the decision to correct and restate these financial statements can be found in our Current Report on Form 8-K, filed with the SEC on May 5, 2005.



The only changes in this Form 10-K/A from the original Form 10-K filed on February 18, 2005
are those caused by the restatement. This Form 10-K/A continues to speak as of the date of our original Form 10-K and we have not updated the disclosures to speak as of a later date or to reflect subsequent results, events or developments.
Information not affected by the restatement is unchanged and reflects the disclosures made at the time of the filing of the original Form 10-K. Accordingly, this Form 10-K/A should be read in conjunction with our SEC filings made subsequent to the
February 18, 2005 filing of the original Form 10-K, including any amendments to those filings. The following items have been amended as a result of the restatement and are included in this Form 10-K/A:



| |  |  | Part II  Item 6  Selected Financial Data
| | - |  | ------------------------------------------



| |  |  | Part II  Item 7  Managements Discussion and Analysis of Financial Condition and Results of Operations
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | Part II  Item 8  Financial Statements and Supplementary Data
| | - |  | --------------------------------------------------------------



| |  |  | Part II  Item 9A  Controls and Procedures
| | - |  | -------------------------------------------



| |  |  | Part IV  Item 15  Exhibits and Financial Statement Schedules and Reports on Form 8-K
| | - |  | --------------------------------------------------------------------------------------



Pursuant to the rules of the SEC, Item 15 of Part IV has been amended to contain the currently dated consent of our independent registered
public accounting firm and currently dated certifications from our chief executive officer and chief financial officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The consent of the independent registered public
accounting firm and the certifications of our chief executive officer and chief financial officer are attached to this Form 10-K/A as Exhibits 23.1, 31.1, 31.2, 32.1 and 32.2 respectively.



We are also concurrently filing amendments to our previously filed Quarterly Reports on Form
10-Q for the fiscal quarters ended June 30, 2004 and September 30, 2004 to correct and restate the consolidated financial statements contained therein and related disclosures. For this reason, the consolidated financial statements and related
financial information for the affected periods contained in the prior reports should no longer be relied upon.



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TABLE OF CONTENTS



|                                                                                              |  |    
|--------------------------------------------------------------------------------------------- |  | ---
|PART II                                                                                       |  |    
|Item 6. Selected Financial Data                                                               |  | 4  
|Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 6  
|Item 8. Financial Statements and Supplementary Data                                           |  | 24 
|Item 9A. Controls and Procedures                                                              |  | 24 
|                                                                                              | 
|PART IV                                                                                       |  |    
|Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                      |  | 26 
|CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME                                    |  | F-3
|CONSOLIDATED BALANCE SHEETS                                                                   |  | F-4
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                         |  | F-5
|CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY                                               |  | F-7
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004                                  |  | F-8
|                                                                                              | 
|SIGNATURES                                                                                    |  |    
|Ex-23.1 Consent of Ernst & Young LLP                                                          |  |    
|Ex-31.1 Section 302 Certification of the CEO                                                  |  |    
|Ex-31.2 Section 302 Certification of the CFO                                                  |  |    
|Ex-32.1 Section 906 Certification of the CEO                                                  |  |    
|Ex-32.2 Section 906 Certification of the CFO                                                  |  |    



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|Item 6. | Selected Financial Data
|------- | -----------------------



The historical results presented below are not necessarily indicative of the results to be expected for any future period. You should read the information
set forth below in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and the related notes included elsewhere in this Form 10-K/A.



|                                                                                   |  |                         |            |   |            |   |            |            |  |   |            |   |  |            |            |   |  |   |           
|---------------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ---------- | - | ---------- | ---------- |  | - | ---------- | - |  | ---------- | ---------- | - |  | - | ----------
|                                                                                   |  | Year Ended December 31,
|(Dollars in thousands, except per share amounts):                                  |  | 2000                    |            |   | 2001       |   |            | 2002       |  |   | 2003       |   |  | 2004      
|                                                                                   |  | (Restated)              |            |   | (Restated) |   |            | (Restated) |  |   | (Restated) |   |  | (Restated)
|Consolidated Statements of Income Data:                                            |  |                         |            |   |            |   |            |            |  |   |            |   |  |            |            |   |  |   |           
|Revenues:                                                                          |  |                         |            |   |            |   |            |            |  |   |            |   |  |            |            |   |  |   |           
|Net patient service revenue                                                        |  | $                       | 64,239     |   |            | $ | 73,934     |            |  | $ | 104,438    |   |  | $          | 129,197    |   |  | $ | 161,349   
|Other revenue                                                                      |  |                         | 3,961      |   |            |   | 4,364      |            |  |   | 6,682      |   |  |            | 9,483      |   |  |   | 10,024    
|                                                                                   |  |                         |            |   |            |   |            |            |  |   |            |   |  |            |            |   |  |   |           
|Total revenues                                                                     |  |                         | 68,200     |   |            |   | 78,298     |            |  |   | 111,120    |   |  |            | 138,680    |   |  |   | 171,373   
|Expenses:                                                                          |  |                         |            |   |            |   |            |            |  |   |            |   |  |            |            |   |  |   |           
|Salaries and benefits                                                              |  |                         | 35,747     |   |            |   | 41,680     |            |  |   | 57,248     |   |  |            | 72,146     |   |  |   | 87,059    
|Medical supplies                                                                   |  |                         | 2,467      |   |            |   | 1,273      |            |  |   | 2,312      |   |  |            | 2,226      |   |  |   | 3,608     
|Facility rent expenses                                                             |  |                         | 1,654      |   |            |   | 2,145      |            |  |   | 3,744      |   |  |            | 4,656      |   |  |   | 5,347     
|Other operating expenses                                                           |  |                         | 3,198      |   |            |   | 4,414      |            |  |   | 7,194      |   |  |            | 8,690      |   |  |   | 7,561     
|General and administrative expenses                                                |  |                         | 6,493      |   |            |   | 6,854      |            |  |   | 10,475     |   |  |            | 16,400     |   |  |   | 19,671    
|Depreciation and amortization                                                      |  |                         | 3,924      |   |            |   | 4,064      |            |  |   | 4,283      |   |  |            | 5,202      |   |  |   | 6,860     
|Provision for doubtful accounts                                                    |  |                         | 2,158      |   |            |   | 2,018      |            |  |   | 3,365      |   |  |            | 3,375      |   |  |   | 5,852     
|Interest expense, net                                                              |  |                         | 3,930      |   |            |   | 3,980      |            |  |   | 2,615      |   |  |            | 2,053      |   |  |   | 3,435     
|Impairment loss                                                                    |  |                         |           |   |            |   |           |            |  |   |           |   |  |            | 284        |   |  |   |          
|                                                                                   |  |                         |            |   |            |   |            |            |  |   |            |   |  |            |            |   |  |   |           
|Total expenses                                                                     |  |                         | 59,571     |   |            |   | 66,428     |            |  |   | 91,236     |   |  |            | 115,032    |   |  |   | 139,393   
|                                                                                   |  |                         |            |   |            |   |            |            |  |   |            |   |  |            |            |   |  |   |           
|Income before minority interests                                                   |  |                         | 8,629      |   |            |   | 11,870     |            |  |   | 19,884     |   |  |            | 23,648     |   |  |   | 31,980    
|Minority interests in net (earnings) losses of consolidated entities               |  |                         | (200       | ) |            |   | 1          |            |  |   | 23         |   |  |            | (7         | ) |  |   | 55        
|                                                                                   |  |                         |            |   |            |   |            |            |  |   |            |   |  |            |            |   |  |   |           
|Income before cumulative effect of change in accounting principle and income taxes |  |                         | 8,429      |   |            |   | 11,871     |            |  |   | 19,907     |   |  |            | 23,641     |   |  |   | 32,035    
|Cumulative effect of change in accounting principle                                |  |                         |           |   |            |   | (408       | )          |  |   | (963       | ) |  |            |           |   |  |   |          
|                                                                                   |  |                         |            |   |            |   |            |            |  |   |            |   |  |            |            |   |  |   |           
|Income before income taxes                                                         |  |                         | 8,429      |   |            |   | 11,463     |            |  |   | 18,944     |   |  |            | 23,641     |   |  |   | 32,035    
|Income tax expense                                                                 |  |                         |           |   |            |   |           |            |  |   |           |   |  |            |           |   |  |   | 22,847    
|                                                                                   |  |                         |            |   |            |   |            |            |  |   |            |   |  |            |            |   |  |   |           
|Net income                                                                         |  | $                       | 8,429      |   |            | $ | 11,463     |            |  | $ | 18,944     |   |  | $          | 23,641     |   |  | $ | 9,188     
|Pro forma income data:                                                             |  |                         |            |   |            |   |            |            |  |   |            |   |  |            |            |   |  |   |           
|Income before provision for income taxes, as reported                              |  | $                       | 8,429      |   |            | $ | 11,463     |            |  | $ | 18,944     |   |  | $          | 23,641     |   |  | $ | 32,035    
|Pro forma provision for income taxes (1)                                           |  |                         | 3,372      |   |            |   | 4,720      |            |  |   | 7,966      |   |  |            | 9,456      |   |  |   | 12,814    
|                                                                                   |  |                         |            |   |            |   |            |            |  |   |            |   |  |            |            |   |  |   |           
|Pro forma net income                                                               |  | $                       | 5,057      |   |            | $ | 6,743      |            |  | $ | 10,978     |   |  | $          | 14,185     |   |  | $ | 19,221    
|                                                                                   |  |                         |            |   |            |   |            |            |  |   |            |   |  |            |            |   |  |   |           
|Pro forma earnings per common share (1)                                            |  |                         |            |   |            |   |            |            |  |   |            |   |  |            |            |   |  |   |           
|Basic                                                                              |  | $                       | 0.31       |   |            | $ | 0.41       |            |  | $ | 0.66       |   |  | $          | 0.84       |   |  | $ | 0.95      
|Diluted                                                                            |  | $                       | 0.30       |   |            | $ | 0.38       |            |  | $ | 0.60       |   |  | $          | 0.77       |   |  | $ | 0.91      
|Weighted average common shares outstanding:                                        |  |                         |            |   |            |   |            |            |  |   |            |   |  |            |            |   |  |   |           
|Basic                                                                              |  |                         | 16,338,249 |   |            |   | 16,364,574 |            |  |   | 16,653,542 |   |  |            | 16,974,471 |   |  |   | 20,292,117
|Diluted                                                                            |  |                         | 17,029,609 |   |            |   | 17,743,638 |            |  |   | 18,265,182 |   |  |            | 18,470,880 |   |  |   | 21,031,968



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|                                 |  |                    |        |            |   |            |  |            |         |            |   |         |  |   |        
|-------------------------------- |  | ------------------ | ------ | ---------- | - | ---------- |  | ---------- | ------- | ---------- | - | ------- |  | - | -------
|                                 |  | As of December 31,
|(In thousands):                  |  | 2000               |        | 2001       |   | 2002       |  | 2003       |         | 2004      
|                                 |  | (Restated)         |        | (Restated) |   | (Restated) |  | (Restated) |         | (Restated)
|Consolidated Balance Sheet Data: |  |                    |        |            |   |            |  |            |         |            |   |         |  |   |        
|Cash and cash equivalents        |  | $                  | 3,650  |            | $ | 1,698      |  | $          | 4,294   |            | $ | 2,606   |  | $ | 5,019  
|Total assets                     |  |                    | 74,853 |            |   | 78,210     |  |            | 102,783 |            |   | 128,036 |  |   | 168,177
|Total debt                       |  |                    | 44,628 |            |   | 40,411     |  |            | 51,342  |            |   | 59,811  |  |   | 66,103 
|Total shareholders equity       |  |                    | 23,190 |            |   | 27,840     |  |            | 37,208  |            |   | 49,578  |  |   | 66,320 

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|(1) | Reflects combined federal and state income taxes on a pro forma basis, as if we had been taxed as a C Corporation. See the consolidated statements of income and comprehensive income
and note 17 Pro forma disclosure of the notes to the consolidated financial statements.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------



FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The following discussion and analysis should be read in conjunction with
the Selected Consolidated Financial Data  and the consolidated financial statements and related notes included elsewhere in this Form 10-K/A. This section of the Form 10-K/A contains forward-looking statements that involve substantial
risks and uncertainties, such as statements about our plans, objectives, expectations and intentions. We use words such as expect, anticipate, plan, believe, seek, estimate,
intend, future and similar expressions to identify forward-looking statements. In particular, statements that we make in this section relating to the sufficiency of anticipated sources of capital to meet our cash requirements
are forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including as a result of some of the factors described below and in the section titled Risk
Factors. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Form 10-K/A.



Following a review of the Companys lease accounting practices in the first quarter of 2005, the Company corrected its method of accounting for
leases related to treatment centers that are located on leased land as well as for certain treatment centers with operating leases. To reflect this correction, the Company restated its consolidated financial statements as of December 31, 2000.



Historically, when accounting for leases with annual
fixed-rent escalations, the Company recorded rent expense each year on the basis of the actual scheduled rent payment for each year rather than on a straight-line basis. Depreciation of certain leasehold improvements on those properties occurred
over a period that exceeded the initial non-cancelable lease period and the renewal options.



The Company revised its accounting to recognize rent expense on a straight-line basis over the expected lease term, including cancelable option periods where failure to exercise such options would result in a
significant economic penalty. Additionally, the Company corrected the depreciable lives of certain of its leasehold improvements that were being amortized over a period exceeding the applicable lease period and recognized additional depreciation
expense in all prior periods affected. The Restatement is further discussed in the Explanatory Note in the forepart of this Form 10-K/A and in Note 2, Restatement of Previously Issued Financial Statements under Notes to
Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data of this Form 10-K/A.



The cumulative amount of the restatement through fiscal 2004 is an increase in deferred rent liability of $1.3 million, an increase in accumulated
depreciation of $0.4 million, an increase in income taxes receivable of $0.1 million and a decrease in deferred income tax liabilities of $0.6 million. As a result, retained deficit at the end of fiscal 2004 increased by $1.0 million. Rent expense
for fiscal years ended 2004, 2003 and 2002 increased by $149,000, $177,000, and $227,000, respectively. The restatement increased reported diluted net income per common share by $0.02 for fiscal year ended December 31, 2004, and decreased reported
diluted net income per common share by $0.02 for each of the fiscal years ended December 31, 2003 and 2002. The restatement did not have any impact on our previously reported cash flows for any of the above referenced years as the net impact for
each year is zero.



Overview



We own, operate and manage treatment centers focused principally on providing
radiation treatment alternatives ranging from conventional external beam radiation to newer, technologically-advanced options. We believe we are the largest company in the United States focused principally on providing radiation therapy. We opened
our first radiation treatment center in 1983 and currently provide radiation therapy services in 56 treatment centers. Our treatment centers are clustered into 19 regional networks in 10 states, including Alabama, Delaware, Florida, Kentucky,
Maryland, Nevada, New Jersey, New York, North Carolina, and Rhode Island. Of these 56 treatment centers, 21 treatment centers were internally developed, 25 were acquired and 10 involve hospital-based treatment centers.



We use a number of metrics to assist management in evaluating financial
condition and operating performance, the most important follow:



| |  |  | The number of external beam treatments delivered per day in our freestanding centers
| | - |  | ------------------------------------------------------------------------------------



| |  |  | The average revenue per external beam treatment in our freestanding centers
| | - |  | ---------------------------------------------------------------------------



| |  |  | The ratio of funded debt to earnings before interest, taxes, depreciation and amortization (leverage ratio)
| | - |  | -----------------------------------------------------------------------------------------------------------



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The principal costs of operating a treatment center are (1) the salary and benefits of the physician and
technical staff, and (2) equipment and facility costs. The capacity of each physician and technical position is limited to a number of delivered treatments while equipment and facility costs for a treatment center are generally fixed. These capacity
factors cause profitability to be very sensitive to treatment volume. Profitability will tend to increase as the available staff and equipment capacities are utilized.



The average revenue per external beam treatment is sensitive to the mix of services used in treating a patients tumor.
The reimbursement rates set by Medicare and commercial payers tend to be higher for the more advanced treatment technologies, reflecting their higher complexity. This metric is used by management to evaluate the utilization of newer technologies
that improve outcomes for patients. A key part of our business strategy is to implement advanced technologies once supporting economics are available. For example, we have a pilot image-guided radiation therapy program using kV x-rays in one of our
centers and believe that expanded reimbursement for the technology, effective January 1, 2005 only available in hospital outpatient settings, will accelerate the implementation of this new technology across our regional networks.



The reimbursement for radiation therapy services includes a professional
component for the physicians service and a technical component to cover the costs of the machine, facility and services provided by the technical staff. In our freestanding centers we provide both services while in a hospital-based center the
hospital, rather than us, provides the technical services. Fees that we receive from the hospital for services they purchase from us are included in other revenue in our consolidated statements of income and comprehensive income. Net patient service
revenue in our consolidated statements of income is derived from our freestanding centers and from the professional services provided by our doctors in hospital-based centers.



For the year ended December 31, 2004, our total revenues and pro forma net income grew by 23.6% and 35.5%, respectively,
over the prior year. For the year ended December 31, 2004, we had total revenues of $171.4 million and pro forma net income of $19.2 million. Pro forma net income gives effect to taxes as if we had been taxed as a C corporation for the entire year.



Our results of operations historically have fluctuated on a
quarterly basis and can be expected to continue to fluctuate. Many of the patients of our Florida treatment centers are part-time residents in Florida during the winter months. Hence, these treatment centers have historically experienced higher
utilization rates during the winter months than during the remainder of the year. In addition, referrals are typically lower in the summer months due to traditional vacation periods.



The following table summarizes our growth in treatment centers and the regional networks in which we operate:



|                                         |  |                         |  |      |  |      |  
|---------------------------------------- |  | ----------------------- |  | ---- |  | ---- | -
|                                         |  | Year Ended December 31, | 
|                                         |  | 2002                    |  | 2003 |  | 2004 |  
|Treatment centers at beginning of period |  | 28                      |  | 40   |  | 51   |  
|Internally developed                     |  | 3                       |  | 2    |  | 3    |  
|Acquired                                 |  | 6                       |  | 6    |  | 3    |  
|Hospital-based                           |  | 3                       |  | 3    |  | (1   | )
|                                         |  |                         |  |      |  |      |  
|Treatment centers at period end          |  | 40                      |  | 51   |  | 56   |  
|                                         |  |                         |  |      |  |      |  
|Regional networks at period end          |  | 13                      |  | 17   |  | 19   |  



We added a new
internally developed treatment center during the quarter ended June 30, 2004 replacing services we previously provided through a hospital-based treatment center.



In September and October 2004, we acquired the operations and medical and office equipment of three radiation centers in New
Jersey. These centers are established practices and offer radiation therapies to patients residing in Burlington and Camden Counties. We plan to upgrade these facilities with advanced technologies and equipment, expanding available treatment
options.



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The following table summarizes key operating statistics of our results of operations for the periods
presented:



|                                                                                               |  |                               |   |  |         |   |  |                               |      |  |         |      |  |      |   |  |      |  
|---------------------------------------------------------------------------------------------- |  | ----------------------------- | - |  | ------- | - |  | ----------------------------- | ---- |  | ------- | ---- |  | ---- | - |  | ---- | -
|                                                                                               |  | Three MonthsEndedDecember 31, |   |  | %Change |   |  | For The YearEndedDecember 31, |      |  | %Change |     
|                                                                                               |  | 2004                          |   |  | 2003    |   |  |                               | 2004 |  |         | 2003 |  |     
|External beam treatments per dayfreestanding centers                                          |  | 1,079                         |   |  | 933     |   |  | 15.6                          | %    |  | 1,052   |      |  | 905  |   |  | 16.2 | %
|Percentage change in external beam treatments per dayfreestanding centerssame practice basis |  | 3.4                           | % |  | -4.5    | % |  |                               |      |  | 1.8     | %    |  | -1.4 | % |  |      |  
|Percentage change in total revenuessame practice basis                                        |  | 21.6                          | % |  | 2.7     | % |  |                               |      |  | 14.0    | %    |  | 22.2 | % |  |      |  
|Regional networks at period end                                                                |  | 19                            |   |  | 17      |   |  | 11.8                          | %    |  |         |      |  |      |   |  |      |  
|Treatment centersfreestanding                                                                 |  | 46                            |   |  | 40      |   |  | 15.0                          | %    |  |         |      |  |      |   |  |      |  
|Treatment centershospital                                                                     |  | 10                            |   |  | 11      |   |  | -9.1                          | %    |  |         |      |  |      |   |  |      |  
|                                                                                               |  |                               |   |  |         |   |  |                               |      |  |         |      |  |      |   |  |      |  
|                                                                                               |  | 56                            |   |  | 51      |   |  | 9.8                           | %    |  |         |      |  |      |   |  |      |  
|                                                                                               |  |                               |   |  |         |   |  |                               |      |  |         |      |  |      |   |  |      |  
|Days sales outstanding for the quarter                                                         |  | 53                            |   |  | 57      |   |  |                               |      |  |         |      |  |      |   |  |      |  



Our revenue growth is
primarily driven by entering new markets, increasing the utilization of our existing centers and by benefiting from demographic and population trends in most of our regional markets. New centers are added to existing markets based on capacity,
convenience, and competitive considerations. Over the past three years, we have entered 7 new regional markets and added 28 treatment centers, of which 8 were internally developed, 15 were acquired and 5 were hospital-based. Our net income growth is
primarily driven by revenue growth and the leveraging of our technical and administrative infrastructures.



For the year ended December 31, 2004, net patient service revenue comprised 94.0% of our total revenues. In a state where we can employ radiation
oncologists, we derive our net patient service revenue through fees earned for the provision of the professional and technical fees of radiation therapy services. In states where we do not employ radiation oncologists, we derive our administrative
services fees principally from administrative services agreements with professional corporations. In 32 of our radiation treatment centers we employ the physicians, and in 24 we operate pursuant to administrative service agreements. In accordance
with Financial Accounting Standards Board revised Interpretation No. 46R (FIN No. 46R), we consolidate the operating results of the professional corporations for which we provide administrative services into our own operating results. In 2004, 28.7%
of our net patient service revenue was generated by professional corporations with which we have administrative services agreements.



In states which prohibit us from employing physicians, we have long-term administrative services agreements with professional corporations owned by
certain of our directors, officers and principal shareholders, who are licensed to practice medicine in such states. We have entered into these administrative services agreements in order to comply with the laws of such states. Our administrative
services agreements generally obligate us to provide treatment center facilities, staff and equipment, accounting services, billing and collection services, management and administrative personnel, assistance in managed care contracting and
assistance in marketing services. We receive a monthly fixed fee for our services and the fees are set at the beginning of each year on the basis of the estimated cost of these services plus a profit margin. We engaged an independent consultant to
complete a fair market value review of the fees paid by related party professional service corporations to the Company under the terms of these agreements. The consulting firm completed a review of 2004 fees under these agreements and determined
that the fees are at fair market value. Independent consultants will be utilized by the Companys audit committee in determining fair market fees upon any renewal or new administrative services agreements with affiliates.



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For the year ended December 31, 2004, other revenue comprised approximately 6.0% of our total revenues.
Other revenue is primarily derived from management services provided to hospital radiation therapy departments, technical services provided to hospital radiation therapy departments, billing services provided to non-affiliated physicians and income
for equipment leased by joint venture entities.



Medicare is a
major funding source for the services we provide and government reimbursement developments can have a material effect on operating performance. These developments include the reimbursement amount for each CPT service (current procedural terminology)
that we provide and the specific CPT services covered by Medicare including advances in technology. The Centers for Medicare and Medicaid Services (CMS), the government agency responsible for administering the Medicare program, administers an annual
process for considering changes in reimbursement rates and covered services. We have played and will continue to play a role in that process both directly and through the radiation oncology professional societies. Effective January 1, 2005, Medicare
will reimburse for kV x-rays used in delivering image-guided radiation therapy. We believe this development will likely lead to future reimbursement for this technology in a freestanding setting.



Other material factors that we believe will also impact our future financial
performance include:



| |  |  | Increased costs associated with being a new public company including compliance with Sarbanes-Oxley Section 404 reporting on internal controls.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Increased costs associated with expected changes in the accounting for stock compensation.
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | State income tax exposure as a result of the termination of our Sub S corporation election.
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | Proposed changes in accounting for business combinations requiring that all acquisition-related costs be expensed as incurred.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



Acquisitions and Developments



We expect to continue to acquire and develop treatment centers in connection
with the implementation of our growth strategy. Over the past three years, we have acquired 15 treatment centers and internally developed 8 treatment centers.



In 2002, we acquired six treatment centers for total consideration of $11.9 million, we opened three internally developed treatment centers, we signed
agreements to provide services to two hospital-based treatment centers and we began providing services to patients at a hospital-based treatment center under an open staff arrangement. Of these 12 treatment centers, seven were located in two new
regional networks and five were located in existing regions.



In 2003, we acquired six treatment centers for total consideration of $11.1 million, we opened two internally developed treatment centers and we signed agreements to provide services to three hospital-based treatment centers. Of these 11
treatment centers, six were located in four new regional networks and five were located in existing regions.



On June 23, 2004 we acquired the assets of Devoto Construction, Inc., which was owned by certain of our directors and officers for approximately
$3,528,000 with the issuance of 271,385 shares of our common stock. Devoto Construction, Inc. performs remodeling and real property improvements at our medical facilities and specializes in the construction of radiation medical facilities.



In 2004, we acquired three treatment centers in the state of
New Jersey for a total consideration of $10.6 million, and we opened three internally developed treatment centers. One of these internally developed treatment centers replaced services we had previously provided through a hospital-based center.



The operations of the foregoing acquisitions have been
included in the accompanying consolidated statements of income from the respective dates of each acquisition. When we acquire a treatment center, the purchase price is allocated to the assets acquired and liabilities assumed based upon their
respective fair values.



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Sources of Revenue By
Payor



We receive payments for our services rendered to
patients from the government Medicare and Medicaid programs, commercial insurers, managed care organizations and our patients directly. Generally, our revenue is determined by a number of factors, including the payor mix, the number and nature of
procedures performed and the rate of payment for the procedures. The following table sets forth the percentage of our net patient service revenue we earned by category of payor in our last three fiscal years.



|                                  |  |                          |   |  |       |   |  |       |  
|--------------------------------- |  | ------------------------ | - |  | ----- | - |  | ----- | -
|                                  |  | Years Ended December 31, |  
|Payor                             |  | 2002                     |   |  | 2003  |   |  | 2004  |  
|Medicare and Medicaid             |  | 53.8                     | % |  | 55.4  | % |  | 53.0  | %
|Commercial                        |  | 44.8                     |   |  | 43.2  |   |  | 45.5  |  
|Self pay                          |  | 1.4                      |   |  | 1.4   |   |  | 1.5   |  
|                                  |  |                          |   |  |       |   |  |       |  
|Total net patient service revenue |  | 100.0                    | % |  | 100.0 | % |  | 100.0 | %
|                                  |  |                          |   |  |       |   |  |       |  



Medicare and Medicaid



Since cancer disproportionately affects elderly
people, a significant portion of our net patient service revenue is derived from the Medicare program as well as related co-payments. Medicare reimbursement rates are determined by the Centers for Medicare and Medicaid Services (CMS) and are lower
than our normal charges. Medicaid reimbursement rates are typically lower than Medicare rates; Medicaid payments represent less than 1% of our net patient service revenue.



Medicare reimbursement rates are determined by a formula which takes into account an industry wide conversion factor (CF)
multiplied by relative values determined on a per procedure basis (RVUs). The CF and RVUs may change on an annual basis. In 2002, the CF decreased by 5.4%; in 2003, it increased by 1.6%; in 2004, it increased by 1.5%; and in 2005, the rate is
scheduled to increase an additional 1.5%. The net result to CF and RVUs of the changes over the last several years has not had a significant impact on our business, but it is difficult to forecast the future impact of any changes. We depend on
payments from government sources and any changes in Medicare or Medicaid programs could result in a decrease in our total revenues and net income.



Commercial



Commercial sources include private health insurance as well as related payments for co-insurance and co-payments. We enter into contracts with private
health insurance and other health benefit groups by granting discounts to such organizations in return for the patient volume they provide. We expect a continuing increase in the number of patients covered by contracts with such organizations.



Most of our commercial revenue is from managed care business
and is attributable to contracts where a set fee is negotiated relative to services provided by our treatment centers. We do not have any contracts that individually represent over 9% of our total net patient service revenue. We receive our managed
care contracted revenue under two primary arrangements. Approximately 99% of our managed care business is attributable to contracts where a fee schedule is negotiated for services provided at our treatment centers. Less than 1% of our net patient
service revenue is attributable to contracts where we bear utilization risk. Although the terms and conditions of our managed care contracts vary considerably, they are typically for a one-year term and provide for automatic renewals. If payments by
managed care organizations and other private third-party payors decrease, then our total revenues and net income could decrease.



Self Pay



Self pay consists of payments for treatments by patients not otherwise covered by third-party payors, such as government or commercial sources. The amount
of net patient service revenue derived from self pay is not expected to significantly change in the foreseeable future.



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Critical Accounting
Policies



Our discussion and analysis of our financial
condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We continuously evaluate our critical accounting policies and
estimates. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.



Our accounting policies are described in note 3 of the notes to our consolidated financial statements. We believe the
following critical accounting policies are important to the portrayal of our financial condition and results of operations and require our managements subjective or complex judgment because of the sensitivity of the methods, assumptions and
estimates used in the preparation of our consolidated financial statements.



Principles of Consolidation. In December 2003, the Financial Accounting Standards Board issued revised Interpretation No. 46R (FIN No. 46R), Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51, which requires that companies consolidate variable interest entities if they are the primary beneficiaries of the activities of those entities. Companies were generally required to apply FIN No. 46R immediately for
all variable interest entities created after January 31, 2003 and by the end of the first quarter 2004 for all other entities for which it is the primary beneficiary. We provide administrative services for a fee to certain radiation oncology
practices in certain states with laws that prohibit business corporations from providing, or holding themselves out as providers of, medical care. Fees are based upon the estimate of costs of the services performed plus a profit margin. We operate
in these states providing administrative services to radiation oncology practices pursuant to long-term management agreements ranging from 20 to 25 years. Pursuant to the administrative services agreements, the radiation oncology practices are each
solely responsible for all aspects of the practice of medicine and patient care as defined by their respective state. We provide administrative and other support services.



During 2003, we determined that these radiation oncology practices are variable interest entities as defined by FIN No. 46R,
and that we have a variable interest in each of these practices through our administrative services agreements. We also determined that through our variable interests in these practices, we would absorb a majority of any net losses that may occur.



Based on these determinations, we have included the radiation
oncology practices in our consolidated financial statements for all periods presented. The result of the consolidation is an increase in revenue and corresponding increases in expenses and minority interests by an equal amount, thus there is no
impact on our net income, earnings per share or cash flows. All of our significant intercompany accounts and transactions have been eliminated.



Net Patient Service Revenue and Allowances for Contractual Discounts. We have agreements with third-party payors that provide us payments at
amounts different from our established rates. Net patient service revenue is reported at the estimated net realizable amounts due from patients, third-party payors and others for services rendered. Net patient service revenue is recognized as
services are provided. Medicare and other governmental programs reimburse physicians based on fee schedules, which are determined by the related government agency. We also have agreements with managed care organizations to provide physician services
based on negotiated fee schedules. Accordingly, the revenues reported in our consolidated financial statements are recorded at the amount that is expected to be received.



We derive a significant portion of our revenues from Medicare, Medicaid and other payors that receive discounts from our
standard charges. We must estimate the total amount of these discounts to prepare our consolidated financial statements. The Medicare and Medicaid regulations and various managed care contracts under which these discounts must be calculated are
complex and subject to interpretation and adjustment. The development of the estimate of contractual allowances is based on historical cash collections related to gross charges developed by facility and payor in order to calculate average collection
percentages by facility and payor. The development of the collection percentages are applied to gross accounts receivable in determining an estimate of contractual allowances at the end of a reporting period.



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The estimate for contractual allowances is also based on our interpretation of the applicable regulations
or contract terms. These interpretations sometimes result in payments that differ from our original estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and reassessment of the
estimation process. Changes in estimates related to the allowance for contractual discounts affect revenues reported in our consolidated statements of income and comprehensive income.



During 2002, 2003 and 2004, approximately 54%, 55%, and 53%, respectively, of net patient service revenue related to
services rendered under the Medicare and Medicaid programs. In the ordinary course of business, we are potentially subject to a review by regulatory agencies concerning the accuracy of billings and sufficiency of supporting documentation of
procedures performed. Laws and regulations governing the Medicare and Medicaid programs are extremely complex and subject to interpretation. As a result, there is at least a reasonable possibility that estimates will change by a material amount in
the near term.



Accounts Receivable and Allowances for
Uncollectible Accounts. Accounts receivable are reported net of estimated allowances for uncollectible accounts and contractual adjustments. Accounts receivable are uncollateralized and primarily consist of amounts due from third-party
payors and patients. To provide for accounts receivable that could become uncollectible in the future, we establish an allowance for uncollectible accounts to reduce the carrying amount of such receivables to their estimated net realizable value.
The credit risk for other concentrations (other than Medicare) of receivables is limited due to the large number of insurance companies and other payors that provide payments for our services. We do not believe that there are any other significant
concentrations of receivables from any particular payor that would subject us to any significant credit risk in the collection of our accounts receivables.



The amount of the provision for doubtful accounts is based upon our assessment of historical and expected net collections, business and economic
conditions, trends in Federal and state governmental healthcare coverage and other collection indicators. The primary tool used in our assessment is an annual, detailed review of historical collections and write-offs of accounts receivable. The
results of our detailed review of historical collections and write-offs, adjusted for changes in trends and conditions, are used to evaluate the allowance amount for the current period. Accounts receivable are written-off after collection efforts
have been followed in accordance with our policies.



Goodwill and Other Intangible Assets. Goodwill represents the excess purchase price over the estimated fair market value of net assets we have acquired in business combinations. On June 29, 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, which changed the accounting for goodwill and intangible assets. Under SFAS No. 142, goodwill and indefinite lived
intangible assets are no longer amortized but are reviewed annually, or more frequently if impairment indicators arise, for impairment. Prior to the adoption of SFAS No. 142, goodwill had been amortized on a straight-line basis over 25 years through
December 31, 2001. We adopted SFAS No. 142 effective January 1, 2002.



We completed our transitional impairment test under SFAS No. 142 as of January 1, 2002, based on projected cash flows of the business. Due to an increase in competition and the presence of capitation arrangements with third-party payors,
operating profits and cash flows were lower than expected for certain locations. Based on the earnings forecast for these markets, a goodwill impairment loss of $963,293 was recognized. The impairment loss resulting from the transitional impairment
test was recorded as a cumulative effect of a change in accounting principle for the year ended December 31, 2002. Subsequent impairment losses, if any, will be reflected in income before minority interests. For the year ended December 31, 2003, we
recorded an impairment loss of $284,491 due to increased competition related to a specific treatment center within one of our regional networks. No impairment was recognized for the year ended December 31, 2004.



Intangible assets consist of noncompete agreements and licenses and are
amortized over the life of the agreements (which typically range from five to 10 years) using the straight-line method.



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Impairment of Long-Lived AssetsIn accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, we review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be fully recoverable. Assessment of possible
impairment of a particular asset is based on our ability to recover the carrying value of such asset based on our estimate of its undiscounted future cash flows. If these estimated future cash flows are less than the carrying value of such asset, an
impairment charge is recognized for the amount by which the assets carrying value exceeds its estimated fair value. During the third quarter of 2004, we recorded a charge of $1.2 million for the write down to fair value of certain of our
analog linear accelerators and treatment simulators. The adjustment to machine inventories was precipitated by the decision to discontinue the installation of this type of equipment in favor of digital machines with migration capability and
combination CT-simulators. This amount is included in general and administrative expenses in the statement of income and comprehensive income for the year ended December 31, 2004.



Stock Based Compensation We grant stock options for a fixed number of shares to employees in accordance with
Accounting Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees, and accordingly, recognize no compensation expense for the stock option grants to employees provided that the exercise price is not less than the
fair market value of the underlying stock on the date of grant. The values of options issued to non-employees have been determined in accordance with Statement of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation, and Emerging Issues Task Force Issue No. 96-18, Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods and Services, and are periodically remeasured as
the services are performed and recognize the expense ratably over the service period.



Income TaxesWe make estimates in recording our provision for income taxes, including determination of deferred tax assets and deferred tax liabilities and any valuation allowances that might be required
against the deferred tax assets. We believe that future income will enable us to realize these benefits; therefore, we have not recorded any valuation allowance against our deferred tax asset.



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Results of Operations



The following table presents summaries of results of
operations for the three months ended December 31, 2003 and 2004 (dollars in thousands). This information has been derived from the consolidated statements of income included elsewhere in this Form 10-K/A.



|                                                                     |  |                                 |        |   |            |       |   |  |   |        |  |       |  
|-------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ---------- | ----- | - |  | - | ------ |  | ----- | -
|                                                                     |  | Three Months Ended December 31, |       
|                                                                     |  | 2003                            |        |   | 2004       |      
|                                                                     |  | (Restated)                      |        |   | (Restated) |      
|Revenues:                                                            |  |                                 |        |   |            |       |   | 
|Net patient service revenue                                          |  | $                               | 32,737 |   |            | 93.3  | % |  | $ | 42,898 |  | 94.0  | %
|Other revenue                                                        |  |                                 | 2,341  |   |            | 6.7   |   |  |   | 2,719  |  | 6.0   |  
|                                                                     |  |                                 |        |   |            |       |   |  |   |        |  |       |  
|Total revenues                                                       |  |                                 | 35,078 |   |            | 100.0 | % |  |   | 45,617 |  | 100.0 | %
|Expenses:                                                            |  |                                 |        |   |            |       |   |  |   |        |  |       |  
|Salaries and benefits                                                |  |                                 | 18,604 |   |            | 53.0  |   |  |   | 23,513 |  | 51.5  |  
|Medical supplies                                                     |  |                                 | 598    |   |            | 1.7   |   |  |   | 1,049  |  | 2.3   |  
|Facility rent expenses                                               |  |                                 | 1,301  |   |            | 3.7   |   |  |   | 1,286  |  | 2.8   |  
|Other operating expenses                                             |  |                                 | 2,169  |   |            | 6.2   |   |  |   | 1,959  |  | 4.3   |  
|General and administrative expenses                                  |  |                                 | 5,011  |   |            | 14.3  |   |  |   | 5,159  |  | 11.3  |  
|Depreciation and amortization                                        |  |                                 | 1,454  |   |            | 4.1   |   |  |   | 1,963  |  | 4.3   |  
|Provision for doubtful accounts                                      |  |                                 | 901    |   |            | 2.6   |   |  |   | 1,673  |  | 3.7   |  
|Interest expense, net                                                |  |                                 | 544    |   |            | 1.6   |   |  |   | 793    |  | 1.7   |  
|Impairment loss                                                      |  |                                 | 284    |   |            | 0.8   |   |  |   |       |  | 0.0   |  
|                                                                     |  |                                 |        |   |            |       |   |  |   |        |  |       |  
|Total expenses                                                       |  |                                 | 30,866 |   |            | 88.0  |   |  |   | 37,395 |  | 81.9  |  
|                                                                     |  |                                 |        |   |            |       |   |  |   |        |  |       |  
|Income before minority interests                                     |  |                                 | 4,212  |   |            | 12.0  |   |  |   | 8,222  |  | 18.1  |  
|Minority interests in net losses (earnings) of consolidated entities |  |                                 | (28    | ) |            | -0.1  |   |  |   | 50     |  | 0.1   |  
|                                                                     |  |                                 |        |   |            |       |   |  |   |        |  |       |  
|Income before income taxes                                           |  |                                 | 4,184  |   |            | 11.9  |   |  |   | 8,272  |  | 18.2  |  
|Income tax expense                                                   |  |                                 |       |   |            | 0.0   |   |  |   | 3,301  |  | 7.2   |  
|                                                                     |  |                                 |        |   |            |       |   |  |   |        |  |       |  
|Net income                                                           |  | $                               | 4,184  |   |            | 11.9  | % |  | $ | 4,971  |  | 11.0  | %
|                                                                     |  |                                 |        |   |            |       |   |  |   |        |  |       |  
|Pro forma income data:                                               |  |                                 |        |   |            |       |   |  |   |        |  |       |  
|Income before provision for income taxes, as reported                |  | $                               | 4,184  |   |            | 11.9  | % |  |   |        |  |       |  
|Pro forma income taxes                                               |  |                                 | 1,674  |   |            | 4.8   |   |  |   |        |  |       |  
|                                                                     |  |                                 |        |   |            |       |   |  |   |        |  |       |  
|Pro forma net income                                                 |  | $                               | 2,510  |   |            | 7.1   | % |  |   |        |  |       |  
|                                                                     |  |                                 |        |   |            |       |   |  |   |        |  |       |  



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The following table presents summaries of results of operations for the years ended December 31, 2002,
2003 and 2004 (dollars in thousands). This information has been derived from the consolidated statements of income included elsewhere in this Form 10-K/A.



|                                                                                   |  |                         |         |   |            |       |   |            |   |         |   |  |       |   |  |   |         |  |       |  
|---------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---------- | ----- | - | ---------- | - | ------- | - |  | ----- | - |  | - | ------- |  | ----- | -
|                                                                                   |  | Year Ended December 31, |        
|                                                                                   |  | 2002                    |         |   | 2003       |       |   | 2004       |  
|                                                                                   |  | (Restated)              |         |   | (Restated) |       |   | (Restated) |  
|Revenues:                                                                          |  |                         |         |   |            |       |   |            |   |         |   | 
|Net patient service revenue                                                        |  | $                       | 104,438 |   |            | 94.0  | % |            | $ | 129,197 |   |  | 93.2  | % |  | $ | 161,349 |  | 94.2  | %
|Other revenue                                                                      |  |                         | 6,682   |   |            | 6.0   |   |            |   | 9,483   |   |  | 6.8   |   |  |   | 10,024  |  | 5.8   |  
|                                                                                   |  |                         |         |   |            |       |   |            |   |         |   |  |       |   |  |   |         |  |       |  
|Total revenues                                                                     |  |                         | 111,120 |   |            | 100.0 |   |            |   | 138,680 |   |  | 100.0 |   |  |   | 171,373 |  | 100.0 |  
|Expenses:                                                                          |  |                         |         |   |            |       |   |            |   |         |   |  |       |   |  |   |         |  |       |  
|Salaries and benefits                                                              |  |                         | 57,248  |   |            | 51.5  |   |            |   | 72,146  |   |  | 52.0  |   |  |   | 87,059  |  | 50.8  |  
|Medical supplies                                                                   |  |                         | 2,312   |   |            | 2.1   |   |            |   | 2,226   |   |  | 1.6   |   |  |   | 3,608   |  | 2.1   |  
|Facility rent expenses                                                             |  |                         | 3,744   |   |            | 3.4   |   |            |   | 4,656   |   |  | 3.4   |   |  |   | 5,347   |  | 3.1   |  
|Other operating expenses                                                           |  |                         | 7,194   |   |            | 6.5   |   |            |   | 8,690   |   |  | 6.3   |   |  |   | 7,561   |  | 4.4   |  
|General and administrative expenses                                                |  |                         | 10,475  |   |            | 9.4   |   |            |   | 16,400  |   |  | 11.8  |   |  |   | 19,671  |  | 11.5  |  
|Depreciation and amortization                                                      |  |                         | 4,283   |   |            | 3.8   |   |            |   | 5,202   |   |  | 3.8   |   |  |   | 6,860   |  | 4.0   |  
|Provision for doubtful accounts                                                    |  |                         | 3,365   |   |            | 3.0   |   |            |   | 3,375   |   |  | 2.4   |   |  |   | 5,852   |  | 3.4   |  
|Interest expense, net                                                              |  |                         | 2,615   |   |            | 2.4   |   |            |   | 2,053   |   |  | 1.5   |   |  |   | 3,435   |  | 2.0   |  
|Impairment loss                                                                    |  |                         |        |   |            | 0.0   |   |            |   | 284     |   |  | 0.2   |   |  |   |        |  | 0.0   |  
|                                                                                   |  |                         |         |   |            |       |   |            |   |         |   |  |       |   |  |   |         |  |       |  
|Total expenses                                                                     |  |                         | 91,236  |   |            | 82.1  |   |            |   | 115,032 |   |  | 83.0  |   |  |   | 139,393 |  | 81.3  |  
|                                                                                   |  |                         |         |   |            |       |   |            |   |         |   |  |       |   |  |   |         |  |       |  
|Income before minority interests                                                   |  |                         | 19,884  |   |            | 17.9  |   |            |   | 23,648  |   |  | 17.0  |   |  |   | 31,980  |  | 18.7  |  
|Minority interests in net losses (earnings) of consolidated entities               |  |                         | 23      |   |            | 0.0   |   |            |   | (7      | ) |  | 0.0   |   |  |   | 55      |  | 0.0   |  
|                                                                                   |  |                         |         |   |            |       |   |            |   |         |   |  |       |   |  |   |         |  |       |  
|Income before cumulative effect of change in accounting principle and income taxes |  |                         | 19,907  |   |            | 17.9  |   |            |   | 23,641  |   |  | 17.0  |   |  |   | 32,035  |  | 18.7  |  
|Cumulative effect of change in accounting principle                                |  |                         | (963    | ) |            | 0.9   |   |            |   |        |   |  | 0.0   |   |  |   |        |  | 0.0   |  
|                                                                                   |  |                         |         |   |            |       |   |            |   |         |   |  |       |   |  |   |         |  |       |  
|Income before income taxes                                                         |  |                         | 18,944  |   |            | 17.0  |   |            |   | 23,641  |   |  | 17.0  |   |  |   | 32,035  |  | 18.7  |  
|Income tax expense                                                                 |  |                         |        |   |            | 0.0   |   |            |   |        |   |  | 0.0   |   |  |   | 22,847  |  | 13.3  |  
|                                                                                   |  |                         |         |   |            |       |   |            |   |         |   |  |       |   |  |   |         |  |       |  
|Net income                                                                         |  | $                       | 18,944  |   |            | 17.0  | % |            | $ | 23,641  |   |  | 17.0  | % |  | $ | 9,188   |  | 5.4   | %
|                                                                                   |  |                         |         |   |            |       |   |            |   |         |   |  |       |   |  |   |         |  |       |  
|Pro forma income data:                                                             |  |                         |         |   |            |       |   |            |   |         |   |  |       |   |  |   |         |  |       |  
|Income before provision for income taxes, as reported                              |  | $                       | 18,944  |   |            | 17.0  | % |            | $ | 23,641  |   |  | 17.0  | % |  | $ | 32,035  |  | 18.7  | %
|Pro forma income taxes                                                             |  |                         | 7,966   |   |            | 7.2   |   |            |   | 9,456   |   |  | 6.8   |   |  |   | 12,814  |  | 7.5   |  
|                                                                                   |  |                         |         |   |            |       |   |            |   |         |   |  |       |   |  |   |         |  |       |  
|Pro forma net income                                                               |  | $                       | 10,978  |   |            | 9.8   | % |            | $ | 14,185  |   |  | 10.2  | % |  | $ | 19,221  |  | 11.2  | %
|                                                                                   |  |                         |         |   |            |       |   |            |   |         |   |  |       |   |  |   |         |  |       |  



Comparison of the Three Months
Ended December 31, 2003 and 2004



Total
revenues. Total revenues increased by $10.5 million, or 30%, from $35.1 million for the three months ended December 31, 2003 to $45.6 million for the three months ended December 31, 2004. Approximately $3.0 million of this increase resulted
from our expansion into new regional networks during the latter part of 2003 and 2004. We acquired new treatment centers in Alabama in December 2003, New Jersey in September 2004 and developed a de novo center in Woonsocket Rhode Island in November
2004. Approximately $7.5 million of this increase was driven by volume growth, service mix improvements and pricing in our existing regional networks.



Salaries and benefits. Salaries and benefits increased by $4.9 million, or 26.4%, from $18.6 million for the three months ended December 31,
2003 to $23.5 million for the three months ended December 31, 2004. Salaries and benefits as a percentage of total revenues decreased from 53.0% for the three months ended December 31, 2003 to 51.5% for the three months ended December 31, 2004.
Salaries and benefits consist of all compensation and benefits paid, including the costs of employing our physicians, medical physicists, dosimetrists, radiation therapists, engineers, corporate administration and other treatment center support
staff. The decrease as a percentage of revenue is due to the 30% growth in our revenue from the



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prior quarter, resulting in further leveraging of our staff. Additional staffing of personnel and physicians due to our expansion into new regional networks
during the fourth quarter of 2003 and 2004 contributed to a $2.4 million increase in salaries and benefits. Within our existing regional networks, salaries and benefits increased $2.5 million due to replacement of contract labor with employed staff
and increases in the cost of our health insurance benefits.



Medical supplies. Medical supplies increased by $0.4 million, or 75.4%, from $0.6 million for the three months ended December 31, 2003 to $1.0 million for the three months ended December 31, 2004. Medical supplies as a
percentage of total revenues increased from 1.7% for the three months ended December 31, 2003 to 2.3% for the three months ended December 31, 2004. Medical supplies consist of patient positioning devices, radioactive seed supplies, supplies used for
other brachytherapy services and pharmaceuticals used in the delivery of radiation therapy treatments. The increase in medical supplies as a percentage of total revenues was primarily due to the increased utilization of pharmaceuticals used in
connection with the delivery of radiation therapy treatments. These pharmaceuticals are principally reimbursable by third-party payors.



Facility rent expenses. Facility rent expenses remained unchanged at approximately $1.3 million for the three months ended December 31, 2003
and for the three months ended December 31, 2004. Facility rent expenses as a percentage of total revenues decreased from 3.7% for the three months ended December 31, 2003 to 2.8% for the three months ended December 31, 2004. Facility rent expenses
consist of rent expense associated with our treatment center locations.



Other operating expenses. Other operating expenses decreased by $0.2 million or 9.7%, from $2.2 million for the three months ended December 31, 2003 to $2.0 million for the three months ended December 31, 2004. Other operating
expenses as a percentage of total revenues decreased from 6.2% for the three months ended December 31, 2003 to 4.3% for the three months ended December 31, 2004. Other operating expenses consist of repairs and maintenance of equipment, equipment
rental and contract labor. The decrease was primarily attributable to a decrease in contract labor.



General and administrative expenses. General and administrative expenses increased by $0.2 million, or 3.0%, from $5.0 million for the three
months ended December 31, 2003 to $5.2 million for the three months ended December 31, 2004. General and administrative expenses as a percentage of total revenues decreased from 14.3% to 11.3%. General and administrative expenses principally consist
of professional service fees, office supplies and expenses, insurance and travel costs. Increases in general and administrative expenses included approximately $0.3 million in compensation fees for legislative efforts in healthcare reimbursement,
$0.3 million relating to the growth in the number of our regional networks, $0.3 million relating to our public offering for directors and officers insurance, public relations expenses and board expenses offset by a decrease of approximately $0.7
million in our existing regional networks.



Depreciation
and amortization. Depreciation and amortization increased by $0.5 million, or 35.0%, from $1.5 million for the three months ended December 31, 2003 to $2.0 million for the three months ended December 31, 2004. Depreciation and amortization
expenses as a percentage of total revenues increased from 4.1% for the three months ended December 31, 2003 to 4.3% for the three months ended December 31, 2004. An increase in capital expenditures related to our investment in advanced radiation
treatment technologies in certain regional networks increased our depreciation and amortization by approximately $0.2 million. The remaining portion of the increase was attributable to the acquisition of radiation center assets during the fourth
quarter of 2003 and 2004 in expanded regional markets in Alabama, New Jersey and Rhode Island.



Provision for doubtful accounts. Provision for doubtful accounts increased by $0.8 million, or 85.7%, from $0.9 million for the three months ended December 31, 2003 to $1.7 million for the three months
ended December 31, 2004. Provision for doubtful accounts as a percentage of total revenues increased from 2.6% in 2003 to 3.7% in 2004. Approximately $0.6 million of the increase was primarily due to an increase in service to uninsured patients
within one of our existing regional markets, and $0.1 million due to the expanded regional markets in Alabama, New Jersey, and Rhode Island.



Interest expense, net. Interest expense, net increased by $0.3 million, or 45.8%, from $0.5 million for the three months ended December 31,
2003 to $0.8 million for the three months ended December 31, 2004. Interest expense as a percentage of total revenues increased from 1.6% in 2003 to 1.7% in 2004. Included in interest expense, net is an insignificant amount of interest income.
Approximately $0.2 million of the increase is as a result of the borrowing relating to the acquisitions made in Kentucky and Alabama during the third and fourth quarters of 2003 and the acquisition of the New Jersey treatment centers during the
third quarter of 2004. The remainder of the increase is due to interest on capital leases entered into during 2004.



Net income and pro forma net income Net income increased by $2.5 million, or 98.0%, from $2.5 million in pro forma net income for the three
months ended December 31, 2003 to $5.0 million for the three months ended December 31, 2004. Net income and pro forma net income represents 11.0% and 7.1% of total revenues for the three months ended December 31, 2004 and 2003, respectively. Net
income is discussed on a pro forma basis due to a provision for income taxes



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to reflect the estimated corporate income tax expense based on the assumption the Company was a C corporation at the beginning of each period presented, and
provides for income taxes utilizing an effective rate of 40.0%.



Comparison of the Years Ended December 31, 2003 and 2004



Total revenues. Total revenues increased by $32.7 million, or 23.6%, from $138.7 million in 2003 to $171.4 million in 2004. Approximately $14.2 million of this increase resulted from our expansion into
new regional networks in 2003 and 2004. We acquired new treatment centers in Key West, Florida in August 2003, Kentucky in September 2003, Alabama in December 2003 and New Jersey in September 2004. We also added a new regional network in Baltimore,
Maryland in March 2003, expanded our professional service arrangements in the Delmarva Peninsula region and added a new regional network in Woonsocket Rhode Island in November 2004. Approximately $15.4 million of this increase was driven by volume
growth, service mix improvements, and pricing in our existing regional networks and approximately $2.1 million related to a reimbursement policy change by a significant commercial payor to reimburse for services not previously covered. The remaining
increase was primarily attributable to the addition of advanced radiation therapy equipment in our treatment centers and the increased utilization of our technologies due to the increased acceptance by payors to reimburse for a wider range of
radiation treatments.



Salaries and benefits.
Salaries and benefits increased by $14.9 million, or 20.7%, from $72.1 million in 2003 to $87.0 million in 2004. Salaries and benefits as a percentage of total revenues decreased from 52.0% in 2003 to 50.8% in 2004. Additional staffing of personnel
and physicians due to our expansion into new regional networks during the third and fourth quarters of 2003 and 2004 contributed to a $10.8 million increase in salaries and benefits. Within our existing regional networks, salaries and benefits
increased $4.1 million due to replacement of contract labor with employed staff and increases in the cost of our health insurance benefits.



Medical supplies. Medical supplies increased by $1.4 million, or 62.1%, from $2.2 million in 2003 to $3.6 million in 2004. Medical supplies
as a percentage of total revenues increased from 1.6% in 2003 to 2.1% in 2004. Medical supplies consist of patient positioning devices, radioactive seed supplies, supplies used for other brachytherapy services and pharmaceuticals used in the
delivery of radiation therapy treatments. The increase in medical supplies as a percentage of total revenues was primarily due to the increased utilization of pharmaceuticals used in connection with the delivery of radiation therapy treatments.
These pharmaceuticals are principally reimbursable by third-party payors.



Facility rent expenses. Facility rent expenses increased by $0.7 million, or 14.8%, from $4.7 million in 2003 to $5.4 million in 2004. Facility rent expenses as a percentage of total revenues decreased
from 3.4% in 2003 to 3.1% in 2004. Approximately $0.5 million related to the expansion into new regional markets in Key West, Florida, Kentucky, Alabama, New Jersey and Rhode Island. The remaining increase related to our existing regional networks.



Other operating expenses. Other operating
expenses decreased by $1.1 million, or 13.0%, from $8.7 million in 2003 to $7.6 million in 2004. Other operating expenses as a percentage of total revenues decreased from 6.3% in 2003 to 4.4% for in 2004. The decrease was primarily attributable to a
decrease in contract labor of approximately $1.8 million, offset by an increase in the cost of repairs and maintenance of equipment of approximately $0.7 million.



General and administrative expenses. General and administrative expenses increased by $3.3 million, or 19.9%,
from $16.4 million in 2003 to $19.7 million in 2004. General and administrative expenses as a percentage of total revenues decreased from 11.8% to 11.5%. The increase of $3.3 million in general and administrative expenses was due to the write-off of
$0.3 million of deferred financing costs due to the refinancing of our senior secured credit facility in March 2004. During the third quarter of 2004, we recorded a charge of $1.2 million for the write down to fair value of certain of our analog
Linac and simulator inventory. The adjustment to machine inventories was precipitated by the decision to discontinue the installation of this type of equipment in favor of digital machines with migration capability and combination CT-simulators.
Additional increases in general and administrative expenses included approximately $0.4 million in compensation fees for legislative efforts in healthcare reimbursement, $1.1 million in general and administrative expenses relating to the growth in
the number of our regional networks, $0.5 million relating to our public offering for directors and officers insurance, public relations expenses and board expenses offset by a decrease of approximately $0.2 million in our existing regional
networks.



Depreciation and amortization.
Depreciation and amortization increased by $1.7 million, or 31.9%, from $5.2 million in 2003 to $6.9 million in 2004. Depreciation and amortization expenses as a percentage of total revenues increased from 3.8% in 2003 to 4.0% in 2004. An increase
in capital expenditures related to our investment in advanced radiation treatment technologies in certain regional networks increased our depreciation and amortization by approximately $0.8 million. The remaining portion of the increase was
attributable to the acquisition of radiation center assets during the third and fourth



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quarters of 2003 and 2004 in expanded regional markets in Key West, Florida, Kentucky, Alabama, New Jersey and Rhode Island.



Provision for doubtful accounts. Provision for doubtful
accounts increased by $2.5 million, or 73.4%, from $3.4 million in 2003 to $5.9 million in 2004. Provision for doubtful accounts as a percentage of total revenues increased from 2.4% in 2003 to 3.4% in 2004. Approximately $1.3 million of the
increase was primarily due to an increase in service to uninsured patients within one of our existing regional markets, $0.5 million due to the expanded regional markets in Key West, Florida, Kentucky, Alabama, New Jersey and Rhode Island and $0.7
million within our remaining existing regional networks.



Interest expense, net. Interest expense, net increased by $1.3 million, or 67.3%, from $2.1 million in 2003 to $3.4 million in 2004. Interest expense as a percentage of total revenues increased from 1.5% in 2003 to 2.0% in
2004. Approximately $0.5 million of the increase in interest expense was primarily due to an increase in the borrowing of funds under our senior secured credit facility on the $40 million Term B loan borrowed on March 31, 2004. Approximately $0.6
million of the increase is as a result of the borrowing relating to the acquisitions made in Kentucky and Alabama during the third and fourth quarters of 2003 and the acquisition of the New Jersey treatment centers during the third quarter of 2004.
The remaining balance of approximately $0.2 million is due to interest on capital leases entered into during 2004.



Pro forma net income Pro forma net income increased by $5.0 million, or 35.5%, from $14.2 million in 2003 to $19.2 million in 2004. Pro
forma net income represents 11.2% and 10.2% of total revenues in 2004 and 2003, respectively. Net income is discussed on a pro forma basis due to a provision for income taxes to reflect the estimated corporate income tax expense based on the
assumption the Company was a C corporation at the beginning of each period presented, and provides for income taxes utilizing an effective rate of 40.0%.



Comparison of the Years Ended December 31, 2002 and 2003



Total revenues. Total revenues increased by $27.6 million, or 24.8%, from $111.1 million in 2002 to $138.7 million in 2003. A significant
portion of this growth was due to a $12.4 million increase in revenues in two of our existing regional networks. This growth was due to the addition of two doctors, a new contract with a major payor within the regional market and a full year of
operations at one new site added within the regional network. The increase also included $1.6 million from expanding into new regional networks through acquisitions in 2003. The new regional networks included expansions through acquisitions into Key
West, Florida in August 2003, Kentucky in September 2003 and Alabama in December 2003. The increase also included $2.5 million due to the development of a new regional network in Baltimore, Maryland in March 2003, and the expansion of professional
service arrangements in the Delmarva Peninsula region. The remaining increase in total revenues was due to the addition of advanced radiation therapy equipment in our treatment centers and the increased utilization of our technologies due to the
increased acceptance by payors to reimburse for a wider range of radiation treatments.



Salaries and benefits. Salaries and benefits increased by $14.9 million, or 26.0%, from $57.2 million in 2002 to $72.1 million in 2003. Salaries and benefits as a percentage of total revenues increased
from 51.5% in 2002 to 52.0% in 2003. The increase in salaries and benefits as a percentage of total revenues was primarily due to increased staffing costs of personnel and physicians due to our expansion into new regional networks in 2003.



Medical supplies. Medical supplies decreased by
$0.1 million, or 3.7%, from $2.3 million in 2002 to $2.2 million in 2003. Medical supplies as a percentage of total revenues decreased from 2.1% in 2002 to 1.6% in 2003. The decrease in medical supplies as a percentage of total revenues was
primarily due to an increase in pricing concessions we received in 2003.



Facility rent expenses. Facility rent expenses increased by $1.0 million, or 24.4%, from $3.7 million in 2002 to $4.7 million in 2003. Facility rent expenses as a percentage of total revenues were
unchanged from 2002 to 2003. The increase in facility rent expenses was primarily due to an approximate $0.7 million increase related to the full year impact of rental expense associated with new facilities added in 2002 and approximately $0.1
million related to the development of new centers in the third and fourth quarters of 2003.



Other operating expenses. Other operating expenses increased by $1.5 million, or 20.8%, from $7.2 million in 2002 to $8.7 million in 2003. Other operating expenses as a percentage of total revenues
decreased from 6.5% in 2002 to 6.3% in 2003. This increase was primarily due to an increase in utilization of contract labor.



General and administrative expenses. General and administrative expenses increased by $5.9 million, or 56.6%, from $10.5 million in 2002 to
$16.4 million in 2003. General and administrative expenses as a percentage of total revenues



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increased from 9.4% to 11.8%. The increase was primarily due to increases in the cost of medical malpractice insurance and additional costs in professional
service fees. Total insurance costs increased approximately $1.8 million. Professional service fees increased approximately $1.5 million in 2003 relating to services for reimbursement efforts, as well as increased business development efforts.



Depreciation and amortization. Depreciation and
amortization increased by $0.9 million, or 21.5%, from $4.3 million in 2002 to $5.2 million in 2003. Depreciation and amortization expenses as a percentage of total revenues remained constant at 3.8%. Approximately $0.6 million of the increase in
depreciation and amortization was due to an increase in capital expenditures related to our investment in advanced radiation treatment technologies in certain regional networks and approximately $0.1 million due to the acquisition of radiation
center assets in 2003 in expanded regional markets in Key West, Florida, Kentucky and Alabama.



Provision for doubtful accounts. Provision for doubtful accounts remained unchanged in 2003 as compared to 2002. Provision for doubtful accounts as a percentage of total revenues decreased from 3.0% in
2002 to 2.4% in 2003. The decrease as a percentage of total revenues was due to implementing a standardized policy of sending outstanding self pay patient claims to collection agencies within 180-days and streamlining the approval of submission of
the claims to collection agencies. As a result, our 120-day plus receivables decreased by approximately 4.1% in 2003.



Interest expense, net. Interest expense, net decreased by $0.5 million, or 21.5%, from $2.6 million in 2002 to $2.1 million in 2003.
Interest expense as a percentage of total revenues decreased from 2.4% in 2002 to 1.5% in 2003. The decrease in interest expense was due to continued reduction in the prime rate from 4.25% in 2002 to 4.00% in 2003, as well as a decrease in the
effective rate of our senior secured credit facility from 4.30% in 2002 to 3.76% in 2003 resulting in approximately $0.3 million in savings. In addition, we paid off prior existing capital lease obligations in 2003 that were at rates ranging from
7.6% to 10.3% resulting in approximately $0.2 million in savings.



Impairment loss. Impairment loss of approximately $0.3 million was recognized in 2003 as a result of an impairment charge to goodwill due to increased competition with a specific treatment center.



Cumulative effect of changes in accounting principle. We
adopted SFAS No. 142, Goodwill and Other Intangible Assets,effective January 1, 2002. We completed the transitional impairment test as of January 1, 2002, based on projected cash flows of the business. Due to an increase in competition and
the presence of capitation arrangements with third-party payors, operating profits and cash flows were lower than expected for certain regional networks. Based on the earnings forecast for these regional networks, a goodwill impairment loss of $1.0
million was recognized. The impairment loss resulting from the transitional impairment test has been recorded as a cumulative effect of a change in accounting principle for the year ended December 31, 2002.



Liquidity and Capital Resources



Our principal capital requirements are for working capital, acquisitions,
medical equipment replacement and expansion and de novo treatment center development. We fund acquisitions through draws on our revolving credit facility. Working capital and medical equipment are funded through cash from operations, supplemented,
as needed, by five-year fixed rate lease lines of credit. Borrowings under these lease lines of credit are recorded on the balance sheets. The construction of de novo treatment centers are funded directly by third parties and then leased by us or
funded through sale-leaseback arrangements. We have a $25 million commitment from a commercial bank for sale-leaseback financing of which $24 million is currently available. The commitment, subject to various restrictions, is scheduled to be
available through November 2006.



Prior to our initial public
offering, we used real estate entities owned by members of the board of directors and executive management, and by employees to finance the construction of certain of our treatment centers and the development of our corporate headquarters. The rents
were determined on the basis of the debt service incurred by the entities and a return on the equity component of the projects funding. Prior to completing our initial public offering in June 2004, we engaged an independent consultant to
complete a fair market rent analysis for the real estate leases with these entities. The consultant determined that, with one exception, the rents are at fair market value. We negotiated a rent reduction for the one exception to bring it to fair
market value as determined by the consultant. In the future an independent consultant will be utilized to assist the Companys audit committee in determining fair market rental for any renewal or new rental arrangements with any affiliated
party.



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Cash Flows From Operating Activities



Net cash provided by operating activities for the years ended December 31, 2002, 2003 and 2004 was $22.2 million, $27.3
million and $28.2 million, respectively.



Net cash provided by
operating activities increased by $5.1 million from $22.2 million in 2002 to $27.3 million in 2003. This increase was primarily attributable to a $4.6 million increase in net income. Accounts receivable increased by $8.0 million due primarily to our
expansion into new regional networks in Key West, Florida, Kentucky, and Alabama and in existing Florida regional networks. Prepaid expenses increased by $1.4 million due primarily to increased payments for medical malpractice premiums in 2003.
Accounts payable increased by $1.5 million due primarily to amounts due for professional service fees incurred during 2003. Accrued expenses increased by $2.6 million due primarily to $1.7 million increase in accrued liabilities related to
liabilities due to third-party payors and a $0.6 million increase in the year-end bonus and payroll accruals.



Net cash provided by operating activities increased by $0.9 million from $27.3 in 2003 to $28.2 million in 2004. The increase of $0.9 million was affected
by the first time payment of approximately $6 million of income taxes as a result of our change in tax status from an S corporation to a C Corporation. Provision for bad debts increased $2.5 million due primarily to an increase in service to
uninsured patients within one of our existing regional markets and the expanded regional markets in Key West, Florida, Kentucky, Alabama, New Jersey and Rhode Island. Accounts receivable increased by $8.9 million due primarily to our expansion into
new regional networks in Key West Florida, Kentucky, Alabama, New Jersey and Rhode Island and in existing regional networks in Florida, New York and Nevada. Accrued expenses decreased by $2.4 million due primarily to a $3.2 million decrease in
accrued liabilities related to liabilities due to third-party payors, a decrease in accrued interest of $0.7 million offset by a $1.4 million increase in the year-end bonus and payroll accruals, and $0.1 million increase in deferred income.



Cash Flows From Investing Activities



Net cash used in investing activities for 2002, 2003, and 2004 was $17.2
million, $20.7 million, and $25.2 million, respectively.



Net
cash used in investing activities increased by $3.5 million from $17.2 million in 2002 to $20.7 million in 2003. This increase was primarily attributable to $12.1 million in cash paid for acquisitions, which primarily consisted of six radiation
treatment centers, including one in Alabama, one in Florida, three in Kentucky and one in western North Carolina, and $0.7 million in cash provided to shareholders in exchange for notes. These increases were offset by $1.5 million in proceeds
received from the sale of a facility which was replaced by a leased facility. Additionally, we entered into $5.0 million of non-cash transactions related to the acquisition of equipment under capital lease arrangements.



Net cash used in investing activities increased by $4.5 million from $20.7
million in 2003 to $25.2 million in 2004. This increase was primarily attributable to a $6.3 million increase in purchases of property and equipment related to new equipment and equipment upgrades, purchase of medical equipment of approximately $0.8
million for sale to a hospital, receipt of payments from shareholder notes receivable of $0.7 million, offset by proceeds from the sale of a medical facility of $1.5 in 2003 and $0.9 million in 2004 for the sale of medical equipment to a hospital.
Increase in investing activities was also due to purchases of marketable securities in 2004 of approximately $2.4 million for investments in municipal bonds and preferred stock. Acquisition of radiation center assets decreased by $4.0 million.



Historically, our capital expenditures have been primarily for
equipment, leasehold improvements and information technology equipment. Total capital expenditures, exclusive of the purchase of radiation treatment centers, were $10.7 million, $14.8 million and $23.2 million in 2002, 2003 and 2004, respectively.
Historically, we have funded our capital expenditures with cash flows from operations, borrowings under the senior credit facility and borrowings under our lease line of credit. Capital expenditures for the year 2005, exclusive of the purchase of
radiation treatment centers, are expected to exceed $20.0 million. To the extent that we acquire or internally develop new radiation treatment centers, we may need to increase our expected capital expenditures on a proportionate basis.



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Cash From Financing Activities



Net cash used in financing activities for the years ended December 31, 2002, 2003, and 2004 was $2.4 million, $8.2 million
and $0.5 million, respectively.



Net cash used in financing
activities increased by $5.8 million from $2.4 million in 2002 to $8.2 million in 2003. The increase was primarily attributable to a $4.7 million increase in principal debt repayments and a $2.1 million increase in distributions to shareholders.



Net cash used in financing activities decreased by $7.7
million from $8.2 million in 2003 to $0.5 million in 2004. The decrease was impacted from the borrowing of approximately $59.1 million under our senior secured credit facility, offset by distributions to shareholders of approximately $46.4 million
in 2004, which included a one-time distribution of $40 million. We incurred approximately $1.6 million in fees and expenses as a result of entering into our third amended and restated senior secured credit facility on March 31, 2004. We received net
proceeds of approximately $46.8 million from the completion of an initial public offering of our common stock on June 23, 2004. Repayments of debt of approximately $61.3 million included the application of approximately $44.1 of the net proceeds
used to repay outstanding indebtedness under our senior secured credit facility and approximately $2.8 million of the net proceeds used to repay outstanding indebtedness to certain of our directors, officers and related parties. The receipt of $2.3
million from the exercise of stock options, the receipt of $0.9 million from payments of notes receivable from shareholders and payments of $1.9 million in loan costs relating to our senior secured credit facility also impacted cash flow from
financing activities during 2004.



Credit Facility and Available Lease
Lines



On July 31, 2003, we amended our second amended
and restated senior secured credit facility to revise certain covenants. In December 2003, we again amended our second amended and restated senior secured credit facility. This later amendment to our second amended and restated senior secured credit
facility provided, subject to our compliance with covenants and customary conditions, for $95.0 million in availability consisting of a $25.0 million term loan and the ability to make up to $70.0 million of revolving credit borrowings. Additionally,
it provided for the issuance of letters of credit although the amount of borrowings available would be reduced to the extent of any outstanding letters of credit. The amendment also extended the maturity of our senior secured credit facility to
April 15, 2007. Borrowings under this facility bear interest either at LIBOR plus a spread ranging from 175 to 250 basis points or a specified base rate plus a spread ranging from 25 to 100 basis points, with the exact spread determined upon the
basis of our leverage ratio, as defined. We are required to pay a quarterly unused commitment fee at a rate of 37.5 basis points on our revolving line of credit.



On March 31, 2004, we entered into a third amended and restated senior secured credit facility principally to fund a special
distribution to shareholders. Our third amended and restated senior secured credit facility provides, subject to our compliance with covenants and customary conditions, for $135.0 million in borrowings consisting of a $25.0 million term loan
(designated Term A), a $70.0 million revolver and a new add-on term loan facility (designated Term B) in the amount of $40.0 million. On April 9, 2004, the proceeds from borrowings against the new add-on term loan facility were used to make a
special distribution to our shareholders, in the aggregate amount of $40.0 million.



The Term A loan requires quarterly payments of $1.25 million and matures on April 15, 2007. The Term A loan bears interest either at LIBOR plus a spread ranging from 175 to 325 basis points or a specified base rate
plus a spread ranging from 25 to 175 basis points, with the exact spread determined upon the basis of our leverage ratio, as defined.



The additional Term B loan requires principal payment obligations of $0.5 million per quarter in each of the first three years, $4.0 million per quarter
in year four and $4.5 million per quarter in year five. This additional term loan matures on March 31, 2009. The additional Term B loan bears interest either at LIBOR plus 375 basis points or a specified base rate plus 225 basis points.



Our third amended and restated senior secured credit facility:



| |  |  | is secured by a pledge of substantially all of our tangible and intangible assets, including accounts receivable, inventory and capital stock of our existing and future
subsidiaries, and requires that borrowings and other amounts due under it will be guaranteed by our existing and future domestic subsidiaries;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | requires us to make mandatory prepayments of outstanding borrowings, with a corresponding reduction in the maximum amount of borrowings available under the senior
secured credit facility, with net proceeds from
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | insurance recoveries and asset sales, and with 100% of the net proceeds from the issuance of equity (50% for qualifying initial public offering) or debt
securities, subject to specified exceptions;
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | includes a number of restrictive covenants including, among other things, limitations on our leverage and capital expenditures, limitations on acquisitions and requirements that we
maintain minimum ratios of cash flow to fixed charges and of cash flow to interest;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limits our ability to pay dividends on our capital stock; and
| | - |  | -------------------------------------------------------------



| |  |  | contains customary events of default, including an event of default upon a change in our control.
| | - |  | -------------------------------------------------------------------------------------------------



In connection with entering into our third amended and restated senior secured credit facility, we incurred fees and
expenses of approximately $1.6 million, which have been capitalized as deferred financing costs and are being amortized over the term of the related debt instruments. Additionally, we wrote-off $0.3 million of financing costs capitalized in
connection with our previous credit facility.



On October 8,
2004 we amended our third amended and restated senior secured credit facility principally to pay off the remaining balance of the designated Term B portion and increase our revolving credit commitment from $70 million to $80 million. The transaction
included paying off the $22.8 million remaining on the designated Term B portion by increasing the Term A loan to $25 million and drawing on the revolver. Per the amendment, the interest rate spreads on the Term A loan and on the revolver were
reduced overall by 25 basis points. Borrowings at LIBOR plus a spread range from 175 to 300 basis points and borrowings at a specified base rate plus a spread range from 25 to 150 basis points. The amendment modified the mandatory quarterly
principal payments on the Term A loan from $1.25 million to $1.75 million. The additional deferred financing costs incurred of approximately $241,000 will be expensed over the remaining period of the Term A loan maturing on April 15, 2007.



The revolving credit facility requires that we comply with
certain financial covenants, including:



|                                                           |  |                |  |                          
|---------------------------------------------------------- |  | -------------- |  | -------------------------
|                                                           |  | Requirement    |  | Level at December 31,2004
|                                                           |  |                |  | (Restated)               
|Maximum permitted consolidated leverage ratio              |  | <3.25 to 1.00  |  | 1.50 to 1.00             
|Minimum permitted consolidated fixed charge coverage ratio |  | >1.50 to 1.00  |  | 1.93 to 1.00             
|Minimum permitted consolidated interest coverage ratio     |  | >3.75 to 1.00  |  | 12.92 to 1.00            
|Minimum permitted consolidated net worth                   |  | >$42.2 million |  | $66.3 million            
|Maximum capital expenditureslast 12 months                |  | <$25 million   |  | $23.2 million            



The revolving credit
facility also requires that we comply with various other covenants, including, but not limited to, restrictions on new indebtedness, the ability to merge or consolidate, asset sales, capital expenditures, acquisitions and dividends, with which we
were in compliance as of December 31, 2004.



The following
table sets forth the amounts outstanding under our revolving credit facility and term A and B loans, the effective interest rates on such outstanding amounts for the quarter and amounts available for additional borrowing thereunder, as of December
31, 2004:



|                               |  |                         |   |  |                        |        |                                         |   |       
|------------------------------ |  | ----------------------- | - |  | ---------------------- | ------ | --------------------------------------- | - | ------
|Senior Secured Credit Facility |  | Effective Interest Rate |   |  | Amount Outstanding     |        | Amount Availablefor AdditionalBorrowing
|                               |  |                         |   |  | (Dollars in thousands)
|Revolving credit facility      |  | 4.0                     | % |  | $                      | 30,766 |                                         | $ | 48,934
|Term A loan                    |  | 4.0                     | % |  |                        | 23,250 |                                         |   |      
|                               |  |                         |   |  |                        |        |                                         |   |       
|Total                          |  |                         |   |  | $                      | 54,016 |                                         | $ | 48,934
|                               |  |                         |   |  |                        |        |                                         |   |       



As of December 31,
2004, we had $66.1 million of outstanding debt, $9.6 million of which was classified as current. Of the $66.1 million of outstanding debt, $54.0 million was outstanding to lenders under our third amended and restated senior secured credit facility,
and $12.1 million was outstanding under capital leases and other miscellaneous indebtedness. As of December 31, 2004, of the outstanding borrowings under our third amended and restated senior secured credit facility, $7.0 million was classified as
short-term. We are in compliance with the covenants of the third amended and restated senior secured credit facility.



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Effective January 2004 and March 2004, we entered into two lease lines of credit with two financial
institutions for the purpose of leasing medical equipment in the commitment amounts of $5.0 million each. As of December 31, 2004 we had $6.1 million available under the two lease lines of credit. Effective January 2005, we entered into an
additional lease line of credit with an existing financial institution for leasing medical equipment in the commitment amount of $10 million increasing our available commitments to $16.1 million.



Effective November 2004, we entered into a lease line of credit with a
financial institution for the purpose of arranging a sale/leaseback of our medical facilities in the commitment amount of $25 million. This arrangement provides us the availability to sell future medical facilities that are constructed by our
construction company and leased back with lease terms of 15 to 20 years with four consecutive renewal options of five years each.



We believe available borrowings under our current credit facility, together with our cash flows from operations, will be sufficient to fund our
requirements for at least the next twelve months. After such time period, to the extent available borrowings and cash flows from operations are insufficient to fund future requirements, we may be required to seek additional financing through
additional increases in our credit facility, negotiate credit facilities with other lenders or institutions or seek additional capital through private placements or public offerings of equity or debt securities. No assurances can be given that we
will be able to extend or increase the existing credit facility, secure additional bank borrowings or complete additional debt or equity financings on terms favorable to us or at all. Any such financing may be dilutive in ownership, preferences,
rights, or privileges to our shareholders. If we are unable to obtain funds when needed or on acceptable terms, we will be required to curtail our acquisition and development program. Our ability to meet our funding needs could be adversely affected
if we suffer adverse results of operations, or if we violate the covenants and restrictions to which we are subject under our current credit facility.



Reimbursement, Legislative And Regulatory Changes



Legislative and regulatory action has resulted in continuing changes in reimbursement under the Medicare and Medicaid programs that will continue to limit
payments we receive under these programs.



Within the statutory
framework of the Medicare and Medicaid programs, there are substantial areas subject to legislative and regulatory changes, administrative rulings, interpretations, and discretion which may further affect payments made under those programs, and the
federal and state governments may, in the future, reduce the funds available under those programs or require more stringent utilization and quality reviews of our treatment centers or require other changes in our operations. Additionally, there may
be a continued rise in managed care programs and future restructuring of the financing and delivery of healthcare in the United States. These events could have an adverse effect on our future financial results.



Inflation



While inflation was not a material factor in either revenue or operating expenses during the periods presented, the
healthcare industry is labor-intensive. Wages and other expenses increase during periods of inflation and labor shortages, such as the nationwide shortage of dosimetrists and radiation therapists. In addition, suppliers pass along rising costs to us
in the form of higher prices. We have implemented cost control measures to curb increases in operating costs and expenses. We have to date offset increases in operating costs by increasing reimbursement or expanding services. However, we cannot
predict our ability to cover, or offset, future cost increases.



Commitments



The following table discloses
aggregate information about our contractual obligations and the periods in which payments are due as of December 31, 2004:



|                                   |  |                        |         |                 |   |          |  |          |        |               |   |        |  |   |       
|---------------------------------- |  | ---------------------- | ------- | --------------- | - | -------- |  | -------- | ------ | ------------- | - | ------ |  | - | ------
|                                   |  | Payments Due by Period
|Contractual Cash Obligations       |  | Total                  |         | Less Than1 Year |   | 2-3Years |  | 4-5Years |        | After 5 Years
|                                   |  | (In thousands)        
|Long-term debt                     |  | $                      | 54,016  |                 | $ | 7,000    |  | $        | 47,016 |               | $ |       |  |   |      
|Capital lease obligations          |  |                        | 12,087  |                 |   | 2,620    |  |          | 5,446  |               |   | 3,539  |  |   | 482   
|Operating leases                   |  |                        | 51,855  |                 |   | 7,633    |  |          | 13,941 |               |   | 10,742 |  | $ | 19,539
|                                   |  |                        |         |                 |   |          |  |          |        |               |   |        |  |   |       
|Total contractual cash obligations |  | $                      | 117,958 |                 | $ | 17,253   |  | $        | 66,403 |               | $ | 14,281 |  | $ | 20,021
|                                   |  |                        |         |                 |   |          |  |          |        |               |   |        |  |   |       



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Off Balance Sheet Arrangements



We do not currently have any off-balance sheet arrangements with unconsolidated entities or financial partnerships, such as
entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not
engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.



Seasonality



Our results of operations historically have fluctuated on a quarterly basis
and can be expected to continue to fluctuate. Many of the patients of our Florida treatment centers are part-time residents in Florida during the winter months. Hence, these treatment centers have historically experienced higher utilization rates
during the winter months than during the remainder of the year. In addition, referrals are typically lower in the summer months due to traditional vacation periods.



Recently Issued Accounting Pronouncements



In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004) Share-Based
Payment (FAS 123(R)) as a replacement to FASB Statement No. 123 Accounting for Stock Based Compensation (Statement 123). This statement supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees which allowed companies to use the intrinsic method of valuing share-based payment transactions. FAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial
statements based on the fair-value method as defined in Statement 123. The effective date is at the beginning of the first interim or annual period beginning after June 15, 2005. The adoption of FAS 123(R)s fair value method is expected to
have a significant impact on the Companys results of operations, though it will have no impact on the Companys overall financial position. The impact of adoption of FAS 123(R) cannot be accurately predicted at this time since it will
depend on levels of share-based payments granted in the future. However, had we adopted FAS 123(R) in prior periods, the impact of the standard would have approximated the impact of FAS 123 as described in the disclosure pro forma net income and
earnings per share in Note 3 to our consolidated financial statements.



|Item 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------



Information with respect to this Item is contained in our consolidated financial statements beginning with the Index on Page F-1 of this report which is
incorporated herein by reference.



|Item 9A. | Controls and Procedures
|-------- | -----------------------



In May 2005 we completed a review of our historical accounting treatment for leases to determine whether our practices were in accordance with the views regarding certain
lease accounting issues and their application under generally accepted accounting principles expressed by the Office of the Chief Accountant of the SEC on February 7, 2005 in a letter to the American Institute of Certified Public Accountants. As a
result of our review of our lease accounting and based on our discussions with our independent registered public accounting firm and the audit committee of our board of directors, we determined that our historical accounting practices for leases
with fixed-rent escalations for certain leased properties and the related depreciable lives for certain leasehold improvements were incorrect. We also determined that our previously issued audited consolidated financial statements for the fiscal
years 2004, 2003 and 2002 should be restated.



Because of the
lease accounting adjustments and in light of the determination that previously issued financial statements should be restated, management concluded that a material weakness in internal control over financial reporting existed as of December 31,
2004, and disclosed this matter to the audit committee of our board of directors and our independent registered public accounting firm. In the second quarter of 2005 we remediated the material weakness by conducting a review of our lease accounting
methods, establishing new lease accounting policies, and correcting certain leasehold depreciable lives and correcting our methods of accounting for fixed-rent escalations to straight-line the expense of the lease escalations over the lease period.



(a)Evaluation of Disclosure Controls and
Procedures. We carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the period covered by this report pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer



24



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##### Table of Contents

concluded that, solely as a result of the material weakness discussed above, our disclosure controls and procedures were not effective as of December 31,
2004, the end of the period covered by this report, in ensuring that information required to be disclosed by us (including our consolidated subsidiaries) in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported in a timely basis.



(b)Changes in Internal Control Over Financial Reporting. There has been no change in our internal control over financial reporting that occurred during the fourth quarter of 2004 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.



25



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##### Table of Contents



PART IV



|Item 15. | Exhibits, Financial Statement Schedules and Reports on Form 8-K
|-------- | ---------------------------------------------------------------



(a) Index to Consolidated Financial Statements, Financial Statement Schedules and Exhibits:



(1)Consolidated Financial Statements:



See Item 8 in this report.



The consolidated financial statements required to be
included in Part II, Item 8, are indexed on Page F-1 and submitted as a separate section of this report.



(2) Consolidated Financial Statement Schedules:



All schedules are omitted because they are not applicable or not required, or because the required
information is included in the consolidated financial statements or notes in this report.



(3) Exhibits



The Exhibits are incorporated by reference to the Exhibit Index following this Annual Report on form 10-K/A.



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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                |  |     
|--------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                |  | Page
|Report of Independent Registered Public Accounting Firm                                                         |  | F-2 
|                                                                                                                | 
|Consolidated Financial Statements:                                                                              |  |     
|Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2002, 2003 and 2004 |  | F-3 
|Consolidated Balance Sheets at December 31, 2003 and 2004                                                       |  | F-4 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2003 and 2004                      |  | F-5 
|Consolidated Statements of Shareholders Equity for the Years Ended December 31, 2002, 2003 and 2004            |  | F-7 
|Notes to Consolidated Financial Statements                                                                      |  | F-8 



F-1



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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors and Shareholders of Radiation Therapy Services, Inc. and Subsidiaries



We have audited the accompanying consolidated balance sheets of Radiation Therapy Services, Inc. and subsidiaries as of December 31, 2003 and 2004, and
the related consolidated statements of income and comprehensive income, shareholders equity and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Radiation Therapy Services, Inc. and subsidiaries at December 31, 2003 and
2004, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.



As more fully described in Note 2  Restatement of Previously Issued
Financial Statements, to the consolidated financial statements, the accompanying consolidated balance sheets as of December 31, 2004 and 2003 and the related consolidated statements of income and comprehensive income, shareholders equity and
cash flows for each of the three years in the period ended December 31, 2004 have been restated to correct the accounting for certain leases and depreciation of leasehold improvements.



As discussed in Note 3 to the consolidated financial statements, effective January 1, 2002, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.



/s/    ERNST & YOUNG LLP



Certified Public Accountants

Tampa, Florida



February 14, 2005, except for
Notes 2, 3, 6, 10, and 18,

as to which the date is May 10, 2005



F-2



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##### Table of Contents



RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME



|                                                                                   |  |                        |             |   |            |   |             |            |  |   |            
|---------------------------------------------------------------------------------- |  | ---------------------- | ----------- | - | ---------- | - | ----------- | ---------- |  | - | -----------
|                                                                                   |  | Year Ended December 31
|                                                                                   |  | 2002                   |             |   | 2003       |   |             | 2004      
|                                                                                   |  | (Restated)             |             |   | (Restated) |   |             | (Restated)
|Net patient service revenue                                                        |  | $                      | 104,437,893 |   |            | $ | 129,197,497 |            |  | $ | 161,349,027
|Other revenue                                                                      |  |                        | 6,682,128   |   |            |   | 9,482,837   |            |  |   | 10,024,283 
|                                                                                   |  |                        |             |   |            |   |             |            |  |   |            
|Total revenues                                                                     |  |                        | 111,120,021 |   |            |   | 138,680,334 |            |  |   | 171,373,310
|Salaries and benefits                                                              |  |                        | 57,248,353  |   |            |   | 72,145,654  |            |  |   | 87,059,350 
|Medical supplies                                                                   |  |                        | 2,311,782   |   |            |   | 2,226,288   |            |  |   | 3,608,467  
|Facility rent expenses                                                             |  |                        | 3,742,877   |   |            |   | 4,655,882   |            |  |   | 5,346,745  
|Other operating expenses                                                           |  |                        | 7,194,748   |   |            |   | 8,689,514   |            |  |   | 7,560,469  
|General and administrative expenses                                                |  |                        | 10,475,313  |   |            |   | 16,400,267  |            |  |   | 19,671,484 
|Depreciation and amortization                                                      |  |                        | 4,283,486   |   |            |   | 5,202,543   |            |  |   | 6,859,570  
|Provision for doubtful accounts                                                    |  |                        | 3,364,538   |   |            |   | 3,374,587   |            |  |   | 5,852,325  
|Interest expense, net                                                              |  |                        | 2,614,869   |   |            |   | 2,052,712   |            |  |   | 3,435,121  
|Impairment loss                                                                    |  |                        |            |   |            |   | 284,491     |            |  |   |           
|                                                                                   |  |                        |             |   |            |   |             |            |  |   |            
|Total expenses                                                                     |  |                        | 91,235,966  |   |            |   | 115,031,938 |            |  |   | 139,393,531
|                                                                                   |  |                        |             |   |            |   |             |            |  |   |            
|Income before minority interests                                                   |  |                        | 19,884,055  |   |            |   | 23,648,396  |            |  |   | 31,979,779 
|Minority interests in net losses (earnings) of consolidated entities               |  |                        | 23,373      |   |            |   | (7,266      | )          |  |   | 55,123     
|                                                                                   |  |                        |             |   |            |   |             |            |  |   |            
|Income before cumulative effect of change in accounting principle and income taxes |  |                        | 19,907,428  |   |            |   | 23,641,130  |            |  |   | 32,034,902 
|Cumulative effect of change in accounting principle                                |  |                        | (963,293    | ) |            |   |            |            |  |   |           
|                                                                                   |  |                        |             |   |            |   |             |            |  |   |            
|Income before income taxes                                                         |  |                        | 18,944,135  |   |            |   | 23,641,130  |            |  |   | 32,034,902 
|Income tax expense                                                                 |  |                        |            |   |            |   |            |            |  |   | 22,846,460 
|                                                                                   |  |                        |             |   |            |   |             |            |  |   |            
|Net income                                                                         |  |                        | 18,944,135  |   |            |   | 23,641,130  |            |  |   | 9,188,442  
|Other comprehensive income:                                                        |  |                        |             |   |            |   |             |            |  |   |            
|Unrealized (loss) gain on derivative interest rate swap agreements, net of tax     |  |                        |            |   |            |   | (37,058     | )          |  |   | 45,748     
|                                                                                   |  |                        |             |   |            |   |             |            |  |   |            
|Comprehensive income                                                               |  | $                      | 18,944,135  |   |            | $ | 23,604,072  |            |  | $ | 9,234,190  
|                                                                                   |  |                        |             |   |            |   |             |            |  |   |            
|Net income per common share outstandingbasic                                      |  | $                      | 1.14        |   |            | $ | 1.39        |            |  | $ | 0.45       
|                                                                                   |  |                        |             |   |            |   |             |            |  |   |            
|Net income per common share outstandingdiluted                                    |  | $                      | 1.04        |   |            | $ | 1.28        |            |  | $ | 0.44       
|                                                                                   |  |                        |             |   |            |   |             |            |  |   |            
|Weighted average shares outstanding:                                               |  |                        |             |   |            |   |             |            |  |   |            
|Basic                                                                              |  |                        | 16,653,542  |   |            |   | 16,974,471  |            |  |   | 20,292,117 
|                                                                                   |  |                        |             |   |            |   |             |            |  |   |            
|Diluted                                                                            |  |                        | 18,265,182  |   |            |   | 18,470,880  |            |  |   | 21,031,968 
|                                                                                   |  |                        |             |   |            |   |             |            |  |   |            
|Unaudited Pro forma income data:                                                   |  |                        |             |   |            |   |             |            |  |   |            
|Income before income taxes, as reported                                            |  | $                      | 18,944,135  |   |            | $ | 23,641,130  |            |  | $ | 32,034,902 
|Pro forma income taxes                                                             |  |                        | 7,965,919   |   |            |   | 9,456,452   |            |  |   | 12,813,961 
|                                                                                   |  |                        |             |   |            |   |             |            |  |   |            
|Pro forma net income                                                               |  | $                      | 10,978,216  |   |            | $ | 14,184,678  |            |  | $ | 19,220,941 
|                                                                                   |  |                        |             |   |            |   |             |            |  |   |            
|Pro forma net income per common share outstandingbasic                            |  | $                      | 0.66        |   |            | $ | 0.84        |            |  | $ | 0.95       
|                                                                                   |  |                        |             |   |            |   |             |            |  |   |            
|Pro forma net income per common share outstandingdiluted                          |  | $                      | 0.60        |   |            | $ | 0.77        |            |  | $ | 0.91       
|                                                                                   |  |                        |             |   |            |   |             |            |  |   |            



The accompanying notes
are an integral part of the Consolidated Financial Statements.



F-3



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##### Table of Contents



RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                   |  |              |             |   |            |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ----------- | - | ---------- | - | ----------- | -
|                                                                                                                                                                   |  | December 31, |            
|                                                                                                                                                                   |  | 2003         |             |   | 2004       |  
|                                                                                                                                                                   |  | (Restated)   |             |   | (Restated) |  
|ASSETS                                                                                                                                                             |  |              |             |   |            |   |             |  
|Current assets:                                                                                                                                                    |  |              |             |   |            |   |             |  
|Cash and cash equivalents                                                                                                                                          |  | $            | 2,606,278   |   |            | $ | 5,018,608   |  
|Marketable securities, at market                                                                                                                                   |  |              |            |   |            |   | 2,400,000   |  
|Accounts receivable, less allowances for uncollectible accounts of $6,983,290 and $8,985,710 at December 31, 2003 and 2004,
respectively                           |  |              | 22,815,688  |   |            |   | 25,834,381  |  
|Income taxes receivable                                                                                                                                            |  |              |            |   |            |   | 425,763     |  
|Prepaid expenses                                                                                                                                                   |  |              | 2,920,342   |   |            |   | 2,881,956   |  
|Current portion of notes receivable from related parties                                                                                                           |  |              | 122,107     |   |            |   |            |  
|Current portion of lease receivable                                                                                                                                |  |              | 597,112     |   |            |   | 653,175     |  
|Inventories                                                                                                                                                        |  |              | 802,027     |   |            |   | 1,064,516   |  
|Other                                                                                                                                                              |  |              | 1,136,118   |   |            |   | 679,703     |  
|                                                                                                                                                                   |  |              |             |   |            |   |             |  
|Total current assets                                                                                                                                               |  |              | 30,999,672  |   |            |   | 38,958,102  |  
|Notes receivable from related parties, less current portion                                                                                                        |  |              | 540,061     |   |            |   |            |  
|Lease receivable, less current portion                                                                                                                             |  |              | 1,883,244   |   |            |   | 1,230,069   |  
|Equity investments in joint ventures                                                                                                                               |  |              | 1,228,886   |   |            |   | 1,421,900   |  
|Property and equipment, net                                                                                                                                        |  |              | 65,320,783  |   |            |   | 82,999,816  |  
|Goodwill, net                                                                                                                                                      |  |              | 24,915,162  |   |            |   | 35,442,050  |  
|Intangible assets, net                                                                                                                                             |  |              | 717,958     |   |            |   | 1,328,426   |  
|Other assets                                                                                                                                                       |  |              | 2,430,531   |   |            |   | 6,796,870   |  
|                                                                                                                                                                   |  |              |             |   |            |   |             |  
|Total assets                                                                                                                                                       |  | $            | 128,036,297 |   |            | $ | 168,177,233 |  
|                                                                                                                                                                   |  |              |             |   |            |   |             |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                               |  |              |             |   |            |   |             |  
|Current liabilities:                                                                                                                                               |  |              |             |   |            |   |             |  
|Accounts payable                                                                                                                                                   |  | $            | 3,464,249   |   |            | $ | 2,954,935   |  
|Accrued expenses                                                                                                                                                   |  |              | 11,865,700  |   |            |   | 9,482,549   |  
|Deferred income taxes                                                                                                                                              |  |              |            |   |            |   | 1,728,513   |  
|Current portion of long-term debt                                                                                                                                  |  |              | 8,065,406   |   |            |   | 9,620,333   |  
|                                                                                                                                                                   |  |              |             |   |            |   |             |  
|Total current liabilities                                                                                                                                          |  |              | 23,395,355  |   |            |   | 23,786,330  |  
|Long-term debt, less current portion                                                                                                                               |  |              | 51,745,781  |   |            |   | 56,482,552  |  
|Other long-term liabilities                                                                                                                                        |  |              | 1,755,742   |   |            |   | 2,004,957   |  
|Deferred income taxes                                                                                                                                              |  |              |            |   |            |   | 15,478,954  |  
|Minority interest in consolidated entities                                                                                                                         |  |              | 1,561,045   |   |            |   | 4,104,171   |  
|                                                                                                                                                                   |  |              |             |   |            |   |             |  
|Total liabilities                                                                                                                                                  |  |              | 78,457,923  |   |            |   | 101,856,964 |  
|Shareholders equity:                                                                                                                                              |  |              |             |   |            |   |             |  
|Preferred stock, $0.0001 par value, 10,000,000 shares authorized, none issued or outstanding                                                                       |  |              |            |   |            |   |            |  
|Common stock, $0.0001 par value, 75,000,000 shares authorized, 17,281,920 and 22,489,314 shares issued and outstanding at December 31, 2003
and 2004, respectively |  |              | 1,728       |   |            |   | 2,249       |  
|Additional paid-in capital                                                                                                                                         |  |              | 16,615,798  |   |            |   | 69,686,507  |  
|Retained earnings (deficit)                                                                                                                                        |  |              | 35,643,067  |   |            |   | (1,609,646  | )
|Notes receivable from shareholders                                                                                                                                 |  |              | (2,645,161  | ) |            |   | (1,767,531  | )
|Accumulated other comprehensive (loss) income, net of tax                                                                                                          |  |              | (37,058     | ) |            |   | 8,690       |  
|                                                                                                                                                                   |  |              |             |   |            |   |             |  
|Total shareholders equity                                                                                                                                         |  |              | 49,578,374  |   |            |   | 66,320,269  |  
|                                                                                                                                                                   |  |              |             |   |            |   |             |  
|Total liabilities and shareholders equity                                                                                                                         |  | $            | 128,036,297 |   |            | $ | 168,177,233 |  
|                                                                                                                                                                   |  |              |             |   |            |   |             |  



The accompanying notes
are an integral part of the Consolidated Financial Statements.



F-4



---

##### Table of Contents



RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                  |  |                         |             |   |            |   |             |            |  |   |             |  
|--------------------------------------------------------------------------------- |  | ----------------------- | ----------- | - | ---------- | - | ----------- | ---------- |  | - | ----------- | -
|                                                                                  |  | Year Ended December 31, |            
|                                                                                  |  | 2002                    |             |   | 2003       |   |             | 2004       | 
|                                                                                  |  | (Restated)              |             |   | (Restated) |   |             | (Restated) | 
|Cash flows from operating activities                                              |  |                         |             |   |            |   |             |            |  |   |             |  
|Net income                                                                        |  | $                       | 18,944,135  |   |            | $ | 23,641,130  |            |  | $ | 9,188,442   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                         |             |   |            |   |             |            |  |   |             |  
|Depreciation                                                                      |  |                         | 4,151,219   |   |            |   | 5,048,328   |            |  |   | 6,606,314   |  
|Amortization                                                                      |  |                         | 132,267     |   |            |   | 154,215     |            |  |   | 253,256     |  
|Deferred rent expense                                                             |  |                         | 227,271     |   |            |   | 177,162     |            |  |   | 149,214     |  
|Write down of machine parts inventory                                             |  |                         |            |   |            |   |            |            |  |   | 1,222,745   |  
|Deferred income tax provision                                                     |  |                         |            |   |            |   |            |            |  |   | 17,207,467  |  
|Stock based compensation                                                          |  |                         |            |   |            |   |            |            |  |   | 407,918     |  
|Loss on investment                                                                |  |                         | 100,000     |   |            |   |            |            |  |   |            |  
|Impairment loss on goodwill                                                       |  |                         |            |   |            |   | 284,491     |            |  |   |            |  
|Cumulative effect of change in accounting principle                               |  |                         | 963,293     |   |            |   |            |            |  |   |            |  
|Provision for bad debts                                                           |  |                         | 3,364,538   |   |            |   | 3,374,587   |            |  |   | 5,852,325   |  
|Loss on the sale of property and equipment                                        |  |                         | 216,108     |   |            |   | 16,178      |            |  |   | 91,807      |  
|Unrealized gain on interest rate swap agreements                                  |  |                         | (799,902    | ) |            |   |            |            |  |   |            |  
|Minority interest in net (losses) earnings of consolidated entities               |  |                         | (23,373     | ) |            |   | 7,266       |            |  |   | (55,123     | )
|Write off of loan costs                                                           |  |                         |            |   |            |   |            |            |  |   | 335,734     |  
|Equity interest in net income of joint ventures                                   |  |                         | (25,140     | ) |            |   | (8,943      | )          |  |   | (193,014    | )
|Changes in operating assets and liabilities:                                      |  |                         |             |   |            |   |             |            |  |   |             |  
|Accounts receivable                                                               |  |                         | (9,049,495  | ) |            |   | (8,043,956  | )          |  |   | (8,871,018  | )
|Income taxes receivable                                                           |  |                         |            |   |            |   |            |            |  |   | (425,763    | )
|Inventories                                                                       |  |                         | (322        | ) |            |   | 14,631      |            |  |   | (262,489    | )
|Prepaid expenses                                                                  |  |                         | (618,789    | ) |            |   | (1,396,381  | )          |  |   | 30,234      |  
|Accounts payable                                                                  |  |                         | 357,402     |   |            |   | 1,467,268   |            |  |   | (992,972    | )
|Accrued expenses                                                                  |  |                         | 4,218,504   |   |            |   | 2,550,623   |            |  |   | (2,345,910  | )
|                                                                                  |  |                         |             |   |            |   |             |            |  |   |             |  
|Net cash provided by operating activities                                         |  |                         | 22,157,716  |   |            |   | 27,286,599  |            |  |   | 28,199,167  |  
|Cash flows from investing activities                                              |  |                         |             |   |            |   |             |            |  |   |             |  
|Purchases of property and equipment                                               |  |                         | (10,697,521 | ) |            |   | (9,790,934  | )          |  |   | (16,917,861 | )
|Acquisition of radiation centers                                                  |  |                         | (7,642,488  | ) |            |   | (12,078,122 | )          |  |   | (8,069,302  | )
|Proceeds from sale of property and equipment                                      |  |                         | 253,012     |   |            |   | 1,458,807   |            |  |   | 951,010     |  
|(Issuance) receipts of principal payments on notes receivable from shareholders   |  |                         |            |   |            |   | (662,168    | )          |  |   | 662,168     |  
|Purchases of marketable securities, net                                           |  |                         |            |   |            |   |            |            |  |   | (2,400,000  | )
|Change in lease receivable                                                        |  |                         | 490,241     |   |            |   | 454,647     |            |  |   | 597,112     |  
|Change in other assets                                                            |  |                         | 402,447     |   |            |   | (123,903    | )          |  |   | (56,674     | )
|                                                                                  |  |                         |             |   |            |   |             |            |  |   |             |  
|Net cash used in investing activities                                             |  |                         | (17,194,309 | ) |            |   | (20,741,673 | )          |  |   | (25,233,547 | )
|Cash flows from financing activities                                              |  |                         |             |   |            |   |             |            |  |   |             |  
|Proceeds from issuance of debt                                                    |  |                         | 14,151,363  |   |            |   | 13,700,000  |            |  |   | 59,100,000  |  
|Principal repayments of debt                                                      |  |                         | (6,225,525  | ) |            |   | (10,857,033 | )          |  |   | (61,331,299 | )
|Proceeds from public offering of common stock, net of expenses                    |  |                         |            |   |            |   |            |            |  |   | 46,781,061  |  
|Proceeds from issuance of common stock                                            |  |                         | 54,418      |   |            |   | 50,202      |            |  |   | 37,905      |  
|Proceeds from investment by minority interest holder in consolidated entities     |  |                         | 135,000     |   |            |   |            |            |  |   |            |  
|Purchase of treasury stock                                                        |  |                         | (671,000    | ) |            |   |            |            |  |   |            |  
|Proceeds from exercise of stock options                                           |  |                         | 580,961     |   |            |   | 1,008,715   |            |  |   | 2,316,346   |  
|Payments of notes receivable from shareholders                                    |  |                         | 159,619     |   |            |   | 358,769     |            |  |   | 877,630     |  
|Distributions to shareholders                                                     |  |                         | (10,000,000 | ) |            |   | (12,130,000 | )          |  |   | (46,441,155 | )
|Payments of loan costs                                                            |  |                         | (551,704    | ) |            |   | (363,711    | )          |  |   | (1,893,778  | )
|                                                                                  |  |                         |             |   |            |   |             |            |  |   |             |  
|Net cash used in financing activities                                             |  |                         | (2,366,868  | ) |            |   | (8,233,058  | )          |  |   | (553,290    | )
|                                                                                  |  |                         |             |   |            |   |             |            |  |   |             |  
|Net increase (decrease) in cash and cash equivalents                              |  |                         | 2,596,539   |   |            |   | (1,688,132  | )          |  |   | 2,412,330   |  
|Cash and cash equivalents, beginning of year                                      |  |                         | 1,697,871   |   |            |   | 4,294,410   |            |  |   | 2,606,278   |  
|                                                                                  |  |                         |             |   |            |   |             |            |  |   |             |  
|Cash and cash equivalents, end of year                                            |  | $                       | 4,294,410   |   |            | $ | 2,606,278   |            |  | $ | 5,018,608   |  
|                                                                                  |  |                         |             |   |            |   |             |            |  |   |             |  



- Continued on next
page -



F-5



---

##### Table of Contents

RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                                  |  |                         |           |      |   |           |  |   |          
|------------------------------------------------------------------------------------------------- |  | ----------------------- | --------- | ---- | - | --------- |  | - | ---------
|                                                                                                  |  | Year Ended December 31,
|                                                                                                  |  | 2002                    |           | 2003 |   | 2004     
|Supplemental disclosure of cash flow information                                                  |  |                         |           |      |   |           |  |   |          
|Interest paid                                                                                     |  | $                       | 2,176,287 |      | $ | 2,473,162 |  | $ | 3,994,528
|                                                                                                  |  |                         |           |      |   |           |  |   |          
|Income taxes paid, net                                                                            |  | $                       |          |      | $ |          |  | $ | 5,975,000
|                                                                                                  |  |                         |           |      |   |           |  |   |          
|Supplemental disclosure of non-cash transactions                                                  |  |                         |           |      |   |           |  |   |          
|Recorded capital lease obligations related to the acquisition of equipment                        |  | $                       |          |      | $ | 5,014,097 |  | $ | 6,297,222
|                                                                                                  |  |                         |           |      |   |           |  |   |          
|Recorded non-cash contribution of capital by minority interest holder                             |  | $                       |          |      | $ |          |  | $ | 2,598,249
|                                                                                                  |  |                         |           |      |   |           |  |   |          
|Recorded capital lease obligations related to the acquisition of radiation center assets          |  | $                       |          |      | $ |          |  | $ | 2,225,775
|                                                                                                  |  |                         |           |      |   |           |  |   |          
|Recorded obligation related to the acquisition of radiation center assets                         |  | $                       |          |      | $ |          |  | $ | 273,600  
|                                                                                                  |  |                         |           |      |   |           |  |   |          
|Issuance of common stock for the acquisition of Devoto Construction, Inc.                         |  | $                       |          |      | $ |          |  | $ | 3,528,000
|                                                                                                  |  |                         |           |      |   |           |  |   |          
|Recorded related party payable relating to construction in process and building improvement costs |  | $                       |          |      | $ |          |  | $ | 310,058  
|                                                                                                  |  |                         |           |      |   |           |  |   |          
|Recorded lease receivable related to assets under capital lease                                   |  | $                       |          |      | $ | 85,000    |  | $ |         
|                                                                                                  |  |                         |           |      |   |           |  |   |          
|Issuance of a promissory note plus accrued interest for purchase of shares                        |  | $                       |          |      | $ | 521,285   |  | $ |         
|                                                                                                  |  |                         |           |      |   |           |  |   |          
|Cancellation of notes receivable from shareholder for purchase of treasury stock                  |  | $                       |          |      | $ | 709,800   |  | $ |         
|                                                                                                  |  |                         |           |      |   |           |  |   |          
|Issuance of note payable for acquisition of radiation center assets                               |  | $                       | 3,000,000 |      | $ |          |  | $ |         
|                                                                                                  |  |                         |           |      |   |           |  |   |          
|Issuance of common stock for acquisition of radiation center assets                               |  | $                       | 300,000   |      | $ |          |  | $ |         
|                                                                                                  |  |                         |           |      |   |           |  |   |          



The accompanying notes
are an integral part of the Consolidated Financial Statements.



F-6



---

##### Table of Contents



RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY



|                                                                                         |  |              |   |  |                          |       |   |                           |   |            |                                 |        |   |                                            |        |  |                |            |   |                          |   |         |   |  |         |   |  |   |            |   |  |   |             |  
|---------------------------------------------------------------------------------------- |  | ------------ | - |  | ------------------------ | ----- | - | ------------------------- | - | ---------- | ------------------------------- | ------ | - | ------------------------------------------ | ------ |  | -------------- | ---------- | - | ------------------------ | - | ------- | - |  | ------- | - |  | - | ---------- | - |  | - | ----------- | -
|                                                                                         |  | Common Stock |   |  | AdditionalPaid-InCapital |       |   | RetainedEarnings(Deficit) |   |            | NotesReceivablefromShareholders |        |   | AccumulatedOtherComprehensiveIncome (Loss) |        |  | Treasury Stock |            |   | TotalShareholdersEquity |  
|                                                                                         |  | Shares       |   |  | Amount                   |       |   |                           |   |            |                                 | Shares |   |                                            | Amount |  |               
|Balance, January 1, 2002, restated                                                       |  | 16,397,863   |   |  | $                        | 1,639 |   |                           | $ | 13,790,286 |                                 |        | $ | 16,205,022                                 |        |  | $              | (2,157,179 | ) |                          | $ |        |   |  |        |   |  | $ |           |   |  | $ | 27,839,768  |  
|Net income, restated                                                                     |  |             |   |  |                          |      |   |                           |   |           |                                 |        |   | 18,944,135                                 |        |  |                |           |   |                          |   |        |   |  |        |   |  |   |           |   |  |   | 18,944,135  |  
|Distributions to shareholders                                                            |  |             |   |  |                          |      |   |                           |   |           |                                 |        |   | (10,000,000                                | )      |  |                |           |   |                          |   |        |   |  |        |   |  |   |           |   |  |   | (10,000,000 | )
|Issuance of common stock                                                                 |  | 317,763      |   |  |                          | 32    |   |                           |   | 1,773,986  |                                 |        |   |                                           |        |  |                | (1,419,600 | ) |                          |   |        |   |  |        |   |  |   |           |   |  |   | 354,418     |  
|Payment of notes receivable from shareholders                                            |  |             |   |  |                          |      |   |                           |   |           |                                 |        |   |                                           |        |  |                | 159,619    |   |                          |   |        |   |  |        |   |  |   |           |   |  |   | 159,619     |  
|Purchase of treasury stock, at cost                                                      |  |             |   |  |                          |      |   |                           |   |           |                                 |        |   |                                           |        |  |                |           |   |                          |   |        |   |  | (50,000 | ) |  |   | (671,000   | ) |  |   | (671,000    | )
|Exercise of stock options                                                                |  | 272,388      |   |  |                          | 27    |   |                           |   | 580,934    |                                 |        |   |                                           |        |  |                |           |   |                          |   |        |   |  |        |   |  |   |           |   |  |   | 580,961     |  
|Retirement of treasury stock                                                             |  | (91,500      | ) |  |                          | (9    | ) |                           |   | (174,991   | )                               |        |   | (496,000                                   | )      |  |                |           |   |                          |   |        |   |  | 50,000  |   |  |   | 671,000    |   |  |   |            |  
|                                                                                         |  |              |   |  |                          |       |   |                           |   |            |                                 |        |   |                                            |        |  |                |            |   |                          |   |         |   |  |         |   |  |   |            |   |  |   |             |  
|Balance, December 31, 2002, restated                                                     |  | 16,896,514   |   |  |                          | 1,689 |   |                           |   | 15,970,215 |                                 |        |   | 24,653,157                                 |        |  |                | (3,417,160 | ) |                          |   |        |   |  |        |   |  |   |           |   |  |   | 37,207,901  |  
|Net income, restated                                                                     |  |             |   |  |                          |      |   |                           |   |           |                                 |        |   | 23,641,130                                 |        |  |                |           |   |                          |   |        |   |  |        |   |  |   |           |   |  |   | 23,641,130  |  
|Distributions to shareholders                                                            |  |             |   |  |                          |      |   |                           |   |           |                                 |        |   | (12,130,000                                | )      |  |                |           |   |                          |   |        |   |  |        |   |  |   |           |   |  |   | (12,130,000 | )
|Issuance of common stock                                                                 |  | 5,984        |   |  |                          | 1     |   |                           |   | 50,201     |                                 |        |   |                                           |        |  |                |           |   |                          |   |        |   |  |        |   |  |   |           |   |  |   | 50,202      |  
|Payment of notes receivable from shareholders                                            |  |             |   |  |                          |      |   |                           |   |           |                                 |        |   |                                           |        |  |                | 358,769    |   |                          |   |        |   |  |        |   |  |   |           |   |  |   | 358,769     |  
|Unrealized loss on interest rate swap agreement                                          |  |             |   |  |                          |      |   |                           |   |           |                                 |        |   |                                           |        |  |                |           |   |                          |   | (37,058 | ) |  |        |   |  |   |           |   |  |   | (37,058     | )
|Purchase of treasury stock, at cost                                                      |  |             |   |  |                          |      |   |                           |   |           |                                 |        |   |                                           |        |  |                | 709,800    |   |                          |   |        |   |  | (70,000 | ) |  |   | (1,231,085 | ) |  |   | (521,285    | )
|Exercise of stock options                                                                |  | 507,522      |   |  |                          | 51    |   |                           |   | 1,305,234  |                                 |        |   |                                           |        |  |                | (296,570   | ) |                          |   |        |   |  |        |   |  |   |           |   |  |   | 1,008,715   |  
|Retirement of treasury stock                                                             |  | (128,100     | ) |  |                          | (13   | ) |                           |   | (709,852   | )                               |        |   | (521,220                                   | )      |  |                |           |   |                          |   |        |   |  | 70,000  |   |  |   | 1,231,085  |   |  |   |            |  
|                                                                                         |  |              |   |  |                          |       |   |                           |   |            |                                 |        |   |                                            |        |  |                |            |   |                          |   |         |   |  |         |   |  |   |            |   |  |   |             |  
|Balance, December 31, 2003, restated                                                     |  | 17,281,920   |   |  |                          | 1,728 |   |                           |   | 16,615,798 |                                 |        |   | 35,643,067                                 |        |  |                | (2,645,161 | ) |                          |   | (37,058 | ) |  |        |   |  |   |           |   |  |   | 49,578,374  |  
|Net income, restated                                                                     |  |             |   |  |                          |      |   |                           |   |           |                                 |        |   | 9,188,442                                  |        |  |                |           |   |                          |   |        |   |  |        |   |  |   |           |   |  |   | 9,188,442   |  
|Distributions to shareholders                                                            |  |             |   |  |                          |      |   |                           |   |           |                                 |        |   | (46,441,155                                | )      |  |                |           |   |                          |   |        |   |  |        |   |  |   |           |   |  |   | (46,441,155 | )
|Issuance of common stock                                                                 |  | 3,303        |   |  |                          | 1     |   |                           |   | 37,904     |                                 |        |   |                                           |        |  |                |           |   |                          |   |        |   |  |        |   |  |   |           |   |  |   | 37,905      |  
|Payment of notes receivable from shareholders                                            |  |             |   |  |                          |      |   |                           |   |           |                                 |        |   |                                           |        |  |                | 877,630    |   |                          |   |        |   |  |        |   |  |   |           |   |  |   | 877,630     |  
|Unrealized gain on interest rate swap agreement, net                                     |  |             |   |  |                          |      |   |                           |   |           |                                 |        |   |                                           |        |  |                |           |   |                          |   | 45,748  |   |  |        |   |  |   |           |   |  |   | 45,748      |  
|Exercise of stock options                                                                |  | 932,706      |   |  |                          | 93    |   |                           |   | 2,316,253  |                                 |        |   |                                           |        |  |                |           |   |                          |   |        |   |  |        |   |  |   |           |   |  |   | 2,316,346   |  
|Issuance of common stock in initial public offering, net of expenses                     |  | 4,000,000    |   |  |                          | 400   |   |                           |   | 46,780,661 |                                 |        |   |                                           |        |  |                |           |   |                          |   |        |   |  |        |   |  |   |           |   |  |   | 46,781,061  |  
|Compensation to outside consultants                                                      |  |             |   |  |                          |      |   |                           |   | 407,918    |                                 |        |   |                                           |        |  |                |           |   |                          |   |        |   |  |        |   |  |   |           |   |  |   | 407,918     |  
|Issuance of common stock in connection with the acquisition of Devoto Construction, Inc. |  | 271,385      |   |  |                          | 27    |   |                           |   | 3,527,973  |                                 |        |   |                                           |        |  |                |           |   |                          |   |        |   |  |        |   |  |   |           |   |  |   | 3,528,000   |  
|                                                                                         |  |              |   |  |                          |       |   |                           |   |            |                                 |        |   |                                            |        |  |                |            |   |                          |   |         |   |  |         |   |  |   |            |   |  |   |             |  
|Balance, December 31, 2004, restated                                                     |  | 22,489,314   |   |  | $                        | 2,249 |   |                           | $ | 69,686,507 |                                 |        | $ | (1,609,646                                 | )      |  | $              | (1,767,531 | ) |                          | $ | 8,690   |   |  |        |   |  | $ |           |   |  | $ | 66,320,269  |  
|                                                                                         |  |              |   |  |                          |       |   |                           |   |            |                                 |        |   |                                            |        |  |                |            |   |                          |   |         |   |  |         |   |  |   |            |   |  |   |             |  



The accompanying notes
are an integral part of the Consolidated Financial Statements.



F-7



---

##### Table of Contents



RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



DECEMBER 31, 2004



1. Organization



Radiation Therapy Services, Inc. and its consolidated subsidiaries (the Company) develop and operate radiation therapy centers that provide radiation
treatment to cancer patients in Alabama, Delaware, Florida, Kentucky, Maryland, Nevada, New Jersey, New York, North Carolina and Rhode Island.



2. Restatement of Previously Issued Financial Statements



Following a review of the Companys lease accounting practices in the first quarter of 2005, the Company corrected its method of accounting for
leases related to treatment centers that are located on leased land as well as for certain treatment centers with operating leases. To reflect this correction, the Company restated its consolidated financial statements as of December 31, 2001.



Historically, when accounting for leases with annual
fixed-rent escalations, the Company recorded rent expense each year on the basis of the actual scheduled rent payment for each year rather than on a straight-line basis. Depreciation of certain leasehold improvements on those properties occurred
over a period that exceeded the initial non-cancelable lease period and renewal options.



The Company revised its accounting to recognize rent expense on a straight-line basis over the expected lease term, including cancelable option periods where failure to exercise such options would result in a
significant economic penalty. Additionally, the Company corrected the depreciable lives of certain of its leasehold improvements that were being amortized over a period exceeding the applicable lease period and recognized additional depreciation
expense in all prior periods affected.



Below is a summary of
the effects of these changes on the Companys consolidated balance sheets as of December 31, 2004 and 2003, as well as the effects of these changes on the Companys consolidated statements of income and comprehensive income for the years
ended December 31, 2004, 2003 and 2002. The cumulative amount of the restatement is an increase in the deferred rent liability of $1,294,957, an increase in accumulated depreciation of $380,562, an increase in income taxes receivable of $61,579 and
a decrease in deferred income tax liabilities of $592,246. As a result, retained earnings at December 31, 2004 decreased by $1,021,694. Depreciation and amortization expense for fiscal years ended December 31, 2004, 2003 and 2002 increase by
$132,194, $128,065 and $120,303, respectively and rent expense increased by $149,214, $177,162 and $227,271 for the years ended December 31, 2004, 2003 and 2002, respectively. The restatement increased reported diluted net income per common share by
$0.02 for the fiscal year ended December 31, 2004 and decreased reported diluted net income per common share by $0.02 for each of the fiscal years ended December 31, 2003 and 2002. The cumulative effect of the restatement for all years prior to
fiscal year 2002 was $741,310, which was recorded as an adjustment to stockholders equity as of December 31, 2001. The Company did not present a summary of the impact of the restatement on the consolidated statements of cash flows for any of
the above referenced years as the net impact for each year is zero.



|                            |  |                            |            |   |             |   |            |             |  |   |            |  
|--------------------------- |  | -------------------------- | ---------- | - | ----------- | - | ---------- | ----------- |  | - | ---------- | -
|                            |  | Consolidated Balance Sheet |           
|December 31, 2004           |  | As PreviouslyReported      |            |   | Adjustments |   |            | As Restated | 
|Income taxes receivable     |  | $                          | 364,184    |   |             | $ | 61,579     |             |  | $ | 425,763    |  
|Property and equipment, net |  |                            | 83,380,378 |   |             |   | (380,562   | )           |  |   | 82,999,816 |  
|Other long-term liabilities |  |                            | 710,000    |   |             |   | 1,294,957  |             |  |   | 2,004,957  |  
|Deferred income taxes       |  |                            | 16,071,200 |   |             |   | (592,246   | )           |  |   | 15,478,954 |  
|Retained deficit            |  |                            | (587,952   | ) |             |   | (1,021,694 | )           |  |   | (1,609,646 | )



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RADIATION THERAPY
SERVICES, INC.

AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)



|                              |  |                                                          |             |             |   |            |             |  |   |            
|----------------------------- |  | -------------------------------------------------------- | ----------- | ----------- | - | ---------- | ----------- |  | - | -----------
|                              |  | Consolidated Statement of Income andComprehensive Income
|Year ended December 31, 2004  |  | As previouslyReported                                    |             | Adjustments |   |            | As Restated
|Facility rent expenses        |  | $                                                        | 5,197,531   |             | $ | 149,214    |             |  | $ | 5,346,745  
|Depreciation and amortization |  |                                                          | 6,727,376   |             |   | 132,194    |             |  |   | 6,859,570  
|Total expenses                |  |                                                          | 139,112,123 |             |   | 281,408    |             |  |   | 139,393,531
|Income before income taxes    |  |                                                          | 32,316,310  |             |   | (281,408   | )           |  |   | 32,034,902 
|Income tax expense            |  |                                                          | 23,500,285  |             |   | (653,825   | )           |  |   | 22,846,460 
|Net income                    |  |                                                          | 8,816,025   |             |   | 372,417    |             |  |   | 9,188,442  
|Net income per share:         |  |                                                          |             |             |   |            |             |  |   |            
|Basic                         |  | $                                                        | 0.43        |             | $ | 0.02       |             |  | $ | 0.45       
|Diluted                       |  | $                                                        | 0.42        |             | $ | 0.02       |             |  | $ | 0.44       
|                              | 
|                              |  | Consolidated Balance Sheet                              
|December 31, 2003             |  | As PreviouslyReported                                    |             | Adjustments |   |            | As Restated
|Property and equipment, net   |  | $                                                        | 65,569,152  |             | $ | (248,369   | )           |  | $ | 65,320,783 
|Other long-term liabilities   |  |                                                          | 610,000     |             |   | 1,145,742  |             |  |   | 1,755,742  
|Retained earnings             |  |                                                          | 37,037,178  |             |   | (1,394,111 | )           |  |   | 35,643,067 



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RADIATION THERAPY
SERVICES, INC.

AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)



|                              |  |                                                          |             |             |   |          |             |  |   |            
|----------------------------- |  | -------------------------------------------------------- | ----------- | ----------- | - | -------- | ----------- |  | - | -----------
|                              |  | Consolidated Statement of Income andComprehensive Income
|Year ended December 31, 2003  |  | As previouslyReported                                    |             | Adjustments |   |          | As Restated
|Facility rent expenses        |  | $                                                        | 4,478,720   |             | $ | 177,162  |             |  | $ | 4,655,882  
|Depreciation and amortization |  |                                                          | 5,074,478   |             |   | 128,065  |             |  |   | 5,202,543  
|Total expenses                |  |                                                          | 114,726,711 |             |   | 305,227  |             |  |   | 115,031,938
|Income before income taxes    |  |                                                          | 23,946,357  |             |   | (305,227 | )           |  |   | 23,641,130 
|Income tax expense            |  |                                                          |            |             |   |         |             |  |   |           
|Net income                    |  |                                                          | 23,946,357  |             |   | (305,227 | )           |  |   | 23,641,130 
|Net income per share:         |  |                                                          |             |             |   |          |             |  |   |            
|Basic                         |  | $                                                        | 1.41        |             | $ | (0.02    | )           |  | $ | 1.39       
|Diluted                       |  | $                                                        | 1.30        |             | $ | (0.02    | )           |  | $ | 1.28       
|                              | 
|                              |  | Consolidated Statement of Income andComprehensive Income
|Year ended December 31, 2002  |  | As previouslyReported                                    |             | Adjustments |   |          | As Restated
|Facility rent expenses        |  | $                                                        | 3,515,606   |             | $ | 227,271  |             |  | $ | 3,742,877  
|Depreciation and amortization |  |                                                          | 4,163,183   |             |   | 120,303  |             |  |   | 4,283,486  
|Total expenses                |  |                                                          | 90,888,392  |             |   | 347,574  |             |  |   | 91,235,966 
|Income before income taxes    |  |                                                          | 19,291,709  |             |   | (347,574 | )           |  |   | 18,944,135 
|Income tax expense            |  |                                                          |            |             |   |         |             |  |   |           
|Net income                    |  |                                                          | 19,291,709  |             |   | (347,574 | )           |  |   | 18,944,135 
|Net income per share:         |  |                                                          |             |             |   |          |             |  |   |            
|Basic                         |  | $                                                        | 1.16        |             | $ | (0.02    | )           |  | $ | 1.14       
|Diluted                       |  | $                                                        | 1.06        |             | $ | (0.02    | )           |  | $ | 1.04       



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##### Table of Contents

RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)



See Note 18 for the impact of the restatement on 2004 and 2003 quarterly information.



3. Summary of Significant Accounting Policies



Principles of Consolidation



The accompanying consolidated financial statements include the accounts of
the Company and all subsidiaries and entities controlled by the Company through the Companys direct or indirect ownership of a majority interest and exclusive rights granted to the Company as the general partner of such entities.



In December 2003, the Financial Accounting Standards Board issued revised
Interpretation No. 46R (FIN No. 46R), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, which requires that companies consolidate variable interest entities if they are the primary beneficiaries of the activities
of those entities. Companies are generally required to apply FIN No. 46R immediately for all variable interest entities created after January 31, 2003 and by the end of the first quarter 2004 for all other entities for which it is the primary
beneficiary. The Company provides administrative services for a fee to certain radiation oncology practices in certain states with laws that prohibit business corporations from providing, or holding themselves out as providers of medical care. Fees
are based upon the estimated costs of the services performed plus a profit margin. As of December 31, 2003, and 2004 the Company operated in these states providing administrative services for a fee to radiation oncology practices pursuant to
long-term management agreements ranging from 20 to 25 years. Pursuant to the administrative services agreements, the radiation oncology practices are each solely responsible for all aspects of the practice of medicine and patient care as defined by
their respective state. The Company provides administrative and other support services.



During 2003, the Company determined that these radiation oncology practices are variable interest entities as defined by FIN No. 46R, and that it has a variable interest in each of these practices through its
administrative services agreements. The Company also determined that through its variable interests in these practices, it would absorb a majority of the net losses, if they occur.



Based on these determinations, the Company has included the radiation oncology practices in its consolidated financial
statements for all periods presented. The result of the consolidation is an increase in revenue and a corresponding increase in expenses and minority interest, thereby resulting in no significant impact on net income, earnings per share or cash
flows. All significant intercompany accounts and transactions within the Company have been eliminated.



Accounting Change



Effective January 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets, which resulted in a cumulative effect of an accounting change of $963,293 for the year ended December 31, 2002.



Pro forma statements of income data



Effective June 15, 2004, the Company elected, by the consent of the shareholders, to revoke its status as an S corporation and became subject to taxation
as a C corporation. The Company is now subject to federal and state income taxes at prevailing corporate rates. The impact of this change resulted in an income tax expense of approximately $17.6 million during the year ended December 31, 2004. Pro
forma net income and pro forma net income per share are based on the assumption that the Company was a C corporation at the beginning of each period presented, and provides for income taxes utilizing an effective rate of 40%.



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RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)



Public offering of common stock and recapitalization



On June 23, 2004, the Company successfully completed an initial public
offering of 5.5 million shares of common stock at a price of $13.00 per share. Of the shares offered, 4.0 million shares were sold by the Company and 1.5 million were offered by selling shareholders. In addition, the underwriters for the Company
exercised their over-allotment option by purchasing an additional 825,000 shares at $13.00 per share from selling shareholders. Of the net proceeds to the Company of approximately $46.8 million, approximately $44.1 million was used to repay
outstanding indebtedness under the Companys senior secured credit facility, and approximately $2.8 million was used to repay outstanding indebtedness to certain directors, officers and related parties.



On May 28, 2004 the Board of Directors declared a 1.83 for 1 forward common
stock split for shareholders of record on that date. In addition, the Board of Directors approved an increase in the authorized shares of the Companys common stock to 75,000,000 shares, $0.0001 par value, and 10,000,000 shares of preferred
stock, $0.0001 par value. All stock related data in the consolidated financial statements reflect the stock split for all periods presented.



Net Patient Service Revenue and Allowances for Contractual Discounts



The Company has agreements with third-party payors that provide for payments to the Company at amounts different from its
established rates. Net patient service revenue is reported at the estimated net realizable amounts due from patients, third-party payors and others for services rendered. Net patient service revenue is recognized as services are provided. Medicare
and other governmental programs reimburse physicians based on fee schedules, which are determined by the related government agency. The Company also has agreements with managed care organizations to provide physician services based on negotiated fee
schedules. Accordingly, the revenues reported in the Companys consolidated financial statements are recorded at the amount that is expected to be received.



The Company derives a significant portion of its revenues from Medicare, Medicaid, and other payors that receive discounts
from its standard charges. The Company must estimate the total amount of these discounts to prepare its consolidated financial statements. The Medicare and Medicaid regulations and various managed care contracts under which these discounts must be
calculated are complex and subject to interpretation and adjustment. The Company estimates the allowance for contractual discounts on a payor-specific basis given its interpretation of the applicable regulations or contract terms. These
interpretations sometimes result in payments that differ from the Companys estimates. Additionally, updated regulations and contract renegotiations occur frequently necessitating regular review and assessment of the estimation process by
management. Changes in estimates related to the allowance for contractual discounts affect revenues reported in the Companys consolidated statement of income and comprehensive income.



During 2002, 2003, and 2004, approximately 54%, 55%, and 53% respectively, of
net patient service revenue related to services rendered under the Medicare and Medicaid programs. In the ordinary course of business, the Company is potentially subject to a review by regulatory agencies concerning the accuracy of billings and
sufficiency of supporting documentation of procedures performed. Laws and regulations governing the Medicare and Medicaid programs are extremely complex and subject to interpretation. As a result, there is at least a reasonable possibility that
estimates will change by a material amount in the near term.



Cost of
Revenues



The cost of revenues for each of the years
ended December 31, 2002, 2003 and 2004, are approximately $64,167,000, $80,121,000, and $95,032,000, respectively.



Marketable Securities



Marketable securities are classified as available-for-sale and are carried at fair value, with the unrealized holding gains and losses, net of income
taxes, reflected as a separate component of shareholders equity until realized. For the purposes of computing realized and unrealized gains and losses, cost is determined on a specific identification basis.



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RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)



Accounts Receivable and Allowances for Uncollectible Accounts



Accounts receivable in the accompanying consolidated balance sheets are
reported net of estimated allowances for uncollectible accounts and contractual adjustments. Accounts receivable are uncollateralized and primarily consist of amounts due from third-party payors and patients. To provide for accounts receivable that
could become uncollectible in the future, the Company establishes an allowance for uncollectible accounts to reduce the carrying value of such receivables to their estimated net realizable value. Approximately $9,100,000 and $10,000,000 of accounts
receivable were due from the Medicare and Medicaid programs at December 31, 2003 and 2004, respectively. The credit risk for other concentrations of receivables is limited due to the large number of insurance companies and other payors that provide
payments for services. Management does not believe that there are any other significant concentrations of revenues from any particular payor that would subject the Company to any significant credit risk in the collection of its accounts receivable.



The amount of the provision for doubtful accounts is based
upon managements assessment of historical and expected net collections, business and economic conditions, trends in Federal and state governmental healthcare coverage and other collection indicators. The primary tool used in managements
assessment is an annual, detailed review of historical collections and write-offs of accounts receivable. The results of the detailed review of historical collections and write-off experience, adjusted for changes in trends and conditions, are used
to evaluate the allowance amount for the current period. Accounts receivable are written off after collection efforts have been followed in accordance with the Companys policies.



A summary of the activity in the allowance for uncollectible accounts is as follows:



|                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|--------------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                    |  | Year Ended December 31, |           
|                                                    |  | 2002                    |            |   | 2003 |   |            | 2004 | 
|Balance, beginning of year                          |  | $                       | 6,283,949  |   |      | $ | 6,864,807  |      |  | $ | 6,983,290  |  
|Additions charged to provision for bad debts        |  |                         | 3,364,538  |   |      |   | 3,374,587  |      |  |   | 5,852,325  |  
|Accounts receivable written off (net of recoveries) |  |                         | (2,783,680 | ) |      |   | (3,256,104 | )    |  |   | (3,849,905 | )
|                                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Balance, end of year                                |  | $                       | 6,864,807  |   |      | $ | 6,983,290  |      |  | $ | 8,985,710  |  
|                                                    |  |                         |            |   |      |   |            |      |  |   |            |  



Goodwill and Other Intangible
Assets



Goodwill represents the excess purchase price
over the estimated fair market value of net assets acquired by the Company in business combinations. On June 29, 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142, which changed the accounting for goodwill and intangible
assets. Under SFAS No. 142, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually, or more frequently if impairment indicators arise, for impairment. Prior to the adoption of SFAS No. 142, goodwill had
been amortized on a straight-line basis over 25 years through December 31, 2001. The Company adopted SFAS No. 142 effective January 1, 2002.



The Company completed its transitional impairment test under SFAS No. 142 as of January 1, 2002, based on projected cash flows of the business. Due to an
increase in competition and the presence of capitation arrangements with third party payors, operating profits and cash flows were lower than expected for certain locations. Based on the earnings forecast for these markets, a goodwill impairment
loss of $963,293 was recognized. The impairment loss resulting from the transitional impairment test was recorded as a cumulative effect of a change in accounting principle for the year ended December 31, 2002. Subsequent impairment losses, if any,
will be reflected in income before minority interests. For the year ended December 31, 2003, the Company recorded an impairment loss of $284,491 due to increased competition in a specific practice within a regional market. No impairment loss was
recognized for the year ended December 31, 2004.



Intangible
assets consist of noncompete agreements and licenses and are amortized over the life of the agreement (which typically ranges from five to ten years) using the straight-line method.



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##### Table of Contents

RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)



Interest Rate Swap Agreements



In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 133 requires the Company to recognize all derivatives on the consolidated balance sheets at fair value. The accounting for changes in the fair value (i.e. gains or losses) of a derivative instrument depends on
whether it has been designated and qualifies as part of a hedging relationship based on its effectiveness in hedging against the exposure. Derivatives that are not hedges must be adjusted to fair value through operating results. If the derivative is
a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of assets, liabilities, or firm commitments through operating results or recognized in other comprehensive
income until the hedged item is recognized in operating results. The ineffective portion of a derivatives change in fair value will be immediately recognized in earnings.



The Company enters into interest rate swap agreements to reduce the impact of changes in interest rates on its floating rate
Senior Credit Facility (see Note 11). The interest rate swap agreements are contracts to exchange floating rate interest payments for fixed interest payments over the life of the agreements without the exchange of the underlying notional amounts.
The notional amount of interest rate swap agreements are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss. The differential paid or received on interest rate swap agreements is recognized in
interest expense in the consolidated statements of income. The related accrued receivable or payable is included in other assets or accrued expenses.



On March 31, 2003, the Company entered into an interest rate swap agreement to hedge the effect of changes in interest rates on a portion of its floating
rate Senior Credit Facility (Note 11). The Company has designated this derivative financial instrument as a cash flow hedge (i.e., the interest rate swap agreement hedges the exposure to variability in expected future cash flows that is attributable
to a particular risk). The notional amount of the swap agreement is $6.6 million. The effect of this agreement is to fix the interest rate exposure to 2.03% plus a margin on $6.6 million of the Companys Senior Credit Facility. The interest
rate swap agreement expires in March 2005. The fair value of the interest rate swap agreement is the estimated amount that the Company would receive or pay to terminate the agreements at the reporting date, taking into account current interest rates
and the current credit worthiness of the counter parties. The fair value of the Companys interest rate swap agreements at December 31, 2004 is an asset of $8,690 and is included in other current assets in the accompanying consolidated balance
sheets. At December 31, 2003, the fair value of the Companys interest rate swap agreement is a liability of $37,058 which is included in accrued expenses in the accompanying consolidated balance sheets. There were no amounts recorded in the
income statement related to the interest rate swap agreement due to hedge ineffectiveness.



Professional and General Liability Claims



The Company is subject to claims and legal actions in the ordinary course of business, including claims relating to patient treatment, employment practices and personal injuries. To cover these types of claims, the
Company maintains general liability and professional liability insurance in excess of self-insured retentions through a commercial insurance carrier in amounts that the Company believes to be sufficient for its operations, although, potentially,
some claims may exceed the scope of coverage in effect. The Company expenses an estimate of the costs it expects to incur under the self-insured retention exposure for general and professional liability claims. Prior to October 2003, the Company
maintained insurance for individual malpractice claims up to $3 million and aggregated claims up to $5 million on a claims made basis. Effective October 2003, the Company maintained insurance for the majority of its physicians up to $1 million on
individual malpractice claims and $3 million on aggregated claims on a claims made basis. Effective October 2003, the Company purchased medical malpractice insurance from an insurance company owned by certain of the Companys shareholders. The
Companys reserves for professional and general liability claims are based upon independent actuarial calculations, which consider historical claims data, demographic considerations, severity factors, industry trends and other actuarial
assumptions in determination of reserve estimates.



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RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)



Actuarial calculations include a large number of variables that may significantly impact the estimate
of ultimate losses that are recorded during a reporting period. Professional judgment is used by the actuary in determining the loss estimate, by selecting factors that are considered appropriate by the actuary for the Companys specific
circumstances. Changes in assumptions used by the Companys actuary with respect to demographics, industry trends and judgmental selection of factors may impact the Companys recorded reserve levels.



The reserve for professional and general liability claims as of the balance
sheet dates reflects the current estimates of all outstanding losses, including incurred but not reported losses, based upon actuarial calculations. The loss estimates included in the actuarial calculations may change in the future based upon
updated facts and circumstances. The reserve for professional liability claims was $1,215,000, at December 31, 2003 and 2004.



Minority Interest in Consolidated Entities



The Company currently maintains a 90% equity interest in two treatment center facilities in Northwest Baltimore, Maryland and Louisville, Kentucky and a
62% interest in a treatment center facility in Woonsocket, Rhode Island. Since the Company controls more than 50% of the voting interest in these facilities, the Company consolidates the treatment centers. The minority interest represents the equity
interests of outside investors in the equity and results of operations of the consolidated entities.



In addition, in accordance with FIN No. 46R, the Company consolidates certain radiation oncology practices where the Company provides administrative services pursuant to long-term management agreements. The minority
interests in these entities represent the interests of the physician owners of the oncology practices in the equity and results of operations of the consolidated entities.



Use of Estimates



The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.



Cash and Cash
Equivalents



Cash and cash equivalents include highly
liquid investments with original maturities of three months or less.



Inventories



Inventories consist of
parts and supplies used for repairs and maintenance of equipment owned or leased by the Company. Inventories are valued at the lower of cost or market. The cost of parts and supplies is determined using the first-in, first-out method.



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##### Table of Contents

RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)



Property and Equipment



Property and equipment are recorded at historical cost less accumulated depreciation and are depreciated over their
estimated useful lives utilizing the straight-line method. Leasehold improvements are amortized over the lesser of the estimated useful life of the improvement or the life of the lease. Amortization of leased assets is included in depreciation and
amortization in the accompanying consolidated statements of income and comprehensive income. Expenditures for repairs and maintenance are charged to operating expense as incurred, while equipment replacement and betterments are capitalized.



Major asset classifications and useful lives are as follows:



|                                         |  |            
|---------------------------------------- |  | -----------
|Buildings and leasehold improvements     |  | 10-39 years
|Office, computer and telephone equipment |  | 5-10 years 
|Medical and medical testing equipment    |  | 5-10 years 
|Automobiles and vans                     |  | 5 years    



The weighted average
useful life of medical and medical testing equipment is 8.9 years.



The Company evaluates its long-lived assets for possible impairment whenever circumstances indicate that the carrying amount of the asset, or related group of assets, may not be recoverable from estimated future cash flows, in accordance
with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. Fair value estimates are derived from independent appraisals, established market values of comparable assets, or internal calculations of estimated future net cash
flows. The Companys estimates of future cash flows are based on assumptions and projections it believes to be reasonable and supportable. The Companys assumptions take into account revenue and expense growth rates, patient volumes,
changes in payor mix, changes in legislation and other payor payment patterns. These assumptions vary by type of facility.



During the third quarter of 2004, the Company recorded a charge of $1.2 million for the write down to fair value of certain of our analog linear
accelerators and treatment simulators. The adjustment to machine inventories was precipitated by the decision to discontinue the installation of this type of equipment in favor of digital machines with migration capability and combination
CT-simulators. This amount is included in general and administrative expenses in the statement of income and comprehensive income for the year ended December 31, 2004.



New Pronouncements



In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004) Share-Based Payment (FAS
123(R)), which is a revision of FASB Statement No. 123 Accounting for Stock Based Compensation (Statement 123). This statement supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees
(Opinion 25) which allowed companies to use the intrinsic value method of valuing share-based payment transactions and amends FASB Statement No. 95, Statement of Cash Flows. FAS 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. FAS 123(R) is effective at the beginning of the first interim or annual
period beginning after December 15, 2005. The Company expects to adopt Statement 123 (R) on January 1, 2006. The adoption of FAS 123(R)s fair value method is expected to have a significant impact on the Companys results of operations,
though it will have no impact on the Companys overall financial position.



FAS 123(R) permits public companies to adopt its requirements using one of two methods. A modified prospective method in which compensation cost is recognized beginning with the effective date (a) based on
the requirements of FAS 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of Statement 123 for all awards granted to employees prior to the effective date of FAS 123(R) that remain unvested on the
effective date. A modified retrospective method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under Statement 123 for
purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption. The Company will determine which method to adopt prior to the effective date of FAS 123(R).



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RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)



The impact of adoption of FAS 123(R) cannot be accurately predicted at this time since it will depend
on levels of share-based payments granted in the future. However, had the Company adopted FAS 123(R) in prior periods, the impact of the standard would have approximated the impact of FAS 123 as described in the disclosure of pro forma net income
and earnings per share in Note 3 to our consolidated financial statements. Statement 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating
cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While the Company cannot estimate what those amounts will be in the future
(because they depend on, among other things, when employees exercise stock options), there were no amounts of operating cash flows recognized in prior periods for such excess tax deductions in 2002, 2003 and 2004.



As permitted by Statement 123, the Company currently accounts for share-based
payments using Opinion 25s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options.



Comprehensive Income



Comprehensive income consists of two components, net income and other comprehensive income (loss). Other comprehensive income / loss refers to revenue,
expenses, gains and losses that under accounting principles generally accepted in the United Sates are recorded as an element of shareholders equity but are excluded from net income. The Companys other comprehensive income / loss is
composed of unrealized gains and losses on an interest rate swap agreement accounted for as a cash flow hedge. This loss reduced shareholders equity on a consolidated basis by $37,058 during the year ended December 31, 2003 and increased
shareholders equity by $45,748 during the year ended December 31, 2004.



Income Taxes



Effective June 15, 2004,
the Company elected, by the consent of the shareholders, to revoke its status as an S corporation and become subject to taxation as a C corporation. Under the S corporation provisions of the Internal Revenue Code, the individual shareholders
included their pro rata portion of the Companys taxable income in their personal income tax returns. Accordingly, through June 14, 2004, the Company was not subject to federal and certain state corporate income taxes. The Company is now
subject to federal and state income taxes at prevailing corporate rates.



Stock-Based Compensation



The Company maintains a Stock Option Plan (the Plan), which is described more fully in Note 15. The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
25) and related interpretations. Under APB 25, because the exercise price of employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation,as amended by SFAS No. 148, Accounting for Stock-Based Compensation- Transition and Disclosure
requires pro forma disclosure of net income and earnings per share for the effect of compensation had the fair value method of accounting for stock options been adopted. For purposes of this disclosure, the fair value of each option grant has been
calculated using the Black-Scholes valuation model.



The
Company follows SFAS 123 and EITF Issue No. 96-18, Accounting for Equity Investments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods and Services, for our stock option grants to non-employees. As
such, the Company measures compensation expense as the services are performed and recognize the expense ratably over the service period. Prior to vesting, the Company recognizes expense using the fair value of the option at the end of the reporting
period. Additional expense due to increases in the value of our options prior to the vesting date will be recognized in the period of the option value increase.



F-17



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##### Table of Contents

RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)



For purpose of pro forma disclosures, the estimated fair value of the options is amortized to expense
over their vesting periods. Our pro forma information is as follows:



|                                                                                                                                              |  |                         |            |   |            |   |            |            |  |   |            |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ---------- | - | ---------- | ---------- |  | - | ---------- | -
|                                                                                                                                              |  | Year Ended December 31, |           
|                                                                                                                                              |  | 2002                    |            |   | 2003       |   |            | 2004       | 
|                                                                                                                                              |  | (Restated)              |            |   | (Restated) |   |            | (Restated) | 
|Pro forma net income as reported                                                                                                              |  | $                       | 10,978,216 |   |            | $ | 14,184,678 |            |  | $ | 19,220,941 |  
|Deduct: total stock-based employee compensation expense determined under a fair value based method for all awards, net of related tax
effects |  |                         | (211,952   | ) |            |   | (153,596   | )          |  |   | (1,436,678 | )
|                                                                                                                                              |  |                         |            |   |            |   |            |            |  |   |            |  
|Adjusted pro forma net income                                                                                                                 |  | $                       | 10,766,264 |   |            | $ | 14,031,082 |            |  | $ | 17,784,263 |  
|                                                                                                                                              |  |                         |            |   |            |   |            |            |  |   |            |  
|Adjusted net income or pro forma net income per share:                                                                                        |  |                         |            |   |            |   |            |            |  |   |            |  
|Basicpro forma as reported                                                                                                                   |  | $                       | 0.66       |   |            | $ | 0.84       |            |  | $ | 0.95       |  
|                                                                                                                                              |  |                         |            |   |            |   |            |            |  |   |            |  
|Basicadjusted pro forma                                                                                                                      |  | $                       | 0.65       |   |            | $ | 0.83       |            |  | $ | 0.88       |  
|                                                                                                                                              |  |                         |            |   |            |   |            |            |  |   |            |  
|Dilutedpro forma as reported                                                                                                                 |  | $                       | 0.60       |   |            | $ | 0.77       |            |  | $ | 0.91       |  
|                                                                                                                                              |  |                         |            |   |            |   |            |            |  |   |            |  
|Dilutedadjusted pro forma                                                                                                                    |  | $                       | 0.59       |   |            | $ | 0.76       |            |  | $ | 0.85       |  
|                                                                                                                                              |  |                         |            |   |            |   |            |            |  |   |            |  
|Adjusted pro forma weighted average common shares outstandingbasic                                                                           |  |                         | 16,653,542 |   |            |   | 16,974,471 |            |  |   | 20,292,117 |  
|                                                                                                                                              |  |                         |            |   |            |   |            |            |  |   |            |  
|Adjusted pro forma weighted average common and common equivalent shares outstandingdiluted                                                   |  |                         | 18,211,083 |   |            |   | 18,424,224 |            |  |   | 20,830,244 |  
|                                                                                                                                              |  |                         |            |   |            |   |            |            |  |   |            |  
|Weighted average fair value of option grants                                                                                                  |  | $                       | 2.41       |   |            | $ |           |            |  | $ | 4.77       |  
|                                                                                                                                              |  |                         |            |   |            |   |            |            |  |   |            |  



The fair value of each option grant
was estimated on the date of grant using the Minimum Value option pricing model for 2002. No options were granted in 2003. For 2004, the fair value of each option grant was estimated on the date of grant using the Black Scholes Model with the
following assumptions: risk free interest rate of 3.14% and 4.02% for December 31, 2002 and 2004, respectively; no dividend yield; expected life of 6.4, and 5.0 years, for December 31, 2002 and 2004 respectively; and volatility of 0% and 30% for
December 31, 2002 and 2004, respectively.



Fair Value of Financial
Instruments



The carrying values of the Companys
financial instruments, which include cash, marketable securities, accounts receivable and accounts payable, approximate their fair values due to the short-term maturity of these instruments.



The majority of the Companys long-term debt has a floating interest
rate and, therefore, the carrying amount approximates fair value at December 31, 2003 and 2004.



Segments



The
Companys business of providing healthcare services to patients comprises a single reportable operating segment under SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information.



F-18



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##### Table of Contents

RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)



4. Earnings per share



Diluted earnings per common and common equivalent share have been computed by dividing net income by the weighted average
common and common equivalent shares outstanding during the respective periods. The weighted average common and common equivalent shares outstanding have been adjusted to include the number of shares that would have been outstanding if vested
in the money stock options had been exercised, at the average market price for the period, with the proceeds being used to buy back shares (i.e., the treasury stock method). Basic earnings per common share was computed by dividing net
income by the weighted average number of shares of common stock outstanding during the year. The following is a reconciliation of the denominator of basic and diluted earnings per share (EPS) computations shown on the face of the accompanying
consolidated financial statements:



|                                                                         |  |              |  |            |  |           
|------------------------------------------------------------------------ |  | ------------ |  | ---------- |  | ----------
|                                                                         |  | December 31,
|                                                                         |  | 2002         |  | 2003       |  | 2004      
|Weighted average common shares outstandingbasic                         |  | 16,653,542   |  | 16,974,471 |  | 20,292,117
|Effect of dilutive options                                               |  | 1,611,640    |  | 1,496,409  |  | 739,851   
|                                                                         |  |              |  |            |  |           
|Weighted average common and common equivalent shares outstandingdiluted |  | 18,265,182   |  | 18,470,880 |  | 21,031,968
|                                                                         |  |              |  |            |  |           



5. Marketable Securities



Marketable securities classified as available-for-sale
consisted of the following:



|                            |  |              |   |      |   |          
|--------------------------- |  | ------------ | - | ---- | - | ---------
|                            |  | December 31,
|                            |  | 2003         |   | 2004
|Municipal bonds, cost       |  | $            |  |      | $ | 2,200,000
|Municipal bonds, fair value |  |              |  |      |   | 2,200,000
|                            |  |              |   |      |   |          
|Unrealized gain (loss)      |  |              |  |      |   |         
|                            |  |              |   |      |   |          
|Preferred stock, cost       |  |              |  |      |   | 200,000  
|Preferred stock, fair value |  |              |  |      |   | 200,000  
|                            |  |              |   |      |   |          
|Unrealized gain (loss)      |  |              |  |      |   |         
|                            |  |              |   |      |   |          
|Net unrealized gain (loss)  |  | $            |  |      | $ |         
|                            |  |              |   |      |   |          



At December 31, 2004,
100 percent of the companys municipal bonds are invested in obligations of individual states and political subdivisions. Approximately 11 percent of the Companys municipal bonds mature within one year, and the remainder have maturities
greater than ten years.



F-19



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##### Table of Contents

RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)



6. Property and Equipment



Property and equipment consist of the following:



|                                         |  |              |             |   |            |   |             |  
|---------------------------------------- |  | ------------ | ----------- | - | ---------- | - | ----------- | -
|                                         |  | December 31, |            
|                                         |  | 2003         |             |   | 2004       |  
|                                         |  | (Restated)   |             |   | (Restated) |  
|Land                                     |  | $            | 4,518,618   |   |            | $ | 5,423,504   |  
|Buildings and leasehold improvements     |  |              | 27,718,589  |   |            |   | 35,229,140  |  
|Office, computer and telephone equipment |  |              | 7,792,178   |   |            |   | 10,619,229  |  
|Medical and medical testing equipment    |  |              | 51,569,967  |   |            |   | 63,502,775  |  
|Automobiles and vans                     |  |              | 1,488,551   |   |            |   | 1,530,301   |  
|                                         |  |              |             |   |            |   |             |  
|                                         |  |              | 93,087,903  |   |            |   | 116,304,949 |  
|Less accumulated depreciation            |  |              | (29,100,584 | ) |            |   | (34,934,527 | )
|                                         |  |              |             |   |            |   |             |  
|                                         |  |              | 63,987,319  |   |            |   | 81,370,422  |  
|Construction in progress                 |  |              | 1,333,464   |   |            |   | 1,629,394   |  
|                                         |  |              |             |   |            |   |             |  
|                                         |  | $            | 65,320,783  |   |            | $ | 82,999,816  |  
|                                         |  |              |             |   |            |   |             |  



7. Capital Lease Arrangements



The Company is the lessor of medical equipment under
various capital lease arrangements. The lease terms are for seven years, at which time the lessee can purchase the equipment at an agreed upon amount.



The components of the investment in sales-type leases are as follows:



|                                    |  |              |           |   |      |   |           |  
|----------------------------------- |  | ------------ | --------- | - | ---- | - | --------- | -
|                                    |  | December 31, |          
|                                    |  | 2003         |           |   | 2004 |  
|Minimum lease receivable            |  | $            | 2,931,036 |   |      | $ | 2,137,830 |  
|Less unearned interest income       |  |              | (450,680  | ) |      |   | (254,586  | )
|                                    |  |              |           |   |      |   |           |  
|Net investment in sales-type leases |  |              | 2,480,356 |   |      |   | 1,883,244 |  
|Less current portion                |  |              | (597,112  | ) |      |   | (653,175  | )
|                                    |  |              |           |   |      |   |           |  
|                                    |  | $            | 1,883,244 |   |      | $ | 1,230,069 |  
|                                    |  |              |           |   |      |   |           |  



The aggregate amount
of scheduled payments on lease receivables consist of the following at December 31, 2004:



|           |  |   |          
|---------- |  | - | ---------
|2005       |  | $ | 793,206  
|2006       |  |   | 727,640  
|2007       |  |   | 456,894  
|2008       |  |   | 134,850  
|2009       |  |   | 15,144   
|Thereafter |  |   | 10,096   
|           |  |   |          
|           |  | $ | 2,137,830
|           |  |   |          



F-20



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##### Table of Contents

RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)



The Company leases certain equipment under agreements, which are classified as capital leases. These
leases have bargain purchase options at the end of the original lease terms. Capital leased assets included in property and equipment are as follows:



|                               |  |              |           |   |      |   |            |  
|------------------------------ |  | ------------ | --------- | - | ---- | - | ---------- | -
|                               |  | December 31, |          
|                               |  | 2003         |           |   | 2004 |  
|Equipment                      |  | $            | 5,795,747 |   |      | $ | 14,023,342 |  
|Less: accumulated depreciation |  |              | (402,633  | ) |      |   | (1,327,859 | )
|                               |  |              |           |   |      |   |            |  
|                               |  | $            | 5,393,114 |   |      | $ | 12,695,483 |  
|                               |  |              |           |   |      |   |            |  



Depreciation expense
relating to capital leased equipment was approximately $417,000, $364,000 and $925,000 for the years ended December 31, 2002, 2003 and 2004, respectively.



8. Goodwill and Intangible Assets



Intangible assets consist of the following:



|                                                                 |  |                   |           |                          |   |          |     |  |   |          
|---------------------------------------------------------------- |  | ----------------- | --------- | ------------------------ | - | -------- | --- |  | - | ---------
|                                                                 |  | December 31, 2003
|Intangible assets subject to amortization (definite-lived)       |  | Gross             |           | Accumulated Amortization |   |          | Net
|Noncompete agreements                                            |  | $                 | 1,042,550 |                          | $ | (324,592 | )   |  | $ | 717,958  
|                                                                 |  |                   |           |                          |   |          |     |  |   |          
|                                                                 | 
|                                                                 |  | December 31, 2004
|Intangible assets subject to amortization (definite-lived)       |  | Gross             |           | Accumulated Amortization |   |          | Net
|Noncompete agreements                                            |  | $                 | 1,722,550 |                          | $ | (575,348 | )   |  | $ | 1,147,202
|Other licenses                                                   |  |                   | 35,000    |                          |   | (2,500   | )   |  |   | 32,500   
|                                                                 |  |                   |           |                          |   |          |     |  |   |          
|                                                                 |  |                   | 1,757,550 |                          |   | (577,848 | )   |  |   | 1,179,702
|                                                                 |  |                   |          
|Intangible assets not subject to amortization (indefinite-lived) |  |                   |           |                          |   |          |    
|Certificate of need licenses                                     |  |                   | 148,724   |                          |   |         |     |  |   | 148,724  
|                                                                 |  |                   |           |                          |   |          |     |  |   |          
|                                                                 |  | $                 | 1,906,274 |                          | $ | (577,848 | )   |  | $ | 1,328,426
|                                                                 |  |                   |           |                          |   |          |     |  |   |          



Amortization expense
relating to intangible assets was approximately $132,000, $154,000 and $253,000 for the years ended December 31, 2002, 2003 and 2004, respectively.



Estimated future amortization expense is as follows at December 31, 2004:



|                                 |  |   |        
|-------------------------------- |  | - | -------
|For year ended December 31, 2005 |  | $ | 543,256
|For year ended December 31, 2006 |  |   | 383,256
|For year ended December 31, 2007 |  |   | 143,256
|For year ended December 31, 2008 |  |   | 69,681 
|For year ended December 31, 2009 |  |   | 32,755 



F-21



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##### Table of Contents

RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)



The changes in the carrying amount of goodwill are as follows:



|                                  |  |                         |            |   |      |   |            |      |  |   |           
|--------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ----------
|                                  |  | Year Ended December 31,
|                                  |  | 2002                    |            |   | 2003 |   |            | 2004
|Balance, beginning of year        |  | $                       | 10,496,399 |   |      | $ | 16,956,232 |      |  | $ | 24,915,162
|Goodwill recorded during the year |  |                         | 7,423,126  |   |      |   | 8,243,421  |      |  |   | 10,526,888
|Impairment losses                 |  |                         | (963,293   | ) |      |   | (284,491   | )    |  |   |          
|                                  |  |                         |            |   |      |   |            |      |  |   |           
|Balance, end of year              |  | $                       | 16,956,232 |   |      | $ | 24,915,162 |      |  | $ | 35,442,050
|                                  |  |                         |            |   |      |   |            |      |  |   |           



9. Acquisitions



Effective January 2002, the Company acquired the operations and assets of
six radiation therapy centers in western North Carolina. The Company determined that the North Carolina region is a favorable marketplace due to the existing laws in the state, which require a Certificate of Need (CON) in order to provide healthcare
services. The CON provides a level of protection from new competitors entering the marketplace. The acquisition was accounted for as a purchase. The fair value of the assets acquired, including intangible assets, was approximately $10,900,000. The
purchase price was allocated to tangible assets of $3,102,000; $375,000 as a noncompete amortized over seven years and goodwill of $7,423,000. The consideration given for the acquisition included $7,450,000 cash, 54,142 shares of the Companys
stock valued at $300,000, $150,000 of direct acquisition costs, and $3,000,000 in notes payable to the seller ($2,000,000 due in 2003 and $1,000,000 due in 2004). In addition to the $10,900,000, the purchase arrangement included a $1,000,000
deferred purchase price contingent on maintaining a level of patient treatments, payable one year from the date of closing. In January 2003, the Company paid the deferred purchase price, as the patient levels were maintained, resulting in an
increase to goodwill of $1,000,000.



Effective July 2003, the
Company acquired the assets of a radiation therapy center in western North Carolina. The purchase price was approximately $1,200,000 and was paid in cash. The purchase price was allocated to tangible assets of $225,000, and goodwill of $975,000.



Effective August 2003, the Company acquired the operations and
assets of a radiation therapy center in Key West, Florida. The purchase price was approximately $285,000 and was paid in cash. The purchase price was allocated to tangible assets of $45,000, and $240,000 as a non-compete amortized over five years.



Effective September 2003, the Company acquired the operations
and assets of two radiation therapy centers and purchased a 90% investment interest in a third radiation therapy center in Kentucky. The Company determined that the purchases of the three radiation therapy centers provided an entry into the Midwest
with the potential to add value in providing advanced treatment services to the community. The purchase price was approximately $6,358,000 and was paid in cash. The purchase price was allocated to tangible assets of $2,775,000 and goodwill of
$3,583,000.



Effective December 2003, the Company acquired the
operations and assets of a radiation therapy center in Dothan, Alabama. The Company determined that the Alabama region is a favorable marketplace due to the existing laws in the state, which require a CON in order to provide healthcare services. The
CON provides a level of protection from new competitors entering the marketplace. The purchase price was approximately $3,236,000 and was paid in cash. The purchase price was allocated to tangible assets of $551,000 and goodwill of $2,685,000.



On June 23, 2004 the Company acquired the assets of Devoto
Construction, Inc., which was owned by certain directors and officers for approximately $3,528,000 through the issuance of 271,385 shares of the Companys common stock. Devoto Construction, Inc. performs remodeling and real property
improvements at the Companys medical facilities and specializes in the construction of radiation medical facilities. The purchase of Devoto Construction, Inc. was a strategic fit for the Company as it continues to expand its operations into
new markets. The purchase price was allocated to net tangible assets of $4,000, an intangible asset of $35,000 amortized over 7 years and goodwill of $3,489,000.



F-22



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##### Table of Contents

RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)



On September 21, 2004 the Company acquired the operations and medical and office equipment of two
radiation centers in New Jersey. The Company determined that the purchase provided an entry into the state of New Jersey with the potential to add value in providing advanced treatment services to the community. The Company also completed the
purchase of a third center in Willingboro, New Jersey, on October 18, 2004, completing the acquisitions of the planned three centers in that state. The fair value of the assets acquired, including intangible assets, was approximately $10,569,000.
The purchase price was allocated to tangible assets of $2,851,000; $680,000 as a non-compete amortized over eighteen to twenty four months and goodwill of $7,038,000. The consideration given for the acquisition included $7,909,000 cash, payments of
direct costs relating to due diligence of $160,000, the assumption of capital lease financing of $2,226,000, and the assumption of $100,000 in liability for assuming a physician employment contract and other liabilities of $174,000. In addition, the
purchase of the third center includes a deferred purchase price contingent on maintaining a certain level of earnings before interest, taxes, depreciation and amortization and providing for payment of a certain percentage over the base level
annually during the following three fiscal years. This amount if paid, will increase goodwill for the acquisition.



Allocation of Purchase Price



The purchase prices of these transactions were allocated to the assets acquired and liabilities assumed based upon their respective fair values. The
operations of the foregoing acquisitions have been included in the accompanying consolidated statements of income and comprehensive income from the respective dates of acquisition. The following table summarizes the allocations of the aggregate
purchase price of the acquisitions, including assumed liabilities and direct transaction costs.



|                                              |  |      |            |      |   |            |      |  |   |           
|--------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | ---- |  | - | ----------
|                                              |  | 2002 |            | 2003 |   |            | 2004
|Fair value of assets acquired excluding cash: |  |      |            |      |   |            |      |  |   |           
|Accounts receivable, net                      |  | $    |           |      | $ | 444,000    |      |  | $ |          
|Inventories                                   |  |      | 160,000    |      |   | 15,000     |      |  |   |          
|Other current assets                          |  |      | 9,000      |      |   | 35,000     |      |  |   |          
|Other non-current assets                      |  |      |           |      |   | 120,000    |      |  |   | 201,000   
|Property and equipment                        |  |      | 2,933,000  |      |   | 3,256,000  |      |  |   | 2,654,000 
|Intangible assets                             |  |      | 375,000    |      |   | 240,000    |      |  |   | 715,000   
|Goodwill                                      |  |      | 8,423,000  |      |   | 7,243,000  |      |  |   | 10,527,000
|Current liabilities                           |  |      |           |      |   | (100,000   | )    |  |   |          
|Minority interest                             |  |      |           |      |   | (174,000   | )    |  |   |          
|                                              |  |      |            |      |   |            |      |  |   |           
|                                              |  | $    | 11,900,000 |      | $ | 11,079,000 |      |  | $ | 14,097,000
|                                              |  |      |            |      |   |            |      |  |   |           



10. Income Taxes



Significant components of the income tax provision for the year ended
December 31, 2004 are as follows:



|                           |  |   |           
|-------------------------- |  | - | ----------
|Current provision:         |  |   |           
|Federal                    |  | $ | 5,112,875 
|State                      |  |   | 526,118   
|Deferred provision:        |  |   |           
|Federal                    |  |   | 15,602,010
|State                      |  |   | 1,605,457 
|                           |  |   |           
|Total income tax provision |  | $ | 22,846,460
|                           |  |   |           



F-23



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##### Table of Contents

RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)



A reconciliation of the statutory federal income tax rate to the Companys effective income tax
rate on income before income taxes for the year ended December 31, 2004 follows:



|                                                                                                                                 |  |       |  
|-------------------------------------------------------------------------------------------------------------------------------- |  | ----- | -
|Federal statutory rate                                                                                                           |  | 35.0  | %
|State income taxes, net of federal income tax benefit                                                                            |  | 3.4   |  
|Income tax effect attributable to portion of year the Company was recognized as an S-Corporation for federal income tax
purposes |  | (20.0 | )
|Income tax effect of conversion from an S-Corporation to a C-Corporation                                                         |  | 52.7  |  
|Other                                                                                                                            |  | 0.2   |  
|                                                                                                                                 |  |       |  
|Total income tax provision                                                                                                       |  | 71.3  | %
|                                                                                                                                 |  |       |  



The Company provides
for income taxes using the liability method in accordance with Financial Accounting Standards Board Statement No. 109, Accounting for Income Taxes. Deferred income taxes arise from the temporary differences in the recognition of income and
expenses for tax purposes. Deferred tax assets and liabilities are comprised of the following at December 31, 2004:



|                                                                         |  |   |             |  
|------------------------------------------------------------------------ |  | - | ----------- | -
|Deferred income tax assets:                                              |  |   |             |  
|Provision for doubtful accounts                                          |  | $ | 2,114,098   |  
|State net operating loss carryforwards                                   |  |   | 227,933     |  
|Deferred rent liability                                                  |  |   | 470,863     |  
|Other                                                                    |  |   | 735,703     |  
|                                                                         |  |   |             |  
|                                                                         |  |   | 3,548,597   |  
|Less: Valuation allowance                                                |  |   |            |  
|                                                                         |  |   |             |  
|Net deferred income tax assets                                           |  | $ | 3,548,597   |  
|                                                                         |  |   |             |  
|Deferred income tax liabilities:                                         |  |   |             |  
|Property and equipment                                                   |  | $ | (12,879,003 | )
|Intangible assets                                                        |  |   | (1,388,709  | )
|Income tax effect of conversion from an S-Corporation to a C-Corporation |  |   | (4,071,185  | )
|Prepaid expense                                                          |  |   | (735,062    | )
|Partnership interests                                                    |  |   | (1,682,105  | )
|                                                                         |  |   |             |  
|Total deferred tax liabilities                                           |  |   | (20,756,064 | )
|                                                                         |  |   |             |  
|Net deferred income tax liabilities                                      |  | $ | (17,207,467 | )
|                                                                         |  |   |             |  



At December 31, 2004,
state net operating loss carryforwards (expiring in years 2011 through 2024) available to offset future taxable income approximated $4.2 million (primarily in Florida and New Jersey). Utilization of net operating loss carryforwards in any one year
may be limited.



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RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)



11. Long-Term Debt



The Company is obligated under long-term debt agreements as follows:



|                                                                                                                                                                                                                                                                                                                                                                           |  |              |            |   |      |   |            |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                                                                                                                                                                                                                                                                                                                                                                           |  | December 31, |           
|                                                                                                                                                                                                                                                                                                                                                                           |  | 2003         |            |   | 2004 |  
|$135,000,000 Senior Credit Facility with interest rates at LIBOR or prime plus applicable margin, collateralized by substantially all of the
Companys assets. At December 31, 2003 and 2004, interest rates were at LIBOR and prime plus applicable margin, ranging from 3.14% to 4.50% and 4.31% to 5.5%, respectively, due at various maturity dates through April 2007 |  | $            | 51,927,000 |   |      | $ | 54,016,000 |  
|Note payable to related parties, uncollateralized, with interest payable monthly at prime, due on demand with 60 days notice                                                                                                                                                                                                                                               |  |              | 569,000    |   |      |   |           |  
|Notes payable to shareholders, uncollateralized, with an interest rate at 8%, due at various maturity dates through December
2004                                                                                                                                                                                                                                          |  |              | 1,465,491  |   |      |   |           |  
|Capital leases payable with various monthly payments plus interest at rates ranging from 4.1% to 11.4%, due at various maturity dates through
September 2011 and collateralized by leasehold improvements and medical equipment with a net book value of $5,393,114 and $12,695,483 at December 31, 2003 and 2004, respectively                                            |  |              | 5,337,254  |   |      |   | 12,086,885 |  
|Note payable to a former shareholder for the purchase of shares, uncollateralized with quarterly interest payments at prime (5.25% at December
31, 2004), due August 2006                                                                                                                                                                                                  |  |              | 512,442    |   |      |   |           |  
|                                                                                                                                                                                                                                                                                                                                                                           |  |              |            |   |      |   |            |  
|                                                                                                                                                                                                                                                                                                                                                                           |  |              | 59,811,187 |   |      |   | 66,102,885 |  
|Less current portion                                                                                                                                                                                                                                                                                                                                                       |  |              | (8,065,406 | ) |      |   | (9,620,333 | )
|                                                                                                                                                                                                                                                                                                                                                                           |  |              |            |   |      |   |            |  
|                                                                                                                                                                                                                                                                                                                                                                           |  | $            | 51,745,781 |   |      | $ | 56,482,552 |  
|                                                                                                                                                                                                                                                                                                                                                                           |  |              |            |   |      |   |            |  



Maturities under the
obligations described above are as follows at December 31, 2004:



|           |  |   |           
|---------- |  | - | ----------
|2005       |  | $ | 9,620,333 
|2006       |  |   | 9,754,728 
|2007       |  |   | 42,707,128
|2008       |  |   | 2,498,063 
|2009       |  |   | 1,040,702 
|Thereafter |  |   | 481,931   
|           |  |   |           
|           |  | $ | 66,102,885
|           |  |   |           



At December 31, 2003
and 2004, the prime interest rate was 4.00% and 5.25%, respectively.



In December 2003, the Company refinanced the Senior Credit Facility, extended the maturity to April 15, 2007, increased the availability of the commitment and modified certain covenant and other provisions. The restated Senior Credit
Facility provides for $95 million in availability consisting of a $70 million revolving line of credit and a $25 million term loan (Term A Loan) with quarterly repayment obligations of $1.25 million.



Borrowings under this restated Senior Credit Facility bear interest at either
the LIBOR or Prime plus various applicable margins ranging from 25 basis points to 250 basis points, which are based upon financial covenant ratio tests. The Senior Credit Facility includes various restrictive covenants, including restrictions on
certain types of additional indebtedness, investments, asset sales, capital expenditures, dividends, contingent obligations, transactions with affiliates, changes in corporate structure, and fundamental changes. The covenants also require
maintenance of various ratios regarding leverage levels and debt service coverage.



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RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)



In March 2004, the Company refinanced its Senior Credit Facility to add a Term B loan in the amount
of $40 million. The Term B loan of $40 million was used to pay a one-time special distribution to the Companys shareholders in April 2004. In addition to the increased borrowing of $40 million, the Senior Credit Facility was revised to
incorporate the prior amendments to the agreement. The Senior Credit facility was also updated to revise certain financial covenants and adjust the interest rate spread on the Companys base or LIBOR borrowings. With respect to the Term B
borrowing, the interest rate spread applicable to base rate loans and LIBOR loans are 2.25% and 3.75%, respectively. With respect to the Senior Credit facility, the interest rate spread on either base or LIBOR ranges from 0.25% to 3.25%, based upon
certain financial covenant tests. The Term B portion of the Senior Credit Facility matures on March 31, 2009 and includes quarterly principal payments of $500,000 beginning June 30, 2004 through March 31, 2007, $4 million through March 31, 2008 and
$4.5 million through December 31, 2008.



On October 8, 2004 the
Company amended its third amended and restated senior secured credit facility principally to pay off the remaining balance of the designated Term B portion and increase its revolving credit commitment from $70 million to $80 million. The transaction
included paying off the $22.8 million remaining on the designated Term B portion by increasing the Term A loan to $25 million and drawing on the revolver. Per the amendment, the interest rate spreads on the Term A loan and on the revolver were
reduced overall by 25 basis points. Borrowings at LIBOR plus a spread range from 175 to 300 basis points and borrowings at a specified base rate plus a spread range from 25 to 150 basis points. The amendment modified the mandatory quarterly
principal payments on the Term A loan from $1.25 million to $1.75 million. The additional deferred financing costs incurred of approximately $241,000 will be expensed over the remaining period of the Term A loan maturing on April 15, 2007.



12. Joint Ventures



In June 1998, the Company entered into a joint venture with a hospital for
the ownership of assets used for the delivery of radiation oncology services. The Company currently owns 37% of the joint venture entity and provides certain administrative and technical services to the hospital which operates the radiation therapy
program. The hospital owns 55.5% of the joint venture entity.



In June 2001, the Company entered into a joint venture with a freestanding center. The Company owns 50% of the joint venture entity and provides certain administrative and technical services to the center.



The Company utilizes the equity method to account for its investments in the
joint ventures. At December 31, 2003 and 2004, the Companys investments in the joint ventures were approximately $1.2 million and $1.4 million, respectively.



The condensed financial position and results of operations of the joint venture entities are as follows:



|                                           |  |              |           |      |   |          
|------------------------------------------ |  | ------------ | --------- | ---- | - | ---------
|                                           |  | December 31,
|                                           |  | 2003         |           | 2004
|Total assets                               |  | $            | 6,763,516 |      | $ | 5,410,395
|                                           |  |              |           |      |   |          
|Liabilities                                |  | $            | 3,499,744 |      | $ | 2,607,875
|Shareholders equity                       |  |              | 3,263,772 |      |   | 2,802,520
|                                           |  |              |           |      |   |          
|Total liabilities and shareholders equity |  | $            | 6,763,516 |      | $ | 5,410,395
|                                           |  |              |           |      |   |          



|           |  |                         |           |      |   |           |  |   |          
|---------- |  | ----------------------- | --------- | ---- | - | --------- |  | - | ---------
|           |  | Year Ended December 31,
|           |  | 2002                    |           | 2003 |   | 2004     
|Revenues   |  | $                       | 3,077,206 |      | $ | 3,081,333 |  | $ | 3,289,998
|Expenses   |  |                         | 3,026,926 |      |   | 3,063,447 |  |   | 2,903,971
|           |  |                         |           |      |   |           |  |   |          
|Net income |  | $                       | 50,280    |      | $ | 17,886    |  | $ | 386,027  
|           |  |                         |           |      |   |           |  |   |          



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RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)



A summary of the changes in the equity investment in the joint ventures is as follows:



|                                                |  |   |          
|----------------------------------------------- |  | - | ---------
|Balance at January 1, 2002                      |  | $ | 1,194,803
|Equity interest in net income of joint ventures |  |   | 25,140   
|                                                |  |   |          
|Balance at December 31, 2002                    |  |   | 1,219,943
|Equity interest in net income of joint ventures |  |   | 8,943    
|                                                |  |   |          
|Balance at December 31, 2003                    |  |   | 1,228,886
|Equity interest in net income of joint ventures |  |   | 193,014  
|                                                |  |   |          
|Balance at December 31, 2004                    |  | $ | 1,421,900
|                                                |  |   |          



13. Commitments and Contingencies



Letter of Credit



The Company issued to the lessor of one of its treatment centers an
unconditional and irrevocable letter of credit in the amount of $300,000 to serve as security for the performance of the assignees obligations under the lease.



Lease Commitments



The Company is obligated under various operating leases for office space and medical equipment. Total lease expense incurred under these leases was
approximately $4,870,000, $6,355,000, and $7,163,000 for the years ended December 31, 2002, 2003 and 2004, respectively.



Future fixed minimum annual lease commitments are as follows at December 31, 2004:



|           |  |             |            |                     |   |                       |  |   |           
|---------- |  | ----------- | ---------- | ------------------- | - | --------------------- |  | - | ----------
|           |  | Commitments |            | LessSubleaseRentals |   | Net RentalCommitments
|2005       |  | $           | 7,633,083  |                     | $ | 564,483               |  | $ | 7,068,600 
|2006       |  |             | 7,610,099  |                     |   | 581,417               |  |   | 7,028,682 
|2007       |  |             | 6,331,029  |                     |   | 598,860               |  |   | 5,732,169 
|2008       |  |             | 5,473,645  |                     |   | 616,825               |  |   | 4,856,820 
|2009       |  |             | 5,268,019  |                     |   | 635,330               |  |   | 4,632,689 
|Thereafter |  |             | 19,539,480 |                     |   | 2,844,585             |  |   | 16,694,895
|           |  |             |            |                     |   |                       |  |   |           
|           |  | $           | 51,855,355 |                     | $ | 5,841,500             |  | $ | 46,013,855
|           |  |             |            |                     |   |                       |  |   |           



Concentrations of Credit Risk



Financial instruments, which subject the Company to
concentrations of credit risk, consist principally of cash and accounts receivable. The Company maintains its cash in bank accounts with highly rated financial institutions. These accounts may, at times, exceed federally insured limits. The Company
has not experienced any losses in such accounts. The Company grants credit, without collateral, to its patients, most of whom are local residents. Concentrations of credit risk with respect to accounts receivable relate principally to third-party
payors, including managed care contracts, whose ability to pay for services rendered is dependent on their financial condition.



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RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)



Legal Proceedings



The Company is involved in certain legal actions and claims arising in the ordinary course of its business. It is the
opinion of management, based on advice of legal counsel, that such litigation and claims will be resolved without material adverse effect on the Companys consolidated financial position, results of operations or cash flows.



On September 21, 2004 a lawsuit was filed by the Kissel Family Trust against
the Company and certain directors and officers in the United States District Court, Middle District of Florida (Civil Action No. 2:04-CV-470-FtM-29.SPC). The complaint purported to be a class action on behalf of all persons who purchased the
Companys common stock between June 17, 2004 and September 8, 2004. On December 10, 2004 an order was entered by the court dismissing this action without prejudice in response to a notice of voluntary dismissal without prejudice filed by
counsel for the Kissel Family Trust. The Company did not pay any consideration or compensation to the Kissel Family Trust or their counsel in connection with this voluntary dismissal.



Acquisitions



The Company has acquired and plans to continue acquiring businesses with prior operating histories. Acquired companies may have unknown or contingent
liabilities, including liabilities for failure to comply with healthcare laws and regulations, such as billing and reimbursement, fraud and abuse and similar anti-referral laws. Although the Company institutes policies designed to conform practices
to its standards following completion of acquisitions, there can be no assurance that the Company will not become liable for past activities that may later be asserted to be improper by private plaintiffs or government agencies. Although the Company
generally seeks to obtain indemnification from prospective sellers covering such matters, there can be no assurance that any such matter will be covered by indemnification, or if covered, that such indemnification will be adequate to cover potential
losses and fines.



Employment Agreements



The Company is party to employment agreements with several of its employees
that provide for annual base salaries, targeted bonus levels, severance pay under certain conditions and certain other benefits.



Tax Indemnification Agreements



Prior to the consummation of the Offering, the Company entered into an S Corporation Tax Allocation and Indemnification Agreements (the Tax Agreements)
with its current shareholders relating to their respective income tax liabilities. Because the Company will be fully subject to corporate income taxation after the consummation of the Offering, the reallocation of income and deductions between the
periods during which the Company was treated as an S corporation and the periods during which the Company will be subject to corporate income taxation may increase the taxable income of one party while decreasing that of another party. Accordingly,
the Tax Agreements are intended to include provisions such that taxes are borne by the Company, on the one hand, and the shareholder, on the other, only to the extent that such parties were required to report the related income for tax purposes.



Development Agreement



The Company has a commitment to develop a radiation therapy center with a
land partnership owned by certain of the Companys shareholders. The construction and development of the radiation therapy center is expected to be completed in 2005.



14. Retirement Plan



The Company has a defined contribution retirement plan under Section 401(a) of the Internal Revenue Code (the Retirement Plan). The Retirement Plan allows
all full-time employees after one year of service to defer a portion of their compensation on a pre-tax basis through contributions to the Retirement Plan. The Company matches a portion of these contributions based upon the employees length of
service. The Companys matching contribution for the years ended December 31, 2002, 2003 and 2004 was $288,000, $400,000, and $415,000, respectively.



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RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)



15. Stock Purchase and Option Plans



Stock Purchase Agreements



The Company periodically enters into stock purchase agreements with certain employees. During 2002, the Company issued 256,200 shares of common stock and
received notes in the amount of $1,419,600 due at various dates through April 15, 2010. During 2003, the Company issued 86,010 shares of common stock for the exercise of an employees stock options and received a note in the amount of $296,570
due January 5, 2007. During 2004, no shares of common stock were issued in receipt of a note. The notes are full recourse notes and are presented in the shareholders equity section of the consolidated balance sheets as a reduction in
shareholders equity.



Stock Option Plan



In August 1997, the Board of Directors approved and adopted the 1997 Stock
Option Plan (the 1997 Plan). The 1997 Plan, as amended in July 1998, authorizes the issuance of options to purchase up to 3,660,000 shares of the Companys common stock. Under the 1997 Plan, options to purchase common stock may be granted until
August 2007. Options generally are granted at the fair market value of the common stock at the date of grant, are exercisable in installments beginning one year from the date of grant, vest on average over five years and expire ten years after the
date of grant. The 1997 Plan provides for acceleration of exercisability of the options upon the occurrence of certain events relating to a change of control, merger, sale of assets or liquidation of the Company. The 1997 Plan permits the issuance
of either Incentive Stock Options or Nonqualified Stock Options.



In April 2004, our Board of Directors adopted the 2004 Stock Incentive Plan (2004 Option Plan) under which the Company has authorized the issuance of equity-based awards for up to 2,000,000 shares of common stock to provide additional
incentive to employees, officers, directors and consultants. In addition to the shares reserved for issuance under our 2004 stock incentive plan, such plan also includes (i) 1,141,922 shares that were reserved but unissued under the 1997 Plan (ii)
shares subject to grants under the 1997 Plan that may again become available as a result of the termination of options or the repurchase of shares issued under the 1997 Plan, and (iii) annual increases in the number of shares available for issuance
under the 2004 stock incentive plan on the first day of each fiscal year beginning with our fiscal year beginning in 2005 and ending after our fiscal year beginning in 2014, equal to the lesser of:



| |  |  | 5% of the outstanding shares of common stock on the first day of our fiscal year;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | 1,000,000 shares; or
| | - |  | --------------------



| |  |  | an amount our board may determine.
| | - |  | ----------------------------------



Pursuant to the 2004 Option Plan, the Company can grant either incentive or non-qualified stock options. Options to purchase common stock under the 2004
Option Plan have been granted to Company employees at the fair market value of the underlying shares on the date of grant.



Options generally are granted at the fair market value of the common stock at the date of grant, are exercisable in installments beginning one year from
the date of grant, vest on average over three to five years and expire ten years after the date of grant.



In June 2004, options were granted to consultants to provide services for healthcare reimbursement efforts and to an independent contractor to provide
advice with respect to business opportunities in the state of New York. The Company recognized compensation expense on these options of $408,000 for the year ended December 31, 2004. Compensation expense is measured as the services are performed and
the expense is recognized over the service period. The Company recognizes expense on these options based on the fair value of the option at the end of each reporting period. Compensation accrued during the service period is adjusted in subsequent
periods up to the measurement date for changes, either increases or decreases, in the quoted market value of the shares covered by the grant.



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RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)



Incentive Stock Options may be granted to key employees, including officers, directors and other
selected employees. The exercise price of each option must be 100% of the fair market value of the common stock on the date of grant (110% in the case of shareholders that own 10% or more of the outstanding common stock). Nonqualified Stock Options
may be granted under the 2004 Option Plan or otherwise to officers, directors, consultants, advisors and key employees. The exercise price of each option must be at least 85% of the fair market value of the common stock on the date of grant.



At December 31, 2004, the number of options outstanding were
1,745,000 for Nonqualified Stock Options and 750,563 for Incentive Stock Options. Under the 2004 Option Plan, there were 1,390,312 shares of common stock reserved for future grants as of December 31, 2004.



Transactions are summarized as follows:



|                                        |  |                       |   |  |                              |      
|--------------------------------------- |  | --------------------- | - |  | ---------------------------- | -----
|                                        |  | Number ofStockOptions |   |  | WeightedAverageExercisePrice
|Outstanding at January 1, 2002          |  | 2,524,688             |   |  | $                            | 2.58 
|Granted                                 |  | 32,940                |   |  |                              | 7.33 
|Exercised                               |  | (272,388              | ) |  |                              | 2.13 
|                                        |  |                       |   |  |                              |      
|Outstanding at December 31, 2002        |  | 2,285,240             |   |  |                              | 2.71 
|Exercised                               |  | (514,131              | ) |  |                              | 2.57 
|Forfeited                               |  | (60,390               | ) |  |                              | 3.45 
|                                        |  |                       |   |  |                              |      
|Outstanding at December 31, 2003        |  | 1,710,719             |   |  |                              | 2.72 
|Granted                                 |  | 1,745,000             |   |  |                              | 13.00
|Exercised                               |  | (932,706              | ) |  |                              | 2.39 
|Forfeited                               |  | (27,450               | ) |  |                              | 5.54 
|                                        |  |                       |   |  |                              |      
|Outstanding at December 31, 2004        |  | 2,495,563             |   |  | $                            | 10.00
|                                        |  |                       |   |  |                              |      
|Shares exercisable at December 31, 2002 |  | 1,557,508             |   |  | $                            | 2.50 
|                                        |  |                       |   |  |                              |      
|Shares exercisable at December 31, 2003 |  | 1,318,303             |   |  | $                            | 2.59 
|                                        |  |                       |   |  |                              |      
|Shares exercisable at December 31, 2004 |  | 629,782               |   |  | $                            | 3.08 
|                                        |  |                       |   |  |                              |      



Exercise prices for
options outstanding as of December 31, 2004 ranged from $1.91 to $13.00. The following table provides certain information with respect to stock options outstanding at December 31, 2004:



|                         |  |                         |  |                              |       |                                         |    
|------------------------ |  | ----------------------- |  | ---------------------------- | ----- | --------------------------------------- | ---
|Range of Exercise Prices |  | StockOptionsOutstanding |  | WeightedAverageExercisePrice |       | WeightedAverageRemainingContractualLife
|$1.91 - $2.80            |  | 461,423                 |  | $                            | 2.75  |                                         | 4.0
|$3.01                    |  | 256,200                 |  |                              | 3.01  |                                         | 5.1
|$5.54 - $13.00           |  | 1,777,940               |  |                              | 12.90 |                                         | 9.5
|                         |  |                         |  |                              |       |                                         |    
|                         |  | 2,495,563               |  | $                            | 10.00 |                                         | 8.0
|                         |  |                         |  |                              |       |                                         |    



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RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)



The following table provides certain information with respect to stock options exercisable at
December 31, 2004:



|                         |  |                           |  |                                 |     
|------------------------ |  | ------------------------- |  | ------------------------------- | ----
|Range of Exercise Prices |  | Stock Options Exercisable |  | Weighted Average Exercise Price
|$1.91 - $2.80            |  | 340,642                   |  | $                               | 2.73
|$3.01                    |  | 256,200                   |  |                                 | 3.01
|$5.54 - $13.00           |  | 32,940                    |  |                                 | 7.33
|                         |  |                           |  |                                 |     
|                         |  | 629,782                   |  | $                               | 3.08
|                         |  |                           |  |                                 |     



16. Related Party Transactions



The Company purchased nuclear medical and pharmacological
supplies from a company which was majority-owned by certain of the Companys shareholders until June 2004. Purchases by the Company from this company were approximately $859,000, $671,000, and $627,000 for the years ended December 31, 2002 and
2003 and for the six months ended June 30, 2004, respectively. In June 2004, the Companys shareholders sold their majority interest in the nuclear and pharmacological supply company.



The Company leases certain of its treatment centers and other properties from
partnerships which are majority-owned by certain of the Companys shareholders. These related party leases have expiration dates through May 31, 2016 and they provide for annual lease payments ranging from approximately $30,000 to $401,000. The
aggregate lease payments the Company made to the entities owned by these related parties were approximately $1,853,000, $2,325,000, and $2,672,000 in 2002, 2003 and 2004, respectively.



In October 1999, the Company entered into a sublease arrangement with a partnership which is owned by certain of the
Companys shareholders to lease space to the partnership for an MRI center in Mount Kisco, New York. Sublease rentals paid by the partnership to the landlord were approximately $497,000, $569,000, and $528,000 during 2002, 2003 and 2004,
respectively.



The Company provided funds to an MRI entity,
which is owned by certain of the Companys shareholders. The funds were for start-up costs and monthly charges for the allocated costs of certain staff who perform services on behalf of the MRI entity. The balance due from the MRI entity was
approximately $87,000 and $18,000 at December 31, 2003 and 2004, respectively.



At December 31, 2003, the Company had uncollateralized notes receivable totaling $662,168 from related parties, with quarterly payments plus interest at prime due November 15, 2008. The notes receivable were prepaid
by the related parties in April 2004.



The Company provided
medical equipment to radiation treatment centers in Argentina, Costa Rica and Guatemala, which are owned by a family member of one of the Companys shareholders. The Company discontinued sales to these centers in June 2004. Sales of medical
equipment to these radiation centers were approximately $181,000, $267,000, and $93,000 in 2002, 2003 and 2004, respectively. Gain on the sale of the medical equipment was approximately $16,000, $24,000, and $8,000 in 2002, 2003 and 2004,
respectively. Balances in accounts receivable were approximately $211,000 at December 31, 2003. All remaining accounts receivable balances were paid in July 2004. In August 2000, the Company financed the purchase of a Nucletron high dose remote
after loader by the Costa Rican operation. A $288,000 note, including an effective interest rate of 16.075% was taken in exchange for the equipment. The principal and accrued interest outstanding under the note were approximately $149,000 at
December 31, 2003. All remaining balances on the note were paid in July 2004.



The Company contracts with a radiology group, which was partly owned by a shareholder, to provide PET scans to our patients. The shareholders interest in the group terminated in May 2004. The Company reimburses
for services, supplies, equipment and personnel provided by the radiology group. Purchases by the Company were approximately $270,000,



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RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)



$530,000 and $240,000 for the years ended December 31, 2002 and 2003 and for the five months ended May 31, 2004 respectively.



The Company provides funds to certain land partnerships and a general
contractor, which are owned by certain of the Companys shareholders. The funds are for start-up costs and monthly charges for the allocated costs. The balances due from these entities were approximately $6,000, and $140,000 at December 31,
2003, and 2004 respectively. The Company received services from a general contractor, which is owned by certain of the Companys shareholders for remodeling and real property improvements at its facilities. Payments made by the Company to the
general contractor were approximately $336,000, $771,000, and $258,000 for the years ended December 31, 2002 and 2003 and six months ended June 30, 2004 respectively. In June 2004, the Company purchased the assets of the general contractor with the
issuance of shares for approximately $3.5 million.



At December
31, 2004, the Company had approximately $310,000 payable to certain land partnerships owned by certain of the Companys shareholders for construction in process and building improvement costs relating to the construction of a medical facility.
These costs were reimbursed to the land partnerships in 2005.



Effective October 2003, the Company purchased medical malpractice insurance from an insurance company owned by certain of the Companys shareholders. The period of coverage runs from October to September. The premium payments made by
the Company in 2003 and 2004 were approximately $1,721,000, and $3,375,000 respectively.



In Maryland, Nevada, New York, and North Carolina, the Company maintains administrative services agreements with professional corporations owned by certain of the Companys shareholders, who are licensed to
practice medicine in such states. The Company entered into these administrative services agreements in order to comply with the laws of such states which prohibit the Company from employing physicians. The administrative services agreements
generally obligate the Company to provide treatment center facilities, staff, equipment, accounting services, billing and collection services, management and administrative personnel, assistance in managed care contracting and assistance in
marketing services. Fees paid to the Company by such professional corporations under the administrative services agreements were approximately $15,671,000, $21,795,000, and $30,352,000 in 2002, 2003 and 2004 respectively. These amounts have been
eliminated in consolidation.



17. Pro Forma Disclosure (Unaudited)



Pro forma taxes: The Company had elected to
be taxed as an S corporation under the provisions of the Internal Revenue Code. In connection with the closing of the Companys initial public offering in June, 2004 the S corporation election was terminated and, accordingly, the Company became
subject to U.S. federal and state income taxes. Upon termination of the S corporation election, current and deferred income taxes reflecting the tax effects of temporary differences between the Companys consolidated financial statement and tax
basis of certain assets and liabilities became liabilities of the Company. These liabilities are reflected on the consolidated balance sheets with a corresponding expense in the consolidated statements of income and comprehensive income. See note 10
Income Taxes. The 2002 and 2003 proforma net income includes pro forma income taxes as if the Company were subject to tax during the respective periods using an effective rate of approximately 40%.



F-32



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##### Table of Contents

RADIATION THERAPY SERVICES, INC.

AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)



18. Unaudited Quarterly Financial Information



The quarterly interim financial information shown below has been prepared by the Companys management and is unaudited.
It should be read in conjunction with the audited consolidated financial statements appearing herein. The pro forma net income represents net income adjusted to assume a 40% effective income tax rate for comparability of quarterly earnings and per
share data.



|                       |  |       |            |        |   |            |  |        |            |  |   |           
|---------------------- |  | ----- | ---------- | ------ | - | ---------- |  | ------ | ---------- |  | - | ----------
|                       |  | 2003 
|                       |  | First |            | Second |   | Third      |  | Fourth
|Revenues               |  | $     | 34,508,647 |        | $ | 37,068,557 |  | $      | 32,024,724 |  | $ | 35,078,406
|Pro forma net income:  |  |       |            |        |   |            |  |        |            |  |   |           
|As previously reported |  |       | 5,146,153  |        |   | 4,607,057  |  |        | 2,057,960  |  |   | 2,556,187 
|As restated            |  |       | 5,100,824  |        |   | 4,561,274  |  |        | 2,012,177  |  |   | 2,510,403 
|                       |  |       |            |       
|Earnings per share:    |  |       |            |        |   |            |  |        |            |  |   |           
|Basic:                 |  |       |            |        |   |            |  |        |            |  |   |           
|As previously reported |  | $     | 0.31       |        | $ | 0.27       |  | $      | 0.12       |  | $ | 0.15      
|As restated            |  | $     | 0.30       |        | $ | 0.27       |  | $      | 0.12       |  | $ | 0.15      
|                       |  |       |            |       
|Diluted:               |  |       |            |        |   |            |  |        |            |  |   |           
|As previously reported |  | $     | 0.28       |        | $ | 0.25       |  | $      | 0.11       |  | $ | 0.14      
|As restated            |  | $     | 0.28       |        | $ | 0.25       |  | $      | 0.11       |  | $ | 0.14      
|                       | 
|                       |  | 2004 
|                       |  | First |            | Second |   | Third      |  | Fourth
|Revenues               |  | $     | 42,948,664 |        | $ | 42,133,301 |  | $      | 40,674,138 |  | $ | 45,617,207
|Pro forma net income:  |  |       |            |        |   |            |  |        |            |  |   |           
|As previously reported |  |       | 6,167,028  |        |   | 5,298,964  |  |        | 2,917,693  |  |   | 5,006,101 
|As restated            |  |       | 6,124,969  |        |   | 5,256,902  |  |        | 2,875,631  |  |   | 4,963,439 
|                       |  |       |            |       
|Earnings per share:    |  |       |            |        |   |            |  |        |            |  |   |           
|Basic:                 |  |       |            |        |   |            |  |        |            |  |   |           
|As previously reported |  | $     | 0.35       |        | $ | 0.28       |  | $      | 0.13       |  | $ | 0.22      
|As restated            |  | $     | 0.35       |        | $ | 0.28       |  | $      | 0.13       |  | $ | 0.22      
|                       |  |       |            |       
|Diluted:               |  |       |            |        |   |            |  |        |            |  |   |           
|As previously reported |  | $     | 0.33       |        | $ | 0.27       |  | $      | 0.13       |  | $ | 0.22      
|As restated            |  | $     | 0.33       |        | $ | 0.27       |  | $      | 0.12       |  | $ | 0.22      



F-33



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##### Table of Contents

SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Fort Myers, State of Florida, on May 16, 2005.



RADIATION THERAPY SERVICES INC.By:

/s/    DANIEL E. DOSORETZ,
M.D.Daniel E. Dosoretz, M.D. President, Chief Executive Officer and Director




Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the date indicated.



|                                                          |  |                                                                                    |  |             
|--------------------------------------------------------- |  | ---------------------------------------------------------------------------------- |  | ------------
|Name                                                      |  | Title                                                                              |  | Date        
|                                                          |  |                                                                                   
|/s/    HOWARD M. SHERIDAN,
M.D.Howard M. Sheridan, M.D.   |  | Chairman of the Board                                                              |  | May 16, 2005
|                                                          |  |                                                                                   
|/s/    DANIEL E. DOSORETZ,
M.D.Daniel E. Dosoretz, M.D.   |  | President, Chief Executive Officer andDirector (Principal Executive Officer)       |  | May 16, 2005
|                                                          |  |                                                                                   
|/s/    DAVID M.
KOENINGERDavid M.
Koeninger               |  | Executive Vice President and Chief Financial Officer (Principal Financial Officer) |  | May 16, 2005
|                                                          |  |                                                                                   
|/s/    JOSEPH BISCARDIJoseph Biscardi                     |  | Corporate Controller and Chief Accounting Officer (Principal Accounting Officer)   |  | May 16, 2005
|                                                          |  |                                                                                   
|/s/    JAMES H. RUBENSTEIN,
M.D.James H. Rubenstein, M.D. |  | Medical Director, Secretary and Director                                           |  | May 16, 2005
|                                                          |  |                                                                                   
|/s/    MICHAEL J. KATIN,
M.D.Michael J. Katin, M.D.       |  | Director                                                                           |  | May 16, 2005
|                                                          |  |                                                                                   
|/s/    HERBERT F.
DORSETTHerbert F.
Dorsett               |  | Director                                                                           |  | May 16, 2005
|                                                          |  |                                                                                   
|/s/    RONALD E. INGERonald E. Inge                       |  | Director                                                                           |  | May 16, 2005
|                                                          |  |                                                                                   
|/s/    JAMES C. WEEKSJames C. Weeks                       |  | Director                                                                           |  | May 16, 2005
|                                                          |  |                                                                                   
|/s/    LEO DOERRLeo Doerr                                 |  | Director                                                                           |  | May 16, 2005
|                                                          |  |                                                                                   
|/s/    SOLOMON AGIN,
D.D.Solomon Agin, D.D.               |  | Director                                                                           |  | May 16, 2005



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##### Table of Contents

EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                                                                                                                                         |  |                           |  |               |  |            |  |          |  | 
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- |  | ------------- |  | ---------- |  | -------- |  | 
|ExhibitNumber |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                     |  | Incorporated by Reference |  | FiledHerewith
|              |  | Form                                                                                                                                                                                                                                                                                                                                                    |  | File No                   |  | Exhibit       |  | FilingDate | 
|3.1           |  | Amended and Restated Articles of Incorporation of Radiation Therapy Services, Inc.                                                                                                                                                                                                                                                                      |  | S-1/A                     |  | 333-114603    |  | 3.3        |  | 6/15/04  |  | 
|              |  |                                                                                                                                                                                                                                                                                                                                                         |  |                           |  |              
|3.2           |  | Amended and Restated Bylaws of Radiation Therapy Services, Inc.                                                                                                                                                                                                                                                                                         |  | S-1/A                     |  | 333-114603    |  | 3.4        |  | 6/15/04  |  | 
|              |  |                                                                                                                                                                                                                                                                                                                                                         |  |                           |  |              
|4.1           |  | Form of Radiation Therapy Services, Inc. common stock certificate                                                                                                                                                                                                                                                                                       |  | S-1/A                     |  | 333-114603    |  | 4.1        |  | 5/21/04  |  | 
|              |  |                                                                                                                                                                                                                                                                                                                                                         |  |                           |  |              
|4.2           |  | Third Amended and Restated Credit Agreement among the Company, the financial institutions parties thereto, Bank of America, N.A., as Administrative Agent, and Wachovia Bank, National
Association, as Documentation Agent dated as of March, 2004; Form of Term Loan A Note; Form of Revolving Note; Form of Swing Line Note; Form of Term Loan B Note |  | S-1                       |  | 333-114603    |  | 4.2        |  | 4/19/04  |  | 
|              |  |                                                                                                                                                                                                                                                                                                                                                         |  |                           |  |              
|4.3           |  | Amendment Agreement No. 1 to Third Amended and Restated Credit Agreement made and entered into as of October 8, 2004 among the Company, each Subsidiary Guarantor, Bank of America, N.A., as
Administrative Agent and the Lenders party to the Credit Agreement.                                                                                        |  | 8-K                       |  | 000-50802     |  | 10.1       |  | 10/12/04 |  | 
|              |  |                                                                                                                                                                                                                                                                                                                                                         |  |                           |  |              
|4.4           |  | Amendment Agreement No. 2 to Third Amended and Restated Credit Agreement made and entered into as of October 11, 2004 among the Company, each Subsidiary Guarantor, Bank of America, N.A., as
Administrative Agent and the Lenders party to the Credit Agreement.                                                                                       |  | 8-K                       |  | 000-50802     |  | 10.2       |  | 10/12/04 |  | 
|              |  |                                                                                                                                                                                                                                                                                                                                                         |  |                           |  |              
|10.1          |  | Lease Agreement effective July 1, 1987, between Kyle, Sheridan & Thorn Associates and Katin, Dosoretz Radiation Therapy Associates, P.A. for premises in Ft. Myers, Florida. Effective July
31, 1997, Katin, Dosoretz Radiation Therapy Associates, P.A. changed its name to 21st Century Oncology, Inc.                                                |  | S-1                       |  | 333-114603    |  | 10.1       |  | 4/19/04  |  | 
|              |  |                                                                                                                                                                                                                                                                                                                                                         |  |                           |  |              
|10.2          |  | Lease Agreement dated May 1, 1999 between Colonial Radiation Associates and Radiation Therapy Services, Inc. for premises in Ft. Myers, Florida                                                                                                                                                                                                         |  | S-1                       |  | 333-114603    |  | 10.2       |  | 4/19/04  |  | 
|              |  |                                                                                                                                                                                                                                                                                                                                                         |  |                           |  |              
|10.3          |  | Lease dated December 3, 1999 between Henderson Radiation Associates and Nevada Radiation Therapy Management Services, Inc. for premises in Henderson, Nevada                                                                                                                                                                                            |  | S-1                       |  | 333-114603    |  | 10.3       |  | 4/19/04  |  | 







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##### Table of Contents

|      |  |                                                                                                                                                                                                                                                                                                                                                       |  |       |  |            |  |       |  |         |  | 
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----- |  | ---------- |  | ----- |  | ------- |  | 
|      |  |                                                                                                                                                                                                                                                                                                                                                       |  |       |  |           
|10.4  |  | Lease dated December 31, 1999 between Tamarac Radiation Associates and 21stCentury Oncology, Inc. for premises in Tamarac, Florida                                                                                                                                                                                                                    |  | S-1   |  | 333-114603 |  | 10.4  |  | 4/19/04 |  | 
|      |  |                                                                                                                                                                                                                                                                                                                                                       |  |       |  |           
|10.5  |  | Lease dated January 1, 2001 between Bonita Radiation Associates and 21stCentury Oncology, Inc. for premises in Bonita Springs, Florida                                                                                                                                                                                                                |  | S-1   |  | 333-114603 |  | 10.5  |  | 4/19/04 |  | 
|      |  |                                                                                                                                                                                                                                                                                                                                                       |  |       |  |           
|10.6  |  | Lease dated October 25, 2000 between North Naples Extension and 21stCentury Oncology, Inc. for premises in Naples, Florida                                                                                                                                                                                                                            |  | S-1   |  | 333-114603 |  | 10.6  |  | 4/19/04 |  | 
|      |  |                                                                                                                                                                                                                                                                                                                                                       |  |       |  |           
|10.7  |  | Lease Agreement dated May 21, 2001 between Fort Walton Radiation Associates, LLP and 21stCentury Oncology, Inc. for premises in Fort Walton Beach, Florida                                                                                                                                                                                            |  | S-1   |  | 333-114603 |  | 10.7  |  | 4/19/04 |  | 
|      |  |                                                                                                                                                                                                                                                                                                                                                       |  |       |  |           
|10.8  |  | Lease Agreement dated November 13, 2000 between West Palm Radiation Associates, LLC and Palms West Radiation Associates, LLC for premises in Palm Beach County, Florida                                                                                                                                                                               |  | S-1   |  | 333-114603 |  | 10.8  |  | 4/19/04 |  | 
|      |  |                                                                                                                                                                                                                                                                                                                                                       |  |       |  |           
|10.9  |  | Lease dated May 1, 2002 between Bradenton Radiation Associates and 21stCentury Oncology, Inc. for premises in Bradenton, Florida                                                                                                                                                                                                                      |  | S-1   |  | 333-114603 |  | 10.9  |  | 4/19/04 |  | 
|      |  |                                                                                                                                                                                                                                                                                                                                                       |  |       |  |           
|10.10 |  | Lease Agreement dated October 1, 2002 between 21stCentury
Oncology, Inc. and Plantation Radiation Associates for premises in Plantation, Florida                                                                                                                                                                                                      |  | S-1   |  | 333-114603 |  | 10.10 |  | 4/19/04 |  | 
|      |  |                                                                                                                                                                                                                                                                                                                                                       |  |       |  |           
|10.11 |  | Lease Agreement dated January 21, 2003 between Yonkers Radiation Enterprises, LLC and New York Radiation Therapy Management Services, Incorporated for premises in Yonkers, New
York                                                                                                                                                                  |  | S-1   |  | 333-114603 |  | 10.11 |  | 4/19/04 |  | 
|      |  |                                                                                                                                                                                                                                                                                                                                                       |  |       |  |           
|10.12 |  | Lease dated February 1, 2003 between Lehigh Radiation Associates and 21st Century Oncology, Inc. for premises in Lehigh Acres, Florida                                                                                                                                                                                                                |  | S-1   |  | 333-114603 |  | 10.12 |  | 4/19/04 |  | 
|      |  |                                                                                                                                                                                                                                                                                                                                                       |  |       |  |           
|10.13 |  | Lease dated November 19, 2003 between Destin Radiation Enterprises, LLC and 21stCentury Oncology, Inc. for premises in Santa Rosa Beach, Florida                                                                                                                                                                                                      |  | S-1   |  | 333-114603 |  | 10.13 |  | 4/19/04 |  | 
|      |  |                                                                                                                                                                                                                                                                                                                                                       |  |       |  |           
|10.14 |  | Sublease agreement dated October 21, 1999 between Radiation Therapy Services, Inc. and Westchester MRI Specialists, P.C.                                                                                                                                                                                                                              |  | S-1/A |  | 333-114603 |  | 10.14 |  | 5/21/04 |  | 
|      |  |                                                                                                                                                                                                                                                                                                                                                       |  |       |  |           
|10.15 |  | Administrative Services Agreement dated January 1, 1999 between New York Radiation Therapy Management Services, Incorporated and Yonkers Radiation Medical Practice, P.A.; Addendum dated
January 1, 2000 for Yonkers; Addendum dated January 1, 2001; Addendum dated January 1, 2002; Addendum dated January 1, 2003; Addendum dated January 1, 2004 |  | S-1/A |  | 333-114603 |  | 10.15 |  | 5/21/04 |  | 
|      |  |                                                                                                                                                                                                                                                                                                                                                       |  |       |  |           
|10.16 |  | Addendum dated January 1, 2005                                                                                                                                                                                                                                                                                                                        |  | 10-K  |  | 000-50802  |  | 10.16 |  | 2/18/05 |  | 





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##### Table of Contents

|        |  |                                                                                                                                                                                                                                                                                                                                                                    |  |       |  |            |  |       |  |         |  | 
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----- |  | ---------- |  | ----- |  | ------- |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                    |  |       |  |           
|10.17   |  | Administrative Services Agreement dated January 1, 2002 between North Carolina Radiation Therapy Management Services, Inc. and Radiation Therapy Associates of Western North Carolina, P.A.;
Addendum dated January 1, 2002; Addendum dated January 1, 2003; Addendum dated January 1, 2004                                                                        |  | S-1   |  | 333-114603 |  | 10.16 |  | 4/19/04 |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                    |  |       |  |           
|10.18   |  | Addendum dated January 1, 2005                                                                                                                                                                                                                                                                                                                                     |  | 10-K  |  | 000-50802  |  | 10.18 |  | 2/18/05 |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                    |  |       |  |           
|10.19   |  | Administrative Services Agreement dated January 9, 1998 between Nevada Radiation Therapy Management Services, Incorporated and Michael J. Katin, M.D., Prof. Corp.; Addendum dated January 1,
1999; Addendum dated January 1, 2000; Addendum dated January 1, 2001; Addendum dated January 1, 2002; Addendum dated January 1, 2003; Addendum dated January 1, 2004 |  | S-1   |  | 333-114603 |  | 10.17 |  | 4/19/04 |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                    |  |       |  |           
|10.20   |  | Addendum dated January 1, 2005                                                                                                                                                                                                                                                                                                                                     |  | 10-K  |  | 000-50802  |  | 10.20 |  | 2/18/05 |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                    |  |       |  |           
|10.21   |  | Administrative Services Agreement dated October 31, 1998 between Maryland Radiation Therapy Management Services, Inc. and Katin Radiation Therapy, P.A.; Addendum dated January 1, 2000;
Addendum dated January 1, 2001; Addendum dated January 1, 2002; Addendum dated January 1, 2003; Addendum dated January 1, 2004                                            |  | S-1   |  | 333-114603 |  | 10.18 |  | 4/19/04 |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                    |  |       |  |           
|        |  |                                                                                                                                                                                                                                                                                                                                                                    |  |       |  |            |  |       |  |         |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                    |  |       |  |           
|10.22   |  | Addendum dated January 1, 2005                                                                                                                                                                                                                                                                                                                                     |  | 10-K  |  | 000-50802  |  | 10.22 |  | 2/18/05 |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                    |  |       |  |           
|10.23   |  | Administrative Services Agreement between California Radiation Therapy Management Services, Inc. and 21stCentury Oncology of California, a Medical Corporation dated August 1, 2003 Addendum dated January 1, 2004; Addendum dated January 1, 2005.                                                                                                                |  |       |  |            |  |       |  |         |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                    |  |       |  |           
|10.24 + |  | Second Amended and Restated 1997 Stock Option Plan                                                                                                                                                                                                                                                                                                                 |  | S-1   |  | 333-114603 |  | 10.19 |  | 4/19/04 |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                    |  |       |  |           
|10.25 + |  | Radiation Therapy Services, Inc. 2004 Stock Incentive Plan                                                                                                                                                                                                                                                                                                         |  | S-1/A |  | 333-114603 |  | 10.20 |  | 6/2/04  |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                    |  |       |  |           
|10.26 + |  | Performance Based Bonus Plan as of April 2004                                                                                                                                                                                                                                                                                                                      |  | S-1/A |  | 333-114603 |  | 10.21 |  | 5/21/04 |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                    |  |       |  |           
|10.27 + |  | Executive Employment Agreement of Daniel E. Dosoretz, M.D.                                                                                                                                                                                                                                                                                                         |  | S-1/A |  | 333-114603 |  | 10.22 |  | 5/21/04 |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                    |  |       |  |           
|10.28   |  | Physician Employment Agreement between Daniel E. Dosoretz, M.D. and 21st Century Oncology, Inc.                                                                                                                                                                                                                                                                    |  | S-1/A |  | 333-114603 |  | 10.23 |  | 5/21/04 |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                    |  |       |  |           
|10.29   |  | Physician Employment Agreement between Michael J. Katin, M.D. and 21st Century Oncology, Inc.                                                                                                                                                                                                                                                                      |  | S-1/A |  | 333-114603 |  | 10.25 |  | 6/2/04  |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                    |  |       |  |           
|10.30 + |  | Executive Employment Agreement of James H. Rubenstein, M.D.                                                                                                                                                                                                                                                                                                        |  | S-1/A |  | 333-114603 |  | 10.26 |  | 5/21/04 |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                    |  |       |  |           
|10.31   |  | Physician Employment Agreement between James H. Rubenstein, M.D. and 21st Century Oncology, Inc.                                                                                                                                                                                                                                                                   |  | S-1/A |  | 333-114603 |  | 10.27 |  | 5/21/04 |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                    |  |       |  |           
|10.32 + |  | Executive Employment Agreement of David M. Koeninger                                                                                                                                                                                                                                                                                                               |  | S-1/A |  | 333-114603 |  | 10.28 |  | 5/21/04 |  | 





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##### Table of Contents

|        |  |                                                                                                                                                                                                                                                                                                                                                                                     |  |       |  |            |  |       |  |          |  | 
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----- |  | ---------- |  | ----- |  | -------- |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                     |  |       |  |           
|10.33 + |  | Executive Employment Agreement of Joseph Biscardi                                                                                                                                                                                                                                                                                                                                   |  | S-1/A |  | 333-114603 |  | 10.29 |  | 5/21/04  |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                     |  |       |  |           
|10.34   |  | Form of Transition Agreement and Stock Pledge                                                                                                                                                                                                                                                                                                                                       |  | S-1   |  | 333-114603 |  | 10.30 |  | 4/19/04  |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                     |  |       |  |           
|10.35   |  | Third Amended and Restated Credit Agreement among the Company, the financial institutions parties thereto, Bank of America, N.A., as Administrative Agent, and Wachovia Bank, National
Association, as Documentation Agent dated as of March, 2004; Form of Term Loan A Note; Form of Revolving Note; Form of Swing Line Note; Form of Term Loan B Note (contained in Exhibit 4.2). |  | S-1/A |  | 333-114603 |  | 4.2   |  | 4/19/04  |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                     |  |       |  |           
|10.36   |  | Amendment Agreement No. 1 to Third Amended and Restated Credit Agreement made and entered into as of October 8, 2004 among the Company, each Subsidiary Guarantor, Bank of America, N.A., as
Administrative Agent and the Lenders party to the Credit Agreement (contained in Exhibit 4.3).                                                                                         |  | 8-K   |  | 000-50802  |  | 10.1  |  | 10/12/04 |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                     |  |       |  |           
|10.37   |  | Amendment Agreement No. 2 to Third Amended and Restated Credit Agreement made and entered into as of October 11, 2004 among the Company, each Subsidiary Guarantor, Bank of America, N.A., as
Administrative Agent and the Lenders party to the Credit Agreement (contained in Exhibit 4.4).                                                                                        |  | 8-K   |  | 000-50802  |  | 10.2  |  | 10/12/04 |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                     |  |       |  |           
|10.38   |  | Insurance Policy issued by Batan Insurance Company SPC, LTD to Radiation Therapy Services, Inc.                                                                                                                                                                                                                                                                                     |  | S-1/A |  | 333-114603 |  | 10.42 |  | 5/21/04  |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                     |  |       |  |           
|10.39   |  | Asset Purchase Agreement dated April 15, 2004 for acquisition of Devoto Construction, Inc.                                                                                                                                                                                                                                                                                          |  | S-1   |  | 333-114603 |  | 10.43 |  | 4/19/04  |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                     |  |       |  |           
|10.40   |  | S Corporation Tax Allocation and Indemnification Agreements                                                                                                                                                                                                                                                                                                                         |  | S-1/A |  | 333-114603 |  | 10.44 |  | 6/2/04   |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                     |  |       |  |           
|10.41 + |  | Employment Agreement of Howard M. Sheridan, M.D.                                                                                                                                                                                                                                                                                                                                    |  | S-1/A |  | 333-114603 |  | 10.49 |  | 5/21/04  |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                     |  |       |  |           
|10.42 + |  | Form of Indemnification Agreement (Directors and/or Officers)                                                                                                                                                                                                                                                                                                                       |  | S-1/A |  | 333-114603 |  | 10.50 |  | 5/21/04  |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                     |  |       |  |           
|10.43   |  | Management Services Agreement dated May 1, 2001 between Riverhill MRI Specialists, P.C. d/b/a Rivermed Imaging and Financial Services of Southwest Florida, Inc.                                                                                                                                                                                                                    |  | S-1/A |  | 333-114603 |  | 10.53 |  | 6/2/04   |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                     |  |       |  |           
|10.44   |  | Positron Emission Tomography (PET) Services Office, Equipment and Personnel Lease Agreement dated June 1, 2002 between Radiation Regional Center, P.A. and 21stCentury Oncology, Inc.; Amendment 1 dated September 2003                                                                                                                                                             |  | S-1/A |  | 333-114603 |  | 10.54 |  | 6/2/04   |  | 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                     |  |       |  |           
|10.45   |  | Positron Emission Tomography (PET) Services Office, Equipment and Personnel Lease Agreement dated October 1, 2001 between Radiology Regional Center, P.A. and 21st Century Oncology, Inc.;
Amendment 2 dated September 2003                                                                                                                                                         |  | S-1   |  | 333-114603 |  | 10.55 |  | 6/2/04   |  | 





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##### Table of Contents

|      |  |                                                                                                                                                                                                                                      |  |      |  |           |  |       |  |         |  |  
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- |  | --------- |  | ----- |  | ------- |  | -
|      |  |                                                                                                                                                                                                                                      |  |      |  |          
|10.46 |  | Development Agreement between Palm Springs Radiation Enterprises, LLC and California Radiation Therapy Management Services, Inc. dated.                                                                                              |  | 10-K |  | 000-50802 |  | 10.46 |  | 2/18/05 |  |  
|      |  |                                                                                                                                                                                                                                      |  |      |  |          
|10.47 |  | Purchasing Agreement between Palm Springs Radiation Enterprises, LLC and DeVoto Construction of Southwest Florida, Inc. dated.                                                                                                       |  | 10-K |  | 000-50802 |  | 10.47 |  | 2/18/05 |  |  
|      |  |                                                                                                                                                                                                                                      |  |      |  |          
|10.48 |  | Lease dated January 30, 2003 between Crestview Radiation Enterprises, LLC and 21stCentury Oncology, Inc. for premises in Crestview, Florida lease effective February 20, 2004.                                                       |  | 10-K |  | 000-50802 |  | 10.48 |  | 2/18/05 |  |  
|      |  |                                                                                                                                                                                                                                      |  |      |  |          
|10.49 |  | Physician Sharing Agreement between 21st Century Oncology, Inc. and Radiation Therapy Associates of Western North Carolina, P.A. effective August 1, 2003                                                                            |  | 10-K |  | 000-50802 |  | 10.49 |  | 2/18/05 |  |  
|      |  |                                                                                                                                                                                                                                      |  |      |  |          
|10.50 |  | Personal and Services Agreement between Imaging Initatives, Inc and 21stCentury Oncology, Inc. effective December 1, 2004                                                                                                            |  | 10-K |  | 000-50802 |  | 10.50 |  | 2/18/05 |  |  
|      |  |                                                                                                                                                                                                                                      |  |      |  |          
|21.1  |  | List of Subsidiaries                                                                                                                                                                                                                 |  | 10-K |  | 000-50802 |  | 21.1  |  | 2/18/05 |  |  
|      |  |                                                                                                                                                                                                                                      |  |      |  |          
|23.1  |  | Consent of Ernst & Young LLP                                                                                                                                                                                                         |  |      |  |           |  |       |  |         |  | X
|      |  |                                                                                                                                                                                                                                      |  |      |  |          
|31.1  |  | Certification of the Chief Executive Officer of Radiation Therapy Services, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 |  |      |  |           |  |       |  |         |  | X
|      |  |                                                                                                                                                                                                                                      |  |      |  |          
|31.2  |  | Certification of the Chief Financial Officer of Radiation Therapy Services, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 |  |      |  |           |  |       |  |         |  | X
|      |  |                                                                                                                                                                                                                                      |  |      |  |          
|32.1  |  | Certification of the Chief Executive Officer of Radiation Therapy Services, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002                                            |  |      |  |           |  |       |  |         |  | X
|      |  |                                                                                                                                                                                                                                      |  |      |  |          
|32.2  |  | Certification of the Chief Financial Officer of Radiation Therapy Services, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002                                            |  |      |  |           |  |       |  |         |  | X

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|+ | Denotes management contracts and compensatory plans and arrangements required to be filed as exhibits to this report.
|- | ---------------------------------------------------------------------------------------------------------------------