|SECURITIES
AND EXCHANGE COMMISSIONWashington,
D.C. 20549


FORM 10-K


ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
EXCHANGE ACT OF 1934


For the
Fiscal Year Ended December 31, 2000


Commission
file number 0-27750


LOGO


IMPATH INC.(Exact name
of registrant as specified in its charter)
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|Delaware(State or other jurisdiction ofincorporation or organization) | 13-3459685(I.R.S. EmployerIdentification No.)
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|521 West 57th StreetNew York, New York(Address of principal executive offices) | 10019(Zip Code)
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|Registrants telephone
number, including area code (212) 698-0300


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


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


Common
Stock, $.005 par valueTitle of
class


Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period as the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes _X_ No


Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is not contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. |_|


State
the aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was sold, or
the average bid and asked prices of such common equity, as of a specified date within the
past 60 days.
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|                                               | 
|---------------------------------------------- | 
|Aggregate market value as of February 28, 2001 | 

|Indicate the number of shares
outstanding of each of the registrants classes of common stock, as of the latest
practicable date.
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|                                                       | 
|------------------------------------------------------ | 
|Common Stock, $.005 par value, as of February 28, 2001 | 

|DOCUMENTS
INCORPORATED BY REFERENCE


List
hereunder the documents, all or portions of which are incorporated by reference herein
and the Part of the Form 10-K into which the document is incorporated:


2001
Proxy StatementPart III
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|PART I


Item 1. Business.


Overview


IMPATH
Inc., the Cancer Information Company (the Company) was formed in 1988 by
several academic pathologists seeking to bridge the gap between the way cancer is managed
at an academic center and the way it is managed in the local community hospital setting
where 80-85% of all cancer patients are diagnosed and treated. The Company focuses on
the clinical application of advanced technologies in the community-based hospital
environment to enable clinicians to make better treatment decisions for their cancer
patients. Over the years, the Company expanded its focus to harness the information
it was generating from performing analyses on thousands of cancer specimens annually and to
broaden the value applications of that important biological information. The Company has also
completed multiple strategic acquisitions which have provided technologies, complementary cancer
information including longitudinal treatment and outcomes data, pharmacoeconomic
analytical capabilities and a tissue and serology archive of well-characterized, fully
documented cancer specimens.


As a
result of the evolution of the Companys business and its significant resources in the
area of oncology, the Company now serves the oncology community through three operating
divisions. Physician Services, which currently comprises approximately 90% of overall revenue,
specializes in providing patient-specific cancer diagnostic and prognostic information,
with a particular expertise in difficult to diagnose tumors, prognostic profiles in
breast and other cancers and lymphoma/leukemia analysis. Physician Services clients
currently include more than 7,850 physicians specializing in the treatment of cancer
patients, in over 1,975 hospitals and 446 oncology practices. IMPATHs Physician
Services business has populated a database that currently contains nearly 700,000 patient
profiles.


More
recently, the Company formed its BioPharmaceutical/Genomics Services business (BioPharma)
which, as of January 1, 2001, is now centralized under its IMPATH Predictive Oncology
Division. Currently, approximately 7% of the Companys overall revenues, BioPharma
is the fastest growing segment of the Companys operations. BioPharma leverages the Companys
vast resources (including scientific expertise, extensive database of patient profiles,
relevant biological data, access to cutting edge technologies, tumor tissue archive and
network of Physicians) to better serve our clients and offer a more integrated platform of products and services.
BioPharma provides an integrated services and information resource for
genomics, biopharmaceutical, diagnostic products and pharmaceutical companies in the
development and commercialization of targeted gene-based therapies. Through the use of
translational genomics or patient-specific biologics and clinical information,
Biopharma accelerates the oncology drug discovery and development process for earlier
market arrival of FDA-approved targeted therapeutics. IMPATH is currently working on
more than 75 projects including 20 clinical trials with approximately 40 genomics,
biotechnology and pharmaceutical companies. During 2000, the Company announced relationships
with Millennium Pharmaceuticals, Bristol-Myers Squibb and GlaxoSmithKline to provide a
broad range of services in this area.


The
Companys Information Services division (approximately 3% of overall revenue) derives
revenues through the licensing of tumor registry software to hospitals that treat cancer
patients. There are currently about 600 hospitals utilizing this software. In addition
the Company can link its information from the hundreds of thousands of analyzed specimens
from its Physician Services business with data from its tumor registry business to
provide information on the full continuum of care, from diagnosis through treatment and
outcomes on tens of thousands of patients. This information should be increasingly
valuable to those involved in the management of cancer including physicians,
payors and developers of new therapies.


The
Companys revenues were $138.2 million in 2000, representing revenue growth of 62%
over 1999. The 2000 fiscal year was IMPATHs eleventh consecutive year of
annual revenue growth in excess of 40%. Moreover, the fourth quarter of 2000 represented
IMPATHs twenty-eighth consecutive quarter of record revenues. Income from
operations and net income for 2000 were $20.2 million and $12.9 million, respectively, an
increase of 67% and 57% over 1999.


Certain
terms relating to the Companys business, which are used in this Annual Report on
Form 10-K, are explained in the Glossary included at the end of this Item 1.


This Annual Report on Form 10-K may
contain statements that the Company believes are, or may be considered to be, forward-looking
statements within the meaning of varioius provisions of the Securities Act of 1933
and the Securities 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, forsees 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 managements control, and which could cause
the Companys actual results to differ materially form those contemplated by the
relevant forward-looking statement. Some of the most signifigant 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 carefuly in evaluating the forward-looking statements. The forward-looking
statements included in this Annual Report on Form 10-K are made only as of the date of
this Annual Report and the Company undertakes no obligation to publicly update these
forward-looking statements to reflect subsequent events or circumstances.







Cancer Information
Market


The
market for cancer diagnosis, prognosis and treatment is significant and growing. After
heart disease, cancer is the leading cause of death in the United States. Approximately
eight million Americans alive today have been diagnosed with cancer (excluding certain
skin cancers). According to the American Cancer Society, (ACS cancer facts and figures 2000) the estimated number of cancer
cases diagnosed annually in the United States (excluding certain skin cancers) grew from
approximately 530,000 in 1963 to approximately 1.2 million in 2000, an increase of 126%.
The growth in the number of cancer cases in the United States is expected to accelerate
as the leading edge of the baby boom population approaches 55 years of age,
the age at which the incidence of cancer begins to rise sharply. Earlier diagnosis and
better information have led to more effective treatment and have increased the five-year
survival rate of cancer patients from 39% in 1963 to approximately 59% in 2000.


The
National Cancer Institute (ACS cancer facts and figures 2000) estimates that the direct medical costs associated with cancer
were approximately $37 billion in 2000. The Company believes that these costs will
increase rapidly as a result of the growth in the number of cancer patients and the high
cost of new therapies. Thus, the Company anticipates that the demand for information
regarding cancer and cancer management will continue to increase.


Physician Services Division


The
diagnosis, prognosis, treatment determination and follow-up of cancer are extremely
complex processes, which require a multidisciplinary approach. Among the key specialties
involved in cancer management are pathology (for diagnosis), surgery (for diagnosis and
treatment), oncology (for treatment and follow-up), radiology (for diagnosis and
follow-up) and radiation oncology (for treatment), as well as affiliated
specialties such as urology and gynecology.


IMPATH
believes that its Physician Services division currently performs more specialized
analyses for difficult to diagnose cancer cases (one of the Companys fastest growing products)
than any other institution in the world.
The Company also believes that it is the leader in providing comprehensive
patient-specific prognostic information for cancer. For example, IMPATH Physician
Services provided patient-specific prognostic information on over 30% of all breast
cancer cases in the U.S. in 2000. The Companys
fastest growing product is the analysis of lymphomas and leukemias, with IMPATH analyzing
nearly 42,000 of such cases in 2000, representing an increase of 34% over 1999.
Lymphoma/leukemia analysis represents a disease state in which IMPATHs expertise and
utilization of sophisticated, integrated technologies to provide critical information for
optimal disease management.


As an
increased understanding of the molecular basis of cancer leads to the development of new
evaluation methods and therapeutic tools, IMPATH expects that the information it provides
will become increasingly significant in optimizing the management of all phases of
cancer, including cancer predisposition, diagnosis, prognosis, treatment determination
and patient follow-up. In addition, the Company believes that its broad range of services
and patient-specific information will be essential to a growing list of cancer diagnoses,
most notably prostate, colon, lung and bladder cancer. For example, in the latter part of
2000, the Company began offering new analyses, utilizing multiple technologies for
prognosis and therapeutic response in an colon cancer.


IMPATH
Physician Services potential market includes all physicians involved in the
diagnosis and treatment of cancer in the United States. This includes approximately
16,000 pathologists and more than 7,000 oncologists (excluding radiation oncologists), as
well as other specialists who treat cancer, such as gynecologists and, surgeons, and bone marrow
transplant centers.



Based
upon statistics compiled by the American Hospital Association (Hospital Statistics 2001 ed.), the Company
believes that there are approximately 3,200 hospitals that are potential users of
its diagnostic, prognostic and treatment-defining services. IMPATH Physician
Services primary hospital customers remain the pathology departments
in small- to medium-sized community hospitals (100 to 500 beds), where a large
percentage of cancers are diagnosed and treated. However, the wide range of integrated
technologies offered by Physician Services has facilitated the expansion of its target
hospital customer base to include regional medical centers and some academic centers.
These facilities generally do not perform their own sophisticated cancer anyalyses in
oncology because the low case volume per hospital does not justify establishing and
maintaining the required technological capabilities, facilities and expert medical
staff. Additionally, the treating oncologists have become an important client base
for IMPATH Physician Services. The coordination and utilization of information between
the referring pathologist and treating oncologist has enabled them to optimize the
benefit derived from the diagnostic and prognostic information provided by the Company
in the more effective management of their cancer patients.



The
care of the cancer patient increasingly is being performed in outpatient settings,
representing a shift from traditional, hospital-based care. Certain evaluations, surgical
procedures and systemic treatments (e.g., chemotherapy) are now being performed at
outpatient facilities, and most patient follow-up is being performed in outpatient
settings rather than hospitals. These outpatient facilities generally do not have the
expertise and resources to provide the information necessary for optimal cancer
management. (See - IMPATHs Role in the Cancer Management Pathway)


In
order to make optimal cancer management decisions, providers and payors require
information about the specific characteristics of a patients cancer (e.g., how
aggressive it is and how it can best be treated). In the past, patients have been treated
based upon information gathered on entire classes of disease rather than on the individuals
cancer. With the development of new targeted cancer therapies, patient-specific
information has become critical to cancer treatment decisions.


Competitive
Advantages


IMPATH
Physician Services has been a pioneer in the marketing of patient-specific diagnostic and prognostic
information to medical professionals involved in cancer management. IMPATH Physician Services has
established its leadership and reputation in the cancer information market through its
extensive expertise, its integration of technological advances, its emphasis on customer
service and education and the cost-effectiveness of its services. The Company believes
that these factors, which cannot be duplicated without substantial investments of time
and capital, provide it with significant advantages over existing and potential
competitors.


Expertise. 
IMPATH Physician Services specializes in cancer tests that require a level of medical
knowledge and technical expertise not found in the average community hospital and not
readily accessible in academic medical centers. IMPATH believes that its medical staff
has more experience in providing comprehensive tissue-based diagnostic and prognostic
analyses of cancer than virtually any other group of practitioners. IMPATH Physician
Services currently receives an average of 675 cases per day. The experience derived from
such a volume of cases leads to superior professional and technical expertise. This
expertise is reflected in the Companys database of approximately 700,000 cancer cases analyzed to date,
with more than 175,000 cases added during 2000 alone.


Comprehensive
Technology Integration.  IMPATH Physician Services provides a comprehensive range of
cancer analyses using sophisticated technologies, including immunohistochemistry, image
analysis and flow cytometry, cytogenetics, molecular pathology, micrometastases detection and serum analysis. These
analyses are integrated through in-house technical and medical expertise to provide a
single source for optimal patient-specific diagnostic, prognostic and treatment
information, which the Company believes are not readily available from clinical laboratories, hospitals or academic
centers. In the past decade, many new evaluation methods and treatment regimens have been
developed as a result of the increased understanding of the cellular and molecular
biology of cancer. As new therapies targeting cancers with specific biological
characteristics emerge, the Company believes that the demand for cancer information
services that identify such characteristics will increase substantially. The Company intends to
continue to integrate technological advances rapidly and effectively to meet this demand.
See Technologies.



Customer
Service and Education.  IMPATH Physician Servicesmedical staff and customer service
representatives emphasize quality of service, accuracy of results and speed of
turnaround. The medical staff provides frequent expert consultation and generally returns
results within 48 hours of receipt of a specimen. In addition, the Physician Servicessales force focuses on educating
clients as to the benefits of the Companys services in managing cancer. In
contrast, the sales forces of most clinical laboratory companies market hundreds of
disparate, cancer and non-cancer test services, and the Company believes that sales
personnel at these companies have limited familiarity with the individual cancer tests
offered. Many academic institutions, which perform some of the same individual analyses as the
Company, typically do not have substantial marketing or customer service resources, and
the pathology laboratories at large regional hospitals are generally dedicated to
servicing only their affiliated physicians. The success of IMPATH Physician Servicesfocus
on customer service and education is demonstrated not only by the Companys rapidly
growing case volume, but by the fact that Physician Servicescase volume from its
long-term customers continues to grow. See "Sales and Marketing.


Cost-Effectiveness. 
IMPATH Physician Services provides physicians with diagnostic and prognostic information
necessary to determine the medically optimal therapy for each patients specific
cancer. As a result, incorrect or unnecessary treatments can often be avoided, reducing
associated trauma, risk and cost, and appropriate therapies can be implemented on a
timely basis. In addition, because of its high case volume, the Company benefits from
significant economies of scale which enable it to provide hospitals with a valuable,
cost-effective and expeditious alternative to establishing and maintaining in-house
pathology laboratories.


BioPharmaceutical/Genomics
Services Division



In the
1990s, the worlds scientific community began a global project to map and interpret
the functions of every gene in the human body. In February 2001, the scientific community
announced an estimate of 30,000 genes in the human body. In addition, proteomics, or the
study of the function of proteins made by those genes, has also emerged. The scientific
community believes that advancements in genomics and proteomics should allow drugs to be
tailored to the bodys genetic characteristics and potentially improve efficacy and
avoid or mitigate adverse drug reactions. Companies are presently identifying functional
targets, creating components and developing diagnostic tools to further this scientific
pursuit.


Medicines
based on genomics and/or proteomics require precise and complex biological information to
map and observe gene/protein interactions and to look for components or gene
targetswhich will predict key biological functions of the cancer cell. These
gene targets, however, will need to be well characterized, validated and optimized using
efficient, high-throughput analytical tools that will identify the appropriate new drug
candidates with the greatest potential clinical value. The fundamental
strategy underlying all genomics efforts is the rational, predictive quality of the
information and how it can be applied to the cancer patient. Using the analytical
information obtained from selecting candidate drug targets, diagnostic products can be
developed that can pre-select or effectively stratifypatients for clinical
trial programs. Stratifying patients for clinical trials using the personalized
diagnostic product developed from this target validation process will dramatically
increase the efficacy of the targeted therapeutic in the clinical environment and improve
patient outcome.


BioPharma
is beginning to play an integral role in the process it calls translational genomics or
translating potential gene-based targets into new oncology therapeutics. BioPharma can
assist the genomics, biotechnology and pharmaceutical industry throughout the
pre-clinical and clinical development stages of drug development with an integrated
platform of translational genomic products and clinical services. This includes the use
of our IMPATHGeneBank (GeneBank) resource which has thousands of
fully consented tumor tissues with clinical follow-up information. Placing these tissues
in our unique high throughput array procedure (OptimArray), targets can be
efficiently validated and qualified. Thus, a target can be assessed for expression on
early stage versus late stage disease, aggressive versus non-aggressive tumors, or
chemo-sensitive versus chemo-resistant tumors. BioPharma will also provide assistance in
the design and implementation of clinical trials. For example, immunotherapy (monoclonal
antibody therapy, tumor vaccines, etc.) is now at the forefront of current oncology
clinical trials. BioPharma is providing many of the necessary resources to successfully
and efficiently conduct these trials. For instance, we are assisting in the
identification of the ideal target population for therapy. This includes identifying
patients at high-risk early stage disease most likely to fail chemotherapy. This includes
patients with residual tumor cells in the blood and marrow and those with aggressive
tumor markers. BioPharma can also demonstrate, among other things, in vitro activity of
the trial compound using our Drug Resistance AssayTMor by identifying an
increase in lymphocytes known to attack tumor cells, as well as monitoring the immune
function of patients before, during and after the clinical trial.



During
2000, IMPATHs BioPharma entered into agreements with Millennium Pharmaceutical,
Bristol-Myers Squibb and GlaxoSmithKline to provide a broad range of its services in this
area. The Company expects to intensify its efforts in providing services to other
genomics, biotechnology and pharmaceutical companies going forward.


Competitive
Advantage


BioPharma
has built a fully integrated capability to enhance the targeted drug discovery process by
providing coordinated, interrelated platforms to facilitate faster, cost-effective,
targeted product development. This approach is a departure from the historically
fragmented set of resources from which a drug developer was forced to choose, never being
sure that the independently obtained pieces of the puzzle would fit together. By
contrast, BioPharma offers a seamless integration of critical components, including
access to patients, physicians, technologies and outcomes data to allow the
pharmacogenomic industry to accelerate its target discovery as well as development
program.


BioPharma
has developed a worldwide network of sites from which well-characterized, cancer tissue
specimens and corresponding serology are procured through its GeneBankTMprogram.
Specimens are ideally associated with informed patient consent as well as the ability
to follow subsequent treatment and outcomes information on the donors. These specimens
are vital resources for the identification and validation of tumor targets for
prospective therapies thereby facilitating the target discovery and validation process
for genomics and biopharmaceutical companies. BioPharma uses its tissue resources in
combination with the multiple technologies to rapidly assess the validity of potential
therapeutic targets. BioPharma is also a prime resource for diagnostic products companies
who seek to develop assays to identify the target in patients. Proactive assay
development efforts with BioPharma (and IMPATHs Physician Services Division, being
perhaps the primary user of the new diagnostic), helps these companies benefit as
targeted therapies are approved by the FDA since related diagnostic tools have been
approved simultaneously.


IMPATHs
ability to access a large number of patients with cancer and physicians treating cancer
is another critical component of its accelerated drug discovery services. This is
particularly important in the case of targeted therapies where patients with specific
characteristics need to be identified. The fact that only 5% of patients with cancer
currently participate in clinical trials is indicative of the complexity in recruiting
the right patients for the right trial. IMPATHs extensive physician client base
provides an ideal pool from which to identify patients. In addition, IMPATH Physicians
Network (IPN), through a group of oncologists that conduct clinical trials, helps to recruit patients and manages trials in the offices
of community-based oncologists. During the latter part of 2000, IPN signed clinical trial
agreements with several pharmaceutical companies, including Bristol-Myers Squibb, Lilly,
Genentech and Immunomedics. Further, through internally developed software products,
IMPATH searches its daily case volume of more than 675 cases and its hospital-based tumor
registry of some 2 million patients to accelerate the patient recruitment process.


IMPATH
believes it provides important information on more cancer cases than any institution,
anywhere, and therefore is in the best position to leverage its capabilities and
unmatched resources to propel its business to the next level and beyond serving
anyone involved in the management of cancer from physicians to drug developers to
diagnostic products companies. Additionally, the complex infrastructure that the Company
has been building and enhancing, offers a unique competitive advantage especially when
added to its access to cancer tissue, cutting-edge technologies, patients for clinical
trials and cancer information which encompasses treatment and outcomes data.



Information Services Division:


In the
course of performing sophisticated analyses on hundreds of thousands of tumor samples,
IMPATH gathers vast amounts of important biological information. Building on the
information daily, IMPATH has added to its information database through strategic
acquisitions and alliances. Through the acquisition of Medical Registry Services, Inc. (MRS),
a developer and marketer of cancer registry software, the Company increased its
capabilities in generating patient-specific information correlated to treatment and
outcomes information to meet the demands of physicians, payors and drug developers in the
more effective management of cancer. Cancer registries are required to be kept in
hospitals treating cancer patients as part of a licensing requirement from the American
College of Surgeons as well as state agencies and other regulatory bodies. When added to
the information from IPN, this data stream provides therapeutic, treatment and outcomes
information which can be paired with IMPATHs biological and molecular data,
creating a detailed continuum of care profile from diagnosis to treatment and through
follow-up. The database adds value to all the participants involved in treating cancer,
from the providers of health care to the patients who receive it.


Competitive
Advantage


The
Company believes that its cancer registry software provides capabilities and value-added
features that are unique in the industry. Further, because the Company believes that its
Physician Services division analyzes more cancer cases than any other institution, by
combining the genetic and biochemical markers uncovered through these analyses with its
rapidly growing outcomes-focused database, the Company can help identify the genetic
basis for responsiveness to therapy, side effects of treatment and even disease
predisposition. This database can also be used to identify the appropriate patients for
clinical trials of targeted therapeutics. Identifying the correct patient is a
cost-effective method to demonstrate efficacy and avoid unnecessary, costly
over-enrollment. The Company is also seeking to link these data to outcomes and cost
information in order to demonstrate the value of its Physician Services to payors and to
provide new cancer information services to providers, payors, biopharmaceutical and large
pharmaceutical companies and clinical research organizations. See "Company
Strategy.


Company
Strategy


IMPATHs
objective is to be the leading cancer information company and the comprehensive resource
for integrating all aspects of the management of cancer information. The Company is
pursuing the following strategies to achieve its long-term growth objectives:


Physician
Services Division:


Increase
market penetration of diagnostic and prognostic services.  IMPATH believes that it has a
significant opportunity to continue to increase its revenues and case volume from
existing clients as well as through new relationships with hospitals, physicians and
payors. The Company intends to continue to grow its core business by increasing the
number of cases received from existing clients, continuing to incorporate new
technologies and expanding the services it offers to the oncology outpatient market. Case
volume for 1995 was 43,287; in 2000 that figure increased to 175,587, representing an
average annual growth rate of 51%. In part as a result of the more complex analyses per
case required to assess biological characteristics of the tumor, the Companys average revenue realization
per case has increased as well. The average revenue realization per case (excluding
cytogenetic and serum analyses) has increased from approximately $340 in 1995 to
approximately $707 in 2000, representing an average annual increase of 18%.


Managed
care networks represent an important business opportunity for the Company because, in
many cases, unnecessary treatment can be avoided and significant cost savings can be
achieved through the relatively inexpensive services provided by the Company. An IMPATH
case analysis typically costs between $300 and $1,500 and contains information which can
be critical for physicians to avoid ineffective courses of therapy costing many thousands
of dollars. The Company intends to expand its presence in managed care by aggressively
marketing the cost-effectiveness and clinical benefits of its services and assisting
managed care companies in developing cancer treatment protocols. The Company currently
has 591 contracts in place with providers as follows: 125 contracts with health plans,
176 with HMOs, 106 with independent physician associations (IPAs), 48 with
Medical Groups, 46 with preferred provider organizations and 90 with third
party administrators (TPAs) and continues in its efforts to insure its
presence as a preferred provider.



In
order to implement this strategy, the Company intends to continue to identify and
incorporate new technologies and scientific developments and to recruit and train
medical, scientific, customer service and sales personnel to meet the demands of its
expanding business.


Pursue
strategic acquisitions and alliances.  The Company has successfully completed the
acquisition and integration of several complementary regional businesses that have added
to the breadth and depth of its technological expertise and services and believes that
there are other similar acquisition candidates, including companies with significant
national and international presences.


Target
international expansion.  IMPATH Physician Services division believes that foreign markets
represent a significant opportunity for the Company to expand its cancer information
business. A principal focus of the Companys international strategy will be
selective acquisitions of established businesses providing services similar to those
provided by the Company. IMPATH Physician Services also intends to pursue this
opportunity by partnering with international physician oncology networks and hospital
groups, and involvement in drug development efforts of international pharmaceutical
companies. These efforts initially will focus primarily on select markets in Europe and
South America and, once these relationships are established, would expand into Southeast
Asia, Japan, Canada and Australia. These regions represent areas where sophisticated
treatment technologies are currently in use and which the Company believes would benefit
from its services.


BioPharmaceutical/Genomics Services Division


IMPATHs
BioPharma has assembled numerous resources derived from leveraging the
Companys expertise in diagnostic and molecular technology, significant biological
resources and extensive patient-specific information to develop a successful commercial
business focused on supporting oncology drug discovery and development. The business has
been designed to support all phases of oncology drug development from discovery, to
clinical trials, pre- and post-launch marketing support and label expansion. The
Company expects its role to continue to expand and evolve in this area through its
activities in Translational Genomics as this new paradigm in drug development
also evolves. Since genomics and proteomics has allowed biology to enter an era of
predictive medicine which is based on complex biological information to observe and track
gene/protein interactions and look for targets, there is much to be done to translate
these targets into new oncology therapeutics. The Company believes that BioPharma is the only
entity of its kind to offer the necessary components, innovative platforms and requisite
infrastructure to enable those involved in this new era of targeted drug development to
accelerate their efforts. Further, as the biopharmaceutical industry increasingly
utilizes predictive tests to design clinical trials and novel methodology to assess drug
efficacy and patient response, IMPATH is well positioned to capitalize on opportunities
in this industry.


IMPATH
will also continue to explore strategic acquisitions and alliances in this area of its
business to enhance its capabilities in meeting the evolving needs of its
biopharmaceutical/genomics clients.


Further,
the Company will continue to build and expand the requisite infrastructure to support its
business activities while capturing the synergies between its divisions as its business
continues to evolve and its role in the management of cancer grows.


Information Services Division


IMPATH
Information Services division has made numerous enhancements to facilitate better access
to critical, patient-focused longitudinal data to more efficiently provide information to
it biopharma clients, including the assessment of market potential for new therapeutics,
clinical trial design tools and analyses of drug utilization rates. The Company intends
to continue to pursue selective acquisitions of companies that will enhance its cancer
management information database. These acquisitions may also include companies involved
in health care information services and companies that have expertise in the evaluation
of medical data and cost analysis. The Company also expects to continue to develop
information-based products that facilitate the practical utilization of biological and
longitudinal patient information.



The
Companys cancer registry software will continue to be marketed to hospitals and
state agencies while continuing to look for strategic acquisitions in this area to
populate its database of relevant biological and treatment and outcomes information in
oncology as well as additional expertise in pharmacoeconomic analytical capabilities.



IMPATHs
Role in the Cancer Management Pathway


The
management of cancer involves a series of distinct steps which must be integrated in
order to define a therapeutic strategy. At each step, information critical to the
decision-making process must be obtained in order to make the optimal decision.
Traditionally, the type of information applied to the decision-making process has been
limited, and related not to an individuals cancer, but rather to an entire class of
disease. IMPATH Physician Services is providing, through the use of integrated advanced
technology, information unique to a particular patient with cancer.


Diagnosis. 
IMPATH Physician Services diagnostic analyses provide information regarding tumors
that are difficult to diagnose using conventional pathology procedures. Although most
tumors can be diagnosed based on visual examination by the pathologist, as many as 15-20%
(more than 250,000 per year in the U.S. alone) of all cancers defy specific
classification by this method. This may result in treatment decisions that are
approximated, incorrect or ineffective leading to unnecessary treatment, complications
and increased cost. Traditionally, the therapeutic approach to a patient with cancer has
been based on a purely morphological assessment of the origin of the cancer and the
extent of spread, i.e., the tumors appearance under the microscope (for example,
does it look like colon cancer?) and the tumors presence in various metastatic
sites (such as regional lymph nodes and bone marrow). While this type of morphological
assessment is well accepted, it has serious and critical limitations. Specifically,
morphological assessment is able to provide very little information about the biological
aggressiveness of an individuals cancer and can provide virtually no meaningful
information regarding the treatment to which the patients specific cancer will
respond. IMPATH has shown that in a majority of cases which defy standard classification,
the use of advanced technologies and the medical expertise provided by IMPATH lead to an
accurate diagnosis, thus ensuring optimization of therapy, greater predictability of
outcome, increased survival and decreased overall costs.


Prognostic
Assessment.  IMPATH Physician Services prognostic tests provide information to
pathologists and oncologists regarding the aggressiveness of a tumor. The increase in
knowledge of tumor biology and the development of new technologies have made it
increasingly important to determine the aggressiveness of an individual cancer in order
to treat that cancer more rationally. One breast cancer may have a low biological
aggressiveness, and may therefore have a very low propensity to recur, while another
breast cancer (which appears identical under the microscope) may be very aggressive.
These tumors should be treated very differently, but may not be if these differences are
not identified. For example, post-surgical systemic treatment, such as chemotherapy, for
a cancer that has a very low rate of recurrence produces limited beneficial effects, and
may only expose the patient to the morbidity and expense of such treatment. On the other
hand, an aggressive cancer should be treated aggressively at the earliest possible time
in order to achieve maximal therapeutic benefit. IMPATHs prognostic expertise
differentiates such difficult cases, providing the oncologist with the critical
information necessary to treat patients effectively and to reduce morbidity and costs.


Treatment
Determination.  Traditionally, therapeutic approaches to cancer have been based solely on
the diagnosis and stage (or extent) of disease. For example, a patient with breast cancer
is treated with a particular combination of chemotherapeutic drugs not because it is
known that the cancer in question is likely to respond, but rather because a certain
proportion of other breast cancers have responded in the past to similar treatment. In an
increasing number of cancer cases, IMPATH Physician Services provides information that
can help to predict the specific types of therapy to which a particular tumor will
not respond thus providing information on patient-specific likelihood of treatment failure.
For example, in the case of breast cancer, IMPATH Physician Services
provides critical information for the determination of likely patient responses to
specific therapies (e.g., hormonal treatment and chemotherapy) before such therapies are
administered. This type of information is becoming increasingly available for other types
of tumors as well. Thus, therapies that are most likely to be beneficial can be
instituted at the earliest possible time, when the impact will be the greatest. In
addition, therapies that will have little effect can be avoided, thus decreasing
morbidity and expense and accelerating the implementation of appropriate treatment. The
Company believes that this type of patient-specific information will become essential for
optimal cancer management.



Treatment/
Follow-up.  Once a cancer has been diagnosed, assessed and treated, the patient must often
undergo many years of follow-up care involving multiple patient contacts and repeat
analyses. This care not only provides for the treatment of therapeutic complications
(often resulting from inappropriate therapy due to inaccurate diagnosis and insufficient
assessment) but is designed to determine, at the earliest possible time, if a patient has
suffered a recurrence. IMPATH Physician Services has the expertise to provide highly
sensitive patient monitoring in an increasing number of cancers. For example, the Company
is able to establish whether or not certain types of lymphomas have recurred prior to
their detection by any standard method, even sensitive microscopic analysis. The
identification of tumor recurrence at the earliest possible time increases the likelihood
of a beneficial therapeutic response.



Technologies


Recent
advances in immunology, biochemistry and molecular biology have created new tools with
tremendous potential in the management of cancer patients. IMPATH Physician Services
specializes in cancer tests that require a sophisticated level of medical knowledge and
technical expertise that is beyond the capability of pathology laboratories in the
average community hospital. In fact, the expertise required to develop and maintain a
high quality immuno- and molecular pathology laboratory is found in a relatively small
number of top level academic institutions. Furthermore, even the most sophisticated
medical centers perform only a small fraction of the tests that IMPATH Physician Services
performs every day. This is extremely important, as increased experience generally leads
to superior professional and technical expertise. The average community hospital
pathologist does not see a substantial volume or range of cases and, therefore, very
rarely has the experience to choose the correct testing methodology and to evaluate the
data, or the technical support to achieve high quality results. Even when these
technologies exist at academic medical centers, they typically exist in different
departments (e.g., pathology, genetics and molecular biology). The Company believes that
there is usually no integration of information by these different departments, making it
more difficult for the referring physician to diagnose and provide optimal treatment for
a patients specific cancer.


IMPATH
Physician Services continues to identify and incorporate sophisticated technologies and
analyses, consistent with the Companys goal of remaining at the forefront of
scientific advances in cancer analysis. IMPATH integrates these technologies in order to
provide comprehensive cancer information critical for optimal cancer management.
Importantly, these techniques also allow for the identification of patients who will not
benefit from certain types of therapy, thus avoiding the cost, pain and side effects of
unnecessary treatment.




The
following chart summarizes the Companys use of technologies in its analyses of
cancer:
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|Category of Analysisand Type of Cancer | Immunohisto-chemistry | FlowCytometryAndImageAnalysis | MolecularPathology | Cytogenetics | Micrometas-tasesDetection | DrugResistanceAssay | SerumAnalysis
|-------------------------------------- | --------------------- | ----------------------------- | ------------------ | ------------ | ------------------------- | ------------------- | -------------
|Predisposition:                        |                       |                               |                    |              |                           | X                   |              
|Diagnosis:                             |                      
|Difficult to                           |                      
|Diagnose Cancers                       |                       | X                             |                    |              |                          
|Lymphoma/Leukemia                      |                       | X                             |                    | X            |                           | X                   |              
|Prognosis/Treatment                    |                      
|Determination:                         |                      
|Breast                                 |                       | X                             |                    | X            |                           |                     |              
|Lymphoma/Leukemia                      |                       | X                             |                    | X            |                           | X                   |              
|Prostate                               |                       | X                             |                    | X            |                           |                     |              
|Other (e.g., Colon,                    |                      
|Bladder, Ovarian)                      |                       | X                             |                    | X            |                           |                     |              
|Follow-up:                             |                      
|Breast                                 |                       |                               |                    |              |                           | X                   |              
|Lymphoma/Leukemia                      |                       |                               |                    |              |                           | X                   |              
|Prostate                               |                       |                               |                    |              |                           | X                   |              
|Other (e.g., Colon,                    |                      
|Bladder, Ovarian)                      |                       |                               |                    |              |                           | X                   |              

|Immunohistochemistry


Immunohistochemistry
(IHC) is a technique wherein a monoclonal antibody is used to identify
disease-specific cellular antigens. A primary antibody to an antigen of interest is
incubated with test tissue sections followed by a secondary antibody complex. If the
antigen is present in tissue, the primary antibody binds and the antigen-antibody
reaction can be visually detected by a color product. Because cell antigens are not
absolutely tissue- or tumor-specific, the immunopathologist must use panels of antibodies
to construct a fingerprint for identification. Immunohistochemistry is
superior to standard biochemical assays because it provides faster results, can be used
on smaller tissue samples, has less stringent requirements for specimen storage, and,
most importantly, predicts outcomes more accurately.


Flow Cytometry and Image Analysis


Various
components of tumor cells can be quantified by flow cytometry and/or image analysis. In
flow cytometry, a cell sample is stained with appropriate fluorochromes and passed
through a flow chamber designed to align the stream of cells so that they are
individually struck by a focused laser beam. The scattered light and fluorescent
emissions are separated according to wavelength by appropriate filters and mirrors and
directed to detectors which convert the emissions into electronic signals that are
analyzed and stored for future display by a computer. The data are displayed on a graph
of frequency (number of cells versus fluorescent energy) for a single parameter analysis
or as a scattergraph for a multi-parameter evaluation. The fluorochromes used to stain
cells in flow cytometry include compounds that bind to DNA and/or RNA, but fluoresce at
different wavelengths for each, or that can attach to antibodies against cell surface
antibodies. In image analysis, a pathologist selects the area of the specimen to be
examined, and a computerized instrument using a microscope and camera then measures
various components of tumor cells based on staining intensity.



Molecular Pathology


The
next generation of commercial diagnostic and prognostic testing is generally expected to
be based on molecular biology, since a disease or condition may be associated with the
presence of an abnormality in DNA or RNA. A specimen may be tested for a particular
disease or condition by finding and marking this abnormality. Currently, the use of
molecular pathology is confined predominantly to academic centers. However, IMPATH
already performs a wide range of molecular pathology analyses, including in situ
hybridization (ISH). Similar to IHC except that a DNA probe is used rather than a
monoclonal antibody, in situ hybridization employs recombinant DNA technology with
labeled probes to locate and identify nucleic acid sequences within cells. IMPATH also
uses a DNA-based technology called Southern blotting that detects genetic rearrangements
that confirm abnormalities known to be present in certain tumors. More recently,
fluorescence has been used to label probes, replacing the historical use of radioactive
isotopes, in a technique called fluorescence in situ hybridization (FISH). Another
promising molecular pathology technique already in use at IMPATH is the amplification of
specific DNA sequences by thermal cycling and subsequent electrophoresis, the most
sensitive method of detecting alteration in DNA.


Cytogenetics


Cytogenetic
analysis evaluates the genetic changes that occur at the chromosome level. Humans have 23
pairs of chromosomes, or 46 individual chromosomes in every cell. Cytogenetic methods
provide for the identification of each individual chromosome using DNA-specific staining
techniques to produce the unique band pattern that is characteristic of each chromosome,
providing for the identification of chromosomal abnormalities like balanced
translocations, deletions and gene amplifications that are consistently associated with
certain cancers. The analysis involves the utilization of fresh cells obtained from
blood, bone marrow or tissue specimens which have been cultured to enhance cell growth
and division. The cells are then harvested and prepared in such a manner that the
chromosomes and the distinct patterns of each can be seen through a microscope. The
identification of chromosome changes has become extremely useful in the diagnosis and
prognostic assessment of lymphomas, leukemias, soft tissue cancers (sarcomas) and
pediatric cancers. The scope of this technology is expected to expand to carcinomas (such
as colon, lung and prostate cancer) in the near future.


Micrometastases Detection


Micrometastases
is the minute spread of cancer cells from one part of the body to another. Because the
tumor cells are so few, they generally do not have enough mass to be observed using
conventional methods. The presence of these occult tumor cells in blood, bone marrow and
lymph nodes serves as an important means of stratifying cancer patients and predicting a
poor clinical outcome. Recent technologies have developed exceptionally sensitive
detection levels for minimal residual cancer or micrometastases.


IMPATH
Physician Services employs multiple technologies, across a range of tumor types, to
determine the presence of occult tumor cells down to as few as 1 in 20 million cells.
Cell colonies have been shown to grow when there are as few as 1 tumor cell in 2 million normal cells.
This analysis serves to evaluate the extent of disease for appropriate staging, to
monitor a patients response to therapy and to ascertain if post-transplant therapy
may be of benefit. It is also useful in minimal residual disease detection in bone marrow
and stem cell transplants for breast cancer patients.


Drug Resistance Assay


The
primary reason cancer patients fail chemotherapy is drug resistance since each individuals
cancer can react differently to chemotherapy agents. The Drug Resistance AssayTM (DRA)
can provide valuable information about the pattern of resistance unique to that
particular patient, allowing the oncologist to better target therapy to the tumor. Many
mechanisms have been identified which contribute to the development of cancer cell
resistance to treatment; some tumors are highly resistant to virtually every anticancer
drug, while others are very sensitive. The DRA performed by IMPATH measures the net
effect of these mechanisms in the cells of the individual patient, allowing the
oncologist to exclude chemotherapy agents unlikely to be effective, while selecting drugs
with the greatest likelihood of clinical impact. This spares cancer patients the
morbidity of ineffective chemotherapy while improving response and prolonging
survival.


Serum Analysis


Blood
serum markers are proteins circulating in the blood which are produced in excess by
malignant tumors. These serum proteins serve as an indicator of tumor regression
(decreased presence of markers) or tumor progression (increased presence of markers).
Because these proteins are present in minute amounts, the technology required for
detection relied, until recently, on an immunochemical procedure involving the use of
radioactive isotopes. Now, however, a new generation of non-radioactive techniques is
available to detect blood serum markers employing, among other methods,
chemiluminescence--a novel system based on emitted light as an indicator of activity.
IMPATH uses its serum technology to assist oncologists in patient follow-up. For example,
by monitoring levels of certain known markers, the Company can help to confirm remission
or the recurrence of ovarian and prostate cancers.


Cancer
Management Through Information


Optimal
management of cancer means the best outcome at the lowest possible cost. At each step
along a management pathway, the best choice is not necessarily the lowest cost
alternative, but one which leads to the best outcome at the lowest overall cost. A
patient with cancer has many treatment options, at widely varying costs, ranging for
example from no further intervention to expensive experimental procedures such as bone
marrow/stem cell transplants; however, the choice of a more expensive option may lead to
a better outcome with fewer recurrences. This not only optimizes patient benefit (an
obvious advantage as health care will be increasingly evaluated on the basis of outcome)
but can actually lead to lower overall cost; the cost of treating recurrent disease is
generally far greater than initial post-surgical interventions. Thus, outcomes and
cost-effectiveness should be synergistic, and not mutually exclusive. The key to
cost-effectiveness is choosing the most appropriate management pathway for the individual
patient. This can only be done through the use of information derived from a patients
tumor that defines its biological uniqueness, and allows for identification of the most
appropriate therapeutic options.


Finally,
cancer management is not static; approaches that represent current best practices may
well be added to or modified by new developments, a process that has tremendous impetus
in research institutions and biopharmaceutical companies.


With
about 700,000 analyzed cases to date, IMPATH is rapidly incorporating the diagnostic and
prognostic information generated from its analyses of cases into its cancer database. The
demographics of these cases include: 303,402 breast cancer prognostics and treatment
profiles; 179,622 complex cancer diagnoses; 134,831 lymphoma and leukemia
classifications; and 76,555 analyses of other cancers (e.g., prostate, bladder, uterine).



IMPATH
believes that the use of its services will have two fundamental impacts on cancer
management: (1) optimization of patient-specific care, and (2) the cost-effective
delivery of that care. As a result, IMPATH expects to become an increasingly significant
factor in helping to establish quality standards for these cancer management groups.
IMPATH believes that it is well positioned to become a vital component in the integrated
management of cancer.


Breast
Cancer Management


Because
of its unique approach to breast cancer, IMPATH Physician Services believes that it is
the leader in providing the most comprehensive prognostic information essential to the
management of breast cancer. In 2000, the Company provided patient-specific prognostic
information on over 30% of all such cases in the U.S., and in over 35% of cases
diagnosed in the New York metropolitan area, California and Florida, the Companys
largest markets.


Management
of Lymphoma/Leukemia



The
value of IMPATH Physician Services integrated approach to providing cancer
information is especially well demonstrated in the clinical management of hematopoietic
malignancies, such as lymphomas and leukemias, particularly as scientific advances
improve our understanding of these diseases. The clinical management of hematopoietic
malignancies requires a comprehensive approach that includes analysis by
hematopathologists and the use of advanced diagnostic and prognostic technology. Most
community hospitals do not have hematopathologists or the technologies required for such
analyses. The Company utilizes multiple technologies including immunohistochemistry, flow
cytometry, cytogenetics and molecular analyses to diagnose and classify these
hematopoietic malignancies. Using the information from an IMPATH analysis, a physician
can tailor therapy to optimize the outcome for a patient. These same technologies are
applied to evaluate a patients response to therapy, and to evaluate the progression
or remission of the disease.



The clinical significance of IMPATHs diagnostic technology is illustrated by the
fact that during 2000, of all the suspected lymphoma cases sent to IMPATH Physician
Services for analysis, approximately 10-15% were found to be an infection or inflammation
rather than cancer. Prior to the development of certain technologies used by IMPATH, such
cases may have been misdiagnosed as cancer. In the cases identified by IMPATH Physician
Services as not being cancer, patients who were suspected of having a hematopoietic
malignancy were spared the trauma, risk and cost associated with unnecessary treatment.
Of the cases sent to IMPATH in 2000 that were in fact lymphomas, the technology applied
by the Company permitted an assignment of the gradeof the lymphoma, a process
recommended by the International Lymphoma Study Group (1994). The grading of lymphomas is
an important process that influences the treatment decisions of physicians and can result
in better outcomes for a lymphoma patient.


Similar to lymphomas, leukemias represent a type of cancer where the classification and
grading of the disease provides critical information that influences the selection of
therapy, predicts the response to therapy and indicates the likely outcomes for the
patient. The characteristics that distinguish the various types of leukemias can be
identified by the technology employed by IMPATH Physician Services. For example, in many cases, chromosome
abnormalities identified by this technology permit the unequivocal assignment of the
disease to a particular class of leukemia. As new biological characteristics associated
with leukemia classes continue to be identified, the Company believes that it is well
positioned to incorporate into its analyses additional tests to detect these
characteristics.


Management
of Other Cancers


Diagnostic,
prognostic and therapeutic information is being integrated increasingly into the
management of other cancers. As medical research progresses and as increasing numbers of
treatment options evolve, IMPATH believes that its expertise will play an increasing role
in the decision making processes for all cancers.


For
example, prostate cancer, like breast cancer, is a disease that is responsive to hormonal
manipulation. As in the case of estrogen receptors in breast cancer, the presence of
androgen receptors in prostate cancer can now be evaluated. IMPATH believes that this
information will become increasingly important in the treatment and management of
prostate cancer. The growth rate of the tumor is also critical; for instance, a 50-year
old man with a rapidly growing cancer must be treated differently than a 90-year old man
with a very slow-growing prostate cancer. IMPATH provides this information for prostate
and other cancers, including breast, colon and bladder cancers.



Sales and Marketing


Physician
Services Division:


Sales
Force.  As of December 31, 2000, the IMPATH Physician Services sales force consisted of 71
employees, including a Vice Presidentsix sales and marketing personnel, four regional
directors, and 60 sales representatives. This sales force consists of highly trained
individuals with extensive scientific backgrounds and successful sales records with
health care companies. The sales force focuses on educating clients about the benefits of
the Companys services in managing cancer. IMPATH believes that the technical and
clinical knowledge of its sales force distinguishes it from other companies.



Marketing
Support. IMPATH supports its Physician Services sales force with extensive customer
service and marketing programs. Due to the technical and scientific complexity of IMPATHs
business, the Company has established a strong interactive relationship with its clients.
This relationship serves to increase the reliance of the client on IMPATH and is a
significant tool for encouraging business growth within the current customer base. The
marketing process emphasizes educating physicians regarding the development of new
technologies and the value of the information provided by IMPATH.


Customer
Service.  The Company emphasizes customer service, including the provision of a
comprehensive detailed report to the referring physician after each analysis is
completed. In general, the Company returns its completed analysis and report to the
referring physician or clinician within 48 hours of receipt of the tissue specimen,
compared with approximately 14 days for academic institutions. Further, the Companys
medical staff provides frequent expert consultation. The Company also employs customer
service representatives, who are responsible for inquiries made by referring physicians
and provide support for the Companys sales staff. The success of IMPATHs
focus on customer service and education is demonstrated not only by the Companys
rapidly growing case volume, but by the fact that IMPATHs case volume from its
long-term customers continues to grow.



BioPharmaceutical/ Genomics Services Division


Sales Force
and Marketing Support: As of December 31, 2000, BioPharma had a sales force consisting of three direct sales representatives, three
Directors and a Vice President of Strategic Development. Additionally, a highly-skilled
scientific and medical staff with focused technical expertise works closely with the
sales representatives in developing customer-specific project specifications. Various
members of the team interact regularly with clients to ensure seemless integration of
services and rapid response to customer needs. The Company attends trade shows and
regional industry meetings related to its integrated oncology services and their potential
application across its genomics, biotechnology and pharmaceutical clients. Collateral
literature is also produced to support long-term growth objectives.



Information Services Division



Sales Force
and Marketing Support. As of December 31, 2000, the Companys Information Services
Division cancer registry software sales force consisted of two primary direct sales
people supplemented, as necessary, by seven regional managers. Additionally, sales
efforts are supported with extensive client focused marketing programs designed to build
strong, interactive relationships with clients. A Vice President working with two
marketing professionals guides sales and marketing efforts. The Company regularly attends
national and local trade shows, participates in generating relevant case studies to
demonstrate the cost effectiveness and utility of its tumor registry software
capabilities and prepares newsletters and other collateral marketing support literature.



Customer
Service. The
Information Services division of IMPATH emphasizes customer service and support and
assigns each customer a specific Client Support Representative. There are seventeen
Client Support Representatives located throughout the country. In addition, the division
has four Technical Support Specialists based at its main office in New Jersey.




Competition


Physician Services


Competition. 
IMPATH Physician Services operates in a segment of the health care industry that
is highly fragmented and extremely competitive. The Companys actual or potential
competitors include large university or teaching hospitals; large clinical laboratories
that have substantially greater financial, marketing and logistical resources than the
Company; special purpose clinical laboratories that have limited test offerings and a
highly focused product and marketing strategy; and the Companys customers or
potential customers who may choose to perform services similar to those performed by the
Company. It is anticipated that competition will continue to increase due to such factors
as the perceived potential for commercial applications of biotechnology and the continued
availability of investment capital and government funding for cancer-related research.
There are several large clinical laboratory companies which market a broad range of
services nationally, and which have substantially greater financial, selling, logistical
and laboratory resources than the Company. In addition, management has identified a
number of specialized clinical laboratories in the U.S., which have test offerings that
are less comprehensive than those of IMPATH and highly focused product and marketing
strategies.


Competition.BioPharma
competes in an environment of large academic centers, research boutiques, biotechnology
companies, site management and contract research organizations. The industry landscape is
very fragmented, i.e. genomics companies in need of access to human tissue, clinical
data, diagnostic development tools which they would purchase from several academic
centers, perform DNA, RNA and MRNA extraction or hire an entity to perform those
services, and then seek assistance in validating those targets from perhaps yet another
entity. Thereafter, once a target has been validated, a diagnostic assay would need to be
developed to identify the target in patients most likely to respond to the new
therapeutic. Diagnostic products companies would be competitors is this area. Once a
therapy has been developed, the Pharmaceutical company would need to navigate the complex
clinical trial process by appropriately designing the trials, recruiting the right
patients and documenting the results in accordance with FDA standards. Contract research
organizations and site management companies would be competitors in this service.


BioPharma
is in a unique position in that it provides integrated oncology resources from access to
well-characterized, fully consented tissue specimens with treatment and outcomes data on
the donors, to access to cutting edge technologies for molecular assessment. BioPharma can
assist in the development of a diagnostic tool to identify patients with the selected
target, and then aid in recruiting the appropriate patients for targeted clinical trials
to accelerate the drug development process while mitigating costs due to unnecessary
over-recruitment. Additionally, BioPharma can help facilitate the effective running of
the trial in the community-based oncology office by providing central contracting,
pharmacy and Institutional Review Board services in additional to oversight of adherence to treatment protocols
and uniformity of documentation.


By
virtue of the Companys historic and current relationship with biotechnology and
pharmaceutical companies as well as its new relationships with genomics companies, it has
been able to enhance products and services for these customers by incorporating new
capabilities. As new technologies and/or methodologies are developed, the Company would
look to in-license them to maintain its competitive advantage of providing a broad and
comprehensive range of integrated oncology services to its clients.


Information Services Division


Competition. The
Companys Information Services division generates revenue by providing cancer
registry software to hospitals and state registries. Competitors in this area consist of
four companies and a number of state agencies. The Company believes it is not only the
largest vendor of cancer registry software in the U.S., but also provides a product with
significantly more capabilities and value-added features than its competitors.



Reimbursement


The
Company typically bills third-party payors, such as private insurance plans, managed care
plans and Medicare and Medicaid, as well as hospitals, for its services.


During
1998, 1999 and 2000, the Company received the following estimated percentages of its
total revenues for diagnostic and prognostic services from the respective payors
identified below:
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|                               | Year Ended December 31,
|------------------------------ | -----------------------
|
|Hospitals                      |                        
|Private Insurance/Managed Care |                        
|Medicare                       |                        
|Individual Patients            |                        
|                              
|Total                          |                        
|                              

|For a
discussion of the changes in these percentages in 2000, see Item 7 of this Annual Report
on Form 10-K.


Medicare
is a federal health insurance program that provides health insurance coverage for certain
disabled persons, for persons aged 65 and older and for certain persons with end-stage
renal disease. Medicaid is the state-administered and state- and federally-funded program
for certain low-income individuals. As a participating provider, the Company bills
Medicare for covered services and accepts Medicare reimbursement as payment in full for
its services, subject to applicable co-payments and deductibles.


Prior
to the passage of the Balanced Budget Act of 1997, Medicare beneficiaries could (i)
receive services on a fee-for-service basis pursuant to which Medicare generally pays
providers based on a national fee schedule subject to the applicable copayment or (ii)
elect to enroll with a managed care organization which had entered into a direct contract
with Medicare whereby the organization is paid a predetermined amount for each covered
Medicare beneficiary without regard to the frequency, extent or nature of services
delivered. The Balanced Budget Act of 1997 reformed Medicare in a number of respects,
including the phase out of existing Medicare risk contracts and the creation of the
Medicare+Choice program. The Medicare+Choice program allows Medicare beneficiaries, in
addition to traditional fee-for-service Medicare, to have access to a wide array of
private health plan choices beyond the previously existing managed care arrangements.
These additional plan options include Coordinated Care Plans which is an HMO
with or without point of service option; a Provider-Sponsored Organization plan; a
Preferred Provider Organization plan; and a demonstration Medical Savings Account
project. The Company cannot predict
what effect, if any, the program will have on the Companys future Medicare revenues.




Revenues
from analyses performed for other patients are derived principally from other third-party
payors, including commercial insurers, Blue Cross/Blue Shield plans, health maintenance
and preferred provider organizations and from hospitals (who in turn bill
third-party payors or patients). With respect to third-party payors, management has
elected, to date, not to accept reimbursement rates set by such non-governmental
third-party payors as payment in full. With respect to hospitals, management negotiates
the terms applicable to each arrangement.


The
Company currently receives Medicare reimbursement through three Medicare carriers.
Reimbursement rates for some services of the type or similar to the type performed by the
Company have been established by Medicare and some other third-party payors, but have not
been established for all services or by all carriers with respect to any particular
service. Most carriers, including Medicare, do not cover services they determine to be
experimental or investigational, or otherwise not reasonable and necessary for diagnosis
or treatment. However, a formal coverage determination is made with respect to relatively
few new procedures. When such determinations do occur for Medicare purposes, they most
commonly are made by the local Medicare carrier which processes claims for reimbursement
within the carriers geographic jurisdiction. Medicare may retroactively audit and
review its payments to the Company, and may determine that certain payments for services
must be returned. With respect to other third-party payors, a positive coverage
determination, or reimbursement without such determination, by one or more third-party
payors does not assure reimbursement by other third-party payors. Significant
disapprovals of payment for any of the Companys services by various carriers,
reductions or delays in the establishment of reimbursement rates, and carrier limitations
on the coverage of the Companys services or the use of the Company as a service
provider could have a material adverse effect on the Companys future revenues.


Most
services furnished by the Company are characterized for the purposes of the Medicare
program as physician pathology services. As of January 1, 1992, all physician services,
including pathology services, have been reimbursed by Medicare based on a new methodology
known as the resource-based relative value scale (RBRVS), which was phased in
over a four-year period. Updates to the RBRVS payment methodology, which are issued from time to time, have not had any significant
effect on the Companys reimbursement rates. A small portion of the services furnished by the Company
are characterized for purposes of the Medicare program as clinical laboratory services
and reimbursed by Medicare under its clinical laboratory fee schedule. The Balanced
Budget Act of 1997 froze the clinical laboratory fee schedule payments for the years
1998-2002. Such freeze has not had, and is not expected to have a material adverse effect on the Companys
revenues.


Until
recently, independent companies such as IMPATH, were permitted to bill globally for the
diagnostic and prognostic services furnished to hospital inpatients and outpatients. This
meant that the company could bill both the technical component (TC) and the
professional component (PC) to the Medicare Program. However, on November 2,
1999, HCFA announced that it would change this rule for inpatients and require such
companies to bill the TC to the hospital, effective January 1, 2001. Subsequently, it
also announced that the same rule would apply to hospital outpatients, also effective
January 1, 2001. Under these rules such companies would have been required to bill the
hospital for the TC for services furnished to inpatients and outpatients. There were no
changes proposed with respect to the billing of the PC.


The
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA),
which was signed into law on December 21, 2000, included a provision that grandfathered the
global billing of certain of these arrangements. The grandfathered provision applies to
hospitals that had arrangements in existence prior to July 22, 1999, pursuant to which
such companies billed Medicare for the TC of services furnished to hospital inpatients
and outpatients. For these covered hospitals the company may continue to bill
the TC to the Medicare Program for an additonal two years. Prior to the expiration of
this period, the General Accounting Office is to make a report to Congress on the impact
of this provision.


Quality
Assurance


IMPATH
engages in a number of quality control procedures, many of which the Company believes
exceed industry norms. For instance, the Company does not buy untested commercially
available reagent test kits. Instead, each of IMPATHs reagents is selected from
various suppliers based on an exhaustive in-house test of purity, batch-to-batch
variability, potency and performance. IMPATH believes that its quality review procedures
are superior to other centers performing similar analyses. In addition, the quality
assurance program of the Companys facilities includes close attention to the Companys
Standard Operating Procedures, continuing education and technical training of
technologists, statistical quality control of all analytical processes, instrument
maintenance, and regular inspection by governmental agencies and the College of American
Pathologists (the CAP). The CAP is an independent non-governmental
organization of board-certified pathologists which offers an accreditation program to
which facilities can voluntarily subscribe. The CAP accreditation program involves both
periodic inspections of the Companys facilities and participation in the CAPs
proficiency testing program for all categories in which its facilities seek to attain or
maintain accreditation. The Companys facilities are CAP accredited, certified by
Medicare, licensed by New York State, the City of New York and the States of California
and Arizona and hold a certificates of accreditation under the Clinical Laboratories
Improvement Amendments of 1988, as amended (CLIA). The Company believes it has obtained all
licenses and permits required to operate its facilities. IMPATH follows the quality
control and quality assurance procedures established by CLIA, the CAP and various New
York State, California, Arizona and New York City agencies.



The
Companys New York and California facilities are supervised by medical directors
whose qualifications meet all regulatory requirements. The Companys Arizona
facility is supervised by a laboratory director whose qualifications meet all regulatory
requirements governing the cytogenetics testing which is performed at the facility. The
primary role of the Companys medical directors and laboratory director is to ensure
the accuracy and quality of the Companys analyses. As a further quality assurance
procedure, the Company periodically undergoes peer review with third-party facilities,
including Norris Cancer Center and Memorial Sloan-Kettering Cancer Center. In peer
review, particularly challenging diagnostic cases are referred by the Company to these
cancer centers for verification of antibody tests and IMPATHs diagnostic
conclusions. The results of these consultations are tabulated and discussed at monthly
quality assurance meetings at the Companys offices.


The
Company also participates in a number of proficiency testing programs under which, in
general, the testing body submits pre-tested samples to a facility in order to measure
the facilitys results against the known proficiency test value. The proficiency
programs are conducted by groups such as the CAP and state and federal government
regulatory agencies.


Government
Regulation


As a
provider of health care related services, the Company is currently subject to extensive
and frequently changing federal, state and local regulations governing licensure,
billing, financial relationships, referrals, conduct of operations, purchases of existing
businesses, cost containment, direct employment of licensed professionals by business
corporations and other aspects of the Companys business relationships. The various
types of regulatory activity affect the Companys business either by controlling its
growth, restricting licensure of the business entity or by controlling the reimbursement
for services provided.


Laboratory
Licensure.  The Companys facilities are certified or licensed under the federal
Medicare program and CLIA, as amended by the Clinical Laboratory Improvement Amendments
of 1988 (CLIA). Licensure is maintained under the clinical laboratory
licensure laws of New York, California and Arizona, where the Companys facilities
are located. The Company believes it has obtained all material laboratory licenses
required for its operations. In addition, the California facility is licensed by the
federal Nuclear Regulatory Commission and all three facilities are accredited by the CAP.


The
federal and state certification and licensure programs establish standards for the
day-to-day operation of facilities, including, but not limited to, personnel and quality
control. Compliance with such standards is verified by periodic inspections by inspectors
employed by federal or state regulatory agencies. The Health Care Financing
Administration conducts an on-site survey every two years. In addition, federal
regulatory authorities require participation in a proficiency testing program approved by
the Department of Health and Human Services (HHS) for each of the specialties
and subspecialties for which a facility seeks approval from Medicare, and accreditation
under CLIA 88 requires participation in proficiency testing programs which involve
actual testing of specimens by the facility that have been prepared by an entity running
an approved program for testing.


The
Final Rule implementing CLIA 88, published by HHS on February 28, 1992, became effective
September 1, 1992. This Final Rule covers all laboratories in the United States,
including the Companys facilities. The Company has reviewed the Final Rule (and
subsequent revisions thereto), including, among other things, the rules
requirements regarding facility administration, participation in proficiency testing,
patient test management (including patient preparation, proper specimen collection,
identification, preservation, transportation, processing and result reporting), quality
control, quality assurance and personnel, for the types of analyses undertaken by the
Company, and believes that it complies with these requirements. However, no assurances
can be given that the Companys facilities will pass all future inspections
conducted to ensure compliance with CLIA 88 or with any other applicable licensure or
certification laws.


False
Claims/Anti-Kickback.  The Company is also subject to federal and state laws prohibiting
an individual or entity from knowingly presenting claims for payment (by Medicare,
Medicaid and certain other third-party payors) that contain false or fraudulent
information. These laws provide for both civil and criminal penalties. Furthermore,
providers found to have submitted claims which they knew were false or fraudulent, or for
items or services that were not provided, may be required to make significant payments to
the government (including damages and penalties in addition to the reimbursements
previously collected) and may be excluded from Medicare, Medicaid and other federal healthcare program participation.
Actions under false claims laws have increased significantly in recent years and have
increased the risk that a business engaged in the healthcare industry, such as the
Company, may become the subject of a federal or state civil and/or criminal investigation
or action, be required to defend such action, be subjected to possible civil and criminal
fines, be sued by private payors and be excluded from Medicare, Medicaid and/or other
federally funded healthcare programs as a result of such an action.


The
Social Security Act imposes criminal penalties and exclusions from federal health care
programs (including Medicare) upon persons who make or receive kickbacks, bribes or
rebates in connection with a federal health care program (including Medicare). The
anti-kickback rules prohibit providers and others from soliciting, offering, receiving or
paying, directly or indirectly, any remuneration in return for either making a referral
for a service or item covered by a federal health care program (including Medicare) or
ordering any such covered service or item. In order to provide guidance with respect to
the anti-kickback rules, the Office of the Inspector General (OIG) issued
final regulations outlining certain safe harbor practices, which although
potentially capable of inducing prohibited referrals, would not be prohibited if all
applicable requirements are met. A relationship which fails to satisfy a safe harbor is
not necessarily illegal, but could be scrutinized on a case-by-case basis. The OIG  accepts requests for and issues
advisory opinions on the applicability of the anti-kickback rules to specified situations. Because
the anti-kickback rules have been broadly interpreted, they could limit the manner in
which the Company conducts its business. The Company believes that it currently complies
with the anti-kickback rules in planning its activities, and believes that its
activities, even if not within a safe harbor, do not violate the anti-kickback statute.
However, no assurance can be given regarding compliance in any particular factual
situation. Exclusion of the Company from the Medicare program could result in a
significant loss of reimbursement and have a material adverse effect on the Company.


Self
Referral Regulations.  Under another provision, known as the Stark law or self-referral prohibition,
physicians who have an investment or compensation relationship with an entity furnishing certain designated health services, including
clinical laboratory services (including pathology services) may not, subject to certain
exceptions, refer clinical laboratory analyses for Medicare or Medicaid patients to that entity.
Similarly, facilities may not bill Medicare, Medicaid or any other party for services furnished
pursuant to a prohibited referral. Violation of these provisions may result in
disallowance of Medicare and Medicaid claims for the affected analysis services, as well as the
imposition of civil monetary penalties and program exclusion. Under the Stark law and the
regulations implementing the law, a physician may make payments to a clinical laboratory
in exchange for the facilitys provision of clinical laboratory services and
continue to refer Medicare patients to that laboratory.


The
federal government recently announced new regulations under the stark law, which are
scheduled to go into effect in April 2002. The Company does not believe that these new
regulations will have a material impact on the companys business operations.


A
number of states, including New York and California, have enacted prohibitions similar to
the Stark law covering referrals of non-Medicare or non-Medicaid business. These
rules are very restrictive, prohibit submission of claims for payment for prohibited
referrals and provide for the imposition of civil monetary and criminal penalties. The
Company does not believe that it has any prohibited relationships with any of its referrers. However, the Company
is unable to predict how these laws may be applied in the future, or whether the federal
government or states in which the Company operates will enact more restrictive
legislation or restrictions that could under certain circumstances impact the Companys
operations.


Any
exclusion or suspension from participation in the Medicare program, any loss of licensure
or accreditation, or any inability to obtain any required license or permit, whether
arising from any action by HHS, any state or any other regulatory authority, would have a
material adverse effect on the Companys business. Any significant civil monetary or
criminal penalty resulting from such proceedings could have a material adverse effect on
the Company.


Fee-Splitting;
Corporate Practice of Medicine.  The laws of many states prohibit physicians from sharing
professional fees with non-physicians and prohibit non-physician entities, such as the
Company, from practicing medicine (including pathology) and from employing physicians to
practice medicine (including pathology). The laws in most states regarding the corporate
practice of medicine have been subjected to limited judicial and regulatory
interpretation. The Company believes its current and planned activities do not constitute
fee-splitting or violate any prohibition against the corporate practice of medicine.
However, there can be no assurance that future interpretations of such laws will not
require structural or organizational modifications of the Companys existing
business. In addition, statutes in certain states in which the Company does not currently
operate could require the Company to modify its structure.


Food
and Drug Administration.  The Food and Drug Administration (FDA) regulates
certain monoclonal antibodies purchased by the Company but does not currently regulate
the analytical services which are the Companys principal business. However, the FDA
is currently reviewing issues concerning the use of monoclonal antibodies for analytical
services and the decisions the FDA ultimately makes could impact the Company.


Other. 
Certain federal and state laws govern the handling and disposal of medical specimens,
infectious and hazardous wastes and radioactive materials. Failure to comply could
subject an entity covered by these laws to fines, criminal penalties and/or other
enforcement actions.


Pursuant
to the Occupational Safety and Health Act, facilities have a general duty to provide a
workplace to their employees that is safe from hazard. Over the past few years, the
Occupational Safety and Health Administration (OSHA) has issued rules
relevant to certain hazards that are found in facilities such as the Companys.
Failure to comply with these regulations, other applicable OSHA rules or with the general
duty to provide a safe work place could subject an employer, including a facility
employer such as the Company, to substantial fines and penalties.


The
confidentiality of patient medical records is subject to substantial regulation by the
state and federal governments. State and federal laws and regulations govern both the
disclosure and the use of confidential patient medical record information. Legislation
governing the dissemination and use of medical record information is continually being
proposed at both the state and federal levels. Additional legislation may require that
holders or users of confidential patient medical information implement measures to
maintain the security of such information and may regulate the dissemination of even
anonymous patient information. In December 2000, the federal government proposed certain regulations required by the Health Insurance Portability and Protection Act of 1997, relating to the privacy of patient information, including the use of such
information
by business associates of health care providers. The Company, as well as physicians and other persons providing
patient information to the Company are also required to comply with these federal and state laws and
regulations. If a patients privacy is violated, or if the Company is found to have
violated any state or federal statute or regulation with regard to confidentiality,
dissemination or use of patient medical information, the Company could be liable for
damages, or for fines or penalties. The Company believes that it is in material
compliance with all applicable state and federal laws and regulations governing the
confidentiality, dissemination and use of medical record information and will be able to comply with the new proposed regulations when final. However, there can
be no assurance that differing interpretations of existing laws and regulations or the
adoption of new laws and regulations would not have a material adverse effect on the
ability of the Company to obtain or use patient information which, in turn, could have a
material adverse effect on the Companys plans to develop and market its cancer
information database.


Insurance


The
Company is presently covered by general liability insurance in the amount of $6.0 million
per occurrence and $7.0 million in the aggregate, professional liability insurance in the
amount of $6.0 million per occurrence and $8.0 million in the aggregate for the Companys
Medical Directors and other physicians, and Directors and Officers liability insurance in
the amount of $15.0 million per occurrence and in the aggregate. The Companys
pollution liability insurance of $5 million per occurrence and $5 million in the aggregate covers
claims relating to the handling and disposal of medical specimens and infectious and
hazardous waste, except in the event of malfeasance or fraud by the Company. Management
believes that these amounts and types of coverage are adequate to protect the Company and
its property against material loss.


Employees


As of
December 31, 2000, the Company had 889 full-time and 58 permanent part- time employees,
of which 273 were management, administrative and clerical personnel, 80 were engaged
primarily in marketing and sales activities and 594 were engaged in laboratory and
related operations. None of the Companys employees are covered by collective
bargaining agreements. The Company believes its employee relations are good.
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|GLOSSARY


Adjuvant
Chemotherapy:  Therapeutic drugs used to inhibit and destroy cancer cells in addition to
conventional treatment (e.g., surgery).


Antibody: 
A protein molecule produced by the immune system that specifically binds with an antigen.


Antigen: 
Any of a variety of materials that induce the bodys immune system to produce
antibodies.


Cancer: 
A generic term for any kind of malignant tumor.


Clinical: 
Pertaining to the sign, symptoms and course of a disease.


Diagnosis: 
The process for deciding what disease is present.


DNA: 
(Deoxyribonucleic Acid) is the genetic material found in all cells and many viruses; it
is located in the nucleus of every cell. Most DNA molecules are made up of two
inter-wound chains of four chemical substances (known as A, C, G and T).



Electrophoresis: 
A method of analysis in which chemicals, usually proteins, are separated one from another
by their respective electrical charges.


FDA:
U.S. Food and Drug Administration is a consumer protection agency that promotes public
health by helping safe and efffective products reach the market in a timely way as well
as monitor products for continued safety after they are in use.



Fine
Needle Aspirate or FNA:  Specimen acquired through insertion of a thin needle into a
lesion whereby cells are withdrawn using negative pressure.


Flow
Cytometry:  Method of analysis used to examine the staining of single cell suspensions by
focusing a laser beam on each cell and measuring the emitted fluorescence.


Fluorochrome: 
Fluorescent light generated by excitation and emission of light of specific wavelengths
using molecules with fluorescent properties.


Genes: 
are pieces of DNA that store information for making all the proteins required by an
organism. Genes are basic units of heredity containing the functional and physical
characteristics that are passed to offspring from their parents.


Genomics: 
is the study of the DNA in an organism, including its genes. The study includes how the
genes interact to build and maintain an organism.


Hematopathologist: 
A pathologist specializing in the study of blood borne diseases, including
hematopoietic malignancies.


Hematopoietic
Malignancies:  Cancer of the blood, lymph nodes, bone marrow and related structures.


Her-2/neu: 
Oncoprotein (product of an oncogene); overexpression is a negative prognostic and
predictive indicator in certain cancers (primarily breast cancer).


Hormone: 
A chemical substance produced by an organ which has a specific regulatory effect on the
activity of organs.


Immunohistochemistry
or IHC:  Technique that uses antibodies to identify and mark antigens expressed by cells
in tissues using specific enzymes (e.g., peroxidase alkaline phosphatase).


In
Situ Hybridization:  Use of labeled fragments of DNA (probes) that can bind (hybridize) to
specific, complementary sequences.



Lymph
Nodes:  Nodular structures scattered along the path of lymphatics. They produce and store
white blood cells and filter harmful substances out of the system. They are often the
first site of cancer metastases.


Lymphoma: 
Any neoplasm of lymphoid tissue origin.


Marker: 
A characteristic of any cell or cellular structure (e.g., a gene, chromosome or enzyme).


Metastases: 
The spread of cancerous cells from the primary site of the disease.


Micrometastases: 
Presence of a small number of tumor cells, particularly in the 3 lymph nodes and bone
marrow, not readily detected by microscopic examination.


Monoclonal
Antibody:  An antibody produced by a single clone of cells comprising a single species of
antibody molecules. Reacts with only one antigen (epitope).


Mutation: 
An event which changes the structure of DNA in chromosomes; mutations can often be seen
in cancer cells.


Neoplasm: 
The uncontrolled growth of cells resulting in a mass (tumor); often refers to cancer.


Nucleic
Acid Sequences:  A family of substances of large molecular weight, found in chromosomes,
nucleoli, mitochondria and cytoplasm of all cells.


Occult
Tumor:  Clinically unidentified primary tumor with recognized metastases.


Oncogene: 
Abnormal genes derived from proto-oncogenes (normal counterparts); are associated with
many cancers.


Oncology: 
The study of cancer.


Pathology: 
That branch of medicine which studies essential nature of disease, especially the
structural and functional changes in tissues and organs of the body which cause or are
caused by disease.


Ploidy: 
The number of chromosomal sets.


Prognostic: 
Referring to potential outcome of a disease.


Proliferation: 
Cell cycle kinetics, reproduction or multiplication of a cell.


Proteins: 
 Proteins are chemical
messengers between cells and other proteins and are produced by cells by reading information inside genes.
They also act as shipping lines, hauling
proteins through the body, often via the bloodstream. Proteins determine many aspects of
an organism including how it looks, how well it fights infection, and even how it
behaves.


Reagent: 
A substance used to detect, measure or react with another substance.


Receptor: 
Protein which specifically binds to another and mediates the biological activity of the
other.


Recombinant
DNA:  DNA resulting from the insertion into the chain, by chemical or biological means, of
a sequence of DNA (in whole or partial) not originally in that chain.


RNA: 
Ribonucleic acid. A nucleic acid found in all living cells and one of the major chemical
constituents of nucleoli and ribosomes; involved in the transmission of genetic
information from DNA to proteins.


Sarcoma: 
A malignant neoplasm derived from connective tissues.



Scattergraph: 
A density graph of flow cytometry data where individual cells are displayed as positive
or negative for two antigens. The graph is divided by x and y axes to define positive and
negative. The density of dots, color warmth and intensity is proportional to the number
of cells per unit area.


Serum: 
Fluid component of blood (noncellular).


Southern
Blotting:  A technique in which DNA is fragmented, electrophoresed and reacted with
labeled fragments of DNA (probes).


Specimen: 
Material sent in for evaluation, either tissue or cell suspensions (i.e., body fluids).


Staining: 
To apply reagents to cells in order to impart color to specific components.


Stem
Cell Transplant:  Progenitor (precursor) cells used for the bone marrow rejuvenation.


Taxol: 
A chemotherapeutic agent (derived from the bark of the yew tree) having broad anti-tumor
activity.


Thermal
Cycling:  Cyclical heating and cooling in the presence of target DNA and specific DNA
primers.


Tumor: 
A swelling or enlargement; a growth or neoplasm, often referring to cancer.


Tumor
Suppressor Gene:  A gene involved in the normal growth regulation of cells. Abnormalities
(mutations) of tumor suppressor genes are associated with the cause and progression of
cancer based on abnormal cell growth.
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|Item 2. 
Properties.


The
Companys main facility and executive offices are located at 521 and 533 West 57th
Street, New York, New York, where the Company currently leases approximately 80,000
square feet of space under a 12 1/2-year lease expiring in November 2010. The lease
provides for minimum aggregate annual rental payments of approximately $1,069,517. The
Company is also required to pay for repairs, property taxes and insurance relating to
this facility.


The
Companys California facility and offices are located at 5300 McConnell Avenue, Los
Angeles, California, where the Company leases approximately 68,800 square feet of space.
This facility commenced operations in August 2000 pusuant to a new lease agreement, which
expires August 2010. The new lease provides for minimum annual rental payments of
approximately $1,768,587. The Company is also required to pay for repairs, property taxes
and insurance relating to this facility.


The
Companys Arizona facility and offices are located at 810 E. Hammond Avenue,
Phoenix, Arizona, where the Company leases approximately 22,600 square feet of space
under a lease, which expires in September 2006. The Company commenced operations at this
facility in January 1997, when it completed the acquisition of certain assets of
Oncogenetics, Inc. The lease provides for minimum annual rental payments of approximately
$141,400. The Company is also responsible for all maintenance, property taxes and
insurance relating to the facility.


The
facility and offices of the Companys Medical Registry Services subsidiary is
located at One University Plaza, Hackensack, New Jersey, where the Company has entered
into a lease expiring July 2005 for approximately 3,792 square feet of space. The lease
provides for minimum annual rental payments of approximately $85,060. The Company is also
required to pay for repairs, property taxes and insurance relating to this facility.


The
office of the Companys Physician Choice subsidiary is located at 8403 Colesville
Road, Silver Spring, Maryland, where the Company leases 2,236 square feet of space under
a five year lease expiring in April 2004. The lease provides for minimum annual rental
payments of approximately $51,000. The Company is also responsible for all maintenance,
property taxes and insurance relating to this space.


The
office of the Companys Physicians Network subsidiary is located at 400 Kelby
Street, Fort Lee, New Jersey, where the Company leases approximately 3,829 square feet of
space under a lease which expires June 2002. The lease provides for minimum annual rental
payments of approximately $102,400. The Company is also responsible for all maintenance,
property taxes and insurance relating to this space.


The Company has a
facility and offices  at
25 Kenwood Circle, Franklin, Massachusetts, where the Company has approximately 13,600
square feet of space, under a lease, which expires in March 2002. The lease provides for
minimum annual rental payments of approximately $88,400. The Company is also required to
pay for repairs, property taxes and insurance relating to the facility.


The Company has a
facility and offices  at 11215 Knott Avenue, Cypress, California, where the Company
has approximately 11,630 square feet of space, under a lease, expiring in January 2004.
The lease provides for minimum annual rental payments of approximately $114,660. The
Company is also responsible for all maintenance, property taxes and insurance relating to
the facility.


The
Companys New Jersey office is located at 25 Rockwood Place, Englewood, New Jersey,
where the Company leases approximately 1,500 square feet of space, under a lease, which
expires December 2002. The lease provides for minimum annual rental payments of
approximately $33,800. The Company is also required to pay for repairs, property taxes
and insurance related to this space.



Item 3.  Legal
Proceedings.


On November 20, 2000
Healthtech Diagnostics Corporation and Oncogenetics Inc.
(Plaintiffs) and IMPATH Inc. (the Company) and IMPATH-HDC Inc.
(Collectively, Defendants or IMPATH) executed a Release
and Settlement Agreement. Plaintiffs subsequently alleged that IMPATH breached
the terms of the settlement but that allegation was withdrawn. On December 4,
2000 the Court entered an order dismissing the claims asserted in the litigation
with prejudice. The Plaintiff alleged breach of contract and fraud arising out
of the acquisition by IMPATH of assets of the Plaintiffs and alleged
misrepresentations by IMPATH concerning its intentions to complete additional
value by falsely representing that IMPATH would complete acquisitions of seven
additional medical laboratories that Plaintiffs previously contemplated
acquiring and by representing that IMPATH would pay Plaintiffs and their
shareholders substantial additional compensation upon completion of those
acquisitions. Plaintiffs also alleged that IMPATH did not pay amounts due under
the asset purchase agreement based on the performance of assets acquired.
Plaintiffs sought to recover actual damages, punitive damages, pre-judgment and
post judgment interest, costs and attorneys fees. On November 30, 2000
IMPATH paid the Plaintiffs $2.25 million as instructed under the settlement
agreement.


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 invloved, the Company believes any ultimate liability associated with these
proceedings would not have a material adverse effect on the Companys consolidated
financial position or results from poperations. See Note 15 of Notes to
Consolidated Financial Statements.



Item 4.  Submission of
Matters to a Vote of Security Holders.


Not
applicable.



PART II


Item 5.  Market for
Registrants Common Equity and Related Stockholder Matters.


The
Companys common stock trades on the Nasdaq National Market under the symbol IMPH. The
following table sets forth the range of high and low bid prices per share for the common
stock for the period from January 1, 1999 through February 28, 2001(split adjusted).
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|                                          | High | Low   
|----------------------------------------- | ---- | ------
|Fiscal 1999                               |      |       
|First Quarter                             |      | $14.31
|Second Quarter                            |      | $14.38
|Third Quarter                             |      | $18.22
|Fourth Quarter                            |      | $15.00
|                                          |     
|Fiscal 2000                               |     
|First Quarter                             |      | $20.50
|Second Quarter                            |      | $27.78
|Third Quarter                             |      | $64.50
|Fourth Quarter                            |      | $81.56
|                                          |     
|Fiscal 2001                               |     
|First Quarter (through February 28, 2001) |      | $69.25

|On
March 9, 2001, the last sale price of the common stock as reported on the Nasdaq National
Market was $49.44. As of January 31, 2001, there were approximately 73 record holders of
the common stock.



Item 6. 
Selected Financial Data.


The
following table sets forth selected consolidated financial and operating data of the
Company as of December 31 in each of 1996 through 2000 and for each of the years in the
five-year period ended December 31, 2000. The consolidated statement of operations and
consolidated balance sheet data have been derived from the Companys audited consolidated
financial statements. Such consolidated balance sheets as of December 31, 1999 and 2000 and
consolidated statements of operations for each of the years in the three-year period
ended December 31, 2000 and the notes thereto are included in Item 14(a) of this Annual
Report on Form 10-K. The historical consolidated financial data should be read in
conjunction with and are qualified in their entirety by reference to the consolidated
financial statements of the Company and the related notes thereto and to Item 7 of this
Annual Report on Form 10-K.
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|                                            | Year Ended December 31,
|------------------------------------------- | -----------------------
|
|
|Consolidated Statement of Operations Data:  |                        
|Total revenues                              |                        
|Salaries and related costs                  |                        
|Selling, general and administrative         |                        
|Depreciation and amortization               |                        
|                                           
|Total operating expenses                    |                        
|                                           
|Income from operations                      |                        
|Other income, net                           |                        
|                                           
|Income before income tax expense            |                        
|Income tax expense                          |                        
|                                           
|Net income                                  |                        
|Accrued dividends on Preferred Stock(1)     |                        
|                                           
|Net income available to common stockholders |                        
|                                           
|Per common and common equivalent share:     |                        
|Basic:                                      |                        
|Net income per common share(1)              |                        
|                                           
|Weighted average common and common          |                        
|Equivalent shares outstanding(2)            |                        
|                                           
|Diluted:                                    |                        
|Net income per common share assuming        |                        
|dilution(1)                                 |                        
|                                           
|Weighted average common and common          |                        
|equivalent shares outstanding assuming      |                        
|dilution(2)                                 |                        
|                                           

|                                      | Year Ended December 31,
|------------------------------------- | -----------------------
|
|Consolidated Selected Operating Data: |                        
|Number of cases reported              |                        
|Number of hospitals served            |                        
|Number of oncology practices served   |                        

|                                              | As of December 31,
|--------------------------------------------- | ------------------
|
|
|Consolidated Balance Sheet Data:              |                   
|Working capital                               |                   
|Total assets                                  |                   
|Long-term obligations, net of current portion |                   
|Total stockholders equity                    |                   

---

|(1) |  | Reflects
dividends accrued on the Preferred Stock. Dividends accrued prior to February 10, 1995
were forgiven in conjunction with the issuance of Series D Preferred Stock. Dividends
accrued from February 10, 1995 in the amount of $560,000 were paid and ceased to accrue
upon conversion of the Preferred Stock on February 26, 1996.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Weighted
average shares outstanding give effect to the conversion of the outstanding shares of
Preferred Stock into shares of Common Stock in accordance with the terms thereof on
February 26, 1996.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | 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 annual report have been retroactively adjusted
to reflect the stock split.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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


The
following discussion of the financial condition and results of operations should be read
in conjunction with the financial statements and the notes thereto included in Item 14(a)
of this Annual Report on Form 10-K.


Overview


IMPATH
was founded in 1988 and has become a leader in providing critical information essential
for making medically optimal and cost-effective cancer management decisions for
individual cancer patients. The Company is focused exclusively on the analysis of cancer,
combining advanced technologies and medical expertise to provide patient-specific
diagnostic, prognostic and treatment information to physicians involved in the treatment
of cancer. With expected medical cost increases attributable to the growth in the number
of cancer patients and the high cost of new therapies, the Company anticipates
significant and growing demand for cancer management information. IMPATH has established
its leadership and reputation through its extensive expertise, its integration of
technological advances, its emphasis on customer service and education and the
cost-effectiveness of its services.


The
Companys revenues, which have increased an average of approximately 57% annually
since 1995, have been derived from performing specialized cancer analyses for which
IMPATH typically bills various third-party payors, such as private insurance plans,
managed care plans and governmental programs (e.g., Medicare), as well as hospitals and
individual patients. Over the last few years, the Company has experienced increased
pressures on reimbursement and expects such pressures to cause reduced unit pricing for
diagnostic and prognostic analyses in future periods. The revenue generated from private
insurance and managed care has increased significantly as a percentage of total revenue
in the last three years as a result of increased focus by the Companys sales force
on oncology offices as well as a desire by the Companys hospital clients to have
the Company bill third parties directly. Despite those pressures, the Company has
experienced increasing average reimbursement trends due to changes in its product mix and
application of new technologies. The Company also derives revenues by licensing its tumor
registry software to community hospitals and state agencies as well as providing contract
laboratory services and cancer database and pharmacoeconomic information to
pharmaceutical companies.


The
following table sets forth the percentages of total revenues represented by certain items
reflected in the Companys consolidated statements of operations. The Companys
business generally has been unaffected by seasonality, except for slower growth in
revenues during the third quarter of its fiscal year due to reduced summertime activity.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    | Years Ended December 31,
|----------------------------------- | ------------------------
|
|Total revenues                      |                         
|Operating expenses:                 |                         
|Salaries and related costs          |                         
|Selling, general and administrative |                         
|Depreciation and amortization       |                         
|                                   
|Total operating expenses            |                         
|                                   
|Operating income                    |                         
|                                   
|Net income                          |                         
|                                   

|Recent
Acquisitions


On
July 29, 1998 the Company purchased certain assets of Biologic & Immunologic Science
Laboratories, Inc. (BIS), a privately held cancer diagnostics company based
in Reseda, California for $3.6 million. The terms provided for an initial payment of $2.0
million, and $800,000 payable in three equal semi-annual installments beginning December
1998, after which another $800,000 is payable in three equal semi-annual installments
contingent on achievement of previously established revenue targets, with interest
accruing at 8% per annum. This transaction will allow IMPATH to expand its core
diagnostic and prognostic business and build on IMPATHs scientific leadership in
lymph node and bone marrow micrometastases detection in early and late stage cancer.
Additionally, BIS will further enhance the Companys ability to provide unique
cancer information to physicians for evaluating and treating cancer patients and to the
biopharmaceutical industry in assessing biologically relevant characteristics for
targeted drug development and in selecting patients for clinical trials and in evaluating
the efficacy of various therapies.



On
August 31, 1998 the Company acquired Medical Registry Services, Inc. (MRS)
for the issuance of 550,000 shares of IMPATH common stock valued at $13.75 million. The
Company and MRS, which at the time of the acquisition had approximately 200 common
clients, began a relationship through a strategic joint venture in January, 1997. After
the consideration of certain other expenses related to the acquisition and after
recording net tangible assets of MRS, the Company recorded approximately $17.3 million in
intangibles. MRS is a leading developer and marketer of cancer registry software products
that are currently utilized in over 600 hospitals throughout the United States. The
products are used to collect and manage critical diagnostic, treatment, follow-up and
outcomes data on cancer patients. This data stream provides therapeutic, treatment and
outcomes information which can be paired with IMPATHs biological and molecular
data, creating an unparalleled continuum of care profile from diagnosis to treatment and
through follow-up. The database adds value to all the participants involved in treating
cancer, from the providers of health care to the patients who receive it. MRSs
revenues are derived from licensing fees paid by hospitals utilizing its proprietary
tumor registry software.


On
September 2, 1998 the Company acquired Physician Choice, Inc. (PCI) for the
sum of $1.0 million, with $400,000 payable immediately, an additional $400,000 payable in
four equal semi-annual installments beginning March, 1999 with interest accruing at 8%
per annum and $200,000 payable in IMPATH common stock. An initial 1,980 shares of common
stock, having a fair market value of $50,000, were issued on September 2, 1998, 1,786
shares of common stock, having a fair market value of $50,000, were issued on September
2, 1999, 1,428 shares of common stock, having a fair market value of $50,000, were issued
on September 2, 2000 with the remaining shares to be issued on September 2, 2001. PCI is a
leading provider of post-clinical, pre-marketing, cost-benefit analyses to pharmaceutical
and biotechnology companies in connection with new oncology drugs entering the
marketplace. By focusing on cancer, and utilizing health care outcomes and other efficacy
measures, PCI has achieved a better understanding of the way healthcare is delivered in
that specialty. PCIs revenues are generated on a per project basis from
pharmaceutical and biotechnology companies.


On
August 30, 1999 the Company acquired certain assets of BioClinical Partners, Inc. (BCP),
for $6.9 million cash, and the issuance of 120,000 shares (after the 2-for-1 stock split) of
IMPATH common stock valued at $1,635,000. The terms provided for an initial payment of
$4.8 million, and $2.1 million payable in three equal annual installments beginning
August 30, 2000, contingent on achievement of previously established revenue targets,
with interest accruing at 6% per annum. On September 1, 2000 the terms were amended
to provide for an initial payment of $4.8 million and $2.1 million payable in installments
of $700,000 on September 1, 2000 and $1,400,000 on January 2, 2001 as well as contingent
payments based upon the achievement of previously established revenue targets, with interest
accruing at 6% per annum. The shares were issued in two installments. The first
installment of 80,000 shares (after the 2-for-1 stock split) was issued on January 3, 2000 and
the remaining 40,000 shares (after the 2-for-1 stock split) will be issued on January 2, 2001.
BCP is a global medical research network that obtains and provides access to benign and
malignant tissue and clinically relevant peripheral blood specimens to support oncology
research and product development. This strategic acquisition provides IMPATH with another
critical component in the oncology drug discovery process and extends the range of services
provided through BioPharma.


On
November 22, 1999 the Company purchased certain assets of Pacific Coast Reference
Laboratories, Inc. (PCRL), for up to $5.4 million cash, with $4.6 million
payable immediately and an additional $800,000 payable in four equal semi-annual
installments beginning May 2000, contingent on achievement of previously established
revenue targets, with interest accruing at 6% per annum. PCRL is a California based,
oncology-focused testing facility specializing in anatomic pathology utilizing
immunohistochemistry and flow cytometry technologies.


On
June 1, 2000 the Company purchased certain assets of M.I.T Consultant, Inc. (MIT), a
privately held histology business based in Los Angeles, CA for $132,750. The terms
provided for an initial payment of $66,375 and $66,375 payable in two equal semi-annual
installments beginning November 2000, $16,600 of which is contingent upon the achievement
of previously established revenue targets, with interest accruing at 6% per annum.


On
June 16, 2000 the Company purchased certain assets of InterScience Diagnostic
Laboratories, Inc. (IDL), a privately held cytogenetics company based in Brooklyn, New
York for $250,000. This transaction will allow IMPATH to expand its cytogenetics
business. Additionally, IDL will further enhance the Companys ability to provide
unique cancer information to physicians for evaluating and treating cancer patients.



The
aforementioned acquisitions have been accounted for using the purchase method with
results of operations of the respective entities being included with the results of the
Company since the respective acquisition dates. The excess of the purchase price over the
net assets acquired on BIS, PCI, BCP, PCRL, MIT and IDL acquisitions principally relate
to customer lists, which are included in intangible assets on the Companys
consolidated balance sheet and are being amortized over periods of up to fifteen years.
The excess of the purchase price over the net assets acquired for the MRS purchase
primarily relates to the customer list, trade name, software and goodwill which are
included in intangible assets on the accompanying balance sheets and are being amortized
over periods of 5 to 20 years.


Recent
Investment


On
September 27, 1999 the Company completed a $5 million investment in a private placement
of preferred stock in ILEX Oncology Service, Inc. (ILEX). ILEX is a drug
development company focused exclusively on accelerated development of drugs for the
treatment and management of cancer. This investment accrues dividends per share at the
rate per annum of $1.031 and is convertible into common shares of ILEXs parent
Company, ILEX Oncology Inc. On November 30, 2000 the Company converted the investment into 290,867 shares of
ILEX  Oncology Inc. common stock. The Company sold the stock for a pre-tax gain of approximately $3.2 million.


Year Ended December 31,
2000 Compared with Year Ended December 31, 1999


The Companys total
revenues for the years ended December 31, 2000 and 1999 were $138.2 million and
$85.4 million, respectively, representing an increase of $52.8 million, or
61.8%, in 2000. This growth was primarily attributable to an 18.0% increase in
case volume resulting from increased sales and marketing activities, as well as
a 36.0% increase in revenue realization per case due to continuing product mix
changes toward lymphoma/leukemia cases, which entail more analyses. In addition,
BioPharma revenues increased 148.5% over prior year billings as
a result of the successful integration of the recently acquired BCP and increases in
the numbers of projects with genomics companies.


Salaries and related costs
for the years ended December 31, 2000 and 1999 were $51.3 million and $32.3
million, respectively, representing an increase of $19.0 million, or 58.8%, in
2000. This increase was the result of increased personnel due to rapid case
volume growth and the shift to more complex cases, labor costs associated with
the Companys recent acquisitions and staff augmentation required to
facilitate billing and collection efforts. Salaries and related costs, as a
percentage of total revenues, decreased to 37.1% in 2000 from 37.9% in 1999.
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 years ended December 31, 2000 and 1999 were
$55.9 million and $34.0 million, respectively, representing an increase of $21.9
million, or 64.4%, in 2000. The largest component of this increase was $10.9
million of increased bad debt expense associated with higher revenues.
Additionally, a one-time charge of $3.3 million was recorded for a settlement of
a dispute, and related legal fees associated with a prior acquisition. Operating expenses increased by
$2.6 million in connection with recent acquisitions and costs of $2.1 million
were incurred in association with the building of the infrastructure to support
increasing demand for our biopharmaceutical/genomics services. The Company also
incurred an additional $1.6 million in rental, repairs and equipment service
costs as well as $1.4 million in incremental laboratory supplies, courier costs,
temporary services and travel expenses due to rapid case volume growth,
facilities expansion and sales and marketing activities. Selling, general and
administrative expenses as a percentage of revenues, increased to 40.5% in 2000
from 39.8% in 1999 primarily due to the one-time expenses.



Depreciation and
amortization expense for the years ended December 31, 2000 and 1999 was $10.7
million and $7.0 million, respectively, representing an increase of $3.7
million, or 52.9%, in 2000. This increase was primarily due to $1.6 million in
depreciation expense associated with the Companys clinical and billing
systems, an additional $982,000 in depreciation in connection with the expansion
of our facilities and $637,000 in amortization of intangible assets associated
with recent acquisitions. As a percentage of total revenues, depreciation and
amortization expense decreased to 7.8% in 2000 from 8.2% in 1999.


Income from operations for
the years ended December 31, 2000 and 1999 was $20.2 million and $12.1 million,
respectively, representing an increase of $8.1 million, or 66.9%, in 2000. The
2000 figure reflects an increase in operating margins associated with the
Companys core physician services business, partially offset by the
one-time expenses of $3.3 million associated with the settlement of a dispute
associated with a prior acquisition. As a percentage of total revenues, income
from operations increased to 14.6% in 2000 from 14.1% in 1999.


Other income, net for the
years ended December 31, 2000 and 1999 was $2.4 million and $1.6 million,
respectively, representing an increase of $0.8 million in 2000. The increase was
primarily the result of a gain of $3.2 million associated with the sale of 100% of
the Companys investment in ILEX partially offset by increased interest
expense due to additional capital lease obligations and acquisition-related
debt, as well as reduced interest income due to the sale of interest bearing
securities, the proceeds of which were used to finance the Companys stock
buyback program and recent acquisitions.


The tax provision for the
year ended December 31, 2000 of approximately $9.7 million reflects federal,
state and local income tax expense. The effective tax rate for 2000 was 43.0%
compared to 40.0% in 1999. The increased effective tax rate resulted from an
increase in the Companys state and local tax provision primarily due to lower
tax-exempt interest income.


Net income for the years
ended December 31, 2000 and 1999 was $12.9 million and $8.2 million,
respectively, representing an increase of $4.7 million, or 57.3%, in 2000. As a
percentage of total revenues, net income decreased to 9.4% in 2000 from 9.6% in
1999. This decrease was primarily due to lower interest income, increased
interest expense associated with capital lease obligations and acquisition
related debt, as well as a higher tax rate.


Year Ended December 31,
1999 Compared with Year Ended December 31, 1998


The
Companys total revenues in 1999 and 1998 were $85.4 million and $56.3 million,
respectively, representing an increase of $29.1 million, or 51.7%, in 1999. This growth
was primarily due to a 15% increase in case volume resulting from increased sales and
marketing activities and a 27% increase in revenue realization per case due to the
continuing product mix shift toward cases which carry higher reimbursement rates. In
addition, revenues increased as a result of the successful integration of the Companys
recent acquisitions.


Salaries
and related costs in 1999 and 1998 were $32.3 million and $21.5 million, respectively,
representing an increase of $10.8 million, or 50.2%, in 1999. This increase was primarily
due to personnel costs associated with the Companys case volume growth as well as
increases in personnel resulting from the Companys recent acquisitions. As a
percentage of total revenues, salaries and related costs decreased to 37.9% in 1999 from
38.3% in 1998. 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 in 1999 and 1998 were $34.0 million and $22.7
million, respectively, representing an increase of $11.3 million, or 49.8%, in 1999. The
largest component of this increase was $4.6 million in incremental supply costs
associated with rapid case volume growth, recent acquisitions and the continuing product
mix shift towards lymphoma/leukemia testing which requires more analyses per case. The
Company also recorded $4.3 million of increased bad debt expense associated with higher
revenues, and the billing and collection delays associated with the new billing system.
Additionally, $2.4 million of the increase in selling, general and administrative
expenses was a result of increased operating expenses incurred in connection with the
Companys recent acquisitions. As a percentage of total revenues, selling, general
and administrative expenses decreased to 39.8% in 1999 from 40.4% in 1998 due to the
implementation of certain operating efficiencies combined with a higher revenue
realization per case.




Depreciation
and amortization in 1999 and 1998 was $7.0 million and $3.5 million, respectively,
representing an increase of $3.5 million, or 100.0%, in 1999. This increase was due to
approximately $993,000 in intangible amortization associated with the purchase of certain
assets of MRS, an additional $488,000 in amortization associated with New York facility
leasehold improvements and $1,069,000 in amortization expenses associated with the Companys
new clinical and billing systems which were implemented in 1999. As a result of these
factors, depreciation and amortization expenses as a percentage of revenues increased to
8.2% in 1999 compared to 6.2% in 1998.


Income
from operations in 1999 and 1998 was $12.1 million and $8.5 million, respectively,
representing an increase of $3.6 million, or 41.8%, in 1999. The 1999 figure reflects an
increase in bad debt expense associated with billing and collection delays related to the
Companys billing systems conversion, as well as increased amortization
expense in connection with the Companys new information system and intangible
amortization associated with Company acquisitions. As a result, as a percentage of total
revenues, income from operations decreased to 14.1% in 1999 from 15.1% in 1998.


Other
income, net for 1999 and 1998 was $1.6 million and $3.0 million, respectively,
representing a decrease of approximately $1.4 million in 1999. The decrease was the
result of increased interest expense primarily due to additional capital lease
obligations and acquisition-related debt, as well as the sale of interest bearing
securities, the proceeds of which were used to finance the Companys stock buyback
program, the acquisition of certain assets of BCP, certain assets of PCRL and the Companys
preferred stock investment in ILEX.


The
tax provision for 1999 of approximately $5.5 million reflects federal, state and local
income tax expense. The effective tax rate for 1999 was 40.0% compared to 39.7% in 1998.
This increase resulted from an increase in the Companys state and local tax
provision associated with a reduction in tax exempt interest income.


Net
income in 1999 and 1998 was $8.2 million and $6.9 million, respectively, representing an
increase of $1.3 million, or 18.5%, in 1999. As a percentage of total revenues, net
income decreased to 9.6% in 1999 from 12.4% in 1998 primarily due to the higher
depreciation and amortization costs and lower interest income.




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.
See Business-Company Strategy.


The
Companys cash and cash equivalent balances at December 31, 2000 and December 31,
1999 were $13.5 million and $5.3 million, respectively, representing an increase of $8.2
million in 2000. The Company also had approximately $18.0 million in marketable
securities at December 31, 2000, representing a $5.7 million decrease from the $23.7
million at December 31, 1999. The net increase in cash and cash equivalents and
marketable securities was primarily due to an increase in operating cash flow driven by
higher net income partially off-set by a $4.4M increase in capital expenditures as well
as the repurchase of 298,000 shares of common stock (split adjusted) for approximately
$3.4 million associated with the Companys treasury stock buyback program.


For
the years ended December 31, 2000, net cash provided by operating activities was
approximately $8.2 million which excluded the gain on the sale of ILEX stock. Had the gain
been included, operating activities would have been $11.3 million. Operating income was driven by income
from operations of approximately $20.2M million, partially offset by increases in accounts
receivable, net of allowance for bad debt of $15.2 million. The increase in net accounts
receivable was due primarily to rapid sales growth. The continuing product mix shift towards
lymphoma/leukemia cases, which carry a higher revenue realization per case, also contributed
to the increase. In addition, due to rapid case volume growth , lab supplies inventory increased
approximately $5.1 million.


During 2000, the
Company incurred approximately $8.2 million in capital expenditures associated with the
expansion of its laboratory and office facilities. The Company also received $3.0 million
from short term line of credit bank borrowings and approximately $3.2 million through the
issuance of common stock upon the exercise of Company stock options and warrants.



The
Company has a line of credit for an aggregate principal amount of $15.0 million with
Fleet Bank. Borrowing under the line bears interest at LIBOR plus 2.0%. As of December
31, 2000, the Company had $3.0 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 December
31, 2000, 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 December 31, 2000, approximately $1.0 million was drawn against the 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 $15.0 million in March 2000,
under the same lease terms. As of December 31, 2000, approximately $14.6 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 December 31, 2000, the Company had fully
drawn against the 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 December 31, 2000, 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
December 31, 2000, approximately $1.0 million was drawn against this line. In April 2000,
the Company established a $3.0 million credit line with First Sierra Financial, Inc. with
lease terms of 48 months and a rate equal to the yield on four-year treasury notes. As of
December 31, 2000, 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. with the lease terms of 48 months and a rate equal to the yield on four-year
treasury notes. As of December 31, 2000, approximately $600,000 was drawn against this
line. In July 2000, the 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 December 31, 2000, approximately $900,000 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 December 31, 2000, the Company had fully 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.


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.


Recently
Issued Accounting Standards


In
June 1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and
Hedging Activities, which, as amended, becomes effective for our financial
statements beginning January 1, 2001. SFAS No. 133 requires a company to recognize all
derivative instruments as assets or liabilities in its balance sheet and measure them at
fair value. The Company does not expect the adoption of this Statement to have a material
impact on the financial statements.



In
December 1999, the staff of the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101). SAB
101 summarizes certain of the staffs views in applying generally accepted
accounting principles to revenue recognition in financial statements. SAB 101 requires a
company to follow its guidance no later than the second quarter of its fiscal year
beginning after December 15, 1999 through a cumulative effect of a change in accounting
principles. The Companys adoption of this SAB did not have a material impact on our
financial statements.


Item 7A.  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.


Our
holdings of financial instruments are comprised primarily of U.S. corporate debt, U.S.
government debt and commercial paper. All such instruments are classified as securities
available for sale. We do not invest in portfolio equity securities or commodities or use
financial derivatives for trading purposes. Our debt security portfolio represents funds
held temporarily pending use in our business and operations. We manage these funds
accordingly. We seek reasonable assuredness of the safety of principal and market
liquidity by investing in rated fixed income securities while at the same time seeking to
achieve a favorable rate or return. Our market risk exposure consists principally of
exposure to changes in interest rates. Our holdings are also exposed to the risks of
changes in the credit quality of issuers. We typically invest in the shorter-end of the
maturity spectrum, and at December 31, 2000, more than 68% of our holdings were in
instruments maturing in two years or less and more than 64% of such holdings matured in
one year or less.


Item 8. 
Financial Statements and Supplementary Data.


For
information concerning this item, see Item 14(a) below.


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


Not
applicable.


PART III


Item 10. 
Directors and Executive Officers of the Registrant.


For
information concerning this item, see text under the captions Election of Directors and
Executive Officers in the 2000 Proxy Statement of the Company (the Proxy
Statement) to be filed subsequent to the filing of this Annual Report on Form 10-K,
which information is incorporated herein by reference.


Item 11. Executive
Compensation.


For
information concerning this item, see text under the captions Executive
Compensation, Employment-Related Agreements with Executive Officers, Compensation
of Directors, Compensation Committee Interlocks and Insider Participation, and Section
16(a) Beneficial Ownership Reporting Compliance, in the Proxy Statement, which information
is incorporated herein by reference.


Item 12.  Security
Ownership of Certain Beneficial Owners and Management.


For
information concerning this item, see text under the captions Security Ownership of
Certain Beneficial Owners and Security Ownership of Directors and Executive
Officers in the Proxy Statement, which information is incorporated herein by
reference.


Item 13. 
Certain Relationships and Related Transactions.


For
information concerning this item, see text under the caption Certain Relationships
and Related Transactions in the Proxy Statement, which information is incorporated
herein by reference.
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|PART IV


Item 14.  Exhibits
and Financial Statement Schedules
|--------------------------------------------------------------

| | (a)      
(1) Financial Statements:
| | -----------------------------------

| | The
financial statements of the Company contained in this Annual Report on Form 10-K are
listed in the attached Index to Financial Statements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------

| | (2)
Financial Statement Schedules:
| | ----------------------------------

| | All
schedules have been omitted because they are inapplicable or the information is provided
in the consolidated financial statements, including the notes thereto.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3)
Exhibits:
| | -------------

| | The
exhibits required to be filed as part of this Annual Report on Form 10- K are listed in
the attached Index to Exhibits. Exhibits 10.10, 10.13, 10.17, 10.18, 10.20 and 10.21
are the management contracts and compensatory plans or arrangements required to be filed
as part of this Annual Report on Form 10-K.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b)      
Report on Form 8-K
| | ----------------------------

| | None
| | ----

|
|

|POWER OF
ATTORNEY


The
Registrant and each person whose signature appears below hereby appoint each of Anu D.
Saad, Ph.D. and David J. Cammarata as attorneys-in-fact with full power of substitution,
severally, to execute in the name and on behalf of the Registrant and each such person,
individually and in each capacity stated below, one or more amendments to this Annual
Report on Form 10-K, which amendments may make such changes in this Report as the
attorney-in-fact acting in the premises deems appropriate and to file any such amendment
to this Report with the Securities and Exchange Commission.



SIGNATURES


Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Dated: March 30, 2001 |  | IMPATH Inc. By                    /s/ ANU D. SAAD            

                        Anu D. Saad, Ph.D.             
       Chief Executive Officer
|--------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Dated: March 30, 2001 |  | By                    /s/ ANU D. SAAD            

                        Anu D. Saad, Ph.D.             
       Chief Executive Officer,
                    Chairman of the Board
                             and Director
|--------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Dated: March 30, 2001 |  | By               /s/ RICHARD P. ADELSON            

                         Richard P. Adelson             President and Chief Operating Officer
|--------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|Dated: March 30, 2001 |  | By            /s/ DAVID J. CAMMARATA            

                         David J. Cammarata        Executive Vice President,
Chief Financial          Officer and Principal Accounting Officer
|--------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Dated: March 30, 2001 |  | By                /s/ ROBERT E. CAMPBELL            

                         Robert E. Campbell             
                    Director
|--------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|Dated: March 30, 2001 |  | By                 /s/ RICHARD J. COTE            

                     Richard J. Cote, M.D.                
              Director
|--------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

|Dated: March 30, 2001 |  | By               /s/ GEORGE FRAZZA            

                      George Frazza                
            Director
|--------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------

|Dated: March 30, 2001 |  | By                    /s/ DAVID GALAS            

                        David Galas, Ph.D.             
                  Director
|--------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

|Dated: March 30, 2001 |  | By                /s/ JOSEPH A. MOLLICA            

                        Joseph A. Mollica, Ph.D.            
                       Director
|--------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|Dated: March 30, 2001 |  | By              /s/ MARCEL ROZENCWEIG            

                        Marcel Rozencweig, M.D.            
                       Director
|--------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS
|------------------------------------------

|                                                                                       | 
|-------------------------------------------------------------------------------------- | 
|Independent Auditors Report                                                           | 
|Consolidated Balance Sheets as of December 31, 1999 and 2000                           | 
|Consolidated Statements of Operations for the years ended December 31, 1998, 1999      | 
|and 2000                                                                               | 
|Consolidated Statements of Stockholders Equity for the years ended December 31, 1998, | 
|1999 and 2000                                                                          | 
|Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1999      | 
|and 2000                                                                               | 
|Notes to Consolidated Financial Statements                                             | 

|
|

|INDEPENDENT
AUDITORS REPORT


The Board of Directors and
StockholdersIMPATH Inc.:


We
have audited the accompanying consolidated balance sheets of IMPATH Inc. and subsidiaries
as of December 31, 1999 and 2000, and the related consolidated statements of operations,
stockholdersequity and cash flows for each of the years in the three-year period
ended December 31, 2000. These consolidated financial statements are the responsibility
of the Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.


We
conducted our audits in accordance with auditing standards generally accepted in the
United States of America. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.


In our
opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of IMPATH Inc. and subsidiaries as of December
31, 1999 and 2000, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | KPMG LLP
| |  | --------

|Short Hills, New JerseyFebruary 21,
2001
|----------------------------------------

|IMPATH INC. AND
SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


December 31, 1999
and 2000
|---------------------------------------------------------------------------------------

|                                                                                 | 1999 | 2000        
|-------------------------------------------------------------------------------- | ---- | ------------
|Assets                                                                           |      |             
|Current assets:                                                                  |     
|Cash and cash equivalents                                                        |      | $5,321,916  
|Marketable securities, at market value                                           |      | 23,716,022  
|Accounts receivable, net of allowance for doubtful accounts of                   |     
|$7,783,663 in 1999 and $13,384,151 in 2000                                       |      | 35,515,029  
|Prepaid expenses                                                                 |      | 535,543     
|Deferred tax assets                                                              |      | 1,784,074   
|Other current assets                                                             |      | 4,851,273   
|                                                                                
|Total current assets                                                             |      | 71,723,857  
|                                                                                
|Fixed assets, less accumulated depreciation and amortization                     |      | 33,704,112  
|Deposits and other non-current assets                                            |      | 338,373     
|Investment in preferred stock                                                    |      | 5,000,000   
|Intangible assets, net of accumulated amortization of $4,012,146 in 1999 and     |     
|$6,925,762 in 2000                                                               |      | 39,011,001  
|                                                                                
|Total assets                                                                     |      | $149,777,343
|                                                                                
|Liabilities and Stockholders Equity                                             |     
|Current liabilities:                                                             |     
|Current portion of capital lease obligations                                     |      | $4,655,309  
|Current portion of notes payable                                                 |      | 1,064,587   
|Short term borrowings                                                            |      |            
|Accounts payable                                                                 |      | 3,031,898   
|Deferred revenues                                                                |      | 1,988,146   
|Income taxes payable                                                             |      | 1,434,947   
|Accrued expenses                                                                 |      | 3,443,578   
|                                                                                
|Total current liabilities                                                        |      | 15,618,465  
|                                                                                
|Capital lease obligations, net of current portion                                |      | 10,378,142  
|Notes payable, net of current portion                                            |      | 800,000     
|Deferred tax liabilities                                                         |      | 2,666,649   
|Commitments and contingencies                                                    |     
|Stockholders equity:                                                            |     
|Preferred stock, $.005 par value, authorized 2,000,000 shares; 0                 |     
|and 0 shares issued in 1999 and 2000, respectively                               |      |            
|Common stock, $.005 par value,  authorized  50,000,000 shares;                   |     
|8,695,181and 18,000,899 shares issued in 1999 and 2000, respectively;            |     
|7,799,443 and 15,791,423 shares outstanding in 1999 and 2000,       respectively |      | 43,475      
|Common stock to be issued, $.005 par value; 60,000 shares in 1999                |     
|and 40,000 shares in 2000                                                        |      | 1,735,000   
|Additional paid-in capital                                                       |      | 122,553,938 
|Retained earnings                                                                |      | 20,330,152  
|Accumulated other comprehensive loss                                             |      | (705,029    
|                                                                                
|                                                                                 |      | 143,957,536 
|Less:                                                                            |     
|Cost of 955,738 and 2,209,476 shares of common stock held                        |     
|in treasury in 1999 and 2000, respectively                                       |      | (23,350,467 
|Deferred compensation                                                            |      | (292,982    
|                                                                                
|Total stockholders equity                                                       |      | 120,314,087 
|                                                                                
|Total liabilities and stockholders equity                                       |      | $149,777,343
|                                                                                

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

|IMPATH INC.
AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


Years ended
December 31, 1998, 1999 and 2000
|-------------------------------------------------------------------------------------------------------------------

|                                              | 1998 | 1999 | 2000       |  
|--------------------------------------------- | ---- | ---- | ---------- | -
|Revenues:                                     |      |      |            |  
|Net Physicians Services                       |      | $    | 53,183,356 |  
|Biopharmaceutical/Genomics Services           |      |      | 1,685,984  |  
|Information Services                          |      |      | 1,390,106  |  
|                                             
|Total revenues                                |      |      | 56,259,446 |  
|                                             
|Operating expenses:                           |     
|Salaries and related costs                    |      |      | 21,532,443 |  
|Selling, general and administrative           |      |      | 22,713,156 |  
|Depreciation and amortization                 |      |      | 3,492,482  |  
|                                             
|Total operating expenses                      |      |      | 47,738,081 |  
|                                             
|Income from operations                        |      |      | 8,521,365  |  
|Interest income                               |      |      | 3,661,063  |  
|Interest expense                              |      |      | (659,078   | )
|Gains on marketable securities, net           |      |      |           |  
|                                             
|Income before income tax expense              |      |      | 11,523,350 |  
|Income tax expense                            |      |      | 4,575,805  |  
|                                             
|Net income                                    |      | $    | 6,947,545  |  
|                                             
|Per common and common equivalent share:       |     
|Basic:                                        |     
|Net income per common share                   |      | $    | 0.46       |  
|                                             
|Weighted average common shares outstanding    |      |      | 15,270,000 |  
|                                             
|Diluted:                                      |     
|Net income per common shareassuming dilution |      | $    | 0.43       |  
|                                             
|Weighted average common and common equivalent |     
|shares outstandingassuming dilution          |      |      | 16,004,000 |  
|                                             

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

|IMPATH INC. AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY


Years ended
December 31, 1998, 1999 and 2000
|-----------------------------------------------------------------------------------------------------------------------------

|                                       | Common stock | Common stockto be issued | AdditionalPaid-inCapital | RetainedEarnings | Accumulatedothercomprehensiveincome(loss) | Treasurystock | Deferredcompen-sation | Total      
|-------------------------------------- | ------------ | ------------------------ | ------------------------ | ---------------- | ----------------------------------------- | ------------- | --------------------- | -----------
|
|Balance at December 31, 1997           |              | 5,458,827                |                          | 27,294           |                                           |              |                       | 33,893,774 
|Common shares issued upon exercise     |             
|of stock options                       |              | 198,207                  |                          | 990              |                                           |              |                       | 814,120    
|Common shares issued upon exercise     |             
|of warrant                             |              | 29,331                   |                          | 146              |                                           |              |                       | 102,660    
|Common shares issued upon follow-      |             
|on offering, net                       |              | 2,300,000                |                          | 11,500           |                                           |              |                       | 71,437,994 
|Common shares issued upon              |             
|acquisition of Physicians Choice,      |             
|Inc. (PCI)                             |              | 1,980                    |                          | 10               |                                           |              |                       | 49,990     
|Compensation associated with           |             
|issuance of options to non-  employees |              |                         |                          |                 |                                           |              |                       | 80,462     
|Common shares issued upon of           |             
|Medical Registry Service, Inc. (MRS)   |              | 550,000                  |                          | 2,750            |                                           |              |                       | 13,747,250 
|Repurchase of common shares            |              |                         |                          |                 |                                           |              |                       |           
|Amortization of deferred               |             
|compensation                           |              |                         |                          |                 |                                           |              |                       |           
|Tax benefit related to stock option    |             
|exercises                              |              |                         |                          |                 |                                           |              |                       | 778,611    
|Comprehensive income:                  |             
|Change in unrealized net               |             
|depreciation of securities             |              |                         |                          |                 |                                           |              |                       |           
|Net income for the year ended          |             
|December 31, 1998                      |              |                         |                          |                 |                                           |              |                       |           
|                                      
|Total comprehensive income             |              |                         |                          |                 |                                           |              |                       |           
|Balance at December 31, 1998           |              | 8,538,345                |                          | 42,690           |                                           |              |                       | 120,904,861
|Common shares issued upon exercise     |             
|of stock options                       |              | 154,837                  |                          | 775              |                                           |              |                       | 1,111,994  
|Common shares issued upon exercise     |             
|of warrant                             |              | 213                      |                          | 1                |                                           |              |                       | 745        
|Common shares issued as a result of    |             
|business acquisitions                  |              | 1,786                    |                          | 9                |                                           |              |                       | 49,991     
|Common shares to be issued             |              |                         |                          |                 |                                           | 1,735,000     |                       |           

|(continued)
|-----------

|IMPATH INC.
AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY(Continued)


Years ended
December 31, 1998, 1999 and 2000
|-----------------------------------------------------------------------------------------------------------------------------------------

|                                           | Common stock | Common stockto be issued | AdditionalPaid-inCapital | RetainedEarnings | Accumulatedothercomprehensiveincome(loss) | Treasurystock | Deferredcompen-sation | Total       
|------------------------------------------ | ------------ | ------------------------ | ------------------------ | ---------------- | ----------------------------------------- | ------------- | --------------------- | ------------
|
|Repurchase of common  shares               |              |                         |                          |                 |                                           |              |                       |            
|Amortization of deferred                   |             
|compensation                               |              |                         |                          |                 |                                           |              |                       |            
|Tax benefit related to stock               |             
|option exercises                           |              |                         |                          |                 |                                           |              |                       | 486,347     
|Comprehensive income:                      |             
|Change in unrealized net                   |             
|depreciation of securities                 |              |                         |                          |                 |                                           |              |                       |            
|Net income for the year                    |             
|ended December 31,  1999                   |              |                         |                          |                 |                                           |              |                       |            
|                                          
|Total comprehensive  income                |              |                          |                          |                  |                                           |               |                       |             
|Balance at December 31,  1999              |              | 8,695,181                |                          | 43,475           |                                           | 1,735,000     |                       | 122,553,938 
|Common shares issued                       |             
|upon exercise of stock  options            |              | 528,327                  |                          | 2,642            |                                           |              |                       | 3,228,132   
|Common shares issued as                    |             
|a result of business  acquisition          |              | 1,428                    |                          | 7                |                                           | (50,000       | )                     | 49,993      
|Compensation associated                    |             
|with issuance of options  to non-employees |              |                         |                          |                 |                                           |              |                       | 2,352,707   
|100% Stock Dividend                        |              | 8,695,963                |                          | 43,481           |                                           |              |                       |            
|Issuance of common shares                  |              | 80,000                   |                          | 400              |                                           | (1,090,000    | )                     | 1,089,800   
|Repurchase of common  shares               |              |                         |                          |                 |                                           |              |                       |            
|Amortization of deferred                   |             
|Compensation                               |              |                         |                          |                 |                                           |              |                       |            
|Tax benefit related to stock               |             
|option Exercises                           |              |                         |                          |                 |                                           |              |                       | 4,358,777   
|Comprehensive income:                      |             
|Change in unrealized net                   |             
|depreciation of Securities                 |              |                         |                          |                 |                                           |              |                       |            
|Net income for the year                    |             
|ended December 31,  2000                   |              |                         |                          |                 |                                           |              |                       |            
|                                          
|Total comprehensive  income                |              |                          |                          |                  |                                           |               |                       |             
|Balance at December 31,  2000              |              | 18,000,899               |                          | $90,005          |                                           | $    595,000  |                       | $133,633,347
|                                          

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

|IMPATH INC.
AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


Years ended
December 31, 1998, 1999 and 2000
|-------------------------------------------------------------------------------------------------------------------

|                                                                 | 1998 | 1999           | 2000      
|---------------------------------------------------------------- | ---- | -------------- | ----------
|Cash flows from operating activities:                            |      |                |           
|Net income                                                       |      | $   6,947,545  |           
|Adjustments to reconcile net income to net cash                  |     
|provided by operating activities:                                |     
|Depreciation and amortization                                    |      | 3,492,482      |           
|Provision for uncollectible accounts receivable                  |      | 6,100,789      |           
|Deferred taxes                                                   |      | (395,164       | )         
|Non-cash compensation                                            |      | 257,733        |           
|Gain on sale of preferred stock                                  |      |               |           
|Changes in assets and liabilities (net of the                    |     
|effects from acquisitions of business):                          |     
|(Increase) in accounts receivable, net                           |      | (13,683,381    | )         
|(Increase) in prepaid expenses and other                         |     
|current assets                                                   |      | (718,396       | )         
|Decrease (increase) in deposits and other                        |     
|non-current assets                                               |      | 130,676        |           
|Increase in accounts payable/accrued expenses                    |      | 2,073,948      |           
|(Decrease) in construction payments payable                      |      | (1,542,199     | )         
|(Decrease) increase in income taxes payable                      |      | (1,137,890     | )         
|Increase in deferred revenues                                    |      | 196,210        |           
|                                                                
|Net cash provided by operating activities                        |      | 1,722,353      |           
|                                                                
|Cash flows from investing activities:                            |     
|(Purchases) of marketable securities                             |      | (49,989,700    | )         
|Sales/maturities of marketable securities                        |      | 34,005,671     |           
|Acquisitions of businesses, net of cash acquired                 |      | (2,775,393     | )         
|(Investment) and proceeds from liquidation in preferred    stock |     |                | (5,000,000
|Capital expenditures                                             |      | (9,491,394     | )         
|                                                                
|Net cash (used in) provided by investing activities              |      | (28,250,816    | )         
|                                                                
|Cash flows from financing activities:                            |     
|Issuance of common stock                                         |      | 917,916        |           
|Repurchase of common stock                                       |      | (7,908,741     | )         
|Proceeds of follow-on offering, net of registration costs        |      | 71,449,494     |           
|Proceeds from capital leases                                     |      |               |           
|Proceeds (repayments) from bank loans                            |      | 10,000,000     |           
|Payments of notes payable                                        |      | (863,752       | )         
|Payments of capital lease obligations                            |      | (1,835,734     | )         
|                                                                
|Net cash provided by (used in) financing activities              |      | 71,759,183     |           
|                                                                
|Net increase (decrease) in cash and cash equivalents             |      | 45,230,720     |           
|Cash and cash equivalents at beginning of year                   |      | 325,285        |           
|                                                                
|Cash and cash equivalents at end of year                         |      | $ 45,556,005   |           
|                                                                
|Supplemental disclosures of cash flow information:               |     
|Cash paid during the year for income taxes                       |      | $   6,108,858  |           
|                                                                
|Cash paid during the year for interest                           |      | $      581,278 |           
|                                                                
|Fixed assets acquired pursuant to capital leases                 |      | $   3,577,065  |           
|                                                                
|Note payable related to acquisition of business                  |      | $   1,395,000  |           
|                                                                
|Common stock issued for acquisitions                             |      | $ 13,800,000   |           
|                                                                

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

|IMPATH INC. AND
SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(1) Organization


IMPATH
Inc. (the Company) was incorporated on March 1, 1988 under the laws of the
State of Delaware. The Company was organized for the purpose of establishing a
specialized facility dedicated to the use of the most sophisticated technologies to
provide diagnostic and prognostic information to physicians specializing in cancer. The
Company conducts these analyses by utilizing immunohistochemistry, flow cytometry and
image analysis, molecular pathology, cytogenetics, micrometastases detection, Drug
Resistance Assay and serum analysis technologies. The consolidated financial statements
include the accounts of all the majority-owned subsidiaries. All intercompany balances
have been eliminated in consolidation. The Companys revenues are derived through:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Diagnostic
and prognostic analytical services to hospitals, medical centers, clinical laboratories
and physicians;
| | ------------------------------------------------------------------------------------------------------------------

| | Monoclonal
antibody and molecular probe characterization services to biotechnology and genomics
companies and other researchers;
| | --------------------------------------------------------------------------------------------------------------------------------

| | Licensing
of tumor registry software to community hospitals and state agencies; and
| | -----------------------------------------------------------------------------------

| | Global
medical research network that obtains and provides access to benign and malignant tissue
and clinically relevant peripheral blood specimens to support oncology research and
product development.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
Company submits its invoices for diagnostic and prognostic analytical services to its
clients, primary and secondary insurers, or individual patients. The Company does not
require collateral from its clients as security for payment of its invoices.



(2)
Significant Accounting Policies


(a)
Principles of Consolidation


The
consolidated financial statements include the accounts of the Company and all
wholly-owned subsidiaries. All material intercompany transactions have been eliminated.


(b)
Cash Equivalents


Cash
equivalents consist principally of bank deposits, commercial paper and U.S. treasury
securities at December 31, 1999 and 2000. For purposes of the consolidated statements of
cash flows, the Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. Cost approximates fair market
value for these instruments.


(c)
Marketable Securities


In
accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
the Companys portfolio of securities are considered available for sale. As a
result, unrealized appreciation (depreciation) is recorded as an accumulated other
comprehensive income (loss) in stockholdersequity, net of related deferred taxes.
At December 31, 2000, approximately $15 million of the securities mature in one to
three years (of which approximately $13.5 million are corporate fixed income securities
and $1.5 million are government securities) and approximately $3.0 million mature in more
than three years (of which approximately $1.8 million are corporate fixed income
securities and $1.2 million are government securities).
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(d)
Fixed Assets


Fixed
assets are stated at cost. Depreciation of furniture, fixtures, laboratory equipment and
personal computers is provided over their estimated useful lives (which range from three
to seven years) using the straight-line method, and leasehold improvements are being
amortized over the shorter of the related lease term or the lives of the improvements
using the straight-line method. Software development costs primarily represent external
costs capitalized for software developed to meet the specific needs of the Company. These
costs are being amortized over a five- to seven-year period using the straight-line
method. Effective January 1, 1998, the Company adopted the provisions of AICPA statement
of position 98-1 Accounting for Software Costs. The adoption of the statement
resulted in approximately $500,000 or approximately $0.02 per diluted share after taxes
(split adjusted), approximately $1,236,000 or approximately $0.05 per diluted share after
taxes (split adjusted), and approximately $1,132,000 or approximately $0.04 per diluted
share after taxes, of internal payroll costs being capitalized in 1998, 1999 and 2000
respectively, as they related directly to system implementation.


(e)
Revenue Recognition


Revenues
are recognized on an accrual basis as earned at such time as the Company has completed
performance of its diagnostic or prognostic services. Revenue is reported at the
estimated net realizable amounts from patients, third-party and government payors, and
others for services rendered, including estimated retroactive adjustments under
reimbursement agreements with certain payors. Retroactive adjustments are accrued on an
estimated basis in the period the related services are rendered and adjusted in future
periods as final settlements are determined.


Revenue
from biopharmaceutical services is recognized in accordance with terms of the respective
contracts or upon shipment of tissue and other specimens to customers.


Revenue
from the license of tumor registry software is deferred and recognized on a straight-line
basis over the term of the agreement. All license agreements have support and maintenance
obligations by the Company.


(f)
Intangible Assets


Goodwill,
which represents the excess of purchase price over fair value of identifiable net assets
acquired, is amortized on a straight-line basis over the expected periods to be
benefited, generally 15 years. The Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill balance over its remaining
life can be recovered through undiscounted future operating cash flows of the acquired
operation. The amount of goodwill impairment, if any, is measured based on projected
discounted future operating cash flows using a discount rate reflecting the Companys
average cost of funds. The assessment of the recoverability of goodwill will be impacted
if estimated future operating cash flows are not achieved. Other acquired intangibles,
the majority being customer lists, are being amortized over their estimated useful lives
of between five to twenty years.


(g)
Income Taxes


Income
taxes are provided pursuant to the asset and liability method as described in SFAS No.
109. SFAS No. 109 requires that the Company recognize deferred tax liabilities and assets
for the expected future tax consequences of events that have been included in the
consolidated financial statements or tax returns. Under SFAS No. 109, deferred tax assets
and liabilities are determined on the basis of the difference between the tax basis of
assets and liabilities and their respective financial reporting amounts (temporary
differences) at enacted tax rates in effect for the years in which the differences
are expected to reverse.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(h)
Concentration of Credit Risks


The
Company invests its cash, cash equivalents and marketable securities in deposits with
money market funds of major U.S. financial institutions, and fixed income securities. The
Company has established guidelines relative to diversification and maturities that
maintain safety and liquidity. To date, the Company has not experienced any significant
losses on its cash, cash equivalents and marketable securities.


(i)
Stock-Based Compensation


In
accordance with SFAS No. 123, Accounting for Stock-Based Compensation, the
Company has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the market
price of the Companys stock at the date of grant over the amount an employee or
Director must pay to acquire the stock. Such amounts are amortized over the respective
vesting periods of the option grant. The Company uses the fair value-based method of
accounting for stock-based compensation to non-employees. Under the fair value-based
method, compensation cost is measured based on the value of the award
and is recognized over the vesting period.


(j)
Net Income Per Common Share


Basic earnings
per common share equals net income divided by weighted average common shares outstanding
during the period. Diluted earnings per common share equals net income divided
by the sum of weighted average common shares outstanding during the period plus common
stock equivalents. Common stock equivalents are shares assumed to be issued if
outstanding stock options and warrants were exercised. Common stock equivalents that are
anti-dilutive are excluded from net income per common share.


Following
is a reconciliation of the shares used in calculating basic and diluted net income per
common share (all years have been split adjusted and net income as reported is the numerator
in each calculation):
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                     | 1998 | 1999       | 2000
|---------------------------------------------------- | ---- | ---------- | ----
|Weighted average common shares outstanding           |      | 15,270,000 |     
|Effect of diluted securitiesoptions                 |      | 734,000    |     
|                                                    
|Weighted average common and common equivalent shares |     
|outstandingassuming dilution                        |      | 16,004,000 |     
|                                                    

|(k)
Use of Estimates


Management
of the Company has made a number of estimates and assumptions relating to the reporting
of assets and liabilities and the disclosure of contingent assets and liabilities to
prepare these consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America. Actual results could differ from those estimates.


(l)
Long-Lived Assets


The
Company accounts for long-lived assets in accordance with the provisions of SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. This Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of an asset
to future undiscounted net cash flows expected to
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


be generated by the asset.
If such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.


(m)
Comprehensive Income


Comprehensive
income consists of net income and net unrealized gains (losses) on securities and is
presented in the consolidated statements of stockholdersequity.


(3) Fair Value
of Financial Instruments


SFAS
No. 107, Disclosure about Fair Value of Financial Instruments, defines the
fair value of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties.


The
carrying amounts of all financial instruments except investments in marketable securities
approximate fair value because of the short maturity of those instruments or the market
rate of interest being charged. Fair values of investments in marketable securities are
based on quoted market prices.


(4) Accounts
Receivable


In
accordance with accounting principles  generally accepted in the United States of America 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 December 31, 1999 and 2000.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                | 1999 | 2000        
|------------------------------- | ---- | ------------
|Gross accounts receivable       |      | $ 63,510,465
|Allowance for doubtful accounts |      | (7,783,663  
|Contractual allowance reserve   |      | (20,211,773 
|                               
|                                |      | $ 35,515,029
|                               

|Accounts
receivable, by payor class, as a percentage of total net receivables at December 31, 1999
and 2000 are as follows:
|---------------------------------------------------------------------------------------------------------------------------

|                                          | 1999 | 2000
|----------------------------------------- | ---- | ----
|Medicare                                  |      | 15  
|Commercial insurance                      |      | 48  
|Hospitals, clinics and other institutions |      | 22  
|Patients                                  |      | 15  
|                                         
|                                          |      | 100 
|                                         

|
|

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(5) Fixed Assets


At
December 31, 1999 and 2000, fixed assets consist of the following:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                               | 1999 | 2000        
|---------------------------------------------- | ---- | ------------
|Personal computers                             |      | $  6,010,846
|Software development costs                     |      | 15,543,912  
|Furniture, fixtures and laboratory equipment   |      | 9,240,975   
|Leasehold improvements                         |      | 12,434,031  
|                                              
|                                               |      | 43,229,764  
|Less accumulated depreciation and amortization |      | 9,525,652   
|                                              
|                                               |      | $33,704,112 
|                                              

|Included
in the above at December 31, 1999 and 2000 are gross assets under capital leases of
approximately $20,469,522 and $47,533,652, respectively, and the related accumulated
amortization at such dates is approximately $4,838,757 and 10,868,139, respectively.


(6)
Acquisitions/Investments


In
October 1996, the Company entered into an agreement with Oncogenetics Inc. to purchase
customer lists pertaining to its diagnostic and prognostic cancer business for a sum of
$800,000. In conjunction with this purchase the Company obtained the option to purchase
the cytogenetics business of the seller for $1, plus assumption of a $750,000 note
payable (which was paid just after the transaction). The option was exercised in January
1997.


In
February 1997, the Company purchased certain assets of Immunodiagnostic Laboratories,
Inc. (Immunodiagnostic), which operates an oncology division specializing in
sophisticated cancer analytical assays, in order to provide diagnostic and prognostic
information to pathologists, oncologists and others specializing in cancer. The purchase
price included an initial payment at closing of $425,000 plus the issuance of options to
purchase 20,000 shares of the Companys common stock at $17.44 per share (estimated
value of $191,218).


In
September 1997, the Company acquired certain assets of GenCare for an initial payment of
$4.6 million. GenCare is a New Jersey-based cancer laboratory specializing in
tissue-based testing and tumor marker analyses.


In
October 1997, the Company purchased certain assets of Aeron Biotechnology, Inc. (Aeron),
a California-based cancer testing facility specializing in breast cancer prognostic
analysis. The purchase price for Aeron included an initial payment of $376,000 made at
closing. Additionally, the Company paid $180,000 for certain other assets owned by Aeron.


The
1997 acquisitions of Immunodiagnostic, GenCare and Aeron all have an individual
contingent purchase price arrangement based on the future operating results of the
respective business.


The
aggregate acquisitions in 1997 were all treated as purchases with the results of
operations of each transaction being included in the consolidated results from the
respective acquisition date. The incremental operating results were not material to the
results of operation of the Company. The purchase prices represented primarily payments
for customer lists, which are included in intangible assets on the accompanying
consolidated balance sheets and will be amortized over periods of up to fifteen years.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


In
July 1998 the Company purchased certain assets of Biologic & Immunologic Science
Laboratories, Inc. (BIS), a privately held cancer diagnostics company based
in Reseda, California for $3.6 million. The terms provided for an initial payment of $2.0
million, and $800,000 payable in three equal semi-annual installments beginning December
1998, after which another $800,000 is payable in three equal semi-annual installments
contingent on previously established revenue targets with interest accruing at 8% annum.


In
August 1998 the Company acquired Medical Registry Services, Inc. (MRS)
for the issuance of 550,000 shares of IMPATH Inc. common stock valued at $13.75 million.
After the consideration of certain other expenses related to the acquisition and after
recording net tangible assets of MRS, the Company recorded approximately $17.3 million in
intangibles (includes approximately $12 million of goodwill). MRS is a leading developer
and marketer of cancer registry software products that are currently utilized in about
600 hospitals throughout the United States. The products are used to collect and manage
critical diagnostic, treatment, follow-up and outcomes data on cancer patients.


On
September 2, 1998 the Company acquired Physicians Choice, Inc. (PCI) for the
sum of $1.0 million, with $400,000 payable immediately and an additional $400,000 payable
in four equal semi-annual installments beginning March 1999 with interest accruing at 8%
per annum. In addition, the terms provided for an issuance of $200,000 in IMPATH Inc.
common stock. An initial 1,980 shares of common stock, having a fair market value of
$50,000, were issued on September 2, 1998, 1,786 shares of common stock, having a fair
market value of $50,000, were issued on September 2, 1999 and 1,428 shares of common
stock, having a fair market value of $50,000, were issued on September 2, 2000, with the
remaining shares to be issued September 2, 2001.


On
August 30, 1999 the Company acquired certain assets of BioClincial Partners, Inc., (BCP),
for $6.9 million including the issuance of 120,000 shares of IMPATH common stock valued
at $1,635,000. The terms provided for an initial payment of $4.8 million, and $2.1
million payable in three equal annual installments beginning August 30, 2000, contingent
on acheivement of previously established revenue targets, with interest accruing at 6%
per annum. On September 1, 2000 the terms were amended to provide for an initial payment
of $4.8 million and $2.1 million payable in installments of $700,000 on September 1, 2000 and $1,400,000 on January
2, 2001 as well as contingent payments based upon the achievement of previously established
revenue targets, with interest accruing at 6% per annum. The shares were issued in
two installments. The first installment of 80,000 shares was issued on January 3, 2000 and
the remaining 40,000 shares will be issued on January 2, 2001 and are recorded as common
stock to be issued in the December 31, 1999 and 2000 consolidated balance sheet.


On
November 22, 1999 the Company acquired certain assets of Pacific Coast Reference
Laboratories, Inc. (PCRL), for the sum of $5.4 million cash, with $4.6
million payable immediately, and an additional $800,000 payable in four equal semi-annual
installments beginning May 2000, contingent on achievement of previously established
revenue targets, with interest accruing at 6% per annum.


On
June 1, 2000 the Company purchased certain assets of M.I.T Consultant, Inc.
(MIT), a privately held histology business based in Los Angeles, CA for
$132,750. The terms provided for an initial payment of $66,375 and $66,375
payable in two equal semi-annual installments beginning November 2000, $16,600
of which is contingent upon the achievement of previously established revenue
targets, with interest accruing at 6% per annum.


On
June 16, 2000 the Company purchased certain assets of InterScience Diagnostic
Laboratories, Inc. (IDL), a privately held cytogenetics company based in
Brooklyn, New York for $250,000. This transaction will allow IMPATH to expand its
cytogenetics business.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


The
aggregate acquisitions in 2000, 1999 and 1998 were all treated as purchases with the
results of operations of each transaction being included in the consolidated results from
the respective acquisition date. The incremental operating results were not material to
the results of operation of the Company. The purchase prices represented primarily
payments for customer lists, which are included in intangible assets on the accompanying
consolidated balance sheets and will be amortized over periods of up to fifteen years.


On
September 27, 1999 the Company completed a $5 million investment in a private placement
of preferred stock in ILEX Oncology Service, Inc. (ILEX). ILEX is a drug development
company focused exclusively on accelerated development of drugs for the treatment and
management of cancer. This investment accrued dividends per share at the rate per annum
of $1.031 and was convertible into common shares of ILEXs parent company, ILEX Oncology Inc.. On
November 30, 2000 the Company converted the investment into 290,867 shares of ILEX Oncology Inc. common
stock and sold this stock immediately for a pre-tax gain of $3.2 million.



(7) Accrued
Expenses


Accrued
expenses are comprised of the following as of December 31, 1999 and 2000:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                           |  | 1999        |  | 2000         | 
|-------------------------- |  | ----------- |  | ------------ | 
|Salaries and related costs |  | $   944,376 |  | $  1,947,037 | 
|Other accrued expenses     |  | 2,499,202   |  | 1,926,573    | 
|                          
|                           |  | $3,443,578  |  | $  3,873,610 | 
|                          

|(8)
Indebtedness


The
Company has a line of credit for an aggregate amount of $15.0 million with Fleet Bank
which expires on June 28, 2001. Borrowing under the line bears interest at LIBOR plus
2.0%. As of December 31, 2000 the Company has $3 million drawn against this line. The line
of credit has certain financial covenants with which the Company is in compliance at
December 31, 2000.


(9) Stockholders
Equity


(a)
Common Stock


On
October 13, 1995, the Board of Directors authorized the Company to file a registration
statement with the Securities and Exchange Commission to register shares of its common
stock in connection with an initial public offering. Such offering was consummated on
February 26, 1996 for a total of 4,485,000 (split adjusted) common shares at an offering
price of $6.50 per share. The net proceeds to the Company amounted to approximately
$25,737,000. In March 1998, the Company raised approximately $71,000,000 of additional
capital through an underwritten follow-on offering of 4,600,000 (split adjusted) common
shares of stock.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


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 and footnotes of operations contained in this annual report have been retroactively adjusted
to reflect the stock split.


(b)
Treasury Stock


In
December 1998, the Company initiated a share buyback program to acquire up to $25.0
million worth of common stock. As of December 31, 1999, the Company had repurchased 1,897,300
shares of common stock for approximately $23.4 million. In January 2000, the Company
initiated an additional $15 million buyback program. During January and February 2000 the
Company repurchased an additional 298,000 shares of common stock for approximately $3.4
million. This brought the total cost of shares repurchased since the inception of the
plan to approximately $26.8 million.


(c)
Stock Option Plans


In
February 1989, the Company adopted (and subsequently amended) a Stock Option Plan (the
Plan) which provides for granting to certain key employees of the Company,
Directors and consultants, options to purchase up to 1,769,376 shares of common stock.
Options granted are exercisable over a period not to exceed ten years and generally vest
over five years.


In
April 1997, the Company adopted the IMPATH Inc. 1997 Long-Term Incentive Plan (the Incentive
Plan), which provides for granting to certain key employees of the Company,
Directors and consultants, options to purchase up to 600,000 shares of common stock.
Options granted are exercisable over a period not to exceed ten years and generally vest
over four years. Options to purchase 158,000 shares were granted to consultants under the
Incentive Plan in 1997. Options to purchase 138,000 shares were granted to consultants
under the Incentive Plan in 1998. Options to purchase 13,544 shares were granted to
consultants under the Incentive Plan in 1999. Compensation cost will be amortized for
these grants over the vesting period of the options.


In
June 1999, the Company adopted the IMPATH Inc. 1999 Long Term Incentive Plan (the Incentive
Plan), which provides for granting to employees of the Company, Directors and
consultants, options to purchase up to 600,000 shares of common stock. Options granted
are exercisable over a period not to exceed ten years and generally vest over four years.
Options to purchase 81,262 shares were granted under this plan in 1999. Options to
purchase 337,500 shares were granted under this plan in 2000.


In
June 2000, the Company adopted the IMPATH Inc. 2000 Long Term Incentive Plan (the Incentive
Plan), which provides for granting to employees of the Company, Directors and
consultants, options to purchase up to 1,600,000 shares of common stock. Options granted
are exercisable over a period not to exceed ten years and generally vest over three years.
Options to purchase 11,300 shares were granted under this plan in 2000.


The
Company has elected not to implement the fair value-based accounting method for employee
and Director stock options, but has disclosed the pro forma net income and earnings per
share as if such method had been used to account for stock-based compensation cost as
described in SFAS No. 123.


The
per share weighted-average fair value of stock options granted during 1998, 1999 and 2000
was $8.34, $9.58 and $12.13, respectively, on the dates of grant using the Black Scholes
option-pricing model with the following weighted-average assumptions: 1998--expected
dividend yield 0%, risk-free interest rate of 7.0%, expected volatility 60% and
an expected life of 7 years; 1999expected dividend yield 0%, risk-free
interest rate of 6.5%, expected volatility of 60% and an expected life of 7
years; 2000expected dividend yield 0%, risk-free interest rate of 7.0%,
expected volatility of 60% and an expected life of 7 years.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The
Company applies APB Opinion No. 25 in accounting for its options and, accordingly, no
compensation cost has been recognized for its stock options issued at exercise prices
equal to the fair market value of the stock on the grant date, with the exception of
certain stock options issued in 1996 through 2000 to non-employees as previously
described. The Company recorded expense related to non-employee stock option grants of
$257,733, $205,780 and $1,065,131 in the years ended December 1998, 1999 and 2000
respectively. Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No 123, the Companys net income would
have been reduced to the pro forma amounts indicated below:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                        |  | 1998        | 1999 | 2000               
|--------------------------------------- |  | ----------- | ---- | -------------------
|Net income                              |  | As reported |      | $     6,947,545    
|                                        |  | Pro forma   |      | $     5,879,393    
|Net income per share--assuming dilution |  | As reported |      | $              0.44
|                                        |  | Pro forma   |      | $              0.37

|Pro
forma net income reflects only options granted in 1995 through 2000. Therefore, the full
impact of calculating compensation cost for stock options under SFAS No. 123 is not
reflected in the pro forma net income amounts presented above because compensation cost
is reflected over the optionsvesting period and compensation cost for options
granted prior to January 1, 1995 is not considered.


The
following is a summary of option activity during the years ended December 31, 1998, 1999
and 2000:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                         |  | Sharesunderoptions |   | PriceRange  |  | Weightedaverageexerciseprice | 
|---------------------------------------- |  | ------------------ | - | ----------- |  | ---------------------------- | 
|Options outstanding at December 31, 1997 |  | 1,756,352          |   | $0.14-15.59 |  | $    6.61                    | 
|Granted                                  |  | 379,396            |   | 10.25-18.63 |  | 12.74                        | 
|Exercised                                |  | (396,414           | ) | 0.14-13.44  |  | 2.15                         | 
|Canceled                                 |  | (82,798            | ) | 1.27-15.94  |  | 11.10                        | 
|                                        
|Options outstanding at December 31, 1998 |  | 1,656,536          |   | 0.14-18.63  |  | 8.85                         | 
|Granted                                  |  | 155,826            |   | 8.53-14.97  |  | 10.29                        | 
|Exercised                                |  | (309,674           | ) | 0.14-13.44  |  | 3.53                         | 
|Canceled                                 |  | (102,400           | ) | 1.27-18.63  |  | 11.29                        | 
|                                        
|Options outstanding at December 31, 1999 |  | 1,400,288          |   | 0.28-18.44  |  | 10.01                        | 
|Granted                                  |  | 348,800            |   | 11.00-50.31 |  | 17.39                        | 
|Exercised                                |  | (528,327           | ) | 0.28-16.75  |  | 9.04                         | 
|Canceled                                 |  | (36,555            | ) | 0.28-15.69  |  | 10.87                        | 
|                                        
|Options outstanding at December 31, 2000 |  | 1,184,206          |   | $1.27-50.31 |  | $  12.59                     | 
|                                        

|
|

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


The following table summarizes
information about stock options outstanding and exercisable as of December 31, 2000:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Range ofexercisePrices |  | Numberout-standing at12/31/00 |  | Weightedaverageremainingcontractuallife |  | WeightedAverageexerciseprice |  | Numberexercise-able at12/31/00 |  | Weightedaverageexerciseprice | 
|---------------------- |  | ----------------------------- |  | --------------------------------------- |  | ---------------------------- |  | ------------------------------ |  | ---------------------------- | 
|$1.27-$6.50            |  | 109,038                       |  | 4.66 years                              |  | $  4.70                      |  | 151,768                        |  | $  4.53                      | 
|6.50-11.50             |  | 509,835                       |  | 8.07 years                              |  | 10.54                        |  | 296,675                        |  | 9.82                         | 
|11.50-15.38            |  | 353,541                       |  | 7.40 years                              |  | 13.07                        |  | 245,522                        |  | 13.12                        | 
|15.38-18.66            |  | 19,192                        |  | 7.68 years                              |  | 17.52                        |  | 7,798                          |  | 18.12                        | 
|18.66-28.75            |  | 189,600                       |  | 9.61 years                              |  | 25.17                        |  | 21,323                         |  | $25.18                       | 
|28.75-50.31            |  | 3,000                         |  | 9.93 years                              |  | $50.31                       |  | 0                              |  | 0                            | 
|$1.27-$50.31           |  | 1,184,206                     |  |                                         |  |                              |  | 723,086                        |  |                              | 
|                      

|At December 31, 2000, the
Company had 3,364,701 shares reserved for options and warrants outstanding, as
well as future option grants.


(10) 401(k) Retirement
Savings Plan


Effective
June 1, 1995, the Company adopted the IMPATH Inc. 401(k) Retirement Savings Plan (the
Plan) benefiting certain employees. Employees who are over the age of 21 and
have completed six months of service are eligible for voluntary participation in the
Plan. Employees may contribute 1% to 20% of their total salaries on a before tax basis,
and the Company will match up to 50% of the first 4% of employee contributions. Plan
participants who were employees as of June 1, 1996 are 100% vested in all contributions.
Any employees hired subsequent to June 1, 1996 are 100% vested in their own contributions
and will become vested in employer contributions over a three-year period. Effective
January 1, 2001 all employees over the age of eighteen are allowed to participate in the
401(k) plan on the first day of hire and they are immediately 100% vested. Employer
contributions for the years ended December 31, 1998, 1999 and 2000 were $133,842,
$277,504 and $352,902, respectively.


(11) Income Taxes


The
components of the provision for income taxes for 1998, 1999 and 2000 are as follows:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                | 1998 | 1999        | 2000
|--------------- | ---- | ----------- | ----
|Current:        |      |             |     
|Federal         |      | $ 3,345,462 |     
|State and local |      | 1,625,507   |     
|               
|                |      | 4,970,969   |     
|               
|Deferred:       |     
|Federal         |      | (255,671    | )   
|State and local |      | (139,493    | )   
|               
|                |      | (395,164    | )   
|               
|                |      | $ 4,575,805 |     
|               

|
|

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


Deferred tax components at
December 31, 1999 and 2000 are as follows:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       | 1999 | 2000       
|-------------------------------------- | ---- | -----------
|Assets:                                |      |            
|Allowance for doubtful accounts        |      | $ 2,011,289
|Deferred compensation                  |      | 306,673    
|Deferred revenue                       |      | 110,723    
|                                      
|                                       |      | 2,428,685  
|Liabilities:                           |     
|Intangible assets--acquisitions        |      | (1,776,630 
|Depreciation                           |      | (1,060,053 
|Other                                  |      | (474,577   
|                                      
|                                       |      | (3,311,260 
|                                      
|Deferred tax assets (liabilities), net |      | $  (882,575
|                                      

|Management
of the Company believes that it is more likely than not that future tax benefits will be
realized as a result of the recent operating performance of the Company.



A
reconciliation of the Federal statutory income tax rate to the effective tax rate for the
years ended December 31, 1998, 1999 and 2000 are as follows:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                         |  | 1998 |   | 1999 |   | 2000 |  
|-------------------------------------------------------- |  | ---- | - | ---- | - | ---- | -
|Federal statutory income tax rate                        |  | 35.0 | % | 35.0 | % | 35.0 | %
|State and local taxes, net of Federal income tax benefit |  | 7.3  |   | 8.0  |   | 8.0  |  
|Tax exempt interest income                               |  | (2.9 | ) | (2.0 | ) |     |  
|Other                                                    |  | 0.3  |   | (1.0 | ) |     |  
|                                                        
|                                                         |  | 39.7 | % | 40.0 | % | 43.0 | %
|                                                        

|The
Company recognized a tax benefit for stock options exercised as a reduction in taxes
payable and a corresponding increase in additional paid-in capital totaling $778,611 in
1998, $486,347 in 1999 and $4,358,777 in 2000, respectively.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(12) Leases


The
Company utilizes laboratory and office facilities and leases equipment pursuant to the
terms of operating and capital leases, which expire through 2010.


The
present value of future minimum lease payments (including those cancelable at the Companys
option and subject to increases in the Consumer Price Index and real estate taxes) for
the capital leases and the future minimum lease payments for operating leases are as
follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Year ending December 31,                |  | Operatingleases |  | Capitalleases |  
|--------------------------------------- |  | --------------- |  | ------------- | -
|2001                                    |  | $  4,362,928    |  | $ 12,004,495  |  
|2002                                    |  | 3,930,747       |  | 12,078,028    |  
|2003                                    |  | 3,494,019       |  | 9,868,187     |  
|2004                                    |  | 3,172,941       |  | 4,642,957     |  
|2005                                    |  | 3,109,146       |  |              |  
|Thereafter                              |  | 13,208,867      |  |              |  
|                                       
|                                        |  | $31,278,648     |  | 38,593,667    |  
|                                       
|Less amount representing interest       | 
|(rates range from 4.45% to 11.47%)      |  |                 |  | (3,633,584    | )
|                                       
|Present value of minimum lease payments |  |                 |  | 34,960,083    |  
|Less current portion                    |  |                 |  | (10,171,471   | )
|                                       
|                                        |  |                 |  | $24,788,612   |  
|                                       

|For
the years 1998, 1999 and 2000, rent expense was $1,272,661, $1,634,853 and $2,768,319,
respectively.


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 December 31, 2000, 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 December 31, 2000, 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 $15.0 million in March
2000, under the same lease term. As of December 31, 2000, approximately $14.6 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 December 31, 2000, the Company had fully
drawn against the 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 December 31, 2000, 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
December 31, 2000, approximately $1.0 million was drawn against this line. In April 2000,
the Company established a $3.0 million credit line with First Sierra Financial, Inc. with
lease terms of 48 months and a rate equal to the yield on four-year treasury notes.
As of December 31, 2000, 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. with the lease terms of 48 months and a rate equal to the yield
on four-year treasury notes. As of December 31, 2000, approximately $600,000 was
drawn against this line. In July 2000, the 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 December 31,
2000, approximately $900,000 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 December 31, 2000, the Company had fully drawn against this
line.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(13) Related
Party Transactions


The
Company paid $104,000, $111,000 and $138,000 in the years ended December 31, 1998, 1999
and 2000, respectively, to a Director who also performs certain consulting services to
the Company.


(14) Segment and
Geographic 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)
BioPharmaceutical/Genomics Services and (3) Information Services. Physician
Services derives revenue from performing specialized cancer analyses.
BioPharmaceutical/Genomics Services 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.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|($ in Thousands)        | TotalIMPATH Inc. | PhysicianServices | BioPharmaceutical/Genomics Services | InformationServices
|----------------------- | ---------------- | ----------------- | ----------------------------------- | -------------------
|                       
|2000                    |                  |                   |                                     |                    
|Revenue                 |                  | 138,221           |                                     | 124,224            
|Operating Income (loss) |                  | 20,248            |                                     | 23,846             
|Total Assets            |                  | 196,773           |                                     | 185,322            
|Depreciation and        |                 
|Amortization            |                  | 10,730            |                                     | 8,982              
|                       
|1999                    |                  |                   |                                    
|Revenue                 |                  | 85,366            |                                     | 77,433             
|Operating Income (loss) |                  | 12,081            |                                     | 10,886             
|Total Assets            |                  | 149,777           |                                     | 138,072            
|Depreciation and        |                 
|Amortization            |                  | 6,960             |                                     | 5,542              
|                       
|1998                    |                  |                   |                                    
|Revenue                 |                  | 56,259            |                                     | 53,183             
|Operating Income (loss) |                  | 8,521             |                                     | 7,129              
|Total Assets            |                  | 150,033           |                                     | 144,438            
|Depreciation and       
|Amortization            |                  | 3,492             |                                     | 3,046              
|                       

|
|

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


Corporate assets, including
cash and marketable securities, prepaid and deferred taxes that are not
specifically identified by segment have been allocated to identified segments
based upon a percentage of each segments revenue to the consolidated revenue.


(b) Geographic
Information


The
Company operates within the continental United States. All identifiable assets
of the Company are located and safeguarded throughout the continental United
States.


(c) Major
Customers


Physician
Services typically bills third-party payors, such as private insurance plans,
managed care plans and Medicare, as well as Hospitals. BioPharmaceutical/Genomics
Services bills pharmaceutical companies and Information Services bills community
hospitals and state agencies. The Companys largest client is Medicare.
This client accounted for 25%, 23%, and 28% of the Companys physician service revenue
in fiscal years 1998, 1999, and 2000, respectively. The Company receives
reimbursement through Medicare for individual patient accounts. No other
customer accounted for 10% or more of the Companys total revenue in fiscal
years ended 1998, 1999 and 2000.


(d)
Concentration of Revenue


During 1998, 1999 and 2000,
the Company received the following estimated percentages of its Physician
Services revenues for diagnostic and prognostic services from the respective
payors identified below:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               | Year Ended December 31, |    
|------------------------------ | ----------------------- | ---
|
|Hospitals                      |                         | 21 
|Private Insurance/Managed Care |                         | 50 
|Medicare                       |                         | 25 
|Individual Patients            |                         | 4  
|                              
|Total                          |                         | 100
|                              

|(15)
Commitments and Contingencies
|----------------------------------

| | On
November 20, 2000 Healthtech Diagnostics Corporation and Oncogenetics Inc. (Plaintiffs)
and IMPATH Inc. (the Company) and IMPATH-HDC Inc. (Collectively, Defendants or
IMPATH) executed a Release and Settlement Agreement. Plaintiffs subsequently
alleged that IMPATH breached the terms of the settlement but that allegation was
withdrawn. On December 4, 2000 the Court entered an order dismissing the claims asserted
in the litigation with prejudice. The Plaintiff alleged breach of contract and fraud
arising out of the acquisition by IMPATH of assets of the Plaintiffs and alleged
misrepresentations by IMPATH concerning its intentions to complete additional value by
falsely representing that IMPATH would complete acquisitions of seven additional medical
laboratories that Plaintiffs previously contemplated acquiring and by representing that
IMPATH would pay Plaintiffs and their shareholders substantial additional compensation
upon completion of those acquisitions. Plaintiffs also alleged that IMPATH did not pay
amounts due under the asset purchase agreement based on the performance of assets
acquired. Plaintiffs sought to recover actual damages, punitive damages, pre-judgment and
post judgment interest, costs and attorneysfees. On November 30, 2000 IMPATH paid
the Plaintiffs $2.25 million as instructed under the settlement agreement. This amount is
included in Selling General and Administrative expense for the year ended December 31,
2000.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)




Certain
executive officers of the Company have entered into agreements which provide severance of
up to one years salary in the event of termination without cause.



(16) Quarterly Financial
Data (unaudited) (dollars in thousands except per share data)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|       | Per Share ofCommon StockNet Income |          
|------ | ---------------------------------- | ---------
|
|2000   |                                    |          
|Fourth |                                    | $  38,888
|Third  |                                    | 35,406   
|Second |                                    | 33,364   
|First  |                                    | 30,563   
|      
|Total  |                                    | $138,221 
|      
|1999   |                                    |          
|Fourth |                                    | $  26,007
|Third  |                                    | 21,543   
|Second |                                    | 20,846   
|First  |                                    | 16,970   
|      
|Total  |                                    | $  85,366
|      

|
|

|(INDEX TO
EXHIBITS)
|-------------------

|ExhibitNumber | Description | Page                                                                                                                                   
|------------- | ----------- | ---------------------------------------------------------------------------------------------------------------------------------------
|3.1           |             | Restated Certificate of Incorporation, as amended                                                                                      
|3.2           |             | Form of Certificate of Amendment regarding authorization of additional preferred stock                                                 
|3.2.1         |             | Form of Certificate of Amendment  authorizing additional common stock                                                                  
|3.3           |             | By-laws                                                                                                                                
|4.1           |             | Regulation Rights Agreement dated February 10, 1995 among IMPATH Inc. and certain ofits shareholders                                   
|10.1          |             | Master Lease Agreement dated April 11, 1995 between IMPATH Inc. and Financing ForScience International, Inc.                           
|10.8          |             | Space Lease Agreement dated April 20, 1995 between OMA Del Aire Properties and IMPATH Inc. (formerly known as Impath Laboratories Inc.)
|10.9          |             | Floating Rate Promissory Note in the principal amount of $300,000 made by IMPATH Inc. in favor of Chemical Bank                        
|10.10         |             | 1989 Stock Option Plan                                                                                                                 
|10.11         |             | Form of Indemnification Agreement with directors                                                                                       
|10.13         |             | Letter Agreement dated December 12, 1997 between Anu D. Saad, Ph.D., and IMPATH Inc.                                                   
|10.17         |             | Letter Agreement dated December 12, 1997 between Richard P. Adelson and IMPATH Inc.                                                    
|10.18         |             | 1997 Long Term Incentive Plan                                                                                                          
|10.19         |             | Agreement of Lease dated as of June 26, 1997 between International Flavors & Fragrances Inc. and IMPATH Inc.                           
|10.20         |             | 1999 Long Term Incentive Plan                                                                                                          
|10.21         |             | 2000 Long Term Incentive Plan                                                                                                          
|23            |             | Consent of KPMG                                                                                                                        
|24            |             | Power of Attorney (see Power of Attorney in Form 10-K)                                                                               

|
|

|* |  | Incorporated
by reference to the exhibit of the same number filed with the Registration Statement on
Form S-1 of IMPATH Inc. (File No. 33-98916).
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------

|** |  | Incorporated
by reference to the exhibit of the same number filed with the Annual Report on Form 10-K
for the year ended December 31, 1997.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------

|*** |  | Incorporated
by reference to Exhibit A to the Proxy Statement of IMPATH Inc. dated April 25, 1997
(File No. 000-27750).
|--- |  | -----------------------------------------------------------------------------------------------------------------------

|**** |  | Incorporated
by reference to Exhibit A to the Proxy Statement dated April 30, 1999
(File No. 000-27750).
|---- |  | --------------------------------------------------------------------------------------------------------

|***** |  | Incorporated
by reference to Exhibit A to the Proxy Statement dated April 28, 2000 (File No. 000-27750).
|----- |  | --------------------------------------------------------------------------------------------------------

|
|