<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                                 Washington, D.C.  20549

                                   FORM 10-K
(Mark One)
[X]    Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
       Act of 1934

       For the fiscal year ended December 31, 1999

                                       OR

[ ]    Transition report pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934


                        Commission file number 0-26190


                               US ONCOLOGY, INC.
             (Exact name of registrant as specified in its charter)
                     _____________________________________



        Delaware                                      84-1213501
(State or other jurisdiction of         (I.R.S. Employer Identification No.)
 incorporation or organization)


16825 Northchase Drive, Suite 1300, Houston, Texas      77060
(Address of principal executive offices)              (Zip Code)


      Registrant's telephone number, including area code:  (281) 873-2674

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

                                      None

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

                         Common Stock ($.01 par value)
                                (Title of class)

                    Series A Preferred Stock Purchase Rights
                                (Title of class)

  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 or any amendment to this
Form 10-K. [ ]

  The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 17, 2000 was $396,389,644 (based upon the closing sales
price of the Common Stock on The Nasdaq Stock Market on March 17, 2000 of $4.625
per share).  For purposes of this calculation, shares held by non-affiliates
exclude only those shares beneficially owned by executive officers, directors
and stockholders beneficially owning 10% or more of the outstanding Common
Stock.

  There were 89,831,290 shares of the Registrant's Common Stock outstanding on
March 17, 2000.  In addition, as of March 17, 2000, the Registrant had agreed to
deliver 10,867,525 shares of its Common Stock on certain future dates for no
additional consideration.

                      DOCUMENTS INCORPORATED BY REFERENCE

   Portions of the Registrant's Proxy Statement issued in connection with the
 Registrant's 2000 Annual Meeting of Stockholders are incorporated by reference
                             into Part III hereof.
<PAGE>

PART I

ITEM 1.  BUSINESS

          US Oncology, Inc. (together with its subsidiaries, "US Oncology" or
the "Company") is a cancer management company.  The Company provides
comprehensive management services under long-term agreements to oncology
practices comprised of over 800 physicians in 26 states.  The physicians
affiliated with US Oncology provide all aspects of care related to the diagnosis
and outpatient treatment of cancer, including medical oncology, radiation
oncology, gynecologic oncology, stem cell transplantation, diagnostic radiology
and clinical research.  The Company was incorporated in October 1992 under the
laws of the State of Delaware.  The Company's principal executive offices are
located at 16825 Northchase Drive, Suite 1300, Houston, Texas, and its telephone
number is (281) 873-2674.

          On June 15, 1999, a wholly owned subsidiary of the Company merged with
and into Physician Reliance Network, Inc. ("PRN"), a cancer management company.
As a result of the merger, PRN became a wholly owned subsidiary of US Oncology,
and each holder of PRN common stock received 0.94 shares of the Company's common
stock for each PRN share held. The transaction was accounted for under the
pooling of interests method of accounting and treated as a tax-free exchange.
The Company's financial statements included in this report have been
retroactively restated to combine the accounts of US Oncology (formerly known as
American Oncology Resources, Inc. ("AOR")) and PRN for all periods presented
using their historical basis.

Management Services

          The Company is a cancer management company, and its primary business
is providing comprehensive management services to oncology practices, including
the following:

          STRATEGIC SERVICES.  At each affiliated practice, an operating board
comprised of equal representation from the Company and affiliated physicians is
created to develop and adopt a strategic plan designed to improve the
performance of the practice by (i) outlining physician recruiting goals, (ii)
identifying services and equipment to be added, (iii) identifying desirable
payor relationships and other oncology groups that are possible affiliation
candidates and (iv) facilitating communication with other affiliated physician
groups in the US Oncology network.

          FINANCIAL SERVICES.  The Company provides comprehensive financial
analysis to each affiliated physician group in connection with managed care
contracting and billing, collection, reimbursement, tax and accounting services.
The Company also implements its cash management system.  In addition, the
Company and each affiliated physician group jointly develop a comprehensive
budget that involves the adoption of financial controls and cost containment
measures.

          MANAGEMENT INFORMATION SYSTEMS.  The Company implements its management
information system to facilitate and organize the exchange of clinical and
operational information among the Company's affiliated physicians.  The Company
believes that an integrated information system will enable the Company and its
affiliated physicians to identify effective protocols and manage the costs of
cancer care in future years.

          ADMINISTRATIVE SERVICES.  The Company manages the facilities used by
the affiliated physicians and, in coordination with the physicians, determines
the number and location of practice sites.  The Company provides support for
practice management, billing functions and patient record keeping.  The Company
also provides comprehensive purchasing services for drugs, supplies, equipment,
insurance and other practice requirements.

          COMPLIANCE PROGRAM.  The Company and, more particularly, its
affiliated physician groups are intensely regulated at the federal, state and
local level.  To help each affiliated physician group comply with increasingly
complex laws and regulations applicable to oncology practices, the Company has
implemented a comprehensive compliance program.

          PERSONNEL MANAGEMENT.  The Company employs and manages substantially
all nonmedical personnel of most physician groups, including the executive
director, controller and other administrative personnel.  The Company evaluates
these employees, makes staffing recommendations, provides and manages employee
benefits and implements personnel policies and procedures.  The Company also
provides similar administrative services to each physician group's employees.

          CLINICAL RESEARCH SERVICES.  Through its clinical research network,
the Company facilitates and organizes clinical research conducted by its
affiliated physician groups and markets the groups' ability to perform and
manage clinical trials to pharmaceutical and biotechnology companies.  Clinical
research conducted by the oncology groups focuses on (i) improving

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cancer survival rates, (ii) enhancing the cancer patient's quality of life,
(iii) reducing the costs of cancer care and (iv) developing new approaches to
cancer diagnosis, treatment and post-treatment monitoring. The Company assists
in a number of aspects in the conduct of clinical trials, including protocol
development, data coordination, institutional review board coordination and
contract review and negotiation.

          CLINICAL INITIATIVES AND STANDARDS.  The Company organizes clinical
conferences for its affiliated physicians to discuss and identify clinical care,
research and educational strategies for the Company's network of affiliated
physicians.  The Company also assists its affiliated physicians in developing
clinical practice guidelines for the different types of cancer and in operating
in accordance with the standards of care required for accreditation by managed
care accreditation bodies.  The Company is also implementing a clinical
information system with the goal of facilitating the exchange of information
among affiliated physicians.  The Company expects the system will enable the
physicians to share clinical data and treatment patterns and will allow ready
access to current protocols and information regarding cancer therapies and
research developments.

Operations of Oncology Groups

          Since the Company's incorporation in October 1992, the Company has
grown rapidly from managing a single practice comprised of six physicians in one
state to managing oncology practices comprised of over 800 physicians in 26
states.

     The Company estimates that most of the affiliated physician groups are
among the largest group practices providing cancer care in their markets.  The
physician members of these groups have staff privileges at most private
hospitals in their markets and have long-standing relationships with
governmental and private payors.

          The oncologists are employed by the affiliated physician groups, not
the Company, and maintain control over all aspects of the provision of medical
care to their patients.  The Company does not provide medical care to patients
or employ any of the non-physician personnel of its affiliated physician groups
who provide medical care.  However, under the terms of the management agreements
with the affiliated physician groups, the Company is responsible for the
compensation and benefits of the groups' non-physician medical personnel, and
the financial statements of the Company reflect the costs of such compensation
and benefits.

          The affiliated physician groups offer a wide array of services to
cancer patients in outpatient settings, including professional medical services,
chemotherapy infusion and radiation oncology services, stem cell
transplantation, clinical laboratory services, diagnostic radiology services,
pharmacy services and patient education.  The groups employ a range of personnel
to provide these services, such as medical assistants, nurses (including
oncology certified nurses), radiation therapy technicians, physicists and
laboratory and pharmacy technicians.  The practice sites are generally located
in close proximity to other health care providers and typically are equipped to
provide the outpatient services necessary to treat and care for cancer patients
and their families.

Affiliation Structure

     The Company's structure enables its affiliated physicians to retain their
autonomy through ownership and participation in their local professional
corporation or other entity, thereby maintaining local authority and control
over medical practice decisions.  The Company believes that this local
governance structure is critical to its success.

          In connection with affiliating with a physician group, the Company
enters into a management agreement with the group and purchases the group's
nonmedical assets.  In consideration of these arrangements, the Company
typically pays cash and subordinated promissory notes and agrees to deliver
shares of its Common Stock at specified future dates (typically on the second
through fifth anniversaries of the closing date).  In addition, in most of the
Company's physician group affiliations, each affiliated physician enters into an
employment or noncompetition agreement with the physician group.  The Company
believes that the delivery of shares on a delayed basis, the Company's
affiliation structure and the compensation formulas defined in the management
agreements all serve to align the long-term interests of the affiliated
physician groups with those of the Company.

          The management service agreements with the affiliated physician groups
generally have contractual terms of 40 years.  These agreements cannot be
terminated by the physician groups without cause.  As consideration for the
Company's management services, each management agreement provides for payment to
the Company of a management fee.  In all of the Company's management agreements,
the Company's management fee includes reimbursement for all practice costs
(other than amounts retained by the physicians).  The Company is also paid an
additional management fee.  Some of the Company's

                                       2
<PAGE>

management agreements provide that this additional fee is a percentage of the
practice's earnings before income taxes. In others, the additional fee is
comprised of a fixed fee, plus a percentage fee (in most states) plus, if
certain financial and performance criteria are met, a performance fee.


Competition

          The business of providing health care services generally, and of
managing and providing oncology services specifically, is competitive.  The
Company's profitability depends on the continued success of its affiliated
physician groups.  These physician groups face competition from several sources,
including sole practitioners, single and multi-specialty groups, hospitals and
managed care organizations.

Regulation

          General.  The health care industry is highly regulated, and there can
be no assurance that the regulatory environment in which the Company and its
affiliated physician groups operate will not change significantly and adversely
in the future.  In general, regulation and scrutiny of health care providers and
companies are increasing.

          There are currently several federal and state initiatives to amend
regulations relating to the provision of health care services, the legal
structure under which those services are provided, access to health care,
disclosure of health care information, costs of health care and the manner in
which health care providers are reimbursed for their services.  It is not
possible to predict whether any such initiatives will be enacted or, if enacted,
what their form, effective dates or impact on the Company will be. The execution
of a management agreement with a physician group currently does not require any
regulatory approval on the part of the Company or the physician group.  However,
in connection with the expansion of existing operations and the entry into new
markets, the Company and its affiliated physician groups may become subject to
additional regulation.

          The Company's affiliated physician groups are intensely regulated at
the federal, state and local levels.  Although these regulations often do not
directly apply to the Company, to the extent an affiliated physician group is
found to have violated any of these regulations and, as a result, suffers a
decrease in its revenues or an increase in costs, the Company's results of
operations might be materially and adversely affected.

     Licensing and Certificate of Need Requirements.  Every state imposes
licensing requirements on individual physicians and on facilities and services
operated or provided by physicians.  Many states require regulatory approval,
including certificates of need, before (a) establishing certain types of health
care facilities, (b) offering certain services or (c) expending monies in excess
of statutory thresholds for health care equipment, facilities or programs.

          Fee-Splitting; Corporate Practice of Medicine.  The laws of many
states prohibit physicians from splitting professional fees with non-physicians
and prohibit non-physician entities, such as the Company, from practicing
medicine and from employing physicians to practice medicine.  The laws in most
states regarding the corporate practice of medicine have been subjected to
relatively limited judicial and regulatory interpretation.  The Company believes
its current and planned activities do not constitute fee-splitting or the
practice of medicine as contemplated by these statutes and interpretations.
However, there can be no assurance that future interpretations of such laws will
not require structural and organizational modification of the Company's existing
relationships with the affiliated physician groups.  In addition, statutes in
some states in which the Company does not currently operate could require the
Company to modify its affiliation structure.

          Medicare/Medicaid Fraud and Abuse Provisions.  Federal law prohibits
the offer, payment, solicitation or receipt of any form of remuneration in
return for the referral of Medicare or state health program patients or patient
care opportunities, or in return for the purchase, lease or order of any item or
service that is covered by Medicare or a state health program.  Pursuant to this
law, the federal government has pursued a policy of increased scrutiny of joint
ventures and other transactions among health care providers in an effort to
reduce potential fraud and abuse relating to government health care costs.

          The Medicare and Medicaid anti-kickback amendments (the "Anti-Kickback
Amendments") provide criminal penalties for individuals or entities
participating in the Medicare or Medicaid programs who knowingly and willfully
offer, pay, solicit or receive remuneration in order to induce referrals for
items or services reimbursed under such programs.  In addition to federal
criminal penalties, the Social Security Act also includes the sanction of
excluding violators from participation in the Medicare or Medicaid programs.

                                       3
<PAGE>

          A violation of the Anti-Kickback Amendments requires several elements:
(i) the offer, payment, solicitation or receipt of remuneration; (ii) the intent
to induce referrals; (iii) the ability of the parties to make or influence
referrals of patients; (iv) the provision of services that are reimbursable
under Medicare or state health programs; and (v) patient coverage under the
Medicare program or a state health program.  The Company believes that it is
receiving compensation under the management agreements for management services.
The Company also believes that it is not in a position to make or influence
referrals of patients or services reimbursed under Medicare or state health
programs to its affiliated physician groups.  Consequently, the Company does not
believe that the management fees payable to it should be viewed as remuneration
for referring or influencing referrals of patients or services covered by such
programs as prohibited by the Anti-Kickback Amendments.

          In 1991, the Inspector General of the United States Department of
Health and Human Services first published "Safe Harbor Regulations," defining
safe harbors for certain arrangements that do not violate the Anti-Kickback
Amendments.  One of the safe harbors specifically provided is a safe harbor for
personal services and management contracts.  Under this safe harbor,
"remuneration" prohibited by the Anti-Kickback Amendments does not include any
payment made by a principal to an agent as compensation for services of the
agent as long as certain standards are met.  To the Company's knowledge, there
have been no agency interpretations or case law decisions of management
agreements similar to the Company's that would indicate that such agreements do
not fall within a safe harbor.  Further, the Company believes that since it is
not a provider of medical services, and is not in a position to refer patients
to any particular medical practice, the remuneration it receives for providing
services does not violate the Anti-Kickback Amendments.

          Prohibitions on Certain Referrals.  The Omnibus Budget Reconciliation
Act of 1993 ("OBRA") includes a provision that significantly expands the scope
of the Ethics in Patient Referral Act, also known as the "Stark Bill."  The
Stark Bill originally prohibited a physician from referring a Medicare or
Medicaid patient to any entity for the provision of clinical laboratory services
if the physician or a family member of the physician had an ownership interest
in or compensation relationship with the entity.  The revisions to the Stark
Bill prohibit a referral to an entity in which the physician or a family member
has an ownership interest or compensation relationship if the referral is for
any of a list of "designated health services."  In January 1998, the Health Care
Financing Administration proposed additional regulations to the Stark Bill.  It
is not yet possible to predict whether these proposed regulations will be
adopted or, if adopted, what their final form, effective dates and impact on the
Company will be.

          Prohibitions on Certain Compensation Arrangements.  The OBRA
legislation also prohibits physician group practices from developing
compensation or bonus arrangements that are directly related to the volume or
value of referrals by a physician in the group for designated health services.

          Antitrust.  The Company and its affiliated physician groups are
subject to a range of antitrust laws that prohibit anti-competitive conduct,
including price fixing, concerted refusals to deal and division of markets.  The
Company believes it is in compliance with these laws, but there can be no
assurance that a review of the Company's or its affiliated physician groups'
business would not result in a determination that could adversely affect the
operations of the Company and its affiliated physician groups.

          Reimbursement Requirements.  In order to participate in the Medicare
and Medicaid programs, the Company's affiliated physicians must comply with
stringent reimbursement regulations, including those that require many health
care services to be conducted "incident to" a physician's supervision.
Satisfaction of all reimbursement requirements is required under the Company's
compliance program.  The Company believes that its affiliated physicians are in
compliance with the reimbursement requirements; however, affiliated physicians'
failure to comply with these requirements could negatively affect the Company's
results of operations.

          Enforcement Environment.  In recent years, the federal government has
launched several initiatives aimed at uncovering practices that violate the
federal civil and criminal laws regarding false claims and fraudulent billing
and coding practices.  Proper billing and coding of medical services is part of
the complex reimbursement requirements to which the Company's affiliated
physicians must adhere, individually and through their group practices, in order
to practice medicine and be compensated for it in accordance with applicable
law.  Although the Company's compliance program requires adherence to applicable
law and promotes reimbursement education and training, because the Company
performs administrative services for its affiliated physician groups, it is
likely that governmental investigations or lawsuits regarding affiliated
physician groups' compliance with reimbursement requirements would also
encompass the activities of the Company.  A determination that billing and
coding practices are false or fraudulent could have a material adverse effect on
the Company.

                                       4
<PAGE>

          The Federal False Claims Act has been the most successful vehicle for
identifying and enforcing billing, reimbursement and other regulatory
violations.  In addition to the government bringing claims under the Federal
False Claims Act, qui tam, or "whistleblower", actions may be brought by private
individuals on behalf of the government.  A violation under the False Claims Act
occurs each time a claim is submitted to the government or each time a false
record is used to get a claim approved, when the claim is false or fraudulent
and the defendant acted knowingly.  Under the False Claims Act, defendants face
exclusion from the Medicare/Medicaid programs and monetary damages of $5,000 to
$10,000 for each false claim, as well as treble damages.

          Compliance.  The Company has implemented a comprehensive compliance
program designed to assist the Company and its affiliated physician groups in
complying with applicable law.  In addition, the Company recognizes that health
care regulations will continue to change and, as a result, regularly monitors
developments in health care law.   The Company expects to modify its agreements
and operations from time to time as the business and regulatory environment
changes.  While the Company believes it will be able to structure all of its
agreements and operations in accordance with applicable law, there can be no
assurance that its arrangements will not be successfully challenged.

Executive Officers of the Registrant

<TABLE>
<CAPTION>
             Name, Age, and Position                                   Experience
--------------------------------------------------   -----------------------------------------------
<S>                                                  <C>

R. DALE ROSS, age 53                                 Mr. Ross has been Chairman of the Board and
          Chairman of the Board of Directors and     Chief Executive Officer since December 1992.
           Chief Executive Officer                   He was self-employed from April 1990 until
                                                     joining the Company.  From December 1982 until
                                                     April 1990, Mr. Ross was employed by HMSS,
                                                     Inc., a home infusion therapy company.  Mr.
                                                     Ross founded HMSS, Inc. and served as its
                                                     President and Chief Executive Officer and as a
                                                     director.

LLOYD K. EVERSON, M.D., age 56                       Dr. Everson has been President of the Company
          President                                  since November 1993.  He received his medical
                                                     degree from Harvard Medical School and his
                                                     oncology training at Memorial Sloan Kettering
                                                     National Cancer Institute.  He is board
                                                     certified in medical oncology.  Dr. Everson
                                                     has published widely in the field of oncology
                                                     and is a member of numerous professional
                                                     associations. He also has served as President
                                                     of the Association of Community Cancer Centers
                                                     and as Associate Chairman for Community
                                                     Programs for the Eastern Cooperative Oncology
                                                     Group.


MARK E. AHERN, age 42                                Mr. Ahern joined the Company in 1995 and has
          Senior Vice President for Development      been involved in various development roles
                                                     since that time.  Mr. Ahern currently oversees
                                                     development activities involving new physician
                                                     affiliations and physician recruitment.  Prior
                                                     to joining the Company, Mr. Ahern was Vice
                                                     President, Business Development at Caremark
                                                     Oncology Practice Management.


JOSEPH S. BAILES, M.D., age 43                       Dr. Bailes joined the Company in June 1999.
           Executive Vice President for Clinical     Prior to that, he was President of PRN from
            Services                                 1985 to 1999.  Dr. Bailes was formerly a
                                                     physician at Texas Oncology, P.A., the
                                                     Company's largest affiliated physician group.
                                                     Dr. Bailes is Board Certified in medical
                                                     oncology.  He is currently President of The
                                                     American Society of Clinical Oncology.


DAVID S. CHERNOW, age 43                             Mr. Chernow joined the Company in 1993.  He is
          President, Physician Services Group        currently President of the Physician Services
                                                     Group,

</TABLE>

                                       5
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<TABLE>
<CAPTION>
<S>                                                  <C>
                                                     which is responsible for coordinating
                                                     the full spectrum of operational and
                                                     development services to the US Oncology
                                                     network of affiliated physicians, including
                                                     new affiliations, cancer center development,
                                                     physician recruitment and other development
                                                     and strategic initiatives.


ATUL DHIR, M.D.; D. Phil, age 37                     Dr. Dhir joined the Company in November 1999.
          President, Cancer Information and          As President of Cancer Information and
           Research Group                            Research Group, he is responsible for the
                                                     Company's clinical trial activities, cancer
                                                     information services and transplant
                                                     initiatives.  Prior to joining the Company,
                                                     Dr. Dhir was a Vice President at Monsanto
                                                     Corporation from 1996 to 1998; President of
                                                     Health Strategies Partners, a company he
                                                     founded that provided consulting services to
                                                     hospitals and physicians from 1994 until 1996;
                                                     and a health care consultant with McKinsey &
                                                     Company from 1989 until 1993.  Dr. Dhir holds
                                                     a D. Phil. in molecular biology from Oxford
                                                     University, where he was a Rhodes Scholar.

MARC I. KERLIN, age 36                               Mr. Kerlin joined the Company in 1994.  As
          Senior Vice President  of Managed Care     Senior Vice President of Managed Care,
                                                     Mr. Kerlin's primary area of responsibility is
                                                     managed care contracting.


WILLIAM F. MCKEON, age 40                            Mr. McKeon joined the Company in 1997.  He is
          Senior Vice President for Marketing and    primarily responsible for the Company's
           eCommerce                                 marketing, eCommerce and eHealth initiatives.
                                                     Prior to joining the Company, Mr. McKeon was
                                                     involved in marketing at Stanford University
                                                     Medical Center from 1991 until 1997.


R. ALLEN PITTMAN, age 52                             Mr. Pittman joined the Company in 1993.  As
           Chief Administrative Officer              chief administrative officer, he oversees the
                                                     corporate services functions of the Company,
                                                     including human resources, real estate and
                                                     general administrative services.

L. FRED POUNDS, age 52                               Mr. Pounds joined the Company in January 1993
           Chief Financial Officer and Treasurer     as its Chief Financial Officer. On December
                                                     13, 1999, Mr. Pounds resigned as the Company's
                                                     Chief Financial Officer, effective March 31,
                                                     2000.

LEO E. SANDS, age 52                                 Mr. Sands joined the Company in November 1992.
          Chief Compliance Officer and Secretary     He is primarily responsible for the Company's
                                                     compliance program, including all aspects of
                                                     regulatory and health care compliance and
                                                     governmental relations.

PHILLIP H. WATTS, age 34                             Mr. Watts joined the Company in January 1998
          General Counsel                            as its General Counsel.  He has primary
                                                     responsibility for overseeing all legal
                                                     operations of the Company.  From September
                                                     1991 until December 1997, Mr. Watts was an
                                                     attorney at Mayor, Day, Caldwell & Keeton,
                                                     L.L.P., a law firm in Houston, Texas that is
                                                     the Company's primary outside legal counsel.

</TABLE>

                                       6
<PAGE>

Employees

          As of December 31, 1999, the Company employed 3,202 people.  In
addition, as of December 31, 1999, the affiliated physician groups employed
3,980 people (excluding the affiliated physicians).  Under the terms of the
management agreements with the affiliated physician groups, the Company is
responsible for the practice compensation and benefits of the groups' non-
physician medical personnel.  No employee of the Company or of any affiliated
group is a member of a labor union or subject to a collective bargaining
agreement.  The Company considers its relations with its employees to be good.

Service Marks

          The Company has registered the service mark "US Oncology" with the
United States Patent and Trademark Office.

ITEM 2.  PROPERTIES

          The Company leases its corporate offices in Houston, Texas, where the
Company's headquarters are located.  The Company or its affiliated physician
groups also own, lease, sublease or occupy the facilities where the affiliated
physician groups provide medical services.  In connection with the development
of integrated cancer centers, the Company has acquired land valued at
approximately $18.1 million.  The Company anticipates that, as its affiliated
group practices grow, expanded facilities will be required.

          In addition to conventional physician office space, in several markets
the Company has developed comprehensive cancer centers that are generally free-
standing facilities in which a full range of outpatient cancer treatment
services is offered in one facility.  At December 31, 1999, the Company operated
60 cancer centers and had ten cancer centers under development.  Of the 60
cancer centers operated by the Company, 35 are leased by the Company and 25 are
owned, ranging in size from 3,300 Sq. Ft. to 15,700 Sq. Ft.

ITEM 3.  LEGAL PROCEEDINGS

          The provision of medical services by the Company's affiliated
physicians entails an inherent risk of professional liability claims.  The
Company does not control the practice of medicine by physicians or the
compliance with regulatory and other requirements directly applicable to
physicians and physician groups.  Because the Company's affiliated physician
groups purchase and resell pharmaceutical products, they face the risk of
product liability claims.  The Company maintains insurance coverage that it
believes to be adequate both as to risks and amounts.  In addition, pursuant to
the management services agreements with the affiliated physician groups, the
affiliated practices and the Company are required to maintain comprehensive
professional liability insurance.  Successful malpractice claims asserted
against the Company or one of the affiliated physician groups could, however,
have a material adverse effect on the Company.


          The Company has been informed that the Company and an affiliated
physician group are the subject of allegations that their billing practices may
violate the Federal False Claims Act. The allegations are the result of two qui
tam complaints filed under seal prior to the merger of PRN with a subsidiary of
US Oncology. The U.S. Department of Justice is currently investigating the
allegations in order to determine if the United States will intervene and pursue
the claims on behalf of the plaintiffs. If the United States does not intervene,
the plaintiffs may continue to pursue the claims individually. Because the
complaints are under seal, and because the Department of Justice is in the
process of investigating the claims, the Company is unable to fully assess at
this point in time the nature or magnitude of these allegations. If the
plaintiffs and/or the United States were to prevail in these claims, the
resulting judgment could have a material adverse effect on the Company. In
addition, addressing the complaints and government investigation will require
the Company to devote significant financial and other resources to the process,
regardless of the ultimate outcome of the claims. Because qui tam actions are
filed under seal, there is a possibility that the Company could be the subject
of other qui tam actions of which it is unaware.

          In addition to the legal proceedings described in the prior paragraph,
the Company and its affiliated physicians are defendants in a number of lawsuits
involving employment disputes and breach of contract claims.  Although the
Company believes the allegations are customary for the Company's size and scope
of operations, adverse judgments, individually or in the aggregate, could have a
material adverse effect on the Company.

                                       7
<PAGE>

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

     No matters were submitted to a vote of security holders during the fourth
quarter of 1999.

PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's Common Stock is traded on The Nasdaq Stock Market under the
symbol "USON".  The high and low closing sale prices of the Common Stock, as
reported by The Nasdaq Stock Market, were as follows for the quarterly periods
indicated.

         Year Ended December 31, 1998              High       Low
                                                  -------   -------

     Fiscal Quarter Ended March 31, 1998           $17.38    $12.38
     Fiscal Quarter Ended June 30, 1998            $15.75    $11.13
     Fiscal Quarter Ended September 30, 1998       $13.75    $ 8.13
     Fiscal Quarter Ended December 31, 1998        $15.00    $ 8.63

     Year Ended December 31, 1999

     Fiscal Quarter Ended March 31, 1999           $15.06    $ 7.56
     Fiscal Quarter Ended June 30, 1999            $12.63    $ 6.56
     Fiscal Quarter Ended September 30, 1999       $12.75    $ 9.06
     Fiscal Quarter Ended December 31, 1999        $ 9.44    $ 3.94


          As of March 17, 2000, there were approximately 8,750 holders of the
Common Stock.  The Company has not declared or paid any cash dividends on its
Common Stock.  The payment of cash dividends in the future will depend on the
Company's earnings, financial condition, capital needs and other factors deemed
pertinent by the Company's board of directors, including the limitations, if
any, on the payment of dividends under state law and then-existing credit
agreements.  It is the present policy of the Company's board of directors to
retain earnings to finance the operations and expansion of the Company's
business.  The Company's credit facilities currently prohibit the payment of
cash dividends.  See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."

                                       8
<PAGE>

RECENT SALES OF UNREGISTERED SECURITIES

          In connection with each affiliation transaction between the Company
and an oncology group, the Company purchases the nonmedical assets of, and
enters into a long-term management agreement with, that oncology group.  In
consideration for that arrangement, the Company typically pays cash, issues
subordinated promissory notes (in general, payable on each of the second through
seventh anniversaries of the closing date at an annual interest rate of seven
percent) and unconditionally agrees to deliver shares of Common Stock at
specified future dates (in general, on each of the second through fifth
anniversaries of the closing date).

          The following table describes private placements by the Company in
connection with physician transactions of its securities during 1999.  Each sale
was a private placement made in connection with a physician transaction,
described in general in the preceding paragraph, to affiliated oncologists, the
overwhelming majority of whom are accredited investors.  No underwriter was
involved in any such sale, and no commission or similar fee was paid with
respect thereto.  Each sale was not registered under the Securities Act of 1933
in reliance on Section 4(2) of such Act and Rule 506 enacted thereunder.

<TABLE>
<CAPTION>
                                                                 Number of Shares of             Aggregate Principal
    Date of Transaction           Number of Physicians              Common Stock/1/                Amount of Notes
---------------------------   ----------------------------   ----------------------------   -----------------------------
                                                                                                    (in dollars)
<S>                           <C>                            <C>                            <C>
           1/99                            8                           819,665                        6,316,000
           1/99                            4                           283,568                        2,558,000
           1/99                            2                            47,611                          233,000
           1/99                            1                            24,426                          640,000
           1/99                            1                            18,609                          186,000
           1/99                            1                            96,366                          680,000
           1/99                            6                           156,165                        3,200,000
           2/99                            1                            12,881                          217,000
           3/99                            1                            33,381                          686,000
           6/99                           10                           402,209                        2,990,000
           7/99                            1                            20,724                          322,000
           8/99                            4                            64,642                          745,000
           8/99                            2                            18,421                          400,000
           9/99                            2                            36,186                          560,000
           9/99                            1                            34,430                          540,000
           10/99                           1                            47,059                          450,000
           10/99                           3                            93,176                        1,782,000
           12/99                           2                            74,776                          730,000
           12/99                           3                           202,020                        1,500,000
           12/99                           1                           145,471                        2,632,000
</TABLE>
____________________

/1/ In connection with each affiliation transaction, the Company unconditionally
agrees to deliver shares of Common Stock at specified future dates (typically on
each of the second through fifth anniversaries of the closing date).

          In November 1999, the Company issued $100 million in senior secured
notes to a group of institutional investors.  The notes bear interest at 8.42%,
mature in 2006 and rank equal in right of payment with all current and future
senior indebtedness of the Company.  The placement was not registered under the
Securities Act of 1933 in reliance on Section 4(2) of such Act.  Banc One
Securities Corporation and First Union Securities acted as placement agents.

                                       9
<PAGE>

ITEM 6.   SELECTED FINANCIAL DATA

          The selected consolidated financial information of the Company set
forth below is qualified by reference to, and should be read in conjunction
with, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Consolidated Financial Statements and notes thereto
included elsewhere in this report.
<TABLE>
<CAPTION>

                                                                                YEAR ENDED DECEMBER 31,
                                                     --------------------------------------------------------------
                                                        1999          1998          1997       1996        1995
                                                     -----------   -----------   ---------   ---------    ---------
<S>                                                  <C>           <C>            <C>        <C>          <C>
                                                                      (in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Revenue...........................................   $ 1,092,941   $  836,596     $ 625,413   $432,749    $227,964
Operating expenses:
   Pharmaceuticals and supplies...................       521,087      357,766       250,425    155,743      69,173
   Practice compensation and benefits.............       215,402      172,298       143,210    104,174      55,072
   Other practice costs...........................       134,635      107,671        87,232     57,414      34,964
   General and administrative.....................        39,490       38,325        31,809     22,508      14,918
   Write-off of accounts receivable...............             -            -        37,841          -           -
   Merger, restructuring and integration costs....        29,014            -             -          -           -
   Depreciation and amortization..................        65,072       48,463        35,194     25,237      12,308
                                                     -----------   ----------     ---------   --------    --------
Income from operations............................        88,241      112,073        39,702     67,673      41,529
Interest income (expense), net....................       (22,288)     (15,908)      (12,474)    (5,184)     (2,355)
Other income, net.................................        14,431/1/         -             -          -       1,600/2/
                                                     ------------  ----------     ---------   --------    --------
Income before taxes...............................        80,384       96,165        27,228     62,489      40,774
Income taxes......................................        32,229       36,184        11,593     24,343      15,042
                                                     -----------   ----------     ---------   --------    --------
Net income........................................   $    48,155   $   59,981     $  15,635   $ 38,146    $ 25,732
                                                     ===========   ==========     ==========  ========    ========

Net income per share - basic......................   $       .48   $      .61     $     .17   $    .43    $    .35
Shares used in per share computation - basic......       100,183       97,647        93,168     88,072      73,593

Net income per share - diluted....................   $       .47   $      .60     $     .16   $    .41    $    .33
Shares used in per share computations - diluted...       101,635       99,995        97,198     92,136      77,869


                                                                                     December 31,
                                                       ------------------------------------------------------------------
                                                          1999          1998             1997          1996        1995
                                                        -------     ----------        ------------   --------    --------
                                                                                  (in thousands)
 BALANCE SHEET DATA:
  Working capital.................................   $   280,793   $  178,262         $   121,221   $121,741    $112,350
  Management service agreements, net..............       537,130      467,214             431,068    326,417     193,710
  Total assets....................................     1,298,477    1,033,528             883,430    694,741     476,992
  Long-term debt/3/...............................       360,191      234,474             189,377     96,368      78,668
  Stockholders' equity............................       707,164      629,798             554,298    516,630     336,914
------------------
</TABLE>

/1/  Unrealized gain on investment in common stock.
/2/  Consists of gain from life insurance proceeds of $2,090 less lease
     termination costs of $490.
/3/  Excludes current maturities of long-term debt.

                                       10
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

Introduction

          US Oncology, Inc. provides comprehensive management services under
long-term agreements to oncology practices that provide a broad range of medical
services to cancer patients, integrating the specialties of medical and
gynecologic oncology, hematology, radiation oncology, diagnostic radiology and
stem cell transplantation.  The Company has grown rapidly since inception and
now manages over 800 affiliated physicians in 26 states.

                                            MARCH 17,      DECEMBER 31,
                                            ---------  --------------------
                                              2000     1999    1998   1997
                                              ----     ----    ----   -----
     Affiliated physicians...............      821      806     719    630
     States............................         26       26      25     23


          The Company enters into management agreements with, and purchases the
nonmedical assets of, oncology practices.  Under the terms of the management
agreements, the Company provides comprehensive management services to its
affiliated physician groups, including operational and administrative services,
and furnishes personnel, facilities, supplies and equipment.  The physician
groups, in return, agree to practice medicine exclusively in affiliation with
the Company under the management agreements.  Substantially all of the Company's
revenue consists of management fees paid under the terms of the management
agreements.  In all of the Company's management agreements, the Company's
management fee includes reimbursement for all practice costs (other than amounts
retained by physicians).  The Company is also paid an additional management fee.
Some of the Company's management agreements provide that this additional fee is
a percentage of the practice's earnings before income taxes.  In others, the
additional fee is comprised of a fixed fee, a percentage fee (in most states)
and, if certain financial and performance criteria are met, a performance fee.
For the years ended December 31, 1999, 1998 and 1997, one of the Company's
affiliated physician groups, Texas Oncology, P.A., contributed more than 10% of
the Company's revenue, contributing 25%, 32% and 37%, in 1999, 1998 and 1997,
respectively.

          Medicare and Medicaid are the Company's affiliated groups' largest
payor.  During 1999, 1998 and 1997, approximately 35% of the Company's revenue
was derived from Medicare and Medicaid payments.  This percentage varies among
physician groups.  No other single payor accounted for more than 10% of the
Company's revenues in 1999, 1998 or 1997.

RESULTS OF OPERATIONS

          The following table sets forth the percentages of revenue represented
by certain items reflected in the Company's Statement of Operations and
Comprehensive Income.  The information that follows should be read in
conjunction with the Company's Consolidated Financial Statements and notes
thereto included elsewhere herein.


                                                YEAR ENDED DECEMBER 31,
                                           ---------------------------------
                                            1999          1998         1997
                                           ------        -----         -----

Revenue.................................   100.0%        100.0%        100.0%
                                           -----         -----         -----
Operating expenses:
     Pharmaceuticals and supplies.......    47.7          42.8          40.0
     Practice compensation and benefits.    19.7          20.6          22.9
     Other practice costs...............    12.3          12.9          13.9
     General and administrative.........     3.6           4.5           5.1
     Write-off of accounts receivable...                                 6.1
     Merger, restructuring and
      integration costs.................     2.7
     Depreciation and amortization......     6.0           5.8           5.6
Net interest............................     2.0           1.9           2.0
Other income............................     1.3                          __
                                           -----         -----         -----
Income before income taxes..............     7.3          11.5           4.4
Income taxes............................     2.9           4.3           1.9
                                           -----         -----         -----
Net income..............................     4.4%          7.2%          2.5%
                                           =====         =====         =====


                                       11
<PAGE>

1999 Compared to 1998

     The Company affiliated with 20 and 21 physician groups in 1999 and 1998,
respectively, the results of which are included in the Company's operating
results from the dates of affiliation.  Changes in results of operations year to
year were caused in part by affiliations with these oncology practices.

     Overall, the Company experienced a decrease in operating margins from 1998
to 1999, with earnings before taxes, interest, depreciation and amortization,
excluding merger, restructuring and integration costs as well as other income
("EBITDA"), as a percentage of revenue, declining from 19.2% to 16.8%.  A number
of factors contributed to the decrease in operating margins, including (i)
increases in the acquisition cost of pharmaceuticals, (ii) shifts in the mix of
pharmaceuticals to lower margin products, (iii) increases in practice personnel
costs due to numerous network-wide initiatives (such as information system
conversions) and (iv) higher occupancy costs due to expansion into new cancer
centers and additional sites of service.

     Revenue.  Revenue increased from $836.6 million in 1998 to $1,092.9 million
in 1999, an increase of $256.3 million or 30.6%.  Revenue for markets under
management in 1998 and 1999 increased $204.5 million or 25.7% over the same
period from the prior year, as calculated by comparing 1998 revenue and 1999
revenue for all practices within a metropolitan service area in which the
Company had operations in both periods.  This growth was the result of increased
use of anticancer pharmaceuticals, expansion of services, increases in patient
volume, recruitment of or affiliation with additional physicians and, to a
lesser extent, increases in charges for certain physician services.  The
remaining $51.8 million increase in total revenues was attributable to
affiliations with oncology practices in new markets.

     Pharmaceuticals and Supplies.  Pharmaceuticals and supplies, which include
drugs, medications and other supplies used by affiliated physician groups,
increased from $357.8 million for 1998 to $521.1 million for 1999, an increase
of $163.3 million, or 45.6%.  This increase was principally attributable to the
same factors that caused revenue to increase.  As a percentage of revenue,
pharmaceutical and supply costs increased from 42.8% for 1998 to 47.7% for 1999.
This increase was primarily due to a shift in the revenue mix to a higher
percentage of drug revenue relative to total revenue.  In addition, the
affiliated practices experienced an increase in the use of lower margin drugs,
as well as increases in the acquisition cost of pharmaceuticals.  The Company
employs an aggressive contracting strategy for negotiating discounts on
pharmaceuticals.  However, the effectiveness of this strategy has been offset by
the loss of one pharmaceutical purchasing agreement in 1999 as well as the
inability to obtain discounted pricing on a number of the most frequently
prescribed anticancer agents.

     Practice Compensation and Benefits.  Practice compensation and benefits,
which include the salaries, wages and benefits of the affiliated physician
groups' employees (excluding affiliated physicians) and the Company's employees
located at the affiliated physician practice sites and business offices,
increased from $172.3 million in 1998 to $215.4 million in 1999, an increase of
$43.1 million or 25.0%.  This increase was principally attributable to the same
factors that caused revenue to increase.  As a percentage of revenue, practice
compensation and benefits decreased from 20.6% for 1998 to 19.7% for 1999,
primarily as a result of increases in pharmaceutical revenue which did not
require proportional increases in the number of personnel.

     Other Practice Costs.  Other practice costs, which consist of rent,
utilities, repairs and maintenance, insurance and other direct practice costs,
increased from $107.7 million in 1998 to $134.6 million in 1999, an increase of
$26.9 million or 25.0%.  This increase was principally attributable to the same
factors that caused revenue to increase as well as new cancer center
development.  As a percentage of revenue, other practice costs decreased from
12.9% for 1998 to 12.3% for 1999.

     General and Administrative.  General corporate expenses increased from
$38.3 million in 1998 to $39.5 million in 1999, an increase of $1.2 million or
3.1%.  As a percentage of revenue, general and administrative expenses decreased
from 4.5% for 1998 to 3.6% for 1999, primarily as a result of economies of scale
attributable to the Merger with PRN and the limited increase in general and
administrative costs needed to support pharmaceutical revenue growth.

     Merger, Restructuring and Integration. In connection with the Merger
between AOR and PRN, the Company incurred total costs of $29.0 million to
consummate the Merger, restructure operating activities and integrate the two
organizations.  These costs were expensed during 1999.  Costs directly related
to the consummation of the Merger totaled $14.6 million.  Restructuring costs
relating to severance and relocation of employees and asset impairments totaled
$7.2 million.  Incremental costs incurred to assist in integrating the AOR's and
PRN's operations totaled $7.2 million.

     Depreciation and Amortization.  Depreciation and amortization expenses
increased from $48.5 million in 1998 to $65.1 million in 1999, an increase of
$16.6 million or 34.2%.  As a percentage of revenue, depreciation and
amortization

                                       12
<PAGE>

expenses increased from 5.8% for 1998 to 6.0% for 1999. This increase is
primarily attributable to decreasing the amortization period for management
services agreements from 40 years to 25 years effective July 1, 1998, as well as
amortization relating to new physician groups affiliations and investments in
new cancer centers and management information systems during 1999.

     Interest.  Net interest expense increased from $15.9 million in 1998 to
$22.3 million in 1999, an increase of $6.4 million or 40.3%.  The increase was
the result of higher levels of debt, principally incurred to finance
transactions with 20 oncology groups during 1999, as well as construction of 20
cancer centers.  As a percentage of revenue, net interest expense was 1.9% and
2.0% in 1998 and 1999, respectively.  Indebtedness to physicians increased from
approximately $81.5 million at December 31, 1998 to approximately $98.9 million
at December 31, 1999.

     Other Income.  Other income increased from zero in 1998 to $14.4 million in
1999.  Other income in 1999 represents the recognition of an unrealized gain on
the shares of common stock of ILEX Oncology, Inc. owned by the Company.  The
gain was recognized as a result of the Company's reclassification of the ILEX
stock as a trading security.  The stock was sold during the first quarter of
2000.

     Income Taxes.  Income tax expense decreased from the prior year as a result
of the Company's decreased profitability.  For 1999, the Company recognized a
tax provision of $32.2 million resulting in an effective rate of 40.1% as
compared to 37.6% for 1998.  The increase in the effective tax rate was due to
certain nondeductible professional fees and other costs in connection with the
completion of the Merger

     Net Income.  Net income decreased from $60.0 million in 1998 to $48.2
million in 1999, a decrease of $11.8 million or 19.7%.  As a percentage of
revenue, net income declined from 7.2% to 4.4%, principally as a result of
Merger, restructuring and integration costs incurred in 1999 of $29.0 million.

1998 COMPARED TO 1997

     The Company affiliated with 21 and 23 physician groups in 1998 and 1997,
respectively, the results of which are included in the Company's operating
results from the dates of affiliation.  Changes in results of operations year to
year were caused in part by affiliations with these oncology practices.

     Overall, the Company experienced an increase in operating margins
(excluding one-time write-off of accounts receivable) from 1997 to 1998, with
earnings before taxes, interest, depreciation and amortization ("EBITDA"), as a
percentage of revenue, improving from 18.1% to 19.2%.  This increase was
primarily attributable to the non-recurrence in 1998 of certain litigation, loan
and consulting expenses from 1997.

     Revenue.  Revenue increased from $625.4 million in 1997 to $836.6 million
in 1998, an increase of $211.2 million or 33.8%.  This growth was the result of
expansion of services, increases in patient volume, recruitment of or
affiliation with additional physicians and, to a lesser extent, increases in
charges for certain physician services.

     Pharmaceuticals and Supplies.  Pharmaceuticals and supplies increased from
$250.4 million for 1997 to $357.8 million for 1998, an increase of $107.4
million, or 42.9%.  This increase was principally attributable to the same
factors that caused revenue to increase.  As a percentage of revenue,
pharmaceutical and supply costs increased from 40.0% for 1997 to 42.8% for 1998.
This increase was primarily due to a shift in the revenue mix to a higher
percentage of drug revenue, the introduction of a number of new chemotherapy
agents and, to a lesser extent, lower reimbursement from payors.

     Practice Compensation and Benefits.  Practice compensation and benefits
increased from $143.2 million in 1997 to $172.3 million in 1998, an increase of
$29.1 million or 20.3%.  This increase was principally attributable to the same
factors that caused revenue to increase.  As a percentage of revenue, practice
compensation and benefits decreased from 22.9% for 1997 to 20.6% for 1998,
primarily as a result of economies of scale.

     Other Practice Costs.  Other practice costs increased from $87.2 million in
1997 to $107.7 million in 1998, an increase of $20.5 million or 23.5%.  This
increase was principally attributable to the same factors that caused revenue to
increase.  As a percentage of revenue, other practice costs decreased from 13.9%
for 1997 to 12.9% for 1998, primarily as a result of economies of scale.

     General and Administrative.  General corporate expenses increased from
$31.8 million in 1997 to $38.3 million in 1998, an increase of $6.5 million or
20.4%.  This increase was primarily attributable to the addition of personnel
and greater

                                       13
<PAGE>

support costs associated with the Company's growth since 1997. As a percentage
of revenue, general and administrative expenses decreased from 5.1% for 1997 to
4.5% for 1998, primarily as a result of economies of scale, as well as the non-
recurrence in 1998 of certain litigation, loan refinancing and consulting costs
from 1997.

     Depreciation and Amortization.  Depreciation and amortization expenses
increased from $35.2 million in 1997 to $48.5 million in 1998, an increase of
$13.3 million or 37.8%.  This increase was primarily attributable to the
amortization expenses relating to new physician group affiliations, as well as
investments in new cancer centers and management information systems during
1997.  As a percentage of revenue, depreciation and amortization increased from
5.6% for 1997 to 5.8% for 1998.  This increase is primarily attributable to
decreasing the amortization period for management services agreements from 40
years to 25 years effective July 1, 1998, as well as amortization relating to
new physician groups affiliations and  investments in new cancer centers and
management information systems during 1998.

     Interest.  Net interest expense increased from $12.5 million in 1997 to
$15.9 million in 1998, an increase of $3.4 million or 27.2%.  The increase was
the result of higher levels of debt, principally incurred to finance
transactions with 21 oncology groups during 1998.  As a percentage of revenue,
net interest expense decreased from 2.0% in 1997 to 1.9% in 1998.

     Income Taxes.  Income tax expense increased from the prior year as a result
of the Company's increased profitability.  For 1998, the Company recognized a
tax provision of $36.2 million resulting in an effective rate of 37.6% as
compared to a rate of 42.6% for 1997.  The decrease in the effective rate is due
primarily to a change in the Company's composition of revenue by state since
1996.

     Net Income.  Net income increased from $15.6 million in 1997 to $60.0
million in 1998, an increase of $44.4 million or 284.6%.  As a percentage of
revenue, net income improved from 2.5% to 7.2%.  This improvement is due
primarily to the non-recurrence in 1998 of certain receivable write-offs from
1997.  (See Notes to Consolidated Financial Statements - Note 1 - Organization
and Summary of Significant Accounting Policies - Accounts Receivable.)

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

     The following statements are or may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995: (i)
certain statements, including possible or assumed future results of operations
of US Oncology, contained in "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and including any
statements contained herein regarding the prospects for any of the Company's
services; (ii) any statements preceded by, followed by or that include the words
"believes," "expects," "anticipates," "intends" or similar expressions; and
(iii) other statements contained herein regarding matters that are not
historical facts.

     Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such forward-
looking statements.  Factors that could cause actual results to differ
materially include, but are not limited to, those discussed below under "Risk
Factors."  US Oncology stockholders are cautioned not to place undue reliance on
such statements, which speak only as of the date thereof.

     The cautionary statements contained or referred to herein should be
considered in connection with any subsequent written or oral forward-looking
statements that may be issued by US Oncology or persons acting on its behalf.
US Oncology does not undertake any obligation to release any revisions to or to
update publicly any forward-looking statements to reflect events or
circumstances after the date thereof or to reflect the occurrence of
unanticipated events.

There are continued risks relating to the merger with PRN

     Effective June 15, 1999, a wholly-owned subsidiary of the Company merged
with PRN (the "Merger").  The Merger could result in synergies and operating
efficiencies. To date, most of the potential benefits have not been, and may
never be, achieved.  Whether we ultimately realize these benefits will depend on
a number of factors, many of which are beyond our control.  To attain the
benefits of the Merger, we will have to continue to integrate the operations of
AOR and PRN. In particular, we must continue to integrate our management and
other personnel, our information systems and our financial, accounting and other
operational procedures. This process has required us and will continue to
require us to bring together nationwide operations and different corporate and
physician cultures, at significant expense and with management disruption.  As
management and other key personnel continue to focus on integration efforts,
management will continue to be distracted from implementing and executing other
strategic and operational objectives.  In addition, because of different
cultures of affiliated physician groups, these groups may elect not to implement
the strategic and operational objectives recommended by the Company.

                                       14
<PAGE>

Loss of revenues or a decrease in income of our affiliated physician groups
would impact the Company's results of operations

     US Oncology's revenue depends on revenue generated by affiliated physician
groups.  Loss of revenue by the affiliated physician groups could seriously harm
the Company.  It is possible that our affiliated physician groups will not be
able to maintain successful medical practices.  In addition, the management fees
payable to the Company depend upon the profitability of the affiliated physician
groups.  (Even under those management agreements where the management fee is
based on the revenues, and not net income, of the affiliated physician groups,
those agreements contain a priority of payments, with US Oncology being paid
last, thereby incentivizing the Company to contain costs.)  Any failure by the
physician groups to effectively contain costs will adversely impact the
Company's results of operations.  Because the Company does not control the
manner in which its affiliated physician groups conduct their medical practice
(including drug utilization), the Company's ability to control costs related to
the provision of medical care is limited.

If our operations are deemed by regulators not to comply with applicable
regulations, or if restrictive new regulations are passed, we may be seriously
harmed

     There can be no assurance that a review of our business or our affiliated
physician groups by courts or by regulatory authorities would not result in
determinations that could seriously harm our operations. Further, the health
care regulatory environment could change and restrict our existing operations or
potential for expansion. The health care industry is highly regulated. We
believe our businesses and the practices of our affiliated physician groups
operate in material compliance with these regulations. However, the
relationships between us and our affiliated physician groups are unique. Many
aspects of these relationships have not been subject to judicial or regulatory
interpretation. There are currently several federal and state initiatives
designed to amend regulations relating to health care. However, we cannot
predict whether any such initiatives will be enacted as legislation or, if
enacted, what their form, effective dates or impact on us will be.

We face the risk of qui tam litigation relating to regulations governing billing
for medical services.

     The Company is currently aware of two qui tam lawsuits in which a
subsidiary of the Company and an affiliated physician group are named as
defendants.  Because qui tam lawsuits are typically filed under seal, the
Company could be named in other such suits of which it is not aware.  In
addition, as the federal government intensifies its focus on billing,
reimbursement and other healthcare regulatory violations, private individuals
are also bringing more qui tam lawsuits, because of the potential of financial
rewards for such individuals.  This trend increases the risk that the Company
may become subject to additional qui tam lawsuits.

If our physician groups terminated their management agreements, we would be
seriously harmed

     Our affiliated physician groups may attempt to terminate their management
agreements. If any of our larger groups were to succeed in such a termination,
we could be seriously harmed. We are aware that some physician groups have
attempted to end or restructure their affiliations with other practice
management companies when they do not have a contractual right to do so. Such
groups argue that their affiliations violate some aspect of health care law. For
example, some physician groups affiliated with other physician practice
management companies have claimed that the management fee arrangements violate
federal or state prohibitions on splitting fees with physicians. If our
affiliated physicians or practices were able to successfully make such an
argument, the effect on our affiliations could harm us.

If a significant number of physicians leaves our affiliated practices, the
Company could be seriously harmed

   Our affiliated practices usually enter into employment or noncompetition
agreements with their physicians. We and our affiliated practices try to
maintain such contracts. However, if a significant number of physicians
terminate their relationships with our affiliated practices, the Company could
be seriously harmed.

Our affiliated practices may be unable to enforce noncompetition provisions with
departed physicians

     Most of the employment agreements between the affiliated practices and
their physicians include a clause that prevents the physician from competing
with the practice for a period after termination of employment. We cannot
predict whether a court will enforce the noncompetition covenants of the
affiliated practices. If practices are unable to enforce the noncompetition
provisions of their employment agreements, the Company could be seriously
harmed.

                                       15
<PAGE>

We may have additional financing needs

          Our expansion, cancer center development and management plans require
substantial capital resources.  Operations of the affiliated physician groups
require recurring capital expenditures for renovation, expansion, and the
purchase of costly medical equipment and technology.  It is likely that our
capital needs in the next several years will exceed the capital generated from
our operations.  Thus, we may incur additional debt or issue additional debt or
equity securities from time to time.  This may include the issuance of common
stock or notes in connection with physician affiliations.  Capital available for
health care companies, whether raised through the issuance of debt or equity
securities, is quite limited.  As a result, we may be unable to obtain
sufficient financing on terms satisfactory to us or at all.  In particular, the
Company currently is a party to  a $100 million 364-day revolving credit
facility which matures in June 2000 and is renewable at the option of the
lenders under  that facility.  Although we intend to renew this facility, there
can be no assurance that we will be able to do so on terms satisfactory to us or
at all.

Loss of revenue by affiliated physician groups caused by the cost containment
efforts of third-party payors, including the government, could seriously harm us

     Loss of revenue by affiliated physician groups caused by the cost
containment efforts of third-party payors could seriously harm us. Physician
groups typically bill various third-party payors, such as governmental programs
like Medicare and Medicaid, private insurance plans and managed care plans, for
the health care services provided to their patients. These third-party payors
negotiate the prices charged for medical services and supplies to lower the cost
of health care services and products paid for by them. Third-party payors also
try to influence legislation to lower costs.  Third-party payors can also deny
reimbursement for medical services and supplies if they determine that a
treatment was not appropriate. Our affiliated practices also derive a
significant portion of their revenues from governmental programs. Reimbursement
by governmental programs generally is not subject to negotiation and is
established by governmental regulation.

If the reimbursement rate for pharmaceuticals is reduced, we would be seriously
harmed

     The Company's profitability depends heavily on the reimbursement rate for
pharmaceuticals.  Recently, several new chemotherapy agents have been introduced
that have lower profit margins to the Company than other agents.  If this trend
continues, the Company's results of operations could be harmed.  Payors are also
intensely negotiating the reimbursement rate for pharmaceuticals.  Recently, the
executive branch of the federal government proposed to significantly reduce the
reimbursement rate for chemotherapy agents covered by the federal government.
If the proposal is enacted, the Company's results of operations would be
seriously harmed.

We and our affiliated practices may become subject to harmful lawsuits

     Successful malpractice or products liability claims asserted against the
physician groups or us could seriously harm us. We and our affiliated physician
groups are at risk of malpractice and other lawsuits because they provide health
care services to the public. In addition, managed care providers and physician
practice management companies are increasingly subject to liability claims
arising from physician compensation arrangements and other activities designed
to control costs by reducing services. A successful claim on this basis against
us or an affiliated physician group could harm us. Lawsuits, if successful,
could result in damage awards in excess of the limits of our insurance coverage.
Insurance against losses related to claims of this type is expensive and the
cost varies widely from state to state. In addition, our affiliated physicians
prescribe and dispense pharmaceuticals and, therefore, could be subject to
products liability claims. We and our affiliated physician groups maintain
liability insurance in amounts and coverages we consider appropriate.

We may not be able to successfully affiliate with new physician groups or
integrate the operations of new affiliations

     US Oncology has grown by affiliating with new physician groups and
expanding the operations of existing affiliated physician groups. We intend to
continue to pursue this growth strategy. Identifying appropriate physician
groups and negotiating affiliations with them can be costly. We may not be able
to affiliate with additional physician groups on desirable terms. We may
encounter difficulties integrating and expanding the operations of additional
physician groups.  Our failure to successfully integrate newly affiliated
physician groups could harm us.

Our development of new cancer centers could be delayed or result in serious
liabilities, and the centers may not be profitable

                                       16
<PAGE>

     Another growth strategy of US Oncology is to develop integrated cancer
centers. The development of integrated cancer centers is subject to a number of
risks, including obtaining regulatory approval, delays that often accompany
construction of facilities and environmental liabilities that attach to
operating cancer centers. Any failure or delay in successfully building and
operating integrated cancer centers or in avoiding liabilities from operations
could seriously harm the Company.  In addition, in order for cancer centers to
be operated profitably, our affiliated physician groups must consolidate their
operations within the facilities.  If our affiliated physician groups elect not
to close other offices to consolidate operations within a cancer center, our
real estate and occupancy costs would increase, which would harm our operations.

Managed care and capitation can adversely impact our business

     A loss in revenues, or a failure to contain costs, by our affiliated
practices under managed care and capitated arrangements, or by payors with which
our affiliated practices have such arrangements, could cause our revenues to be
substantially diminished. Under capitation arrangements, health care providers
do not receive a fee for each medical service provided but instead receive an
aggregate fee for treating a defined population of patients. As a result, health
care providers bear the risk that the costs of providing medical services to the
determined population will exceed the payments received. The ability of the
providers to effectively manage the per patient costs affects profitability.
Although the majority of the revenues of our affiliated practices come from non-
capitated services, capitated arrangements might become a bigger part of our
business in the future.

We could become subject to costly insurance regulations

     The Company and its affiliated physician groups may enter into capitation
contracts or other "risk-sharing" arrangements with managed care organizations.
The Company and our affiliated groups would assume risk in connection with
providing healthcare services under these arrangements. If we or our affiliated
groups are considered to be in the business of insurance as a result of entering
into these capitation or other arrangements, we and our affiliated groups could
become subject to a variety of regulatory and licensing requirements applicable
to insurance companies that could harm the Company.

Our business, and the business of our affiliated practices, could be harmed by
competition with other businesses

     Our business, and the business of our affiliated practices, could be harmed
by competition with other businesses. The business of providing health care
related services and facilities is competitive.  Our revenues depend on the
continued success of our affiliated physician groups. The physician groups face
competition from several sources, including sole practitioners, single- and
multi-specialty groups, hospitals and managed care organizations.

Our success depends on our key personnel, and we may not be able to hire enough
qualified personnel to meet our hiring needs

     We will be harmed if we cannot hire and retain suitable executives and
other personnel.  The Merger and related integration efforts have placed, and
will continue to place, significant strain on management and key personnel,
which may make it more difficult to retain and attract such personnel.  We
believe that our success will depend on continued employment of our management
team and other key personnel. If one or more members of our management team
become unable or unwilling to continue in their present positions, we could be
harmed.

The amortization period for our intangible assets may be reduced, which would
reduce our earnings

     In connection with our affiliations with physician practices, US Oncology
records an intangible amount for the price paid for assets less the value of the
tangible assets acquired. US Oncology has amortized, and we will continue to
amortize, these intangible assets. This results in periodic non-cash charges to
our earnings. During 1998, US Oncology shortened the amortization period of its
intangible assets to 25 years. However, if the amortization period is
successfully challenged by regulatory authorities or there is a change in
accounting treatment for such intangibles, we would likely be required to reduce
further the number of years that the intangibles are amortized against our
earnings. This would increase the amount of amortization expense charged against
earnings each year. This increased charge, while non-cash in nature, could
significantly reduce our earnings and seriously harm our business. We expect
these non-cash amortization charges to increase in the future as we continue our
affiliation strategy. In the event that we determine that the value of the
intangible assets related to any specific affiliation is impaired, we could be
required to reduce the value of that asset, which would result in a charge to
earnings.

                                       17
<PAGE>

Our stock price may fluctuate significantly, which may make it difficult to
resell your shares when you want to at prices you find attractive

     The market price of US Oncology common stock has been highly volatile. This
volatility may adversely affect the price of our common stock in the future. You
may not be able to resell your shares of common stock following periods of
volatility because of the market's adverse reaction to this volatility. We
anticipate that this volatility, which frequently affects the stock of health
care service companies, will continue. Factors that could cause such volatility
include:

  .  Our quarterly operating results,

  .  Deviations in results of operations from estimates of securities analysts
     (which estimates the Company neither endorses nor accepts the
     responsibility for),

  .  General economic conditions or economic conditions specific to the health
     care services industry,

  .  Regulatory or reimbursement changes and

  .  Other developments affecting competitors or us.

     On occasion the equity markets, and in particular the markets for physician
management company stocks, have experienced significant price and volume
fluctuations. These fluctuations have affected the market price for many
companies' securities even though the fluctuations are often unrelated to the
companies' operating performance.

Our shareholder rights plan and anti-takeover provisions of the certificate of
incorporation, bylaws and Delaware law could adversely impact a potential
acquisition by third parties

     Our shareholder rights plan and anti-takeover provisions of the certificate
of incorporation, bylaws and Delaware law could adversely impact a potential
acquisition by third parties.  The Company has a staggered board of directors,
with three classes each serving a staggered three-year term. This classification
has the effect of generally requiring at least two annual stockholder meetings,
instead of one, to replace a majority of the members of the board of directors.
The Company's certificate of incorporation also provides that stockholders may
act only at a duly called meeting and that stockholders' meetings may not be
called by stockholders. These provisions could discourage potential acquisition
proposals and could delay or prevent a change in control of the Company. These
provisions are intended to increase the likelihood of continuity and stability
in our board of directors and in the policies formulated by them and to
discourage certain types of transactions that may involve an actual or
threatened change of control of the Company, reduce our vulnerability to an
unsolicited acquisition proposal and discourage certain tactics that may be used
in proxy fights. However, these provisions could have the effect of discouraging
others from making tender offers for our shares, and, as a consequence, they
inhibit fluctuations in the market price of the Company's shares that could
result from actual or rumored takeover attempts. Such provisions also may have
the effect of preventing changes in the management of the Company.

     In addition, other provisions of the Company's certificate of incorporation
and certain provisions of Delaware law may make it difficult to change control
of the Company and to replace incumbent management. For example, the Company's
certificate of incorporation permits the board of directors, without stockholder
approval, to issue additional shares of common stock or to establish one or more
classes or series of preferred stock with characteristics determined by the
board. US Oncology has also adopted a shareholder rights plan, which would
significantly inhibit the ability of another entity to acquire control of the
Company through a tender offer or otherwise without the approval of the
Company's board of directors. These provisions could limit the price that
certain investors might be willing to pay in the future for shares of common
stock.

We have not paid dividends and do not expect to in the future, which means that
the value of our shares cannot be realized except through sale

     US Oncology has never declared or paid cash dividends. We currently expect
to retain earnings for our business and do not anticipate paying dividends on
our common stock at any time in the foreseeable future. Because we do not
anticipate paying dividends, it is likely that the only opportunity to realize
the value of our common stock will be through a sale of those shares. The
decision whether to pay dividends on common stock will be made by the board of
directors from time to time in the exercise of its business judgment. The
Company is currently precluded from paying dividends by the terms of its credit
facilities.

                                       18
<PAGE>

We cannot be sure that the year 2000 problem will not affect our business

     Thus far, we have had no significant problems related to year 2000 issues
associated with the computer systems, software, other property and equipment we
use. However, we cannot guarantee that the year 2000 problem will not adversely
affect our business, operating results or financial condition at some point in
the future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Implications."

                                       19
<PAGE>

SUMMARY OF OPERATIONS BY QUARTER

     The following table represents unaudited quarterly results for 1999 and
1998.  The Company believes that all necessary adjustments have been included in
the amounts stated below to present fairly the quarterly results when read in
conjunction with the Consolidated Financial Statements and that all adjustments
are of a normal recurring nature.  Results of operations for any particular
quarter are not necessarily indicative of operations for a full year or
predictive of future periods.
<TABLE>
<CAPTION>


                                              1999 QUARTER ENDED                          1998 QUARTER ENDED
                                  ------------------------------------------   -----------------------------------------
                                   DEC 31     SEP 30     JUN 30      MAR 31     DEC 31     SEP 30     JUN 30     MAR 31
                                  --------   --------   ---------   --------   --------   --------   --------   --------
                                                          (In thousands, except per share data)
<S>                               <C>        <C>        <C>         <C>        <C>        <C>        <C>        <C>
Net revenue....................   $299,526   $277,789   $266,412    $249,214   $227,299   $216,916   $204,744   $187,637
Income from operations.........     20,836     26,991      9,338      31,076     29,459     27,898     28,681     26,035
Other income...................     14,431
Net income.....................     17,871     14,983     (1,214)     16,515     15,843     15,045     15,504     13,589
Net income per share-basic.....        .18        .15       (.01)        .17        .16        .15        .16        .14
Net income per share-diluted...        .18        .15       (.01)        .16        .16        .15        .15        .14

</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

  The Company requires capital primarily to enter into management services
agreements with, and to purchase the nonmedical assets of, oncology medical
practices. During 1999, the Company paid total consideration of $95.4 million in
connection with affiliations with 20 physician groups, including cash and
transaction costs of $43.5 million.  During 1998, the Company paid total
consideration of $54.5 million in connection with affiliations with 21 physician
groups, including cash and transaction costs of $32.2 million.

     To fund its growth and development, the Company has satisfied its
transaction and working capital needs through debt and equity financings and
borrowings under a $275 million syndicated revolving credit facility ("Credit
Facility") with First Union National Bank ("First Union"), as agent for the
various lenders.  The Credit Facility is comprised of two parts: a $175 million
revolving credit facility which matures in 2004 and a $100 million 364-revolving
credit facility which matures in June 2000 and is renewable at the option of the
Lenders under that facility.  The Company presently intends to seek renewal of
the 364-day facility.  In addition, in connection with the Credit Facility the
Company has available a $75 million leasing facility used by the Company in
connection with developing its integrated cancer centers.  In November 1999, the
Company sold an aggregate of $100 million of Senior Secured Notes to a group of
institutional investors.  The notes are secured by the same collateral as the
Credit Facility and rank equally in right of payment with the Credit Facility.
The notes bear interest at 8.42% per annum with a final maturity in 2006 and an
average life of five years.

     During 1999, the Company borrowed $118.0 million, net, under the Credit
Facility and Senior Secured Notes to fund medical practice transactions and the
development of integrated cancer centers.  Borrowings under the Credit Facility
bear interest at a rate equal to a rate based on prime rate or the London
Interbank Offered Rate, based on a defined formula.  The Credit Facility
contains affirmative and negative covenants, including the maintenance of
certain ratios, restriction on sales, leases or other dispositions of
properties, restrictions on other indebtedness and on the payment of dividends.
The Company's management services agreements and the capital stock of the
Company's subsidiaries are pledged as security under the Credit Facility.  The
Company is currently in compliance with the Credit Facility covenants, with
additional capacity under the Credit Facility of $101.0 million at December 31,
1999.

     In connection with the merger of AOR and PRN, the combined company incurred
substantial costs.  The Company incurred costs directly related to its efforts
to consummate the merger ("merger costs"), costs related to restructuring
certain duplicative operating costs ("restructuring costs") and costs related to
its efforts to integrate the operations of the two companies ("integration
costs").  These costs totaled $29.0 million and have been summarized in the
accompanying consolidated statement of operations and comprehensive income as
Merger, restructuring and integration costs in the year ended December 31, 1999.

     The Company's merger costs totaled $14.6 million and include professional
fees and expenses incurred in connection with the due diligence, negotiation and
solicitation of shareholder approval for the transaction, as well as incremental
travel costs and contractual change of control payments of approximately $5.0
million to the executive management of PRN.

                                       20
<PAGE>

     The Company's management made decisions to restructure its operations to
reduce overlapping personnel and duplicative facilities.  The costs of personnel
reductions include severance pay for terminated employees and payments
attributable to stay bonuses paid before December 31, 1999 for employees
providing transition assistance services.  The Company also determined that
certain furniture, fixtures, leasehold improvements, computer equipment and
software were impaired as a result of personnel terminations, facility closings
and decisions to harmonize certain information systems. The Company's
restructuring costs recognized in the year ended December 31, 1999 totaled $7.2
million.

     The Company also incurred specifically identified costs related to its
efforts to integrate the two companies totaling $7.2 million during the year
ended December 31, 1999.  These integration costs include costs for a physician
conference to address combined Company operating strategies, employee
orientation meetings, consulting fees related to integration activities and
adoption of common employee benefit programs.  These costs have been recognized
as incurred and do not include costs related to inefficiencies incurred as the
Company has attempted to integrate the operating activities of AOR and PRN.

     The Company has relied primarily on management fees received from its
affiliated physician groups to fund its operations.  While the obligation of the
affiliated practice groups to pay these fees is unsecured, to the extent
permitted by law, the Company is entitled to purchase the accounts receivable of
the practice for an amount that is net of such management fee.  Since the
Company typically effects these purchases frequently, the amounts due to the
Company from its affiliated physician groups and to such groups from the Company
are each short-term obligations.

     Cash provided by operating activities was $31.5 million in 1999, a decrease
of $48.2 million, or 60.4%, from 1998.  The decrease was due to merger related
costs of $26.6 million and the timing of receivables collection and the
settlement of such amounts with affiliated physician groups.  Cash used in
investing activities was $133.5 million in 1999, compared to $94.2 million in
1998.  This increase was attributable to a higher level of medical practice
transactions in 1999 as well as cancer center development.  Cash provided by
financing activities was $99.7 million in 1999 compared to $20.4 million in
1998.  This increase was due to a lower level of medical practice transactions
in 1998 offset by increased repayments of other indebtedness and purchases of
the Company's common stock.  Repurchased shares of the Company's common stock
are used primarily to fulfill commitments for delivery of the Company's common
stock under medical practice transactions.

     At December 31, 1999, the Company had working capital of $280.8 million,
including cash and equivalents of $11.4 million.  The Company had $195.4 million
of current liabilities, including $26.7 million of long-term indebtedness
maturing before December 31, 2000.  The Company's accounts receivable and
accounts payable have increased significantly during the past several years with
the growth of its business.  The Company has not experienced, however, any
significant change in the quality of its accounts receivable and, as a result,
its increasing working capital has resulted in greater liquidity.

     In March 2000, the Company sold its equity investment in ILEX Oncology,
Inc. in a private sale transaction and realized proceeds of $54.8 million, or
$39.1 million net of tax.  These proceeds were used to reduce outstanding
borrowings under the Credit Facility.  Also in March 2000, the Company's Board
of Directors authorized the purchase by the Company of up to 10 million shares
of the Company's Common Stock.

     The Company currently expects that its principal use of funds in the near
future will be in connection with future transactions with oncology groups, the
purchase of medical equipment, investment in information systems and the
acquisition or lease of real estate for the development of integrated cancer
centers. It is likely that our capital needs in the next several years will
exceed the capital generated from our operations.  Thus, we may incur additional
debt or issue additional debt or equity securities from time to time.  This may
include the issuance of common stock or notes in connection with physician
affiliations.  Capital available for health care companies, whether raised
through the issuance of debt or equity securities, is quite limited.  As a
result, we may be unable to obtain sufficient financing on terms satisfactory to
us or at all.  In particular, although the Company intends to renew its $100
million 364-day revolving credit facility that matures in June 2000, there can
be no assurance that we will be able to do so on terms satisfactory to us or at
all.

YEAR 2000 IMPLICATIONS

     Many currently installed computer systems, software programs, and embedded
data chips are programmed using a 2-digit date field and are therefore unable to
distinguish dates beyond the 20th century. A failure to identify and correct any
mission-critical internal or third party year 2000 processing problem could have
a material adverse operational or financial consequence to us. We established a
Year 2000 Project Team that, together with external consultants, developed a
process for addressing the year 2000 issue including performing an inventory, an
assessment, remediation procedures (to the extent necessary) and testing
procedures of all mission-critical information systems and equipment and
machinery that contain

                                       21
<PAGE>

embedded technology, as well as obtaining assurances from all mission-critical
third parties as to their own year 2000 preparedness.

     As of the date of this report, we have not experienced any significant year
2000 problems with our own mission-critical systems or any mission-critical
third parties. Although we have not experienced any significant year 2000
problems to date, we plan to continue to monitor the situation.  We cannot be
sure the year 2000 issue has been adequately addressed or that problems arising
from the year 2000 issue will not cause a material adverse effect on our
operating results or financial condition.  We believe, however, that our most
reasonably likely worst-case scenario would relate to problems with the systems
of third parties rather than with our internal systems.  Although we have
developed contingency plans for third party failures, we cannot guarantee that
the contingency plans will adequately address all circumstances that may disrupt
operations or that such planning will prevent circumstances that may cause a
material adverse effect on our operating results or financial condition.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

     In the normal course of business, the financial position of the Company is
routinely subjected to a variety of risks.  Among these risks is the market risk
associated with interest rate movements on outstanding debt.  The Company
regularly assesses these risks and has established policies and business
practices to protect against the adverse effects of these and other potential
exposures.

     The Company's borrowings under its credit facilities and subordinated notes
due to affiliated physicians contain an element of market risk from changes in
interest rates.  The Company managed this risk, in part, through the use of
interest rate swaps until August 1999.  The Company does not enter into interest
rate swaps or hold other derivative financial instruments for speculative
purposes.

     For purposes of specific risk analysis, the Company uses sensitivity
analysis to determine the impact that market risk exposures may have on the
Company.  The financial instruments included in the sensitivity analysis consist
of all of the Company's cash and equivalents, long-term and short-term debt and
all derivative financial instruments.

     To perform sensitivity analysis, the Company assesses the risk of loss in
fair values from the impact of hypothetical changes in interest rates on market
sensitive instruments.  The market values for interest rate risk is computed
based on the present value of future cash flows as impacted by the changes in
the rates attributable to the market risk being measured.  The discount rates
used for the present value computations were selected based on market interest
rates in effect at December 31, 1999.  The market values that result from these
computations are compared with the market values of these financial instruments
at December 31, 1999.  The differences in this comparison are the hypothetical
gains or losses associated with each type of risk.  A one percent increase or
decrease in the levels of interest rates on variable rate debt with all other
variables held constant would not result in a material change to the Company's
results of operations or financial position or the fair value of its financial
instruments.

                                       22
<PAGE>

                               US ONCOLOGY, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Consolidated Financial Statements as of December 31, 1999 and 1998 and for each
of the three years ended December 31, 1999:

                                                                          Page
                                                                          ----
 Report of Independent Accountants........................................  24
 Consolidated Balance Sheet...............................................  26
 Consolidated Statement of Operations and Comprehensive Income............  27
 Consolidated Statement of Stockholders' Equity...........................  28
 Consolidated Statement of Cash Flows.....................................  29
 Notes to Consolidated Financial Statements...............................  30

Financial statement schedules have been omitted because they are not applicable
or the required information is shown in the consolidated financial statements or
notes thereto.

                                       23
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors of  US Oncology, Inc.


     We have audited the consolidated balance sheet of US Oncology, Inc. and its
subsidiaries as of December 31, 1999 and 1998 and the related consolidated
statements of operations and comprehensive income, of stockholders' equity and
of cash flows for each of the three years in the period ended December 31, 1999.
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 did not audit the financial statements of Physician Reliance
Network, Inc., which statements reflect total assets constituting 45 percent at
December 31, 1998 and total revenues of 48 and 47 percent for the years ended
December 31, 1998 and 1997, respectively, of the related consolidated totals.
Those statements were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to the amounts included for
Physician Reliance Network, Inc., is based solely on the report of the other
auditors.

     We conducted our audit in accordance with auditing standards generally
accepted in the 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 examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.  We believe that our audit and the report of
the other auditors provide reasonable basis for our opinion.

     In our opinion, based on our audit and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of US Oncology, Inc. and
it subsidiaries at December 31, 1999, and 1998 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999 in conformity with accounting principles generally
accepted in the United States.

PRICEWATERHOUSECOOPERS LLP
Houston, Texas
March 21, 2000

                                       24
<PAGE>

                                             [ARTHUR ANDERSEN LOGO APPEARS HERE]


                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Stockholders of
Physician Reliance Network, Inc.:

We have audited the consolidated balance sheets of Physician Reliance Network,
Inc. (a Texas corporation) and subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of income, stockholders' equity, and
cash flows for the years then ended. These consolidated financial statements are
included in the restated consolidated financial statements of US Oncology, Inc.
and are not separately presented in the 1999 Form 10-K of US Oncology, Inc.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on theses financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe 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 financial position of Physician Reliance Network,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.





                                                   ARTHUR ANDERSEN LLP




Dallas, Texas
   February 19, 1999
<PAGE>

                               US ONCOLOGY, INC.

                           CONSOLIDATED BALANCE SHEET
                     (in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                                      ------------------------
                                                                          1999          1998
                                                                      -----------   ----------
                                     ASSETS
<S>                                                                   <C>          <C>
Current assets:
   Cash and equivalents.............................................   $   11,381   $   13,691
   Investment in common stock.......................................       27,258        6,975
   Accounts receivable..............................................      331,361      243,390
   Prepaids and other current assets................................       42,655       20,924
   Inventories......................................................       24,692       14,682
   Due from affiliated physicians groups............................       38,894       22,354
                                                                       ----------   ----------
      Total current assets..........................................      476,241      322,016

Property and equipment, net.........................................      254,289      220,944
Management service agreements, net of accumulated amortization of
   $59,845 and $36,899..............................................      537,130      467,214
Other assets........................................................       30,817       23,354
                                                                       ----------   ----------
                                                                       $1,298,477   $1,033,528
                                                                       ==========   ==========
                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Current maturities of long-term indebtedness.....................   $   26,693   $   22,426
   Accounts payable.................................................      107,937       80,729
   Due to affiliated physician groups...............................        2,584        6,606
   Accrued compensation costs.......................................        6,252       10,118
   Income taxes payable.............................................        9,322        4,066
   Other accrued liabilities........................................       42,660       19,809
                                                                       ----------   ----------
      Total current liabilities.....................................      195,448      143,754
Deferred income taxes...............................................       33,224       23,537
Long-term indebtedness..............................................      360,191      234,474
                                                                       ----------   ----------
       Total liabilities............................................      588,863      401,765

Minority interest...................................................        2,450        1,965

Stockholders' equity:
   Preferred Stock, $.01 par value, 1,500 shares authorized, none
     issued and outstanding
   Series A Preferred Stock, $.01 par value, 500 shares
     authorized and reserved, none issued and outstanding
   Common Stock, $.01 par value, 250,000 shares authorized,
     87,253 and 81,205 shares issued and 87,253 and 80,830
     shares outstanding.............................................          873          812
   Additional paid-in capital.......................................      428,533      404,749
   Common Stock to be issued, approximately 13,982 and 16,947 shares.      91,330       89,142
   Treasury Stock, 0 and 375 shares.................................                    (3,696)
   Accumulated other comprehensive income...........................                       269
   Retained earnings................................................      186,428      138,522
                                                                       ----------   ----------
       Total stockholders' equity...................................      707,164      629,798
                                                                       ----------   ----------
Commitments and contingencies.......................................
                                                                       ----------   ----------
                                                                       $1,298,477   $1,033,528
                                                                       ==========   ==========
</TABLE>

         The accompanying notes are an integral part of this statement.

                                       26
<PAGE>

                               US ONCOLOGY, INC.

                      CONSOLIDATED STATEMENT OF OPERATIONS
                            AND COMPREHENSIVE INCOME
                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31,
                                        ---------------------------------------
                                              1999          1998         1997
                                           -----------   ----------   ----------
<S>                                        <C>           <C>          <C>

Revenue.................................   $1,092,941     $836,596     $625,413
Operating expenses:
  Pharmaceuticals and supplies..........      521,087      357,766      250,425
  Practice compensation and benefits....      215,402      172,298      143,210
  Other practice costs..................      134,635      107,671       87,232
  General and administrative............       39,490       38,325       31,809
  Write-off of accounts receivable......                                 37,841
  Merger, restructuring and integration
   costs................................       29,014
  Depreciation and amortization.........       65,072       48,463       35,194
                                           ----------     --------     --------
                                            1,004,700      724,523      585,711
                                           ----------     --------     --------
Income from operations..................       88,241      112,073       39,702
Other income (expense):
  Interest, net.........................      (22,288)     (15,908)     (12,474)
  Unrealized gain on investment in
   common stock.........................       14,431
                                           ----------     --------     --------
Income before income taxes..............       80,384       96,165       27,228
Income taxes............................       32,229       36,184       11,593
                                           ----------     --------     --------

Net income..............................       48,155       59,981       15,635

Other comprehensive income (loss), net
 of tax.................................         (269)         965         (696)
                                           ----------     --------     --------
Comprehensive income....................   $   47,886     $ 60,946     $ 14,939
                                           ==========     ========     ========

Net income per share - basic............   $     0.48     $   0.61     $   0.17
                                           ==========     ========     ========

Shares used in per share calculations -
 basic..................................      100,183       97,647       93,168
                                           ==========     ========     ========

Net income per share - diluted..........   $     0.47     $   0.60     $   0.16
                                           ==========     ========     ========

Shares used in per share calculations -
 diluted................................      101,635       99,995       97,198
                                           ==========     ========     ========
</TABLE>

         The accompanying notes are an integral part of this statement.

                                       27
<PAGE>

                               US ONCOLOGY, INC.

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                (in thousands)
<TABLE>
<CAPTION>

                                                                                               Accumulated
                                     Common Stock      Additional      Common     Treasury        Other
                                  ------------------     Paid-In      Stock to      Stock     Comprehensive    Retained
                                  Shares   Par Value     Capital     Be Issued      Cost          Income       Earnings   Total
--------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>      <C>         <C>           <C>          <C>         <C>              <C>         <C>


Balance at January 1, 1997.....   73,142     $732     $369,856      $ 88,187    $ (8,530)                   $ 66,385   $516,630

Medical practice transactions
 value of shares to be issued..                                       24,619                                             24,619
Purchase of  Treasury Stock....                                                   (6,418)                                (6,418)
Delivery of Common Stock
 to be issued from Treasury....                         (7,981)       (5,540)     14,900                      (1,379)
Issuance of Common Stock.......    2,228       22       13,794       (12,624)                                             1,192
Exercise of options to purchase
 Common Stock..................      411        4        1,242                        48                                  1,294
Tax benefit from exercise of
 non-qualified stock options...                          2,042                                                            2,042
Valuation adjustment -
 Investment in common stock....                                                               $     (696)                  (696)
Net income.....................                                                                               15,635     15,635
                                 -------   ------     --------      --------    --------      ----------    --------   --------

Balance at December 31, 1997...   75,781      758      378,953        94,642                        (696)     80,641    554,298

Medical practice transactions
 value of shares to be issued..                                        8,732                                              8,732
Purchase of Treasury Stock.....                                                  (12,431)                               (12,431)
Delivery of Common Stock
 to be issued from Treasury....                         (4,147)       (2,488)      8,735                      (2,100)
Issuance of Common Stock.......    4,480       44       21,898       (11,744)                                            10,198
Exercise of options to purchase
 Common Stock..................      944       10        2,515                                                            2,525
Tax benefit from exercise of
 non-qualified stock options...                          5,530                                                            5,530
Valuation adjustment -
 Investment in common stock....                                                                      965                    965
Net income.....................                                                                               59,981     59,981
                                 -------   ------     --------      --------    --------      ----------    --------   --------

Balance at December 31, 1998...   81,205      812      404,749        89,142      (3,696)            269     138,522    629,798

Medical practice transactions
 value of shares to be issued..                                       24,637                                             24,637
Delivery of Common Stock
 to be issued from Treasury....                         (1,810)       (1,637)      3,696                        (249)
Issuance of Common Stock.......    5,696       57       20,755       (20,812)
Exercise of options to purchase
 Common Stock..................      352        4        4,665                                                            4,669
Tax benefit from exercise of
 non-qualified stock options...                            174                                                              174
Valuation adjustment -
 Investment in common stock....                                                                     (269)                  (269)
Net income.....................                                                                               48,155     48,155
                                 -------   ------     --------      --------    --------      ----------    --------   --------
Balance at December 31, 1999...   87,253   $  873     $428,533      $ 91,330    $             $             $186,428   $707,164
                                 =======   ======     ========      ========    ========      ==========    ========   ========

</TABLE>

         The accompanying notes are an integral part of this statement.

                                       28

<PAGE>

                               US ONCOLOGY, INC.

                     CONSOLIDATED STATEMENT OF CASH FLOWS
                                (in thousands)

<TABLE>
<CAPTION>
                                                 YEAR ENDED DECEMBER 31,
                                           ------------------------------------
                                              1999         1998         1997
                                           ----------   ----------   ----------
<S>                                        <C>          <C>          <C>

Cash flows from operating activities:

  Net income.............................  $  48,155     $ 59,981     $ 15,635
  Noncash adjustments:
     Depreciation and amortization.......     65,072       48,463       35,194
     Unrealized gain on investment in
       common stock......................    (14,431)
     Merger transaction costs............     14,587
     Merger related asset impairments....      2,300
     Deferred income taxes...............      9,687        5,805        7,985
     Writedown of accounts receivable
       and certain assets................                               37,841
     Earnings on joint ventures..........       (634)        (540)        (437)
     Gain on sale of investment in
      ambulatory surgery center..........                                 (511)
     Revenue from investment
      in common stock....................     (6,019)      (3,523)      (1,716)
     Imputed interest on medical practice
      transactions.......................                                  248
     Cash provided (used), net of
      effects of medical practice
      transactions, by changes in:
     Accounts receivable.................    (80,940)     (61,539)     (58,852)
     Prepaids and other current assets...    (34,958)     (13,021)      (9,712)
     Other assets........................      1,052          908        4,690
     Accounts payable....................     23,032       15,420       25,044
     Due from/to affiliated
      physician groups...................    (18,682)       2,660      (10,511)
     Income taxes receivable/payable.....      5,591       17,866       (6,314)
     Other accrued liabilities...........     17,728        7,219        3,332
                                           ---------     --------     --------
        Net cash provided by
           operating activities..........     31,540       79,699       41,916
                                           ---------     --------     --------
Cash flows from investing activities:
  Acquisition of property
   and equipment.........................    (74,320)     (58,646)     (49,199)
  Net payments in medical
   practice transactions.................    (43,513)     (32,229)     (42,821)
  Merger transaction costs...............    (14,587)
  Investments............................     (3,000)      (1,944)      (4,058)
  Proceeds from sale of investment in
   ambulatory surgery center............                                 1,950
  Other..................................      1,905       (1,409)      (2,142)
                                           ---------     --------     --------
        Net cash used by
           investing activities..........   (133,515)     (94,228)     (96,270)
                                           ---------     --------     --------
Cash flows from financing activities:
  Proceeds from Credit Facility..........    170,000       66,000      174,000
  Proceeds from Senior Secured Notes.....    100,000
  Repayment of Credit Facility...........   (152,000)      (8,000)     (99,000)
  Repayment of other indebtedness........    (20,394)     (29,344)     (19,247)
  Debt financing costs...................     (2,610)                     (333)
  Proceeds from exercise of stock
   options...............................      4,669        2,525        1,294
  Issuance of Common Stock...............                   1,698          722
  Purchase of Treasury Stock.............                 (12,431)      (6,418)
                                           ---------     --------     --------
        Net cash provided by
         financing activities............     99,665       20,448       51,018
                                           ---------     --------     --------
Increase (decrease) in cash and
 equivalents.............................     (2,310)       5,919       (3,336)
Cash and equivalents:
  Beginning of period....................     13,691        7,772       11,108
                                           ---------     --------     --------
  End of period..........................  $  11,381     $ 13,691     $  7,772
                                           =========     ========     ========
Interest paid............................  $  24,192     $ 14,022     $ 11,142
Taxes paid...............................     17,331       15,540        9,331
Noncash investing and financing
 transactions:
  Value of Common Stock to be issued in
    medical practice transactions........  $  24,637     $  8,732     $ 24,619
  Delivery of Common Stock in medical
   practice transactions.................     24,508       20,479       27,424
  Debt issued in medical practice
   transactions..........................     27,292       13,500       49,169
  Debt assumed in medical practice
   transactions..........................         86          277        4,554
  Debt issued in investment transaction..      5,000
  Conversion of subordinated notes
   payable to Common Stock...............                   8,500
  Assets acquired under capital lease....                   2,268          921
  Tax benefit from exercise of
   non-qualified stock options...........        174        5,530        2,042

</TABLE>
         The accompanying notes are an integral part of this statement.

                                       29
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     US Oncology, Inc., a Delaware corporation (Company) (formerly American
Oncology Resources, Inc. (AOR)), is a cancer management company.  The Company
provides comprehensive management services under long-term agreements to
oncology practices comprised of over 800 physicians in 26 states at December 31,
1999.  These practices provide a comprehensive range of medical services to
cancer patients, integrating the multiple specialties of cancer care, including
medical and gynecologic oncology, hematology, radiation oncology, diagnostic
radiology and stem cell transplantation.

     The consolidated financial statements of the Company have been prepared to
give retroactive effect to the Merger with Physician Reliance Network, Inc.
(PRN) on June 15, 1999.  This transaction was accounted for as a pooling of
interests, and, accordingly, the historical financial statements give effect to
the combination of the historical balances and amounts of AOR and PRN for all
periods presented.  As a result of the Merger, PRN became a wholly owned
subsidiary of the Company, and each holder of PRN stock received 0.94 shares of
the Company's Common Stock for each PRN share held.

     The following is a summary of the Company's significant accounting
policies:

Principles of consolidation

     The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries.  All intercompany transactions and balances
have been eliminated.  Certain amounts, including amounts attributable to PRN
prior to the Merger, have been reclassified to conform with the current period
financial statement presentation.

     On November 20, 1997, the Emerging Issues Task Force issued EITF 97-2
"Application of FASB Statement No. 94 and APB Opinion No. 16 to Physician
Practice Management Entities and Certain Other Entities with Contractual
Management Arrangements." EITF 97-2 requires the evaluation of all management
contracts for purposes of determining the need for consolidation of affiliated
physician practices based on certain control characteristics.   The Company has
determined that none of the existing management contracts meet EITF 97-2
requirements for consolidation.  As the Company has historically not
consolidated its affiliated physician practices, the adoption of EITF 97-2 had
no impact on the Company's financial statements.

Use of estimates

     The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses, as well as disclosures of contingent assets and
liabilities.  Because of inherent uncertainties in this process, actual future
results could differ from those expected at the reporting date.

Management fee revenue

     Approximately 54% of the Company's 1999 management fee revenue has been
derived from management agreements that provide for payment to the Company of a
management fee, which typically includes all practice costs (other than amounts
retained by the physicians), a fixed fee, a percentage fee (in most states) and,
if certain financial and performance criteria are satisfied, a performance fee.
The amount of the fixed fee is related to the size of the affiliation
transaction and, as a result, varies significantly among the management service
agreements. The percentage fee, where permitted by applicable law, is generally
seven percent of the affiliated physician group's net revenue.  Performance fees
are paid after payment of all practice expenses, physician compensation and the
other management fees and, where permitted by state law, are approximately 50%
of the residual profitability of the physician group.  Management fees are not
subject to adjustment, with the exception that the fixed fee may be adjusted
from time to time after the fifth year of the management agreement to reflect
inflationary trends.  These management service agreements permit the affiliated
physician group to retain a specified amount (typically 23% of the group's net
revenues) for physician salaries, and payment of such salaries is given priority
over payment of the management fee.  The affiliated physician group is also
entitled to retain all profits of the practice after payment of the management
fee to the Company.  The Company recognizes the management fees as revenue when
the

                                       30

<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

fees are earned and are deemed realizable based upon the contractually-agreed
amount of such fees, after taking into consideration the payment priority of
physician compensation.

     Approximately 41% of the Company's 1999 management fee revenue has been
derived from management agreements that provide for payment to the Company of a
management fee that includes an amount equal to the direct expenses associated
with operating the affiliated physician group and an amount which is calculated
based on the service agreement for each of the affiliated physician groups. The
direct expenses include rent, depreciation, amortization, provision for
uncollectible accounts, pharmaceutical expenses, medical supply expenses,
salaries and benefits of non-physician employees who support the affiliated
physician groups. The direct expenses do not include salaries and benefits of
physicians.  At December 31, 1999 the non-expense related portion of the
management fee is a percentage, ranging from 25% to 35%, of the earnings before
interest and taxes of the affiliated physician group. The earnings of an
affiliated physician group is determined by subtracting the direct expenses from
the professional revenues and research revenues earned by the affiliated
physician group.

     The remaining management agreements provide for a fee that is a percentage
of revenue or of earnings of the affiliated physician group or is a
predetermined, fixed amount. Each affiliated physician group is responsible for
paying the salaries and benefits of its physician employees from the amount
retained by the affiliated physician group after payment of the Company's
management fee.

Cash equivalents and investments

     The Company considers all highly liquid debt securities with original
maturities of three months or less to be cash equivalents.

Accounts Receivable

     To the extent permitted by applicable law, the Company purchases the
accounts receivable generated by affiliated physician groups from patient
services rendered pursuant to the management services agreements.  The accounts
receivable are purchased at their net collectible value, after adjustment for
contractual allowances and allowances for doubtful accounts.  The Company is
reimbursed by the affiliated physician groups for any purchased receivables that
are deemed uncollectible following the Company's purchase.  Thus, the Company
does not have an allowance for doubtful accounts.  If any purchased accounts
receivable are subsequently deemed uncollectible, then the affiliated physician
group responsible for the receivables would reduce its revenue during the period
in which the uncollectible amount is determined.  Because the Company's
management fee is based in part on the affiliated physician group's revenue, the
reduction in revenue caused by the uncollectible accounts receivable would
proportionally reduce the Company's management fee.  The impact of such
adjustments is typically not significant. However, laws and regulations
governing Medicare and Medicaid programs are complex and subject to
interpretation, which along with other third party payor actions, could impact
the collection of accounts receivable in the future.

     During 1997, PRN recorded a $37,800 writedown of accounts receivable.  This
charge resulted from a continuing analysis of PRN's accounts receivable in 1997
that led management to believe (i) that, despite changes in collection
procedures and additions to staffing levels beginning in mid-1996, a significant
amount of accounts receivable were no longer collectible and (ii) that the
estimation process of determining contractual allowances needed to be revised to
recognize an accelerating trend among payors toward lower overall reimbursement
levels. Under the management service agreements in place at that time, the
passage of time precluded the Company from including the writedown as a direct
expense. The current management service agreements, coupled with policies and
procedures currently in place, permit the Company to record accounts receivable
adjustments as direct expenses in the period recognized.

     The charge recorded consisted primarily of the following estimated amounts:
accounts receivable from patient estates of $11,000, changes in the historical
collection experience from Medicare of $11,000 and changes in the historical
collection experience on other managed care payors of $14,000. Because PRN had
historical estimation processes in place in the preparation of its prior annual
and quarterly financial statements and was not aware of any contrary factors or
information that

                                       31
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

would alter the estimation process used in those periods, PRN concluded that the
charge was a change in estimate and should not be reflected as an accounting
error requiring restatement.

Due from and to affiliated physicians groups

     The Company has advanced to certain of its affiliated physician groups,
primarily Texas Oncology, P.A., amounts needed for working capital purposes
primarily to assist with the development of new markets to support the addition
of physicians, and to support the development of new services. Certain advances
bear interest at a market rate negotiated by the Company and the affiliated
physician groups, which approximates the prime lending rate (8.5% at December
31, 1999). These advances are unsecured and are repaid in accordance with the
terms of the instrument evidencing the advance. Amounts payable to related
parties represent current payments to affiliated physician groups for services
rendered under Service Agreements.

Prepaids and other current assets

     Prepaids and other current assets consist of prepayments, insurance and
other receivables.

Inventories

     Inventories consist of pharmaceuticals and medical supplies and are carried
at the lower of cost or market on a first-in, first-out basis.

Property and equipment

     Property and equipment is stated at cost.  Depreciation of property and
equipment is provided using the straight-line method over the estimated useful
lives of three to ten years for computers and software, equipment, and furniture
and fixtures,  the lesser of ten years or the remaining lease term for leasehold
improvements and twenty-five years for buildings.  Interest costs incurred
during the construction of major capital additions, primarily cancer centers,
are capitalized.

Management service agreements

     Management service agreements consist of the costs of purchasing the rights
to manage oncology groups.  Under the initial 40-year terms of the agreements,
the affiliated physician groups have agreed to provide medical services on an
exclusive basis only through facilities managed by the Company.  The agreements
are noncancelable except for performance defaults. The Company amortized these
costs over the 40-year term of the related management service agreement until
July 1, 1998, when the Company changed its amortization period to 25 years on a
prospective basis.  The changes had an immaterial impact on the Company's
results of operations.

     Under the management services agreements, the Company is the exclusive
provider of management services to its affiliated physician groups, providing
facilities, management information systems, clinical research services,
personnel management and strategic, financial and administrative services.
Specifically, the Company, among other things, (i) prepares financial statements
and operating and capital expenditure budgets, (ii) facilitates the purchase of
pharmaceuticals and other supplies, (iii) performs clerical, accounting and
computer service functions, (iv) organizes and manages clinical research trials
and (v) assists in expanding the scope of services of the affiliated physician
groups.

     Each management services agreement provides for the formation of a policy
board.  The policy board meets periodically, approves those items having a
significant impact on the affiliated physician group and develops the affiliated
physician group's strategic initiatives.  The two most significant items
reviewed and approved by the policy board are the annual budget for the group
and the addition of facilities, services or physicians.  Each management
services agreement provides a mechanism to adjust the Company's management fee
if a change in law modifies the underlying financial arrangement between the
Company and the affiliated physician group.

                                       32
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)


     The carrying value of the management service agreements is reviewed for
impairment when events or changes in circumstances indicate their recorded cost
may not be recoverable.  If the review indicates that the undiscounted cash
flows from operations of the related management service agreement over the
remaining amortization period is expected to be less than the recorded amount of
the management service agreement, the Company's carrying value of the management
service agreement will be reduced to its estimated fair value.

Other assets

     Other assets consist of costs associated with obtaining debt financing, the
excess of purchase price over the fair value of net assets acquired, and
investments in joint ventures. The debt financing costs are capitalized and
amortized over the terms of the related debt agreements using the straight line
method, which approximates the interest method. The amounts recorded for excess
of purchase price over the fair value of net assets acquired are being amortized
on a straight-line basis over 20 years.  At December 31, 1999 and 1998,
accumulated amortization equaled $2,415 and $1,231, respectively. The
investments in joint ventures for which the Company does not have control are
accounted for under the equity method of accounting.  For 1999, 1998 and 1997,
operational activity relating to the joint ventures was not material to the
operations of the Company.

Income taxes

     Deferred tax assets and liabilities are determined based on the temporary
differences between the financial statement carrying amounts and the tax bases
of assets and liabilities using the enacted tax rates in effect in the years in
which the differences are expected to reverse.  In estimating future tax
consequences, all expected future events are considered other than enactments of
changes in the tax law or rates.

Fair value of financial instruments

     The Company's receivables, payables, prepaids and accrued liabilities are
current and on normal terms and, accordingly, are believed by management to
approximate fair value.  Management also believes that subordinated notes issued
to affiliated physicians approximate fair value when current interest rates for
similar debt securities are applied.  Management estimates the fair value of its
bank indebtedness approximates its book value.

Earnings per share

     The Company computes earnings per share in accordance with the provisions
of Financial Accounting Standards Board (FASB) Statement No. 128, "Earnings Per
Share," which requires the Company to disclose "basic" and "diluted" earnings
per share (EPS).  The computation of basic earnings per share is based on a
weighted average number of Common Stock and Common Stock to be issued shares
outstanding during these periods.  The Company includes Common Stock to be
issued in both basic and diluted EPS as there are no foreseeable circumstances,
which would relieve the Company of its obligation to issue these shares.  The
computation of diluted earnings per share is based on the weighted average
number of Common Stock and Common Stock to be issued shares outstanding during
the periods as well as dilutive potential Common Stock calculated under the
treasury stock method.

                                       33

<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

The following table summarizes the determination of shares used in per share
calculations:

                                             Year Ended December 31,
                                           ----------------------------
                                             1999      1998      1997
                                           --------   -------   -------
Basic
  Outstanding at end of period:
     Common Stock.......................    87,253    80,830    75,781
     Common Stock to be issued..........    13,982    16,947    19,208
                                           -------    ------    ------
                                           101,235    97,777    94,989
  Effect of weighting...................    (1,052)     (130)   (1,821)
                                           -------    ------    ------
     Shares used in per share              100,183    97,647    93,168
      calculation.......................   =======    ======    ======
Diluted
  Outstanding at end of period:
     Common Stock.......................    87,253    80,830    75,781
     Common Stock to be issued..........    13,982    16,947    19,208
                                           -------    ------    ------
                                           101,235    97,777    94,989
  Effect of weighting and assumed share
   equivalents for grants of
    stock options.......................       400     2,218     2,209
                                           -------    ------    ------
     Shares used in per share              101,635    99,995    97,198
      calculation.......................   =======    ======    ======

  Anti-dilutive stock options not
   included above.......................     6,903     1,698     2,339

Operating segments

     During 1998, the Company adopted FASB Statement No. 131, "Disclosures About
Segments of an Enterprise and Related Information" (FAS 131), which requires
reporting of summarized financial results for the operating segments as well as
establishes standards for related disclosures about products and services,
geographic areas and major customers.  The Company's business is providing
comprehensive management services, facilities and equipment, administrative and
technical support and ancillary services necessary for physicians to establish
and maintain a fully integrated network of outpatient cancer care.  The
physicians affiliated with the Company provide all aspects of care related to
the diagnosis and outpatient treatment of cancer, including comprehensive
oncology services (including primarily medical, radiation, and gynecologic
services), diagnostic radiology services, retail pharmacy services and clinical
research.  The Company's chief decision maker did not receive financial
information for separate product lines of the Company's business, nor did he
make resource allocation decisions through 1999 based upon financial information
for separate product lines.  For the years ended 1999 and 1998, oncology related
services was the only product line that exceeded the reporting thresholds of FAS
131.  The Company, therefore, has used the aggregation criteria of FAS 131 and
reports a single segment.


Comprehensive income

     During 1998, the Company adopted FASB Statement No. 130, "Comprehensive
Income", which establishes standards for reporting and displaying comprehensive
income and its components.  In addition to net income, comprehensive income is
comprised of "other comprehensive income" which includes all charges and credits
to equity that are not the result of transactions with owners of the Company's
Common Stock. The required disclosure is included in the accompanying
consolidated statements of operations.  Accumulated other comprehensive income
consists of the unrealized gain or loss (net of tax) relating to investments in
common stock available for sale.

                                       34
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)


Accounting pronouncements for future adoption

     In June 1998, FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities," (FAS 133) which is effective for the
Company's financial statements as of and for the year ending December 31, 2000.
FAS 133 requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and to measure those
instruments at fair value. In 1999, FASB issued Statement No. 137 which delayed
the required implementation date for FAS 133 until the Company's year ended
December 31, 2001. Management expects to implement FAS 133 for the year ended
December 31, 2001 and does not expect such implementation to have a material
effect on the Company's operations.


NOTE 2 - REVENUE

     Medical service revenue for services to patients by the physician groups
affiliated with the Company is recorded when services are rendered based on
established or negotiated charges reduced by contractual adjustments and
allowances for doubtful accounts.  Differences between estimated contractual
adjustments and final settlements are reported in the period when final
settlements are determined.  Medical service revenue of the affiliated physician
groups is reduced by amounts retained by the physician groups under the
Company's management service agreements to arrive at the Company's management
fee revenue.

The following presents the amounts included in the determination of the
Company's revenues:

                                                   Year Ended December 31,
                                           ------------------------------------
                                              1999         1998          1997
                                           ----------    ----------    --------

  Medical service revenue...............   $1,384,813    $1,073,446    $802,292
  Amounts retained by affiliated
   physician groups.....................      314,553       263,115     198,789
                                           ----------    ----------    --------
  Management fee revenue................    1,070,260       810,331     603,503

  Other revenue.........................       22,681        26,265      21,910
                                           ----------    ----------    --------

  Revenue...............................   $1,092,941    $  836,596    $625,413
                                           ==========    ==========    ========

     For the years ended December 31, 1999, 1998 and 1997, the affiliated
physician groups derived approximately 35% of their medical service revenue from
services provided under the Medicare and state Medicaid programs.  Capitation
revenues were less than 1% of total medical service revenue in 1999, 1998 and
1997.  Changes in the payor reimbursement rates, particularly Medicare and
Medicaid due to its concentration, or affiliated physician groups' payor mix can
materially and adversely affect the Company's revenues.

     The Company's accounts receivable are a function of medical service revenue
of the affiliated physician group rather than the Company's revenue.
Receivables from the Medicare and state Medicaid programs are considered to have
minimal credit risk, and no other payor comprised more than 10% of accounts
receivable at December 31, 1999.

     The Company's most significant and only management service agreement to
provide more than 10% of revenues is with Texas Oncology, P.A. (TOPA).  TOPA
accounted for approximately 25%, 32%, and 37% of the Company's total revenues
for the years ended December 31, 1999, 1998, and 1997, respectively. Set forth
below is selected, unaudited financial and statistical information concerning
TOPA.

                                       35

<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)


                                                Year Ended December 31,
                                          ----------------------------------
                                            1999         1998         1997
                                          --------     --------     --------

  Medical service revenues.............   $341,939     $338,113     $291,395
                                          --------     --------     --------
  Management fee paid to the Company
     Reimbursement of expense..........    232,255      218,083      183,863
     Earnings component................     37,726       42,010       37,636
                                          --------     --------     --------

  Total management fee.................    269,981      260,093      221,499
                                          --------     --------     --------

  Amounts retained by TOPA.............   $ 71,958     $ 78,020     $ 69,896
                                          ========     ========     ========

  Physicians employed by TOPA..........        195          197          221

  Cancer centers utilized by TOPA......         29           24           21

     The Company's operating margin for the TOPA service agreement was 14.0%,
16.1%, and 17.0% for the years ended December 31, 1999, 1998 and 1997,
respectively. Operating margin is computed by dividing the earnings component of
the management fee by the total management fee. The decrease in operating margin
in 1999 and 1998 is due to the utilization of multiple and new expensive
pharmaceutical agents that have lower margins than those previously used.  The
Company believes that these trends will continue in the future.

     The number of physicians employed by TOPA decreased in 1998 because a group
of 34 radiologists (Reformed Radiology) withdrew from TOPA and entered into a
new service agreement with the Company. The Company, TOPA and Reformed Radiology
determined that it was in the best interests of all parties to have a separate
practice focusing on radiology. The Company is not aware of any negative
operating or financial trends related to TOPA.

     Other revenues are primarily derived from retail pharmacy operations
located in certain of the Company's cancer centers and larger physician offices
and providing clinical research services.


NOTE 3 - MEDICAL PRACTICE TRANSACTIONS

     The consideration paid for the physician groups to enter into long-term
management service agreements and for the nonmedical assets of the physician
groups, primarily receivables and fixed assets, has been accounted for as asset
purchases.  Total consideration includes the assumption by the Company of
specified liabilities, the estimated value of nonforfeitable commitments by the
Company to issue Common Stock at specified future dates for no additional
consideration, short-term and subordinated notes, cash payments and related
transaction costs as follows:

                                            Year Ended December 31,
                                         -----------------------------
                                           1999      1998       1997
                                         --------   -------   --------

  Cash and transaction costs..........   $ 43,513   $32,229   $ 42,821
  Short-term and subordinated notes...     27,292    13,500     49,169
  Common Stock to be issued...........     24,637     8,732     24,619
  Liabilities assumed.................      4,882     2,687      8,252
                                         --------   -------   --------
  Total costs.........................   $100,324   $57,148   $124,861
                                         ========   =======   ========
   Number of practice affiliations....         20        21         23

                                       36
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

     During 1999, the Company affiliated with 20 oncology physician groups on
the effective dates indicated as follows:  January 1, Oncology & Hematology of
Southwest Virginia of Roanoke, Virginia, total consideration of $27,156
including 820 shares of common stock to be issued with a value of $9,840;
January 1, Hematology Associates Ltd. of Phoenix, Arizona, total consideration
of $10,772 including 284 shares of common stock to be issued with a value of
$3,415; June 4, Birmingham Hematology Oncology Associates, P.C. of Birmingham,
Alabama, total consideration of $12,625 including 402 shares of common stock to
be issued with a value of $3,505; 17 other physician groups, total consideration
of $44,889 including 1,126 shares of common stock to be issued with a value of
$7,877.

     During 1998, the Company affiliated with 21 oncology physician groups on
the effective dates indicated as follows:  January 1, Northwest Medical
Specialists, P.C., of Niles, Illinois, total consideration of $12,250 including
231 shares of Common Stock to be issued with a value of $3,062; March 26, Landry
& Moss, M.D.'s, P.A. of Bradenton, Florida, total consideration of $3,645
including 61 shares of Common Stock to be issued with a value of $604; March 31,
Dayton Oncology/Hematology Consultants, P.A. of Dayton, Ohio, total
consideration of $5,560 including 116 shares of Common Stock to be issued with a
value of $1,048;  May 1, Colorado Radiation Oncology, P.C. of Denver, Colorado,
total consideration of $3,321 including 112 shares of Common Stock to be issued
with a value of $1,095; August 15, Spector, Zimbler, & DeLeo, M.D.'s of
Berkshire, Massachusetts, total consideration of $2,539 including 41 shares of
Common Stock to be issued with a value of $436; September 1, Arnold Wax, M.D.,
LTD of Las Vegas, Nevada, total consideration of $4,426 including 88 shares of
Common Stock to be issued with a value of $587; and in July through December of
1998, eleven smaller transactions with physician groups in Tucson, Arizona;
Oklahoma City, Oklahoma; Kansas City, Missouri; Dunedin, Florida; Norfolk,
Virginia; Owings Mills, Maryland; Highland, Illinois; Clear Lake, Texas, and
Denver, Colorado; for total consideration of $25,407 including 370 shares of
Common Stock to be issued with a value of $1,900.

     During 1997, the Company affiliated with 23 oncology physician groups on
the effective dates indicated as follows:  March 28, Northwest Cancer Center
P.C., Puget Sound Cancer Center, P.C., and Washington Cancer Centers, P.C. of
Edmonds, Washington, total consideration of $11,500 including subordinated
convertible notes with a value of $8,500; January 10, Williamsburg Hematology
and Oncology of Virginia, total consideration of $4,566 including 94 shares of
Common Stock to be issued with a value of $588; March 14, Virginia Oncology
Associates, P.C., of Norfolk, Virginia, total consideration of $21,085 including
514 shares of Common Stock to be issued with a value of $3,239; April 1, Central
Indiana Radiation Oncology, P.S.C. of Indiana, total consideration of $4,622
including 253 shares of Common Stock to be issued with a value of $1,393; March
24, Texas Radiation Oncology Group, L.L.P. of Austin, Texas, total consideration
of $12,065 including 343 shares of Common Stock to be issued with a value of
$1,754; November 1, Hematology Associates of South Texas, P.A., total
consideration of $6,082 including 155 shares of Common Stock to be issued with a
value of $1,366; November 1, Clinical Hematology Oncology Associates, P.C. of
Arizona, total consideration of $9,855 including 398 shares of Common Stock to
be issued with a value of $3,767; November 17, Florida Community Cancer Centers,
P.A. of Tampa, Florida, total consideration of $34,846 including 1,117 shares of
Common Stock to be issued with a value of $8,964; and in January through
September of 1997, fifteen smaller transactions with physician groups in Tulsa,
Oklahoma; Las Vegas, Nevada; Portland, Oregon; Fairfax, Virginia; Vancouver,
Washington; Kissimmee, Florida; Little Rock, Arkansas; Westminster, Maryland;
and Franklin, Pennsylvania; for total consideration of $20,240 which includes
516 shares of Common Stock to be issued with a value of $3,548.


                                       37

<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

     In connection with three medical practice transactions occurring in 1997,
the Company issued subordinated promissory notes contingently obligating the
Company to pay up to $1,300.  Payment under the promissory notes is contingent
on the Company receiving a defined level of management fees during the first two
years following the applicable medical practice transaction which substantially
exceeds the level of management fees expected by the Company during its
negotiations with the practice.  Once the payment is fixed, the subordinated
promissory notes are paid in five annual installments, commencing on the third
anniversary of the medical practice transaction.  As of December 31, 1999, the
Company has recorded $449 of the $1,300 and no future liability exists.  (See
Note 6 -"Subordinated Notes" herein.)  Amounts that are earned under these
obligations are allocated to the affiliated long-term management services
agreement and are amortized over the remaining life of that asset.


NOTE 4 - RESEARCH CONTRACTS

     On June 30, 1997, one of the Company's subsidiaries, PRN Research, Inc.,
entered into a comprehensive clinical development alliance with ILEX Oncology,
Inc. ("ILEX"), a drug development company focused exclusively on cancer. Under
the terms of the agreement, PRN would refer all contract research business to
ILEX.  As part of the agreement, ILEX issued to the Company 314 shares, 314
shares, and 312 shares of ILEX common stock in 1999, 1998, and 1997,
respectively.  The Company has recognized $2,867, $3,523, and $1,716 as revenue
in 1999, 1998 and 1997, respectively, representing the fair value of the ILEX
stock received on June 30 of each year, recognized over the following year as
the Company was obligated to perform clinical research activities during that
period.  Effective June 30, 1999, the Company amended its agreement with ILEX.
Under the amended agreement, ILEX accelerated the issuance of 315 shares of its
common stock valued at $3,152 and the parties agreed to terminate the Company's
obligations to provide research referral services to ILEX under the agreement.
ILEX's obligation to issue additional shares to the Company contingent upon
volume of activity was cancelled at this time.

     Through the third quarter of 1999, the Company recognized subsequent
changes in the value of ILEX stock received as a component of other
comprehensive income in shareholders' equity in accordance with its intentions
and classification of the investment as "available for sale" under the guidance
of FASB 115.  The valuation allowance was shown as a component of stockholders'
equity, net of applicable income taxes.  During the fourth quarter of 1999, the
Company changed its intentions and reclassified the investment as a trading
security.  In connection with this decision, the Company has recognized an
unrealized gain of $14,431 in the accompanying consolidated statement of
operations and comprehensive income to reflect the fair value of the investment
at December 31, 1999. The Company sold the investment in a private sale
transaction in March 2000 and realized net proceeds of $54,798, which will
result in the recognition of an additional gain of $27,540 in the consolidated
statement of operations and comprehensive income in the first quarter of 2000.

                                       38
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

NOTE 5 - PROPERTY AND EQUIPMENT

     Property and equipment consist of the following:

                                                December 31,
                                           ----------------------
                                              1999        1998
                                           ----------   ---------

Land....................................   $  18,080    $ 17,946
Furniture and equipment.................     222,771     197,290
Buildings and leasehold improvements....     125,715      88,085
Construction in progress................      15,105       6,081
                                           ---------    --------
                                             381,671     309,402
Less - accumulated depreciation and
 amortization...........................    (127,382)    (88,458)
                                           ---------    --------
                                           $ 254,289    $220,944
                                           =========    ========


NOTE 6 - INDEBTEDNESS

The Company's long-term indebtedness consists of the following:

                                                December 31,
                                           ----------------------
                                              1999        1998
                                           ----------   ---------

  Credit Facility A.....................    $174,000   $104,000
  Credit Facility B.....................                 52,000
  Senior secured notes..................     100,000
  Notes payable.........................      13,031     15,623
  Subordinated notes....................      97,997     80,611
  Convertible notes.....................         900        900
  Capital lease obligations and other...         956      3,766
                                            --------   --------
                                             386,884    256,900
  Less - current maturities.............      26,693     22,426
                                            --------   --------
                                            $360,191   $234,474
                                            ========   ========
Credit Facility A

     The Company has a loan agreement and revolving credit/term facility (Credit
Facility A) which was amended effective as of June 15, 1999 in connection with
the Merger to improve certain terms, covenants and capacity.  Under the terms of
the agreement, the amounts available for borrowing are $275,000 through 2004
(the borrowing limit was $150,000 prior to the amendment).  Credit Facility A
includes a $100,000 component that is renewable at the option of the lenders
under that agreement at one year intervals from the original date of the
agreement.  The maximum borrowings outstanding during 1999 were $246,000.
Proceeds of loans may be used to finance medical practice transactions, provide
working capital or for other general corporate uses.  The Company has classified
the entire balance outstanding under Credit Facility A as long-term due to its
ability and intent to maintain the borrowings past 2000.

     Borrowings under Credit Facility A are secured by capital stock of the
Company's subsidiaries and all material contracts, including management service
agreements.  At the Company's option, funds may be borrowed at the Base interest
rate or the London Interbank Offered Rate (LIBOR) up to LIBOR plus an amount
determined under a defined formula.  The Base rate is selected by First Union
National Bank (First Union) and is defined as its prime rate or Federal Funds
Rate plus  1/2%.  Interest on amounts outstanding under Base rate loans is due
quarterly while interest on LIBOR related loans is due at the end of each
applicable interest period or quarterly, if earlier.  As of December 31, 1999
and 1998, the weighted average interest rate on all outstanding draws was 7.5%
and 5.8%, respectively.

                                       39
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

     The Company is subject to restrictive covenants under Credit Facility A,
including the maintenance of certain financial ratios.  The agreement also
limits certain activities such as incurrence of additional indebtedness, sales
of assets, investments, capital expenditures, mergers and consolidations and the
payment of dividends.  Under certain circumstances, additional medical practice
transactions may require First Union and the lenders' consent.

Credit Facility B

     PRN had a loan agreement and revolving credit/term facility (Credit
Facility B).  The facility was repaid and replaced during June 1999 in
conjunction with the amendment and restatement of Credit Facility A.  Under the
terms of the agreement, the amounts available for borrowing under the revolver
was $140,000.  Proceeds of loans could be used to finance medical practice
transactions, provide working capital or for other general corporate uses.  PRN
had classified this facility as long-term due to its ability and intent to
maintain the borrowings past 1999. Credit Facility B contained restrictive
covenants and was secured by the capital stock of  two of PRN's wholly owned
subsidiaries.

Senior secured notes

     In November 1999, the Company issued $100,000 in senior secured notes to a
select group of institutional investors.  The notes bear interest at 8.42%,
mature in installments from 2002 through 2006 and rank equal in right of payment
with all current and future senior indebtedness of the Company.  The senior
secured notes contain restrictive financial and operational covenants and are
secured by the same collateral as Credit Facility A.

Notes payable

     The notes payable bear interest, which is payable annually, at rates
ranging from 5.3% to 10% and mature between 2000 to 2005.  The notes are payable
to physicians with whom the Company entered into long-term management service
agreements and relate to medical practice transactions.  The notes payable are
unsecured.

Subordinated notes

     The subordinated notes are issued in substantially the same form in
different series and are payable to the physicians with whom the Company entered
into management service agreements.  Substantially all of the notes outstanding
at December 31, 1999 and 1998 bear interest at 7%, are due in installments
through 2006 and are subordinated to senior bank and certain other debt.  If the
Company fails to make payments under any of the notes, the respective physician
group can terminate the related management service agreement for cause.

Convertible notes

     In April 1997, the Company issued $8,500 of convertible promissory notes as
partial consideration for physicians groups to enter into a Service Agreement.
The notes bear interest at the prime rate plus 1%.  During 1998 these promissory
notes were converted into approximately 1,500 shares of the Company's Common
Stock.  In July 1997, the Company issued $900 of convertible promissory notes as
partial consideration for a physician group to enter into a Service Agreement.
The notes bear interest at 6% and are convertible at the option of the holder of
the notes into 66 shares of the Company's Common Stock in 2002.

                                       40

<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

Capital lease obligations and other

     Leases for medical and office equipment are capitalized using effective
interest rates between 6.5% and 11.5% with original lease terms between two and
seven years.  At December 31, 1999 and 1998, the gross amount of assets recorded
under the capital leases was $5,300 and $5,500, respectively, and the related
accumulated amortization was $3,000and $2,300, respectively.  Amortization
expense is included with depreciation in the accompanying consolidated statement
of operations.  Total future capital lease payments are $530.  Other
indebtedness consists principally of installment notes and bank debt, with
varying interest rates, assumed in medical practice transactions.

Maturities

     Future principal maturities of long-term indebtedness, including capital
lease obligations, are approximately $26,700 in 2000, $22,800 in 2001, $43,500
in 2002, $35,800 in 2003, $207,700 in 2004 and $50,400  thereafter.


NOTE 7 - INCOME TAXES

     The Company's income tax provision consists of the following:

                                            Year Ended December 31,
                                           ---------------------------
                                             1999     1998      1997
                                           -------   -------   -------
  Federal:
     Current............................   $21,661   $27,767   $ 1,447
     Deferred...........................     8,171     5,195     7,318
  State:
     Current............................     1,129     2,612     2,161
     Deferred...........................     1,268       610       667
                                           -------   -------   -------
                                           $32,229   $36,184   $11,593
                                           =======   =======   =======

     The difference between the effective income tax rate and the amount that
would be determined by applying the statutory U.S. income tax rate before income
taxes is as follows:


                                            Year Ended December 31,
                                           ---------------------------
                                             1999     1998      1997
                                           -------   -------   -------

  Provision for income taxes at U.S.
   statutory rates......................     35.0%     35.0%     35.0%
  State income taxes, net of federal
   benefit..............................      2.5       3.0       8.1
  Non-deductible portion of merger
   related costs........................      2.1
  Other.................................      0.5      (0.4)     (0.5)
                                             ----      ----      ----
                                             40.1%     37.6%     42.6%
                                             ----      ----      ----

                                       41
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)


     Deferred income taxes are comprised of the following:

                                                          December 31,
                                                       ------------------
                                                        1999       1998
                                                       -------    -------

  Deferred tax assets:
     Deferred rent.................................    $   598    $     -
     Accrued expenses..............................      1,098        849
     Other.........................................        167        421
                                                       -------    -------
                                                       $ 1,863    $ 1,270
                                                       -------    -------
  Deferred tax liabilities:
     Management service agreements.................    $17,319    $13,556
     Depreciation..................................     11,853     11,164
     Prepaid expenses..............................        265         87
     Unrealized gain on investment.................      5,650          -
                                                       -------    -------
                                                        35,087     24,807
                                                       -------    -------
     Net deferred tax liability....................    $33,224    $23,537
                                                       =======    =======

     At December 31, 1999 and December 31, 1998, net deferred tax liability and
income taxes payable includes a tax liability of $11,900 and $5,000,
respectively.  The liability has been established related to the Company's tax
position and the possible disallowance of certain deductions taken in connection
with the Company's management services agreements.  The impact of disallowance
would be immaterial to the Company's financial condition and results of
operations.


NOTE 8 - PROFIT SHARING PLAN

     Employees of the Company may participate in either the AOR 401(k) plan or
the PRN 401(k) profit sharing and savings plan, based upon pre-Merger employment
status.  Participants of the AOR plan are eligible to participate after 6 months
of employment and reaching the age of 21.  Participants of the PRN plan are
eligible to participate at the time of employment if they have reached the age
of 20 and 1/2 years.  Participants vest in the employer contribution portion of
their account, if any, at the rate of 20% for each year that they meet the
plan's service requirements.

     The AOR plan allows for a discretionary employer contribution to the plan.
For the three years ended December 31, 1999, no employer contributions were
made.

     The PRN plan allows for an employer match of contributions made by plan
participants. For the year ended December 31, 1997, the Company elected to match
50% of employee contributions, the total match not to exceed 6% of the
participant's salary subject to the salary ceiling rules imposed by the Internal
Revenue Service. In 1998 the Company elected to match 50% of employee
contributions, the total match not to exceed 3% of the participant's salary
subject to the salary ceiling rules imposed by the Internal Revenue Service.  In
1999 the Company elected to match 50% of employee contributions, the total match
not to exceed 3% of the participant's salary subject to the salary ceiling rules
imposed by the Internal Revenue Service.  Effective June 15, 1999, the Company
elected to cease the employer match under the PRN plan.  The Company's
contribution amounted to approximately $1,000, $1,600 and $1,800 for the years
ended December 31, 1999, 1998, and 1997, respectively.


NOTE 9 - STOCKHOLDERS' EQUITY

     Effective May 8, 1997, the Company's stockholders approved an increase in
the number of shares of Common Stock authorized to be issued to 80,000 shares.
In conjunction with the Merger of the Company and PRN, the Company's
stockholders approved an increase in the number of shares of common stock
authorized to 250,000 shares.

                                       42
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

     Effective May 16, 1997, the Board of Directors of the Company adopted a
shareholders' rights plan and in connection therewith, declared a dividend of
one Series A Preferred Share Purchase Right for each outstanding share of Common
Stock.  For a more detailed description of the shareholders rights plan, refer
to the Company's Form 8-A filed with the Securities and Exchange Commission on
June 2, 1997.

     On August 13, 1996, the Board of Directors of the Company authorized the
purchase of up to 3,000 shares of the Company's Common Stock in public or
private transactions.  In 1998, 1997, and 1996, the Company purchased 1,232;
658, and 1,110 shares at aggregate costs of $12,400, $6,400 and $9,400,
respectively.  Shares repurchased have been used to satisfy commitments for the
delivery of the Company's Common Stock from medical practice transactions.  On
March 21, 2000, the Board of Directors of the Company authorized the purchase of
up to 10,000 shares of the Company's Common Stock in public or private
transactions.

     As part of entering into long-term management services agreements with
physician practices as described in Note 3, the Company has made nonforfeitable
commitments to issue shares of Common Stock at specified future dates for no
further consideration.  Holders of the rights to receive such shares have no
dispositive, voting or cash dividend rights with respect to such shares until
the shares have been delivered.  Common Stock to be issued is shown as a
separate component in stockholders' equity.  The amounts, upon issuance of the
shares, are reclassified to other equity accounts as appropriate.

     The shares of Common Stock to be issued at specified future dates were
valued at the transaction date at a discount from the quoted market price of a
delivered share after considering all relevant factors, including normal
discounts for marketability due to the time delay in delivery of the shares.
The discount for shares of Common Stock to be issued at specified future dates
is 10% for shares to be delivered prior to the fifth anniversary of the
transaction and is 20% for shares to be delivered thereafter.  The Common Stock
in the transactions is to be delivered under the terms of the respective
agreements for periods up to seven years after the initial transaction date.
The recorded value represents management's best estimate of the fair value of
the shares of Common Stock to be delivered in the future as of the transaction
date.  A portion of the Common Stock to be issued commitment is based upon
obligations to deliver a specified dollar value of Common Stock shares.  The
value of these shares is not discounted and the number of shares to be issued
would change with change in the market value of the Company's Common Stock.

     For transactions completed through December 31, 1999, the scheduled
issuance of the shares of Common Stock that the Company is committed to deliver
over the passage of time are approximately 5,172 in 2000, 1,947 in 2001, 2,817
in 2002, 1,408 in 2003, 1,535 in 2004 and 1,103 thereafter.


NOTE 10 - STOCK OPTIONS

     The Company's 1993 Key Employee Stock Option Plan, as amended, provides
that employees may be granted options to purchase Common Stock.  Total shares
available for grant are limited to 12% of  the outstanding common shares plus
the shares to be issued to physician groups at specified future dates.
Individual option vesting and related terms are determined by the Compensation
Committee of the Board of Directors.  However, the stock option plan provides
that the options granted may be incentive options at an exercise price no less
than fair value at the grant date or 85% of fair value in the case of
nonqualified options.  Option terms may not exceed ten years.  Individual option
grants vest ratably over time, generally five years.  In connection with the
merger of AOR and PRN, all outstanding options of PRN became fully vested and
exercisable at the merger date and were assumed by the Company.  Outstanding PRN
options became options to purchase 0.94 shares of the Company's common stock
with an exercise price equal to the original exercise price divided by 0.94.

     Under the terms of the Company's Chief Executive Officer Stock Option Plan
and Agreement and the Everson Stock Option Plan and Agreement, two executives
were granted 3,694 non-qualified options to purchase Common Stock with an
exercise price effectively equal to the fair market value at the date of grant.
The options vested on the date of the Company's initial public offering and
expire between 2000 and 2003.  The Company's ability to grant further options
under these plans ceased on the date of the Company's initial public stock
offering.  At December 31, 1999, 1,818 Common Stock options with a weighted-
average exercise price of $3.72 per share were outstanding and exercisable under
the terms of these plans.

                                       43
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

     The Company's 1993 Non-Employee Director Stock Option Plan provides that up
to 600 options to purchase Common Stock can be granted.  The options vest in 4
months or ratably over 4 years, have a term of 10 years and exercise prices
effectively equal to the fair market value at the date of grant.  As of December
31, 1999, 296 options were outstanding, all of which were vested and
exercisable.

     The Company's 1993 Affiliate Stock Option Plan, as amended, provides that
options to purchase up to 3,000 shares of Common Stock can be granted. Options
under the plan have a term of 10 years. All individual option grants vest
ratably over the vesting periods of 3 to 5 years. Of the outstanding options to
purchase shares of Common Stock granted under this plan, 1,004 were granted to
physician employees of the affiliated physician groups and 25 were granted to
other employees of the affiliated physician groups. In 1999, 1998 and 1997, the
fair value of the options granted to non-employees was $5.89, $8.48 and 8.21 per
share, respectively. Compensation expense will be recognized over the respective
vesting periods. Expense of $1,300, $600 and $300 was recognized in 1999, 1998
and 1997, respectively.

     All of the Company's Common Stock options vest automatically upon a change
in control of the Company, as defined in such stock option plans.

                                       44
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

     The following summarizes the activity for all option plans:

                                                   Shares         Weighted
                                                Represented        Average
                                                 by Options     Exercise Price
                                                ------------    --------------

     Balance, January 1, 1997.................      6,786           $ 4.97

     Granted..................................      3,312            11.84
     Exercised................................       (613)            3.37
     Canceled.................................       (414)            7.39
                                                   ------

     Balance, December 31, 1997...............      9,071             7.54

     Granted..................................      2,351            12.87
     Exercised................................     (1,264)            4.08
     Canceled.................................       (574)            9.53
                                                   ------

     Balance, December 31, 1998...............      9,584             9.28

     Granted..................................      6,660             6.63
     Exercised................................       (358)            8.77
     Canceled.................................     (1,278)            9.73
                                                   ------

     Balance, December 31, 1999...............     14,608             8.16
                                                   ======

     The following table summarizes information about the Company's stock
options outstanding at December 31, 1999:

<TABLE>
<CAPTION>
                                         OPTIONS OUTSTANDING                                 OPTIONS EXERCISABLE
                  --------------------------------------------------------------   ------------------------------------
                                           WEIGHTED
WEIGHTED RANGE       NUMBER                AVERAGE                 WEIGHTED
  OF AVERAGE      OUTSTANDING AT          REMAINING            AVERAGE EXERCISE    EXERCISABLE AT
EXERCISE PRICE       12/31/99          CONTRACTUAL LIFE            PRICE              12/31/99          EXERCISE PRICE
--------------    -------------        ---------------         -----------------   ---------------      --------------
<S>               <C>                  <C>                    <C>                  <C>                   <C>
    $1 to $3         1,141                  1.8                      $ 2.65              1,141               $ 2.65
     4 to 9          7,153                  7.6                        5.44              2,623                 5.96
    10 to 14         5,184                  8.4                       11.39              2,610                11.55
    15 to 24         1,130                  7.4                       16.35                552                16.97
                    ------                                                               -----
     1 to 24        14,608                  7.4                        8.18              6,926                16.97
                    ------
</TABLE>

     The Company has adopted the disclosure-only provisions of FASB Statement
No. 123, "Accounting for Stock-Based Compensation" for stock options granted to
employees and directors.  Accordingly, no compensation cost has been recognized
for fixed options granted to Company employees and directors.  For purposes of
pro forma disclosures, the estimated fair value of the options is amortized to
expense over the options' vesting period. The Company's unaudited pro forma
information for 1999, 1998 and 1997 are as follows and includes compensation
expense of approximately $12,600, $14,700 and $3,500, respectively:

                                       45
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

                                                  Year Ended December 31,
                                              -------------------------------
                                                1999        1998        1997
                                              -------     -------     -------
Pro forma net income.......................   $35,555     $45,290     $12,107
Pro forma net income per share - basic.....   $  0.35     $  0.46     $  0.13
Pro forma net income per share - diluted...   $  0.35     $  0.45     $  0.12

     Options granted in 1999, 1998 and 1997 had weighted-average fair values of
$5.42, $8.46, and $9.11 per share, respectively.  The fair value of each Common
Stock option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants from all plans in 1999, 1998 and 1997:

                                                1999        1998        1997
                                              -------     -------     -------
     Expected life (years)                        5           5           5
     Risk-free interest rate...............     5.0%        4.9%        5.2%
     Expected volatility...................      77%         76%         81%
     Expected dividend yield...............       0%          0%          0%

NOTE 11 - MERGER, RESTRUCTURING AND INTEGRATION COSTS

     In connection with the merger of AOR and PRN, the combined company incurred
substantial costs.  The company incurred costs directly related to its efforts
to consummate the merger ("merger costs"), costs related to restructuring
certain duplicate operating costs ("restructuring costs") and costs related to
its efforts to integrate the operations of the two companies ("integration
costs").  These costs totaled $29,014 and have been summarized in the
accompanying consolidated statement of operations and comprehensive income as
Merger, restructuring and integration costs in the year ended December 31, 1999.

     The Company's merger costs totaled $14,587 and include professional fees
and expenses incurred in connection with the due diligence, negotiation and
solicitation of shareholder approval for the transaction, as well as incremental
travel costs and contractual change of control payments of approximately $5,000
to the executive management of PRN.

     The Company's management made certain decisions to restructure its
operations to reduce overlapping personnel and duplicative facilities.  The
costs of personnel reductions include severance pay for terminated employees and
payments attributable to stay bonuses paid before December 31, 1999 for
employees providing transition assistance services.  The Company also determined
that certain furniture, fixtures, leasehold improvements, computer equipment and
software was impaired as a result of personnel terminations, facility closings
and decisions to harmonize certain information systems.  The Company has
recognized and accounted for these costs in accordance with the provisions of
Emerging Issues Task Force Consensus No. 94-3 "Accounting for Restructuring
Costs".  The Company's restructuring costs recognized in the year ended December
31, 1999 totaled $7,193 and are summarized as follows:

<TABLE>
<CAPTION>
                                          RESTRUCTURING      PAYMENTS TO                         ACCRUED
                                             EXPENSE            SETTLE           ASSET         LIABILITY AT
                                                             OBLIGATIONS      DISPOSITIONS       12/31/99
                                          -------------      -----------      ------------     ------------
<S>                                      <C>                <C>              <C>              <C>
Employee severance and stay bonuses...       $2,097           $(2,097)
Lease terminations....................        2,796              (320)                            $2,476
Asset impairments.....................        2,300                             $(2,300)
                                             ------           -------           -------           ------
      Total............................      $7,193           $(2,417)          $(2,300)          $2,476
                                             ======           =======           =======           ======
</TABLE>

                                       46
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

     The Company also incurred specifically identified costs related to its
efforts to integrate the two companies totaling $7,234 during the year ended
December 31, 1999.  These integration costs include costs for a physician
conference to address combined Company operating strategies, employee
orientation meetings, consulting fees related to integration activities and
adoption of common employee benefit programs.  These costs have been recognized
as incurred and do not include costs related to inefficiencies incurred as the
Company has attempted to integrate the operating activities of AOR and PRN.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

     The Company leases office space, integrated cancer centers and certain
equipment under noncancelable operating lease agreements.  Total future minimum
lease payments, including escalation provisions and leases with entities
affiliated with physician groups, are $20,600 in 2000, $17,400 in 2001, $13,900
in 2002, $11,300 in 2003, $8,900 in 2004, and $14,600 thereafter.  Rental
expense under noncancelable operating leases was approximately $46,632 in 1999,
$34,863 in 1998 and $27,883 in 1997.

     The Company enters into commitments with various construction companies and
equipment vendors in connection with the development of cancer centers. As of
December 31, 1999, the Company's commitments were approximately $5,800.

     In December 1997, the Company entered into a $75,000 master operating lease
related to integrated cancer centers.  Under the agreement, the lessor purchases
and has title to the properties, pays for the construction costs and thereafter
leases the facilities under operating leases to the Company.  The initial term
of the lease is for five years and can be renewed in one year increments if
approved by the lessor.  The Company provides the lessor with substantial
residual value guarantees at the end of each facility lease and has purchase
options at original cost on each property.  Advances under the master lease
agreement at December 31, 1999 were $43,400.

     The Company and its affiliated physician groups maintain insurance with
respect to medical malpractice risks on a claims-made basis in amounts believed
to be customary and adequate.  Management is not aware of any outstanding claims
or unasserted claims probable of assertion against it or its affiliated
physician groups which would have a material impact on the Company's financial
position or results of operations.

     In March 1996, Methodist Hospitals of Dallas ("Methodist") filed a lawsuit
in the District Court of Dallas County, Texas against the Company and TOPA
asserting various claims, including claims of monopolization, conspiracy to
monopolize, attempted monopolization, unfair competition, and tortious
interference with actual and prospective contractual relationships. In May 1998,
the Company, TOPA, and Methodist settled this lawsuit. Under the terms of the
settlement, Methodist released the Company and TOPA from any liability, and the
lawsuit, including all claims related thereto, was dismissed with prejudice. As
part of the settlement, the PRN and TOPA agreed to limit the expansion of
certain facilities and the number of physicians in Dallas County. The Company
believes that such limitations will not materially adversely affect the
Company's results of operations or growth plans.

     In September 1996 and October 1996, PRN was named as defendant in various
lawsuits representing a class of all persons who purchased and still owned
shares of PRN's common stock from the period of January 2, 1996 through October
28, 1996. In general, these lawsuits asserted that PRN failed to disclose that
it had engaged in certain improper accounting practices, that the relationship
between PRN and certain of the affiliated physician groups violated federal and
state law, and that certain of the affiliated physician groups have charged the
Medicare program amounts in excess of the cost of delivering certain services.
In December 1997, PRN reached an agreement to settle these lawsuits for $1,975.
In January and February 1998, these cases were dismissed with prejudice, and all
members of the settlement class became barred from prosecuting, pursuing, or
litigating any claims asserted in these cases.

     Beginning January 1, 1997, the Company has guaranteed that the amounts
retained by physicians will be at least $5,195 annually under the terms of the
management service agreement with the Company's Minnesota physician group
provided that certain targets are met. Under this agreement, the Company reduced
its management fee in 1998 from the Minnesota physician group by $714, and
recorded management fee revenue from the Minnesota physician group of $21,665.

                                       47
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

     The Company has been informed that the Company and an affiliated physician
group are the subject of allegations that their billing practices may violate
the Federal False Claims Act. The allegations are the result of two qui tam
complaints filed under seal prior to the merger of PRN with a subsidiary of US
Oncology. The U.S. Department of Justice is currently investigating the
allegations in order to determine if the United States will intervene and pursue
the claims on behalf of the plaintiffs. If the United States does not intervene,
the plaintiffs may continue to pursue the claims individually. Because the
complaints are under seal, and because the Department of Justice is in the
process of investigating the claims, the Company is unable to fully assess at
this point in time the nature or magnitude of these allegations. If the
plaintiffs and/or the United States were to prevail in these claims, the
resulting judgment could have a material adverse effect on the Company. Because
qui tam actions are filed under seal, there is a possibility that the Company
could be the subject of other qui tam actions of which it is unaware.

NOTE 13 - RELATED PARTIES

     The Company receives a contractual management fee for providing management
services to its affiliated physician groups.  The Company also advances to its
affiliated physician groups amounts needed for the purchase of pharmaceuticals
and medical supplies necessary in the treatment of cancer.  The advances are
reflected on the Company's balance sheet as due from/to affiliated physician
groups and are reimbursed to the Company as part of the management fee payable
under its management service agreements with its affiliated physician groups.

     The Company leases a portion of its medical office space and equipment, at
rates that the Company believes approximate fair market value based upon an
analysis of comparable office space in the geographic areas from entities
affiliated with certain of the stockholders of physician groups affiliated with
the Company.  Payments under these leases were $3,300 in 1999, $3,700 in 1998,
and $2,600 in 1997 and total future commitments are $13,800 as of December 31,
1999.

     The subordinated notes are payable to persons or entities that are also
stockholders or holders of rights to receive Common Stock at specified future
dates.  Total interest expense to these parties was $6,300 in 1999, $5,800 in
1998, and $5,200 in 1997.

     A director and a stockholder is of counsel and previously was a partner of
a law firm utilized by the Company.  The Company incurred $816, $558, and $584
for legal services provided by the firm in 1999, 1998 and 1997, respectively.

     Three of the Company's existing directors and three directors holding
positions through June 15, 1999 are practicing physicians with physician groups
affiliated with the Company.  In 1999, the physician groups in which these
directors participate generated total medical service revenues of $516,000 of
which $110,300 was retained by the groups and $405,700 was included in the
Company's revenue.  In 1998, the physician groups in which these directors
participate generated total medical service revenues of $94,467 of which $21,620
was retained by the groups and $72,847 was included in the Company's revenue.
In 1997, three of the Company's directors were practicing physicians with
physician groups affiliated with the Company.  In 1997, the three physician
groups in which these directors participate generated total medical service
revenues of $40,378 of which $8,484 was retained by the groups and $31,894 was
included in the Company's revenue.

                                       48
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

     The Company and TOPA are parties to a management service agreement pursuant
to which the Company provides TOPA with facilities, equipment, non-physician
personnel, and administrative, management, and non-medical advisory services, as
well as services relating to the purchasing and administering of supplies. The
management fee under the TOPA service agreement is equal to 35% of the earnings
(professional and research revenues earned by the affiliated physician group
less direct expenses) of that practice before interest and taxes ("Earnings")
plus direct expenses of the related practice locations. Direct expenses include
rent, depreciation, amortization, provision for uncollectible accounts, salaries
and benefits of non-physician employees, medical supply expense and
pharmaceuticals. In 1999, 1998 and 1997, TOPA paid the Company an aggregate of
approximately $270,000, $260,000 and $221,000  respectively, pursuant to the
TOPA management service agreement. Dr. Jones, a director of the Company, and Dr.
Bailes, an executive of the Company, are employed by TOPA. TOPA beneficially
owns approximately 9.1% of the Company's outstanding common stock. At  December
31, 1999 and 1998, TOPA was indebted to the Company in the aggregate amount of
approximately $10,137 and $11,574, respectively. This indebtedness was incurred
when the Company advanced working capital to TOPA for various uses, including
the development of new markets and physician salaries and bonuses. This
indebtedness bears interest at a rate negotiated by the Company and TOPA that
approximates the prime lending rate (8.5% at December 31, 1999). Effective
November 1, 1998, the Company and TOPA entered into a Second Amended and
Restated Service Agreement. The significant changes in the service agreement
effected by the Second Amended and Restated Service Agreement are (i) TOPA no
longer participates in the earnings of PRN Research, Inc.; (ii) TOPA no longer
participates in the earnings of the Company's imaging centers; (iii) the term of
the service agreement was extended for three years; and (iv) the provisions of
the covenant not to compete that TOPA enters into with physicians were
strengthened. In consideration for entering into the amended agreement, the
Company paid TOPA $1,500 in 1998 and $7,500 in 1999. Because of the expected
economic benefits to be received by the Company, the Company recorded the
payments to TOPA as an increase in the value of the service agreement with TOPA
and an offset of TOPA's indebtedness to the Company.

     The Company leases facilities from affiliates of Baylor University Medical
Center ("BUMC"). Additionally, affiliates of BUMC provide the Company various
services, including telecommunications and maintenance services.  Mr. Powell, a
director of the Company, is president and chief executive officer of BUMC. In
1999 and 1998, payments by the Company to BUMC totaled an aggregate of
approximately $2,400 and $3,900,  respectively, for these services.

     As part of the consideration for Minnesota Oncology Hematology, P.A.
("MOHPA") entering into its management service agreement with the Company, the
Company is required to make quarterly payments of $464 to MOHPA through July 1,
2000. During 1999, the Company paid MOHPA an aggregate of $1,856 pursuant to
such quarterly payments. In addition, the Company is required to issue a
prescribed number of shares of the Company's common stock to MOHPA on July 1 of
each year through July 1, 2001. During 1999, the Company issued 104 shares of
common stock to MOHPA pursuant to such yearly issuances.  A shareholder of MOHPA
is currently a director of the Company.

       The Company enters into medical director agreements with certain of its
affiliated physicians.  Under a typical medical director agreement, the Company
retains an affiliated physician to advise the Company on a specific initiative
or matter, such as stem cell transplantation or clinical research, and, in
return, the Company pays to the affiliated physician a medical director fee,
typically $100 to $250 annually.  During 1999, 1998 and 1997, the Company had
agreements with seven, six and zero medical directors under which the Company
paid $875, $567 and zero, respectively.

                                       49
<PAGE>

                               US ONCOLOGY, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (dollars and shares in thousands except per share data)

NOTE 14 - QUARTERLY FINANCIAL DATA

     The following table presents unaudited quarterly information:

<TABLE>
<CAPTION>
                                              1999 QUARTER ENDED                          1998 QUARTER ENDED
                                  ------------------------------------------   -----------------------------------------
                                   DEC 31     SEP 30     JUN 30      MAR 31     DEC 31     SEP 30     JUN 30     MAR 31
                                  --------   --------   ---------   --------   --------   --------   --------   --------
<S>                               <C>        <C>        <C>         <C>        <C>        <C>        <C>        <C>
Net revenue....................   $299,526   $277,789   $266,412    $249,214   $227,299   $216,916   $204,744   $187,637
Income from operations.........     20,836     26,991      9,338      31,076     29,459     27,898     28,681     26,035
Other income...................     14,431
Net income.....................     17,871     14,983     (1,214)     16,515     15,843     15,045     15,504     13,589
Net income per share-basic.....        .18        .15       (.01)        .17        .16        .15        .16        .14
Net income per share-diluted...        .18        .15       (.01)        .16        .16        .15        .15        .14
</TABLE>

                                       50
<PAGE>

PART III

ITEM 10.  DIRECTORS OF THE REGISTRANT

     The Proxy Statement issued in connection with the 2000 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant to
Rule 14a-6(c), contains under the caption, "Election of Directors" information
required by Item 10 of Form 10-K as to directors of the Company and is
incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

     The Proxy Statement issued in connection with the 2000 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant to
Rule 14a-6(c), contains under the caption, "Compensation of Executive Officers"
information required by Item 11 of Form 10-K as to directors and certain
executive officers of the Company and is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The Proxy Statement issued in connection with the 2000 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant to
Rule 14a-6(c), contains under the caption, "Beneficial Ownership of US Oncology,
Inc. Common Stock" information required by Item 12 of Form 10-K as to directors,
certain executive officers and certain beneficial owners of the Company and is
incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The Proxy Statement issued in connection with the 2000 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant to
Rule 14a-6(c), contains under the caption, "Certain Relationships and Related
Transactions" information required by Item 13 of Form 10-K as to directors,
certain executive officers and certain beneficial owners of the Company and is
incorporated herein by reference.


PART IV

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

(a)  The following documents are files as a part of this report:
     1.   Financial Statements:  See Item 8 of this report
     2.   Financial Statement Schedules:  See Item 8 of this report
     3.   Exhibit Index

     Exhibit
       No.                            Description
     -------                           -----------

     2.1   Agreement and Plan of Merger by American Oncology Resources, Inc.,
           Diagnostic Acquisition, Inc. and Physician Reliance Network, Inc.
           (filed as Exhibit 2.1 to the Form 8-K filed with the Securities and
           Exchange Commission on December 15, 1998).

     3.1   Amended and Restated Certificate of Incorporation of the Company,
           (filed as Exhibit 3.1 to, and incorporated by reference from, the
           Company's Form 8-K/A filed June 17, 1999).

     3.2   Amended and Restated By-Laws of the Company, (filed as Exhibit 3.2
           to, and incorporated by reference from, the Company's Form 8-K/A
           filed June 17, 1999).

     4.1   Rights Agreement between the Company and American Stock Transfer &
           Trust Company (incorporated by reference from Form 8-A filed June 2,
           1997).

     4.2   Form of 8.42% Senior Secured Note due 2006.

     10.1  Fourth Amended and Restated Loan Agreement dated as of May 11, 1999
           among the Company and First Union National Bank, as agent and the
           various Lenders named therein (filed as Exhibit 10.1 to Form 10-Q for
           the fiscal quarter ended June 30, 1999 and incorporated herein by
           reference).

                                       51
<PAGE>

  10.2     Participation Agreement among US Oncology Synthetic Real Estate,
           Inc., the Company, First Union National Bank and  the other parties
           identified therein (filed as Exhibit 10.2 to Form 10-K for the year
           ended December 31, 1997 and incorporated herein by reference).

  10.3     Credit Agreement among the Company, First Security Bank, First Union
           National Bank and the other parties identified therein (filed as
           Exhibit 10.3 to Form 10-K for the year ended December 31, 1997 and
           incorporated herein by reference).

  10.4     Third Amendment to Certain Operative Agreements dated as of May 14,
           1999 by and among the Company, various of its subsidiaries, First
           Security Bank, National association as owner trustee, various Lenders
           and Holders (as defined therein) and First Union National Bank as
           Agent (filed as Exhibit 10.2 to the Company's Quarterly Report on
           Form 10-Q for the quarter ended June 30, 1999 and incorporated herein
           by reference).

  10.5*    Chief Executive Officer Stock Option Plan and Agreement (filed as an
           exhibit to the Registration Statement on Form S-1 (Registration No.
           33-90634) and incorporated herein by reference).

  10.6*    Everson Stock Option Plan and Agreement (filed as an exhibit to the
           Registration Statement on Form S-1 (Registration No. 33-90634) and
           incorporated herein by reference).

  10.7     1993 Non-Employee Director Stock Option Plan as amended (filed as
           Exhibit 4.4 to the Registration Statement on Form S-8 (Reg. No.
           333-85855) and incorporated herein by reference).

  10.8     Key Employee Stock Option Plan, as amended (filed as Exhibit 4.4 to
           the Registration Statement on Form S-8 (Registration No. 333-85853)
           and incorporated herein by reference).

  10.9     1993 Affiliate Stock Option Plan as amended (filed as Exhibit 4.4 to
           the Registration Statement on Form S-8 (Registration No. 333-85859)
           and incorporated herein by reference)

  10.10    Physician Reliance Network, Inc. 1994 Stock Option Plan for outside
           directors (filed as Exhibit 4.3 to registration statement on Form S-8
           (Registration No. 333-81069) and incorporated herein by reference).

  10.11    Physician Reliance Network, Inc. 1993 Stock Option Plan (filed as
           Exhibit 4.3 to Registration Statement on Form S-8 (Registration No.
           333-80977) and incorporated herein by reference).

  10.13*   Form of Executive Employment Agreement.

  10.14    Form of Note Purchase Agreement, dated November 24, 1999, executed
           by the Company in favor of the various Purchasers (as defined
           therein).

  21.1     Subsidiaries of the Registrant

  23.1     Consent of PricewaterhouseCoopers LLP

  23.2     Consent of Arthur Andersen, LLP

  27       Financial Data Schedule
  _____________________
     *Indicates agreement related to executive compensation

(b)  Reports on Form 8-K.

     No reports on Form 8-K were filed by the Company during the fourth quarter
     of 1999.

                                       52
<PAGE>

                                  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 THIS 24TH DAY OF MARCH,
2000.

                                    US ONCOLOGY, INC.


                                    By:  /s/ L. Fred Pounds
                                       ---------------------------------------
                                       L. Fred Pounds
                                       Chief Financial Officer and Treasurer


     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 AND IN THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>

            SIGNATURE                        TITLE                     DATE
<S>                                    <C>                         <C>
    /s/ R. Dale Ross                   Chairman of the Board,      March 24, 2000
----------------------------------     Chief Executive Officer
    R. Dale Ross                       and Director

    /s/ L. Fred Pounds                 Chief Financial Officer     March 24, 2000
----------------------------------     and Treasurer [Principal
    L. Fred Pounds                     Financial and Accounting
                                       Officer]

                                       Director                    March 24, 2000
----------------------------------
    Russell L. Carson

    /s/ James E. Dalton                Director                    March 24, 2000
----------------------------------
    James E. Dalton

    /s/ Richard B. Mayor               Director                    March 24, 2000
----------------------------------
    Richard B. Mayor

    /s/ Robert A. Ortenzio             Director                    March 24, 2000
----------------------------------
    Robert A. Ortenzio

    /s/ Edward E. Rogoff, M.D.         Director                    March 24, 2000
----------------------------------
    Edward E. Rogoff, M.D.

    /s/ J. Taylor Crandall             Director                    March 24, 2000
----------------------------------
    J. Taylor Crandall

    /s/ Nancy G. Brinker               Director                    March 24, 2000
----------------------------------
    Nancy G. Brinker

    /s/ Robert W. Daly                 Director                    March 24, 2000
----------------------------------
    Robert W. Daly

    /s/ Boone Powell, Jr.              Director                    March 24, 2000
----------------------------------
    Boone Powell, Jr.

    /s/ Stephen E. Jones, M.D.         Director                    March 24, 2000
----------------------------------
    Stephen E. Jones, M.D.

    /s/ Burton S. Schwartz, M.D.       Director                    March 24, 2000
----------------------------------
    Burton S. Schwartz, M.D.
</TABLE>

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