Form 10-K

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No x

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. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The aggregate market value of the shares of common stock of Radiation Therapy Services, Inc. held by non-affiliates based upon the closing price on June 30, 2006, was approximately $332.2 million.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer as defined in Rule 12b-2 of the Exchange Act. Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨

As of February 1, 2007, the number of outstanding shares of common stock of Radiation Therapy Services, Inc. was 23,427,078.

Portions of the definitive proxy statement for our annual meeting of shareholders, which we expect to file with the Securities and Exchange Commission within 120 days after December 31, 2006, are incorporated by reference into Part III of this report.

We are a provider of radiation therapy services to cancer patients. We own, operate and manage treatment centers focused principally on providing comprehensive radiation treatment alternatives ranging from conventional external beam radiation to newer, technologically-advanced options. We believe we are the largest company in the United States focused principally on providing radiation therapy. We opened our first radiation treatment center in 1983 and as of December 31, 2006, we provided radiation therapy in 66 freestanding and 10 hospital-based treatment centers. In 2006 we acquired 11 treatment centers including 7 in Southeastern Michigan. Our treatment centers are clustered into 24 local markets in 15 states, including Alabama, Arizona, California, Delaware, Florida, Kentucky, Maryland, Massachusetts, Michigan, Nevada, New Jersey, New York, North Carolina, Rhode Island and West Virginia. In our 24 years of operation, we have developed a standardized operating model that enables our treatment centers to deliver high-quality, cost-effective patient care. We have a highly experienced management team and a number of our senior radiation oncologists are nationally recognized by the American College of Radiation Oncology for excellence and leadership in the field of radiation oncology. We also have affiliations with physicians specializing in other areas including gynecological and surgical oncology and urology in a limited number of our markets to strengthen our clinical working relationships.

We completed our initial public offering in June 2004. Our principal executive office is located at 2234 Colonial Boulevard, Fort Myers, Florida and our telephone number is (239) 931-7275. We conduct much of our business under the name of our wholly-owned subsidiary, 21^st Century Oncology, Inc. Our corporate website is www.rtsx.com and we make available copies of our filings with the Securities and Exchange Commission on our website under the heading “Investor Relations” as soon as reasonably practicable after their filing. Our filings are also available on the Securities and Exchange Commission’s EDGAR database at www.sec.gov.

Cancer is the second leading cause of death in the United States, exceeded only by heart disease. In 2007, the American Cancer Society estimates there will be 1.5 million new cancer cases diagnosed in the United States and that cancer will account for one in every four deaths.

Treatment Options. There are many types of cancer, each of which is unique in how it grows and how it responds to treatment. A physician may choose which treatment or combination of treatments is most appropriate. Individuals diagnosed with cancer have four general treatment options:

We focus principally on radiation therapy, which may be used alone or in combination with surgery, chemotherapy or biological therapy.

Radiation Therapy. According to the American Society for Therapeutic Radiology and Oncology, approximately 50% to 60% of patients diagnosed with cancer receive radiation therapy. Radiation therapy is used to treat the most common types of cancer, including prostate, breast, lung and colorectal cancer, and involves exposing the patient to an external or internal source of radiation. Radiation therapy can be used to cure cancer by destroying cancer cells and, when curing cancer is not possible, to shrink tumors and reduce pressure, pain and relieve other symptoms of the cancer to enhance a patient’s quality of life.

Radiation Therapy Technology. The radiation utilized by a radiation oncologist for external beam treatments is produced by a machine known as a linear accelerator. A normal course of external beam radiation therapy ranges from 20 to 40 total treatments, given daily over a four to eight week period. Recent research has produced new, advanced methods for performing radiation treatments. These advanced methods result in more effective treatments that minimize the harm to healthy tissues that surround the tumor and therefore result in fewer side effects.

Radiation Therapy Market. According to the American Society for Therapeutic Radiology and Oncology, it is estimated that there are approximately 4,200 radiation oncologists in the United States and over 2,200 hospital and freestanding radiation therapy centers. We believe that growth in the radiation therapy market will be driven by the following trends:

We believe most of our competitors are not in a position to take full advantage of the opportunities within the market due to barriers to entry, such as significant capital requirements, limited size of operations, lack of depth in important areas such as technology, limited number and experience of physicians, availability of resources and lack of management experience.

Our goal is to provide cancer patients with radiation therapy treatments to maximize clinical outcomes. We focus principally on providing a broad spectrum of radiation therapy in both a patient-friendly environment and cost-effective manner. Our model is designed to maximize our relationships with patients and referring physicians, as well as attract and retain radiation oncologists. We believe that our operating strategy enables us to maximize patient service, quality of care and financial performance. The key elements of our operating strategy are to:

Emphasize Patient Service. We focus on providing our patients with an environment that minimizes the stress and uncertainty of being diagnosed with and treated for cancer. Our goal is to see patients within 24 hours of a referral and begin treatment as soon as possible thereafter. Our radiation oncologist discusses the proposed treatment, the possible side effects and the expected results of treatment with the patient and is available to respond to questions or concerns at any time. Other services we provide include nutritional counseling and assistance with reimbursement from third-party payers. We believe that our focus on patient service enhances the quality of care provided and differentiates us from other radiation therapy providers.

Provide Advanced Radiation Treatment Alternatives. Within our local markets, we are a leader in providing the most advanced radiation therapy alternatives. The advanced radiation treatment alternatives we provide are designed to deliver more effective radiation directly to the tumor while minimizing harm to surrounding tissues and therefore reducing side effects. We have directly benefited from the increasing awareness of cancer patients to these advanced radiation treatment alternatives.

Establish and Maintain Strong Clinical Relationships with Referring Physicians. Our team of radiation oncologists seeks to develop and maintain strong working clinical relationships with referring physicians by:

Recruit and Retain Leading Radiation Oncologists. We recruit radiation oncologists with excellent academic and clinical backgrounds who we believe have potential for professional growth. Our more senior oncologists are members of numerous professional organizations and have developed national reputations for excellence. We attract and retain radiation oncologists by:

Cluster Our Treatment Centers In Local Markets. We cluster treatment centers in our local markets, which enables us to offer our patients a wide array of radiation therapy services in a cost-effective manner. By concentrating our treatment centers within a given geography, we are able to leverage our investment in advanced treatment technologies and our clinical and operational expertise across a larger patient population. Treatment centers in each of our clusters also share support services, such as physics, which leads to lower operating costs per treatment center. We are also able to better leverage our relationships with managed care payers due to the number of patients treated within our local markets.

Continually Enhance Operational Efficiencies. During our 24 years of operations, we have developed a standardized operating model that enables our treatment centers to cost-effectively deliver high-quality patient care. We continue to enhance our operating performance through the use of established protocols and procedures in our clinical operations. Furthermore, we have a centralized approach to business functions such as accounting, administration, billing, collection, marketing and purchasing, which we believe results in significant economies of scale and operating efficiencies.

Our growth strategy is to further increase our market share within our established local markets and selectively expand into new local markets. The key elements of our growth strategy are to:

We plan to increase revenue and profitability at our treatment centers within established local markets by:

We plan to develop treatment centers to expand our existing local markets. We have experience in the design and construction of radiation treatment centers, having developed 22 treatment centers located in California, Florida, Maryland, Nevada and Rhode Island. Our newly-developed treatment centers typically achieve positive cash flow within six to twelve months after opening.

We plan to selectively expand into new local markets through acquisition, new treatment center development and strategic alliances and joint ventures. We evaluate potential expansion into new local markets based on:

Expand Through Acquisitions. We plan to enter new local markets through the acquisition of established treatment centers that provide us the opportunity to leverage our current infrastructure. We seek to acquire treatment centers with leading radiation oncologists, strong clinical referral sources and substantial prospects for growth. We believe that significant opportunity exists to add value to acquired treatment centers by providing advanced radiation therapy technology and services and by implementing our proven operating model, which includes our standardized operating systems. In 2006 we entered 2 new local markets and we acquired 11 treatment centers. We have entered 12 local markets through acquisitions and have acquired 44 treatment centers to date.

Expand Through New Treatment Center Development. Where desirable, we plan to enter new local markets by internally developing new radiation treatment centers. To date, we have established 22 treatment centers in 9 local markets located in California, Florida, Maryland, Nevada and Rhode Island by internally developing new radiation treatment centers. Although we did not internally develop any new treatment centers in 2006, we currently plan to develop new treatment centers in our new local markets in Palm Springs, California and Scottsdale, Arizona, as well as add centers to our existing markets in southwest Florida.

Expand Through Strategic Alliances and Joint Ventures. We also plan to enter new local markets through strategic alliances and joint ventures. To date, we have entered 3 local markets through strategic alliances. These strategic alliances and joint ventures vary by market and can include the provision of administrative services, technology services and professional services or any combination thereof. To date, we have established these arrangements primarily with hospitals seeking our expertise in providing high-quality, cost-effective radiation therapy. Our desire and ability to enter into strategic alliances and joint venture arrangements depends on the regulatory and competitive environment and other economic factors. We have experience in effectively structuring these arrangements in a manner designed to meet the needs of multiple constituencies, including the physicians, the hospitals and regulatory authorities. Strategic alliances and joint ventures provide us with alternative methods to enter attractive new markets.

Expand Through Affiliations with Other Oncologists and Specialists. Healthcare is delivered locally, and in certain local markets, it may be advantageous to fully integrate with key physicians with medical specialties other than radiation oncology. As the practice of oncology and radiation oncology has become increasingly sophisticated, there has been a need to integrate other medical specialties in our operations. High precision radiation therapy requires close cooperation with other physicians, often from the surgical fields, to be able to target and treat tumors. In these instances, we believe we can further strengthen both our clinical working relationships and our standing in the local oncology field. We currently operate as a group practice in a limited number of our markets, principally with other oncologists, including gynecological and surgical oncologists, and, beginning in December 2005, in one local market with urologists. We plan to continue to seek affiliations with physicians having specialties other than radiation oncology where desirable.

We have 24 years of experience operating radiation treatment centers. We have developed an integrated operating model, which is comprised of the following key elements:

Treatment Center Operations. Our treatment centers are designed specifically to deliver high-quality radiation therapy in a patient-friendly environment. A treatment center typically has one or two linear accelerators, with additional rooms for simulators, computed tomography (CT) scans, physician offices, film processing and physics functions. In addition, treatment centers include a patient waiting room, dressing rooms, exam rooms and hospitality rooms, all of which are designed to minimize patient stress.

Cancer patients referred to one of our radiation oncologists are provided with an initial consultation, which includes an evaluation of the patient’s condition to determine if radiation therapy is appropriate, followed by a discussion of the effects of the therapy. If radiation therapy is selected as a method of treatment, the medical staff engages in clinical treatment planning. Clinical treatment planning utilizes x-rays, CT imaging, ultrasound, positron emission tomography (PET) imaging and, in many cases, advanced computerized 3-D conformal imaging programs, in order to locate the tumor, determine the best treatment modality and the treatment’s optimal radiation dosage, and select the appropriate treatment regimen.

Our radiation treatment centers typically range from 5,000 to 12,000 square feet, have a radiation oncologist and a staff ranging between 10 and 25 people, depending on treatment center capacity and patient volume. The typical treatment center staff includes: radiation therapists, who deliver the radiation therapy, medical assistants or medical technicians, an office financial manager, receptionist, transcriptionist, block cutter, file clerk and van driver. In markets where we have more than one treatment center, we can more efficiently provide certain specialists to each treatment center, such as physicists, dosimetrists and engineers who service the treatment centers within that local market.

Standardized Operating Procedures. We have developed standardized operating procedures for our treatment centers in order to ensure that our professionals are able to operate uniformly and efficiently. Our manuals, policies and procedures are refined and modified as needed to increase productivity and efficiency and to provide for the safety of our employees and patients. We believe that our standard operating procedures facilitate the interaction of physicians, physicists, dosimetrists and radiation therapists and permit the interchange of employees among our treatment centers. In addition, standardized procedures facilitate the training of new employees.

Coding and Billing. Coding involves the translation of data from a patient’s medical chart to our billing system for submission to third-party payers. Our treatment centers provide radiation therapy services under approximately 60 different professional and technical codes, which determine reimbursement. Our Medical Director along with our certified professional coders work together to establish coding and billing rules and procedures to be utilized at our radiation treatment centers providing consistency across centers. In each radiation treatment center, our office financial manager is in charge of executing these rules and procedures with the trained personnel located at each treatment center. To provide an external check on the integrity of the coding process, we have retained the services of a third-party consultant to review and assess our coding procedures and processes on a periodic basis. Billing and collection functions are centrally performed by a staff at our executive offices.

Management Information Systems. We utilize centralized management information systems to closely monitor data related to each treatment center’s operations and financial performance. Our management information systems are used to track patient data, physician productivity and coding, as well as billing functions. Our management information systems also provide monthly budget analyses, financial comparisons to prior periods and comparisons among treatment centers, thus enabling management to evaluate the individual and collective performance of our treatment centers. We developed a proprietary image and text retrieval system referred to as the Oncology Wide-Area Network, which facilitates the storage and review of patient medical charts and films. We periodically review our management information systems for possible refinements and upgrading. Our management information systems personnel install and maintain our system hardware, develop and maintain specialized software and are able to integrate the systems of the practices we acquire.

Engineering and Physics Departments. We have established engineering and physics departments which implement standardized procedures for the acquisition, installation, calibration, use, maintenance and replacement of our linear accelerators, simulators and related equipment, as well as to the overall operation of our treatment centers. Our engineers perform preventive maintenance, repairs and installations of our linear accelerators. This enables our treatment centers to maximize equipment productivity and to minimize downtime. In addition, the engineering department maintains a warehouse of linear accelerator parts in order to provide equipment backup. Our physicists monitor and test the accuracy and integrity of each of our linear accelerators on a regular basis to ensure the safety and effectiveness of patient treatment. This testing also helps ensure that the linear accelerators are uniformly and properly calibrated.

Total Quality Management Program. We strive to achieve total quality management throughout our organization. Our treatment centers, either directly or in cooperation with the appropriate professional corporation or hospital, have a standardized total quality management program consisting of programs to monitor the design of the individual treatment of the patient via the evaluation of charts by radiation oncologists, physicists, dosimetrists and radiation therapists and for the ongoing validation of radiation therapy equipment. Each of our new radiation oncologists is assigned to a senior radiation oncologist who reviews each patient’s course of treatment through the patient’s medical chart using our Oncology Wide-Area Network. Furthermore, the data in our patient database is used to evaluate patient outcomes and to modify treatment patterns as necessary to improve patient care. We also utilize patient questionnaires to monitor patient satisfaction with the radiation therapy they receive.

Clinical Research. We believe that a well-managed clinical research program enhances the reputation of our radiation oncologists and our ability to recruit new radiation oncologists. Our treatment centers participate in national cooperative group trials and we have a full-time, in-house research staff to assure compliance with such trials and to perform related outcome analyses. We maintain a proprietary database of information on over 77,000 patients. The data collected includes tumor characteristics such as stage, histology and grade, radiation treatment parameters, other treatments delivered, complications and information on disease recurrences. In addition, follow-up data on disease status and patient survival rates are collected. This data can be used by the radiation oncologists to conduct research and improve patient care. We also assist the radiation oncologists with research in the form of outcome studies. These studies often are presented at international conferences and published in trade journals. To date, our radiation oncologists have published more than 215 articles in peer reviewed journals and related periodicals.

School of Radiation Therapy. In 1989, we founded The Radiation Therapy School for Radiation Therapy Technology, which is accredited by the Joint Review Committee on Education in Radiologic Technology. The school trains individuals to become radiation therapists. Upon graduation, students become eligible to take the national registry examination administered by the American Registry of Radiologic Technologists. Radiation therapists are responsible for administering treatments prescribed by radiation oncologists and monitoring patients while under treatment. Since opening in 1989, the school has produced 97 graduates, 49 of whom are currently employed by us.

Recognizing a growing need for individuals trained in treatment planning, we founded the School for Medical Dosimetry in 2005. Currently, two senior and four junior students are enrolled in this program. Among other duties, the medical dosimetrists, under the supervision of the medical physicist, are responsible for developing an appropriate treatment plan according to the radiation oncologist’s prescribed dose for each patient. Upon graduation, these students are eligible to sit for the certifying examination administered by the Medical Dosimetry Certification Board.

Privacy of Medical Information. We focus on being compliant with regulations under the Health Insurance Portability and Accountability Act of 1996, or HIPAA, regarding privacy, security and transmission of health information. We have implemented such regulations into our existing systems, standards and policies to ensure compliance.

Compliance Program. We have a compliance program that is consistent with guidelines issued by the Office of Inspector General of the Department of Health and Human Services. As part of this compliance program, we adopted a code of ethics and have a full-time compliance officer at the corporate level. Our program includes an anonymous hotline reporting system, compliance training programs, auditing and monitoring programs and a disciplinary system to enforce our code of ethics and other compliance policies. It also includes a process for screening all employees through applicable federal and state databases of sanctioned individuals. Auditing and monitoring activities include claims preparation and submission and also cover issues such as coding, billing, and financial arrangements with physicians. These areas are also the focus of our specialized training programs.

We believe our radiation treatment centers are distinguishable from those of many of our competitors because we are able to offer patients a full spectrum of radiation therapy alternatives, including conventional external beam radiation therapy and advanced services such as image guided radiation therapy, intensity modulated radiation therapy, 3-D conformal treatment planning, brachytherapy (including prostate seed implants and high dose rate remote after-loading of radioactive sources) and stereotactic radiosurgery. Radiation therapy is given in one of two ways: externally or internally, with some cancers treated with both internal and external radiation therapy. Most people undergoing radiation therapy for cancer are treated with external beam radiation therapy. Radiation therapy is used to treat the most common types of cancers including: prostate, breast, lung and colorectal.

External Beam Therapy. External beam radiation therapy involves exposing the patient to an external source of radiation through the use of a machine that directs radiation at the cancer. Machines utilized for external beam radiation therapy vary as some are better for treating cancers near the surface of the skin and others are better for treating cancers deeper in the body. A linear accelerator, the most common type of machine used for external beam radiation therapy, can create both high-energy and low-energy radiation. High-energy radiation is used to treat many types of cancer while low-energy radiation is used to treat some forms of skin cancer. A course of external beam radiation therapy normally ranges from 20 to 40 treatments. Treatments generally are given to a patient once each day with each session lasting for 10 to 20 minutes.

Internal Radiation Therapy. Internal radiation therapy also called brachytherapy, involves the placement of the radiation source inside the body. The source of the radiation (such as radioactive iodine) is sealed in a small holder called an implant and is introduced through the aid of thin wires or plastic tubes. Internal radiation therapy places the radiation source as close as possible to the cancer cells and delivers a higher dose of radiation in a shorter time than is possible with external beam treatments. Internal radiation therapy is typically used for cancers of the lung, esophagus, breast, uterus, thyroid, cervix and prostate. Implants may be removed after a short time or left in place permanently (with the radioactivity of the implant dissipating over a short time frame). Temporary implants may be either low-dose rate or high-dose rate. Low-dose rate implants are left in place for several days; high-dose rate implants are removed after a few minutes.

Since all of our treatment centers are clustered into local markets, our treatment centers are distinguished from those of many of our competitors by our ability to offer advanced radiation therapy services. Our advanced radiation treatment services include: image guided radiation therapy, intensity modulated radiation therapy, 3-D conformal treatment planning, stereotactic radiosurgery and high-dose and low-dose rate brachytherapy.

The following table sets forth the forms of radiation therapy services and treatments that we offer:

Image Guided Radiation Therapy. This technology provides the radiation oncologist with a mechanism to achieve increased precision in radiation therapy targeting. The technique utilizes high-resolution x-rays, CT scans or ultrasound imaging to pinpoint internal tumor sites before treatment and overcomes the limitations of conventional skin marking traditionally used for patient positioning. IGRT represents the convergence of medical imaging and high precision external beam therapy.

Intensity Modulated Radiation Therapy. With IMRT, radiation can be focused at thousands of pinpoints and delivered by varying levels of beam intensity directly to a tumor. Because IMRT uses variable intensity beams, it can be used to treat tumors to higher doses and better spare normal tissue. IMRT technology can be programmed to actually wrap and angle beams of radiation around normal tissue and organs, protecting “good cells” as it destroys the tumor. As such, IMRT patients typically experience fewer side effects, which helps them to maintain their strength and lead more normal lifestyles during treatment.

Respiratory gating. This noninvasive technique allows radiation targeting and delivery to account for respiratory motion in the treatment of cancers in the lung and upper abdomen, protecting healthy structures while directing higher doses of radiation to the tumor. Respiratory gating matches radiation treatment to a patient’s respiratory pattern. When a person breathes, the chest wall moves in and out, and any structures inside the chest and upper abdomen also move. In the past, when radiation beams were aimed at a target inside those areas of the body, movement had to be accounted for by planning a large treatment area. With respiratory gating, radiation treatment is timed to an individual’s breathing pattern with the beam delivered only when the tumor is in the targeted area.

3-D Conformal Treatment Planning. 3-D conformal treatment planning and computer simulation produces an accurate image of the tumor and surrounding organs so that multiple radiation beams can be shaped exactly to the contour of the treatment area. Because the radiation beams are precisely focused, nearby normal tissue is spared from radiation. In 3-D conformal treatment planning, state-of-the-art radiation therapy immobilization devices and computerized dosimetric software are utilized so that CT scans can be directly incorporated into the radiation therapy plan.

Stereotactic Radiosurgery / Stereotactic Radiotherapy. Stereotactic radiosurgery / radiotherapy involves a single or a few intense high-dose fraction(s) of radiation to a small area. This form of therapy typically is used to treat tumors that cannot be treated by other means, such as surgery or chemotherapy. Precise calculations for radiation delivery are required. Treatment also requires extensive clinical planning and is provided in conjunction with the referring surgeon and under the direct supervision of a radiation oncologist and a physicist. Stereotactic radiosurgery often involves very careful immobilization of the patient. For example, cranial radiosurgery might involve the use of a neurosurgical head frame to assure precise tumor localization. With recent advances in imaging technologies, stereotactic technique can now be used to treat extra-cranial cancers to a higher dose with target localization and image verifications. These advances broaden the types of cancers that can be successfully treated with stereotactic radiosurgery.

Brachytherapy. Brachytherapy involves the use of surgical and fiberoptic procedures to place high-dose rate or low-dose rate sources of radiation in the patient’s body. This technique is used for implantation of sources into the prostate, intraluminal therapy within the esophagus and endobronchial therapy within the lungs. Prostate seed implants involve the permanent placement of radioactive pellets within the prostate gland.

High-Dose Rate Remote Brachytherapy. In high-dose rate remote brachytherapy, a computer sends the radioactive source through a tube to a catheter or catheters that have been placed near the tumor by the specialist working with the radiation oncologist. The radioactivity remains at the tumor for only a few minutes. In some cases, several remote treatments may be required, and the catheters may stay in place between treatments. High-dose rate remote brachytherapy is available in most of our local markets and patients receiving this treatment are able to return home after each treatment. This form of brachytherapy has been used to treat cancers of the cervix, breast, lung, biliary tree, prostate and esophagus. MammoSite^{^®} Radiation Therapy is used for partial breast irradiation and works by delivering radiation from inside the lumpectomy cavity directly to the tissue where the cancer is most likely to recur.

Low-Dose Rate Brachytherapy. We are actively involved in radioactive seed implantation for prostate cancer, the most frequent application of low-dose rate brachytherapy. There are several advantages to low-dose rate brachytherapy in the treatment of prostate cancer, including convenience to the patient as the patient generally can resume normal daily activities within hours after the procedure. This procedure is performed by a team of physicians and staff with nearly a decade of experience in prostate brachytherapy. During the procedure, radioactive sources or “seeds” are inserted directly into the prostate, minimizing radiation exposure to surrounding tissues while permitting an escalation of the dose concentrated in the area of the cancer.

All of our markets provide external beam treatments and following is a list of the advanced services and treatments that we offer within each of our 24 local markets as of December 31, 2006:

As of December 31, 2006, we owned, operated and managed 66 freestanding and 10 hospital-based treatment centers in our 24 local markets of which:

Internally Developed. As of December 31, 2006, we operated 22 internally developed treatment centers located in California, Florida, Maryland, Nevada and Rhode Island and although we did not internally develop any new treatment centers in 2006, we plan to continue developing new treatment centers within our local markets. Our team is experienced in the design and construction of radiation treatment centers, having developed 5 treatment centers in the past three years. Our newly-developed treatment centers typically achieve positive cash flow within six to twelve months after opening. The following table sets forth the locations and other information regarding each of our internally developed radiation treatment centers in our local markets as of December 31, 2006:

Acquired Treatment Centers. As of December 31, 2006, we operated 44 acquired treatment centers located in Alabama, Arizona, California, Florida, Kentucky, Maryland, Massachusetts, Michigan, Nevada, New Jersey, New York, North Carolina, and West Virginia. Over the past three years, we have acquired 24 treatment centers of which 11 were acquired in 2006. We plan to continue to enter new markets through the acquisition of established treatment centers that provide us the opportunity to leverage our current infrastructure. As part of our ongoing acquisition strategy, we continually evaluate potential acquisition opportunities.

The following table sets forth the locations and other information regarding each of the acquired radiation treatment centers in our local markets as of December 31, 2006:

Hospital-Based Treatment Centers. As of December 31, 2006, we operated 10 hospital-based treatment centers. We provide services at all of our hospital-based treatment centers pursuant to written agreements with the hospitals. At the Florida treatment centers, we provide the services of our radiation oncologists to the hospital and receive the professional fees charged for such services. We also provide physics and dosimetry services on a fee-for-service basis. In 1998, we entered into a joint venture arrangement with a hospital in Mohawk Valley—New York. We have a 37% interest in the joint venture, which provides equipment for the three treatment centers that provide service in the Mohawk Valley local market. We also manage these treatment centers pursuant to an agreement with the hospital. On May 15, 2002, we executed an administrative services agreement with a hospital in Bronx, New York to provide administrative services and do so for a monthly fixed fee. In addition, effective March 1, 2006, we extended an administrative services agreement with a hospital in Salisbury, Maryland to provide administrative services for a 34-month term for a monthly fixed fee. A professional corporation owned by certain of our shareholders provides the radiation oncologists for this treatment center and the treatment centers in Mohawk Valley—New York. In connection with our hospital-based treatment center services, we provide technical and administrative services. Professional services in New York are provided by physicians employed by a professional corporation owned by certain of our officers, directors and principal shareholders. Professional services consist of services provided by radiation oncologists to patients. Technical services consist of the non-professional services provided by us in connection with radiation treatments administered to patients. Administrative services consist of services provided by us to the hospital-based center. The contracts under which the hospital based treatment centers are provided service are generally three to seven years with terms for renewal. The following table sets forth the locations and other information regarding each of our hospital-based radiation treatment centers in our local markets as of December 31, 2006:

Arizona, Florida, Kentucky, Maryland, New Jersey, and Rhode Island Treatment Centers. In Arizona, Florida, Kentucky, Maryland, New Jersey, and Rhode Island we employ or contract with radiation oncologists and other healthcare professionals. Substantially all of our Florida, Kentucky, Maryland, New Jersey and Rhode Island radiation oncologists have employment agreements with us. While we exercise legal control over radiation oncologists we employ, we do not exercise control over, or otherwise influence, their medical judgment or professional decisions. Such radiation oncologists typically receive a base salary, fringe benefits and may be eligible for an incentive performance bonus. In addition to compensation, we provide our radiation oncologists with uniform benefit plans, such as disability, retirement, life and group health insurance and medical malpractice insurance. The radiation oncologists are required to hold a valid license to practice medicine in the jurisdiction in which they practice and, with respect to inpatient or hospital services, to become a member of the medical staff at the contracting hospital with privileges in radiation oncology. We are responsible for billing patients, hospitals and third-party payers for services rendered by our radiation oncologists. Most of our employment agreements prohibit the physician from competing with us within a defined geographic area and prohibit solicitation of our radiation oncologists, other employees or patients for a period of one to two years after termination of employment.

Alabama, California, Delaware, Massachusetts, Michigan, Nevada, NewYork, North Carolina, and West Virginia Treatment Centers. Many states, including Alabama, California, Delaware, Massachusetts, Michigan, Nevada, New York, North Carolina, and West Virginia prohibit us from employing radiation oncologists. As a result, we operate our treatment centers in such states pursuant to administrative services agreements between professional corporations and our wholly-owned subsidiaries. In the states of Alabama, California and Massachusetts, our treatment centers are operated as physician office practices. We typically provide technical services to these treatment centers in addition to our administrative services. For the years ended December 31, 2005, and 2006 approximately 29.0% and 32.0% of our net patient service revenue, respectively, was generated by professional corporations with which we have administrative services agreements. The professional corporations with which we have administrative services agreements in California, Delaware, Massachusetts, Michigan, Nevada, New York, North Carolina and West Virginia are owned by certain of our executive officers, directors and shareholders, who are licensed to practice medicine in the respective state. In Alabama, the professional corporation with which we have an administrative services agreement is owned by a radiation oncologist licensed to practice medicine in Alabama.

Our administrative services agreements generally obligate us to provide certain treatment centers with equipment, staffing, accounting services, billing and collection services, management, technical and administrative personnel, assistance in managed care contracting and assistance in marketing. Our administrative services agreements typically provide for the professional corporations to pay us a fixed monthly service fee, which represents the fair market value of our services. It also provides for the parties to meet annually to reevaluate the value of our services and establish the fair market value. In Alabama, California, and Nevada we are paid a fee based upon a fixed percentage of global revenue. In Michigan, we are paid a fee based upon a fixed percentage of net income. The terms of our administrative services agreements with professional corporations range from 20 to 25 years and typically renew automatically for additional five-year periods. Under related agreements in certain states, we have the right to designate purchases of shares held by the physician owners of the professional corporations to qualified individuals under certain circumstances.

Our administrative services agreements contain restrictive covenants that preclude the professional corporations from hiring another management services organization for some period after termination. The professional corporations are parties to employment agreements with the radiation oncologists. The terms of these employment agreements typically range from three to five years depending on the physician’s experience. The employment agreements also typically require the radiation oncologists to use their best efforts to network with referring physicians and otherwise contain covenants not to compete.

Our radiation oncologists are primarily referred patients by: primary care physicians, medical oncologists, surgical oncologists, urologists, pulmonologists, neurosurgeons and other physicians within the medical community. Our radiation oncologists are expected to actively develop their referral base by establishing strong clinical relationships with referring physicians. Our radiation oncologists develop these relationships by describing the variety and advanced nature of the therapies offered at our treatment centers, by providing seminars on advanced treatment procedures and by involving the referring physicians in those advanced treatment procedures. Patient referrals to our radiation oncologists also are influenced by managed care organizations with which we actively pursue contractual agreements.

We create standardized educational and informational materials for our treatment centers. In addition, we advertise our treatment centers and radiation oncologists in select markets.

As of December 31, 2006, we employed approximately 1,240 persons. As of December 31, 2006, we were affiliated with 86 radiation oncologists of which 65 are employed by us. We do not employ any radiation oncologists in Alabama, California, Delaware, Massachusetts, Michigan, Nevada, New York, North Carolina or West Virginia. None of our employees is a party to a collective bargaining agreement and we consider our relationship with our employees to be good. There currently is a nationwide shortage of radiation oncologists, medical technicians and other medical support personnel, which makes recruiting and retaining these employees difficult. We provide competitive wages and benefits and offer our employees a professional work environment that we believe helps us recruit and retain the staff we need to operate and manage our treatment centers. In addition to our radiation oncologists we currently employ 11 gynecologic oncologists, 8 surgical oncologists and 17 urologists whose practices complement our business in four markets in Florida and in our Michigan operations.

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

We are subject to claims and legal actions in the ordinary course of business. To cover these claims, we maintain professional malpractice liability insurance and general liability insurance in amounts we believe are sufficient for our operations. We maintain professional malpractice liability insurance that provides primary coverage on a claims-made basis per incident and in annual aggregate amounts. Our professional malpractice liability insurance coverage is provided by Lexington Insurance Company and in turn reinsured by an insurance company owned by certain of our officers and directors. This insurance company is managed by an affiliate of Aon Corporation. The malpractice insurance provided by this insurance company varies in coverage limits for individual physicians. The insurance company also carries excess claims-made coverage through Lloyd’s of London in the aggregate amount of $15.0 million.

In addition, we currently maintain multiple layers of umbrella coverage through our general liability insurance policies in the aggregate amount of $10.0 million. We maintain Directors and Officers liability insurance in the aggregate amount of $25.0 million.

We are subject to various federal, state and local laws and regulations governing the use, discharge and disposal of hazardous materials, including medical waste products. We believe that all of our treatment centers comply with these laws and regulations and we do not anticipate that any of these laws will have a material adverse effect on our operations.

Although our linear accelerators and certain other equipment do not use radioactive or other hazardous materials, our treatment centers do provide specialized treatment involving the implantation of radioactive material in the prostate and other organs. The radioactive sources generally are obtained from, and returned to, the suppliers, which have the ultimate responsibility for their proper disposal. We, however, remain subject to state and federal laws regulating the protection of employees who may be exposed to hazardous material and the proper handling, storage and disposal of that material.

The radiation therapy market is highly fragmented and our business is highly competitive. Competition may result from other radiation oncology practices, solo practitioners, companies in other healthcare industry segments, large physician group practices or radiation oncology physician practice management companies, hospitals and other operators of other radiation treatment centers, some of which may have greater financial and other resources than us.

We have not registered our service marks or any of our logos with the United States Patent and Trademark Office. However, some of our service marks and logos may be subject to other common law intellectual property rights. To date, we have not relied heavily on patents or other intellectual property in operating our business. Nevertheless, some of the information technology purchased or used by us may be patented or subject to other intellectual property rights. As a result,

we may be found to be, or actions may be brought against us alleging that we are, infringing on the trademark, patent or other intellectual property rights of others, which could give rise to substantial claims against us. In the future, we may wish to obtain or develop trademarks, patents or other intellectual property. However, other practices and public entities, including universities, may have filed applications for (or have been issued) trademarks or patents that may be the same as or similar to those developed or otherwise obtained by us or that we may need in the development of our own intellectual property. The scope and validity of such trademark, patent and other intellectual property rights, the extent to which we may wish or need to acquire such rights and the cost or availability of such rights are presently unknown. In addition, we cannot provide assurance that others will not obtain access to our intellectual property or independently develop the same or similar intellectual property to that developed or otherwise obtained by us.

The healthcare industry is highly regulated and the federal and state laws that affect our business are significant. Federal law and regulations are based primarily upon the Medicare and Medicaid programs, each of which is financed, at least in part, with federal money. State jurisdiction is based upon the state’s authority to license certain categories of healthcare professionals and providers and the state’s interest in regulating the quality of healthcare in the state, regardless of the source of payment. The significant areas of federal and state regulatory laws that could affect our ability to conduct our business include those regarding:

A violation of these laws could result in civil and criminal penalties, the refund of monies paid by government and/or private payers, exclusion of the physician, the practice or us from participation in Medicare and Medicaid programs and/or the loss of a physician’s license to practice medicine. We believe we exercise care in our efforts to structure our arrangements and our practices to comply with applicable federal and state laws. We have a Medicare Compliance Committee that periodically reviews our procedures and a Corporate Compliance Program in place to review our practices. Although we believe we are in material compliance with all applicable laws, these laws are complex and a review of our practices by a court, or law enforcement or regulatory authority could result in an adverse determination that could harm our business. Furthermore, the laws applicable to us are subject to change, interpretation and amendment, which could adversely affect our ability to conduct our business.

We estimate that approximately 53%, 50% and 52% of our net patient service revenue for 2004, 2005 and 2006, respectively, consisted of reimbursements from Medicaid and Medicare government programs. In order to be certified to participate in the Medicare and Medicaid programs, each provider must meet applicable regulations of the Department of Health and Human Services (HHS) relating to, among other things, the type of facility, operating policies and procedures, maintenance equipment, personnel, standards of medical care and compliance with applicable state and local laws. Our radiation treatment centers are certified to participate in the Medicare and Medicaid programs.

The federal healthcare laws apply in any case in which we are providing an item or service that is reimbursable under Medicare or Medicaid. The principal federal laws that affect our business include those that prohibit the filing of false or improper claims with the Medicare or Medicaid programs, those that prohibit unlawful inducements for the referral of business reimbursable under Medicare or Medicaid and those that prohibit the provision of certain services by a provider to a patient if the patient was referred by a physician with which the provider has certain types of financial relationships.

False and Other Improper Claims. Under the federal False Claims Act, the government may fine us if we knowingly submit, or participate in submitting, any claims for payment to the federal government that are false or fraudulent, or that contain false or misleading information. A provider can be found liable not only for submitting false claims with actual knowledge, but also for doing so with reckless disregard or deliberate ignorance of such falseness. In addition, knowingly making or using a false record or statement to receive payment from the federal government is also a violation. If we are ever found to have violated the False Claims Act, we could be required to make significant payments to the government (including damages and penalties in addition to the reimbursements previously collected) and could be excluded from participating in Medicare, Medicaid and other federal healthcare programs. Many states have similar false claims statutes. Healthcare fraud is a priority of the United States Department of Justice, Office of Inspector General and the Federal Bureau of Investigation (“FBI”). They have devoted a significant amount of resources to investigating healthcare fraud.

While the criminal statutes generally are reserved for instances evidencing fraudulent intent, the civil and administrative penalty statutes are being applied by the federal government in an increasingly broad range of circumstances. Examples of the type of activity giving rise to liability for filing false claims include billing for services not rendered, misrepresenting services rendered (i.e., mis-coding) and application for duplicate reimbursement. Additionally, the federal government takes the position that a pattern of claiming reimbursement for unnecessary services violates these statutes if the claimant should have known that the services were unnecessary. The federal government also takes the position that claiming reimbursement for services that are substandard is a violation of these statutes if the claimant should have known that the care was substandard. Criminal penalties also are available in the case of claims filed with private insurers if the federal government shows that the claims constitute mail fraud or wire fraud or violate a number of federal criminal healthcare fraud statutes.

State Medicaid agencies also have certain fraud and abuse authority. In addition, private insurers may bring actions under state false claim laws. In certain circumstances, federal and some state laws authorize private whistleblowers to bring false claim or “qui tam” suits on behalf of the government against providers and reward the whistleblower with a portion of any final recovery. In addition, the federal government has engaged a number of nongovernmental-audit organizations to assist it in tracking and recovering false claims for healthcare services.

Governmental investigations and whistleblower “qui tam” suits against healthcare companies have increased significantly in recent years and have resulted in substantial penalties and fines.

We submit thousands of reimbursement claims to Medicare and Medicaid each year and there can be no assurance that there are no errors. We believe our billing and documentation practices comply with applicable laws and regulations in all material respects. Although we monitor our billing practices for compliance with applicable laws, such laws are very complex and we might not have sufficient regulation guidance to assist us in our interpretation of these laws.

HIPAA Criminal Penalties. The Health Insurance Portability and Accountability Act of 1996, or HIPAA, created criminal provisions, which impose criminal penalties for fraud against any healthcare benefit program for theft or embezzlement involving healthcare and for false statements in connection with the payment of any health benefits. HIPAA also provided for broad prosecutorial subpoena authority and authorized property forfeiture upon conviction of a federal healthcare offense. Significantly, the HIPAA provisions apply not only to federal programs, but also to private health benefit programs. HIPAA also broadened the authority of the Office of Inspector General (OIG) to exclude participants from federal healthcare programs. Because of the uncertainties as to how the HIPAA provisions will be enforced, we currently are unable to predict their ultimate impact on us. If the government were to seek any substantial penalties against us, this could have a material adverse effect on us.

HIPAA Civil Penalties. HIPAA broadened the scope of certain fraud and abuse laws by adding several civil statutes that apply to all healthcare services, whether or not they are reimbursed under a federal healthcare program. HIPAA established civil monetary penalties for certain conduct, including upcoding and billing for medically unnecessary goods or services.

HIPAA Administrative Simplifications. HIPAA includes statutory provisions which have authorized the Department of Health and Human Services, or HHS to issue regulations and standards for electronic transactions regarding the privacy and security of healthcare information which apply to us and our treatment centers.

If we fail to comply with the HIPAA regulations, we may be subject to civil monetary penalties enforced by HHS and, in certain circumstances, criminal penalties enforced by the Department of Justice. Under HIPAA, covered entities may be subject to civil monetary penalties in the amount of $100 per violation, capped at a maximum of $25,000 per year for violation of any particular standard. However, civil monetary penalties may not be assessed if a covered entity’s failure to comply is based on reasonable cause and not willful neglect, and the failure to comply is remedied within 30 days, or a longer period determined to be appropriate by HHS. On April 17, 2003, HHS published an interim final rule regarding civil monetary penalties. The rule largely deals with procedural issues regarding imposition of penalties, and does not address substantive issues regarding what violations will result in the imposition of a civil monetary penalty and what factors will be taken into account in determining the amount of a penalty. The U.S. Department of Justice may seek to impose criminal penalties for intentional violations of HIPAA. Criminal penalties under HIPAA vary depending upon the nature of the violation but could include fines of up to $250,000 and/or imprisonment.

The HIPAA regulations related to privacy establish comprehensive federal standards relating to the use and disclosure of individually identifiable health information or protected health information. The privacy regulations establish limits on the use and disclosure of protected health information, provide for patients’ rights, including rights to access, request amendment of, and receive an accounting of certain disclosures of protected health information, and require certain safeguards to protect protected health information. In general, the privacy regulations do not supersede state laws that are more stringent or grant greater privacy rights to individuals. Thus, we must reconcile the privacy regulations and other state privacy laws. Our operations that are regulated by HIPAA were required to be in compliance with the privacy regulations by April 14, 2003. We believe our operations are in material compliance with the privacy regulations, but there can be no assurance that the federal government would determine that we are in compliance.

The HIPAA security regulations establish detailed requirements for safeguarding protected health information that is electronically transmitted or electronically stored. We were required to comply with the security regulations by April 21, 2005. Some of the security regulations are technical in nature, while others may be addressed through policies and procedures. The technical regulations required us to incur significant costs in ensuring that our systems and facilities have in place all of the administrative, technical and physical safeguards to meet all of the implementation specifications. We believe our operations are in material compliance with the security regulations, but there can be no assurance that the federal government would determine that we are in compliance.

The HIPAA transaction standards regulations are intended to simplify the electronic claims process and other healthcare transactions by encouraging electronic transmission rather than paper submission. These regulations provide for uniform standards for data reporting, formatting and coding that we must use in certain transactions with health plans. Our compliance date for these regulations was October 16, 2003 and we implemented or upgraded our computer and information systems as we believed necessary to comply with the new regulations.

Although we believe that we are in material compliance with these HIPAA regulations with which compliance is currently required, the HIPAA regulations are expected to continue to impact us operationally and financially and will pose increased regulatory risk.

Anti-Kickback Law. Federal law commonly known as the “Anti-kickback Statute” prohibits the knowing and willful offer, solicitation, payment or receipt of anything of value (direct or indirect, overt or covert, in cash or in kind) which is intended to induce:

The law has been broadly interpreted by a number of courts to prohibit remuneration which is offered or paid for otherwise legitimate purposes if the circumstances show that one purpose of the arrangement is to induce referrals. Even bona fide investment interests in a healthcare provider may be questioned under the Anti-kickback Statute if the government concludes that the opportunity to invest was offered as an inducement for referrals. The penalties for violations of this law include criminal sanctions including fines and/or imprisonment and exclusion from federal healthcare programs.

The federal government has published regulations that provide “safe-harbors” that protect from prosecution under the Anti-kickback Statute business transactions that meet certain requirements. Failure to meet the requirements of a safe harbor, however, does not necessarily mean a transaction violates the Anti-kickback Statute. There are several aspects of our relationships with physicians to which the Anti-kickback Statute may be relevant. We claim reimbursement from Medicare or Medicaid for services that are ordered, in some cases, by our radiation oncologists who hold shares, or options to purchase shares, of our common stock. In addition, other physicians who are investors in us may refer patients to us for those services. Although neither the existing nor potential investments in us by physicians qualify for protection under the safe harbor regulations, we do not believe that these activities fall within the type of activities the Anti-kickback Statute was intended to prohibit. We also claim reimbursement from Medicare and Medicaid for services referred from other healthcare providers with whom we have financial arrangements. While we believe that these arrangements generally fall within applicable safe harbors or otherwise do not violate the law, there can be no assurance that the government will agree, in which event we could be harmed.

We believe our operations are in material compliance with applicable Medicare and Medicaid and fraud and abuse laws and seek to structure arrangements to comply with applicable safe harbors where reasonably possible. There is a risk however, that the federal government might investigate such arrangements and conclude they violate the Anti-kickback Statute. If our arrangements were found to be illegal, we, the physician groups and/or the individual physicians would be subject to civil and criminal penalties, including exclusion from the participation in government reimbursement programs, and our arrangements would not be legally enforceable, which could materially adversely affect us.

Additionally, the OIG issues advisory opinions that provide advice on whether proposed business arrangements violate the anti-kickback law. In Advisory Opinion 98-4, the OIG addressed physician practice management arrangements. In Advisory Opinion 98-4, the OIG found that administrative services fees based on a percentage of practice revenue may violate the Anti-kickback Statute. This Advisory Opinion suggests that OIG might challenge certain prices below Medicare reimbursement rates or arrangements based on a percentage of revenue. We believe that the fees we charge for our services under the administrative services agreements are commensurate with the fair market value of the services. While we believe our arrangements are in material compliance with applicable law and regulations, OIG’s advisory opinion suggests there is a risk of an adverse OIG finding relating to practices reviewed in the advisory opinion. Any such finding could have a material adverse impact on us.

The Stark Self-Referral Law. We are also subject to federal and state statutes banning payments for referral of patients and referrals by physicians to healthcare providers with whom the physicians have a financial relationship. The Stark Self-Referral Law (Stark II) prohibits a physician from referring a patient to a healthcare provider for certain designated health services reimbursable by Medicare or Medicaid if the physician has a financial relationship with that provider, including an investment interest, a loan or debt relationship or a compensation relationship. The designated services covered by the law include radiology services, infusion therapy, radiation therapy and supplies, outpatient prescription drugs and hospital services, among others. In addition to the conduct directly prohibited by the law, the statute also prohibits “circumvention schemes”, that are designed to obtain referrals indirectly that cannot be made directly. The penalties for violating the law include:

Stark II contains exceptions applicable to our operations. For example, Stark II exempts any referrals of radiation oncologists for radiation therapy if (1) the request is part of a consultation initiated by another physician; and (2) the tests or services are furnished by or under the supervision of the radiation oncologist. We believe the services rendered by our radiation oncologists will comply with this exception.

Some physicians who are not radiation oncologists are employed by companies owned by us or by professional corporations owned by certain of our directors, officers and principal shareholders with which we have administrative services agreements. To the extent these professional corporations employ such physicians, and they are deemed to have made referrals for radiation therapy, their referrals will be permissible under Stark II if they meet a separate exception for employees. The employment exception requires, among other things, that the compensation be consistent with the fair market value of the services provided, and that it not take into account (directly or indirectly) the volume or value of any referrals by the referring physician.

When physician employees who are not radiation oncologists have ownership interests in our company, additional Stark II exceptions may be applied, including the exception for in-office ancillary services. Another potentially applicable Stark II exception is one for physician’s ownership of publicly traded securities in a corporation with shareholders’ equity exceeding $75 million as of the end of the most recent fiscal year.

We believe that our current operations comply in all material respects with Stark II, due to, among other things, various exceptions stated in Stark II and regulations that exempt either the referral or the financial relationship involved. Nevertheless, to the extent physicians affiliated with us make referrals to us and a financial relationship exists between the referring physicians and us, the government might take the position that the arrangement does not comply with Stark II. Any such finding could have a material adverse impact on us.

State Anti-Kickback Laws. Many states in which we operate have laws that prohibit the payment of kickbacks in return for the referral of patients. Some of these laws apply only to services reimbursable under the state Medicaid program. However, a number of these laws apply to all healthcare services in the state, regardless of the source of payment for the service. Although we believe that these laws prohibit payments to referral sources only where a principal purpose for the payment is for the referral, the laws in most states regarding kickbacks have been subjected to limited judicial and regulatory interpretation and, therefore, no assurances can be given that our activities will be found to be in compliance. Noncompliance with such laws could have a material adverse effect upon us and subject us and the physicians involved to penalties and sanctions.

State Self-Referral Laws. A number of states in which we operate, such as Florida, have enacted self-referral laws that are similar in purpose to Stark II. However, each state law is unique. The state laws and regulations vary significantly from state to state, are often vague and, in many cases, have not been widely interpreted by courts or regulatory agencies. For example, some states only prohibit referrals where the physician’s financial relationship with a healthcare provider is based upon an investment interest. Other state laws apply only to a limited number of designated health services. Finally, some states do not prohibit referrals, but merely require that a patient be informed of the financial relationship before the referral is made.

These statutes and regulations generally apply to services reimbursed by both governmental and private payers. Violations of these laws may result in prohibition of payment for services rendered, loss of licenses as well as fines and criminal penalties. State statutes and regulations affecting the referral of patients to healthcare providers range from statutes and regulations that are substantially the same as the federal laws and safe harbor regulations to a simple requirement that physicians or other healthcare professionals disclose to patients any financial relationship the physicians or healthcare professionals have with a healthcare provider that is being recommended to the patients. We believe that we are in compliance with the self-referral law of each state in which we have a financial relationship with a physician. However, adverse judicial or administrative interpretations of any of these laws could have a material adverse effect on our operating results and financial condition. In addition, expansion of our operations into new jurisdictions, or new interpretations of laws in existing jurisdictions, could require structural and organizational modifications of our relationships with physicians to comply with that jurisdiction’s laws. Such structural and organizational modifications could have a material adverse effect on our operating results and financial condition.

Fee-Splitting Laws. Many states in which we operate prohibit the splitting or sharing of fees between physicians and non-physicians. These laws vary from state to state and are enforced by courts and regulatory agencies, each with broad discretion. Most of the states with fee-splitting laws only prohibit a physician from sharing fees with a referral source. However, some states have a broader prohibition against any splitting of a physician’s fees, regardless of whether the other party is a referral source. Some states have interpreted management agreements between entities and physicians as unlawful fee-splitting. In most cases, it is not considered to be fee-splitting when the payment made by the physician is reasonable reimbursement for services rendered on the physician’s behalf.

In certain states, we receive fees from professional corporations owned by certain of our shareholders under administrative services agreements. We believe we structured these fee provisions to comply with applicable state laws relating to fee-splitting. However, there can be no certainty that, if challenged, either us or the professional corporations will be found to be in compliance with each state’s fee-splitting laws, and, if challenged successfully, this could have a material adverse effect upon us.

We believe our arrangements with physicians comply in all material respects with the fee-splitting laws of the states in which we operate. Nevertheless, it is possible regulatory authorities or other parties could claim we are engaged in fee-splitting. If such a claim were successfully asserted in any jurisdiction, our radiation oncologists could be subject to civil and criminal penalties, professional discipline and we could be required to restructure our contractual and other arrangements. Any restructuring of our contractual and other arrangements with physician practices could result in lower revenue from such practices, increased expenses in the operation of such practices and reduced influence over the business decisions of such practices. Alternatively, some of our existing contracts could be found to be illegal and unenforceable, which could result in the termination of those contracts and an associated loss of revenue. In addition, expansion of our operations to other states with fee-splitting prohibitions may require structural and organizational modification to the form of relationships that we currently have with physicians, affiliated practices and hospitals. Any modifications could result in less profitable relationships with physicians, affiliated practices and hospitals, less influence over the business decisions of physicians and affiliated practices and failure to achieve our growth objectives.

Corporate Practice of Medicine. We are not licensed to practice medicine. The practice of medicine is conducted solely by our licensed radiation oncologists and other licensed physicians. The manner in which licensed physicians can be organized to perform and bill for medical services is governed by the laws of the state in which medical services are provided and by the medical boards or other entities authorized by such states to oversee the practice of medicine. Most states prohibit any person or entity other than a licensed professional from holding him, her or itself out as a provider of diagnoses, treatment or care of patients. Many states extend this prohibition to bar companies not wholly-owned by licensed physicians from employing physicians, a practice commonly referred to as the “Corporate Practice of Medicine”, to maintain physician independence and clinical judgment.

Business corporations are generally not permitted under certain state laws to exercise control over the medical judgments or decisions of physicians, or engage in certain practices such as fee-splitting with physicians. In states where we are not permitted to own a medical practice, we perform only non-medical and administrative and support services, do not represent to the public or clients that we offer professional medical services and do not exercise influence or control over the practice of medicine.

Corporate Practice of Medicine laws vary widely regarding the extent to which a licensed physician can affiliate with corporate entities for the delivery of medical services. Florida is an example of a state that requires all practicing physicians to meet requirements for safe practice, but it has no provisions setting forth how physicians can be organized. In Florida, it is not uncommon for business corporations to own medical practices. New York, by contrast, prohibits physicians from sharing revenue received in connection with the furnishing of medical care, other than with a partner, employee or associate in a professional corporation, subcontractor or physician consultant relationship. We have developed arrangements which we believe are in compliance with the Corporate Practice of Medicine laws in the states in which we operate.

We believe our operations and contractual arrangements as currently conducted are in material compliance with existing applicable laws. However, we cannot assure you that we will be successful if our existing organization and our contractual arrangements with the professional corporations are challenged as constituting the unlicensed practice of medicine. In addition, we might not be able to enforce certain of our arrangements, including non-competition agreements and transition and stock pledge agreements. While the precise penalties for violation of state laws relating to the corporate practice of medicine vary from state to state, violations could lead to fines, injunctive relief dissolving a corporate offender or criminal felony charges. There can be no assurance that review of our business and the professional corporations by courts or regulatory authorities will not result in a determination that could adversely affect their operations or that the healthcare regulatory environment will not change so as to restrict existing operations or their expansion. In the event of action by any regulatory authority limiting or prohibiting us or any affiliate from carrying on our business or from expanding our operations and our affiliates to certain jurisdictions, structural and organizational modifications of us may be required, which could adversely affect our ability to conduct our business.

Antitrust Laws. In connection with the Corporate Practice of Medicine laws referred to above, certain of the physician practices with which we are affiliated are necessarily organized as separate legal entities. As such, the physician practice entities may be deemed to be persons separate both from us and from each other under the antitrust laws and, accordingly, subject to a wide range of laws that prohibit anticompetitive conduct among separate legal entities. These laws may limit our ability to enter into agreements with separate practices that compete with one another. In addition, where we also are seeking to acquire or affiliate with established and reputable practices in our target geographic markets and any market concentration could lead to antitrust claims.

We believe we are in material compliance with federal and state antitrust laws and intend to comply with any state and federal laws that may affect the development of our business. There can be no assurance, however, that a review of our business by courts or regulatory authorities would not adversely affect the operations of us and our affiliated physician practice entities.

State Licensing. As a provider of radiation therapy services in the states in which we operate, we must maintain current occupational and use licenses for our treatment centers as healthcare facilities and machine registrations for our linear accelerators and simulators. Additionally, we must maintain radioactive material licenses for each of our treatment centers which utilize radioactive sources. We believe that we possess or have applied for all requisite state and local licenses and are in material compliance with all state and local licensing requirements.

Certificate of Need. Many states in which we operate have Certificate of Need (CON) laws that require physicians or health care facilities seeking to initiate or expand services to submit an application to the state. In some states, approval must be obtained before initiating projects requiring capital expenditures above a certain dollar amount, introducing new services and/or expanding services. The CON program is intended to prevent unnecessary duplication of services and can be a competitive process whereby only one proposal among competing applicants who wish to provide a particular health service is chosen or a proposal by one applicant is challenged by another provider who may prevail in getting the state to deny the addition of the service.

In certain states these CON statutes and regulations apply to our related physician corporations and in others it applies to hospitals where we have management agreements or joint venture relationships.

We believe that we have applied for all requisite state CON approvals or notified state authorities as required by statute and are in material compliance with state requirements. There can be no assurance, however, that a review of our business or proposed new practices by regulatory authorities would not adversely affect the operations of us and our affiliated physician practice entities.

Reimbursement. We provide a full range of both professional and technical services. Those services include the initial consultation, clinical treatment planning, simulation, medical radiation physics, dosimetry, treatment devices, special services and clinical treatment management procedures.

The initial consultation is charged as a professional fee for evaluation of the patient prior to the decision to treat the patient with radiation therapy. The clinical treatment planning also is reimbursed as a technical and professional component. Simulation of the patient prior to treatment involves both a technical and a professional component, as the treatment plan is verified with the use of a simulator accompanied by the physician’s approval of the plan. The medical radiation physics, dosimetry, treatment devices and special services also include both professional and technical components. The basic dosimetry calculation is accomplished, treatment devices are specified and approved, and the physicist consults with the radiation oncologist, all as professional and technical components of the charge. Special blocks, wedges, shields, or casts are fabricated, all as a technical and professional component.

The delivery of the radiation treatment from the linear accelerator is a technical charge. The clinical treatment administrative services fee is the professional fee charged weekly for the physician’s management of the patient’s treatment. Global fees containing both professional and technical components also are charged for specialized treatment such as hyperthermia, clinical intracavitary hyperthermia, clinical brachytherapy, interstitial radioelement applications, and remote after-loading of radioactive sources.

Coding and billing for radiation therapy is complex. We maintain a staff of coding professionals responsible for interpreting the services documented on the patients’ charts to determine the appropriate coding of services for billing of

third-party payers. This staff provides coding and billing services for all of our treatment centers except for four treatment centers in New York. In addition, we do not provide coding and billing services to hospitals where we are providing only the professional component of radiation treatment services. We provide training for our coding staff and believe that our coding and billing expertise result in appropriate and timely reimbursement.

Cost Containment. We derived approximately 53%, 50% and 52% of our net patient service revenue for the years ended December 31, 2004, 2005 and 2006, respectively, from payments made by government sponsored healthcare programs, principally Medicare. These programs are subject to substantial regulation by the federal and state governments. Any change in payment regulations, policies, practices, interpretations or statutes that place limitations on reimbursement amounts, or changes in reimbursement coding, or practices could materially and adversely affect our financial condition and results of operations.

In recent years, the federal government has sought to constrain the growth of spending in the Medicare and Medicaid programs. Through the Medicare program, the federal government has implemented a resource-based relative value scale (RBRVS) payment methodology for physician services. RBRVS is a fee schedule that, except for certain geographical and other adjustments, pays similarly situated physicians the same amount for the same services. The RBRVS is adjusted each year and is subject to increases or decreases at the discretion of Congress. Changes in the RBRVS may result in reductions in payment rates for procedures provided by the Company. RBRVS-type payment systems also have been adopted by certain private third-party payers and may become a predominant payment methodology. Broader implementation of such programs could reduce payments by private third-party payers and could indirectly reduce our operating margins to the extent that the cost of providing management services related to such procedures could not be proportionately reduced. To the extent our costs increase, we may not be able to recover such cost increases from government reimbursement programs. In addition, because of cost containment measures and market changes in non-governmental insurance plans, we may not be able to shift cost increases to non-governmental payers. Changes in the RBRVS could result in a reduction from historical levels in per patient Medicare revenue received by us; however, we do not believe such reductions would, if implemented, result in a material adverse effect on us.

In addition to current governmental regulation, both federal and state governments periodically propose legislation for comprehensive reforms affecting the payment for and availability of healthcare services. Aspects of certain of such healthcare proposals, such as reductions in Medicare and Medicaid payments, if adopted, could adversely affect us. Other aspects of such proposals, such as universal health insurance coverage and coverage of certain previously uncovered services, could have a positive impact on our business. It is not possible at this time to predict what, if any, reforms will be adopted by Congress or state legislatures, or when such reforms would be adopted and implemented. As healthcare reform progresses and the regulatory environment accommodates reform, it is likely that changes in state and federal regulations will necessitate modifications to our agreements and operations. While we believe we will be able to restructure in accordance with applicable laws and regulations, we cannot assure that such restructuring in all cases will be possible or profitable.

Although governmental payment reductions have not materially affected us in the past, it is possible that such changes in the future could have a material adverse effect on our financial condition and results of operations. In addition, Medicare, Medicaid and other government sponsored healthcare programs are increasingly shifting to some form of managed care. Additionally, funds received under all healthcare reimbursement programs are subject to audit with respect to the proper billing for physician services. Retroactive adjustments of revenue from these programs could occur. We expect that there will continue to be proposals to reduce or limit Medicare and Medicaid payment for services.

Rates paid by private third-party payers, including those that provide Medicare supplemental insurance, are based on established physician, clinic and hospital charges and are generally higher than Medicare payment rates. Changes in the mix of our patients between non-governmental payers and government sponsored healthcare programs, and among different types of non-government payer sources, could have a material adverse effect on us.

Reevaluations and Examination of Billing. Payers periodically reevaluate the services they cover. In some cases, government payers such as Medicare and Medicaid also may seek to recoup payments previously made for services determined not to be covered. Any such action by payers would have an adverse affect on our revenue and earnings.

Due to the uncertain nature of coding for radiation therapy services, we could be required to change coding practices or repay amounts paid for incorrect practices either of which could have a materially adverse effect on our operating results and financial condition.

Other Regulations. In addition, we are subject to licensing and regulation under federal, state and local laws relating to the collecting, storing, handling and disposal of infectious and hazardous waste and radioactive materials as well as the safety and health of laboratory employees. We believe our operations are in material compliance with applicable federal and state laws and regulations relating to the collection, storage, handling, treatment and disposal of all infectious and hazardous waste and radioactive materials. Nevertheless, there can be no assurance that our current or past operations would be deemed to be in compliance with applicable laws and regulations, and any noncompliance could result in a material adverse effect on us. We utilize licensed vendors for the disposal of such specimen and waste.

In addition to our comprehensive regulation of safety in the workplace, the federal Occupational Safety and Health Administration (OSHA) has established extensive requirements relating to workplace safety for healthcare employees, whose workers may be exposed to blood-borne pathogens, such as HIV and the hepatitis B virus. These regulations require work practice controls, protective clothing and equipment, training, medical follow-up, vaccinations and other measures designed to minimize exposure to, and transmission of, blood-borne pathogens.

Healthcare reform. The healthcare industry continues to attract much legislative interest and public attention. In recent years, an increasing number of legislative proposals have been introduced or proposed in Congress and in some state legislatures that would effect major changes in the healthcare system. Proposals that have been considered include changes in Medicare, Medicaid and other programs, cost controls on hospitals and mandatory health insurance coverage for employees. The costs of implementing some of these proposals would be financed, in part, by reduction in payments to healthcare providers under Medicare, Medicaid, and other government programs. We cannot predict the course of future healthcare legislation or other changes in the administration or interpretation of governmental healthcare programs and the effect that any legislation, interpretation, or change may have on us.

Investing in our common stock involves risk. You should carefully consider the following risks, as well as the other information contained in this 10-K, including our consolidated financial statements and the related notes, before investing in our common stock.

We depend on payments from government Medicare and Medicaid programs for a significant amount of our revenue and our business could be materially harmed by any changes that result in reimbursement reductions.

Our payer mix is highly focused toward Medicare patients due to the high proportion of cancer patients over the age of 65. We estimate that approximately 53%, 50% and 52% of our net patient service revenue for 2004, 2005 and 2006, respectively, consisted of payments from Medicare and Medicaid. These government programs generally reimburse us on a fee-for-service basis based on predetermined government reimbursement rate schedules. As a result of these reimbursement schedules, we are limited in the amount we can record as revenue for our services from these government programs. If our operating costs increase, we will not be able to recover these costs from government payers. Medicare reimbursement rates are determined by a formula which takes into account an industry wide conversion factor (CF) which may change on an annual basis. In 2003, the CF increased by 1.6%; in 2004, it increased by 1.5%; in 2005, the rate increased an additional 1.5%; and in 2006 the CF remained unchanged at the 2005 level. The net result of these changes in the conversion factor in the past several years has not had a significant impact on our business. There can be no assurance that increases will continue, scheduled increases will materialize or decreases will not occur in the future. Changes in the Medicare, Medicaid or similar government programs that limit or reduce the amounts paid to us for any of our services or specific procedures could cause our revenue and profitability to decline.

If payments by managed care organizations and other commercial payers decrease, our revenue and profitability could be adversely affected.

We estimate that approximately 46%, 47% and 46% of our net patient service revenue for 2004, 2005 and 2006, respectively, was derived from commercial payers such as managed care organizations and private health insurance programs. These commercial payers generally pay us for the services rendered to an insured patient based upon predetermined rates. Managed care organizations typically pay at lower rates than private health insurance programs. While commercial payer rates are generally higher than government program reimbursement rates, commercial payer rates are based in part on Medicare reimbursement rates and when Medicare rates are lowered, commercial rates are often lowered as well. If managed care organizations and other private insurers reduce their rates or we experience a significant shift in our revenue mix toward additional managed care payers or Medicare or Medicaid reimbursements, then our revenue and profitability will decline and our operating margins will be reduced. Any inability to maintain suitable financial arrangements with commercial payers could have a material adverse impact on our business.

We have potential conflicts of interest relating to our related party transactions which could harm our business.

We have potential conflicts of interest relating to existing agreements we have with certain of our directors, officers, principal shareholders, shareholders and employees. In 2004, 2005 and 2006, we paid an aggregate of $8.1 million, $7.3 million and $11.8 million, respectively under our related party agreements and we received $26.7 million, $24.8 million and $35.0 million, respectively pursuant to our administrative service agreements with related parties. Potential conflicts of interest can exist if a related party director or officer has to make a decision that has different implications for us and the related party.

If a dispute arises in connection with any of these agreements, if not resolved satisfactorily to us, our business could be harmed. These agreements include our:

In California, Maryland, Massachusetts, Michigan, Nevada, New York and North Carolina, we have administrative services agreements with professional corporations that are owned by certain of our directors, officers and principal shareholders. Michael J. Katin, M.D., a director, is a licensed physician in the states of California, Michigan, Nevada and North Carolina and we have administrative services agreements with his professional corporations in these states. In the state of New York, our Chairman, Howard M. Sheridan, M.D., our Chief Executive Officer and President, Daniel E. Dosoretz, M.D., our Medical Director, James H. Rubenstein, M.D. and Dr. Katin, are licensed physicians and we have administrative services agreements with their professional corporation. Additionally, Dr. Katin, a principal shareholder, is a licensed physician in the state of Maryland and we have an administrative services agreement with his professional corporation in this state. While we have transition agreements in place in all states except New York that provide us with the ability to designate qualified successor physician owners of the shares held by the physician owners of these professional corporations upon the occurrence of certain events, there can be no assurance that we will be able to enforce them under the laws of the respective states or that they will not be challenged by regulatory agencies. Potential conflicts of interest may arise in connection with the administrative services agreements that may have materially different implications for us and the professional corporations and there can be no assurance that it will not harm us. For example, we are generally paid a fixed annual fee on a monthly basis by the professional corporations for our services, which are generally subject to renegotiation on an annual basis. We may be unable to renegotiate acceptable fees, in which event many of the administrative services agreements provide for binding arbitration. If we are unsuccessful in renegotiations or arbitration this could negatively impact our operating margins or result in the termination of our administrative services agreements.

Additionally, we lease 14 of our properties from ownership groups that consist of certain of our directors, officers, principal shareholders, shareholders and employees. Our lease for the Broadway office in Fort Myers, Florida is on a month-to-month basis and there can be no assurance that it will continue in the future. We may be unable to renegotiate these leases when they come up for renewal on terms acceptable to us, if at all.

In October 2003, we replaced our existing third-party medical malpractice insurance coverage with coverage we obtained from a newly-formed insurance entity, which is owned by physicians including Drs. Katin, Dosoretz, Rubenstein and Sheridan. We renewed this coverage in October 2004, 2005 and 2006 which was approved by the audit committee. We may be unable to renegotiate this coverage at acceptable rates and comparable coverage may not be available from third-party insurance companies. If we are unsuccessful in renewing our malpractice insurance coverage, we may not be able to continue to operate without being exposed to substantial risks of claims being made against us for damage awards we are unable to pay.

All transactions between us and any related party after our June 2004 initial public offering are subject to approval by the audit committee and disputes will be handled by the audit committee. There can be no assurance that the above or any future conflicts of interest will be resolved in our favor. If not resolved, such conflicts could harm our business.

In certain states we depend on administrative services agreements with professional corporations, including related party professional corporations, and if we are unable to continue to enter into them or they are terminated, we could be materially harmed.

Certain states, including Alabama, California, Maryland, Massachusetts, Michigan, Nevada, New York and North Carolina, have laws prohibiting business corporations from employing physicians. Our treatment centers in Alabama, Massachusetts, Michigan, Nevada, New York and North Carolina, operate through administrative services agreements with professional corporations that employ the radiation oncologists who provide professional services at the treatment centers in those states. In 2004, 2005 and 2006, $45.8 million, $62.2 million and $88.2 million, respectively, of our net patient service revenue was derived from administrative services agreements, as opposed to $117.9 million, $155.4 million and $195.9 million from all of our other centers. The professional corporations in these states are currently owned by certain of our directors, officers and principal shareholders, who are licensed to practice medicine in those states. As we enter into new states that will require an administrative services agreement, there can be no assurance that a related party professional corporation, or any professional corporation, will be willing or able to enter into an administrative services agreement. Furthermore, if we enter into an administrative services agreement with an unrelated party there could be an increased risk of differences arising or future termination. We cannot assure you that a professional corporation will not seek to terminate an agreement with us on the basis that it violates the applicable state laws prohibiting the corporate practice of medicine or any other basis nor can we assure you that governmental authorities in those states will not seek termination of these arrangements on the same basis. While we have not been subject to such proceedings in the past, nor are we currently aware of any other corporations that are subject to such proceedings, we could be materially harmed if any state governmental authorities or the professional corporations with which we have an administrative services agreement were to succeed in such a termination.

We depend on recruiting and retaining radiation oncologists and other qualified healthcare professionals for our success and our ability to enforce the non-competition covenants with radiation oncologists.

Our success is dependent upon our continuing ability to recruit, train and retain or affiliate with radiation oncologists, physicists, dosimetrists, radiation therapists and medical technicians. While there is currently a national shortage of these healthcare professionals, we have not experienced significant problems attracting and retaining key personnel and professionals in the recent past. We face competition for such personnel from other healthcare providers, research and academic institutions, government entities and other organizations. In the event we are unable to recruit and retain these professionals, such shortages could have a material adverse effect on our ability to grow. Additionally, many of our senior radiation oncologists, due to their reputations and experience, are very important in the recruitment and education of radiation oncologists. The loss of any such senior radiation oncologists could negatively impact us.

All of our radiation oncologists except eight are employed under employment agreements which, among other provisions, provide that the radiation oncologists will not compete with us (or the professional corporations contracting with us) for a period of time after employment terminates. Such covenants not to compete are enforced to varying degrees from state to state. In most states, a covenant not to compete will be enforced only to the extent that it is necessary to protect the legitimate business interest of the party seeking enforcement, that it does not unreasonably restrain the party against whom enforcement is sought and that it is not contrary to the public interest. This determination is made based upon all the facts and circumstances of the specific case at the time enforcement is sought. It is unclear whether our interests under our administrative services agreements will be viewed by courts as the type of protected business interest that would permit us or the professional corporations to enforce a non-competition covenant against the radiation oncologists. Since our success depends in substantial part on our ability to preserve the business of our radiation oncologists, a determination that these provisions will not be enforced could have a material adverse effect on us.

We depend on our senior management and we may be materially harmed if we lose any member of our senior management.

We are dependent upon the services of our senior management, especially Dr. Dosoretz, our Chief Executive Officer and President, and Dr. Rubenstein, our Medical Director. We have entered into executive employment agreements with Drs. Dosoretz and Rubenstein. The initial term of the employment agreements is three years and they renew automatically for successive two year terms unless 120 days prior notice is given by either party. Because these members of our senior management team have been with us for over 15 years and have contributed greatly to our growth, their services would be very difficult, time consuming and costly to replace. We carry key-man life insurance on these individuals. The loss of key management personnel or our inability to attract and retain qualified management personnel could have a material adverse effect on us. A decision by any of these individuals to leave our employ, to compete with us or to reduce his involvement on our behalf or as to any professional corporation they have an interest in and to which we provide administrative services, would have a material adverse effect on our business.

A significant number of our treatment centers are concentrated in certain states, particularly Florida, which makes us particularly sensitive to regulatory, economic and other conditions in those states.

Our Florida treatment centers accounted for approximately 64%, 57% and 55% of our total revenues during 2004, 2005 and 2006, respectively. Our treatment centers are also concentrated in the states of Michigan, Nevada, New York and North Carolina, none of which individually currently account for more than 15% of our total revenues, but in the aggregate accounted for approximately 23%, 23% and 20% of our total revenues in 2004, 2005 and 2006, respectively. This concentration makes us particularly sensitive to regulatory laws, including those related to false and improper claims, anti-kickback laws, self-referral laws, fee-splitting, corporate practice of medicine, anti-trust, licensing and certificate of need, as well as economic and other conditions which could impact us. If our treatment centers in these states are adversely affected by changes in regulatory, economic and other conditions, our revenue and profitability may decline. In particular, we employ radiation oncologists and other physicians at our Florida treatment centers and if we are restricted or prohibited from doing so in the future it could significantly harm our business.

Our growth strategy depends in part on our ability to acquire and develop additional treatment centers on favorable terms. If we are unable to do so, our future growth could be limited and our operating results could be adversely affected.

We may be unable to identify, negotiate and complete suitable acquisition and development opportunities on reasonable terms. We began operating our first radiation treatment center in 1983, and have grown to provide radiation therapy at 76 treatment centers. We expect to continue to add additional treatment centers in our existing and new local markets. Our growth, however, will depend on several factors, including:

We may not be able to grow our business effectively or successfully implement our growth plans if we are unable to recruit additional management and other personnel.

Our ability to continue to grow our business effectively and successfully implement our growth strategy is highly dependent upon our ability to attract and retain qualified management employees and other key employees. We believe there are a limited number of qualified people in our business and the industry in which we compete. As such, there can be no assurance that we will be able to identify and retain the key personnel that may be necessary to grow our business effectively or successfully implement our growth strategy. If we are unable to attract and retain talented personnel it could limit our ability to grow our business.

We may encounter numerous business risks in acquiring and developing additional treatment centers, and may have difficulty operating and integrating those treatment centers.

Over the past three years we have acquired 24 treatment centers and developed 5 treatment centers. When we acquire or develop additional treatment centers, we may:

Larger acquisitions, such as our recent acquisition of 7 treatment centers in Southeastern Michigan, can substantially increase our potential exposure to business risks. Furthermore, integrating a new treatment center could be expensive and time consuming, and could disrupt our ongoing business and distract our management and other key personnel.

We may from time to time explore acquisition opportunities outside of the United States when favorable opportunities are available to us. In addition to the risks set forth herein, foreign acquisitions involve unique risks including the particular economic, political and regulatory risks associated with the specific country, currency risks, the relative uncertainty regarding laws and regulations and the potential difficulty of integrating operations across different cultures and languages.

We currently plan to continue to acquire and develop new treatment centers in existing and new local markets. We may not be able to structure economically beneficial arrangements in new markets as a result of healthcare laws applicable to such market or otherwise. If these plans change for any reason or the anticipated schedules for opening and costs of development are revised by us, we may be negatively impacted. In addition, we may incur significant transaction fees and expenses even for potential transactions that are not consummated. We may not be able to integrate and staff these new treatment centers. There can be no assurance that these planned treatment centers will be completed or that, if developed, will achieve sufficient patient volume to generate positive operating margins. If we are unable to timely and efficiently integrate an acquired or newly-developed treatment center, our business could suffer.

We may be subject to actions for false claims if we do not comply with government coding and billing rules which could harm our business.

If we fail to comply with federal and state documentation, coding and billing rules, we could be subject to criminal and/or civil penalties, loss of licenses and exclusion from the Medicare and Medicaid programs, which could harm us. We estimate that approximately 53%, 50% and 52% of our net patient service revenue for 2004, 2005 and 2006, respectively, consisted of payments from Medicare and Medicaid programs. In billing for our services to third-party payers, we must follow complex documentation, coding and billing rules. These rules are based on federal and state laws, rules and regulations, various government pronouncements, and on industry practice. Failure to follow these rules could result in potential criminal or civil liability under the federal False Claims Act, under which extensive financial penalties can be imposed. It could further result in criminal liability under various federal and state criminal statutes. We submit thousands of claims for Medicare and other payments and there can be no assurance that there have been no errors. While we carefully and regularly review our documentation, coding and billing practices as part of our compliance program, the rules are frequently vague and confusing and we cannot assure that governmental investigators, private insurers or private whistleblowers will not challenge our practices. Such a challenge could result in a material adverse effect on our business.

State law limitations and prohibitions on the corporate practice of medicine may materially harm our business and limit how we can operate.

State governmental authorities regulate the medical industry and medical practices extensively. Many states have corporate practice of medicine laws which prohibit us from:

In addition, many states impose limits on the tasks a physician may delegate to other staff members. We have administrative services agreements in states that prohibit the corporate practice of medicine such as Alabama, California, Maryland, Massachusetts, Michigan, Nevada, New York and North Carolina. Corporate practice of medicine laws and their interpretation vary from state to state, and regulatory authorities enforce them with broad discretion. If we are in violation of these laws, we could be required to restructure our agreements which could materially harm our business and limit how we operate. In the event the corporate practice of medicine laws of other states would adversely limit our ability to operate, it could prevent us from expanding into the particular state and impact our growth strategy.

If we fail to comply with the laws and regulations applicable to our treatment center operations, we could suffer penalties or be required to make significant changes to our operations.

Our treatment center operations are subject to many laws and regulations at the federal, state and local government levels. These laws and regulations require that our treatment centers meet various licensing, certification and other requirements, including those relating to:

While we attempt to comply with all applicable laws and regulations some of which can be complex and subject to interpretation, our treatment centers may fail to comply with all applicable laws and regulations. If we fail or have failed to comply with applicable laws and regulations, we could suffer civil or criminal penalties, including becoming the subject of cease and desist orders, rejection of the payment of our claims, the loss of our licenses to operate and our ability to participate in government or private healthcare programs.

If we fail to comply with the federal anti-kickback statute, we could be subject to criminal and civil penalties, loss of licenses and exclusion from the Medicare and Medicaid programs, which could materially harm us.

A provision of the Social Security Act, commonly referred to as the federal anti-kickback statute, prohibits the offer, payment, solicitation or receipt of any form of remuneration in return for referring, ordering, leasing, purchasing or arranging for or recommending the ordering, purchasing or leasing of items or services payable by Medicare, Medicaid or any other federally funded healthcare program. The federal anti-kickback statute is very broad in scope and many of its provisions have not been uniformly or definitively interpreted by existing case law or regulations. All of our financial relationships with healthcare providers are potentially implicated by this statute to the extent Medicare or Medicaid referrals are implicated. Financial relationships covered by this statute can include any relationship where remuneration is provided for referrals including payments not commensurate with fair market value, whether in the form of space, equipment leases, professional or technical services or anything else of value. Violations of the federal anti-kickback statute may result in substantial civil or criminal penalties, including criminal fines of up to $25,000, imprisonment of up to five years, civil penalties under the Civil Monetary Penalties Law of up to $50,000 for each violation, plus three times the remuneration involved, civil penalties under the False Claims Act of up to $11,000 for each claim submitted, plus three times the amounts paid for such claims and exclusion from participation in the Medicare and Medicaid programs. The exclusion, if applied to us or one or more of our subsidiaries or affiliate personnel, could result in significant reductions in our revenues and could have a material adverse effect on our business. In addition, most of the states in which we operate, including Florida, have also adopted laws, similar to the federal anti-kickback statute, that prohibit payments to physicians in exchange for referrals, some of which apply regardless of the source of payment for care. These statutes typically impose criminal and civil penalties as well as loss of licenses.

If we fail to comply with the provision of the Civil Monetary Penalties Law relating to inducements provided to patients, we could be subject to civil penalties and exclusion from the Medicare and Medicaid programs, which could materially harm us.

Under a provision of the federal Civil Monetary Penalties Law, civil monetary penalties (and exclusion) may be imposed on any person who offers or transfers remuneration to any patient who is a Medicare or Medicaid beneficiary, when the person knows or should know that the remuneration is likely to induce the patient to receive medical services from a particular provider. This broad provision applies to many kinds of inducements or benefits provided to patients, including complimentary items, services or transportation that are of more than a nominal value. We have reviewed our practices of providing services to our patients, and have structured those services in a manner that we believe complies with the Law and its interpretation by government authorities. We cannot provide assurances, however, that government authorities will not take a contrary view and impose civil monetary penalties and exclude us for past or present practices.

Our business could be materially harmed by future interpretation or implementation of state laws regarding prohibitions on fee-splitting.

Many states, including Florida where 24 of our 76 treatment centers are located, prohibit the splitting or sharing of fees between physicians and non-physicians. These laws vary from state to state and are enforced by courts and regulatory agencies, each with broad discretion. Some states have interpreted certain types of fee arrangements in practice management agreements between entities and physicians as unlawful fee-splitting. We believe our arrangements with physicians comply in all material respects with the fee-splitting laws of the states in which we operate. Nevertheless, it is possible regulatory authorities or other parties could claim we are engaged in fee-splitting. If such a claim were successfully asserted in any jurisdiction, we and our radiation oncologists could be subject to civil and criminal penalties and we could be required to restructure our contractual and other arrangements. Any restructuring of our contractual and other arrangements with physician practices could result in lower revenue from such practices and reduced influence over the business decisions of such practices. Alternatively, some of our existing contracts could be found to be illegal and unenforceable, which could result in the termination of those contracts and an associated loss of revenue. In addition, expansion of our operations to other states with certain types of fee-splitting prohibitions may require structural and organizational modification to the form of relationships that we currently have with physicians, professional corporations and hospitals.

If our operations in New York are found not to be in compliance with New York law, we may be unable to continue or expand our operations in New York.

We estimate that approximately 9%, 7% and 4% of total revenues for 2004, 2005 and 2006, respectively, was derived from our New York operations. New York law prohibits a business corporation such as us from practicing medicine in the state. As a result, we do not employ radiation oncologists or any other physician or licensed health care provider to provide professional services in New York. We do provide certain management and administrative services to health care providers, including physicians. These services and the payments received for them are regulated by New York law. We believe we have structured our services arrangements with health care providers to comply with these laws. New York also prohibits for-profit corporations from owning a licensed healthcare facility. We do not own any interests in any licensed New York health care facilities. New York additionally has regulations concerning the administration of radiation and rules governing financial and referral relationships with physicians who provide radiation therapy services. Although we believe our operations and relationships in New York are in material compliance with these laws, if New York regulatory authorities or a third party asserts a contrary position, our New York operations could be harmed and we may be unable to continue or expand our operations in New York.

If a federal or state agency asserts a different position or enacts new laws or regulations regarding illegal payments under the Medicare, Medicaid or other governmental programs, we may be subject to civil and criminal penalties, experience a significant reduction in our revenue or be excluded from participation in the Medicare, Medicaid or other governmental programs.

Any change in interpretations or enforcement of existing or new laws and regulations could subject our current business practices to allegations of impropriety or illegality, or could require us to make changes in our treatment centers, equipment, personnel, services, pricing or capital expenditure programs, which could increase our operating expenses and have a material adverse effect on our operations or reduce the demand for or profitability of our services.

Additionally, new federal or state laws may be enacted that would cause our relationships with our radiation oncologists to become illegal or result in the imposition of penalties against us or our treatment centers. If any of our business arrangements with our radiation oncologists or other physicians in a position to make referrals of radiation therapy services were deemed to violate the federal anti-kickback statute or similar laws, or if new federal or state laws were enacted rendering these arrangements illegal, our business would be adversely affected.

If we fail to comply with physician self-referral laws as they are currently interpreted or may be interpreted in the future, or if other legislative restrictions are issued, we could incur a significant loss of reimbursement revenue.

We are subject to federal and state statutes and regulations banning payments for referrals of patients and referrals by physicians to healthcare providers with whom the physicians have a financial relationship and billing for services provided pursuant to such referrals if any occur. The federal Stark Law applies to Medicare and Medicaid and prohibits a physician from referring patients for certain services, including radiation therapy, radiology and laboratory services, to an entity with which the physician has a financial relationship. Financial relationship includes both investment interests in an entity and compensation arrangements with an entity. The state laws and regulations vary significantly from state to state, are often vague and, in many cases, have not been interpreted by courts or regulatory agencies. These state laws and regulations generally apply to services reimbursed by both governmental and private payers. Violation of these federal and state laws and regulations may result in prohibition of payment for services rendered, loss of licenses, fines, criminal penalties and exclusion from Medicare and Medicaid programs.

We have financial relationships with our physicians, as defined by the federal Stark Law, in the form of compensation arrangements and ownership of our common stock issued by us in connection with acquisitions. We also have financial arrangements with physicians who refer Medicare and Medicaid patients to us, which relationships are also subject to the Stark Law. We rely on certain exceptions to self-referral laws including an exception for radiation oncologists referrals of radiation therapy services, as well as employee, group practice and in-office ancillary services exceptions, that we believe are applicable to our arrangements. In a limited number of markets we have relationships with non-radiation oncology physicians such as surgical and gynecological oncologists and urologists that are members of a group practice with our radiation oncologists and we rely on the group practice exception to self-referral laws with respect to such relationships. While we believe that our financial relationships with physicians and referral practices are in material compliance with applicable laws and regulations, government authorities might take a contrary position or prohibited referrals may occur. We cannot be

certain that physicians who own our common stock or hold promissory notes will not violate these laws or that we will have knowledge of the identity of all beneficial owners of our common stock. If our financial relationships with physicians were found to be illegal, or if prohibited referrals were found to have been made, we could be subject to civil and criminal penalties, including fines, exclusion from participation in government and private payer programs and requirements to refund amounts previously received from government and private payers. In addition, expansion of our operations to new jurisdictions, or new interpretations of laws in our existing jurisdictions, could require structural and organizational modifications of our relationships with physicians to comply with that jurisdiction’s laws. Such structural and organizational modifications could result in lower profitability and failure to achieve our growth objectives.

Our costs and potential risks have increased as a result of the regulations relating to privacy and security of patient information.

There are numerous federal and state regulations addressing patient information privacy and security concerns. In particular, the federal regulations issued under the Health Insurance Portability and Accountability Act of 1996, or HIPAA, contain provisions that:

Compliance with these regulations requires us to spend money and our management to spend substantial time and resources. We believe that we are in material compliance with the HIPAA regulations with which we are currently required to comply. The HIPAA regulations expose us to increased regulatory risk if we fail to comply. If we fail to comply with the new regulations, we could suffer civil penalties up to $100 per violation with a maximum penalty of $25,000 per each requirement violated per calendar year and criminal penalties with fines up to $250,000 per violation, and our business could be harmed.

Efforts to regulate the construction, acquisition or expansion of healthcare treatment centers could prevent us from developing or acquiring additional treatment centers or other facilities or renovating our existing treatment centers.

Many states have enacted certificate of need laws which require prior approval for the construction, acquisition or expansion of healthcare treatment centers. In giving approval, these states consider the need for additional or expanded healthcare treatment centers or services. In the states of Kentucky, North Carolina and Rhode Island in which we currently operate, certificates of need must be obtained for capital expenditures exceeding a prescribed amount, changes in capacity or services offered and various other matters. Other states in which we now or may in the future operate may also require certificates of need under certain circumstances not currently applicable to us. We cannot assure you that we will be able to obtain the certificates of need or other required approvals for additional or expanded treatment centers or services in the future. In addition, at the time we acquire a treatment center, we may agree to replace or expand the acquired treatment center. If we are unable to obtain required approvals, we may not be able to acquire additional treatment centers or other facilities, expand the healthcare services we provide at these treatment centers or replace or expand acquired treatment centers.

The treatment of cancer patients is subject to potentially revolutionary technological and therapeutic changes. Future technological developments could render our equipment obsolete. We may incur significant costs in replacing or modifying equipment in which we have already made a substantial investment prior to the end of its anticipated useful life. In addition, there may be significant advances in other cancer treatment methods, such as chemotherapy, surgery, biological therapy, or in cancer prevention techniques, which could reduce demand or even eliminate the need for the radiation therapy services we provide.

We maintain a significant amount of debt to further our business or growth strategies.

As of December 31, 2006, we had outstanding debt of $205.2 million. Approximately $123.0 million is available for borrowing in the future under our fourth amended and restated senior secured credit facility. Our significant indebtedness could have adverse consequences and could limit our business as follows:

We may need to raise additional capital, which may be difficult to obtain at attractive prices and which may cause us to engage in financing transactions that adversely affect our stock price.

We may need capital for growth, acquisitions, development, integration of operations and technology and equipment in the future. Any additional capital would be raised through public or private offerings of equity securities or debt financings. Our issuance of additional equity securities could cause dilution to holders of our common stock and may adversely affect the market price of our common stock. The incurrence of additional debt could increase our interest expense and other debt service obligations and could result in the imposition of covenants that restrict our operational and financial flexibility. Additional capital may not be available to us on commercially reasonable terms or at all. The failure to raise additional needed capital could impede the implementation of our operating and growth strategies.

Our information systems are critical to our business and a failure of those systems could materially harm us.

We depend on our ability to store, retrieve, process and manage a significant amount of information, and to provide our radiation treatment centers with efficient and effective accounting and scheduling systems. Our information systems require maintenance and upgrading to meet our needs, which could significantly increase our administrative expenses. Furthermore, if our information systems fail to perform as expected, or if we suffer an interruption, malfunction or loss of information processing capabilities, it could have a material adverse effect on our business.

Our financial results could be adversely affected by the increasing costs of professional liability insurance and by successful malpractice claims.

We are exposed to the risk of professional liability and other claims against us and our radiation oncologists and other physicians and professionals arising out of patient medical treatment at our treatment centers. Our risk exposure as it relates to our non-radiation oncology physicians could be greater than with our radiation oncologists to the extent such non-radiation oncology physicians are engaged in diagnostic activities. Malpractice claims, if successful, could result in substantial damage awards which might exceed the limits of any applicable insurance coverage. Insurance against losses of this type can be expensive and insurance premiums are expected to increase significantly in the near future. Insurance rates vary from state to state, by physician specialty and other factors. The rising costs of insurance premiums, as well as successful malpractice claims against us or one of our physicians, could have a material adverse effect on our financial position and results of operations.

It is also possible that our excess liability and other insurance coverage will not continue to be available at acceptable costs or on favorable terms. In addition, our insurance does not cover all potential liabilities arising from governmental fines and penalties, indemnification agreements and certain other uninsurable losses. For example, from time to time we agree to indemnify third parties, such as hospitals and clinical laboratories, for various claims that may not be covered by insurance. As a result, we may become responsible for substantial damage awards that are uninsured.

Radiation therapy is a highly competitive business in each market in which we operate. Our treatment centers face competition from hospitals, other medical practitioners and other operators of radiation treatment centers. There is a growing trend of physicians in specialties other than radiation oncology, such as urology, entering the radiation treatment business including medical specialties that would otherwise be sources of referrals. If this trend continues it could harm our referrals and our business. Certain of our competitors have longer operating histories and significantly greater financial and other resources than us. Competitors with greater access to financial resources may enter our markets and compete with us. We have recently noticed an increase in multi-state competitors in some of the markets in which we operate. In the event that we are not able to compete successfully, our business may be adversely affected and competition may make it more difficult for us to affiliate with additional radiation oncologists on terms that are favorable to us.

Our financial results may suffer if we have to write-off goodwill or other intangible assets.

A portion of our total assets consist of goodwill and other intangible assets. Goodwill and other intangible assets, net of accumulated amortization, accounted for 27.8% and 36.7% of the total assets on our balance sheet as of December 31, 2005 and 2006, respectively. As a result of our acquisition activity, goodwill significantly increased to approximately $138.8 million from approximately $66.5 million as of December 31, 2005. We may not realize the value of our goodwill or other intangible assets. We expect to engage in additional transactions that will result in our recognition of additional goodwill or other intangible assets. We evaluate on a regular basis whether events and circumstances have occurred that indicate that all or a portion of the carrying amount of goodwill or other intangible assets may no longer be recoverable, and is therefore impaired. Under current accounting rules, any determination that impairment has occurred would require us to write-off the impaired portion of our goodwill or the unamortized portion of our intangible assets, resulting in a charge to our earnings. Such a write-off could have a material adverse effect on our financial condition and results of operations.

Our failure to comply with laws related to hazardous materials could materially harm us.

Our treatment centers provide specialized treatment involving the use of radioactive material in the treatment of the lungs, prostate, breasts, cervix and other organs. The materials are obtained from, and, if not permanently placed in a patient or used up, returned to, a third-party provider of supplies to hospitals and other radiation therapy practices, which has the ultimate responsibility for its proper disposal. We, however, remain subject to state and federal laws regulating the protection of employees who may be exposed to hazardous material and regulating the proper handling, storage and disposal of that material. Although we believe we are in compliance with all applicable laws, a violation of such laws, or the future enactment of more stringent laws or regulations, could subject us to liability, or require us to incur costs that would have a material adverse effect on us.

Because our principal shareholders and management own a large percentage of our common stock, they will collectively be able to determine the outcome of all matters submitted to shareholders for approval regardless of the preferences of our other shareholders.

As of February 1, 2007 certain of our officers beneficially owned approximately 44.6% of our outstanding common stock and serve on our board of directors. As a result, these persons have a significant influence over the outcome of matters requiring shareholder approval including the power to:

Our stock price may fluctuate and you may not be able to resell your shares of our common stock at or above the price you paid.

We became a public company on June 18, 2004 and there can be no assurance that we will be able to maintain an active market for our stock. A number of factors could cause the market price of our common stock be volatile. Some of the factors that could cause our stock price to fluctuate significantly, include:

As a result, you may not be able to resell your shares at or above the price you paid.

Sales of substantial amounts of our common stock, by our senior management shareholders could adversely affect our stock price and limit our ability to raise capital.

As of February 1, 2007, our senior management shareholders beneficially owned approximately 45.0% of our common stock. The market price of our common stock could decline as a result of sales by senior management of substantial amounts of our common stock in the public market or the perception that substantial sales could occur. These sales also may make it more difficult for us to sell common stock in the future to raise capital.

Florida law and certain anti-takeover provisions of our corporate documents and our executive employment agreements could entrench our management or delay or prevent a third party from acquiring us or a change in control even if it would benefit our shareholders.

Our amended and restated articles of incorporation and bylaws and our executive employment agreements contain a number of provisions that may delay, deter or inhibit a future acquisition or change in control that is not first approved by our board of directors. This could occur even if our shareholders receive an attractive offer for their shares or if a substantial number or even a majority of our shareholders believe the takeover may be in their best interest. These provisions are intended to encourage any person interested in acquiring us to negotiate with and obtain approval from our board of directors prior to pursuing a transaction. Provisions that could delay, deter or inhibit a future acquisition or change in control include the following:

These provisions could also discourage bids for our common stock at a premium and cause the market price of our common stock to decline. In addition, these provisions may also entrench our management by preventing or frustrating any attempt by our shareholders to replace or remove our current management.

Other than S Corporation distributions and our special distribution, 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.

Other than S Corporation distributions to our shareholders, including our special distribution in April 2004 prior to our initial public offering, we have 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 in the future, 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. Furthermore, we are currently restricted from paying dividends by the terms of our senior secured credit facility.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results which could subject us to regulatory sanctions, harm our business and operating results and cause the trading price of our stock to decline.

We are required under Section 404 of the Sarbanes-Oxley Act of 2002 to evaluate our internal controls for effectiveness. Effective internal controls are necessary for us to provide reliable financial reports. If we cannot provide reliable financial reports, our business, reputation and operating results could be harmed. We have in the past discovered, and may in the future discover, areas of our internal controls that need improvement. For example, in early May 2005 we identified a material weakness related to our controls over lease accounting, which caused us to restate our prior financial statements. While we have since remediated the material weakness to ensure proper lease accounting in the future and believe that we currently have adequate internal controls, there can be no assurance that we will be able to implement and maintain adequate controls in the future. We cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could subject us to regulatory sanctions, harm our business and operating results or cause us to fail to meet our reporting obligations. Inferior internal controls could also harm our reputation and cause investors to lose confidence in our reported financial information, which could have a negative impact on the trading price of our stock.

We have treatment centers in Florida and other areas that could be disrupted or damaged by hurricanes.

Florida is susceptible to hurricanes and we currently have 24 radiation treatment centers located in Florida. Our Florida centers accounted for approximately 55% of our total revenues during 2006. In 2005, 21 of our treatment centers in South Florida were disrupted by Hurricane Wilma which required us to close all of these centers for a business day. Although none of these treatment centers suffered structural damage as a result of the hurricane, their utility services were disrupted. Our patients and employees were also affected by Hurricane Wilma. While we do not anticipate that Hurricane Wilma will have any long-term impact on our business, our Florida treatment centers and any of our other treatment centers located in other areas that are in the path of a hurricane could be subject to significant hurricane-related disruptions and/or damage in the future. If our treatment centers suffer any significant hurricane-related disruptions and/or damage in the future it could have an adverse affect on our business and financial results. We carry property damage and business interruption insurance on our facilities, but there can be no assurance that it would be adequate to cover all of our hurricane-related losses.

We are not currently in compliance with the NASDAQ requirement that a majority of our board of directors be comprised of independent members.

NASDAQ Marketplace Rules require that the majority of our board of directors be comprised of independent members. As a result of the recent death of independent director James Charles Weeks in early January of this year, we are currently not in compliance with this requirement. We have a cure period from NASDAQ that gives until the later of out next annual shareholders meeting or July 9, 2007 to regain compliance. We plan to add a new independent member to our board as soon as practicable. If we fail to regain compliance in a timely manner, we could face delisting which could adversely impact the trading market for our stock.

Forward looking statements. Some of the information set forth in this report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. We may make other written and oral communications from time to time that contain such statements. Forward-looking statements, including statements as to industry trends, future expectations and other matters that do not relate strictly to historical facts are based on certain assumptions by management. These statement are often identified by the use of words such as “may,” “will,” “expect,” “plans,” “believe,” “ anticipate,” “intend,” “could,” “estimate,” or “continue” and similar expressions or variations, and are based on the beliefs and assumptions of our management based on information then currently available to management. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements include, among others, the risks discussed herein under the heading “Risk Factors.” We caution readers to carefully consider such factors. Further, such forward-looking statements speak only as of the date on which such statements are made and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date of such statements.

Our executive and administrative offices are located in Fort Myers, Florida. These offices contain approximately 33,000 square feet of space. In December 2005, we entered into a lease for additional administrative office space in Florence, Kentucky for approximately 5,600 square feet. These offices will be adequate for our current primary needs, we also believe that we will require significant additional space to meet our future needs and such future expansion is in the preliminary stages.

Our radiation treatment centers typically range in size from 5,000 to 12,000 square feet. We currently operate 76 radiation treatment centers in Alabama, Arizona, California, Delaware, Florida, Kentucky, Maryland, Massachusetts, Michigan, Nevada, New Jersey, New York, North Carolina, Rhode Island and West Virginia. We own the real estate on which 18 of our treatment centers are located. We lease land and space at 48 treatment center locations, of which in 14 of these locations, certain of our directors, officers, principal shareholders, shareholders and employees have an ownership interest. These leases expire at various dates between 2007 and 2044 and 40 of these leases have one or two renewal options of five or 10 years. Also, 10 of our treatment center locations are in hospital-based facilities. We consider all of our offices and treatment centers to be well-suited to our present requirements. However, as we expand to additional treatment centers, or where additional capacity is necessary in a treatment center, additional space will be obtained where feasible.

Information with respect to our treatment centers and our other properties can be found in Item 1 of this report under the caption, “Business—Treatment Centers.”

Information concerning this item is included under the caption Legal Proceedings in Note 14 Commitments and Contingencies of the Notes to Consolidated Financial Statements contained in this report.

No matters were submitted to a vote of the stockholders during the fourth quarter ended December 31, 2006.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is quoted on the NASDAQ Global Select Market under the symbol “RTSX.” The high and low common stock sale prices per share were as follows:

On February 1, 2007, the last reported sales price for our common stock on the NASDAQ Global Select Market was $29.32 per share. As of February 1, 2007, there were 23,427,078 shares of our common stock held by approximately 3,000 beneficial owners and 56 holders of record as reported by our transfer agent.

We have never declared or paid dividends on our common stock since becoming a public company in June 2004. We intend to retain future earnings to finance the growth and development of our business and, accordingly, do not currently intend to declare or pay any dividends on our common stock. Our board of directors will evaluate our future earnings, results of operations, financial condition and capital requirements in determining whether to declare or pay cash dividends. In addition, our credit facilities impose restrictions on our ability to pay dividends. Please refer to the “Liquidity and Capital Resources” section in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report for more information.

We have outstanding stock options and restricted stock shares under our 1997 stock option plan and our 2004 stock incentive plan each of which was adopted by our board of directors and approved by our shareholders prior to our initial public offering. We do not have any equity compensation plans that have not been approved by our shareholders. The following table sets forth information as of December 31, 2006, with respect to our equity compensation plans.

We did not sell any unregistered securities during fiscal 2006 except as otherwise previously disclosed in our quarterly reports on Form 10-Q or our current reports on Form 8-K. We did not repurchase any of our equity securities during the fourth quarter of fiscal 2006.

The historical consolidated statements of income data for the years ended December 31, 2002, 2003, 2004, 2005 and 2006 and the related historical consolidated balance sheet data as of December 31, 2002, 2003, 2004, 2005 and 2006 are derived from our audited consolidated financial statements.

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

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

We own, operate and manage treatment centers focused principally on providing radiation treatment alternatives ranging from conventional external beam radiation to newer, technologically-advanced options. We believe we are the largest company in the United States focused principally on providing radiation therapy. We opened our first radiation treatment center in 1983 and as of December 31, 2006 we provided radiation therapy services in 76 treatment centers. Our treatment centers are clustered into 24 local markets in 15 states, including Alabama, Arizona, California, Delaware, Florida, Kentucky, Maryland, Massachusetts, Michigan, Nevada, New Jersey, New York, North Carolina, Rhode Island, and West Virginia. Of these 76 treatment centers, 22 treatment centers were internally developed, 44 were acquired and 10 involve hospital-based treatment centers. We have recently expanded our affiliation with physician specialties in other areas including gynecological and surgical oncology and urology in a limited number of our local markets to strengthen our clinical working relationships.

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

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

The average revenue per treatment is sensitive to the mix of services used in treating a patient’s tumor. The reimbursement rates set by Medicare and commercial payers tend to be higher for the more advanced treatment technologies, reflecting their higher complexity. This metric is used by management to evaluate the utilization of newer technologies to improve outcomes for patients. A key part of our business strategy is to implement advanced technologies once supporting economics are available. For example, we implemented a pilot stereotactic radiosurgery program using kV x-rays in one of our centers in 2006 and, with expanded reimbursement for the technology available January 1, 2007, we are accelerating the implementation of this new technology across our local markets.

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

For the year ended December 31, 2006, our total revenues and net income grew by 29.4% and 21.4%, respectively, over the prior year. For the year ended December 31, 2006, we had total revenues of $294.0 million and net income of $30.3 million.

The following table summarizes our growth in treatment centers and the local markets in which we operate:

During the first quarter of 2005, we incurred an impairment loss of $1.2 million related to the consolidation of two Yonkers, New York based treatment centers within our Westchester/Bronx local market. During the second quarter of 2005, we incurred expenses of approximately $0.3 million associated with the transition of an internally developed freestanding center to a hospital-based radiation treatment center at Northern Westchester Hospital within our Westchester/Bronx local market.

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

Our revenue growth is primarily driven by entering new markets, increasing the utilization at our existing centers and by benefiting from demographic and population trends in most of our local markets. New centers are added to existing markets based on capacity, convenience, and competitive considerations. Our net income growth is primarily driven by revenue growth and the leveraging of our technical and administrative infrastructures.

For the year ended December 31, 2006, net patient service revenue comprised 96.6% of our total revenues. In a state where we can employ radiation oncologists, we derive our net patient service revenue through fees earned for the provision of the professional and technical component fees of radiation therapy services. In states where we do not employ radiation oncologists, we derive our administrative services fees principally from administrative services agreements with professional corporations. In 34 of our freestanding radiation treatment centers we employ the physicians, and in 32 we operate pursuant to administrative services agreements. In accordance with Financial Accounting Standards Board revised Interpretation No. 46R (FIN No. 46R), we consolidate the operating results of certain of the professional corporations for which we provide administrative services into our own operating results. In 2006, 32.0% of our net patient service revenue was generated by professional corporations with which we have administrative services agreements.

In states which prohibit us from employing physicians, we have long-term administrative services agreements with professional corporations owned by certain of our directors, officers and principal shareholders, who are licensed to practice medicine in such states. We have entered into these administrative services agreements in order to comply with the laws of such states. Our administrative services agreements generally obligate us to provide treatment center facilities, staff and equipment, accounting services, billing and collection services, management and administrative personnel, assistance in managed care contracting and assistance in marketing services. We receive a monthly fee for our services based one of the following models: 1) on a fixed fee arrangement 2) on a percentage of net revenues 3) on a percentage of net income and 4) fixed fee per treatment. Fees related to administrative services agreements that are based on a fixed rate are set at the beginning of each year on the basis of the estimated cost of these services plus a profit margin. We engage an independent consultant to complete a fair market value review of the fees paid by related party professional service corporations to the Company under the terms of these agreements each year. The consulting firm completed its review of 2006 fees under these agreements and determined that the fees are at fair market value. Independent consultants are utilized by the Company’s audit committee in determining fair market fees upon any renewal or for new administrative services agreements with affiliates.

In our net patient service revenue for the years ended December 31, 2006, 2005, and 2004, revenue from the professional-only component of radiation therapy and revenue from the practices of medical specialties other than radiation oncology, comprised approximately 8.9%, 6.9%, and 5.5% respectively of our total revenues.

For the year ended December 31, 2006, other revenue comprised approximately 3.4% of our total revenues. Other revenue is primarily derived from management services provided to hospital radiation therapy departments, technical services provided to hospital radiation therapy departments, billing services provided to non-affiliated physicians and income for equipment leased by joint venture entities.

Medicare is a major funding source for the services we provide and government reimbursement developments can have a material effect on operating performance. These developments include the reimbursement amount for each CPT service (current procedural terminology) that we provide and the specific CPT services covered by Medicare. The Centers for Medicare and Medicaid Services (CMS), the government agency responsible for administering the Medicare program, administers an annual process for considering changes in reimbursement rates and covered services. We have played and will continue to play a role in that process both directly and through the radiation oncology professional societies.

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

We expect to continue to acquire and develop treatment centers in connection with the implementation of our growth strategy. Over the past three years, we have acquired 24 treatment centers and internally developed 5 treatment centers.

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

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

On April 1, 2005, we sold a 49.9% interest in a joint venture that was formed to operate a treatment center located in Berlin, Maryland. The interest was sold to a healthcare enterprise operating in the area for $1.8 million. We realized a gain of approximately $982,000 on the sale of the interest.

On April 1, 2005, we acquired a 60% interest in a single radiation therapy treatment center located in Martinsburg, West Virginia for approximately $0.7 million. We operate the facility as part of our Central Maryland local market. Under the terms of the agreement, we partner with a university hospital system and manage the facility. We have implemented an intensity modulated radiation therapy (IMRT) program and other advanced technologies at the facility.

In May 2005, we acquired five radiation treatment centers located in Clark County, Nevada from Associated Radiation Oncologists, Inc. for $25.9 million, plus a three-year contingent earn-out. We expanded the availability of advanced radiation therapy treatment modalities in the service area. This acquisition expanded our presence in Nevada where we operated four centers before the acquisition.

In June 2005, we acquired four radiation treatment centers located in the markets of Scottsdale, Arizona, Holyoke, Massachusetts, and two centers in Maryland for approximately $16.2 million. This acquisition provided our first entrance into two new local markets in Arizona and Massachusetts. The two centers purchased in Maryland will further expand our presence in our Central Maryland local market. We have expanded the availability of advanced radiation therapy treatment modalities in certain of the service areas.

During the second quarter of 2005 we were awarded a contract to develop a state of the art radiation center at the prestigious Roger Williams Hospital in Providence, Rhode Island. As of June 1, 2005 we were providing professional services at the hospital. We have also obtained a certificate of need and are developing a joint venture freestanding radiation therapy center with the hospital.

In September 2005, we opened for business our South County, Rhode Island treatment center and began treating patients at the facility. The center is our third center opened in our Rhode Island local market.

In November 2005, we opened for business our Palm Springs, California treatment center and began treating patients at the facility. The center was our 68^th treatment center in operation and represented our entrance into our 22^nd local market.

In December 2005, we acquired the assets of a urology practice with four office locations in southwest Florida for approximately $348,000. The urology practice provides additional service and treatment protocols to our patients with prostate cancer and other urological diseases.

In January 2006, we acquired the assets of a radiation treatment center located in Opp, Alabama for approximately $1.8 million. The center purchased in Alabama will further expand our presence in its Southeastern Alabama local market. We expanded the availability of advanced radiation therapy treatment modalities in this service area.

In May 2006, we acquired the assets of a radiation treatment center located in Santa Monica, California for approximately $12.0 million. The center purchased in California will further expand our presence into a second local market in the California area.

In August 2006, we acquired the assets of a radiation treatment center located in Bel Air, Maryland for approximately $6.8 million. The center purchased in Maryland will further expand our presence in our Central Maryland local market.

In September 2006, we acquired the assets of a radiation treatment center located in Beverly Hills, California for approximately $19.1 million. The center purchased in California will further expand our presence into our Los Angeles local market complementing the Santa Monica radiation center we purchased in May 2006.

In November 2006, we acquired a cluster network of radiation treatment centers in Southeastern Michigan for approximately $47.1 million, including real estate of approximately $6.2 million. The acquisition provides us an entrance into a new local market. The seven-facility network consists of two full service facilities, five satellite facilities and Certificates of Need to operate a total of eight linear accelerators.

During the fourth quarter of 2006, we acquired the assets of several urology and surgery practices within southwest Florida to expand our affiliations with other physicians to strengthen our clinical working relationships.

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

In January 2007, we acquired a 67.5% interest in a single radiation therapy treatment center located in Gettysburg Pennsylvania for approximately $750,000 and we also acquired a urology group practice in southwest Florida for approximately $688,000.

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

Since cancer disproportionately affects elderly people, a significant portion of our net patient service revenue is derived from the Medicare program, as well as related co-payments. Medicare reimbursement rates are determined by the Centers for Medicare and Medicaid Services (CMS) and are lower than our normal charges. Medicaid reimbursement rates are typically lower than Medicare rates; Medicaid payments represent approximately 2% of our net patient service revenue.

Medicare reimbursement rates are determined by a formula which takes into account an industry wide conversion factor (CF) multiplied by relative values determined on a per procedure basis (RVUs). The CF and RVUs may change on an annual basis. In 2003, the CF increased by 1.6%; in 2004, it increased by 1.5%; in 2005, the rate increased an additional 1.5%; and in 2006 the CF remained unchanged at the 2005 level. The net result of changes to the CF and RVUs over the last several years has not had a significant impact on our business, but it is difficult to forecast the future impact of any changes. We depend on payments from government sources and any changes in Medicare or Medicaid programs could result in a decrease in our total revenues and net income.

On November 1, 2006, CMS released its final rule for the 2007 Medicare physician fee schedule. The final rule included specific reimbursement codes for stereotactic procedures and provides for a four-year transition to a new practice expense methodology for establishing practice expense values for services paid under the Medicare physician fee schedule. Based on our review of the 2007 fee schedule, we do not expect the fee schedule to have a material impact on the total reimbursement of services provided to Medicare beneficiaries.

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

Most of our commercial revenue is from managed care business and is attributable to contracts where a set fee is negotiated relative to services provided by our treatment centers. We do not have any contracts that individually represent over 10% of our total net patient service revenue. We receive our managed care contracted revenue under two primary arrangements. Approximately 98% of our managed care business is attributable to contracts where a fee schedule is negotiated for services provided at our treatment centers. Approximately 2% of our net patient service revenue is attributable to contracts where we bear utilization risk. Although the terms and conditions of our managed care contracts vary considerably, they are typically for a one-year term and provide for automatic renewals. If payments by managed care organizations and other private third-party payers decrease, then our total revenues and net income could decrease.

Self pay consists of payments for treatments by patients not otherwise covered by third-party payers, such as government or commercial sources. Because the incidence of cancer is much higher in those over the age of 65, most of our patients have access to Medicare or other insurance and therefore the self-pay portion of our business is less than it would be in other circumstances.

Our billing system utilizes a fee schedule for billing patients, third-party payers and government sponsored programs, including Medicare and Medicaid. Fees billed to government sponsored programs, including Medicare and Medicaid, are automatically adjusted to the allowable payment amount at time of billing. For all other payers, the actual contractual adjustment is recorded upon the receipt of payment. As a result, an estimate of contractual allowances is made on a monthly basis to reflect the estimated realizable value of net patient service revenue. The development of the estimate of contractual allowances is based on historical cash collections related to gross charges developed by facility and payer in order to calculate average collection percentages by facility and payer. The development of the collection percentages are applied to gross accounts receivable in determining an estimate of contractual allowances at the end of a reporting period.

Insurance information is requested from all patients either at the time the first appointment is scheduled or at the time of service. A copy of the insurance card is scanned into our system at the time of service so that it is readily available to staff during the collection process. Patient demographic information is collected for both our clinical and billing systems.

It is our policy to collect co-payments from the patient at the time of service. Insurance information is obtained and the patient is informed of their co-payment responsibility prior to the commencement of treatment.

Charges are posted to the billing system by our office financial managers. After charges are posted, edits are performed, any necessary corrections are made and billing forms are generated, then sent electronically to our clearinghouse. Any bills not able to be processed through the clearinghouse are printed and mailed from our central billing office. Statements are automatically generated from our billing system and mailed to the patient on a monthly basis for any amounts still outstanding. Daily, weekly and monthly accounts receivable analysis reports are utilized by staff and management to prioritize accounts for collection purposes, as well as to identify trends and issues. Strategies to respond proactively to these issues are developed at weekly and monthly team meetings. Our write-off process is manual and our process for collecting accounts receivable is dependent on the type of payer as set forth below.

Self-Pay Balances. We administer self-pay account balances through our central billing office and our policy is to send outstanding self-pay patient claims to collection agencies at designated points in the collection process. In some cases monthly payment arrangements are made with patients for the account balance remaining after insurance payments have been applied. These accounts are reviewed monthly to ensure payments continue to be made in a timely manner. Once it has been

determined by our staff that the patient is not responding to our collection attempts, a final notice is mailed. This generally occurs more than 120 days after the date of the original bill. If there is no response to our final notice, after 30 days the account is assigned to a collection agency, as appropriate, recorded as a bad debt and written off. Balances under $50 are written off but not sent to the collection agency. All accounts are specifically identified for write-offs and accounts are written off prior to being submitted to the collection agency.

Medicare, Medicaid and Commercial Payer Balances. Our central billing office staff expedites the payment process from insurance companies and other payers via electronic inquiries, phone calls and automated letters to ensure timely payment. Our billing system generates standard aging reports by date of billing in increments of 30 day intervals. The collection team utilizes these reports to assess and determine the payers requiring additional focus and collection efforts. Our accounts receivable exposure on Medicare, Medicaid and commercial payer balances are largely limited to contractual adjustments. Our exposure to bad debts on balances relating to these types of payers over the years has been de minimus.

In the event of denial of payment, we follow the payer’s standard appeals process, both to secure payment and to lobby the payers, as appropriate, to modify their medical policies to expand coverage for the newer and more advanced treatment services that we provide which, in many cases, is the payer’s reason for denial of payment. If all reasonable collection efforts with these payers have been exhausted by our central billing office staff, the account receivable is written-off to the contractual allowance.

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

Our accounting policies are described in note 2 of the notes to our consolidated financial statements. We believe the following critical accounting policies are important to the portrayal of our financial condition and results of operations and require our management’s subjective or complex judgment because of the sensitivity of the methods, assumptions and estimates used in the preparation of our consolidated financial statements.

Principles of Consolidation. Financial Accounting Standards Board revised Interpretation No. 46R (FIN No. 46R), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, requires a company to consolidate variable interest entities if the company is the primary beneficiary of the activities of those entities. Certain of our radiation oncology practices are variable interest entities as defined by FIN No. 46R, and we have a variable interest in each of these practices through our administrative services agreements. Through our variable interests in these practices, we would absorb a majority of the net losses of these practices, should they occur. Based on these determinations, we have included the radiation oncology practices in our consolidated financial statements for all periods presented. All of our significant intercompany accounts and transactions have been eliminated.

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

We derive a significant portion of our revenues from Medicare, Medicaid and other payers that receive discounts from our standard charges. We must estimate the total amount of these discounts to prepare our consolidated financial statements. The Medicare and Medicaid regulations and various managed care contracts under which these discounts must be calculated are complex and subject to interpretation and adjustment. The development of the estimate of contractual allowances is based

on historical cash collections related to gross charges developed by facility and payer in order to calculate average collection percentages by facility and payer. The development of the collection percentages are applied to gross accounts receivable in determining an estimate of contractual allowances at the end of a reporting period.

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

Adjustments to revenue related to changes in prior period estimates decreased patient service revenue by approximately $1,869,000, $1,149,000, and $5,800,000 for the years ended December 31, 2004, 2005 and 2006, respectively or approximately 1.1%, 0.5%, and 2.0% of the net patient service revenue for the years ended December 31, 2004, 2005 and 2006, respectively.

During 2004, 2005 and 2006, approximately 53%, 50%, and 52%, respectively, of net patient service revenue related to services rendered under the Medicare and Medicaid programs. In the ordinary course of business, we are potentially subject to a review by regulatory agencies concerning the accuracy of billings and sufficiency of supporting documentation of procedures performed. Laws and regulations governing the Medicare and Medicaid programs are extremely complex and subject to interpretation. As a result, there is at least a reasonable possibility that estimates will change by a material amount in the near term.

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

Following is an aging of accounts receivable by payer classification as of December 31, 2006 and 2005:

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

Goodwill and Other Intangible Assets. Goodwill represents the excess of purchase price over the estimated fair market value of net assets we have acquired in business combinations. On June 29, 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, which changed the accounting for goodwill and intangible assets. Under SFAS No. 142, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually, or more frequently if impairment indicators arise, for impairment. No goodwill impairment was recognized for the years ended December 31, 2004, 2005 and 2006.

Intangible assets consist of noncompete agreements and licenses and are amortized over the life of the agreements (which typically range from 2 to 10 years) using the straight-line method.

Impairment of Long-Lived Assets. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be fully recoverable. Assessment of possible impairment of a particular asset is based on our ability to recover the carrying value of such asset based on our estimate of its undiscounted future cash flows. If these estimated future cash flows are less than the carrying value of such asset, an impairment charge is recognized for the amount by which the asset’s carrying value exceeds its estimated fair value. During 2004, we recorded a charge of $1.2 million for the write down to fair value of certain of our analog linear accelerators and treatment simulators. The adjustment to machine inventories was precipitated by the decision to discontinue the installation of this type of equipment in favor of digital machines with migration capability and combination CT-simulators. This amount is included in general and administrative expenses in the statement of income and comprehensive income for the year ended December 31, 2004. During 2005, we incurred an impairment loss of $1.2 million related to the consolidation of two Yonkers, New York based treatment centers within our Westchester/Bronx local market. No impairments were recorded for long-lived assets for the year ended December 31, 2006.

Stock Based Compensation. Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123R, Share-Based Payment (SFAS 123R) for the Company’s 2004 Stock Incentive Plan (2004 Option Plan). The Company previously accounted for the 2004 Option Plan under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations and disclosure requirements established by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), as amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation – Transitions and Disclosure (SFAS 148).

On November 3, 2005, the Board of Directors of the Company, upon the recommendation of the Compensation Committee consisting solely of independent directors, approved the acceleration of vesting of all nonqualified outstanding non-vested stock options previously granted under the Company’s equity compensation plans. As a result of the acceleration, nonqualified non-vested stock options to purchase an aggregate of 1.2 million shares of the Company’s common stock, which would otherwise have vested over periods of two to four years, became immediately exercisable. The affected stock options have an exercise price of $13.00 per share.

The primary purpose of the acceleration of the nonqualified non-vested stock options was to enable the Company to avoid recognizing compensation expense associated with these stock options in future periods in its statement of income and comprehensive income, upon adoption of SFAS No. 123R. Under SFAS No. 123R, the compensation expense associated with these accelerated options that would have been recognized in the Company’s income statement commencing with the implementation of SFAS 123R and continuing through 2009 would have been approximately $2.4 million. Because of the accelerated vesting, the adoption of SFAS No. 123R had no impact on net income.

Certain stock options granted prior to the Company’s initial public offering were valued under SFAS 123 using the minimum value method in the pro-forma disclosures. The minimum value method excludes volatility in the calculation of fair value of stock based compensation. In accordance with SFAS No. 123R, options granted that were valued using the minimum value method must be transitioned to SFAS 123R using the prospective method. This means that these options will continue to be accounted for under the same accounting principles (recognition and measurement) originally applied to those awards in the income statement, which for the Company was APB 25. Additionally, pro forma information previously required under SFAS 123 and SFAS 148 will no longer be presented for these options.

The Company adopted SFAS 123R using the modified prospective transition method for all other stock based compensation awards. Under this transition method, compensation cost recognized in 2006 includes: (a) the compensation cost for all share-based awards granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123 and (b) the compensation cost of all share-based awards granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. Results for prior periods have not been restated.

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

In June 2006 the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” The interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. This interpretation is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the potential impact that the adoption of this interpretation will have on its financial position and results of operations.

The following table presents summaries of results of operations for the three months ended December 31, 2005 and 2006 (dollars in thousands).

The following table presents summaries of results of operations for the years ended December 31, 2004, 2005 and 2006 (dollars in thousands). This information has been derived from the consolidated statements of income and comprehensive income included elsewhere in this Form 10-K.

Total revenues. Total revenues increased by $13.5 million, or 21.1%, from $64.4 million for the three months ended December 31, 2005 to $77.9 million for the three months ended December 31, 2006. Approximately $8.9 million of this increase resulted from our expansion into new local markets during 2005 and 2006 through the acquisition of 11 new treatment centers and the opening of 1 new de novo centers as follows:

Approximately $4.6 million of the total revenue increase was driven by service mix improvements, volume growth and pricing in our existing local markets.

Salaries and benefits. Salaries and benefits increased by $5.7 million, or 16.5%, from $34.5 million for the three months ended December 31, 2005 to $40.2 million for the three months ended December 31, 2006. Salaries and benefits as a percentage of total revenues decreased from 53.6% for the three months ended December 31, 2005 to 51.6% for the three

months ended December 31, 2006. Salaries and benefits consist of all compensation and benefits paid, including the costs of employing our physicians, medical physicists, dosimetrists, radiation therapists, engineers, corporate administration and other treatment center support staff. Additional staffing of personnel and physicians due to our expansion and acquisitions of treatment centers into new local markets during the latter part of 2005 and in 2006 contributed to a $4.5 million increase in salaries and benefits. Within our existing local markets, salaries and benefits increased $1.2 million due to increases in our physician performance based bonus programs, additional staffing and increases in the cost of our health insurance benefits, offset by reductions in our executive bonus program.

Medical supplies. Medical supplies increased by $0.4 million, or 32.6%, from $1.4 million for the three months ended December 31, 2005 to $1.8 million for the three months ended December 31, 2006. Medical supplies as a percentage of total revenues increased from 2.1% for the three months ended December 31, 2005 to 2.4% for the three months ended December 31, 2006. Medical supplies consist of patient positioning devices, radioactive seed supplies, supplies used for other brachytherapy services and pharmaceuticals used in the delivery of radiation therapy treatments and chemotherapy medical supplies. The increase in medical supplies was primarily due to the increased utilization of pharmaceuticals used in connection with the delivery of radiation therapy treatments, pharmaceuticals used in urology services, and chemotherapy medical supplies from new markets and services entered into in 2005 and 2006. These pharmaceuticals and chemotherapy medical supplies are principally reimbursable by third-party payers.

Facility rent expenses. Facility rent expenses increased by $0.5 million, or 21.4%, from $2.1 million for the three months ended December 31, 2005 to $2.6 million for the three months ended December 31, 2006. Facility rent expenses as a percentage of total revenues was 3.3% for the three months ended December 31, 2005 and for the three months ended December 31, 2006. Facility rent expenses consist of rent expense associated with our treatment center locations. The majority of the increase related to the expansion into new local markets in California, Rhode Island and Southeastern Michigan and the acquisition of new treatment centers in existing local markets in Central Maryland and Southeastern Alabama.

Other operating expenses. Other operating expenses increased by $0.8 million or 29.6%, from $2.7 million for the three months ended December 31, 2005 to $3.5 million for the three months ended December 31, 2006. Other operating expenses as a percentage of total revenue increased from 4.2% for the three months ended December 31, 2005 to 4.5% for the three months ended December 31, 2006. Other operating expenses consist of repairs and maintenance of equipment, equipment rental and contract labor. Approximately $0.5 million of the increase was related to the expansion into new local markets in California, Rhode Island and Southeastern Michigan, and the acquisition of new treatment centers in existing local markets in Central Maryland and Southeastern Alabama and $0.3 million increase in our remaining existing local markets, primarily attributable to an increase in the number of service contracts for maintenance of our advanced treatment technologies.

General and administrative expenses. General and administrative expenses increased by $1.1 million or 15.6%, from $6.8 million for the three months ended December 31, 2005 to $7.9 million for the three months ended December 31, 2006. General and administrative expenses principally consist of professional service fees, office supplies and expenses, insurance and travel costs. General and administrative expenses as a percentage of total revenues decreased from 10.6% for the three months ended December 31, 2005 to 10.1% for the three months ended December 31, 2006. The increase of $1.1 million in general and administrative expenses was due to an increase of approximately $0.7 million relating to the growth in the number of our local markets primarily attributable to the additional travel expenses associated with the acquisitions of treatment centers, and approximately $0.5 million in our existing local markets. The increase in the existing local markets was primarily attributable to approximately $0.4 million in malpractice insurance costs. During the fourth quarter of 2005, we wrote off approximately $0.1 million of deferred financing costs as a result of our refinancing under the fourth amended and restated senior credit facility.

Depreciation and amortization. Depreciation and amortization increased by $1.6 million, or 52.3%, from $3.2 million for the three months ended December 31, 2005 to $4.8 million for the three months ended December 31, 2006. Depreciation and amortization expense as a percentage of total revenues increased from 4.9% for the three months ended December 31, 2005 to 6.2% for the three months ended December 31, 2006. An increase in capital expenditures related to our investment in advanced radiation treatment technologies in certain local markets increased our depreciation and amortization by approximately $0.8 million. Approximately $0.4 million of the increase was attributable to the expansion into new local markets in California, Rhode Island and Southeastern Michigan and the acquisition of new treatment centers in existing local markets in Central Maryland and Southeastern Alabama. The remaining portion of the increase was attributable to growth in our existing markets.

Provision for doubtful accounts. Provision for doubtful accounts increased by $1.2 million, or 120.7%, from $1.0 million for the three months ended December 31, 2005 to $2.2 million for the three months ended December 31, 2006. Provision for doubtful accounts as a percentage of total revenues increased from 1.6% for the three months ended December 31, 2005 to 2.9% for the three months ended December 31, 2006. The increase is primarily attributable to the additional provision for doubtful accounts added to the third quarter 2005 estimates as a result of the major acquisitions completed during the second quarter of 2005 and were updated as a result of our review of the provision for doubtful accounts during the fourth quarter of 2006.

Interest expense, net. Interest expense, net increased by $1.6 million, or 90.3%, from $1.7 million for the three months ended December 31, 2005 to $3.3 million for the three months ended December 31, 2006. Interest expense as a percentage of total revenues increased from 2.7% in 2005 to 4.2% in 2006. Included in interest expense, net is an insignificant amount of interest income. The increase is primarily attributable to increased borrowings under our senior credit facility for our expansion into new markets during 2005 and 2006 and borrowings under capital lease financing arrangements for our investment in advanced radiation treatment technologies in certain local markets.

Net income. Net income increased by $0.5 million, or 8.3%, from $6.7 million in net income for the three months ended December 31, 2005 to $7.2 million for the three months ended December 31, 2006. Net income represents 10.4% and 9.2% of total revenues for the three months ended December 31, 2005 and 2006, respectively.

Total revenues. Total revenues increased by $66.7 million, or 29.4%, from $227.3 million in 2005 to $294.0 million in 2006. Approximately $37.4 million of this increase resulted from our expansion into new local markets during 2005 and 2006 through the acquisition of 21 new treatment centers and the opening of 2 new de novo centers as follows:

Approximately $29.3 million of the total revenue increase was driven by service mix improvements, volume growth and pricing in our existing local markets.

Salaries and benefits. Salaries and benefits increased by $31.4 million, or 27.0%, from $116.3 million in 2005 to $147.7 million in 2006. Salaries and benefits as a percentage of total revenues decreased from 51.2% in 2005 to 50.2% in 2006. Additional staffing of personnel and physicians due to our expansion and acquisitions of treatment centers into new local markets during the latter part of 2005 and 2006 contributed to a $20.6 million increase in salaries and benefits. Within our existing local markets, salaries and benefits increased $10.8 million due to increases in our performance based bonus programs, additional staffing and increases in the cost of our health insurance benefits. The $10.8 million increase in existing local markets includes a one-time severance payment to a former executive of approximately $0.5 million.

Medical supplies. Medical supplies increased by $1.9 million, or 33.3%, from $5.7 million in 2005 to $7.6 million in 2006. Medical supplies as a percentage of total revenues increased from 2.5% in 2005 to 2.6% in 2006. The increase in medical supplies was primarily due to the increased utilization of pharmaceuticals used in connection with the delivery of radiation therapy treatments, pharmaceuticals used in urology services, and chemotherapy medical supplies from new markets and services entered into in 2005 and 2006. These pharmaceuticals and chemotherapy medical supplies are principally reimbursable by third-party payers.

Facility rent expenses. Facility rent expenses increased by $1.7 million, or 22.2%, from $7.7 million in 2005 to $9.4 million in 2006. Facility rent expenses as a percentage of total revenues decreased from 3.4% in 2005 to 3.2% in 2006. Facility rent expenses consist of rent expense associated with our treatment center locations. Approximately $1.8 million of the increase related to the expansion into new local markets and $0.2 million increase in our existing local markets, offset by a reduction in facility rent expense of approximately $0.3 million relating to costs for the re-location of our Briarcliff Manor operations to a hospital in our Westchester/Bronx local market during the second quarter of 2005.

Other operating expenses. Other operating expenses increased by $3.1 million or 30.9%, from $9.7 million in 2005 to $12.8 million in 2006. Other operating expenses as a percentage of total revenues was 4.3% in 2005 and 2006. Other operating expenses consist of repairs and maintenance of equipment, equipment rental and contract labor. Approximately $2.3 million of the increase was related to the expansion into new local markets and $0.8 million increase in our remaining existing local markets, primarily attributable to an increase in the number of service contracts for maintenance of our advanced treatment technologies.

General and administrative expenses. General and administrative expenses increased by $6.7 million or 28.3%, from $23.5 million in 2005 to $30.2 million in 2006. General and administrative expenses principally consist of professional service fees, office supplies and expenses, insurance and travel costs. General and administrative expenses as a percentage of total revenues decreased from 10.4% in 2005 to 10.3% in 2006. The increase of $6.7 million in general and administrative expenses was due to an increase of approximately $2.9 million relating to the growth in the number of our local markets, primarily attributable to the additional travel expenses associated with the acquisitions of treatment centers, and approximately $4.3 million in our existing local markets offset by a decrease of $0.5 million due to the write-off of deferred financing costs in March 2005. The increase in the existing local markets was primarily attributable to approximately $2.5 million in malpractice insurance costs and approximately $0.9 million in professional fees.

Depreciation and amortization. Depreciation and amortization increased by $6.2 million, or 56.6%, from $10.8 million in 2005 to $17.0 million in 2006. Depreciation and amortization expense as a percentage of total revenues increased from 4.8% in 2005 to 5.8% in 2006. An increase in capital expenditures related to our investment in advanced radiation treatment technologies in certain local markets increased our depreciation and amortization by approximately $2.5 million. Approximately $3.0 million of the increase was attributable to the expansion into new local markets in California, Rhode Island, West Virginia, Arizona, Massachusetts and Southeastern Michigan and the acquisition of new treatment centers in existing local markets in Central Maryland, Las Vegas, Nevada and Southeastern Alabama. The remaining portion of the increase was attributable to growth in our existing markets.

Provision for doubtful accounts. Provision for doubtful accounts increased by $2.6 million, or 38.8%, from $6.8 million in 2005 to $9.4 million in 2006. Provision for doubtful accounts as a percentage of total revenues increased from 3.0% in 2005 to 3.2% in 2006. Approximately $1.3 million of the increase related to the expansion into new local markets in California, Rhode Island, West Virginia, Arizona, Massachusetts and Southeastern Michigan and the acquisition of new treatment centers in existing local markets in Central Maryland, Las Vegas, Nevada and Southeastern Alabama and the balance within our remaining existing local markets as a result of the growth in our accounts receivable due to services of advanced new technology procedures.

Interest expense, net. Interest expense, net increased by $4.7 million, or 89.7%, from $5.3 million in 2005 to $10.0 million in, 2006. Interest expense as a percentage of total revenues increased from 2.3% in 2005 to 3.4% in 2006. Included in interest expense, net is an insignificant amount of interest income. The increase is primarily attributable to increased borrowings under our senior credit facility for our expansion into new markets during 2005 and 2006 and borrowings under capital lease financing arrangements of approximately $37.4 million for our investment in advanced radiation treatment technologies in certain local markets throughout 2005 and 2006.

Impairment loss. During the first quarter of 2005, we incurred an impairment loss of $1.2 million related to the consolidation of two Yonkers, New York based treatment centers within our Westchester/Bronx local market.

Net income. Net income increased by $5.3 million, or 21.4%, from $25.0 million in 2005 to $30.3 million in 2006. Net income represents 10.9% and 10.3% of total revenues in 2005 and 2006, respectively.

Total revenues. Total revenues increased by $55.9 million, or 32.6%, from $171.4 million in 2004 to $227.3 million in 2005. Approximately $29.8 million of this increase resulted from our expansion into new local markets during 2004 and 2005 through the acquisition of 13 new treatment centers and the opening of 5 new de novo centers as follows:

Approximately $25.1 million of this increase was driven by service mix improvements, volume growth and pricing in our existing local markets. Total revenues in 2005 also included a gain of approximately $1.0 million from the sale of a 49.9% interest in a joint venture that was formed to operate a treatment center located in Berlin, Maryland. In 2005 our professional component fees comprised $15.7 million of our total revenue.

Salaries and benefits. Salaries and benefits increased by $29.2 million, or 33.6%, from $87.1 million in 2004 to $116.3 million in 2005. Salaries and benefits as a percentage of total revenue increased from 50.8% in 2004 to 51.2% in 2005. Additional staffing of personnel and physicians due to our expansion into new local markets during the fourth quarter of 2004 and the acquisitions of new treatment centers acquired in 2005 contributed to a $13.4 million increase in salaries and benefits. Within our existing local markets, salaries and benefits increased $15.8 million due to increases in staffing, pay rates and the cost of our health insurance benefits.

Medical supplies. Medical supplies increased by $2.1 million, or 57.4%, from $3.6 million in 2004 to $5.7 million in 2005. Medical supplies as a percentage of total revenues increased from 2.1% in 2004 to 2.5% in 2005. Medical supplies consist of patient positioning devices, radioactive seed supplies, supplies used for other brachytherapy services and pharmaceuticals used in the delivery of radiation therapy treatments and chemotherapy medical supplies. Approximately $1.3 million of the increase in medical supplies was primarily due to the increased utilization of pharmaceuticals used in connection with the delivery of radiation therapy treatments and chemotherapy medical supplies. These pharmaceuticals and chemotherapy medical supplies are principally reimbursable by third-party payers.

Facility rent expenses. Facility rent expenses increased by $2.3 million, or 44.4%, from $5.4 million in 2004 to $7.7 million in 2005. Facility rent expenses as a percentage of total revenues increased from 3.1% in 2004 to 3.4% in 2005. Approximately $1.5 million of the increase related to the expansion into new local markets in New Jersey, Rhode Island, West Virginia, Arizona and Massachusetts and the acquisition of new treatment centers in existing local markets in Western Maryland and Las Vegas, Nevada. Approximately $0.3 million relates to costs for the re-location of our Briarcliff Manor operations to a hospital in our Westchester/Bronx local market.

Other operating expenses. Other operating expenses increased by $2.1 million or 28.9%, from $7.6 million in 2004 to $9.7 million in 2005. Other operating expenses as a percentage of total revenues decreased from 4.4% in 2004 to 4.3% in 2005. Approximately $1.7 million of the increase related to the expansion into new local markets in New Jersey, Rhode Island, West Virginia, Arizona and Massachusetts and the acquisition of new treatment centers in existing local markets in Western Maryland and Las Vegas, Nevada. Within our existing local markets, other operating expenses increased $0.4 million due to increases in the cost of repairs and maintenance of equipment.

General and administrative expenses. General and administrative expenses increased by $3.8 million, or 19.7%, from $19.7 million in 2004 to $23.5 million in 2005. General and administrative expenses principally consist of professional service fees, office supplies and expenses, insurance and travel costs. General and administrative expenses as a percentage of

total revenues decreased from 11.5% in 2004 to 10.4% in 2005. Approximately $2.3 million of the increase incurred was associated with operating as a public company. These expenses included legal fees, professional service fees including Sarbanes-Oxley compliance costs, accounting fees and increased directors and officers insurance premiums, public relations and board expenses. Additional increases in general and administrative expenses included approximately $1.4 million relating to the growth in the number of our local markets, and $0.9 million in our existing local markets offset by a one time charge of $1.2 million for the write down of certain of our analog Linac and simulator inventory during the third quarter of 2004.

Depreciation and amortization. Depreciation and amortization increased by $4.0 million, or 58.0%, from $6.9 million in 2004 to $10.8 million in 2005. Depreciation and amortization expense as a percentage of total revenues increased from 4.0% in 2004 to 4.8% in 2005. An increase in capital expenditures related to our investment in advanced radiation treatment technologies in certain local markets increased our depreciation and amortization by approximately $1.2 million. Approximately $2.4 million of the increase was attributable to the expansion into new local markets in New Jersey, Rhode Island, West Virginia, Arizona and Massachusetts and the acquisition of new treatment centers in existing local markets in Western Maryland and Las Vegas, Nevada. The remaining portion of the increase was attributable to growth in our existing markets.

Provision for doubtful accounts. Provision for doubtful accounts increased by $0.9 million, or 16.1%, from $5.9 million in 2004 to $6.8 million in 2005. Provision for doubtful accounts as a percentage of total revenues decreased from 3.4% in 2004 to 3.0% in 2005. The increase of $0.9 million in the provision for doubtful accounts was primarily related to the expansion into new local markets in New Jersey, Rhode Island, West Virginia, Arizona and Massachusetts and the acquisition of new treatment centers in existing local markets in Western Maryland and Las Vegas, Nevada.

Interest expense, net. Interest expense, net increased by $1.9 million, or 54.0%, from $3.4 million in 2004 to $5.3 million in 2005. Interest expense as a percentage of total revenues increased from 2.0% in 2004 to 2.3% in 2005. Included in interest expense, net is an insignificant amount of interest income. Approximately $1.6 million of the increase is as a result of the increased borrowings for our expansion into new markets. Approximately $0.4 million of the increase is as a result of an increase in rates and the remainder of the increase is due to interest on additional capital leases entered into in late 2004 and 2005 of approximately $0.5 million, offset by the interest cost savings on the Term B loan of approximately $0.5 million paid off in June 2004.

Net income and pro forma net income. Net income increased by $5.8 million, or 29.9%, from $19.2 million in pro forma net income in 2004 to $25.0 million in 2005. Net income and pro forma net income represent 10.9% and 11.2% of total revenues in 2005 and 2004, respectively. Net income is discussed on a pro forma basis due to a provision for income taxes to reflect the estimated corporate income tax expense based on the assumption the Company was a C corporation at the beginning of 2004 and provides for income taxes utilizing an effective rate of approximately 40.0%.

Our principal capital requirements are for working capital, acquisitions, medical equipment replacement and expansion and de novo treatment center development. We fund acquisitions through draws on our revolving credit facility. Working capital and medical equipment are funded through cash from operations, supplemented, as needed, by five-year fixed rate lease lines of credit. Borrowings under these lease lines of credit are recorded on the balance sheets. The construction of de novo treatment centers is funded directly by third parties and then leased by us. We finance our operations, capital expenditures and acquisitions through a combination of borrowings, cash generated from operations and seller financing.

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

Net cash provided by operating activities for the years ended December 31, 2004, 2005 and 2006 was $28.2 million, $22.3 million and $36.0 million, respectively.

Net cash provided by operating activities decreased by $5.9 million from $28.2 million in 2004 to $22.3 million in 2005. The decrease of $5.9 million was affected by income tax payments made in 2005 of approximately $17.6 million, as compared to tax payments of approximately $6.0 million made in 2004, offset by an increase in our net income. Accounts receivable increased by $21.6 million from the prior year due primarily to our expansion into new local markets in New Jersey, Rhode Island, West Virginia, Arizona, and Massachusetts and in existing local markets in Florida, Maryland and Nevada.

Net cash provided by operating activities increased by $13.7 million from $22.3 million in 2005 to $36.0 million in 2006. Net cash provided by operating activities was affected by an increase in accounts receivable of $12.5 million from the prior year due primarily to our expansion into new local markets in California, Rhode Island, West Virginia, Arizona, Massachusetts, and Michigan and in existing local markets in Florida, Maryland, Nevada and Southeastern Alabama. Cash flow from operating activities was also impacted by approximately $1.2 million in prepayments for maintenance service contracts of our advanced treatment technologies and approximately $3.4 million in prepayments for our medical malpractice premiums.

Net cash used in investing activities for 2004, 2005, and 2006 was $25.2 million, $63.3 million, and $96.6 million, respectively.

Net cash used in investing activities increased by $38.1 million from $25.2 million in 2004 to $63.3 million in 2005. Net cash used in investing activities was impacted by approximately $43.2 million from the acquisitions of radiation center assets during 2005 and approximately $19.8 million in additional purchases of property and equipment related to new equipment and equipment upgrades. In addition, approximately $3.1 million of purchases of marketable securities for investments in municipal bonds and preferred stock during 2005 and proceeds of approximately $1.8 million from the sale of an equity interest in a joint venture contributed to the change in our investing activities.

Net cash used in investing activities increased by $33.3 million from $63.3 million in 2005 to $96.6 million in 2006. Net cash used in investing activities was impacted by approximately $81.0 million from the acquisitions of radiation center assets during 2006 as compared to approximately $43.2 million of acquisitions in 2005. Approximately $19.7 million in additional purchases of property and equipment related to new equipment and equipment upgrades impacted the change in our investing activities. Approximately $5.5 million for the sale of marketable securities during 2006 as compared to the purchases of marketable securities of $3.1 million in 2005 contributed to the change in our investing activities. The sale of the marketable securities in 2006 was used to fund a portion of the purchase price of our Santa Monica facility in May 2006.

Historically, our capital expenditures have been primarily for equipment, leasehold improvements and information technology equipment. Total capital expenditures, inclusive of amounts financed through capital lease arrangements and exclusive of the purchase of radiation treatment centers, were $23.2 million, $34.6 million and $42.4 million in 2004, 2005 and 2006, respectively. Historically, we have funded our capital expenditures with cash flows from operations, borrowings under the senior credit facility and borrowings under our lease line of credit. Over the next 12 to 18 months, we estimate $28 to $37 million in capital spending focused on expanding existing local markets and updating the technology in our centers acquired in 2006. To the extent that we acquire or internally develop new radiation treatment centers, we may need to increase our expected capital expenditures on a proportionate basis.

Net cash used in financing activities for the year ended December 31, 2004 was $0.5 million. Net cash provided by financing activities for the year ended December 31, 2005 and 2006 was $45.0 million and $67.1 million, respectively.

Net cash used in financing activities for the year ended December 31, 2004 was impacted from the borrowing of approximately $59.1 million under our senior secured credit facility, offset by distributions to shareholders of approximately $46.4 million in 2004, which included a one-time distribution of $40.0 million. We incurred approximately $1.6 million in fees as a result of entering into our third amended and restated senior secured credit facility on March 31, 2004. We received net proceeds of approximately $46.8 million from the completion of an initial public offering of our common stock on June 23, 2004. Repayments of debt of approximately $61.3 million included the application of approximately $44.0 of the net proceeds used to repay outstanding indebtedness under our senior secured credit facility and approximately $2.8 million of the net proceeds used to repay outstanding indebtedness to certain of our directors, officers and related parties. The receipt of $2.3 million from the exercise of stock options, the receipt of $0.9 million from payments of notes receivable from shareholders and payments of $1.9 million in loan costs relating to our senior secured credit facility also impacted cash flow from financing activities during 2004.

In the first quarter of 2004, we borrowed approximately $40.0 million under our senior credit facility, for a planned one-time distribution to our shareholders in April 2004 and we borrowed approximately $7.7 million for the acquisition of the two New Jersey centers in the third quarter of 2004 and other borrowings of approximately $11.4 million.

In 2005, we borrowed approximately $50.6 million under our senior secured credit facility, of which $43.2 million was for the acquisition of radiation center assets during the second quarter of 2005. Net cash provided by financing activities was also impacted by approximately $53.2 million reduction in repayments of debt as a result of our receipt of proceeds of approximately $46.8 million in June 2004 from our initial public offering of common stock, which was utilized to repay indebtedness in 2004. Costs relating to the refinancing of the senior secured credit facility were approximately $1.5 million in 2005 as compared to $1.9 million in 2004. The receipt of $2.7 million from the exercise of stock options and the receipt of $1.3 million from payments of notes receivable from shareholders also impacted cash flow from financing activities during 2005. Distributions to shareholders were approximately $46.4 million in 2004; no distributions have been made since our initial public offering in June 2004.

Net cash provided by financing activities increased by $22.1 million from $45.0 million in 2005 to $67.1 million in 2006. The increase in cash provided by financing activities was primarily attributable to the borrowing of approximately $50.6 million for the acquisition of the treatment centers in 2005 compared to $68.5 million in borrowings in 2006. Repayments of debt of approximately $10.3 million in 2006, primarily for capital lease obligations, and prepayments of $1.8 million under our senior secured credit facility impacted cash flow from financing activities during 2006. The receipt of $6.0 million from the exercise of stock options and the tax benefit of $2.9 million from stock option exercise also impacted cash flow from financing activities during 2006. Costs relating to the refinancing of the senior secured credit facility were approximately $1.5 million in 2005.

On March 18, 2005 we amended our third amended and restated senior secured credit facility principally to increase the Term A loan to $35 million and increase our revolving credit commitment from $80 million to $140 million. Per the amendment, the interest rate spreads on the Term A loan and on the revolver were reduced overall by 25 basis points. The amendment extended the maturity date of the Term A loan and the revolver to March 15, 2010.

On April 26, 2005 we amended our third amended and restated senior secured credit facility principally to increase the aggregate amount of permitted acquisitions from $25 million to $45 million and to obtain consent on the purchase of five radiation treatment centers located in Clark County, Nevada from Associated Radiation Oncologists, Inc. As a result of our refinancing in March and April 2005, we wrote-off approximately $579,000 of financing costs capitalized in connection with our previous credit facility.

On December 16, 2005, we entered into a fourth amended and restated senior secured credit facility principally to provide for a $100 million Term B loan. Our fourth amended and restated senior secured credit facility provides, subject to our compliance with covenants and customary conditions, for $290.0 million in borrowings consisting of: (i) a $100 million Term B loan, (ii) a $50 million accordion feature, which allows the us to increase the aggregate principal amount of the Term B loan to $150 million, and (iii) a $140 million revolver. We used the proceeds of the $100 million Term B loan to pay off our pre-existing Term A loan as well as the borrowings drawn on our $140 million revolver.

On November 14, 2006, we amended our fourth amended and restated senior secured credit facility to exclude the acquisition of the radiation centers in Southeastern Michigan from the total permitted acquisition amount threshold of $62 million in 2006, increase the amount of our 2006 permitted capital expenditures to $50 million, and increase the amount of purchase money indebtedness outstanding at any time from $40 million to $70 million.

The Term B loan requires quarterly payments of $250,000 and matures on December 16, 2012. The Term B loan initially bears interest either at LIBOR plus a spread of 200 basis points or a specified base rate plus a spread of 50 basis points, with the opportunity to permanently reduce the spread by 25 basis points on LIBOR and base rate loans after six months, provided our leverage ratio is below 2.00 to 1.00. At June 30, 2006, our leverage ratio was below 2.00 to 1.00 and we reduced our interest rate on the Term B loan by 25 basis points.

Our senior secured credit facility matures on March 15, 2010 and is secured by a pledge of substantially all of our tangible and intangible assets, and requires us to make mandatory prepayments of outstanding borrowings. Mandatory prepayments include prepayments to the Term B portion of the senior secured credit facility from proceeds from asset dispositions and debt and equity issuances, limited to a percentage of the proceeds and/or an excess amount above a dollar threshold. Beginning with the year ended December 31, 2006, we are required to prepay the Term B portion of the senior secured credit facility of up to 50% of excess cash flow if our leverage is equal to or greater than 2.75 to 1.00. To date we have not been required to make such prepayments. The revolving credit facility also requires that we comply with various other covenants, including, but not limited to, limitations on our leverage, restrictions on new indebtedness, the ability to merge or consolidate, asset sales, capital expenditures, acquisitions and dividends. Borrowings under the senior secured credit facility bear interest at LIBOR plus a spread ranging from 125 to 250 basis points or a specified base rate plus a spread ranging from 0 to 100 basis points, with the exact spread determined upon the basis of our leverage ratio, as defined. We are required to pay a quarterly unused commitment fee at a rate ranging from 25 to 50 basis points on our revolving line of credit determined upon the basis of our leverage ratio, as defined.

In connection with entering into our fourth amended and restated senior secured credit facility in 2005, we incurred fees and expenses of approximately $860,000, which have been recorded as deferred financing costs and are being amortized over the term of the related debt instruments. Additionally, in 2005 we wrote-off approximately $124,000 of financing costs capitalized in connection with our previous credit facility.

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

The maximum permitted consolidated leverage ratio required is <3.50 to 1.00 through September 30, 2006, <3.25 to 1.00 from October 1, 2006 through December 31, 2007 and <3.00 to 1.00 thereafter.

The revolving credit facility also requires that we comply with various other covenants, including, but not limited to, restrictions on new indebtedness, the ability to merge or consolidate, asset sales, capital expenditures, acquisitions and dividends, with which we were in compliance as of December 31, 2006.

The following table sets forth the amounts outstanding under our revolving credit facility and Term B loan, the effective interest rates on such outstanding amounts for the quarter and amounts available for additional borrowing hereunder, as of December 31, 2006:

As of December 31, 2006, we had $205.2 million of outstanding debt, $12.3 million of which was classified as current. Of the $205.2 million of outstanding debt, $165.3 million was outstanding to lenders under our fourth amended and restated senior secured credit facility, and $39.9 million was outstanding under capital leases and other miscellaneous indebtedness. As of December 31, 2006, of the outstanding borrowings under our fourth amended and restated senior secured credit facility, $1.0 million was classified as current.

We currently maintain a lease line of credit with a financial institution for the purpose of leasing medical equipment in the total commitment amount of $10 million. As of December 31, 2006, we had $8.5 million available under the lease line of credit.

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

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

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

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

The following table discloses aggregate information about our contractual obligations and the periods in which payments are due as of December 31, 2006:

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

Interest Rate Sensitivity. We are exposed to various market risks as a part of our operations, and we anticipate that this exposure will increase as a result of our planned growth. In an effort to mitigate losses associated with these risks, we may at times enter into derivative financial instruments. These derivative financial instruments may take the form of forward sales contracts, option contracts, and interest rate swaps. We have not and do not intend to engage in the practice of trading derivative securities for profit.

Interest Rate Swap. On April 1, 2005, and August 31, 2005, we entered into interest rate swap agreements with notional amounts of $5.0 million and $11.0 million, respectively. These interest rate swap agreements were terminated on December 16, 2005, as a result of the refinancing of the fourth amended and restated senior credit facility.

On December 30, 2005, we entered into an interest rate swap agreement with a notional amount of $20 million. This interest rate swap transaction involves the exchange of floating for fixed rate interest payments over the life of the agreement without the exchange of the underlying principal amounts. The differential to be paid or received is accrued and is recognized as an adjustment to interest expense. These agreements are indexed to 90 day LIBOR. The following table summarizes the terms of the swap:

The fixed rate does not include the margin, which is currently 175 basis points. In addition, further changes in interest rates by the Federal Reserve may increase or decrease our interest cost on the outstanding balance of the credit facility not subject to interest rate protection. Our swap transaction involves the exchange of floating for fixed rate interest payments over the life of the agreement without the exchange of the underlying principal amounts. The differential to be paid or received is accrued and is recognized as an adjustment to interest expense. We use derivative financial instruments to reduce interest rate volatility and associated risks arising from the floating rate structure of our senior credit facility and do not hold or issue them for trading purposes.

Interest Rates. As of December 31, 2006, we have interest rate exposure on $145.3 million of our senior secured credit facility. Our debt obligations subject to floating rates at December 31, 2006 include $145.3 million of variable rate debt at an approximate average interest rate of 7.0% as of December 31, 2006. A 100 basis point change in interest rates on our variable rate debt would have resulted in interest expense fluctuating approximately $1.5 million on a calendar year basis.

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

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures. We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the

design and operation of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Exchange Act Rule 13a-15. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control Over Financial Reporting. There has been no change in our internal control over financial reporting during the fourth quarter of 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Our management is responsible for establishing and maintaining effective internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control system was designed under the supervision of our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer and with the participation of management in order to provide reasonable assurance regarding the reliability of our financial reporting and our preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

All internal control systems, no matter how well designed and tested, have inherent limitations, including among other things, the possibility of human error, circumvention or disregard. Therefore, even those systems of internal control that have been determined to be effective can provide only reasonable assurance that the objectives of the internal control system are met and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision of our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer and with the participation of management, we conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on an assessment of such criteria, management concluded that, as of December 31, 2006, we maintained effective internal control over financial reporting.

Management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included below.

We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting, that Radiation Therapy Services, Inc. and subsidiaries (the Company) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally

accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Radiation Therapy Services, Inc. and subsidiaries maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Radiation Therapy Services, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Radiation Therapy Services, Inc. and subsidiaries as of December 31, 2005 and 2006, and the related consolidated statements of income and comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2006 and our report dated February 12, 2007 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Certified Public Accountants

Tampa, Florida

Information required to be included by this item with respect to our executive officers is incorporated by reference to the information contained under the caption “Management” and “The Board of Directors and Corporate Governance” included in our proxy statement relating to our annual meeting of shareholders, which we expect to file with the Securities and Exchange Commission within 120 days after December 31, 2006.

Our board of directors expects its members, as well as our officers and employees, to act ethically at all times and to acknowledge in writing their adherence to the policies comprising our Code of Conduct and as applicable, in our Code of Ethics for Senior Financial Officers and Chief Executive Officer (“Code of Ethics”). The Code of Ethics is posted on our website located at www.rtsx.com under the heading “Corporate Governance.” We intend to disclose any amendments to our Code of Ethics and any waiver from a provision of such code, as required by the SEC, on our website within five business days following such amendment or waiver.

Information required to be included by this item with respect to our directors is incorporated by reference to the information contained under the caption “Election of Directors” included in our proxy statement relating to our annual meeting of shareholders, which we expect to file with the Securities and Exchange Commission within 120 days after December 31, 2006.

Information required to be included by this item with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference to the information contained under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” included in our proxy statement relating to our annual meeting of shareholders, which we expect to file with the Securities and Exchange Commission within 120 days after December 31, 2006.

This information is incorporated by reference to the information required to be included by this item contained under the captions “Election of Directors—Information Regarding the Board of Directors—Compensation of Directors,” “Compensation Discussion and Analysis,” “Executive Compensation,” “Compensation Committee Report on Executive Compensation” and “Compensation Committee Interlocks and Insider Participation” included in our proxy statement relating to our annual meeting of shareholders, which we expect to file with the Securities and Exchange Commission within 120 days after December 31, 2006.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Except for the disclosure under the caption “Equity Compensation Plan” which is included in Item 5 of Part II of this report, this information is incorporated by reference to the information required to be included by this item contained under the caption “Principal Shareholders and Security Ownership of Management” included in our proxy statement relating to our annual meeting of shareholders, which we expect to file with the Securities and Exchange Commission within 120 days after December 31, 2006.

Item 13. Certain Relationships and Related Party Transactions, and Director Independence

This information is incorporated by reference to the information required to be included by this item contained under the caption “Certain Relationships and Related Party Transactions” included in our proxy statement relating to our annual meeting of shareholders, which we expect to file with the Securities and Exchange Commission within 120 days after December 31, 2006.

This information is incorporated by reference to the information required to be included by this item contained under the caption “Ratification of Independent Registered Public Accounting Firm” included in our proxy statement relating to our annual meeting of shareholders, which we expect to file with the Securities and Exchange Commission within 120 days after December 31, 2006.

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

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

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

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

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

We have audited the accompanying consolidated balance sheets of Radiation Therapy Services, Inc. and subsidiaries (the “Company”) as of December 31, 2005 and 2006, and the related consolidated statements of income and comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also 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 consolidated financial position of Radiation Therapy Services, Inc. and subsidiaries at December 31, 2005 and 2006, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Radiation Therapy Services, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 12, 2007 expressed an unqualified opinion thereon.

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

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

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

Financial Accounting Standards Board (“FASB”) revised Interpretation No. 46R (FIN No. 46R), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, requires a company to consolidate variable interest entities if the company is the primary beneficiary of the activities of those entities. Certain of the Company’s radiation oncology practices are variable interest entities as defined by FIN No. 46R, and the Company has a variable interest in each of these practices through its administrative services agreements. The Company, through its variable interests in these practices, would absorb a majority of the net losses of these practices, should they occur. Based on these determinations, the Company has included the radiation oncology practices in its consolidated financial statements for all periods presented. All significant intercompany accounts and transactions have been eliminated.

Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. Such reclassifications had no impact on net income as previously reported.

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

On June 23, 2004, the Company successfully completed an initial public offering of 5.5 million shares of common stock at a price of $13.00 per share. Of the shares offered, 4.0 million shares were sold by the Company and 1.5 million were offered by selling shareholders. In addition, the underwriters for the Company exercised their over-allotment option by purchasing an additional 825,000 shares at $13.00 per share from selling shareholders. Of the net proceeds to the Company of approximately $46.8 million, approximately $44.0 million was used to repay outstanding indebtedness under the Company’s senior secured credit facility, and approximately $2.8 million was used to repay outstanding indebtedness to certain directors, officers and related parties.

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

The Company has agreements with third-party payers that provide for payments to the Company at amounts different from its established rates. Net patient service revenue is reported at the estimated net realizable amounts due from patients, third-party payers and others for services rendered. Net patient service revenue is recognized as services are provided.

Medicare and other governmental programs reimburse physicians based on fee schedules, which are determined by the related government agency. The Company also has agreements with managed care organizations to provide physician services based on negotiated fee schedules. Accordingly, the revenues reported in the Company’s consolidated financial statements are recorded at the amount that is expected to be received.

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

During 2004, 2005, and 2006, approximately 53%, 50%, and 52% respectively, of net patient service revenue related to services rendered under the Medicare and Medicaid programs. In the ordinary course of business, the Company is potentially subject to a review by regulatory agencies concerning the accuracy of billings and sufficiency of supporting documentation of procedures performed. Laws and regulations governing the Medicare and Medicaid programs are extremely complex and subject to interpretation. As a result, there is at least a reasonable possibility that estimates will change by a material amount in the near term.

Net patient service revenue is presented net of provisions for contractual adjustments. In the ordinary course of business, the Company provides services to patients who are financially unable to pay for their care. Accounts written off as charity and indigent care are not recognized in net patient service revenue. The Company’s policy is to write off a patient’s account balance upon determining that the patient qualifies under certain charity care and/or indigent policy. The Company’s policy includes the completion of an application for eligibility for charity care. The determination for charity care eligibility is based on income relative to federal poverty guidelines, family size and assets available to the patient. A sliding scale discount is then applied to the balance due with discounts up to 100%. Charity services at established charges provided by the Company and formally approved through this process approximate $5,142,000, $8,139,000, and $7,451,000 for the years ended December 31, 2004, 2005, and 2006, respectively. These amounts are excluded from net patient service revenue.

The cost of revenues for each of the years ended December 31, 2004, 2005 and 2006, are approximately $95,032,000, $127,385,000, and $164,583,000 respectively.

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

Accounts receivable in the accompanying consolidated balance sheets are reported net of estimated allowances for doubtful accounts and contractual adjustments. Accounts receivable are uncollateralized and primarily consist of amounts due from third-party payers and patients. To provide for accounts receivable that could become uncollectible in the future, the Company establishes an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. Approximately $13,700,000 and $20,300,000 of accounts receivable were due from the Medicare and Medicaid programs at December 31, 2005 and 2006, respectively. The credit risk for other concentrations of receivables is limited due to the large number of insurance companies and other payers that provide payments for services. Management does not believe that there are any other significant concentrations of revenues from any particular payer that would subject the Company to any significant credit risk in the collection of its accounts receivable.

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

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

Goodwill represents the excess purchase price over the estimated fair market value of net assets acquired by the Company in business combinations. Goodwill and indefinite lived intangible assets are not amortized but are reviewed annually, or more frequently if impairment indicators arise, for impairment. No goodwill impairment loss was recognized for the years ended December 31, 2004, 2005 and 2006.

Intangible assets consist of noncompete agreements and licenses and are amortized over the life of the agreement (which typically ranges from 2 to 10 years) using the straight-line method.

The Company recognizes all derivatives on the consolidated balance sheets at fair value. The accounting for changes in the fair value (i.e. gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship based on its effectiveness in hedging against the exposure. Derivatives that are not hedges must be adjusted to fair value through operating results. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of assets, liabilities, or firm commitments through operating results or recognized in other comprehensive income until the hedged item is recognized in operating results. The ineffective portion of a derivative’s change in fair value will be immediately recognized in earnings.

The Company enters into interest rate swap agreements to reduce the impact of changes in interest rates on its floating rate Senior Credit Facility (see Note 12). The interest rate swap agreements are contracts to exchange floating rate interest payments for fixed interest payments over the life of the agreements without the exchange of the underlying notional amounts. The notional amount of interest rate swap agreements are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss. The differential paid or received on interest rate swap agreements is recognized in interest expense in the consolidated statements of income and comprehensive income. The related accrued receivable or payable is included in other assets or accrued expenses.

On April 1, 2005 and August 31, 2005, the Company entered into interest rate swap agreements to hedge the effect of changes in interest rates on a portion of its floating rate Senior Credit Facility. These interest rate swap agreements were terminated on December 16, 2005, as a result of the refinancing of the fourth amended and restated senior credit facility.

On December 30, 2005, the Company entered into an interest rate swap agreement for its fourth amended and restated senior credit facility. The Company has designated this derivative financial instrument as a cash flow hedge (i.e., the interest rate swap agreement hedges the exposure to variability in expected future cash flows that is attributable to a particular risk). The notional amount of the swap agreement is $20.0 million. The effect of this agreement is to fix the interest rate exposure to 4.87% plus a margin on $20.0 million of the Company’s Senior Credit Facility. The interest rate swap agreement expires on December 31, 2009. The fair value of the interest rate swap agreement is the estimated amount that the Company would receive or pay to terminate the agreement at the reporting date, taking into account current interest rates and the current credit worthiness of the counter parties. At December 31, 2005, and 2006 the fair value of the Company’s interest rate swap agreements is an asset of $13,319 and $44,681, respectively, which is included in the accompanying consolidated balance sheets. There were no amounts recorded in the income statement related to the interest rate swap agreement due to hedge ineffectiveness.

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

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

The reserve for professional and general liability claims as of the balance sheet dates reflects the current estimates of all outstanding losses, including incurred but not reported losses, based upon actuarial calculations. The loss estimates included in the actuarial calculations may change in the future based upon updated facts and circumstances. The reserve for professional liability claims was $930,000 at December 31, 2005 and $1,690,000 at December 31, 2006.

The Company currently maintains equity interests in six treatment center facilities with ownership interests ranging from 50.1% to 90.0%. Since the Company controls more than 50% of the voting interest in these facilities, the Company consolidates the treatment centers. The minority interest represents the equity interests of outside investors in the equity and results of operations of the consolidated entities.

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

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

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

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

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

The weighted average useful life of medical and medical testing equipment is 8.3 years.

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

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

During 2005, the Company incurred an impairment loss of $1.2 million for the write down of leasehold improvements in connection with the consolidation of two Yonkers, New York based treatment centers within the Westchester/Bronx local market.

Comprehensive income consists of two components, net income and other comprehensive income (loss). Other comprehensive income / loss refers to revenue, expenses, gains and losses that under accounting principles generally accepted in the United Sates are recorded as an element of shareholders’ equity but are excluded from net income. The Company’s other comprehensive income / loss is composed of unrealized gains and losses on interest rate swap agreements accounted for as cash flow hedges. This income increased shareholders’ equity on a consolidated basis by $4,629 during the year ended December 31, 2005 and increased shareholders’ equity by $31,362 during the year ended December 31, 2006.

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

Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (SFAS 123R) for the Company’s 2004 Stock Incentive Plan (2004 Option Plan). The Company previously accounted for the 2004 Option Plan under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25) and related interpretations and disclosure requirements established by Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123), as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation – Transitions and Disclosure” (SFAS 148).

Under the previous standards, no compensation expense was recorded in the statement of income and comprehensive income for options issued under the Company’s 2004 Option Plan. The pro forma effects on net income and earnings per share for stock options as calculated under SFAS 123 were instead disclosed in a footnote to the financial statements. Compensation expense was recorded in the statement of income and comprehensive income for non-vested stock grants under the intrinsic value method. Under SFAS 123R, all share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense in the statement of income and comprehensive income over the requisite service period.

Upon adoption of SFAS 123R, the Company continued to use the Black-Scholes valuation model for valuing all stock options. Compensation for non-vested stock grants is measured at fair value on the grant date based on the number of shares expected to vest and the quoted market price of the Company’s common stock. Compensation cost for all awards will be recognized in earnings, net of estimated forfeitures, on a straight-line basis over the requisite service period.

The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair-value recognition provisions of SFAS 123R to all of the Company’s share-based compensation awards for periods prior to the adoption of SFAS 123R:

No options were granted in 2005 or 2006. For 2004, the fair value of each option grant was estimated on the date of grant using the Black Scholes Model with the following assumptions: risk free interest rate of 4.02%, no dividend yield, expected life of 5.0 years, and volatility of 30%.

Cash received from options exercised under all share-based payment arrangements for the year ended December 31, 2005 and 2006 was approximately $2.7 million and $6.0 million, respectively. The tax benefit realized for the tax deductions from option exercises for the year ended December 31, 2006 was approximately $2.9 million. The Company currently expects to satisfy share-based awards with registered shares available to be issued.

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

The carrying values of the Company’s long-term debt approximates fair value due either to the length to maturity or the existence of interest rates that approximate prevailing market rates unless otherwise disclosed in these consolidated financial statements.

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

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

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

At December 31, 2005, all of the Company’s auction rate securities were invested in obligations of individual states and political subdivisions.

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

The aggregate amount of scheduled receipts on lease receivables consist of the following at December 31, 2006:

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

Amortization expense relating to capital leased equipment was approximately $925,000, $1,829,000 and $4,547,000 for the years ended December 31, 2004, 2005 and 2006, respectively, and is included in depreciation expense in the consolidated statements of income and comprehensive income.

Amortization expense relating to intangible assets was approximately $253,000, $960,000 and $1,916,000 for the years ended December 31, 2004, 2005 and 2006, respectively. The weighted-average amortization period is approximately 6.3 years.

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

On September 21, 2004 the Company acquired the operations and medical and office equipment of two radiation centers in New Jersey. The Company determined that the purchase provided an entry into the state of New Jersey with the potential to add value in providing advanced treatment services to the community. The Company also completed the purchase of a third center in Willingboro, New Jersey, on October 18, 2004, completing the acquisitions of the planned three centers in that state. The fair value of the assets acquired, including intangible assets, was approximately $10,569,000. The purchase price was allocated to tangible assets of $2,851,000; $680,000 as a non-compete amortized over eighteen to twenty four months and goodwill of $7,038,000. The consideration given for the acquisition included $7,909,000 cash, payments of direct costs relating to due diligence of $160,000, the assumption of capital lease financing of $2,226,000, and the assumption of $100,000 in liability for assuming a physician employment contract and other liabilities of $174,000. In addition, the purchase of the third center includes a deferred purchase price contingent on maintaining a certain level of earnings before interest, taxes, depreciation and amortization and providing for payment of a certain percentage over the base level annually during the following three fiscal years. During 2005 and 2006, the amounts paid for the deferred purchase price contingency were approximately $36,000 and $110,000, respectively, which were recorded as additional goodwill.

On April 1, 2005, the Company sold a 49.9% interest in a joint venture that was formed to operate a treatment center located in Berlin, Maryland. The interest was sold to a healthcare enterprise operating in the area for $1,814,000. The Company realized a gain of approximately $982,000 on the sale of the interest.

In April 2005, the Company acquired a 60% interest in a single radiation therapy treatment center located in Martinsburg, West Virginia for approximately $662,000. The Company operates the facility as part of its Central Maryland local market. Under the terms of the agreement, the Company partners with a university hospital system and manages the facility. The Company determined that the purchase of the radiation therapy center would provide an expansion into the Central Maryland local market and add value in providing advanced treatment services to the community. The allocation of the purchase price was to tangible assets of $369,000, certificate of need license of $163,000, goodwill of $324,000 and assumed liabilities and minority interest of $194,000.

In May 2005, the Company acquired five radiation treatment centers located in Clark County, Nevada from Associated Radiation Oncologists, Inc. for approximately $25,969,000, plus a three-year contingent earn-out. This acquisition positions the Company as the largest operator of radiation oncology treatment centers in the state of Nevada. The allocation of the purchase price was to tangible assets of $5,442,000, non-compete agreements of $3,294,000, amortized over six years, and goodwill of $17,233,000. At December 31, 2005 and 2006, the Company accrued approximately $1,317,000 and $959,000, respectively in earn-out payments and recorded the amount as additional goodwill.

In June 2005, the Company acquired four radiation treatment centers located in the markets of Scottsdale, Arizona, Holyoke, Massachusetts, and two centers in Maryland for approximately $16,215,000. This acquisition provides the Company its first entrance into two new local markets in Arizona and Massachusetts. The two centers purchased in Maryland will further expand the Company’s presence in its Central Maryland local market. The allocation of the purchase price was to tangible assets of $1,072,000, non-compete agreements of $2,958,000, amortized over periods ranging from 1.5 years to 10 years, and goodwill of $12,185,000.

In December 2005, the Company acquired the assets of a urology practice with four office locations in southwest Florida for approximately $348,000. The urology practices provide additional service and treatment protocols to our patients with prostate cancer and other urological diseases. The total purchase price was allocated to tangible assets.

In January 2006, the Company acquired the assets of a radiation treatment center located in Opp, Alabama for approximately $1,800,000. The center purchased in Alabama will further expand the Company’s presence in its Southeastern Alabama local market. The allocation of the purchase price is to tangible assets of $304,000, non-compete agreements of $230,000, amortized over 2 years, and goodwill of $1,266,000.

In May 2006, the Company acquired the assets of a radiation treatment center located in Santa Monica, California for approximately $11,972,000. The consideration given for the acquisition included approximately $11,155,000 in cash and $817,000 in an assumed capital lease obligation. The center purchased in California further expands the Company’s presence into a second local market in the California area. The allocation of the purchase price is to tangible assets of $910,000, non-compete agreements of $870,000, amortized over 7 years, and goodwill of $10,192,000.

In August 2006, the Company acquired the assets of a radiation treatment center located in Bel Air, Maryland for approximately $6,812,000. The consideration given for the acquisition included approximately $6,805,000 in cash and $7,000 in assumed liabilities. The center purchased in Maryland will further expand the Company’s presence into its Central Maryland local market. The allocation of the purchase price is to tangible assets of $2,470,000, non-compete agreements of $10,000, amortized over 3 years, and goodwill of $4,332,000.

In September 2006, the Company acquired the assets of a radiation treatment center located in Beverly Hills, California for approximately $19,099,000. The center purchased in California will further expand the Company’s presence in its Los Angeles local market complementing the Santa Monica radiation center purchased in May 2006. The allocation of the purchase price is to tangible assets of $738,000, non-compete agreements of $858,000, amortized over 5 years, and goodwill of $17,503,000.

In November 2006, the Company acquired a cluster network of radiation treatment centers in Southeastern Michigan for approximately $47,131,000. The consideration given for the acquisition included approximately $41,512,000 in cash and $5,619,000 in assumed liabilities. The acquisition provides the Company an entrance into a new local market. The allocation of the purchase price is to tangible assets of $9,140,000, and goodwill of $37,991,000. Additionally, $3,300,000 of the purchase price will be held in escrow pending receipt of a consent from a hospital regarding a ground lease at one of the centers and to satisfy any indemnification obligations of the sellers related to warranties, representations and covenants under the agreement. Upon receipt of the required hospital consent, the Company is obligated to acquire all of sellers’ ownership interests in a Michigan co-partnership, relating to the leasehold assets at one of the centers, for a purchase price of $2,950,000. In addition, in conjunction with the acquisition of the treatment centers, the Company deducted $5,280,000 from the purchase price to fund estimated tax liabilities of the entities acquired, which represents the majority of the assumed liabilities of $5,619,000. The amount deducted is being held in an escrow account maintained by the Company’s legal counsel pending the filing of tax returns and payments associated with this potential tax liability. Fifty percent of any excess of amounts being held in escrow over the tax liability of the entities will be returned to the seller.

During the fourth quarter of 2006, the Company acquired the assets of several urology and surgery practices within southwest Florida for approximately $619,000. The urology and surgery practices provide additional service and treatment protocols to our patients with prostate cancer and other urological diseases. The allocation of the purchase price is to tangible assets of $570,000, and goodwill of $49,000.

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

Significant components of the income tax provision for the year ended December 31, 2004, 2005 and 2006 are as follows:

A reconciliation of the statutory federal income tax rate to the Company’s effective income tax rate on income before income taxes for the years ended December 31, 2004, 2005 and 2006 are as follows:

The Company provides for income taxes using the liability method in accordance with Financial Accounting Standards Board Statement No. 109, Accounting for Income Taxes. Deferred income taxes arise from the temporary differences in the recognition of income and expenses for tax purposes. Deferred tax assets and liabilities are comprised of the following at December 31, 2005 and 2006:

At December 31, 2005, and 2006, state net operating loss carryforwards, primarily in Florida and Kentucky expiring in years 2011 through 2025, available to offset future taxable income approximated $2.6 million and $18.6 million, respectively. Utilization of net operating loss carryforwards in any one year may be limited.

Maturities under the obligations described above are as follows at December 31, 2006:

At December 31, 2005 and 2006, the prime interest rate was 7.25% and 8.25%, respectively.

On March 18, 2005 the Company amended its third amended and restated senior secured credit facility principally to increase the Term A loan to $35 million and increase its revolving credit commitment from $80 million to $140 million. Per the amendment, the interest rate spreads on the Term A loan and on the revolver were reduced overall by 25 basis points. The amendment extended the maturity date of the Term A loan and the revolver to March 15, 2010.

On April 26, 2005 the Company amended its third amended and restated senior secured credit facility principally to increase the aggregate amount of permitted acquisitions from $25 million to $45 million and to obtain consent on the purchase of five radiation treatment centers located in Clark County, Nevada. As a result of its refinancing in March and April 2005, the Company wrote-off approximately $579,000 of financing costs capitalized in connection with its previous credit facility.

On December 16, 2005, the Company entered into a fourth amended and restated senior secured credit facility principally to provide for a $100 million Term B loan. The fourth amended and restated senior secured credit facility provides, subject to compliance with covenants and customary conditions, for $290 million in borrowings consisting of: (i) a $100 million Term B loan, (ii) a $50 million accordion feature, which allows the Company to increase the aggregate principal amount of the Term B loan to $150 million, and (iii) a $140 million revolver. The Company used the proceeds of the $100 million Term B loan to pay off its pre-existing Term A loan as well as the borrowings drawn on its $140 million revolver.

On November 14, 2006, the Company amended its fourth amended and restated senior secured credit facility to exclude the acquisition of the radiation centers in Southeastern Michigan from the total permitted acquisition amount threshold of $62 million in 2006, increase the amount of the 2006 permitted capital expenditures to $50 million, and increase the amount of purchase money indebtedness outstanding at any time from $40 million to $70 million.

The Term B loan requires quarterly payments of $250,000 and matures on December 16, 2012. The Term B loan initially bears interest either at LIBOR plus a spread of 200 basis points or a specified base rate plus a spread of 50 basis points, with the opportunity to permanently reduce the spread by 25 basis points on LIBOR and base rate loans after six months, provided the Company’s leverage ratio is below 2.00 to 1.00. At June 30, 2006, the Company’s leverage ratio was below 2.00 to 1.00 and the interest rate on the Term B loan was reduced by 25 basis points.

The revolver will mature on March 15, 2010. The revolver bears interest either at LIBOR plus a spread ranging from 125 to 250 basis points or a specified base rate plus a spread ranging from 0 to 100 basis points, with the exact spread determined upon the basis of the Company’s leverage ratio, as defined. The Company is required to pay a quarterly unused commitment fee at a rate ranging from 25 to 50 basis points on its revolving line of credit determined upon the basis of its leverage ratio, as defined.

The fourth amended and restated senior secured credit facility is secured by a pledge of substantially all of the Company’s tangible and intangible assets and includes a number of restrictive covenants including limitations on leverage, capital and acquisitions expenditures and requirements to maintain minimum ratios of cash flow to fixed charges and cash flow to interest. Under the terms of the Company’s fourth amended and restated senior secured credit facility, borrowings under its revolver are based on minimum incremental amounts of not less than $500,000 for BASE rate loans and not less than $1,000,000 for LIBOR rate loans. Unused amounts under the revolver portion of the senior secured credit facility incurs a commitment fee charge based on the Company’s leverage ratio ranging from 25 basis points to 50 basis points.

The Company currently maintains equity interests in three unconsolidated joint ventures, including a 37% interest with a hospital for the ownership of assets used for the delivery of radiation oncology services, a 50% interest in a joint venture with a freestanding radiation oncology center and a 40% interest in a joint venture with a PET imaging facility.

The Company utilizes the equity method to account for its investments in the unconsolidated joint ventures. At December 31, 2005 and 2006, the Company’s investments in the unconsolidated joint ventures were approximately $0.8 million and $1.2 million, respectively.

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

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

During 2005, one of the unconsolidated joint ventures sold a redundant facility for approximately $0.5 million realizing a loss of approximately $0.9 million. A cash distribution was made from the proceeds of the sale.

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

The Company is obligated under various operating leases for office space and medical equipment. Total lease expense incurred under these leases was approximately $7,163,000, $10,115,000, and $12,270,000 for the years ended December 31, 2004, 2005 and 2006, respectively.

Future fixed minimum annual lease commitments are as follows at December 31, 2006:

The Company leases land and space at its treatment centers under operating lease arrangements expiring in various years through 2044. The majority of the Company’s leases provide for fixed rent escalation clauses, ranging from 2% to 5%, or escalation clauses tied to the Consumer Price Index. The rent expense for leases containing fixed rent escalation clauses or rent holidays is recognized by the Company on a straight-line basis over the lease term. Leasehold improvements made by a lessee that are funded by landlord incentives or allowances are recorded as leasehold improvements. Leasehold improvements are amortized over the shorter of their estimated useful lives (generally 39 years or less) or the related lease term plus anticipated renewals when there is an economic penalty associated with non-renewal. An economic penalty is deemed to occur when the Company forgoes an economic benefit, or suffers an economic detriment by not renewing the lease. Penalties include, but are not limited to, impairment of existing leasehold improvements, profitability, location, uniqueness of the property within its particular market, relocation costs, and risks associated with potential competitors utilizing the vacated location. Lease incentives are recorded as deferred rent and amortized as reductions to lease expense over the lease term.

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

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

On April 13, 2005, the Company was served with a shareholder derivative lawsuit filed by Steven Scheye, derivatively on behalf of nominal defendant, Radiation Therapy Services, Inc., against certain officers of the Company, all of the members of its Board of Directors and the Company as nominal defendant (Circuit Court for the Twentieth Judicial Circuit, Lee County, Florida; Case No. 05-CA-001103). The complaint alleges breach of fiduciary duties and states that this action is brought for the benefit of Radiation Therapy Services, Inc. (the Company) against the members of its Board of Directors. The complaint contains allegations substantially the same as those raised in the purported class action lawsuit filed by the Kissel Family Trust in September 2004 in the United States District Court, Middle District of Florida that was voluntarily dismissed without prejudice. The complaint alleges breach of fiduciary duties of loyalty and good faith as a result of entering into related party transactions and agreements and seeks to recover unspecified damages in favor of the Company, appropriate equitable relief and an award to plaintiff of the costs and disbursements of the action including reasonable attorney’s fees. Based on its review of the complaint, the Company believes that the derivative lawsuit is without merit and has moved for dismissal of the complaint. The court has not yet ruled on the Company’s motion to dismiss the complaint. The Company is obligated to provide indemnification to its officers and directors in this matter to the fullest extent permitted by law. Since by its inherent nature a derivative suit seeks to recover alleged damages on behalf of the company involved, the Company does not expect the ultimate resolution of this derivative suit to have a material adverse effect on its results of operations, financial position or cash flows.

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

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

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

The Company has a defined contribution retirement plan under Section 401(a) of the Internal Revenue Code (the Retirement Plan). The Retirement Plan allows all full-time employees after one year of service to defer a portion of their compensation on a pre-tax basis through contributions to the Retirement Plan. The Company matches a portion of these contributions based upon an employee’s length of service. The Company’s matching contribution for the years ended December 31, 2004, 2005 and 2006 was $415,000, $530,000, and $637,000, respectively.

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

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

Pursuant to the 2004 Option Plan, the Company can grant either incentive or non-qualified stock options. Options to purchase common stock under the 2004 Option Plan have been granted to Company employees at the fair market value of the underlying shares on the date of grant. The Company issues new shares as option exercises are executed through the Company’s transfer agent.

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

In June 2004, options were granted to consultants to provide services for healthcare reimbursement efforts and to an independent contractor to provide advice with respect to business opportunities in the state of New York. The Company recognized compensation expense on these options of $408,000 and $110,000 for the years ended December 31, 2004 and 2005, respectively. Compensation expense is measured as the services are performed and the expense is recognized over the service period. The Company recognizes expense on these options based on the fair value of the option at the end of each reporting period. Compensation accrued during the service period is adjusted in subsequent periods up to the measurement date for changes, either increases or decreases, in the quoted market value of the shares covered by the grant. In February 2005, the consultants became employees of the Company. As a result of the change, compensation expense on the options is no longer recorded.

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

At December 31, 2006, the number of options outstanding were 1,235,500 for Nonqualified Stock Options and 389,994 for Incentive Stock Options. Under the 2004 Option Plan, there were 3,382,812 shares of common stock reserved for future grants as of December 31, 2006.

No options were granted during the year ended December 31, 2005 and 2006. The total intrinsic value of options exercised during the year ended December 31, 2005 and 2006 was approximately $4.9 million and $9.4 million, respectively.

For future option grants, the Company elected to use the Black-Scholes model to estimate the fair value. Future stock option grants will use the expected volatilities based on the historical volatility of the Company’s stock. The expected term of options granted represents the period of time the options granted are expected to be outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. Exercise prices for options outstanding as of December 31, 2006 ranged from $2.80 to $13.00.

The following table provides certain information with respect to stock options outstanding at December 31, 2006:

The following table provides certain information with respect to stock options exercisable at December 31, 2006:

Restricted shares vest ratably over a 5-year period. The fair value of the non-vested stock grants is measured on the grant date and recognized in earnings over the requisite service period.

The following table summarizes non-vested stock activity from December 31, 2005 through December 31, 2006:

As of December 31, 2006, there was approximately $192,000 of total unrecognized compensation cost related to nonvested stock grants under the Plan. That cost is expected to be recognized over a weighted-average period of 3.8 years. Pursuant to SFAS 123R, the approximate $241,000 of deferred stock compensation recorded as a reduction to shareholders’ equity at December 31, 2005 is no longer reported as a separate component of shareholders’ equity and has been reclassified to additional paid-in capital.

The Company purchased nuclear medical and pharmacological supplies from a company which was majority-owned by certain of the Company’s shareholders until June 2004. Purchases by the Company from this company was approximately $627,000, for the year ended December 31, 2004. In June 2004, the Company’s shareholders sold their majority interest in the nuclear and pharmacological supply company.

The Company leases certain of its treatment centers and other properties from partnerships which are majority-owned by certain of the Company’s shareholders. These related party leases have expiration dates through February 28, 2020 and they provide for annual lease payments ranging from approximately $30,000 to $463,000. The aggregate lease payments the Company made to the entities owned by these related parties were approximately $2,672,000, $3,173,000, and $3,843,000 in 2004, 2005 and 2006, respectively.

In October 1999, the Company entered into a sublease arrangement with a partnership which is owned by certain of the Company’s shareholders to lease space to the partnership for an MRI center in Mount Kisco, New York. Sublease rentals paid by the partnership to the landlord were approximately $528,000, $571,000, and $658,000 during 2004, 2005 and 2006, respectively.

The Company provides billing and collection services to an MRI entity, which is owned by certain of the Company’s shareholders. In addition, the Company charges the MRI entity for certain allocated cost of certain staff who perform services on behalf of the MRI entity. The fees received by the Company for the billing and collection services and for reimbursement of certain allocated costs were approximately $371,000, $332,000, and $368,000 in 2004, 2005 and 2006, respectively. The balance due from the MRI entity was approximately $33,000 and $18,000 at December 31, 2005 and 2006, respectively.

The Company is a participating provider in an oncology network, which is partially owned by one of the Company’s shareholders. The Company provides oncology services to members of the network. Annual payments received by the Company for the services were $419,000, $384,000, and $619,000 during 2004, 2005 and 2006, respectively.

The Company provided medical equipment to radiation treatment centers in Argentina, Costa Rica and Guatemala, which are owned by a family member of one of the Company’s shareholders. The Company discontinued sales to these centers in June 2004. Sales of medical equipment to these radiation centers was approximately $93,000 in 2004. Gain on the sale of the medical equipment was approximately $8,000 in 2004.

The Company contracted with a radiology group, which was partly owned by a shareholder, to provide PET scans to our patients. The shareholder’s interest in the group terminated in May 2004. The Company reimbursed for services, supplies, equipment and personnel provided by the radiology group. Purchases by the Company were approximately $240,000 for the year ended December 31, 2004.

The Company maintains a construction company which provides remodeling and real property improvements at its facilities. In addition, the construction company builds and constructs facilities on behalf of certain land partnerships which are owned by certain of the Company’s shareholders. Payments received by the Company for building and construction fees were approximately $1,310,000 in 2006. Amounts due to the Company for the construction services were approximately $390,000 at December 31, 2006. No payments were received by the Company in 2004 and 2005.

Effective October 2003, the Company purchased medical malpractice insurance from an insurance company owned by certain of the Company’s shareholders. The period of coverage runs from October to September. The premium payments made by the Company in 2004, 2005 and 2006 were approximately $3,375,000, $4,096,000, and $7,981,000, respectively.

In California, Maryland, Massachusetts, Michigan, Nevada, New York, and North Carolina, the Company maintains administrative services agreements with professional corporations owned by certain of the Company’s shareholders, who are licensed to practice medicine in such states. The Company entered into these administrative services agreements in order to comply with the laws of such states which prohibit the Company from employing physicians. The administrative services agreements generally obligate the Company to provide treatment center facilities, staff, equipment, accounting services, billing and collection services, management and administrative personnel, assistance in managed care contracting and assistance in marketing services. Fees paid to the Company by such professional corporations under the administrative services agreements were approximately $26,702,000, $24,753,000, and $35,023,000 in 2004, 2005 and 2006 respectively. These amounts have been eliminated in consolidation.

Pro forma taxes: The Company had elected to be taxed as an S corporation under the provisions of the Internal Revenue Code. In connection with the closing of the Company’s initial public offering in June 2004, the S corporation election was terminated and, accordingly, the Company became subject to U.S. federal and state income taxes. Upon termination of the S corporation election, current and deferred income taxes reflecting the tax effects of temporary differences between the Company’s consolidated financial statement and tax basis of certain assets and liabilities became liabilities of the Company. These liabilities are reflected on the consolidated balance sheets with a corresponding expense in the consolidated statements of income and comprehensive income. See note 11 “Income Taxes.” The 2004 proforma net income includes pro forma income taxes as if the Company were subject to tax during the respective period using an effective rate of approximately 40%.

The quarterly interim financial information shown below has been prepared by the Company’s management and is unaudited. It should be read in conjunction with the audited consolidated financial statements appearing herein.

In January 2007, the Company acquired a 67.5% interest in a single radiation therapy treatment center located in Gettysburg Pennsylvania for approximately $750,000. The Company also acquired a urology group practice in southwest Florida for approximately $688,000.

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, on February 15, 2007.


RADIATION THERAPY SERVICES INC.

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

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


Florida		65-0768951
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

2234 Colonial Boulevard Fort Myers, Florida		33907
(Address Of Principal Executive Offices)		(Zip Code)


PART I
Item 1. Business		3
Item 1A. Risk Factors		26
Item 1B. Unresolved Staff Comments		37
Item 2. Properties		38
Item 3. Legal Proceedings		38
Item 4. Submission of Matters to a Vote of Security Holders		38
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		39
Item 6. Selected Financial Data		41
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		43
Item 7A. Quantitative and Qualitative Disclosures about Market Risk		65
Item 8. Financial Statements and Supplementary Data		65
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		65
Item 9A. Controls and Procedures		65
Item 9B. Other Information		67
PART III
Item 10. Directors, Executive Officers and Corporate Governance		68
Item 11. Executive Compensation		68
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		68
Item 13. Certain Relationships and Related Party Transactions, and Directors Independence		68
Item 14. Principal Accounting Fees and Services		69
PART IV
Item 15. Exhibits and Financial Statement Schedules		69
Report of Independent Registered Public Accounting Firm		F-2
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME		F-3
CONSOLIDATED BALANCE SHEETS		F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS		F-5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY		F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2006		F-8
SIGNATURES
EXHIBIT INDEX


Technologies:		Description:
Image Guided Radiation Therapy (IGRT)		Enables radiation oncologists to utilize imaging at time of treatment to localize tumors and to accurately mirror the contour of a tumor from any angle.

Intensity Modulated Radiation Therapy (IMRT)		Enables radiation oncologist to adjust the intensity of radiation levels delivered to more effectively treat certain cancers.

Respiratory Gating		Enables radiation oncologist to treat cancers in the lung and upper abdomen with a noninvasive technique that accounts for respiratory motion allowing more accurate treatment.

3-D Conformal Treatment Planning		Enables radiation oncologist to utilize three dimensional images of tumors to more accurately and effectively plan radiation treatments.

Stereotactic Radiosurgery		Enables delivery of very high doses of radiation treatment to certain lesions such as brain cancers.

High-Dose Rate Remote Brachytherapy		Enables radiation oncologist to treat cancer by internally delivering higher doses of radiation directly to the cancer for a few minutes.

Low-Dose Rate Brachytherapy		Enables radiation oncologist to treat cancer by internally delivering lower doses of radiation directly to the cancer over an extended period of time (e.g., prostate seed implants).


Treatment Center	Year	Owned/Managed
Lee County—Florida
Broadway	1983	Owned
Cape Coral	1984	Owned
Lakes Park	1987	Owned
Bonita Springs	2002	Owned
Lehigh Acres	2003	Owned
Charlotte/ Desoto Counties—Florida
Port Charlotte	1986	Owned
Arcadia	1993	Owned
Sarasota/ Manatee Counties—Florida
Englewood	1992	Owned
Sarasota	1996	Owned
Venice	1998	Owned
Bradenton	2002	Owned
Collier County—Florida
South Naples	1993	Owned
North Naples	1999	Owned
Northwest—Florida
Destin	2004	Owned
Crestview	2004	Owned
Palm Beach County—Florida
West Palm Beach (1)	2002	Owned
Las Vegas, Nevada
Henderson	2000	Managed
Lake Mead	2000	Managed
Central Maryland
Owings Mills (2)	2003	Owned
Rhode Island
Woonsocket (3)	2004	Owned
South County (4)	2005	Owned
Palm Springs, California
Palm Springs	2005	Managed


Treatment Center	Year	Owned/Managed
Broward County—Florida
Plantation	1993	Owned
Deerfield Beach	1994	Owned
Coral Springs	1994	Owned
Tamarac	1999	Owned
Northwest Florida
Fort Walton Beach	2001	Owned
Florida Keys
Key West	2003	Owned
Las Vegas, Nevada
Las Vegas (2 locations)	1997	Managed
Las Vegas (5 locations)	2005	Managed
Westchester/ Bronx—New York
Riverhill	1998	Managed
Delmarva Peninsula
Berlin, Maryland (1)	1998	Owned
Western North Carolina
Asheville	2002	Managed
Clyde	2002	Managed
Brevard	2002	Managed
Franklin	2002	Managed
Marion	2002	Managed
Rutherford	2002	Managed
Park Ridge	2003	Managed
Central Kentucky
Danville	2003	Owned
Louisville (2)	2003	Owned
Frankfort	2003	Owned
Southeastern Alabama
Dothan	2003	Managed
Opp	2006	Managed
South New Jersey
Woodbury	2004	Owned
Voorhees	2004	Owned
Willingboro	2004	Owned
Central Maryland
Martinsburg, West Virginia (3)	2005	Managed
Greenbelt, Maryland	2005	Managed
Belcamp, Maryland (4)	2005	Owned
Bel Air, Maryland	2006	Owned
Scottsdale, Arizona
Scottsdale	2005	Owned
Holyoke, Massachusetts
Holyoke	2005	Managed
Los Angeles, California
Santa Monica	2006	Managed
Beverly Hills	2006	Managed
Southeastern Michigan
Pontiac	2006	Managed
Madison Heights	2006	Managed
Clarkson	2006	Managed
Monroe	2006	Managed
Farmington Hills	2006	Managed
Eastpointe	2006	Managed
Macomb	2006	Managed


		Services Provided
Treatment Center	Year	Professional	Technical	Administrative
Dade County—Florida
Hialeah	1996	ü
Aventura	1999	ü	ü
Westchester/ Bronx—New York
Bronx (1)	2003		ü	ü
Northern Westchester (1)	2005		ü	ü
Mohawk Valley—New York
Utica (1)	1998		ü	ü
Rome (1)	1999		ü	ü
Herkimer (1)	1999		ü	ü
Delmarva Peninsula
Salisbury, Maryland (2)	2003		ü	ü
Seaford, Delaware (2)	2003		ü	ü
Rhode Island
Providence (3)	2005		ü	ü


	High		Low
2005
First Quarter	$	19.84	$	14.31
Second Quarter	$	27.46	$	19.05
Third Quarter	$	31.86	$	25.08
Fourth Quarter	$	38.93	$	28.09
2006
First Quarter	$	35.03	$	22.84
Second Quarter	$	30.13	$	23.00
Third Quarter	$	31.98	$	26.17
Fourth Quarter	$	34.47	$	28.83
2007
First Quarter (through February 1, 2007)	$	32.89	$	29.32


Plan Category	Number of Shares of Common Stock to be Issued Upon Vesting of Restrictions	Number of Shares of Common Stock to be Issued Upon Exercise of Outstanding Options and Rights	Weighted- Average Exercise Price of Outstanding Options		Number of Shares of Common Stock Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Shares Reflected in the First and Second Column)
Equity Compensation Plans Approved by Shareholders 1997 and 2004 stock incentive plans	6,000	1,625,494	$	10.67	3,382,812	(1)(2)
Equity Compensation Plans Not Approved by Shareholders	N/A	N/A		N/A	N/A


	Year Ended December 31,
*(Dollars in thousands, except per share amounts):*	2002			2003			2004		2005		2006
Consolidated Statements of Income Data:
Revenues:
Net patient service revenue	$	106,252		$	131,147		$	163,719	$	217,590	$	284,067
Other revenue		4,868			7,533			7,654		9,660		9,915

Total revenues		111,120			138,680			171,373		227,250		293,982
Expenses:
Salaries and benefits		57,248			72,146			87,059		116,300		147,697
Medical supplies		2,312			2,226			3,608		5,678		7,569
Facility rent expenses		3,744			4,656			5,347		7,720		9,432
Other operating expenses		7,194			8,690			7,561		9,748		12,761
General and administrative expenses		10,475			16,400			19,671		23,538		30,209
Depreciation and amortization		4,283			5,202			6,860		10,837		16,967
Provision for doubtful accounts		3,365			3,375			5,852		6,792		9,425
Interest expense, net		2,615			2,053			3,435		5,290		10,036
Impairment loss		—			284			—		1,226		—

Total expenses		91,236			115,032			139,393		187,129		244,096

Income before minority interests		19,884			23,648			31,980		40,121		49,886
Minority interests in net losses (earnings) of consolidated entities		23			(7	)		55		480		(580	)

Income before cumulative effect of change in accounting principle and income taxes		19,907			23,641			32,035		40,601		49,306
Cumulative effect of change in accounting principle		(963	)		—			—		—		—

Income before income taxes		18,944			23,641			32,035		40,601		49,306
Income tax expense		—			—			22,847		15,631		18,983

Net income	$	18,944		$	23,641		$	9,188	$	24,970	$	30,323

Earnings per common share
Basic	$	1.14		$	1.39		$	0.45	$	1.10	$	1.31

Diluted	$	1.04		$	1.28		$	0.44	$	1.05	$	1.26

Pro forma income data:
Income before provision for income taxes, as reported	$	18,944		$	23,641		$	32,035
Pro forma provision for income taxes (1)		7,966			9,456			12,814

Pro forma net income	$	10,978		$	14,185		$	19,221

Pro forma earnings per common share (1)
Basic	$	0.66		$	0.84		$	0.95

Diluted	$	0.60		$	0.77		$	0.91

Weighted average common shares outstanding:
Basic		16,653,542			16,974,471			20,292,117		22,725,819		23,137,966

Diluted		18,265,182			18,470,880			21,031,968		23,703,653		23,993,341


	As of December 31,
*(In thousands):*	2002		2003		2004		2005		2006
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	4,294	$	2,606	$	5,019	$	8,980	$	15,413
Total assets		102,783		128,036		168,177		263,345		399,094
Total debt		51,342		59,811		66,103		123,463		205,244
Total shareholders’ equity		37,208		49,578		66,321		95,383		134,808


	Year Ended December 31,
	2004		2005		2006
Treatment centers at beginning of period	51		56		68
Internally developed	3		2		—
Internally (consolidated)	—		(2	)	—
Acquired	3		10		10	*
Hospital-based	(1	)	2		(2	)

Treatment centers at period end	56		68		76

Local markets at period end	19		22		24


	Three Months Ended December 31,						% Change		Year Ended December 31,						% Change
	2005			2006			% Change		2005			2006			% Change
Number of treatment days		63			63					255			254
Total treatments – freestanding centers		83,713			96,895		15.7	%		325,723			373,218		14.6	%
Treatments per day – freestanding centers		1,329			1,538		15.7	%		1,278			1,469		15.0	%
Percentage change in revenue per treatment – freestanding centers – same practice basis		18.2	%		9.0	%				12.1	%		14.0	%
Percentage change in treatments per day – freestanding centers – same practice basis		2.1	%		3.2	%				1.6	%		2.9	%
Local markets at period end		22			24		9.1	%
Treatment centers - freestanding		56			66		17.9	%
Treatment centers - hospital		12			10		(16.7	)%

		68			76		11.8	%

Days sales outstanding for the quarter		54			61

Percentage change in total revenues – same practice basis		16.8	%		10.7	%				15.2	%		15.0	%
Net patient service revenue – professional services only (in thousands)	$	4,211		$	6,699				$	15,688		$	26,088


	Years Ended December 31,
Payer	2004		2005		2006
Medicare	51.6	%	48.6	%	50.1	%
Commercial	45.5		47.3		46.4
Medicaid	1.4		1.8		1.8
Self pay	1.5		2.3		1.7

Total net patient service revenue	100.0	%	100.0	%	100.0	%


Payer	Total AR		Unbilled and < 30 days		31 – 120 days		over 120 days
Medicare and Medicaid	31	%	16	%	9	%	6	%
Commercial	41	%	15	%	14	%	12	%
Patient self-pay	24	%	2	%	5	%	17	%
Other	4	%	3	%	1	%	0	%

Total	100	%	36	%	29	%	35	%


	Three Months Ended December 31,
	2005					2006
Revenues:
Net patient service revenue	$	62,137		96.5	%	$	75,825	97.3	%
Other revenue		2,236		3.5			2,103	2.7

Total revenues		64,373		100.0	%		77,928	100.0	%
Expenses:
Salaries and benefits		34,485		53.6			40,191	51.6
Medical supplies		1,382		2.1			1,833	2.4
Facility rent expenses		2,148		3.3			2,608	3.3
Other operating expenses		2,728		4.2			3,535	4.5
General and administrative expenses		6,808		10.6			7,869	10.1
Depreciation and amortization		3,173		4.9			4,831	6.2
Provision for doubtful accounts		1,009		1.6			2,227	2.9
Interest expense, net		1,726		2.7			3,285	4.2

Total expenses		53,459		83.0			66,379	85.2

Income before minority interests		10,914		17.0			11,549	14.8
Minority interests in net losses (earnings) of consolidated entities		(144	)	(0.2	)		164	0.2

Income before income taxes		10,770		16.8			11,713	15.0
Income tax expense		4,116		6.4			4,510	5.8

Net income	$	6,654		10.4	%	$	7,203	9.2	%


Date	Sites	Location	Market	Type
November 2005	1	Palm Springs, California	Palm Springs, California	De novo
January 2006	1	Opp, Alabama	Southeastern Alabama	Acquisition
May 2006	1	Santa Monica, California	Los Angeles, California	Acquisition
August 2006	1	Bel Air, Maryland	Central Maryland	Acquisition
September 2006	1	Beverly Hills, California	Los Angeles, California	Acquisition
November 2006	7	Southeastern Michigan	Southeastern Michigan	Acquisition


	Requirement	Level at December 31, 2006

Maximum permitted consolidated leverage ratio	<3.25 to 1.00	2.42 to 1.00

Minimum permitted consolidated fixed charge coverage ratio	>1.50 to 1.00	2.38 to 1.00

Minimum permitted consolidated interest coverage ratio	>3.75 to 1.00	6.32 to 1.00


Senior Secured Credit Facility	Effective Interest Rate		Letters of Credit		Amount Outstanding		Amount Available for Additional Borrowing
					(Dollars in thousands)
Revolving credit facility	6.9	%	$	300	$	66,700	$	73,000
Term B loan	7.1			—		98,550		50,000

Total			$	300	$	165,250	$	123,000


	Payments Due by Period
Contractual Cash Obligations	Total		Less Than 1 Year		2-3 Years		4-5 Years		After 5 Years
	(In thousands)
Long-term debt	$	165,250	$	1,000	$	2,000	$	68,700	$	93,550
Capital lease obligations		39,994		11,285		18,290		10,419		—
Interest on Senior Credit Facility (1)		56,375		11,495		22,990		14,975		6,915
Interest on capital lease obligations (2)		10,736		2,595		4,974		3,167		—
Operating leases		128,329		11,086		21,088		19,637		76,518

Total contractual cash obligations	$	400,684	$	37,461	$	69,342	$	116,898	$	176,983


Notional Amount	Fixed Rate	Term in Months	Maturity
$20.0 million	4.87% (plus a margin)	48	December 31, 2009


		Page
Report of Independent Registered Public Accounting Firm		F-2

Consolidated Financial Statements:
Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2004, 2005 and 2006		F-3
Consolidated Balance Sheets at December 31, 2005 and 2006		F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2005 and 2006		F-5
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2004, 2005 and 2006		F-7
Notes to Consolidated Financial Statements		F-8


	Year Ended December 31
	2004		2005		2006
Net patient service revenue	$	163,719,027	$	217,590,469	$	284,066,539
Other revenue		7,654,283		9,659,844		9,915,414

Total revenues		171,373,310		227,250,313		293,981,953
Salaries and benefits		87,059,350		116,299,899		147,696,630
Medical supplies		3,608,467		5,678,516		7,569,011
Facility rent expenses		5,346,745		7,720,023		9,432,417
Other operating expenses		7,560,469		9,748,650		12,761,111
General and administrative expenses		19,671,484		23,537,783		30,209,527
Depreciation and amortization		6,859,570		10,836,880		16,966,523
Provision for doubtful accounts		5,852,325		6,792,402		9,424,524
Interest expense, net		3,435,121		5,290,034		10,035,949
Impairment loss		—		1,225,853		—

Total expenses		139,393,531		187,130,040		244,095,692

Income before minority interests		31,979,779		40,120,273		49,886,261
Minority interests in net losses (earnings) of consolidated entities		55,123		480,212		(580,499	)

Income before income taxes		32,034,902		40,600,485		49,305,762
Income tax expense		22,846,460		15,631,187		18,982,718

Net income		9,188,442		24,969,298		30,323,044
Other comprehensive income:
Unrealized gain on derivative interest rate swap agreements		45,748		4,629		31,362

Comprehensive income	$	9,234,190	$	24,973,927	$	30,354,406

Net income per common share outstanding—basic	$	0.45	$	1.10	$	1.31

Net income per common share outstanding—diluted	$	0.44	$	1.05	$	1.26

Weighted average shares outstanding:
Basic		20,292,117		22,725,819		23,137,966

Diluted		21,031,968		23,703,653		23,993,341

Unaudited Pro forma income data:
Income before income taxes, as reported	$	32,034,902
Pro forma income taxes		12,813,961

Pro forma net income	$	19,220,941

Pro forma net income per common share outstanding—basic	$	0.95

Pro forma net income per common share outstanding—diluted	$	0.91


	December 31,
	2005			2006
ASSETS
Current assets:
Cash and cash equivalents	$	8,979,994		$	15,413,071
Marketable securities, at market		5,450,000			—
Accounts receivable, less allowances for doubtful accounts of $12,490,077 and $17,554,344 at December 31, 2005 and 2006, respectively		40,301,195			52,763,835
Income taxes receivable		2,560,007			937,614
Prepaid expenses		3,152,555			8,273,294
Current portion of lease receivable		647,013			427,304
Inventories		1,280,208			1,612,983
Deferred income taxes		2,144,431			5,583,488
Other		1,199,881			2,526,482

Total current assets		65,715,284			87,538,071
Lease receivable, less current portion		580,728			153,424
Equity investments in joint ventures		803,151			1,215,070
Property and equipment, net		113,397,349			152,379,018
Goodwill, net		66,537,332			138,785,329
Intangible assets, net		6,773,910			7,599,040
Other assets		9,538,020			11,423,705

Total assets	$	263,345,774		$	399,093,657

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,676,418		$	10,603,640
Accrued expenses		11,433,668			14,679,249
Current portion of long-term debt		6,506,254			12,284,849

Total current liabilities		23,616,340			37,567,738
Long-term debt, less current portion		116,956,991			192,959,189
Other long-term liabilities		2,284,341			2,583,956
Deferred income taxes		18,489,169			24,070,363
Minority interest in consolidated entities		6,616,190			7,104,345

Total liabilities		167,963,031			264,285,591
Shareholders’ equity:
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, none issued or outstanding		—			—
Common stock, $0.0001 par value, 75,000,000 shares authorized, 22,831,481 and 23,366,883 shares issued and outstanding at December 31, 2005 and 2006, respectively		2,283			2,337
Additional paid-in capital		72,730,328			81,464,715
Unearned compensation on nonvested stock		(241,715	)		—
Retained earnings		23,359,652			53,682,696
Notes receivable from shareholders		(481,124	)		(386,363	)
Accumulated other comprehensive income, net of tax		13,319			44,681

Total shareholders’ equity		95,382,743			134,808,066

Total liabilities and shareholders’ equity	$	263,345,774		$	399,093,657


	Common Stock				Additional Paid-In Capital			Unearned Compensation on Nonvested Stock			Retained Earnings (Deficit)			Notes Receivable from Shareholders			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
	Shares		Amount		Additional Paid-In Capital			Unearned Compensation on Nonvested Stock			Retained Earnings (Deficit)			Notes Receivable from Shareholders						Total Shareholders’ Equity
Balance, January 1, 2003	17,281,920		$	1,728	$	16,615,798		$	—		$	35,643,067		$	(2,645,161	)	$	(37,058	)	$	49,578,374
Net income	—			—		—			—			9,188,442			—			—			9,188,442
Distributions to shareholders	—			—		—			—			(46,441,155	)		—			—			(46,441,155	)
Issuance of common stock	3,303			1		37,904			—			—			—			—			37,905
Payment of notes receivable from shareholders	—			—		—			—			—			877,630			—			877,630
Unrealized gain on interest rate swap agreement	—			—		—			—			—			—			45,748			45,748
Exercise of stock options	932,706			93		2,316,253			—			—			—			—			2,316,346
Issuance of common stock in initial public offering, net of expenses	4,000,000			400		46,780,661			—			—			—			—			46,781,061
Compensation to outside consultants	—			—		407,918			—			—			—			—			407,918
Issuance of common stock in connection with the acquisition of Devoto Construction, Inc.	271,385			27		3,527,973			—			—			—			—			3,528,000

Balance, December 31, 2004	22,489,314		$	2,249	$	69,686,507		$	—		$	(1,609,646	)	$	(1,767,531	)	$	8,690		$	66,320,269
Net income	—			—		—			—			24,969,298			—			—			24,969,298
Payment of notes receivable from shareholders	—			—		—			—			—			1,286,407			—			1,286,407
Unrealized gain on interest rate swap agreement, net	—			—		—			—			—			—			4,629			4,629
Exercise of stock options	334,667			33		2,683,385			—			—			—			—			2,683,418
Nonvested stock issued to key employee	7,500			1		250,049			(250,050	)		—			—			—			—
Amortization of nonvested stock grant	—			—		—			8,335			—			—			—			8,335
Compensation to outside consultants	—			—		110,387			—			—			—			—			110,387
Balance, December 31, 2005	22,831,481		$	2,283	$	72,730,328		$	(241,715	)	$	23,359,652		$	(481,124	)	$	13,319		$	95,382,743

Net income	—			—		—			—			30,323,044			—			—			30,323,044
Payment of notes receivable from shareholders	—			—		—			—			—			94,761			—			94,761
Unrealized gain on interest rate swap agreement, net of tax	—			—		—			—			—			—			31,362			31,362
Exercise of stock options	535,402			54		5,988,170			—			—			—			—			5,988,224
Tax benefit from stock option exercise	—			—		2,937,922			—			—			—			—			2,937,922
Adoption of SFAS 123R	—			—		(241,715	)		241,715			—			—			—			—
Nonvested stock issued to key employee	4,895			—		—			—			—			—			—			—
Amortization of nonvested stock grants	—			—		61,631			—			—			—			—			61,631
Forfeited nonvested stock	(4,895	)		—		(11,621	)		—			—			—			—			(11,621	)

Balance, December 31, 2006	23,366,883		$	2,337	$	81,464,715		$	—		$	53,682,696		$	(386,363	)	$	44,681		$	134,808,066


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


	December 31, 2005
Intangible assets subject to amortization (definite-lived)	Gross		Accumulated Amortization			Net
Noncompete agreements	$	7,974,934	$	(1,530,753	)	$	6,444,181
Other licenses		35,000		(7,500	)		27,500

		8,009,934		(1,538,253	)		6,471,681

Intangible assets not subject to amortization (indefinite-lived)
Certificate of need licenses		302,229		—			302,229

	$	8,312,163	$	(1,538,253	)	$	6,773,910


	December 31, 2006
Intangible assets subject to amortization (definite-lived)	Gross		Accumulated Amortization			Net
Noncompete agreements	$	10,418,536	$	(3,263,225	)	$	7,155,311
Other licenses		332,500		(191,000	)		141,500

		10,751,036		(3,454,225	)		7,296,811

Intangible assets not subject to amortization (indefinite-lived)
Certificate of need licenses		302,229		—			302,229

	$	11,053,265	$	(3,454,225	)	$	7,599,040


2007	$	1,660,751
2008		1,419,320
2009		1,271,007
2010		1,224,309
2011		1,129,771


	2005			2006
Deferred income tax assets:
Provision for doubtful accounts	$	3,009,035		$	4,206,445
State net operating loss carryforwards		115,510			848,534
Deferred rent liability		593,839			647,818
Intangible assets		717,840			782,100
Management fee receivable allowance		3,333,591			4,182,611
Other		1,232,216			1,992,847

Net deferred income tax assets	$	9,002,031		$	12,660,355

Deferred income tax liabilities:
Property and equipment	$	(14,555,970	)	$	(18,579,305	)
Intangible assets		(3,236,382	)		(5,085,174	)
Income tax effect of conversion from an S-Corporation to a C-Corporation		(3,876,611	)		(1,976,610	)
Prepaid expense		(787,176	)		(2,098,586	)
Partnership interests		(2,781,738	)		(3,084,055	)
Other		(108,892	)		(323,500	)

Total deferred tax liabilities		(25,346,769	)		(31,147,230	)

Net deferred income tax liabilities	$	(16,344,738	)	$	(18,486,875	)


Balance at January 1, 2004	$	1,228,886
Equity interest in net income of joint ventures		193,014

Balance at December 31, 2004		1,421,900
Capital contributions in joint venture		84,124
Distributions from joint venture		(235,000	)
Equity interest in net loss of joint ventures		(467,872	)

Balance at December 31, 2005		803,151
Capital contributions in joint venture		539,659
Equity interest in net loss of joint ventures		(127,740	)

Balance at December 31, 2006	$	1,215,070


	Commitments		Less Sublease Rentals		Net Rental Commitments
2007	$	11,086,099	$	328,002	$	10,758,097
2008		10,530,779		328,002		10,202,777
2009		10,557,063		328,002		10,229,061
2010		9,936,209		426,403		9,509,806
2011		9,700,459		426,403		9,274,056
Thereafter		76,518,310		1,279,208		75,239,102

	$	128,328,919	$	3,116,020	$	125,212,899


	Number of Stock Options		Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding at January 1, 2004	1,710,719		$	2.72
Granted	1,745,000			13.00
Exercised	(932,706	)		2.39
Forfeited	(27,450	)		5.54

Outstanding at December 31, 2004	2,495,563		$	10.00
Exercised	(334,667	)		4.88

Outstanding at December 31, 2005	2,160,896		$	10.80
Exercised	(535,402	)		11.18

Outstanding at December 31, 2006	1,625,494		$	10.67	$	33,890,518

Options exercisable at December 31, 2004	430,051		$	3.19

Options exercisable at December 31, 2005	1,939,557		$	11.71

Options exercisable at December 31, 2006	1,493,690		$	11.37	$	30,105,179


Range of Exercise Prices	Stock Options Outstanding	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
$1.91 - $2.80	131,804	$	2.80	2.1
$3.01	226,200		3.01	3.1
$7.33 - $13.00	1,267,490		12.86	7.5

	1,625,494	$	10.67	6.4


Range of Exercise Prices	Stock Options Exercisable	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
$3.01	226,200	$	3.01	3.1
$7.33 - $13.00	1,267,490		12.86	7.5

	1,493,690	$	11.37


	Shares		Weighted Average Grant Date Fair Value
Nonvested balance at December 31, 2005	7,500		$	33.34
Shares granted	4,895			28.49
Shares forfeited	(4,895	)		28.49
Vested	(1,500	)		33.34

Nonvested balance at December 31, 2006	6,000		$	33.34


	2005
	First		Second		Third		Fourth
Total Revenues	$	52,419,468	$	54,443,727	$	56,014,269	$	64,372,849
Net income		6,297,217		7,491,788		4,527,149		6,653,144
Earnings per share:
Basic	$	0.28	$	0.33	$	0.20	$	0.29
Diluted	$	0.27	$	0.32	$	0.19	$	0.28

	2006
	First		Second		Third		Fourth
Total Revenues	$	73,941,647	$	72,631,222	$	69,481,304	$	77,927,780
Net income		8,856,626		8,847,886		5,414,809		7,203,723
Earnings per share:
Basic	$	0.39	$	0.38	$	0.23	$	0.31
Diluted	$	0.37	$	0.37	$	0.23	$	0.30