|FORM 10-Q


SECURITIES
AND EXCHANGE COMMISSIONWashington,
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 September 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 ofincorporation or organization) | 8071(Primary Standard IndustrialClassification Code Number) | 13-3459685(I.R.S. EmployerIdentification No.)
|--------------------------------------------------------------------- | ----------------------------------------------------------- | ---------------------------------------------

|521 West 57th Street
New 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.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|CLASSCommon Stock, par value$ .005 per share | OUTSTANDING AT SEPTEMBER 30, 200116,080,586
|-------------------------------------------- | -------------------------------------------

|Index


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

|           |  | PAGE NUMBER                                                 
|---------- |  | ------------------------------------------------------------
|PART I.    |  | Financial Information                                       
|          
|Item 1.    |  | Consolidated Financial Statements (Unaudited):              
|          
|           |  | Consolidated Balance Sheets at September 30, 2001           
|           |  | and December 31, 2000                                       
|          
|           |  | Consolidated Statements of Operations for the Three and Nine
|           |  | Months Ended September 30, 2001 and 2000                    
|          
|           |  | Consolidated Statement of Stockholders Equity for the      
|           |  | Nine Months Ended September 30, 2001                        
|          
|           |  | Consolidated Statements of Cash Flows for the Nine          
|           |  | Months Ended September 30, 2001 and 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)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                             | September 30,2001 | December 31,2000
|------------------------------------------------------------ | ----------------- | ----------------
|ASSETS                                                       |                   |                 
|Current assets:                                              |                  
|Cash and cash equivalents                                    |                   | $   10,294,137  
|Marketable securities, at market value                       |                   | 21,529,113      
|Accounts receivable, net of allowance for doubtful accounts  |                   | 61,945,593      
|Prepaid expenses                                             |                   | 1,241,131       
|Deferred tax assets                                          |                   | 4,267,831       
|Other current assets                                         |                   | 12,181,901      
|                                                             |                   |                 
|Total current assets                                         |                   | 111,459,706     
|Fixed assets, less accumulated depreciation and amortization |                   | 78,349,414      
|Deposits and other assets                                    |                   | 630,485         
|Intangible assets, net of accumulated amortization           |                   | 42,938,873      
|                                                             |                   |                 
|Total assets                                                 |                   | $ 233,378,478   
|                                                             |                   |                 
|LIABILITIES AND STOCKHOLDERS EQUITY                         |                  
|Current liabilities:                                         |                  
|Current portion of capital lease obligations                 |                   | $   12,520,712  
|Current portion of notes payable                             |                   |                
|Short term  borrowings                                       |                   | 3,000,000       
|Accounts payable                                             |                   | 4,125,693       
|Deferred revenue                                             |                   | 1,973,653       
|Income taxes payable                                         |                   | 4,284,427       
|Accrued expenses &  other current liabilities                |                   | 13,471,989      
|                                                             |                   |                 
|Total current liabilities                                    |                   | 39,376,474      
|                                                             |                   |                 
|Capital lease obligations, net of current portion            |                   | 27,676,072      
|Long term note payable, net of current portion               |                   | 16,000,000      
|Deferred tax liabilities                                     |                   | 2,803,271       
|                                                             |                  
|Stockholders equity:                                        |                  
|Common stock                                                 |                   | 91,451          
|Common stock to be issued                                    |                   |                
|Additional paid-in capital                                   |                   | 135,829,702     
|Retained earnings                                            |                   | 39,414,442      
|Accumulated other comprehensive income/(loss)                |                   | 5,978           
|                                                             |                   |                 
|                                                             |                   | 175,341,573     
|Less:                                                        |                  
|Cost of 2,209,476 shares of common stock                     |                  
|held in treasury in 2001 and 2000                            |                   | (26,750,281     
|Deferred compensation                                        |                   | (1,068,631      
|                                                             |                   |                 
|Total stockholders equity                                   |                   | 147,522,661     
|                                                             |                   |                 
|Total liabilities and stockholders equity                   |                   | $ 233,378,478   
|                                                             |                   |                 

|See accompanying notes to
consolidated financial statements.
3
|--------------------------------------------------------------

|IMPATH
INC. and Subsidiaries



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

|                                                            | Three Months EndedSeptember 30 | Nine Months EndedSeptember 30
|----------------------------------------------------------- | ------------------------------ | -----------------------------
|
|Revenues:                                                   |                                |                              
|Net Physicians Services                                     |                                | $ 43,187,982                 
|IMPATH Predictive Oncology                                  |                                | 4,050,188                    
|Information Services                                        |                                | 1,187,410                    
|                                                            |                                |                              
|                                                            |                                | 48,425,580                   
|                                                            |                                |                              
|Operating expenses:                                         |                               
|Salaries and related costs                                  |                                | 17,642,901                   
|Selling, general and administrative                         |                                | 29,964,716                   
|Depreciation and amortization                               |                                | 4,119,202                    
|                                                            |                                |                              
|                                                            |                               
|Total operating expenses                                    |                                | 51,726,819                   
|                                                            |                                |                              
|                                                            |                               
|(Loss)/income from operations                               |                                | (3,301,239                   
|                                                            |                               
|Interest income                                             |                                | 555,086                      
|Interest expense                                            |                                | (1,041,222                   
|                                                            |                                |                              
|Other expense, net                                          |                                | (486,136                     
|                                                            |                                |                              
|                                                            |                               
|(Loss)/income before income tax expense                     |                                | (3,787,375                   
|                                                            |                               
|Income tax benefit/(expense)                                |                                | 1,628,567                    
|                                                            |                                |                              
|Net (loss)/income                                           |                                | $(2,158,808                  
|                                                            |                                |                              
|                                                            |                               
|Earnings per share:                                         |                               
|Basic:                                                      |                               
|Net (loss)/income per common share                          |                                | $         (0.13              
|                                                            |                                |                              
|                                                            |                               
|Weighted average common shares outstanding                  |                                | 16,054,000                   
|                                                            |                                |                              
|Diluted:                                                    |                               
|Net (loss)/income per common share-assuming        dilution |                                | $         (0.13              
|                                                            |                                |                              
|                                                            |                               
|Weighted average common and common                          |                               
|equivalent shares outstanding-assuming        dilution      |                                | 16,054,000                   
|                                                            |                                |                              

|See accompanying notes to
consolidated financial statements.


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

|IMPATH Inc. and
SubsidiariesConsolidated Statement of StockholdersEquityNine Months Ended
September 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      |              | 248,000        |                          | 1,240    |                               |           |          | 1,601,561   
|                               |             
|Issuance of common shares      |              | 41,163         |                          | 206      |                               | (595,000  | )        | 594,794     
|                               |             
|Change in deferred             |             
|compensation                   |              |                |                          |          |                               |           |          |             
|Comprehensive income:          |             
|Change in unrealized           |             
|net appreciation of securities |              |                |                          |          |                               |           |          |             
|Net income for the period      |             
|ended September 30, 2001       |              |                |                          |          |                               |           |          |             
|                               |              |                |                          |          |                               |           |          |             
|Total comprehensive income     |              |                |                          |          |                               |           |          |             
|                               |              |                |                          |          |                               |           |          |             
|Balance at September 30, 2001  |              | 18,290,062     |                          | $91,451  |                               |          |          | $135,829,702
|                               |              |                |                          |          |                               |           |          |             

|See accompanying notes to
consolidated financial statements


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

|IMPATH Inc. and
Subsidiaries



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

|                                                               | Nine Months Ended September 30,
|-------------------------------------------------------------- | -------------------------------
|
|Cash flows from operating activities:                          |                                
|Net income                                                     |                                
|Adjustments to reconcile net income to net cash provided by    |                                
|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              |                                
|(Decrease)/increase in income taxes payable                    |                                
|(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 businesses                                     |                                
|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 options 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 provided by (used in) financing activities            |                                
|                                                               |                                
|Net (decrease)/increase 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
accounting principles generally accepted in the United States of America 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. Net loss per diluted share for
the three-months ended September 30, 2001 does not include common equivalent
shares as they are anti-dilutive.


Comprehensive
Net Income:


Comprehensive net income is
equal to the net income (loss) reported adjusted for the unrealized net
appreciation of marketable securities, net of related deferred taxes.
Comprehensive net income (loss) for the three months ended September 30, 2001
and 2000 was $(1,740,366) and $3,508,707, respectively. Comprehensive net income
for the nine months ended September 30, 2001 and 2000 was $6,338,564 and
$9,473,072, 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 appreciation is recorded as a separate component of
stockholders equity, net of related deferred taxes. At September 30, 2001,
approximately $4,371,135 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 marketable securities.


Accounts
Receivable, Net of Allowance for Doubtful Accounts:


In accordance with
Accounting Principles Generally Accepted in the United States of America (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 September 30, 2001 and December 31, 2000:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                | September 30, 2001 | December 31, 2000
|------------------------------- | ------------------ | -----------------
|Gross accounts receivable       |                    | $ 120,248,108    
|Allowance for doubtful accounts |                    | (17,945,845      
|Contractual allowance reserve   |                    | (40,356,670      
|                                |                    |                  
|                                |                    | $   61,945,593   
|                                |                    |                  

|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.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Nine Months Ended($ in Thousands) | Total              IMPATH Inc. | Physician      Services | IMPATHPredictive Oncology | Information          Services
|--------------------------------- | ------------------------------ | ----------------------- | -------------------------- | -----------------------------
|                                 
|2001                              |                                |                         |                            |                              
|Revenue                           |                                | $  137,636              |                            | $  123,613                   
|Operating income (loss)           |                                | $    12,085             |                            | $    13,313                  
|Depreciation and                  |                               
|Amortization                      |                                | $    11,363             |                            | $      9,519                 
|                                 
|2000                              |                               
|Revenue                           |                                | $    99,332             |                            | $    89,341                  
|Operating income (loss)           |                                | $    16,494             |                            | $    18,309                  
|Depreciation and                  |                               
|Amortization                      |                                | $      7,656            |                            | $      6,661                 
|                                 

|Intangible
Asset:


The Company has designed
and is developing Genebank 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 Genebank
infrastructure will make it possible to collect tumor specimens and outcomes
data on 40,000 to 50,000 patients over the next several years. Genebank
 has been classified as an intangible asset and has capitalized costs of
$3,563,844 million as of September 30, 2001. Genebank 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, Goodwill and 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 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 of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8
|-

|
|

| | 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 operations.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of the date of adoption, the Company expects to have unamortized goodwill in the amount
of $23.7 million, all of which will be subject to the transition provisions of Statements
141 and 142. On August 31, 2001 the Company purchased certain assets of Innovative
Clinical Solutions, Ltd (ICSL). The Company recorded goodwill of approximately $1.7
million related to the acquisition. In accordance with Statement 142, the amount of $1.7
million is not being amortized. Amortization expense related to goodwill was $1,785,914
and $1,375,481 for the year ended December 31, 2000 and the nine months ended September
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
October 2001, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 144 (SFAS 144), Accounting for the Impairment
or Disposal of Long-Lived Assets. This statement supersedes SFAS 121 but retains
its fundamental provisions for the (a) recognition/measurement of impairment of
long-lived assets to be held and used and (b) measurement of long-lived assets to be
disposed of by sale. SFAS is required to be adopted beginning January 1, 2002. We have
not determined the impact, if any, the adoption of SFAS 144 will have on our financial
position or results of operation.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9
|-

|Recent
Acquisitions


On August 31, 2001 the company
purchased certain assets of Innovative Clinical Solutions, Ltd (ICSL), specifically, the
ICSL oncology clinical studies (OCS) network of more than 20 sites across the country for
$2,783,171. The Company recorded goodwill of approximately $1.7 million related to the
acquisition and approximately $1 million related to customer lists. In accordance with
Statement 142, the amount of $1.7 million will not be amortized. This transaction
will allow IMPATH to expand its clinical trials network within IMPATH Predictive Oncology
by making the company one of the largest oncology clinical trails networks in the United
States.


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. In October 2001, the Company
agreed to pay the government $9 million without any admission of wrongdoing and
will receive a release of claims upon the execution of definitive documents. The
Company has accrued this amount plus an estimate of certain legal costs in
accordance with SFAS No. 5. The amounts are included in Selling, general and
administrative expenses for the three and nine months ended September 30, 2001.


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 ANALYSIS OF 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, (including the recently announced acquisition) 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 September 30, 2001  Compared with Three Months Ended September 30, 2000


The Companys total
revenues for the three months ended September 30, 2001 and 2000 were $48.4
million and $35.4 million, respectively, representing an increase of $13.0
million, or 36.7%, in 2001. This growth was primarily attributable to a 14.0 %
increase in case volume, resulting from increased sales and marketing
activities, as well as a 20.0% increase in revenue realization per case due to
continuing product mix changes toward the more complex lymphoma/leukemia cases,
which entail more analyses, as well as an increase in the number of technologies
applied in analyzing cases. In addition, IMPATH Predictive Oncology
(IPO) revenues increased 51.9% to $4.1 million this quarter up from
$2.7 million in the year ago quarter as a result of increases in the number and
scope of projects.


Salaries and related costs
for the three months ended September 30, 2001 and 2000 were $17.6 million and
$13.1 million, respectively, representing an increase of $4.5 million, or 34.4%,
in 2001. This increase was necessitated by rapid case volume growth, the
continuing product shift toward more complex cases, as well as labor costs
associated with the IPO divisions expansion. In addition, the Company
reported one-time charges in the period of $650,000 in severance and related
costs associated with the Companys restructuring of its clinical trial
business made pursuant to the ICSL acquisition and $400,000 for salaries paid to
employees idled during the events of September 11th. Salaries and
related costs, as a percentage of total revenues, decreased to 36.4% in 2001
from 37.0% in 2000. This decrease was facilitated by a higher revenue per case
due to the Companys continued success with growing its more complex
lymphoma/leukemia cases.


Selling, general and
administrative expenses for the three months ended September 30, 2001 and 2000
were $30.0 million and $13.5 million, respectively, representing an increase of
$16.5 million, or 122.2%, in 2001. The increase is primarily due to the one-time
charge of $9.7 million for the recently announced preliminary resolution with
the government related to the Companys billing practices and associated legal fees. Also, the
Company incurred an increase of $2.4 million in bad debt expense primarily to
account for the additional risk of potential billing and collection delays
incurred in connection with the Companys billing system optimization
efforts. The Company also incurred an additional $3.7 million in laboratory
supplies, courier, travel and other administrative expenses driven by rapid case
volume growth, infrastructure expansion and sales and marketing activities.
Selling, general and administrative expenses, as a percentage of revenues,
increased to 62.0% in 2001 from 38.1% in 2000, due to the $9.7 million one-time
charge discussed above, as well as the increase in bad debt expenses.
11
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|Depreciation and
amortization expense for the three months ended September 30, 2001 and 2000 was
$4.1 million and $2.7 million, respectively, representing an increase of $1.4
million, or 51.9%, in 2001. This increase was primarily due to $910,000 in
depreciation expense for new furniture, office and lab equipment, as well as
leasehold improvements incurred in connection with the expansion of the
Companys East and West Coast facilities. The Company also recorded
$340,000 in depreciation expense for enhancements made to clinical and billing
systems. Additionally, $107,000 in expense was recorded for the amortization of
Genebank. As a percentage of total revenues, depreciation and amortization
expense increased to 8.5% in 2001 from 7.6% in 2000 primarily due to the
depreciation of the new Los Angeles facility which commenced operations in the
fourth quarter of 2000 and the amortization of Genebank which began in 2001.


(Loss) income from
operations for the three months ended September 30, 2001 and 2000 was $(3.3)
million and $6.1 million, respectively, representing a decrease of $9.4 million,
or (154.1)%, in 2001. The 2001 figure reflects one-time charges of $9.7 million
for the recently announced preliminary resolution with the government, $650,000
associated with the Companys restructuring of its clinical trial business,
and $400,000 in salaries and related expenses for employees idled during the
events of September 11th,. As a percentage of total revenues, (loss)
income from operations decreased to (6.8)% in 2001 from 17.2% in 2000, due to
the aforementioned one-time charges.


Other expense, net for the
three months ended September 30, 2001 and 2000 was $(486,000) and $(280,000),
respectively, representing an increase of $206,000 in 2001. The increase was due
to increased interest expense associated with additional capital lease
obligations, an increase in long-term borrowings and a reduction in the amount
of interest bearing securities on hand.


The tax benefit for the
three months ended September 30, 2001 of approximately $(1.6) million reflects
federal, state and local income tax benefit. The effective tax rate for 2001 and
2000 remained consistent at 43.0%.


Net (loss) income for the
three months ended September 30, 2001 and 2000 was $(2.2) million and $3.3
million, respectively, representing a decrease of $5.5 million, or (166.6)%, in
2001. As a result of the one time charges referred to above, net (loss) income
as a percentage of total revenues decreased to (4.5)% in 2001 from 9.3% in 2000.

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|Nine Months
Ended September 30, 2001 Compared with Nine Months Ended September 30, 2000


The Companys total
revenues for the nine months ended September 30, 2001 and 2000 were $137.6
million and $99.3 million, respectively, representing an increase of $38.3
million, or 38.6%, in 2001. This growth was primarily attributable to a 14.0%
increase in case volume, resulting from increased sales and marketing
activities, as well as a 22.0% 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 cases. In addition, IMPATH Predictive Oncology
(IPO) revenues increased 56.7% to $10.5 million this quarter up from
$6.7 million in the year ago period primarily driven by increases in the numbers
of projects and the scopes of projects with biopharmaceutical companies.


Salaries and related costs
for the nine months ended September 30, 2001 and 2000 were $48.8 million and
$38.1 million, respectively, representing an increase of $10.7 million, or
28.1%, in 2001. This increase was necessitated by rapid case volume growth, a
continuing product shift to more complex cases, as well as labor costs
associated with the IPO divisions expansion. In addition, the Company
reported one-time charges in the period of $650,000 in severance and related
costs associated with the Companys restructuring of its clinical trial
business made pursuant to the ICSL acquisition and $400,000 for salaries paid to
employees idled during the events of September 11th;. Salaries and
related costs, as a percentage of total revenues, decreased to 35.5% in 2001
from 38.4% 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 nine months ended September 30, 2001 and 2000
were $65.4 million and $37.1 million, respectively, representing an increase of
$28.3 million, or 76.3%, in 2001. The increase is primarily due to the one-time
charge of $9.7 million for the recently announced preliminary resolution with
the government related to the Companys billing practices. Also, the
Company incurred an increase of $8.5 million in bad debt expense primarily to
account for the additional risk of potential billing and collection delays
incurred in connection with the Companys billing system optimization
efforts. The Company also incurred an additional $8.5 million in laboratory
supplies, courier, travel and other administrative expenses driven by rapid case
volume growth, facilities expansion and sales and marketing activities. An
additional $1,330,000 in IPO infrastructure costs were recorded in the period
due to increasing demand from biopharmaceutical companies for the Companys
services. Selling, general and administrative expenses, as a percentage of
revenues, increased to 47.5 % in 2001 from 37.4% in 2000, as a result of the
aforementioned one-time charges and the increase in bad debt expenses.


Depreciation and
amortization expense for the nine months ended September 30, 2001 and 2000 was
$11.4 million and $7.7 million, respectively, representing an increase of $3.7
million, or 48.1%, in 2001. This increase was primarily due to $2.3 million in
depreciation expense for new furniture, office and lab equipment, as well as
leasehold improvements incurred in connection with the expansion of the
Companys East and West Coast facilities. The Company also recorded $1.2
million in depreciation expense for enhancements made to the Companys
clinical and billing systems. Additionally, $169,000 in expense was recorded for
the amortization of Genebank. As a percentage of total revenues, depreciation
and amortization expense increased to 8.3% in 2001 from 7.8% in 2000 primarily
due to the depreciation of the new Los Angeles facility which commenced operations
in the fourth quarter of 2000 and the amortization of Genebank which began in
2001.


Income from operations for
the nine months ended September 30, 2001 and 2000 was $12.1 million and $16.5
million, respectively, representing a decrease of $4.4 million, or 26.7%, in
2001. The 2001 figure reflects one-time charges of $9.7 million for the recently
announced preliminary resolution with the government, $650,000 associated with
the Companys restructuring of its clinical trial business, and $400,000 in
salaries and related expenses for employees idled during the events of September
11th. As a percentage of total revenues, income from operations
decreased to 8.8% in 2001 from 16.6% in 2000, as a result of the aforementioned
one-time charges.


Other expense, net for the
nine months ended September 30, 2001 and 2000 was $(1.2) million and $(410,000),
respectively, representing an increase of $790,000 in 2001. The increase was
primarily due to additional interest expense associated with increases in
capital lease obligations, long-term borrowings and a reduction in the amount of
interest bearing securities on hand.
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|The tax provision for the
nine months ended September 30, 2001 of approximately $4.7 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 nine
months ended September 30, 2001 and 2000 was $6.2 million and $9.2 million,
respectively, representing a decrease of $3.0 million, or 32.6%, in 2001.This
decrease which is attributable to the one-time charges referred to above,
resulted in a decline in net margins for the period. As a percentage of total
revenues, net income decreased to 4.5% in 2001 from 9.3% in 2000.


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 Company expands its existing facilities and
pursues its growth strategy.


The Companys cash and cash
equivalent balances at September 30, 2001 and December 31, 2000 were $10.3 million and
$13.5 million, respectively, representing a decrease of $3.2 million in 2001. The Company
also had approximately $21.5 million in marketable securities at September 30, 2001,
representing a $3.5 million increase from the $18.0 million at December 31, 2000. The net
decrease in cash and cash equivalents for the nine month period was primarily due to
$20.9 million in capital expenditures and related lease obligation payments, $2.8 million
in acquisition related note payments, a $3.6 million investment in GeneBank, as well as
$2.8 million for the acquisition of Innovative Clinical Solutions, Ltd. This decrease was
offset during the period by operating cash flow of $12.7 million and a $16 million draw
down on the Companys revolving credit line. The cash provided by operations was
driven by operating income of approximately $12.1 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 $10.3 million increase in payables due to the
aforementioned settlement.


During 2001, the Company
received approximately $1.6 million from the issuance of common stock upon the
exercise of Company stock options and warrants.


The Company 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 September 30, 2001,
the Company had $19 million outstanding under this line, $3 million of which was
drawn down from the 364-day facility.


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 September 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 September 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 September 30, 2001,
approximately $18.0 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 September 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 September 30,
2001, the Company had fully drawn against this line. In November 2000, the
Company established an additional $2.9 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 September 30, 2001, approximately $2.4
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 September 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 September 30, 2001, approximately
$5.0 million was drawn against this line. In July 2000, the Company established
a $7.15 million credit line with Advanced Capital Resources Corp. (currently
Applied Financial, Inc) with lease terms of 48 months and a rate
equal to the yield on four-year treasury notes. As of September 30, 2001,
approximately $6.0 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 September 30, 2001, the Company had fully drawn against this line. In April
2001, the Company established an additional $1.1 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 September 30, 2001 approximately $1.1
million 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 September 30, 2001,
approximately $525,000 was drawn against this line.
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|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 September 30, 2001, more than 64% of the
Companys holdings were in instruments maturing in two years or less and
more than 82% 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 September 30, 2001.
17
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|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: November 14, 2001 |  | IMPATH INC.(Registrant)
|------------------------ |  | -----------------------

|Dated: November 14, 2001 |  | By /s/ ANU D. SAAD
Anu D. Saad, Ph.D. Chief Executive Officer
|------------------------ |  | ---------------------------------------------------------------------------

|Dated: November 14, 2001 |  | By /s/ DAVID J. CAMMARATA
David J. Cammarata
                                                               Chief  Financial Officer
                                                               and Principal Accounting Officer
|------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|18
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