|FORM 10-Q



SECURITIES
AND EXCHANGE COMMISSION



Washington,
D.C. 20549



(Mark one)
|---------------------------------------------------------------------------------------

|[X] |  | QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934.
|--- |  | -----------------------------------------------------------------------------------------

|For the quarterly
period ended June 30, 2001



OR
|--------------------------------------------------

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

|For the transition period from _____
to _____



Commission file number
0-27750


IMPATH INC.(exact name
of registrant as specified in its charter)
|---------------------------------------------------------------------------------------------------------------------------------------------------

|Delaware
(State or other jurisdiction of
incorporation or organization) | 8071
(Primary Standard Industrial
Classification Code Number) | 13-3459685
(I.R.S. Employer
Identification No.)
|----------------------------------------------------------------------- | ------------------------------------------------------------- | -----------------------------------------------

|521 West 57th StreetNew
York, New York 10019(212) 698-0300
(Address, including zip
code, and telephone number,including area code, of registrants principal executive
offices)




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
the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.

|CLASS                   | OUTSTANDING AT JUNE 30, 2001
|----------------------- | ----------------------------
|Common Stock, par value |                             
|$.005 per share         |                             

|Index



IMPATH Inc.
and Subsidiaries
|-------------------------------------

|           |  | PAGENUMBER                                                                                              
|---------- |  | --------------------------------------------------------------------------------------------------------
|PART I     |  | Financial Information                                                                                   
|          
|Item 1     |  | Consolidated Financial Statements (Unaudited):                                                          
|          
|           |  | Consolidated Balance Sheets at June 30, 2001 and December 31, 2000                                      
|          
|           |  | Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2001 and June 30, 2000
|          
|           |  | Consolidated Statement of Stockholders Equity for the Six Months Ended June 30, 2001                   
|          
|           |  | Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001 and June 30, 2000          
|          
|           |  | Notes to Consolidated Financial Statements                                                              
|          
|Item 2     |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                   
|          
|Item 3     |  | Quantitative and Qualitative Disclosures about Market Risk                                              
|          
|PART II    |  | Other Information                                                                                       
|          
|Item 6     |  | Exhibits and Reports on Form 8-K                                                                        
|          
|Signatures |  |                                                                                                         

|2
|-

|Part I. Financial Information



Item 1. Consolidated
Financial Statements (Unaudited)



IMPATH Inc.
and Subsidiaries



Consolidated Balance
Sheets(unaudited)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                             | June 30,2001 | December 31,2000
|------------------------------------------------------------ | ------------ | ----------------
|ASSETS                                                       |             
|Current assets:                                              |             
|Cash and cash equivalents                                    |              | $     9,556,114 
|Marketable securities, at market value                       |              | 12,357,875      
|Accounts receivable, net of allowance for doubtful accounts  |              | 61,894,673      
|Prepaid expenses                                             |              | 1,087,605       
|Deferred tax assets                                          |              | 4,267,831       
|Other current assets                                         |              | 10,768,050      
|                                                            
|Total current assets                                         |              | 99,932,148      
|                                                            
|Fixed assets, less accumulated depreciation and amortization |              | 73,737,797      
|Deposits and other assets                                    |              | 633,152         
|Intangible assets, net of accumulated amortization           |              | 39,784,377      
|                                                            
|Total assets                                                 |              | $ 214,087,474   
|                                                            
|                                                            
|LIABILITIES AND STOCKHOLDERS EQUITY                         |             
|                                                            
|                                                            
|Current liabilities:                                         |             
|Current portion of capital lease obligations                 |              | $   12,339,408  
|Current portion of notes payable                             |              | 266,665         
|Short term  borrowings                                       |              | 5,500,000       
|Accounts payable                                             |              | 4,286,194       
|Deferred revenue                                             |              | 2,305,270       
|Income taxes payable                                         |              | 6,277,767       
|Accrued expenses & other current liabilities                 |              | 3,958,270       
|                                                            
|Total current liabilities                                    |              | 34,933,574      
|                                                            
|Capital lease obligations, net of current portion            |              | 27,732,801      
|Deferred tax liabilities                                     |              | 2,803,271       
|                                                            
|Stockholders equity:                                        |             
|Common stock                                                 |              | 91,144          
|Common stock to be issued                                    |              | 50,000          
|Additional paid-in capital                                   |              | 135,193,144     
|Retained earnings                                            |              | 41,572,617      
|Accumulated other comprehensive (loss)                       |              | (412,464        
|                                                            
|                                                             |              | 176,494,441     
|Less:                                                        |             
|Cost of 2,209,476 and 2,209,476 shares of common stock       |             
|held in treasury in 2001 and 2000, respectively              |              | (26,750,281     
|Deferred compensation                                        |              | (1,126,332      
|                                                            
|Total stockholders equity                                   |              | 148,617,828     
|                                                            
|Total liabilities and stockholders equity                   |              | $ 214,087,474   
|                                                            

|See accompanying notes to
consolidated financial statements.


3
|----------------------------------------------------------------

|IMPATH
INC. and Subsidiaries



Consolidated Statements
of Operations(Unaudited)
|--------------------------------------------------------------------------------

|                                                      | Three Months Ended | Six Months Ended 
|----------------------------------------------------- | ------------------ | -----------------
|
|
|Revenues:                                             |                    |                  
|Net Physicians Services                               |                    | $ 42,420,401     
|IMPATH Predictive Oncology                            |                    | 3,478,684        
|Information Services                                  |                    | 1,175,383        
|                                                     
|                                                      |                    | 47,074,468       
|                                                     
|Operating expenses:                                   |                   
|Salaries and related costs                            |                    | 16,225,400       
|Selling, general and administrative                   |                    | 19,048,316       
|Depreciation and amortization                         |                    | 3,824,402        
|                                                     
|                                                     
|Total operating expenses                              |                    | 39,098,118       
|                                                     
|                                                     
|Income from operations                                |                    | 7,976,350        
|                                                     
|Interest income                                       |                    | 322,361          
|Interest expense                                      |                    | (744,505         
|                                                     
|                                                     
|Other income (expense), net                           |                    | (422,144         
|                                                     
|                                                     
|Income before income tax expense                      |                    | 7,554,206        
|                                                     
|Income tax expense                                    |                    | (3,248,940       
|                                                     
|Net income                                            |                    | $   4,305,266    
|                                                     
|                                                     
|Earnings per share:                                   |                   
|Basic:                                                |                   
|Net income per common share                           |                    | $            0.27
|                                                     
|                                                     
|Weighted average common shares outstanding            |                    | 15,973,000       
|                                                     
|Diluted:                                              |                   
|Net income per common share-assuming        dilution  |                    | $            0.26
|                                                     
|Weighted average common and common                    |                   
|equivalent shares outstanding-assuming       dilution |                    | 16,680,000       
|                                                     

|See accompanying notes to
consolidated financial statements.


4
|----------------------------------------------------------------

|IMPATH Inc. and
Subsidiaries
Consolidated Statement
of StockholdersEquity Six Months Ended June
30, 2001
(Unaudited)
|---------------------------------------------------------------------------------------------------------------------

|                             | Common Stock | CommonStock to | AdditionalPaid-inCapital | Retained | AccumulatedOtherComprehensive | Treasury | Deferred |             
|---------------------------- | ------------ | -------------- | ------------------------ | -------- | ----------------------------- | -------- | -------- | ------------
|
|Balance at December 31, 2000 |              | 18,000,899     |                          | $90,005  |                               | $595,000 |          | $133,633,347
|Common shares issued upon    |             
|exercise of stock options    |              | 187,800        |                          | 939      |                               |          |          | 1,014,997   
|Issuance of common shares    |              | 40,000         |                          | 200      |                               | (545,000 | )        | 544,800     
|Change in deferred           |             
|compensation                 |              |                |                          |          |                               |          |          |             
|Comprehensive income:        |             
|Change in unrealized net     |             
|depreciation of securities   |              |                |                          |          |                               |          |          |             
|Net income for the period    |             
|ended June 30, 2001          |              |                |                          |          |                               |          |          |             
|                            
|Total comprehensive income   |              |                |                          |          |                               |          |          |             
|                            
|Balance at June 30, 2001     |              | 18,228,699     |                          | $91,144  |                               | $50,000  |          | $135,193,144
|                            

|See accompanying notes to
consolidated financial statements


5
|---------------------------------------------------------------

|IMPATH Inc. and
Subsidiaries


Consolidated Statements
of Cash Flows(Unaudited)
|-------------------------------------------------------------------------------

|                                                                      | Six Months Ended June 30,
|--------------------------------------------------------------------- | -------------------------
|
|                                                                     
|Cash flows from operating activities:                                 |                          
|Net income                                                            |                          
|Adjustments to reconcile net income to net cash provided by (used in) |                          
|operating activities:                                                 |                          
|Depreciation and amortization                                         |                          
|Provision for uncollectible accounts receivable                       |                          
|Non-cash compensation                                                 |                          
|Changes in assets and liabilities:                                    |                          
|(Increase) in accounts receivable                                     |                          
|(Increase) in prepaid expenses and current assets                     |                          
|(Increase) in deposits and other assets                               |                          
|Increase in accounts payable and accrued expenses                     |                          
|Increase in income taxes payable                                      |                          
|Increase/(decrease) in deferred revenues                              |                          
|                                                                     
|Total adjustments                                                     |                          
|                                                                     
|Net cash provided by operating activities                             |                          
|                                                                     
|Cash flows from investing activities:                                 |                          
|Purchases of marketable securities                                    |                          
|Sales/maturities of marketable securities                             |                          
|Acquisitions of marketable securities                                 |                          
|Purchase of intangible assets                                         |                          
|Capital expenditures                                                  |                          
|                                                                     
|Net cash (used in) provided by investing activities                   |                          
|                                                                     
|                                                                     
|Cash flows from financing activities:                                 |                          
|Issuance of common stock from exercise of shares and warrants         |                          
|Repurchase of common stock                                            |                          
|Payments of capital lease obligations                                 |                          
|Proceeds from capital leases                                          |                          
|Proceeds from bank loans                                              |                          
|Payments of notes payable                                             |                          
|                                                                     
|Net cash (used in) financing activities                               |                          
|                                                                     
|Net (decrease) in cash and cash equivalents                           |                          
|Cash and cash equivalents at beginning of period                      |                          
|                                                                     
|Cash and cash equivalents at end of period                            |                          
|                                                                     

|See accompanying notes to
consolidated financial statements.


6
|----------------------------------------------------------------

|IMPATH Inc.



Notes to Consolidated
Financial Statements(unaudited)


General:


The accompanying unaudited
consolidated financial statements have been prepared by management in accordance
with the rules and regulations of the United States Securities and Exchange
Commission.


In the opinion of IMPATH
Inc. (the Company or IMPATH), the accompanying unaudited
consolidated financial statements contain all adjustments, consisting only of
normal recurring adjustments necessary for the fair presentation of the
financial information for all periods presented. Results for the interim periods
are not necessarily indicative of the results for an entire year and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto contained in the Companys
Annual Report on Form 10-K for the year ended December 31, 2000.


Net Income Per Share:


Net income per share, basic
is based on the weighted average number of shares of common stock outstanding
and includes shares to be issued from the date the commitment to issue was
consummated. Diluted earnings per share is based on the weighted average number
of shares of common stock, shares to be issued and common equivalent shares
outstanding. Common equivalent shares from stock options and warrants are
included in the computation assuming the related options and warrants had been
exercised to the extent their effect is dilutive.



Comprehensive
Net Income:


Comprehensive net income is
equal to the net income reported adjusted for the unrealized net depreciation of
marketable securities, net of related deferred taxes. Comprehensive net income
for the three months ended June 30, 2001 and 2000 was $4,023,344 and $3,128,954,
respectively. Comprehensive net income for the six months ended June 30, 2001
and 2000 was $8,078,297 and $5,964,365, respectively.


Investments:


In accordance with
Statement of Financial Accounting Standards (SFAS) No. 115, the
Companys investments (consisting primarily of government and corporate
fixed income securities) were classified as available for sale. As a result, the
unrealized depreciation is recorded as a separate component of
stockholders equity, net of related deferred taxes. At June 30, 2001,
approximately $4,646,383 of securities with original maturities of three months
or less were included as cash equivalents. The remaining securities included in
the investment portfolio with original maturities that exceed three months are
included in current assets.



Accounts
Receivable, Net of Allowance for Doubtful Accounts:


In accordance with
Generally Accepted Accounting Principles (GAAP) and consistent with
healthcare industry practices, IMPATH presents its accounts receivable at net
realizable value. Net accounts receivable balances are comprised of the
following as of June 30, 2001 and December 31, 2000:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                | June 30, 2001 | December 31, 2000
|------------------------------- | ------------- | -----------------
|Gross accounts receivable       |               | $ 119,176,796    
|Allowance for doubtful accounts |               | (17,650,988      
|Contractual allowance reserve   |               | (39,631,135      
|                               
|                                |               | $   61,894,673   
|                               

|7
|-

|Segment
information:


In June 1997, the FASB issued SFAS
No. 131, Disclosures About Segments of An Enterprise and Related Information. SFAS No.
131 established standards for reporting information about operating segments in annual
financial statements and in interim financial reports issued to stockholders.



(a) Segment
Information


The Company operates in
three reportable business segments: (1) Physician Services, (2) IMPATH
Predictive Oncology (IPO) and (3) Information Services.
Physician Services derives revenue from performing specialized cancer analyses.
IPO provides contract laboratory services and cancer database and
pharmacoeconomic information to pharmaceutical companies. Information Services
derives revenues by licensing its tumor registry software to community hospitals
and state agencies. The Company measures the performance of its operating
segments through Operating Income as defined on the accompanying
consolidated statements of operations.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Six Months Ended($ in Thousands) | TotalIMPATH Inc. | PhysicianServices | IMPATHPredictive OncologyTM | InformationServices
|-------------------------------- | ---------------- | ----------------- | --------------------------- | -------------------
|                                
|2001                             |                  |                   |                             |                    
|Revenue                          |                  | 89,210            |                             | 80,425             
|Operating income (loss)          |                  | 15,386            |                             | 16,105             
|Depreciation and                 |                 
|Amortization                     |                  | 7,244             |                             | 6,046              
|                                
|2000                             |                  |                   |                             |                    
|Revenue                          |                  | 63,927            |                             | 57,745             
|Operating income (loss)          |                  | 10,414            |                             | 11,780             
|Depreciation and                 |                 
|Amortization                     |                  | 4,924             |                             | 4,337              
|                                

|Intangible
Asset:


The Company has designed
and is developing GenebankTM as a large repository of tissues,
clinical data, treatment history and outcomes analyses from cancer patients to
facilitate genomic (gene-based) and proteomic (protein-based) discovery
initiatives. The Company anticipates that the GenebankTM
infrastructure will make it possible to collect tumor specimens and outcomes
data on 40,000 to 50,000 patients over the next several years. GenebankTM has been classified as an intangible asset and has capitalized costs of
$2,313,844 million as of June 30, 2001. GenebankTM is being
amortized using the straight line method over its estimated useful life of seven
years.



Recently
Issued Accounting Standards:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|a) |  | In
July 2001, the FASB issued Statement No. 141, Business Combinations, and Statement
No. 142, Goodwilland Other Intangible Assets. Statement 141 requires that
the purchase method of accounting be used for all business combinations initiated after
June 30, 2001. Statement 141 also specifies criteria intangible assets acquired in a purchase
method business combination must meet to be recognized and reported apart from goodwill,
noting that any purchase price allocable to an assembled workforce may not be accounted
for separately. Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for impairment at
least annually in accordance with the provisions of Statement 142. Statement 142 will
also require that intangible assets with
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8
|-

|
|

| | definite
useful lives be amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 121, Accounting
for the Impairment ofLong-Lived Assets and for Long-Lived Assets to Be Disposed Of.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company is required to adopt the provisions of Statement 141 immediately and Statement 142 effective January 1,
2002. Furthermore, any goodwill and any intangible asset determined to have an indefinite
useful life that are acquired in a purchase business combination completed after June 30,
2001 will not be amortized, but will continue to be evaluated for impairment in
accordance with the appropriate pre-Statement 142 accounting literature. Goodwill and
intangible assets acquired in business combinations completed before July 1, 2001 will
continue to be amortized prior to the adoption of Statement 142.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Statement
141 will require, upon adoption of Statement 142 that the Company evaluate its existing
intangible assets and goodwill that were acquired in a prior purchase business
combination, and to make any necessary reclassifications in order to conform with the new
criteria in Statement 141 for recognition apart from goodwill. Upon adoption of Statement
142, the Company will be required to reassess the useful lives and residual values of all
intangible assets acquired in purchase business combinations, and make any necessary
amortization period adjustments by the end of the first interim period after adoption. In
addition, to the extent an intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment in
accordance with the provisions of Statement 142 within the first interim period. Any
impairment loss will be measured as of the date of adoption and recognized as the
cumulative effect of a change in accounting principle in the first interim period.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
connection with the transitional goodwill impairment evaluation, Statement 142 will
require the Company to perform an assessment of whether there is an indication that
goodwill is impaired as of the date of adoption. To
accomplish this the Company must identify its reporting units and determine the carrying
value of each reporting unit by assigning the assets and liabilities, including the
existing goodwill and intangible assets, to those reporting units as of the date of
adoption. The Company will then have up to six months from the date of adoption to
determine the fair value of each reporting unit and compare it to the reporting units
carrying amount. To the extent a reporting units carrying amount exceeds its fair value,
an indication exists that the reporting units goodwill may be impaired and the Company
must perform the second step of the transitional impairment test. In the second step, the
Company must compare the implied fair value of the reporting units goodwill, determined
by allocating the reporting units fair value to all of it assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation in
accordance with Statement 141, to its carrying amount, both of which would be measured as
of the date of adoption. This second step is required to be completed as soon as
possible, but no later than the end of the year of adoption. Any transitional impairment
loss will be recognized as the cumulative effect of a change in accounting principle in
the Companys statement of earnings.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of the date of adoption, the Company expects to have unamortized goodwill in the amount
of $22.6 million, all of which will be subject to the transition provisions of Statements 141 and
142. Amortization expense related to goodwill was $1,785,914 and $911,967 for the year
ended December 31, 2000 and the six months ended June 30, 2001, respectively. Because of
the extensive effort needed to comply with adopting Statements 141 and 142, it is not
practicable to reasonably estimate the impact of adopting these Statements on the
Companys financial statements at the date of this report, including whether any
transitional impairment losses will be required to be recognized as the cumulative effect
of a change in accounting principle.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) |  | In
June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging Activitieswas
issued and, as amended, is effective for all fiscal years beginning after June 15, 2000.
SFAS No. 133 standardizes
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9
|-

|
|

| | the
accounting for derivative instruments including certain derivative instruments embedded
in other contracts and requires derivatives to be recognized as assets and liabilities
and be recorded at fair value. The Company is currently not party to any derivative
instruments. Any future transactions involving derivative instruments will be evaluated
based on SFAS No. 133.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Commitments
and Contingencies:


As a provider of
healthcare-related services, the Company is subject to extensive and frequently
changing federal, state and local laws governing licensure, reimbursement,
financial relationships, referrals, conduct of operations and other aspects of
the Companys business. In recent years, the federal government has
expanded its investigative and enforcement activities relating to the billing of
government programs, such as Medicare and Medicaid, by laboratories and other
healthcare providers. In January 2000, the Company was notified that the U.S.
Attorneys Office for the Southern District of New York was investigating
certain of the Companys billing practices. The Company continues to
believe that its billing practices are in compliance with applicable laws and is
cooperating in the investigation.


In addition, from time to
time, the Company is involved in various other legal actions in the normal
course of business, some of which seek monetary damages. While the Company
cannot predict with absolute certainty the outcome of any of the proceedings in
which it is involved, the Company believes any ultimate liability associated
with these contingencies would not have a material adverse effect on the
Companys consolidated financial position or results of operations. (See
Managements Discussion and Analysis of Financial Condition and
Results of Operations  Forward-Looking Statements).



Stock Split:


On July 24, 2000, the
Companys Board of Directors declared a two-for-one common stock split
effected in the form of a 100% common stock dividend, which was distributed on
August 28, 2000 to each shareholder of record at the close of business on August
16, 2000. Accordingly, all share and per share information in the accompanying
consolidated statement of operations contained in this quarterly report have
been retroactively adjusted to reflect the stock split.


10
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSISOF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS



Forward-Looking
Statements


This
Quarterly Report on Form 10-Q may contain statements that the Company believes are, or
may be considered to be, forward-looking statements within the meaning of various
provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. These
forward-looking statements generally can be identified by use of statements that include
phrases such as the Company believes, expects, anticipates, intends, plans,
foresees or other similar words or phrases. Similarly, statements that describe the
Companys projected growth and goals and its plans for expansion also are forward-looking
statements. All of these forward-looking statements are subject to certain risks and
uncertainties, many of which are outside of managements control, and which could cause
the Companys actual results to differ materially from those contemplated by the relevant
forward-looking statement. Some of the most significant factors that could cause the
actual results to differ materially from the forward-looking statement, alone or in
combination, would be the failure to continue to successfully integrate the businesses
acquired by the Company, unanticipated disagreements with the Companys joint venture or
other partners, unanticipated changes in the healthcare industry (as a result of cost
containment measures, changes in governmental regulation, including reimbursement
programs and patient confidentiality issues, or other factors), an inability to procure
consented, well-characterized tissue specimens, the adverse effect of any legal
proceedings involving the Company, an unanticipated failure in the commercialization of
the Companys biopharmaceutical products, or an unanticipated loss of business. Readers
are urged to consider these factors carefully in evaluating the forward-looking
statements. The forward-looking statements included in this Quarterly Report on Form 10-Q
are made only as of the date of this Quarterly Report and the Company undertakes no
obligation to publicly update these forward-looking statements to reflect subsequent
events or circumstances.




Three Months
Ended June 30, 2001Compared
with Three Months Ended June 30, 2000


The Companys total
revenues for the three months ended June 30, 2001 and 2000 were $47.1 million
and $33.4 million, respectively, representing an increase of $13.7 million, or
41.0%, in 2001. This growth was primarily attributable to a 15.7% increase in
case volume, resulting from increased sales and marketing activities, as well as
a 20.9% increase in revenue realization per case due to continuing product mix
changes toward lymphoma/leukemia cases, which entail more analyses, as well as
an increase in the number of technologies applied in analyzing lymphoma/leukemia
and breast cancer cases. In addition, IMPATH Predictive OncologyTM
(IPO) revenues increased 75.0% to $3.5 million this quarter up from
$2.0 million in the year ago quarter primarily driven by increases in the
numbers of projects and the scopes of projects with biopharmaceutical and
genomics companies.


Salaries and related costs
for the three months ended June 30, 2001 and 2000 were $16.2 million and $12.8
million, respectively, representing an increase of $3.4 million, or 26.6%, in
2001. This increase was the result of increased personnel due to rapid case
volume growth and the shift to more complex cases, and labor costs associated
with the IPO divisions expansion. Salaries and related costs, as a
percentage of total revenues, decreased to 34.4% in 2001 from 38.3% in 2000.
This decrease was facilitated by the Companys successful expansion
strategy resulting in streamlining of operational and administrative duties
combined with a higher revenue realization per case.


Selling, general and
administrative expenses for the three months ended June 30, 2001 and 2000 were
$19.0 million and $12.4 million, respectively, representing an increase of $6.6
million, or 53.2%, in 2001. The largest component of this increase was $3.4
million of incremental bad debt expense associated with higher revenues as well
as the inherent risk of potential billing and collection delays incurred in
connection with the Companys billing system optimization efforts. The
Company also incurred an additional $3.2 million in incremental laboratory
supply, courier, travel and other administrative expenses due to rapid case
volume growth, infrastructure expansion and sales and marketing activities.
Selling, general and administrative expenses, as a percentage of revenues,
increased to 40.3 % in 2001 from 37.1% in 2000, primarily due to the increase in
bad debt expenses.


11
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Depreciation and
amortization expense for the three months ended June 30, 2001 and 2000 was $3.8
million and $2.5 million, respectively, representing an increase of $1.3
million, or 52.0%, in 2001. This increase was primarily due to $412,000 in
depreciation expense associated with the Companys clinical and billing
systems, and an additional $741,000 in depreciation expense for furniture,
equipment, and leasehold improvements associated with the expansion of the
Companys East and West Coast facilities. Due to the expansion of the
Companys East and West Coast facilities, depreciation and amortization
expense as a percentage of net revenues increased to 8.1% in 2001 from 7.5% in
2000.


Income from operations for
the three months ended June 30, 2001 and 2000 was $8.0 million and $5.6 million,
respectively, representing an increase of $2.4 million, or 42.9%, in 2001. The
2001 figure reflects an increase in operating margins associated with the
Companys core physician services business. As a percentage of total
revenues, income from operations increased to 17.0% in 2001 from 16.8% in 2000,
primarily due to the increase in revenue realization per case and the
Companys streamlining efforts referred to above.


Other expense, net for the
three months ended June 30, 2001 and 2000 was $(422,000) and $(222,000),
respectively, representing an increase of $200,000 in 2001. The increase was
primarily due to increased interest expense associated with additional capital
lease obligations, in conjunction with a reduction in the amount of interest
bearing securities on hand.


The tax provision for the
three months ended June 30, 2001 of approximately $3.2 million reflects federal,
state and local income tax expense. The effective tax rate for 2001 and 2000
remained consistent at 43.0%.


Net income for the three
months ended June 30, 2001 and 2000 was $4.3 million and $3.1 million,
respectively, representing an increase of $1.2 million, or 38.7%, in 2001. As a
result of the increase in net non-operating expense referred to above, net
income as a percentage of total revenues decreased to 9.1% in 2001 from 9.3% in
2000.


12
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|Six Months
Ended June 30, 2001Compared
with Six Months Ended June 30, 2000


The Companys total
revenues for the six months ended June 30, 2001 and 2000 were $89.2 million and
$63.9 million, respectively, representing an increase of $25.3 million, or
39.6%, in 2001. This growth was primarily attributable to a 13.2% increase in
case volume, resulting from increased sales and marketing activities, as well as
a 23.3% increase in revenue realization per case due to continuing product mix
changes toward lymphoma/leukemia cases, which entail more analyses, as well as
an increase in the number of technologies applied in analyzing lymphoma/leukemia
and breast cancer cases. In addition, IMPATH Predictive OncologyTM
(IPO) revenues increased 62.5% to $6.5 million from $4.0 million in
the year ago period primarily driven by increases in the numbers of projects and
the scopes of projects with biopharmaceutical and genomics companies.


Salaries and related costs
for the six months ended June 30, 2001 and 2000 were $31.2 million and $24.9
million, respectively, representing an increase of $6.3 million, or 25.3%, in
2001. This increase was the result of increased personnel due to rapid case
volume growth and the shift to more complex cases, and labor costs associated
with the IPO divisions expansion. Salaries and related costs, as a
percentage of total revenues, decreased to 35.0% in 2001 from 39.0% in 2000.
This decrease was facilitated by the Companys successful expansion
strategy resulting in streamlining of operational and administrative duties
combined with a higher revenue realization per case.


Selling, general and
administrative expenses for the six months ended June 30, 2001 and 2000 were
$35.4 million and $23.6 million, respectively, representing an increase of $11.8
million, or 50.0%, in 2001. The largest component of this increase was $6.1
million of incremental bad debt expense associated with higher revenues as well
as the inherent risk of potential billing and collection delays incurred in
connection with the Companys billing system optimization efforts. The
Company also incurred an additional $4.8 million in incremental laboratory
supplies, courier costs, travel and other administrative expenses due to rapid
case volume growth, facilities expansion, as well as sales and marketing
activities. An additional $880,000 was incurred in connection with building
infrastructure to support increasing demand for the Companys IPO division.
Selling, general and administrative expenses, as a percentage of revenues,
increased to 39.7% in 2001 from 36.9% in 2000, primarily due to increases in bad
debt expenses.


Depreciation and
amortization expense for the six months ended June 30, 2001 and 2000 was $7.2
million and $4.9 million, respectively, representing an increase of $2.3
million, or 46.9%, in 2001. This increase was primarily due to $828,000 in
depreciation expense associated with the Companys clinical and billing
systems, and an additional $1.3 million in depreciation expense for furniture,
equipment, and leasehold improvements associated with the expansion of the
Companys East and West Coast facilities. Due to the expansion of the
Companys East and West Coast facilities, depreciation and amortization
expense as a percentage of net revenues increased to 8.1% in 2001 from 7.7% in
2000.


Income from operations for
the six months ended June 30, 2001 and 2000 was $15.4 million and $10.4 million,
respectively, representing an increase of $5.0 million, or 48.1%, in 2001. The
2001 figure reflects an increase in operating margins associated with the
Companys core physician services business. As a percentage of total
revenues, income from operations increased to 17.3% in 2001 from 16.3% in 2000,
primarily due to the increase in revenue realization per case and the
Companys streamlining efforts referred to above.


Other income (expense), net
for the six months ended June 30, 2001 and 2000 was $(758,000) and $(129,000),
respectively, representing a decrease of $629,000 in 2001. The decrease was
primarily due to increased interest expense associated with additional capital
lease obligations, in conjunction with a reduction in the amount of interest
bearing securities on hand.


The tax provision for the
six months ended June 30, 2001 of approximately $6.3 million reflects federal,
state and local income tax expense. The effective tax rate for 2001 and 2000
remained consistent at 43.0%.


Net income for the six
months ended June 30, 2001 and 2000 was $8.3 million and $5.9 million,
respectively, representing an increase of $2.4 million, or 40.7%, in 2001. As a
percentage of total revenues, net income increased to 9.3% in 2001 from 9.2% in
2000.


13
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|Liquidity and
Capital Resources


Since inception, the
Company has raised approximately $103.9 million of capital through the public
offerings of its common stock and $6.6 million from private placements of
preferred stock, all of which was converted into common stock at the closing of
the Companys initial public offering in February 1996. The Companys
working capital and capital expenditure needs have increased and are expected to
continue to increase as the Companyexpands its existing facilities and
pursues its growth strategy.


The Companys cash and
cash equivalent balances at June 30, 2001 and December 31, 2000 were $9.6
million and $13.5 million, respectively, representing a decrease of $3.9 million
in 2001. The Company also had approximately $12.4 million in marketable
securities at June 30, 2001, representing a $5.6 million decrease from the $18.0
million at December 31, 2000. The net decrease in cash and cash equivalents and
marketable securities for the six month period was primarily due to $13.1
million in capital expenditures and related lease obligation payments, $2.5
million in acquisition related note payments, and a $2.3 million investment in
GeneBankTM. The decrease was offset by cash provided by operations of
$5.2 million, as well as proceeds from loans of $2.5 million for the six months
ended June 30, 2001. The cash provided by operations was driven by operating
income of approximately $15.4 million, partially offset by increases in accounts
receivable, net of allowance for bad debt of $11.2 million. The increase in net
accounts receivable was due to case volume growth and a continuing product mix
shift towards lymphoma/leukemia cases, which carry a higher revenue realization
per case. Cash provided by operations was also driven by a $2.3 million increase
in payables.


During 2001, the Company
received approximately $1 million from the issuance of common stock upon the exercise of
Company stock options and warrants.


The Company has entered
into a $50.0 Million Senior Secured Credit Facility consisting of a five year
commitment for a $25 million revolving credit line and a $25 million 364-day
facility intended for acquisitions. The new credit facility syndicated by Fleet
National Bank, which will also act as Agent for the lenders, replaces the
Companys previous $15 million unsecured line of credit that expired June
28, 2001. The line bears interest at LIBOR plus 1.25%. As of June 30, 2001, the
Company had $5.5 million outstanding under this line.


The Company has lines of credit for
financing equipment, leasehold improvements and computer hardware and software. In July
1999, the Company established a $6.0 million credit line with Newcourt Financial
(currently CIT Group) with lease terms that are based on 48 monthly payments
at a rate equal to .35% above yield on four-year treasury notes. As of June 30, 2001, the
Company had fully drawn against this line. In September 1999, the Company established a
$6.0 million credit line with Fleet Bank with lease terms based on 48 monthly payments at
a rate equal to .20% above the yield on four-year treasury notes. As of June 30, 2001,
approximately $1.0 million was drawn against this line. In December 1999, the Company
established a $6.2 million credit line with First American Bankcorp, Inc. with lease
terms of 48 months and a rate equal to the yield on four-year treasury notes. The line of
credit was subsequently increased to $21.2 million in March 2001, under the same lease
terms. As of June 30, 2001, approximately $17.4 million was drawn against this line. In
April 2000, the Company established an $875,000 credit line with Dynamics Commercial
Funding Corp. with lease terms of 36 months and a rate equal to the yield on three-year
treasury notes. As of June 30, 2001, the Company had fully drawn against this line. In
June 2000, the Company established an additional $4.0 million credit line with Dynamics
Commercial Funding Corp. with lease terms of 48 months and a rate equal to the yield on
four-year treasury notes. As of June 30, 2001, the Company had fully drawn against this
line. In November 2000, the Company established an additional $2.0 million credit line
with Dynamics Commercial Funding Corp. with lease terms of 48 months and a rate equal to
the yield on four-year treasury notes. As of June 30, 2001, approximately $1.7 million
was drawn against this line. In April 2000, the Company established a $3.0 million credit
line with First Sierra Financial, Inc. (currently Popular Bank) with lease
terms of 48 months and a rate equal to the yield on four-year treasury notes. As of June
30, 2001, the Company had fully drawn against this line. In September 2000, the Company
established an additional $6.0 million credit line with First Sierra Financial, Inc.
(currently Popular Bank) with the lease terms of 48 months and a rate equal
to the yield on four-year treasury notes. As of June 30, 2001, approximately $4.4 million
was drawn against this line. In July 2000, the


14
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-----------------------------

|Company established a $5.0 million
credit line with Advanced Capital Resources Corp. with lease terms of 48 months and a
rate equal to the yield on four-year treasury notes. As of June 30, 2001, approximately
$4.2 was drawn against this line. In November 2000, the Company established a $3.0
million credit line with Trimarc Financial Corp. with lease terms of 48 months and a rate
equal to the yield on four-year treasury notes. As of June 30, 2001, the Company had
fully drawn against this line. In April 2001, the Company established an additional
$900,000 credit line with Trimarc Financial Corp. with lease terms of 48 months and a
rate equal to the yield on four-year treasury notes. As of June 30, 2001 approximately
$325,000 was drawn against this line. In January 2001, the Company established a $2
million credit line with IFC Credit Corp. with lease terms of 48 months and a rate equal
to the yield on four-year treasury notes. As of June 30, 2001, approximately $525,000 was
drawn against this line.


The Companys growth
strategy is anticipated to be financed through its current cash resources and
existing third-party credit facilities. The Company believes the combination of
these sources will be sufficient to fund its operations and satisfy the
Companys cash requirements for the next 12 months and the foreseeable
future. There may be circumstances, however, that would accelerate the
Companys use of cash resources. If this occurs, the Company may, from time
to time, incur additional indebtedness or issue, in public or private
transactions, equity or debt securities. However, there can be no assurance that
suitable debt or equity financing will be available to the Company. See
Forward-Looking Statements



Impact of
Inflation and Changing Prices


The impact of inflation and
changing prices on the Company has been primarily limited to salary, laboratory
and operating supplies and rent increases and has not been material to date to
the Companys operations. In the future, the Companys revenue
realization per case may not be sufficient to cover the cost of inflation,
although the Company is responding to these concerns by attempting to increase
the volume and adjust the product mix of its business.


15
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|ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK


The following discussion
about our exposure to market risk of financial instruments contains
forward-looking statements. Actual results may differ materially from those
described. . (See Managements Discussion and Analysis of Financial
Condition and Results of Operations  Forward-Looking Statements).


The Companys holdings
of financial instruments are comprised of U.S. corporate debt, U.S. government
debt and commercial paper. All such instruments are classified as securities
available for sale. The Company does not invest in portfolio equity securities
or commodities or use financial derivatives for trading purposes. The
Companys debt security portfolio represents funds held temporarily pending
use in our business and operations. The Company manages these funds accordingly.
The Company seeks reasonable assurance of the safety of principal and market
liquidity by investing in investment grade fixed income securities while at the
same time seeking to achieve a favorable rate of return. The Companys
market risk exposure consists principally of exposure to changes in interest
rates. The Companys holdings are also exposed to the risks of changes in
the credit quality of issuers. The Company typically invests in the shorter-end
of the maturity spectrum, and at June 30, 2001, more than 46% of the
Companys holdings were in instruments maturing in two years or less and
more than 44% of such holdings matured in one year or less.


16
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|PART II. Other
Information



ITEM 6.
Exhibits and Reports on Form 8-K
|----------------------------------------------------------------------

|(a) |  | Exhibits:
|--- |  | ---------

| | There
are no exhibits required to be filed as part of this Quarterly Report on Form 10-Q
| | ----------------------------------------------------------------------------------------

|(b) |  | Reports
on Form 8-K:
|--- |  | --------------------

| | There
were no reports on Form 8-K filed during the quarter ended June 30, 2001.
| | -------------------------------------------------------------------------------

|17
|--

|SIGNATURES


Pursuant to the
requirements 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.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Dated: August 1, 2001 |  | IMPATH INC.

(Registrant)
|--------------------- |  | ---------------------------------------

|Dated: August 1, 2001 |  | By: /s/ ANU D. SAAD
Anu D. Saad, Ph.D.Chief Executive Officer
|--------------------- |  | ---------------------------------------------------------------------------

|Dated: August 1, 2001 |  | By: /s/ DAVID J. CAMMARATA
David J. CammarataChief Financial Officerand Principal Accounting Officer
|--------------------- |  | ------------------------------------------------------------------------------------------------------------------

|18
|--