|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, 2001


Commission
file number 0-27750


LOGO


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

|Delaware(State or other jurisdiction ofincorporation or organization) | 13-3459685(I.R.S. EmployerIdentification No.)
|--------------------------------------------------------------------- | ---------------------------------------------

|521 West 57th StreetNew York, New York(Address of principal executive offices) | 10019(Zip Code)
|------------------------------------------------------------------------------ | ---------------

|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. |X|


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

|                                               | 
|---------------------------------------------- | 
|Aggregate market value as of February 28, 2002 | 

|Indicate the number of shares
outstanding of each of the registrants classes of common stock, as of the latest
practicable date.
|---------------------------------------------------------------------------------------------------------------------------------

|                                                       | 
|------------------------------------------------------ | 
|Common Stock, $.005 par value, as of February 28, 2002 | 

|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:


2002
Proxy StatementPart III
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 has expanded its focus to harness the information it was
generating from performing analyses on thousands of cancer specimens annually
and to broaden the applications of this important biological information. The
Company has also completed multiple strategic acquisitions which have included:
technologies, software, complementary cancer information including treatment and
outcomes data, pharmacoeconomic analytical capabilities, a tissue and serology
archive of well-characterized, fully documented cancer specimens linked to
longitudinal information on donors of those specimens and a network of clinical
trial sites around the country providing protocol design and review, patient
recruitment, data collection and analytical services.


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 89% 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 8,300 physicians specializing in the treatment of
cancer patients, in over 2,000 hospitals and over 570 oncology practices. IMPATHs
Physician Services business has populated a database that currently contains over 870,000
patient profiles.



In
2000, the Company formed its biopharmaceutical/genomics services business that is
centralized under the IMPATH Predictive Oncology division (IPO). Currently comprising
approximately 9% of the Companys overall revenues, IPO is the fastest growing segment of
the Companys operations. IPO leverages the Companys vast resources (including its
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 the Companys clients. IPO provides integrated services and information
resources for genomics, biopharmaceutical, diagnostic products and pharmaceutical
companies in the development and commercialization of targeted gene-based and
protein-based therapies. Through the use of translational genomics, or patient-specific
biologics and clinical information, IPO accelerates the oncology drug discovery and
development process for earlier market arrival of FDA-approved targeted therapeutics. The
Company is involved in drug discovery and development to provide a broad range of
translational genomics services. In fact, the Company has established IPO as a central player
in the development of many of the ongoing pharmaceutical initiatives in oncology.



The
Companys Information Services division (comprising approximately 2.5% of
overall revenue) derives revenues through the licensing of tumor registry
software to hospitals that treat cancer patients. There are currently over 625
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. With outcomes
information on nearly 2 million patients, this information will be increasingly
valuable to those involved in the management of cancer, including physicians,
payors and developers of new therapies.


In
January 2002, the Company announced the acquisition of Tamtron Corporation, a
leader in providing pathology information management software to hospitals and
laboratories throughout the U.S. Tamtron has annualized revenues of $10 million
derived primarily through software sales and maintenance and service contracts.
Its customer base at the time of the acquisition was more than 350 sites around
the country, processing over 5 million cases per year. The Company believes this
acquisition brings new possibilities for sales initiatives that will further
strengthen and leverage the Companys existing relationships with
physicians in the oncology community. Additionally, the Company will have access
to better quality information for utilization with its drug development clients
through its IPO division.



1
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
Companys revenues were $189.6 million in 2001, representing 37.2% revenue
growth over 2000. The 2001 fiscal year was IMPATHs twelfth consecutive
year of annual revenue growth in excess of 37%. In addition, the fourth quarter
of 2001 represented IMPATHs thirty-second consecutive quarter of record
revenues. Income from operations and net income for 2001 were $21.4 million and
$11.0 million, respectively.


Forward Looking Statements



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 various provisions of the Securities Act of 1933 and the
Securities Exchange Act of 1934. These forward-looking statements generally can
be identified by the use of statements that include phrases such as the Company
believes, expects, anticipates,
intends, plans, foresees or other similar
words or phrases. Similarly, statements that describe the Companys
projected growth and goals and its plans for expansion also are forward-looking
statements. All of these forward-looking statements are subject to certain risks
and uncertainties, many of which are outside of managements control, and
which could cause the Companys actual results to differ materially from
those contemplated by the relevant forward-looking statement. Some of the most
significant factors that could cause the actual results to differ materially
from the forward-looking statement, alone or in combination, would be the
failure to continue to successfully integrate the businesses acquired by the
Company, unanticipated disagreements with the Companys joint venture
partners, unanticipated changes in the healthcare industry (as a result of cost
containment measures, changes in governmental regulations, 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. In addition, the September 11, 2001 terrorist
attacks, and change in international political conditions as a result of these
events, may continue to effect the United States and the global economy and
increase other risks. Readers are urged to consider these factors carefully 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 2001), 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 1.3 million in 2001, an
increase of 145%. 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 60% in 2001.


The
National Cancer Institute (ACS Cancer Facts and Figures 2001) estimates that the
direct medical costs associated with cancer were approximately $60 billion
(total of all health expenditures) in 2001. 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.


2
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|IMPATH
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 2001. Among the
Companys fastest growing products is the analysis of lymphomas and
leukemias, with IMPATH analyzing over 50,000 such cases in 2001.
Lymphoma/leukemia analysis represents a disease state in which IMPATHs
expertise and utilization of sophisticated, integrated technologies provides
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 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.


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 750 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 analyses 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 is increasingly 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).


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

|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
Advantage


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. In 2001, IMPATH Physician Services received an
average of approximately 800 cases per day. The experience derived from such a
volume of cases leads to superior professional and technical expertise, as
is reflected in the Companys database of approximately 870,000
cancer cases analyzed to date, with more than 200,000 cases added during 2001
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 of more than 60
professionals, forming one of the largest oncology focused sales force in the country,
focuses on educating clients on 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 less
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 also 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 that
enable it to provide hospitals with a valuable, cost-effective and expeditious
alternative to establishing and maintaining in-house pathology laboratories.


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

|IMPATH
Predictive Oncology 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  gene- or
protein-based targets that will predict key biological functions of the cancer cell.
These gene- and protein-based 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 should
dramatically increase the efficacy of the targeted therapeutic in the clinical
environment and improve patient outcomes.


IPO
has begun to play an integral role in the process it calls translational genomics or
translating potential gene-based targets into new oncology therapeutics. IPO assists
the genomics, biotechnology and pharmaceutical industry throughout the pre-clinical and
clinical development stages of drug development with an integrated platform of products
and clinical services. This includes the use of our IMPATH GeneBank (GeneBank)
resources that include thousands of fully consented tumor tissues with clinical follow-up
information. By 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. IPO also
provides assistance in the design, implementation and conduct of clinical trials and provides many of the necessary resources to
successfully and efficiently conduct these trials. For instance, IPO is assisting in the
identification of the ideal target population for immunotherapy (e.g., monoclonal antibody therapy, tumor vaccines,
etc.) which includes identifying patients at high-risk, early stage disease most likely to fail chemotherapy, such as
patients with residual tumor cells in the blood and marrow and those with aggressive
tumor markers. IPO can also demonstrate, among other things, in vitro activity of a
trial compound using its Drug Resistance Assay or 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.


Over
the last two years, IPO has entered into numerous agreements to provide a broad range of
services in this area, and is a participant in many of the ongoing pharmaceutical
initiatives in oncology. The Company expects to intensify its efforts in providing
services to other genomics, biotechnology and pharmaceutical companies going forward.


Competitive
Advantage


IPO
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 without ever
being sure that the independently obtained pieces of the puzzle would fit together. By
contrast, IPO 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.


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

|IPO
has developed a worldwide network of sites from which well-characterized, cancer tissue
specimens and corresponding serology are procured through its GeneBank program.
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. IPO uses its tissue resources in combination with
multiple technologies to rapidly assess the validity of potential therapeutic targets.
IPO is also a prime resource for diagnostic products companies that seek to develop
assays to identify the target in patients. Proactive assay development efforts (and
Physician Services 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 4%-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, the IMPATH Clinical Trials
Network (ICTN), through a network of more than 30 sites around the country made up of
oncology office practices and hospitals that conduct clinical trials, helps to recruit
patients and manage trials in their community-based offices. Further, through internally
developed software products, IMPATH searches its daily case volume of approximately 800
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
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.


IMPATH 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. In addition, IMPATH adds
to its information database through various strategic acquisitions and alliances. Through
the acquisition of Medical Registry Services Inc. (now known as IMPATH Cancer
Registry), 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 Physicians Services, this data stream provides therapeutic,
treatment and outcomes information that can be paired with IMPATHs biological and
molecular data, creating a detailed continuum of care profiles 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.


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

|With
the recent acquisition of Tamtron Corporation and its suite of PowerPath
software products, which enable hospitals and laboratories throughout the
U.S. to better manage all aspects of pathology services, and the recently announced
strategic alliance with Varian Medical Systems, Inc., for the development of software
interfaces linking radiation and medical oncology databases with tumor registries, IMPATH will be able to
further strengthen and leverage its relationships within the oncology community.
These recent transactions offer IMPATH the potential to more efficiently collect
data across each of its businesses and provides more comprehensive
information-based products to its clients.


Competitive
Advantage


The
Company believes that its IMPATH 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 this 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.


The
Company also believes that the acquisition of Tamtron Corporation and its pathology
information management software which facilitates the collection and analysis of
diagnostic data within hospitals and laboratories will enable IMPATH to broaden its
existing client relationships while gaining access to better data on a more timely basis.
In addition, the Company believes there are important strategic opportunities to add
GeneBank sites and expand patient recruitment for the IMPATH Clinical Trials
Network.



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. Physician Services
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 1996
was 55,539; in 2001 that figure increased to 200,393, representing an average
annual growth rate of 31%. 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 has increased from approximately $392 in
1996 to approximately $842 in 2001, representing an average annual increase of
17%.


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. A Physicians Services 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 will be able 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 659 contracts in place with providers as
follows: 133 contracts with health plans, 182 with HMOs, 121 with independent
physician associations (IPAs), 56 with medical groups, 69 with preferred
provider organizations and 98 with third party administrators (TPAs), and
continues in its efforts to insure its presence as a preferred
provider.


7
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 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. The Company believes that foreign markets represent
a significant opportunity for the expansion of 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. The Company also intends to pursue this opportunity by
partnering with international physician oncology networks and hospital groups,
and by 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.


IMPATH
Predictive Oncology Division


IPO
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 have 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.
IPO offers 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, IPO is
well-positioned to capitalize on opportunities in this industry.


IMPATH
will 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, and 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 has made numerous enhancements to facilitate better access to
critical, patient-focused longitudinal data to more efficiently provide information to its
biopharmaceutical 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.


8
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|IMPATH
Cancer Registry software will continue to be marketed to hospitals
and state agencies while it continues 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.


The
Companys acquisition of Tamtron Corporation in January 2002 will enable IMPATH to
continue the marketing of their PowerPath software products to new hospitals and
laboratories across the country and internationally. Tamtron currently has marketing
alliances with McKesson-HBOC and Siemens pursuant to which, among other things, the
PowerPath software can be integrated into and distributed as part of a complete
healthcare information system. With IMPATHs current client base of approximately
2,000 hospitals and Tamtrons current installed customer base of over 350 sites, the
Company believes there are very attractive sales opportunities that will be possible
leading to enhanced revenue growth, access to more complete information and internal
operating efficiencies.


IMPATHs
Role in the Cancer Management Pathway


The
management of cancer involves a series of distinct steps that 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 otherwise difficult to diagnose using conventional pathology
procedures. Although most tumors can be diagnosed based on visual examination by
the pathologist, many 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 costs.
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 provides little
information about the biological aggressiveness of an individuals cancer
and provides 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 might appear
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 negative outcomes and unwarranted costs.


Treatment
Determination. Traditionally, therapeutic approaches to cancer have been
based solely on the diagnosis and stage (or extent) of the 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, and implementation of appropriate treatment can be accelerated.
The Company believes that this type
of patient-specific information is becoming essential for optimal cancer
management.


9
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 also 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 less 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.


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

|The
following chart summarizes the Companys use of technologies in its
analyses of cancer:
|-------------------------------------------------------------------------------------------

|Category of Analysis and Type of Cancer | Immunohisto- chemistry | Flow Cytometry and Image Analysis | Molecular Pathology | Cytogenetics | Micrometas-tases Detection | Drug Resistance Assay | Serum Analysis
|--------------------------------------- | ---------------------- | --------------------------------- | ------------------- | ------------ | -------------------------- | --------------------- | --------------
|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            |                            | 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.


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

|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, the Company 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. The Company
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 the Company 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 that 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 and to monitor a patients response
to therapy.


Drug Resistance Assay



The
primary reason cancer patients fail to respond to chemotherapy is drug
resistance since each individuals cancer can react differently to
chemotherapy agents. The Drug Resistance Assay (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 eliminates the necessity of patients to endure ineffective
chemotherapy, while improving response and prolonging survival.


12
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Serum Analysis


Blood
serum markers are proteins circulating in the blood that 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 overall cost.
A patient with cancer has many treatment options, at widely
varying treatment costs, ranging from no further intervention to expensive experimental
procedures such as bone marrow/stem cell transplants; however, in assessing the overall
cost of a patients cancer management to cost of the treatment alone is not always
the best indicator.  For example, more expensive treatment options may
lead to a better outcome with fewer recurrences which
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 costs, as 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.


Of course,
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
over 870,000 analyzed cases to date, the Company is rapidly incorporating the
diagnostic and prognostic information generated from its analyses of cases into
its cancer database. The demographics of these cases include: 355,600 breast
cancer prognostics and treatment profiles; 217,000 complex cancer diagnoses;
209,800 lymphoma and leukemia classifications; and 89,500 analyses of other
cancers (e.g., prostate, bladder, uterine). The
Company believes that the use of its services will have two fundamental impacts
on cancer management: (1) the optimization of patient-specific care, and (2) the
cost-effective delivery of that care. As a result, the Company expects to become
an increasingly significant factor in helping to establish quality standards for
these cancer management groups. The Company 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 2001, 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.


13
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Management of Lymphoma/Leukemia


The
value of 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 unlike the Company, which
utilizes multiple technologies including immunohistochemistry, flow cytometry,
cytogenetics and molecular analyses to diagnose and classify these hematopoietic
malignancies. Using the information from Physicians Services 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 the Companys diagnostic technology is illustrated
by the fact that during 2001, of all the suspected lymphoma cases sent to
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 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 2001 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 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. The
Company 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. The Company provides this information for prostate and other
cancers, including breast, colon and bladder cancers.


Sales and
Marketing


Physician
Services Division


As
of December 31, 2001, the IMPATH Physician Services Sales and Marketing team
consisted of 81 employees, including a Vice President, a National Director of
Sales, a Director of Marketing, nine marketing personnel, four regional
directors, and 65 sales representatives and sales support staff. This sales
force consists of highly trained individuals with extensive scientific
backgrounds and successful sales records with healthcare companies. The sales
force focuses on educating clients about the benefits of the Companys
services in providing diagnostic, prognostic and treatment-defining information
for better managing their cancer patients. The Company believes that the
technical and clinical knowledge of its Physician Services sales force
distinguishes it from other companies.


14
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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.


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.


IMPATH
Predictive Oncology Division


As of
December 31, 2001, IPO sales and marketing activities were structured within two distinct
business areas. Under the supervision of two Vice Presidents (Business Development and
Finance and Operations); a sales force consisting of six sales representatives calls upon
hospitals and oncology office practices in order to develop new sites for the
Companys GeneBank initiative and its IMPATH Clinical Trials Network. By seeking to
leverage and expand existing relationships that the Company enjoys through its Physician
Services division as well as simultaneously developing new customers, the Company
believes it can successfully expand these two resources within IMPATH.


In
connection with providing the comprehensive products and services offered by IPO to
genomics, biotechnology and pharmaceutical companies to accelerate their drug discovery
and development efforts, a highly-skilled scientific and medical staff with focused
technical expertise (including a Vice President and Scientific Director, Vice President
of Medical Affairs, and Vice President of Strategic Development) works closely with
several sales representatives in developing customer-specific project specifications.
Various members of the team interact regularly with clients to insure seamless
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 in
each product initiative within IPO.



Information
Services Division


As of
December 31, 2001, IMPATH Cancer Registry software sales force
consisted of two primary direct sales people supported, as necessary, by seven district
managers. Additionally, sales efforts are enhanced with extensive client focused
marketing programs designed to build strong, interactive relationships with clients. A
Vice President of Business Development, together with inside sales and marketing staff,
guide sales efforts. In addition, marketing manager within the corporate marketing department is
dedicated to the IMPATH Information Services division. Division representatives regularly attend
national and local tradeshows, plans and hosts seminars featuring industry related
topics, participate 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.


15
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
IMPATH Cancer Registry services emphasize customer service and support and assigns each
customer a specific Client Services Representative. There are currently twenty Client Services
Representatives located throughout the country. In addition, the division has four
Technical Support Specialists based at its main office in New Jersey.


The
recently acquired Tamtron software products include the flagship PowerPath Anatomic
Pathology System and the PowerPath Accounts Receivable system. PowerPath is currently being used in
the delivery of pathology reports at 350 sites that offer surgical pathology, cytology
and autopsy services. The PowerPath product is sold directly by the Companys three
direct sales representatives and through long-term business partnerships with
McKesson-HBOC and Siemens. The Companys marketing strategy includes attendance at
national and local tradeshows, industry journal advertisements, telemarketing and direct
mail campaigns. The Companys primary goal is to create reference quality relationships
with each customer. Customers currently include leading academic medical centers,
integrated delivery networks, community hospitals and reference laboratories.



Competition


Physician
Services Division


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.


IMPATH
Predictive Oncology Division


IPO
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 that 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 in 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 also be competitors in this service.


IPO is
in a unique position in that it provides integrated oncology resources, from access through GeneBank
to well-characterized, fully consented tissue specimens with treatment and outcomes data on
the donors, to access to cutting edge technologies for molecular assessment. IPO
assists in the development of a diagnostic tool to identify patients with the selected
target, and then aids in recruiting the appropriate patients for targeted clinical trials
to accelerate the drug development process while mitigating costs due to unnecessary
over-recruitment. Additionally, IPO through the IMPATH Clinical Trials Network not only
assists in patient recruitment but also helps facilitate the effective running of the
trial in the community-based oncology office or hospital by providing central
contracting, pharmacy and Institutional Review Board (IRB) services in additional to oversight
of adherence to treatment protocols and uniformity of documentation.


16
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|By
virtue of the Companys historic and current relationships 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
opportunistically in-licenses them to ensure that it is providing a broad and
comprehensive range of integrated oncology services to its clients and to improve its competitive position.


Information
Services Division


The information Services division generates revenue through the sale of its IMPATH Cancer
Registry software as well as through the maintenance and service of such
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. Tamtrons proprietary
PowerPath system is currently installed in about 350 sites nationwide and
encompasses the full perspective of anatomic pathology workflow, with features such as
multisite scalablitiy and customizable case reporting and tracking. Tamtron has marketing
alliances with McKesson-HBOC and Siemens through which its PowerPath software
can be integrated and sold as part of a complete healthcare information system. Competitors in
this area consist of several large, public Health Information Services companies.



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 services
rendered through its Physician Services Division. Services rendered by the other
divisions are paid for pursuant to contracts or agreements with customers.


During
2001, 2000 and 1999, the Company received the following estimated percentages of
its total revenues for diagnostic and prognostic services from the respective
payors identified below:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               | Year Ended December 31,
|------------------------------ | -----------------------
|
|Hospitals                      |                        
|Private insurance/managed care |                        
|Medicare                       |                        
|Individual patients            |                        
|                               |                        
|Total                          |                        
|                               |                        

|For
a discussion of the changes in these percentages in 2001, 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.


17
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|As
an alternative to traditional fee-for-service Medicare, the Medicare+Choice
program allows beneficiaries 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 a
health management organization (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.


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 Disctrict of New York was investigating certain of the
Companys billing practices. The Company subsequently settled with the government without
any admission of wrongdoing and in turn received a release of all related claims. The
settlement and related expenses amounted to $9.7 million and are included in selling, general
and administrative expenses.



Revenues
from analyses performed for other patients are derived principally from other
third-party payors, including commercial insurers, Blue Cross/Blue Shield plans,
HMOs 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, subject to applicable laws, 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 that
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. In 2001,
the Centers for Medicare and Medicaid Services (CMS), (formerly
known as the Health Care Finance Administration or HCFA) announced a
5.4% cut in the conversion factor used to calculate the physician fee schedule,
although other factors in the formula used to calculate payments actually
increased. 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. These changes have not had 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 a company could bill both the technical component
(TC) and the professional component (PC) to the Medicare
Program. However, on November 2, 1999, HCFA, now known as CMS, 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, effective January 1, 2003.
Under these rules such companies would be 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 additional
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. IMPATHs
hospital business falls under the grandfathered provision.


18
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 that
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 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.


Licensure.The Companys laboratory facilities are certified or licensed under the
federal Medicare program and 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.


19
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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
CMS 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.


The
activities of the IPO division are also subject
to certain licensing requirements relating to the procurement and storage of
tissue/tumor samples. IPO is licensed by New York as a tissue bank.


False
Claims/Anti-Kickback.The Company is 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 that 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.


20
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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
announced new regulations under the Stark law, which went into effect in January
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 medical
devices, including in vitro diagnostic products used for laboratory
testing, pursuant to the Food, Drug and Cosmetic Act. Pursuant to this
authority, the FDA regulates certain types of monoclonal antibodies, called
analyte specific reagents that the Company purchases and uses to
create its own proprietary, in-house tests. In the past, the FDA has asserted
that it has authority to regulate such tests, but has refrained from doing so
other than with respect to those tests used to diagnose highly-contagious
diseases that pose a risk to public health, such as HIV and tuberculosis. The
FDA does require the Company to make disclosures on the test report when
performing such tests. The FDA has recently indicated that it is reviewing the
use of such tests, especially with regard to genetic tests, and may impose
additional requirements on such testing. The Company cannot predict what impact,
if any, such additional requirements could have on the Company.


21
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
FDA also oversees clinical trials and other types of research, including the
types of activities conducted by IPO. Research related to drugs or devices for which FDA approval will be
sought must comply with requirements relating to informed consent, disclosure of
financial interests and reporting of adverse events among others.
The Company relies on the institutions with which it contracts, in the case of
GeneBank, or the provider groups, in the case of the clinical trial activities of ICTN,
to obtain appropriate consents (with the Companys assistance in certain
instances) and the Company believes it is in material compliance with such
requirements. However, the failure to obtain appropriate informed consents could
have a material adverse effect on the Companys research and clinical trial
activities.


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.


HHS
also imposes certain requirements on research that is federally funded, or in
some cases, on institutions that receive federal funds pursuant to multi-project
assurances, as a result of the Common Rule. Such requirements
include informed consents, IRB review,
and certain conflict of interest disclosures. Various states also imposes
certain informed consent requirements, most recently in the areas of genetic
testing. As noted above, the Company, relying on those with whom it contracts,
believes it is in material compliance with such requirements. However, a failure
to be in compliance could have a material adverse effect on the Companys
research or clinical trial activities.


The
activities of GeneBank are also subject to the approval of an institutions
IRB at or prior to the commencement of such activities at the institution. The
Company often assists institutions in the process of obtaining IRB approval.


Various
government agency reports considered issues related to the protection of human
subjects in research have spurred substantial public debate related to the issues
of informed consent and conflicts of interest, among others. The Company cannot
predict what governmental action may result from these agency reports, nor what
impact, if any, such action may have on the ability of its
IPO division to engage in research or clinical
trial activities.


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 2000, the federal government issued certain regulations required
by the Health Insurance Portability and Protection Act of 1996, relating to the
privacy of patient information, including the use of such information by
business associates of health care providers. Compliance with the
privacy requirements must occur by April 2003. The Company, as well as
physicians and other persons providing patient information to the Company is
also required to comply with these federal and state laws and regulations. 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 with respect to its various activities,
and will be able to comply with the new regulations by the compliance date.
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.


22
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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
$20.0 million per occurrence and in the aggregate. The Companys pollution
liability insurance of $5.0 million per occurrence and $5.0 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, 2001, the Company had 960 full-time and 97 permanent part-time
employees, of which 301 were management, administrative and clerical personnel,
81 were engaged primarily in marketing and sales activities and 675 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.



23
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 effective 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 that 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).


24
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 that studies essential nature of disease, especially
the structural and functional changes in tissues and organs of the body that
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 that 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.


25
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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.


26
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 121⁄2-year lease
expiring in March 2010. The lease provides for minimum aggregate annual rental
payments of approximately $1,017,400. 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 pursuant
to a new lease agreement, which expires August 2010. The new lease provides for
minimum annual rental payments of approximately $1,575,300. 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 $77,600. 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
$85,600. The Company is also required to pay for repairs, property taxes and
insurance relating to this facility.


The
Company has a facility and offices at 25 Kenwood Circle, Franklin,
Massachusetts, where the Company leases approximately 22,000 square feet of space
under a lease, which expires in March 2006. The lease provides for minimum
annual rental payments of approximately $148,500. 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,
which expires in January 2004. The lease provides for minimum annual rental payments
of approximately $119,200. 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 has approximately 1,500 square feet of space, under a
lease, which expires, January 2008. 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.



27
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 3. Legal
Proceedings.


From time to
time, the Company is involved in various legal actions in the normal
course of business, some of which seek monetary damages. While the Company
cannot predict with absolute certainty the outcome of any of the proceedings in
which it is involved, the Company believes any ultimate liability associated
with these proceedings would not have a material adverse effect on the
Companys consolidated financial position or results of operations. See
Note 16 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,
2000 through February 28, 2002 (split adjusted).
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                          | High | Low   
|----------------------------------------- | ---- | ------
|Fiscal 2000                               |      |       
|First Quarter                             |      | $20.50
|Second Quarter                            |      | $27.78
|Third Quarter                             |      | $64.50
|Fourth Quarter                            |      | $81.56
|                                         
|Fiscal 2001                               |     
|First Quarter                             |      | $69.25
|Second Quarter                            |      | $49.30
|Third Quarter                             |      | $50.15
|Fourth Quarter                            |      | $49.20
|                                         
|Fiscal 2002                               |     
|First Quarter (through February 28, 2002) |      | $44.45

|On
March 20, 2002, the last sale price of the common stock as reported on the Nasdaq
National Market was $42.00. As of January 31, 2002, there were approximately 72
record holders of the common stock.


28
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 1997 through 2001 and for each of the
years in the five-year period ended December 31, 2001. 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, 2000 and 2001 and consolidated
statements of operations for each of the years in the three-year period ended
December 31, 2001 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.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                           | Year Ended December 31,
|------------------------------------------ | -----------------------
|
|
|Consolidated Statement of Operations Data: |                        
|Net revenues                               |                        
|Income from operations                     |                        
|Net income                                 |                        
|Earnings per Share                         |                        
|Basic:                                     |                        
|                                           |                        
|Diluted:                                   |                        
|                                           |                        
|Weighted average common and common         |                        
|equivalent shares outstanding              |                        
|Basic (1):                                 |                        
|                                           |                        
|Diluted (1):                               |                        
|                                           |                        

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

|
|

|(1) |  | 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 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. See Forward Looking Statements


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. The Company 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.


29
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
Companys revenues, which have increased an average of approximately 54%
annually since 1996, 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 IMPATH Cancer Registry
software to community hospitals and state agencies as well as providing
integrated services and information resource for genomics, biopharmaceutical,
diagnostic products and pharmaceutical companies in the development and
commercialization of targeted gene-based and protein-based therapies.


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:                 |                         
|Cost of Goods Sold                  |                         
|Gross profit                        |                         
|Selling, general and administrative |                         
|Depreciation and amortization       |                         
|                                    |                         
|Total operating expenses            |                         
|                                    |                         
|Operating income                    |                         
|                                    |                         
|Net income                          |                         
|                                    |                         

|Year Ended December 31,
2001 Compared with Year Ended December 31, 2000


The
Companys total revenues for the years ended December 31, 2001 and 2000
were $189.6 million and $138.2 million, respectively, representing an increase
of $51.4 million, or 37.2%, in 2001. This growth was primarily attributable to a
15% increase in case volume resulting from increased sales and marketing
activities, as well as a 19% increase in revenue realization per case due to
continuing product mix changes toward lymphoma/leukemia cases, which entail more
analyses as well as an increase in the number of technologies applied in
analyzing cases. In addition, IMPATH Predictive Oncology 
(IPO) revenues increased 69.5% to $16.1 million up from $9.5 million
in the year ago period primarily driven by increases in the numbers of projects
and the scopes of projects with biopharmaceutical companies.


Cost
of sales, which primarily includes payroll, laboratory supplies, logistics and
outside services, for the years ended December 31, 2001 and 2000 were $62.4
million and $47.4 million, respectively, representing an increase of $15
million, or 31.6%, in 2001. This increase was necessitated by rapid case volume
growth, a continuing product shift to more complex cases, as well as labor costs
associated with the IPO divisions expansion. In addition, the Company
reported one-time charges in the third quarter of $650,000 in severance and
related costs associated with the Companys restructuring of its clinical
trial business made pursuant to the acquisition of a clinical trial network from
Innovative Clinical Solutions, Ltd. (ICSL) and $400,000 for salaries
paid to laboratory employees idled during the events of September 11th.
Cost of sales as a percentage of total revenues decreased to 32.9% in
2001 from 34.3% in 2000. This decrease was due primarily to the 19% revenue per
case increase realized in physician services and improved margins generated from
IPO.


30
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Gross
profit for the years ended December 31, 2001 and 2000 were $127.2 million and
$90.8 million, respectively, representing an increase of $36.4 million or 40.1%
in 2001. Gross profit margins increased to 67.1% in 2001, up from 65.7% in 2000.


Selling,
general and administrative expenses for the years ended December 31, 2001 and
2000 were $89.9 million and $59.8 million, respectively, representing an
increase of $30.1 million, or 50.3%, in 2001. The increase is primarily due to
an additional $12.1 million in bad debt expense required to account for billing
and collection delays precipitated by an inefficient billing system, as well as
a payor mix shift resulting in an increase in the percentage of managed care and
patient receivables. In addition, the Company incurred a one-time charge of $9.7
million related to the settlement reached with the government in the third
quarter associated with its billing practices. Selling, general and
administrative expenses as a percentage of revenues increased to 47.4 % in 2001
from 43.3% in 2000 as a result of the aforementioned one-time charge and the
increase in bad debt expenses.


Depreciation
and amortization expense for the years ended December 31, 2001 and 2000 was
$15.9 million and $10.7 million, respectively, representing an increase of $5.2
million, or 48.6%, in 2001. This increase was primarily due to $3.2 million in
depreciation expense for new furniture, office and lab equipment, as well as
leasehold improvements incurred in connection with the expansion of the
Companys New York and Los Angeles facilities. The Company also recorded $1.5
million in depreciation expense for enhancements made to the Companys
clinical and billing systems. Additionally, $324,000 in expense was recorded for
the amortization of GeneBank assets. As a percentage of total revenues,
depreciation and amortization expense increased to 8.4% in 2001 from 7.8% in
2000, as a result of a depreciation associated with the new Los Angeles facility
which commenced operations in the fourth quarter of 2000 and the amortization of
GeneBank.


Income
from operations for the years ended December 31, 2001 and 2000 was $21.4 million
and $20.2 million, respectively, representing an increase of $1.2 million, or
5.9%, in 2001. The 2001 figure reflects one-time charges recorded in the third
quarter of $9.7 million related to the settlement reached with the government,
$650,000 associated with the Companys restructuring of its clinical trial
business and $400,000 in salaries and related expenses for employees idled
during the events of September 11th. As a percentage of total
revenues, income from operations decreased to 11.3% in 2000, from 14.6% in 2000,
due to the non-recurring charges.


Other
(expense) income, net for the years ended December 31, 2001 and 2000 was $(1.9)
million and $2.4 million, respectively, representing a decrease of $4.3 million
in 2001. The decrease is attributable to a one-time gain of $3.2 million
included in the prior year associated with the sale of 100% of the
Companys investment in ILEX, as well as additional interest expense
associated with increases in capital lease obligations, long-term borrowings and
a reduction in the amount of interest bearing securities on hand.


The
tax provision for the year ended December 31, 2001 of approximately $8.5 million
reflects federal, state and local income tax expense. The effective tax rate for
2001 was 43.5% compared to 43.0% in 2000. 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, 2001 and 2000 was $11 million and $12.9
million, respectively, representing a decrease of $1.9 million, or 14.7%, in
2001. Due to the non-recurring charges, net income as a percentage of revenue
decreased to 5.8% in 2001 from 9.4% in 2000.


31
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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% increase in revenue realization per case due to
continuing product mix changes toward lymphoma/leukemia cases, which entail more
analyses. In addition, IPO revenues increased 148.5% over
prior year billings as a result of the successful integration of the then-recently
acquired BioClinical Partners and increases in the numbers of projects with genomics companies.


Cost
of sales, which includes primarily payroll, laboratory supplies, logistics and
outside services, for the years ended December 31, 2000 and 1999 were $47.4
million and $31.0 million, respectively, representing an increase of $16.4
million, or 52.9%, in 2000. This increase was the result of increased personnel
due to rapid case volume growth and the shift to more complex cases, as well as
labor costs associated with the Companys then-recent acquisitions. Cost of
sales, as a percentage of total revenues, decreased to 34.3% in 2000 from 36.3%
in 1999. This decrease was facilitated by the Companys successful
expansion strategy resulting in streamlining of operational duties combined with
a higher revenue realization per case.


Gross
profit for the years ended December 31, 2000 and 1999 were $90.8 million and $54.3
million, respectively, representing an increase of $36.5 million or 67.2% in 2000. Gross
profit margins were 65.7% and 63.7% respectively. The increase was primarily due to a
higher revenue realization per case as well as operational efficiencies facilitated by
the Companys successful expansion strategy.


Selling,
general and administrative expenses for the years ended December 31, 2000 and
1999 were $59.8 million and $35.3 million, respectively, representing an
increase of $24.5 million, or 69.4%, in 2000. The largest component of this
increase was $10.9 million of increased bad debt expense associated with higher
revenues and billing and collection delays associated with an inefficient
billing system. 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 then
recent acquisitions and costs of $2.1 million were incurred in connection with
building the IPO infrastructure. Selling, general and administrative expenses as a
percentage of net revenues, increased to 43.3 % in 2000 from 41.3% in 1999, as a
result of the one-time charge.


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 optimizing the Companys clinical and
billing systems, an additional $982,000 in depreciation incurred in connection
with the expansion of our facilities and $637,000 in amortization of intangible
assets associated with then 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 one-time expenses of $3.3 million related to 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 14.2% 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 one-time gain of $3.2 million
associated with the sale of 100% of the Companys investment in ILEX,
partially offset by increased interest expense related to additional capital
lease obligations and acquisition-related debt. The Company also recorded lower
interest income in 2000, 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
due to lower tax-exempt interest income.



32
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 due to a 300 basis point increase in our tax provision, as well as lower interest
income, and increased interest expense associated with capital lease obligations and
acquisition related debt.


Liquidity and
Capital Resources


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


The
Companys cash and cash equivalent balances at December 31, 2001 and December 31,
2000 were $5.9 million and $13.5 million, respectively, representing a decrease of $7.6
million in 2001. The Company also had approximately $16.5 million in marketable
securities at December 31, 2001, representing a $1.5 million decrease from the $18.0
million at December 31, 2000. The net decrease in cash and cash equivalents for the year
was primarily due to $31.2 million in capital expenditures and related lease obligation
payments, $2.8 million in acquisition related note payments, and $2.9 million for the
acquisition of certain assets of ICSL Additionally, the
Company invested $5 million into GeneBank which is a
repository of tissues, clinical data, treatment history and outcomes analyses from cancer
patients which is used to facilitate genomic (gene-based) and proteomic (protein-based) discovery
initiatives. This decrease was offset during the period by operating cash flow of $13.3
million and a $16 million draw down on the Companys revolving credit line. The cash
provided by operations was driven by operating income of approximately $21.4 million,
partially offset by increases in accounts receivable, net of allowance for bad debt of
$12.9 million as well as the $9 million related to the settlement reached with the
government. The increase in net accounts receivable was due to case volume growth and a
continuing product mix shift towards lymphoma/leukemia cases, which carry a higher
revenue realization per case.


During
2001, the Company received approximately $2.7 million from the issuance of common stock
upon the exercise of Company stock options and warrants, as well as $585,000 related to purchases under
the employee stock purchase plan.


In
June 2001, the Company entered into a $50 million Senior Secured Credit Facility
consisting of a five-year commitment for a $25 million revolving credit line and a $25
million 364-day facility intended for acquisitions. The credit facility syndicated by
Fleet National Bank, which will also act as Agent for the lenders, replaced the Companys
previous $15 million unsecured line of credit that expired June 28, 2001. In connection
with the Tamtron acquisition on January 18, 2002, the Company amended its original credit facility and
converted its $25 million 364-day facility to a $28 million term loan. The term loan shall be amortized over a five-year period, with interest only
payable for the first twelve months. Thereafter, the loan shall be payable in seventeen
payments of principal plus interest, with principal of $4.9 million in 2003, 2004, 2005
and 2006 and a final principal payment of $8.4 million in 2007. Both the revolving credit
line and the term loan bear interest at LIBOR plus 1.25%. As of December 31, 2001, the
Company has $16 million outstanding under the revolving credit line and $3 million drawn
down from the term loan. The $16 million under the revolving credit line is due in full
in five years. In connection with the amended facility, the Company also amended certain debt
covenants contained in the original agreement.


33
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|Year ending December 31,           |  | Operating leases |            | Capital leases | 
|---------------------------------- |  | ---------------- | ---------- | -------------- | 
|2002                               |  | $   4,290,009    |            | $15,934,174    | 
|2003                               |  | 3,927,572        |            | 15,080,058     | 
|2004                               |  | 3,455,828        |            | 9,999,032      | 
|2005                               |  | 3,317,971        |            | 2,410,154      | 
|2006                               |  | 3,139,986        |            |               | 
|Thereafter                         |  | 10,622,626       |            |               | 
|                                   |  |                  |            |               
|                                   |  | $ 28,753,992     |            | $43,423,418    | 
|                                   |  |                  |            |               
|Amount representing interest       | 
|(rates range from 4.45% to 11.47%) |  |                  | (3,490,333 | )             
|                                   |  |                  |           

|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, 2001, the Company had fully drawn against this line. In September
1999, the Company established a $6.0 million credit line with Fleet Bank with lease terms
based on 48 monthly payments at a rate equal to .20% above the yield on four-year
treasury notes. As of December 31, 2001, approximately $1.0 million was drawn against
this line. In December 1999, the Company established a $6.2 million credit line with
First American Bankcorp, Inc. with lease terms of 48 months and a rate equal to the yield
on four-year treasury notes. The line of credit was subsequently increased to $21.2
million in March 2001, under the same lease terms. As of December 31, 2001, approximately
$19.4 million was drawn against this line. In November 2001, the Company established an
additional $10 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. As of December 31,
2001 the Company had not 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, 2001, the
Company had fully drawn against this line. In June 2000, the Company established an
additional $4.0 million credit line with Dynamics Commercial Funding Corp. with lease
terms of 48 months and a rate equal to the yield on four-year treasury notes. As of
December 31, 2001, the Company had fully drawn against this line. In November 2000, the
Company established an additional $2.9 million credit line with Dynamics Commercial
Funding Corp. with lease terms of 48 months and a rate equal to the yield on four-year
treasury notes. As of December 31, 2001, approximately $2.6 million was drawn against
this line. In April 2000, the Company established a $3.0 million credit line with First
Sierra Financial, Inc. (currently Popular Leasing, USA) with lease terms of
48 months and a rate equal to the yield on four-year treasury notes. As of December 31,
2001, the Company had fully drawn against this line. In September 2000, the Company
established an additional $6.0 million credit line with First Sierra Financial, Inc.
(currently Popular Leasing, USA) with the lease terms of 48 months and a rate
equal to the yield on four-year treasury notes. As of December 31, 2001, approximately
$5.4 million was drawn against this line. In November 2001, the Company established an
additional $2 million credit line with Popular Leasing, USA with lease terms of 48 months
and a rate equal to .35% above yield on four-year treasury notes. As of December 31, 2001
the Company had not drawn against the line. In July 2000, the Company established a $7.15 million
credit line with Advanced Capital Resources Corp. (currently Applied Financial, Inc.)
with lease terms of 48 months and a rate equal to the yield on four-year treasury notes.
As of December 31, 2001, approximately $6.6 million 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, 2001, the Company had fully drawn against this line. In April
2001, the Company established an additional $1.1 million credit line with Trimarc
Financial Corp. with lease terms of 48 months and a rate equal to the yield on four-year
treasury notes. As of December 31, 2001 approximately $1.1 million was drawn against this
line. In January 2001, the Company established a $2 million credit line with IFC Credit
Corp. with lease terms of 48 months and a rate equal to the yield on four-year treasury
notes. As of December 31, 2001, approximately $525,000 was drawn against this line.


On
January 18, 2002, the Company completed the acquisition of Tamtron Corporation
 for $25.9 million in cash, subject to adjustment upon
finalizing the closing balance sheet, plus expenses. Tamtron is a San Jose,
California, based company and its major product, PowerPath, is a
technology system designed specifically for companies providing surgical
pathology, cytology and autopsy services (anatomic pathology) to streamline
operations and support multi-site or multi-entity healthcare networks. The
acquisition will be accounted for in accordance with Statement of Financial
Accounting Standards (SFAS) 141 under the purchase method, whereby
the purchase price will be allocated to the underlying assets and liabilities
based on their estimated fair values. The resulting goodwill from this
transaction of $17 million will not be amortized and intangibles of $11 million
will be amortized over periods from three to fifteen years. Tamtron has
annualized revenue of approximately $10 million generated primarily through
software sales and maintenance contracts. Its current customer base includes
more than 350 sites including hospitals and academic medical centers around the
country, processing over 5 million cases per year. The source of funds for the
acquisition was a combination of the Companys available cash, as well as
advances totaling $25 million under its amended credit facility. See Footnote 9
Indebtednessfor further discussion regarding the credit facility.


During
the course of the Companys strategic review for the Quarter ended March 31, 2002, it was
determined that the Company would no longer offer certain products based on technology
which was purchased from Biologic & Immunologic Science Laboratories, Inc. (BIS), an
acquisition that was completed in July 1998. As a result, the Company recorded a goodwill
write-down of $3,200,000, which eliminated all remaining goodwill from the BIS
acquisition. The goodwill impairment was necessitated by the Companys decision to
completely discontinue the BIS product offering, Additionally, the Company recorded a
one-time charge of $3,700,000 to account for severance and related costs as well as
increase in its allowances for bad debt expenses related to those accounts the Company will
no longer be servicing.


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,
specifically, acquisitions of businesses or technologies that could require additional
liquidity needs. If this occurs, the Company may, from time to time, incur additional
indebtedness or issue, in public or private transactions, equity or debt securities.
However, there can be no assurance that suitable debt or equity financing will be
available to the Company. See Forward-Looking Statements


34
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|CRITICAL
ACCOUNTING POLICIES


Our critical accounting
policies are as follows:
|-------------------------------------------------------------------------------

| |  |  | revenue recognition;
| | - |  | --------------------

| |  |  | estimating
valuation allowances and accrued liabilities, specifically contractual and bad debt
allowances for doubtful accounts;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------

| |  |  | accounting for income taxes; and
| | - |  | --------------------------------

| |  |  | valuation of long-lived and intangible assets and goodwill.
| | - |  | -----------------------------------------------------------

|Revenue recognition.
The Company generally recognizes revenue for services rendered upon
completion of the testing process. 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 IPO is recognized within the guidance contained in the provisions of SEC
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements. Revenues are recognized upon completion of analysis in
accordance with the terms of the contract. In cases where the contract calls for
the biological specimen to be shipped, revenue is recognized upon shipment of
the biological material to the customer.


Revenue
from the Information Services division 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.


Contractual allowances and allowance for
doubtful accounts. The preparation of financial statements requires our management
to make estimates and assumptions that affect the reported amount of assets and disclosure
of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported period. Specifically, our
management must make estimates of contractual allowances and potential future
uncollectible accounts receivable. Significant management judgments and estimates must be
made and used in connection with establishing the allowances in any accounting period.
Material differences may result in the amount and timing of our revenue and expenses for
any period if management made different judgments or utilized different estimates.
Management specifically analyzes accounts receivable and analyzes historical bad debts,
customer concentrations, customer credit-worthiness, current economic trends and changes
in our customer payment terms when evaluating the adequacy of the allowance for doubtful
accounts. Our accounts receivable balance was $63.6 million, net of allowance for doubtful
accounts of $22.4 million as of December 31, 2001.


Accounting for income
taxes. As part of the process of preparing our consolidated
financial statements we are required to estimate our income taxes in each of the
jurisdictions in which we operate. This process involves us estimating our
actual current tax exposure together with assessing temporary differences
resulting from differing treatment of items, such as deferred revenue, for tax
and accounting purposes. These differences result in deferred tax assets and
liabilities, which are included within our consolidated balance sheet. We must
then assess the likelihood that our deferred tax assets will be recovered from
future taxable income and to the extent we believe that recovery is not likely,
we must establish a valuation allowance. To the extent we establish a valuation
allowance or increase this allowance in a period, we must include an expense
within the tax provision in the statement of operations.



Significant management
judgment is required in determining our provision for income taxes, our deferred
tax assets and liabilities and any valuation allowance recorded against our net
deferred tax assets. In the event that actual results differ from these
estimates or we adjust these estimates in future periods, we may need to
establish an additional valuation allowance which could materially impact our
financial position and results of operations.



35
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Valuation of
long-lived and intangible assets and goodwill. The Company reviews the
recoverability of its long-lived assets, including goodwill and other intangible assets,
when events or changes in circumstances occur that indicate that the carrying value of the
asset may not be recoverable. Evaluation of possible impairment is based on the
Companys ability to recover the asset from the expected future pretax cash flows
(undiscounted and without interest charges) of the related operations. If the expected
undiscounted pretax cash flows are less than the carrying amount of such asset, including
any goodwill associated with the asset, an impairment loss is recognized for the
difference between the estimated fair value and carrying amount of the asset. See
New Accounting Standards Footnote 2(p) regarding two recently issued
accounting standards on business combinations and goodwill and other
intangibles.


In
2002, Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets became effective and as a
result, we will cease to amortize approximately $25.5 million of goodwill.
In lieu of amortization, we are required to perform an initial impairment
review of our goodwill in 2002 and an annual impairment review thereafter. We
expect to complete our initial review during the first quarter of 2002 but do not
believe a material impairment charge will be recorded.


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
July 2001, the FASB issued SFAS No. 141, Business Combinations (SFAS 141), which
requires business combinations initiated after June 30, 2001 to be accounted for using
the purchase method of accounting, and SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS 142), which broadens the criteria for recording intangible assets
separate from goodwill. SFAS 142 requires the use of a nonamortization approach to
account for purchased goodwill and certain intangibles. Under a nonamortization approach,
goodwill and intangibles with indefinite lives will not be amortized into results of operations, but
instead will be reviewed for impairment at least annually and an impairment charge will be recorded in the
periods in which the recorded carrying value of goodwill and certain intangibles is more
than its estimated fair value. The provisions of SFAS 141 have been adopted for any
business combination consummated after June 30, 2001. Goodwill acquired in a business
combination for which the acquisition date is after June 30, 2001 will not be amortized.
We will adopt the provisions of SFAS 142, related to goodwill acquired prior to June 30,
2001 and intangible assets, on January 1, 2002. The adoption of this accounting standard
is expected to reduce the amount of amortization of goodwill recorded in our consolidated
financial statements by approximately $1.7 million annually, commencing January 1, 2002.
The Company is in the process of finalizing its evaluation of its goodwill and intangible
assets for its reporting units and expects to complete its review during first quarter 2002.


36
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|In
August 2001, the FASB issued SFAS No. 144 Accounting for Impairment or
Disposal of Long-Lived Assets (SFAS 144), which supercedes
SFAS No. 121. SFAS 144 further refines SFAS 121s requirement that
companies recognize an impairment loss if the carrying amount of a long-lived
asset is not recoverable based on its undiscounted future cash flows and measure
an impairment loss as the difference between the carrying amount and fair value
of the asset. In addition, SFAS 144 provides guidance on accounting and
disclosure issues surrounding long-lived assets to be disposed of by sale. SFAS
144 also extends the presentation of discontinued operations to include more
disposal transactions. SFAS 144 is effective for all fiscal quarters of all
fiscal years beginning after December 15, 2001 (2002 for the Company). We
believe that the adoption of SFAS 144 will not have a material effect on our
consolidated results of operations or financial position


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. See 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, 2001,
more than 62% of our holdings were in instruments maturing in two years or less
and more than 68% 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 2002 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.


37
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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.


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:
| | ----------------------------------

| | Schedule I Valuation and Qualifying accounts on F-26.
All other 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.
| | --------------------------------------------------------------------------------------------------------------------------

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

| | A
current report on Form 8-K dated October 22, 2001 was filed on October 23, 2001 by the
registrant, in connection with the press release dated October 22, 2001, announcing
preliminary terms with the United States Department of Justice.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|38
|--

|POWER OF
ATTORNEY


The
Registrant and each person whose signature appears below hereby appoint each of
Anu D. Saad, Ph.D.  David J. Cammarata and Richard C. Rosenzweig 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: April 1, 2002 |  | 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: April 1, 2002 |  | By: /s/ ANU D. SAADAnu D. Saad, Ph.D.Chief Executive Officer, Chairman of the Board andDirector
|-------------------- |  | -------------------------------------------------------------------------------------------------------------

|Dated: April 1, 2002 |  | By: /s/ RICHARD P. ADELSONRichard P. AdelsonPresident and Chief Operating Officer
|-------------------- |  | -----------------------------------------------------------------------------------------------

|Dated: April 1, 2002 |  | By: /s/ DAVID J. CAMMARATADavid J. Cammarata Chief Financial Officer and Principal Accounting Officer
|-------------------- |  | -------------------------------------------------------------------------------------------------------------------

|Dated: April 1, 2002 |  | By: /s/ ROBERT E. CAMPBELLRobert E. Campbell Director
|-------------------- |  | -------------------------------------------------------------------

|Dated: April 1, 2002 |  | By: /s/ RICHARD J. COTERichard J. Cote, M.D. Director
|-------------------- |  | -------------------------------------------------------------------

|Dated: April 1, 2002 |  | By: /s/ GEORGE FRAZZAGeorge Frazza Director
|-------------------- |  | ---------------------------------------------------------

|Dated: April 1, 2002 |  | By: /s/ DAVID GALASDavid Galas, Ph.D. Director
|-------------------- |  | ------------------------------------------------------------

|Dated: April 1, 2002 |  | By: /s/ JOSEPH A. MOLLICAJoseph A. Mollica, Ph.D. Director
|-------------------- |  | ------------------------------------------------------------------------

|Dated: April 1, 2002 |  | By: /s/ MARCEL ROZENCWEIGMarcel Rozencweig, M.D. Director
|-------------------- |  | -----------------------------------------------------------------------

|39
|--

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

|Independent Auditors Report                                                          |  | F-2         | 
|------------------------------------------------------------------------------------- |  | ----------- | 
|Consolidated Balance Sheets as of December 31, 2001 and 2000                          |  | F-3         | 
|Consolidated Statements of Operations for the years ended December 31, 2001, 2000     | 
|and 1999                                                                              |  | F-4         | 
|Consolidated Statements of Stockholders Equity for the years ended December 31, 2001 | 
|2000 and 1999                                                                         |  | F-5 to F-6  | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000     | 
|and 1999                                                                              |  | F-7         | 
|Notes to Consolidated Financial Statements                                            |  | F-8 to F-25 | 
|Schedule I Valuation and Qualifying Accounts                                          |  | F-26        | 

|F-1
|---

|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, 2001 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, 2001. In connection with our audits of the consolidated financial
statements, we also have audited the financial statement schedule included in Item
14(a)2. These consolidated financial statements and financial statement schedule are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement schedule 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, 2001 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, 2001, in conformity with
accounting principles generally accepted in the United States of America. Also in our
opinion, the related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.


KPMG LLP


Short Hills, New JerseyFebruary 8, 2002


F-2
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|IMPATH INC.
AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


December 31, 2001
and 2000
|---------------------------------------------------------------------------------------

|                                                                                                | 2001 | 2000          
|----------------------------------------------------------------------------------------------- | ---- | --------------
|Assets                                                                                          |     
|Current assets:                                                                                 |      |               
|Cash and cash equivalents                                                                       |      | $    5,854,628
|Marketable securities, at market value                                                          |      | 16,509,263    
|Accounts receivable, net of allowance for doubtful accounts of $22,423,389 in 2001 and          |     
|$13,384,151 in 2000                                                                             |      | 63,637,345    
|Prepaid expenses                                                                                |      | 1,110,060     
|Deferred tax assets                                                                             |      | 5,227,139     
|Other current assets                                                                            |      | 15,069,165    
|                                                                                                |      |               
|Total current assets                                                                            |      | 107,407,600   
|                                                                                                |      |               
|Fixed assets, less accumulated depreciation and amortization                                    |      | 84,774,078    
|Deposits and other non-current assets                                                           |      | 1,053,620     
|Goodwill,  net of accumulated  amortization of $5,633,730 in 2001 and $3,799,632 in 2000        |      | 25,453,795    
|Intangible assets, net of accumulated amortization of $4,696,684 in 2001 and $3,126,129 in 2000 |      | 18,075,120    
|                                                                                                |      |               
|Total assets                                                                                    |      | $236,764,213  
|                                                                                                |      |               
|                                                                                               
|Liabilities and Stockholders Equity                                                            |     
|                                                                                                |      |               
|Current liabilities:                                                                            |     
|Current portion of capital lease obligations                                                    |      | $  13,973,630 
|Current portion of notes payable                                                                |      |              
|Short term borrowings                                                                           |      |              
|Accounts payable                                                                                |      | 4,725,867     
|Deferred revenues                                                                               |      | 2,033,962     
|Income taxes payable                                                                            |      | 6,126,628     
|Accrued expenses                                                                                |      | 5,831,623     
|                                                                                                |      |               
|Total current liabilities                                                                       |      | 32,691,710    
|                                                                                                |      |               
|Capital lease obligations, net of current portion                                               |      | 25,959,454    
|Notes payable, net of current portion                                                           |      | 19,000,000    
|Deferred tax liabilities                                                                        |      | 3,444,249     
|Commitments and contingencies                                                                   |     
|Stockholders equity:                                                                           |     
|Preferred stock, $.005 par value, authorized 2,000,000 shares; 0 and 0 shares issued in 2001    |      |              
|and 2000, respectively                                                                          |     
|Common stock, $.005 par value, authorized 50,000,000 shares; 18,406,579 and 18,000,899          |      | 92,033        
|shares issued in  2001 and 2000, respectively; 16,197,103 and 15,791,423 shares outstanding     |     
|in  2001 and 2000, respectively                                                                 |     
|Common stock to be issued,  $.005 par value; 0 shares in 2001, 40,000 shares in 2000            |      |              
|Additional paid-in capital                                                                      |      | 138,259,994   
|Retained earnings                                                                               |      | 44,226,341    
|Accumulated other comprehensive loss                                                            |      | (10,776       
|                                                                                                |      |               
|                                                                                                |      | 182,567,592   
|Less:                                                                                           |     
|Cost of 2,209,476 shares of common stock held in treasury in 2001 and 2000,                     |     
|respectively                                                                                    |      | (26,750,281   
|Deferred compensation                                                                           |      | (148,511      
|                                                                                                |      |               
|Total stockholders equity                                                                      |      | 155,668,800   
|                                                                                                |      |               
|Total liabilities and stockholders equity                                                      |      | $236,764,213  
|                                                                                                |      |               

|See accompanying notes
to consolidated financial statements.


F-3
|------------------------------------------------------------------

|IMPATH INC.
AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


Years ended
December 31, 2001, 2000 and 1999
|-------------------------------------------------------------------------------------------------------------------

|                                              |  | 2001                |   | 2000                |   | 1999              |  
|--------------------------------------------- |  | ------------------- | - | ------------------- | - | ----------------- | -
|                                              |  |                     |   |                     |   |                  
|Revenues:                                     |  |                     |   |                     |   |                   |  
|Net Physicians Services                       |  | $ 168,771,099       |   | $ 124,224,462       |   | $ 77,433,164      |  
|IMPATH Predictive Oncology                    |  | 16,120,584          |   | 9,538,554           |   | 3,838,181         |  
|Information Services                          |  | 4,723,033           |   | 4,457,800           |   | 4,095,050         |  
|                                              |  |                     |   |                     |   |                  
|Total net revenue                             |  | 189,614,716         |   | 138,220,816         |   | 85,366,395        |  
|                                             
|Cost of sales:                                |  | 62,453,982          |   | 47,402,140          |   | 31,025,963        |  
|                                              |  |                     |   |                     |   |                  
|Gross profit                                  |  | 127,160,734         |   | 90,818,676          |   | 54,340,432        |  
|                                              |  |                     |   |                     |   |                  
|                                             
|Selling, general and administrative           |  | 89,900,586          |   | 59,841,215          |   | $ 35,298,739      |  
|Depreciation and amortization                 |  | 15,906,405          |   | 10,729,639          |   | 6,960,442         |  
|                                              |  |                     |   |                     |   |                  
|Income from operations                        |  | 21,353,743          |   | 20,247,822          |   | 12,081,251        |  
|                                             
|Interest  income                              |  | 1,813,741           |   | 4,963,786           |   | 2,602,959         |  
|Interest expense                              |  | (3,709,013          | ) | (2,541,007          | ) | (959,992          | )
|                                              |  |                     |   |                     |   |                  
|Income before provision for income taxes      |  | 19,458,471          |   | 22,670,601          |   | 13,724,218        |  
|Provision for income taxes                    |  | 8,467,143           |   | 9,721,136           |   | 5,489,687         |  
|                                              |  |                     |   |                     |   |                  
|Net income                                    |  | $   10,991,328      |   | $   12,949,465      |   | $   8,234,531     |  
|                                              |  |                     |   |                     |   |                  
|                                             
|Per common and common equivalent share:       | 
|Basic:                                        | 
|Net income per common share                   |  | $              0.69 |   | $              0.83 |   | $            0.52 |  
|                                              |  |                     |   |                     |   |                  
|Weighted average common shares outstanding    |  | 16,015,000          |   | 15,540,000          |   | 15,896,000        |  
|                                              |  |                     |   |                     |   |                  
|Diluted:                                      | 
|Net income per common shareassuming dilution |  | $              0.66 |   | $              0.80 |   | $            0.51 |  
|                                              |  |                     |   |                     |   |                  
|Weighted average common and common equivalent | 
|shares outstandingassuming dilution          |  | 16,709,000          |   | 16,278,000          |   | 16,306,000        |  
|                                              |  |                     |   |                     |   |                  

|See accompanying notes
to consolidated financial statements.


F-4
|------------------------------------------------------------------

|IMPATH INC.
AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY


Years ended
December 31, 2001, 2000 and 1999
|-----------------------------------------------------------------------------------------------------------------------------

|                                             | Common Stock |           | Common stock |         | Additional paid-in |            | Retained |              | Accumulatedothercomprehensiveincome |             | Treasury |            | Deferred |               |   |             
|-------------------------------------------- | ------------ | --------- | ------------ | ------- | ------------------ | ---------- | -------- | ------------ | ----------------------------------- | ----------- | -------- | ---------- | -------- | ------------- | - | ------------
|
|Balance at December 31, 1998                 |              | 8,538,345 |              | $42,690 |                    |           |          | $120,904,861 |                                     | $12,095,622 |          | $  (48,602 | )        | $  (7,908,841 | ) | $   (498,762
|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  |          |             |                                     |            |          |           |          |              |   |            
|Repurchase of common shares                  |              |          |              |        |                    |           |          |             |                                     |            |          |           |          | (15,441,626   | ) |            
|Amortization of deferred                     |             
|compensation                                 |              |          |              |        |                    |           |          |             |                                     |            |          |           |          |              |   | 205,780     
|Tax benefit related to stock option          |             
|exercises                                    |              |          |              |        |                    |           |          | 486,347      |                                     |            |          |           |          |              |   |            
|Comprehensive income:                        |             
|Change in unrealized net depreciation of     |             
|securities                                   |              |          |              |        |                    |           |          |             |                                     |            |          | (656,427   | )        |              |   |            
|Net income for the year ended                |             
|December 31, 1999                            |              |          |              |        |                    |           |          |             |                                     | 8,234,530   |          |           |          |              |   |            
|                                             |              |           |              |         |                    |            |          |              |                                     |             |          |            |          |               |   |             
|Total comprehensive income                   |              |           |              |         |                    |            |          |              |                                     |             |          |            |          |               |   |             
|Balance at December 31, 1999                 |              | 8,695,181 |              | 43,475  |                    | 1,735,000  |          | 122,553,938  |                                     | 20,330,152  |          | (705,029   | )        | (23,350,467   | ) | (292,982    
|Common shares issued upon exercise of        |             
|stock options                                |              | 528,327   |              | 2,642   |                    |           |          | 3,228,132    |                                     | (923        | )        |           |          |              |   |            
|Common shares issued as a result of business |             
|acquisition                                  |              | 1,428     |              | 7       |                    | (50,000    | )        | 49,993       |                                     |            |          |           |          |              |   |            
|Adjustment associated with issuance of       |             
|options to non-employees                     |              |          |              |        |                    |           |          | 2,352,707    |                                     |            |          |           |          |              |   | (2,352,707  
|100% Stock Dividend                          |              | 8,695,963 |              | 43,481  |                    |           |          |             |                                     | (43,481     | )        |           |          |              |   |            
|Issuance of common shares                    |              | 80,000    |              | 400     |                    | (1,090,000 | )        | 1,089,800    |                                     | (200        | )        |           |          |              |   |            
|Repurchase of common shares                  |              |          |              |        |                    |           |          |             |                                     |            |          |           |          | (3,399,814    | ) |            
|Amortization of deferred                     |             
|compensation                                 |              |          |              |        |                    |           |          |             |                                     |            |          |           |          |              |   | 1,065,131   
|Tax benefit related to stock option          |             
|exercises                                    |              |          |              |        |                    |           |          | 4,358,777    |                                     |            |          |           |          |              |   |            

|(continued)



F-5
|------------------

|IMPATH INC. AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY


 Years ended December
31, 2001, 2000 and 1999
|------------------------------------------------------------------------------------------------------------------------------

|                                         | Common Stock |            | Common stockTo be |         | Additionalpaid-in |                | Retained |              | Accumulatedothercomprehensiveincome |             | Treasury |            | Deferred |              |   |             
|---------------------------------------- | ------------ | ---------- | ----------------- | ------- | ----------------- | -------------- | -------- | ------------ | ----------------------------------- | ----------- | -------- | ---------- | -------- | ------------ | - | ------------
|
|Comprehensive income:                    |              |            |                   |         |                   |                |          |              |                                     |             |          |            |          |              |   |             
|Change in unrealized net depreciation of |             
|securities                               |              |           |                   |        |                   |               |          |             |                                     |            |          | 551,872    |          |             |   |            
|Net income for the year ended            |             
|December 31, 2000                        |              |           |                   |        |                   |               |          |             |                                     | 12,949,465  |          |           |          |             |   |            
|                                         |              |            |                   |         |                   |                |          |              |                                     |             |          |            |          |              |   |             
|Total comprehensive income               |              |            |                   |         |                   |                |          |              |                                     |             |          |            |          |              |   |             
|Balance at December 31, 2000             |              | 18,000,899 |                   | 90,005  |                   | 595,000        |          | 133,633,347  |                                     | 33,235,013  |          | (153,157   | )        | (26,750,281) |   | (1,580,558  
|Common shares issued upon exercise of    |             
|stock options                            |              | 344,421    |                   | 1,722   |                   |                |          | 2,702,356    |                                     |            |          |           |          |             |   |            
|Common shares issued as a result of      |             
|business acquisition                     |              | 41,163     |                   | 206     |                   | (595,000       | )        | 594,794      |                                     |            |          |           |          |             |   |            
|Common share issues as a result of the   |             
|Employee Stock Purchase Plan             |              | 20,096     |                   | 100     |                   |               |          | 584,775      |                                     |            |          |           |          |             |   |            
|Adjustment associated with issuance of   |             
|Options to non-employees                 |              |           |                   |        |                   |               |          | (875,869     | )                                   |            |          |           |          |             |   | 875,869     
|Amortization of deferred                 |             
|compensation                             |              |           |                   |        |                   |               |          |             |                                     |            |          |           |          |             |   | 556,178     
|Tax benefit related to stock option      |             
|exercises                                |              |           |                   |        |                   |               |          | 1,620,591    |                                     |            |          |           |          |             |   |            
|Comprehensive income:                    |             
|Change in unrealized net depreciation of |             
|securities                               |              |           |                   |        |                   |               |          |             |                                     |            |          | 142,381    |          |             |   |            
|Net income for the year ended            |             
|December 31, 2001                        |              |           |                   |        |                   |               |          |             |                                     | 10,991,328  |          |           |          |             |   |            
|Total comprehensive income               |              |            |                   |         |                   |                |          |              |                                     |             |          |            |          |              |   |             
|                                         |              |            |                   |         |                   |                |          |              |                                     |             |          |            |          |              |   |             
|Balance at December 31, 2001             |              | 18,406,579 |                   | $92,033 |                   | $            0 |          | $138,259,994 |                                     | $44,226,341 |          | $  (10,776 | )        | $(26,750,281 | ) | $   (148,511
|                                         |              |            |                   |         |                   |                |          |              |                                     |             |          |            |          |              |   |             

|F-6
|---

|IMPATH INC.
AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


Years ended
December 31, 2001, 2000 and 1999
|-------------------------------------------------------------------------------------------------------------------

|                                                            | 2001 |                | 2000 |               | 1999 |                
|----------------------------------------------------------- | ---- | -------------- | ---- | ------------- | ---- | ---------------
|Cash flows from operating activities:                       |      |                |      |               |      |                
|Net income                                                  |      | $ 10,991,328   |      | $ 12,949,465  |      | $   8,234,531  
|Adjustments to reconcile net income to net cash provided by |     
|operating activities:                                       |     
|Depreciation and amortization                               |      | 15,906,405     |      | 10,729,639    |      | 6,960,442      
|Provision for uncollectible accounts receivable             |      | 33,390,535     |      | 21,324,446    |      | 10,433,545     
|Deferred taxes                                              |      | (318,330       | )    | (2,347,135    | )    | 90,636         
|Non-cash compensation                                       |      | 556,178        |      | 1,065,131     |      | 205,780        
|Gain on sale of preferred stock                             |      |               |      | (3,144,276    | )    |               
|Changes in assets and liabilities (net of the effects from  |     
|acquisitions of business):                                  |     
|(Increase) in accounts receivable, net                      |      | (46,283,326    | )    | (36,553,971   | )    | (26,329,124    
|(Increase) in prepaid expenses and other current assets     |      | (6,274,756     | )    | (4,517,653    | )    | (3,637,683     
|(Increase) in deposits and other non-current assets         |      | (530,819       | )    | (184,428      | )    | (134,882       
|Increase in accounts payable/accrued expenses               |      | 3,286,215      |      | 795,800       |      | 1,942,496      
|Increase in income taxes payable                            |      | 2,748,955      |      | 7,922,094     |      | 3,679,701      
|(Decrease)/increase in deferred revenues                    |      | (125,027       | )    | 170,843       |      | 121,905        
|                                                            |      |                |      |               |      |                
|Net cash provided by operating activities                   |      | 13,347,358     |      | 8,209,955     |      | 1,567,347      
|                                                            |      |                |      |               |      |                
|Cash flows from investing activities:                       |     
|(Purchases) of marketable securities                        |      | (35,436,167    | )    | (2,164,289    | )    | (43,205,992    
|Sales/maturities of marketable securities                   |      | 37,060,475     |      | 8,440,992     |      | 48,804,999     
|Acquisitions of businesses, net of cash acquired            |      | (2,852,683     | )    | (316,375      | )    | (9,250,000     
|Proceeds/(investment) from liquidation in preferred stock   |      |               |      | 8,144,276     |      | (5,000,000     
|(Purchase) of intangible assets                             |      | (5,022,592     | )   
|Capital expenditures                                        |      | (16,543,234    | )    | (8,210,927    | )    | (3,826,959     
|                                                            |      |                |      |               |      |                
|Net cash (used in) provided by investing activities         |      | (22,794,201    | )    | 5,893,677     |      | (12,477,952    
|                                                            |      |                |      |               |      |                
|Cash flows from financing activities:                       |     
|Issuance of common stock                                    |      | 3,288,953      |      | 3,229,851     |      | 1,113,515      
|Repurchase of common stock                                  |      |               |      | (3,399,814    | )    | (15,441,626    
|Proceeds from capital leases                                |      |               |      | 1,653,234     |      |               
|Proceeds/(repayments) from bank loans                       |      | 16,000,000     |      | 3,000,000     |      | (10,000,000    
|Payments of notes payable                                   |      | (2,778,829     | )    | (2,611,947    | )    | (1,869,816     
|Payments of capital lease obligations                       |      | (14,697,384    | )    | (7,808,141    | )    | (3,125,557     
|                                                            |      |                |      |               |      |                
|Net cash provided by/(used in) financing activities         |      | 1,812,740      |      | (5,936,817    | )    | (29,323,484    
|                                                            |      |                |      |               |      |                
|Net (decrease)/increase in cash and cash equivalents        |      | (7,634,103     | )    | 8,166,815     |      | (40,234,089    
|Cash and cash equivalents at beginning of year              |      | 13,488,731     |      | 5,321,916     |      | 45,556,005     
|                                                            |      |                |      |               |      |                
|Cash and cash equivalents at end of year                    |      | $   5,854,628  |      | $ 13,488,731  |      | $   5,321,916  
|                                                            |      |                |      |               |      |                
|Supplemental disclosures of cash flow information:          |     
|Cash paid during the year for income taxes                  |      | $   6,033,816  |      | $   4,114,044 |      | $   2,565,533  
|                                                            |      |                |      |               |      |                
|Cash paid during the year for interest                      |      | $   3,885,888  |      | $   2,033,508 |      | $   1,011,640  
|                                                            |      |                |      |               |      |                
|Fixed assets acquired pursuant to capital leases            |      | $ 19,670,385   |      | $ 26,626,539  |      | $ 13,200,039   
|                                                            |      |                |      |               |      |                
|Note payable related to acquisition of business             |      | $      266,665 |      | $   1,962,139 |      | $   3,261,255  
|                                                            |      |                |      |               |      |                
|Common stock issued for acquisitions                        |      |               |      | $   1,140,000 |      | $        50,000
|                                                            |      |                |      |               |      |                

|See accompanying notes
to consolidated financial statements.



F-7
|-------------------------------------------------------------------

|IMPATH INC. AND
SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December 31,
2001 and 2000


(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 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 accounts and transactions
have been eliminated.


(b)
Cash Equivalents


Cash
equivalents consist principally of bank deposits, commercial paper and U.S.
treasury securities at December 31, 2001 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 is considered available for
sale. Unrealized gains and losses for available for sale securities are recorded
as an accumulated other comprehensive income (loss) in stockholders
equity, net of related deferred taxes. Gains and losses on securities sold are
based on the average cost method. Gross unrealized gains for the years ended
December 31, 2001 and 2000 included gains of $92,044 and $1,560,894,
respectively. At December 31, 2001, approximately $13.3 million of the
securities mature in one to three years (of which approximately $13.3 million
are corporate fixed income securities) and approximately $3.2 million mature in
more than three years (of which approximately $2.7 million are corporate fixed
income securities and $0.5 million are government securities).


F-8
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 Company
capitalized approximately $1,236,000 or approximately $0.05 per diluted share
after taxes (split adjusted), approximately $1,132,000 or approximately $0.04
per diluted share after taxes (split adjusted), and approximately $1,932,000 or
approximately $0.07 per diluted share after taxes, of internal payroll costs in
1999, 2000 and 2001 respectively, as they related directly to internal system
implementation activities.


(e)
Revenue Recognition


The
Company generally recognizes revenue for services rendered upon completion of
the testing process. 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 IPO is recognized within the guidance contained in the provisions of SEC
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements. Revenues are recognized upon completion of analysis in
accordance with the terms of the contract. In cases where the contract calls for
the biological specimen to be shipped, revenue is recognized upon shipment of
the biological material to the customer.


Revenue
from the Information Services division 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)
Reclassifications


Certain prior year balances
have been classified to conform with the 2001 presentation.


(g)
Inventories


Inventories, which consist
principally of supplies, are valued at the lower of cost (first in, first out
method) or market, and are included in other current assets on the
accompanying balance sheet.


(h)
Intangible Assets
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (i) |  | Payments
to acquire tissue and tumor samples for use in GeneBank have been classified as an
intangible asset and has totals of $5,023,000 as of December 31, 2001. GeneBank is
being amortized using the straight-line method over its estimated useful life of seven
years.
| |  | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-9
|---

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(ii)
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. See New Accounting Standards
(p).


In
2002, Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets became effective and as a
result, we will cease to amortize approximately $25.5 million of goodwill.
In lieu of amortization, we are required to perform an initial impairment
review of our goodwill in 2002 and an annual impairment review thereafter. We
expect to complete our initial review during the first quarter of 2002 but do not
believe a material impairment change will be recorded.


(i)
Long-Lived Assets


The
Company reviews the recoverability of its long-lived assets, including goodwill and other
intangible assets, when events or changes in circumstances occur that indicate that the
carrying value of the asset may not be recoverable. Evaluation of possible impairment is
based on the Companys ability to recover the asset from the expected future pretax
cash flows (undiscounted and without interest charges) of the related operations. If the
expected undiscounted pretax cash flows are less than the carrying amount of such asset,
including any goodwill associated with the asset, an impairment loss is recognized for the
difference between the estimated fair value and carrying amount of the asset. See
New Accounting Standards (p) regarding two recently issued accounting
standards on business combinations and goodwill and other intangibles.


(j)
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. Concentration of credit risk with respect to accounts receivable is
mitigated by the diversity of the Companys clients, as well as their
dispersion across many different regions, with the exception of Medicare. The
Company does not believe Medicare receivables represent a credit risk since the
Medicare program is funded by the Federal Government.



F-10
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(k)
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.


(l)
Earnings 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.


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

|                                                     | 2001 |            | 2000 |            | 1999 |           
|---------------------------------------------------- | ---- | ---------- | ---- | ---------- | ---- | ----------
|Weighted average common shares outstanding           |      | 16,015,000 |      | 15,540,000 |      | 15,896,000
|Effect of diluted securitiesoptions                 |      | 694,000    |      | 738,000    |      | 410,000   
|                                                     |      |            |      |            |      |           
|Weighted average common and common equivalent shares |     
|outstandingassuming dilution                        |      | 16,709,000 |      | 16,278,000 |      | 16,306,000
|                                                     |      |            |      |            |      |           

|(m)
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.


(n) 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.


F-11
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(o)
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.


(p) New Accounting Standards


In July 2001, the Financial
Accounting Standards Board (FASB) issued SFAS No. 141, Business
Combinations (SFAS 141), which requires business combinations initiated
after June 30, 2001 to be accounted for using the purchase method of accounting, and SFAS
No. 142, Goodwill and Other Intangible Assets (SFAS 142), which
broadens the criteria for recording intangible assets separate from goodwill. SFAS 142
requires the use of a nonamortization approach to account for purchased goodwill and
certain intangibles. Under a nonamortization approach, goodwill and intangibles with an
indefinite life will not be amortized into results of operations, but instead will be
reviewed for impairment at least annually and an impairment charge will be recorded in the
periods in which the recorded carrying value of goodwill and certain intangibles is more
than its estimated fair value. Goodwill acquired in a business combination for which the
acquisition date is after June 30, 2001 will not be amortized. The Company will adopt the
provisions of SFAS 142, related to goodwill acquired prior to June 30, 2001 and intangible
assets, on January 1, 2002. The adoption of these accounting standards is expected to
reduce the amount of amortization of goodwill recorded in the Companys consolidated
financial statements by approximately $1.7 million annually, commencing January 1, 2002.
The Company is in the process of finalizing the evaluation the goodwill and intangible
assets for its reporting units, and expects to complete its review during first quarter
2002.




In
August 2001, the FASB issued SFAS No. 144 Accounting for Impairment or Disposal of
Long-Lived Assets (SFAS 144), which supercedes SFAS No. 121. SFAS 144 further refines
SFAS 121s requirement that companies recognize an impairment loss if the carrying amount
of a long-lived asset is not recoverable based on its undiscounted future cash flows and
measure an impairment loss as the difference between the carrying amount and fair value
of the asset. In addition, SFAS 144 provides guidance on accounting and disclosure issues
surrounding long-lived assets to be disposed of by sale. SFAS 144 also extends the
presentation of discontinued operations to include more disposal transactions. SFAS 144
is effective for all fiscal quarters of all fiscal years beginning after December 15,
2001 (2002 for the Company). Management believes that the adoption of SFAS 144 will not
have a material effect on the Companys consolidated results of operations or financial
position.





(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.



F-12
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(4) Accounts
Receivable


In
accordance with accounting principles generally accepted in the United States of
America and consistent with healthcare industry practices, the Company presents
its accounts receivable at net realizable value. Net accounts receivable
balances are comprised of the following as of December 31, 2001 and 2000.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                | 2001 |                | 2000 |             
|------------------------------- | ---- | -------------- | ---- | ------------
|Gross accounts receivable       |      | $ 132,415,562  |      | $ 96,941,385
|Allowance for doubtful accounts |      | (22,423,389    | )    | (13,384,151 
|Contractual allowance reserve   |      | (46,354,828    | )    | (32,812,680 
|                                |      |                |      |             
|                                |      | $   63,637,345 |      | $ 50,744,554
|                                |      |                |      |             

|Accounts
receivable, by payor class, as a percentage of total net receivables at December
31, 2001 and 2000 are as follows:
|---------------------------------------------------------------------------------------------------------------------------

|                                          | 2001 | 2000
|----------------------------------------- | ---- | ----
|Medicare                                  |      | 17  
|Commercial insurance                      |      | 58  
|Hospitals, clinics and other institutions |      | 10  
|Patients                                  |      | 15  
|                                          |      |     
|                                          |      | 100 
|                                          |      |     

|(5) Fixed
Assets


At
December 31, 2001 and 2000, fixed assets consist of the following:
|----------------------------------------------------------------------------------------

|                                               | 2001 |                | 2000 |              
|---------------------------------------------- | ---- | -------------- | ---- | -------------
|Personal computers                             |      | $   10,122,678 |      | $   8,155,802
|Software development costs                     |      | 33,675,383     |      | 24,291,947   
|Furniture, fixtures and laboratory equipment   |      | 25,871,060     |      | 16,359,034   
|Leasehold improvements                         |      | 44,957,303     |      | 29,607,025   
|                                               |      |                |      |              
|                                               |      | 114,626,424    |      | 78,413,808   
|Less accumulated depreciation and amortization |      | (29,852,346    | )    | (17,351,597  
|                                               |      |                |      |              
|                                               |      | $   84,774,078 |      | $ 61,062,211 
|                                               |      |                |      |              

|Included
in the above at December 31, 2001 and 2000 are gross assets under capital leases
of approximately $67,204,037 and $47,533,652, respectively, and the related
accumulated amortization at such dates is approximately $20,365,023 and
$10,868,139, respectively.


F-13
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(6)
Acquisitions/Investments


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 $1.6 million payable in six
equal semi-annual installments beginning December 1998, which were paid in 1999,
2000 and 2001.


In
August 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. 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 625
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
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, and 1,163
shares of common stock, having a fair market value of $50,000, were issued on 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
(after a 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 were 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, California 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.


F-14
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


On
August 31, 2001, the Company purchased certain assets on Innovative Clinical
Solutions, Ltd. (ICSL), specifically, the ICSL oncology clinical
studies network of more than 20 sites across the country for
$2,783,171. The Company recorded goodwill of approximately $1.7 million related
to the acquistion and approximately $1 million related to customer lists. In
accordance with Statement 142, the amount of $1.7 million will not be amortized.


The
aggregate acquisitions in 2001, 2000 and 1999 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 payments for
among other things, contracts, customer lists and other intangibles, which are included in
intangible assets on the accompanying consolidated balance sheets and will be amortized
over periods of up to fifteen years as well as goodwill which became a non-amortizing
asset as of January 1, 2002 in accordance with SFAS 142.


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 Onocolgy 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, 2001 and 2000:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                           | 2001 |            | 2000 |           
|-------------------------- | ---- | ---------- | ---- | ----------
|Salaries and related costs |      | $3,202,171 |      | $1,947,037
|Other accrued expenses     |      | 2,629,452  |      | 1,926,573 
|                           |      |            |      |           
|                           |      | $5,831,623 |      | $3,873,610
|                           |      |            |      |           

|(8) Other
Current Assets


Other current assets are comprised
of the following as of December 31, 2001 and 2000:
|----------------------------------------------------------------------------------------------------------------

|                     | 2001 |             | 2000 |           
|-------------------- | ---- | ----------- | ---- | ----------
|Supply inventory     |      | $12,585,913 |      | $8,163,838
|Other current assets |      | 2,483,252   |      | 981,480   
|                     |      |             |      |           
|                     |      | $15,069,165 |      | $9,145,318
|                     |      |             |      |           

|F-15
|----

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(9) Indebtedness


In
June 2001, the Company entered into a $50 million Senior Secured Credit Facility
consisting of a five-year commitment for a $25 million revolving credit line and a $25
million 364-day facility intended for acquisitions. The credit facility was syndicated by
Fleet National Bank, which will also act as Agent for the lenders, replaced the
Companys previous $15 million unsecured line of credit that expired June 28, 2001.
In connection with the Tamtron acquisition, the Company amended its original credit
facility and converted its $25 million 364-day facility to a $28 million term loan on
January 18, 2002. The term loan will be amortized over a five-year period, with interest
only payable for the first twelve months. Thereafter, the loan will be payable in
seventeen payments of principal plus interest, with principal of $4.9 million in 2003,
2004, 2005 and 2006 and a final principal payment of $8.4 million in 2007. Both the
revolving credit line and the term loan bear interest at LIBOR plus 1.25%. As of December
31, 2001, the Company has $16 million outstanding under the revolving credit line and $3
million drawn down from the term loan. The $16 million under the revolving credit line is
due in full in five years. In connection with the amended agreement, the Company amended
certain debt covenants. See Footnote 18 Subsequent events.


(10)
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. This
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.


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 and footnotes 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
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 under the Incentive Plan in 1997. Options to
purchase 138,000 shares were granted under the Incentive Plan in 1998. Options
to purchase 74,564 shares were granted under the Incentive Plan in 1999.
Compensation cost will be amortized for consultants over the vesting period of
the options.



F-16
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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. Options to purchase 886,400 shares
were granted under this plan in 2001.


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 2001, 2000
and 1999 was $28.78, $12.13, and $9.58, respectively, on the dates of grant
using the Black Scholes option-pricing model with the following weighted-average
assumptions: 2001expected dividend yield 0%, risk-free interest rate of
6.5%, expected volatility of 60.0% 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; 1999expected dividend
yield 0%, risk-free interest rate of 6.5%, expected volatility 60% and an
expected life of 7 years.


During
2001, the Company adopted an Employee Stock Purchase Plan (the Purchase Plan).
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (a) |  | The
total number of shares of Stock that may be purchased in offerings under the Purchase Plan shall
not exceed, in the aggregate, ten percent (10%) of the number of shares of Stock
outstanding on the last day of the Companys fiscal year-end preceding the effective
date of the plan (subject to adjustment as set forth below).
| |  | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | (b) |  | The
aggregate number of shares of stock that may be purchased in Offerings under the Purchase Plan, as
determined in accordance with (a), above, shall be increased annually, on each January
1st beginning January 1, 2002 and ending January 1, 2011, by an amount equal to the
lesser of:
| |  | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | (i) |  | ten
percent (10%) of the increase, if any, in the number of shares of stock outstanding
during the Companys most-recently completed fiscal year (with any such increase
measured by calculating the difference between the number of shares of stock outstanding
on the last day of such fiscal year and the number of shares of stock outstanding on the
last day of the immediately preceding fiscal year);
| |  |  |  | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  |  | (ii) |  | 50,000
shares; or
| |  |  |  | ---- |  | -----------------

| |  |  |  | (iii) |  | such
number of Shares as determined by the board of directors, which number shall be less than (i) and/or
(ii), above.
| |  |  |  | ----- |  | ----------------------------------------------------------------------------------------------------------------------

| |  | (c) |  | Stock
available for offerings may be authorized and unissued shares, treasury shares, or shares
previously issued and reacquired by the Company. Any shares for which an offering to
purchase expires or is terminated or canceled may again be made subject to offerings
under the Purchase Plan
| |  | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The Purchase Plan allows employees
to purchase common stock of the Company, through payroll deductions of up to a
maximum of 15% of their salary, at 85% of the lesser of the price of the shares at the first
or last day of the offering period, which will commence each January 1 and July
1. At December 31, 2001, there were 20,096 shares reserved for issuance under
the Purchase Plan.


F-17
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 2001 to non-employees as previously
described. The Company recorded expense related to non-employee stock option
grants of $556,178, $1,065,131 and $205,780 in the years ended December 31,
2001, 2000 and 1999, 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 adjusted to the pro forma
amounts indicated below:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       |  | 2001        |  | 2000                 |  | 1999                 | 
|-------------------------------------- |  | ----------- |  | -------------------- |  | -------------------- | 
|Net income                             |  | As reported |  | $    10,991,328      |  | $    12,949,465      | 
|                                       |  | Pro forma   |  | $    9,039,274       |  | $    12,214,001      | 
|Net income per shareassuming dilution |  | As reported |  | $               0.66 |  | $               0.80 | 
|                                       |  | Pro forma   |  | $               0.54 |  | $               0.75 | 

|The following is a summary
of option activity during the years ended December 31, 1999, 2000 and 2001:
|------------------------------------------------------------------------------------------------------

|                                         | Sharesunder options |           | Price range |             | Weightedaverageexercise price
|---------------------------------------- | ------------------- | --------- | ----------- | ----------- | -----------------------------
|Options outstanding at December 31, 1998 |                     | 1,656,536 |             | $0.14-18.63 |                              
|Granted                                  |                     | 155,826   |             | 8.53-14.97  |                              
|Exercised                                |                     | (309,674  | )           | 0.14-13.44  |                              
|Canceled                                 |                     | (102,400  | )           | 1.27-18.63  |                              
|                                         |                     |           |             |            
|Options outstanding at December 31, 1999 |                     | 1,400,288 |             | 0.28-18.44  |                              
|Granted                                  |                     | 348,800   |             | 11.00-50.31 |                              
|Exercised                                |                     | (528,327  | )           | 0.28-16.75  |                              
|Canceled                                 |                     | (36,555   | )           | 0.28-15.69  |                              
|                                         |                     |           |             |            
|Options outstanding at December 31, 2000 |                     | 1,184,206 |             | 1.27-50.31  |                              
|Granted                                  |                     | 886,400   |             | 29.59-61.88 |                              
|Exercised                                |                     | (344,421  | )           | 1.27-43.63  |                              
|Canceled                                 |                     | (71,025   | )           | 11.00-61.88 |                              
|                                         |                     |           |             |            
|Options outstanding at December 31, 2001 |                     | 1,655,160 |             | $1.27-50.31 |                              
|                                         |                     |           |             |             |                              

|F-18
|----

|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, 2001:


Weighted
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Range ofexercise prices |  | Numberoutstanding at12/31/01 |  | Weightedaverageremainingcontractual life |  | Weightedaverageexercise price |  | Numberexerciseable at12/31/01 |  | Weightedaverageexercise price | 
|----------------------- |  | ---------------------------- |  | ---------------------------------------- |  | ----------------------------- |  | ----------------------------- |  | ----------------------------- | 
|$1.27-$6.50             |  | 50,742                       |  | 3.77 years                               |  | $           4.85              |  | 50,742                        |  | $           4.85              | 
|6.50-11.50              |  | 400,904                      |  | 7.25 years                               |  | 10.22                         |  | 307,884                       |  | 10.64                         | 
|11.50-15.38             |  | 228,926                      |  | 6.36 years                               |  | 13.28                         |  | 218,541                       |  | 13.25                         | 
|15.38-18.66             |  | 13,367                       |  | 6.59 years                               |  | 18.23                         |  | 10,615                        |  | 18.13                         | 
|18.66-28.75             |  | 183,957                      |  | 8.62 years                               |  | 25.14                         |  | 77,674                        |  | 25.14                         | 
|28.75-38.75             |  | 489,572                      |  | 9.89 years                               |  | 32.74                         |  | 12,015                        |  | 35.45                         | 
|38.75-49.00             |  | 284,192                      |  | 9.09 years                               |  | 43.53                         |  | 97,291                        |  | 43.43                         | 
|49.00-55.00             |  | 3,500                        |  | 8.97 years                               |  | 49.94                         |  | 958                           |  | 49.84                         | 
|                        |  |                              |  |                                          |  |                               |  |                              
|$1.27-$50.31            |  | 1,655,160                    |  |                                          |  |                               |  | 775,720                      
|                        |  |                              |  |                                          |  |                               |  |                              

|At December 31, 2001, the
Company had 3,020,280 shares reserved for options and warrants outstanding, as
well as future option grants.


(11) 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. 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 which are cash only, for the
years ended December 31, 2001, 2000 and 1999 were $730,427, $352,902 and
$277,504, respectively.


(12) Income
Taxes


The
components of the provision for income taxes for 2001, 2000 and 1999 are as
follows:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                | 2001 |               | 2000 |               | 1999 |            
|--------------- | ---- | ------------- | ---- | ------------- | ---- | -----------
|Current:        |      |               |      |               |      |            
|Federal         |      | $   5,995,899 |      | $   8,924,570 |      | $ 3,666,612
|State and local |      | 2,789,574     |      | 3,170,924     |      | 1,732,440  
|                |      |               |      |               |      |            
|                |      | 8,785,473     |      | 12,095,494    |      | 5,399,052  
|                |      |               |      |               |      |            
|Deferred:       |     
|Federal         |      | (70,123       | )    | (2,103,492    | )    | (58,188    
|State and local |      | (248,207      | )    | (243,644      | )    | 148,824    
|                |      |               |      |               |      |            
|                |      | (318,330      | )    | (2,347,136    | )    | 90,636     
|                |      |               |      |               |      |            
|                |      | $   8,467,143 |      | $   9,748,358 |      | $ 5,489,688
|                |      |               |      |               |      |            

|F-19
|----

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


Deferred tax components at
December 31, 2001 and 2000 are as follows:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                | 2001 |             | 2000 |            
|------------------------------- | ---- | ----------- | ---- | -----------
|Assets:                         |      |             |      |            
|Allowance for doubtful accounts |      | $ 5,227,139 |      | $ 4,267,831
|Deferred compensation           |      | 974,426     |      | 164,812    
|Deferred revenue                |      | 144,525     |      | 129,664    
|                                |      |             |      |            
|                                |      | 6,346,090   |      | 4,562,307  
|Liabilities:                    |     
|Intangible assets--acquisitions |      | (1,603,577  | )    | (1,324,745 
|Depreciation                    |      | (2,832,177  | )    | (1,670,892 
|Other                           |      | (127,446    | )    | (102,110   
|                                |      |             |      |            
|                                |      | (4,563,200  | )    | (3,097,747 
|                                |      |             |      |            
|Deferred tax assets, net        |      | $ 1,782,890 |      | $ 1,464,560
|                                |      |             |      |            

|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, 2001, 2000 and 1999 are as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                         | 2001 |      | 2000 |      | 1999 |     
|-------------------------------------------------------- | ---- | ---- | ---- | ---- | ---- | ----
|Federal statutory income tax rate                        |      | 35.0 | %    | 35.0 | %    | 35.0
|State and local taxes, net of Federal income tax benefit |      | 8.5  |      | 8.0  |      | 8.0 
|Tax exempt interest income                               |      |     |      |     |      | (2.0
|Other                                                    |      |     |      |     |      | (1.0
|                                                         |      |      |      |      |      |     
|                                                         |      | 43.5 | %    | 43.0 | %    | 40.0
|                                                         |      |      |      |      |      |     

|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 $1,620,591 in 2001, $4,358,777 in 2000 and $486,347 in 1999
respectively.



F-20
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(13) 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,           |  | Operating leases |            | Capital leases | 
|---------------------------------- |  | ---------------- | ---------- | -------------- | 
|2002                               |  | $   4,290,009    |            | $15,934,174    | 
|2003                               |  | 3,927,572        |            | 15,080,058     | 
|2004                               |  | 3,455,828        |            | 9,999,032      | 
|2005                               |  | 3,317,971        |            | 2,410,154      | 
|2006                               |  | 3,139,986        |            |               | 
|Thereafter                         |  | 10,622,626       |            |               | 
|                                   |  |                  |            |               
|                                   |  | $ 28,753,992     |            | $43,423,418    | 
|                                   |  |                  |            |               
|Amount representing interest       | 
|(rates range from 4.45% to 11.47%) |  |                  | (3,490,333 | )             
|                                   |  |                  |           

|For
the years 2001, 2000 and 1999, rent expense was $3,524,822, $2,768,319 and
$1,634,853 , 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, 2001, the Company
had fully drawn against this line. In September 1999, the Company established a
$6.0 million credit line with Fleet Bank with lease terms based on 48 monthly
payments at a rate equal to .20% above the yield on four-year treasury notes. As
of December 31, 2001, approximately $1.0 million was drawn against this line. In
December 1999, the Company established a $6.2 million credit line with First
American Bankcorp, Inc. with lease terms of 48 months and a rate equal to the
yield on four-year treasury notes. The line of credit was subsequently increased
to $21.2 million in March 2001, under the same lease terms. As of December 31,
2001, approximately $19.4 million was drawn against this line. In November 2001,
the Company established an additional $10 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. As of December 31, 2001 we have not 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, 2001,
the Company had fully drawn against this line. In June 2000, the Company
established an additional $4.0 million credit line with Dynamics Commercial
Funding Corp. with lease terms of 48 months and a rate equal to the yield on
four-year treasury notes. As of December 31, 2001, the Company had fully drawn
against this line. In November 2000, the Company established an additional $2.9
million credit line with Dynamics Commercial Funding Corp. with lease terms of
48 months and a rate equal to the yield on four-year treasury notes. As of
December 31, 2001, approximately $2.6 million was drawn against this line. In
April 2000, the Company established a $3.0 million credit line with First Sierra
Financial, Inc. (currently Popular Leasing, USA) with lease terms of
48 months and a rate equal to the yield on four-year treasury notes. As of
December 31, 2001, the Company had fully drawn against this line. In September
2000, the Company established an additional $6.0 million credit line with First
Sierra


F-21
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


Financial, Inc. (currently
Popular Leasing, USA) with the lease terms of 48 months and a rate
equal to the yield on four-year treasury notes. As of December 31, 2001,
approximately $5.4 million was drawn against this line. In November 2001, the
Company established an additional $2 million credit line with Popular Leasing,
USA with lease terms of 48 months and a rate equal to .35% above yield on
four-year treasury notes. As of December 31, 2001 we havenotdrawn against the line.In July 2000, the Company established a $7.15
million credit line with Advanced Capital Resources Corp. (currently
Applied Financial, Inc.) with lease terms of 48 months and a rate
equal to the yield on four-year treasury notes. As of December 31, 2001,
approximately $6.6 million 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, 2001, the Company had fully drawn against this line.
In April 2001, the Company established an additional $1.1 million credit line
with Trimarc Financial Corp. with lease terms of 48 months and a rate equal to
the yield on four-year treasury notes. As of December 31, 2001 approximately
$1.1 million was drawn against this line. In January 2001, the Company
established a $2 million credit line with IFC Credit Corp. with lease terms of
48 months and a rate equal to the yield on four-year treasury notes. As of
December 31, 2001, approximately $525,000 was drawn against this line.


(14) Related Party
Transactions


The
Company paid $153,000, $138,000 and $111,000 in the years ended December 31,
2001, 2000 and 1999, respectively, to a Director who also performs certain
consulting services to the Company.


(15) Segment and
Geographic information


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


(a)
Segment Information


The
Company operates in three reportable business segments: (1) Physician Services,
(2) IMPATH Predictive Oncology and (3) Information Services. Physician
Services derives revenue from performing specialized cancer analyses. IMPATH
Predictive Oncology 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.


F-22
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|-------------------------------------------------------------------------------------

|($ in Thousands)        | TotalIMPATH Inc. | PhysicianServices | IMPATHPredictiveOncology | InformationServices
|----------------------- | ---------------- | ----------------- | ------------------------ | -------------------
|                       
|2001                   
|Revenue                 |                  | 189,615           |                          | 168,771            
|Operating income (loss) |                  | 21,354            |                          | 22,738             
|Total assets            |                  | 236,764           |                          | 214,641            
|Depreciation and        |                 
|amortization            |                  | 15,906            |                          | 12,942             
|                       
|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              
|                       

|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. IPO bills pharmaceutical companies and
Information Services bills community hospitals and state agencies. The
Companys largest client is Medicare. This client accounted for 27%, 28%,
and 23% of the Companys Physician Services revenue in fiscal years 2001,
2000, and 1999, 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 2001, 2000 and 1999.


F-23
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(d)
Concentration of Revenue


During
2001, 2000 and 1999, 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                      |                        
|Private insurance/managed care |                        
|Medicare                       |                        
|Individual patients            |                        
|                               |                        
|Total                          |                        
|                               |                        

|(16)
Commitments and Contingencies


As
a provider of healthcare-related services, the Company is subject to extensive
and frequently changing federal, state and local laws governing licensure,
reimbursement, financial relationships, referrals, conduct of operations and
other aspects of the Companys business. In recent years, the federal
government has expanded its investigative and enforcement activities relating to
the billing of government programs, such as Medicare and Medicaid, by
laboratories and other healthcare providers. In January 2000, the Company was
notified that the U.S. Attorneys Office for the Southern District of New
York was investigating certain of the Companys billing practices.
The Company subsequently settled with the government without any
admission of wrongdoing and in return received a release of all related claims.
The settlement and related expenses amounted to $9.7 million and are included in selling,
general and administrative expenses.


In
addition, from time to time, the Company is involved in various other legal
actions in the normal course of business, some of which seek monetary damages.
While the Company cannot predict with absolute certainty the outcome of any of
the proceedings in which it is involved, the Company believes any ultimate
liability associated with these contingencies would not have a material adverse
effect on the Companys consolidated financial position or results of
operations.


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.


F-24
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|IMPATH INC.
AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


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

|       | Per Share ofCommon StockNet Income |          
|------ | ---------------------------------- | ---------
|
|2001  
|Fourth |                                    | $  51,979
|Third  |                                    | 48,426   
|Second |                                    | 47,074   
|First  |                                    | 42,136   
|       |                                    |          
|Total  |                                    | $189,615 
|       |                                    |          
|2000  
|Fourth |                                    | $  38,888
|Third  |                                    | 35,406   
|Second |                                    | 33,364   
|First  |                                    | 30,563   
|       |                                    |          
|Total  |                                    | $138,221 
|       |                                    |          

|(18)
Subsequent Events


On
January 18, 2002, the Company completed the acquisition of Tamtron Corporation
(Tamtron) for $25.9 million in cash, subject to adjustment upon finalizing the
closing balance sheet, plus expenses. Tamtron is a San Jose, California, based company and
its major product, PowerPath, is a technology system designed
specifically for companies providing surgical pathology, cytology and autopsy services
(anatomic pathology) to streamline operations and support multi-site or multi-entity
healthcare networks. The acquisition will be accounted for under the purchase method, in
accordance with Statement of Financial Accounting Standards (SFAS) 141,
whereby the purchase price will be allocated to the underlying assets and liabilities
based on their estimated fair values. The resulting goodwill from this transaction of $17
million will not be amortized and intangibles of $11 million will be amortized over
periods from three to fifteen years. Tamtron has annualized revenue of approximately $10
million generated primarily through software sales and maintenance contracts. Its current
customer base includes more than 350 sites including hospitals and academic medical
centers around the country, processing over 5 million cases per year. The source of funds
for the acquisition was a combination of the Companys available cash, as well as
advances totaling $25 million under its amended credit facility. See Footnote 9
Indebtedness for further discussion regarding the credit facility.



F-25
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Financial Statement
ScheduleSchedule II Valuation and Qualifying AccountsIMPATH
|--------------------------------------------------------------------------------

|                              |  | Balance atBeginning ofPeriod |  | Provision forDoubtfulAccounts,Net |  | Write-offsof PreviouslyProvidedAccounts |  | Balance atEnd ofPeriod | 
|----------------------------- |  | ---------------------------- |  | --------------------------------- |  | --------------------------------------- |  | ---------------------- | 
|                              |  |                              |  |                                   |  |                                         |  |                        | 
|Contractual Allowance Reserve
|Year Ended December 31, 2001  |  | $32,812,680                  |  | $59,543,391                       |  | $46,001,243                             |  | $46,354,828            | 
|Year Ended December 31, 2000  |  | $20,211,773                  |  | $49,776,467                       |  | $37,175,560                             |  | $32,812,680            | 
|Year Ended December 31, 1999  |  | $11,560,360                  |  | $23,523,914                       |  | $14,872,501                             |  | $20,211,773            | 

|                                |  | Balance atBeginning ofPeriod |  | Provision forDoubtfulAccounts,Net |  | Write-offsof PreviouslyProvidedAccounts |  | Balance atEnd ofPeriod | 
|------------------------------- |  | ---------------------------- |  | --------------------------------- |  | --------------------------------------- |  | ---------------------- | 
|                                |  |                              |  |                                   |  |                                         |  |                        | 
|Allowance for Doubtful Accounts
|Year Ended December 31, 2001    |  | $13,384,151                  |  | $33,390,535                       |  | $24,351,297                             |  | $22,423,389            | 
|Year Ended December 31, 2000    |  | $  7,783,663                 |  | $21,324,446                       |  | $15,723,958                             |  | $13,384,151            | 
|Year Ended December 31, 1999    |  | $  3,958,235                 |  | $10,433,545                       |  | $  6,608,117                            |  | $  7,783,663           | 

|F-26
|----

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

|Exhibit Number |  | Description
|-------------- |  | -----------
|              

| |  | 
| |  | 

|3.1 |  | Restated
Certificate of Incorporation, as amended (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)).
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.2 |  | Form
of Certificate of Amendment regarding authorization of additional preferred stock
(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)).
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.3 |  | By-laws
(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)).
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|3.2.1 |  | Form
of Certificate of Amendment authorizing additional common stock (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, 2000 (File No. 000-27750))
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.1 |  | Registration
Rights Agreement dated February 10, 1995 among IMPATH Inc. and certain of its
shareholders (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)).
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.1 |  | Master
Lease Agreement dated April 11, 1995 between IMPATH Inc. and Financing For Science
International, Inc. (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)).
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.8 |  | Space
Lease Agreement dated April 20, 1995 between OMA Del Aire Properties and IMPATH Inc.
(formerly known as Impath Laboratories Inc.) (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)).
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.9 |  | Floating
Rate Promissory Note in the principal amount of $300,000 made by IMPATH Inc. in favor of
Chemical Bank (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)).
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.10 |  | 1989
Stock Option Plan (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)).
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.11 |  | Form
of Indemnification Agreement with directors (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)).
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.13 |  | Letter
Agreement dated December 12, 1997 between Anu D. Saad, Ph.D., and IMPATH Inc.
(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. (File No. 000-27750))
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.17 |  | Letter
Agreement dated December 12, 1997 between Richard P. Adelson and IMPATH Inc.
(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 (File No. 000-27750))
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.18 |  | 1997
Long Term Incentive Plan (incorporated by reference to Exhibit A to the Proxy Statement
of IMPATH Inc. dated April 25, 1997 (File No. 000-27750))
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

|10.19 |  | Agreement
of Lease dated as of June 26, 1997 between International Flavors & Fragrances Inc. and
IMPATH Inc. (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 (File No. 000-27750))
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.20 |  | 1999
Long Term Incentive Plan (incorporated by reference to Exhibit A to the Proxy Statement
of IMPATH Inc. dated April 30, 1999 (File No. 000-27750))
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

|10.21 |  | 2000
Long Term Incentive Plan (incorporated by reference to Exhibit A to the Proxy Statement
of IMPATH Inc. dated April 28, 2000 (File No. 000-27750))
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

|10.22 |  | Letter
Agreement dated January 1, 2001 between Richard C. Rosenzweig and IMPATH Inc.
(incorporated by reference to the exhibit of the same number filed with the Quarterly
Report on Form 10-Q for the quarter ended March 31, 2001 (File No. 000-27750))
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.23 |  | Letter
Agreements dated September 28, 1999 and October 1, 1999 between James B. Douglass and
IMPATH Inc. (incorporated by reference to the exhibit of the same number filed with the
Quarterly Report on Form 10-Q for the quarter ended March 31, 2001 (File No. 000-27750))
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|10.24 |  | Amendment
to 1997 Long Term Incentive Plan
|----- |  | ------------------------------------------

|10.25 |  | Amendment
to 1999 Long Term Incentive Plan
|----- |  | ------------------------------------------

|10.26 |  | Amendment
to 2000 Long Term Incentive Plan
|----- |  | ------------------------------------------

|10.27 |  | Agreement
and Plan of Merger by and among Tamtron Corporation, Warwick Acquisition Corp. and IMPATH
Inc. dated as of January 7, 2002 (incorporated by reference to Exhibit 10.1 filed with
the Current Report on Form 8-K dated January 18, 2002 (File No. 000-27750))
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.28 |  | Credit
Agreement dated as of June 4, 2001 among IMPATH Inc., IMPATH Predictive Oncology, Inc.,
IMPATH-BIS Inc., Medical Registry Services, Inc., IMPATH-BCP Inc., IMPATH HDC, Inc.
IMPATH Information Services, Inc., and Fleet National Bank.
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.29 |  | First
Amendatory Agreement to Credit Agreement dated as of September 30, 2001 by and among ,
IMPATH Predictive Oncology, Inc., IMPATH-BIS Inc., Medical Registry Services, Inc.,
IMPATH-BCP Inc., IMPATH-PCRL, Inc., IMPATH HDC, Inc. IMPATH Information Services, Inc.,
and Fleet National Bank.
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.30 |  | Second
AMENDATORY AGREEMENT TO CREDIT AGREEMENT dated as of January 16, 2002, by and among,
IMPATH Predictive Oncology, Inc., IMPATH-BIS Inc., Medical Registry Services, Inc.,
IMPATH-BCP Inc., IMPATH-PCRL, Inc., IMPATH HDC, Inc. IMPATH Information Services, Inc.,
and Fleet National Bank.
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|23 |  | Consent
of KPMG
|-- |  | ---------------

|24 |  | Power
of Attorney (see Power of Attorney in Form 10-K)
|-- |  | --------------------------------------------------------

|
|