|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, 2002

Commission file number 0-27750LOGO

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


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


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

Common Stock, $.005 par valueTitle of class
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|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.
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|Aggregate market value as of June 30,
2002               $293,114,130
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|Indicate
by check mark  whether the registrant is an accelerated filer (as defined in Rule 12b-2
of the  Act).
|--------------------------------------------------------------------------------------------------------------
|Yes |X|       No |_|                                                                                          

|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,
2003          16,465,472


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:


2003
Proxy StatementPart III


1
PART I


Item 1. Business.


Overview


IMPATH
Inc., the Cancer Information Company (IMPATH or the
Company), is a corporation 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 biological information it generates from
performing analyses on thousands of cancer specimens annually, and to broaden
the applications of this important information. Since its inception, the Company
has acquired and developed multiple capabilities in the field of cancer 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: IMPATH Physician Services, IMPATH Predictive
Oncology, and IMPATH Information Services.


IMPATH Physician
Services, which currently comprises approximately 81% of overall net 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.
IMPATH Physician Services clients currently include more than 8,700 physicians
specializing in the treatment of cancer patients, in over 2,100 hospitals and
over 630 oncology practices. IMPATH Physician Services has populated a database
that currently contains over 1,000,000 patient profiles.


In
2000, the Company formed its biopharmaceutical/genomics services business that
is now centralized under the IMPATH Predictive Oncology division
(IPO). IPO currently comprises approximately 12% of the
Companys overall net revenue. 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 discovery, 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 assists in the acceleration of oncology drug discovery and
development process for earlier market arrival of FDA-approved targeted
therapeutics.


IMPATH
Information Services which comprises approximately 7% of overall net
revenue, derives revenue through the licensing of software. The Companys
IMPATH Cancer Registry software provides tumor registry software and support to
over 660 sites. In addition, the Company can link its information from the
hundreds of thousands of analyzed specimens from IMPATH Physician Services
with data from its tumor registry business to provide information on diagnosis
and outcomes on tens of thousands of patients. With outcomes information on more
than 2.3 million patients, this information can become increasingly
valuable to those involved in the management of cancer, including physicians,
payors and developers of new therapies. The Company also owns Tamtron
Corporation, a leading provider of pathology information management software,
PowerPath,® to hospitals and laboratories throughout the U.S. Tamtrons
customer base currently includes approximately 375 sites around the country,
processing over 5 million cases per year.


2
The
Companys net revenues were $188.1 million in 2002, representing a 15%
increase over 2001. Income from operations and net income for 2002 were $22.0
million and $10.5 million, respectively. See Management Discussion and Analysis in Part II for
further discussion of net revenues.


The
Companys internet address is www.impath.com. The Companys
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and amendments thereto filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act are available free of charge on the
Companys website as soon as reasonably practicable after such materials
are filed with the Securities and Exchange Commission.


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, include but are not
limited to the failure to continue to successfully integrate the businesses
acquired by the Company, unanticipated disagreements with the Companys
business 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,an inability
to successfully integrate the Companys new laboratory and billing system,
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 affect 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.


3
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 2002), 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 2002, 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 62% in 2002 (ACS Cancer Facts
and Figures).


The
National Institutes of Health estimates that the direct medical costs associated
with cancer were approximately $56 billion (total of all health expenditures) in
2002. 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.


IMPATH Physician Services


The
diagnosis, prognosis, treatment determination and follow-up of cancer are
extremely complex processes, requiring 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).
Affiliated specialties include urology and gynecology. 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.


The
Company believes that IMPATH Physician Services currently performs more
specialized analyses for difficult to diagnose cancer cases 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 newly diagnosed breast cancer cases in the U.S.
in 2002. Among the Companys fastest growing products is the analysis of
lymphomas and leukemias, with these analyses representing 40% of the
Companys case volume in 2002. In particular, lymphoma and leukemia are
disease states 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 analyses which were
subsequently expanded, utilizing multiple technologies, for prognosis of and
therapeutic response in colon cancer.


4
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 2002 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
IMPATH 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.


Competitive
Advantages


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


Expertise.
IMPATH Physician Services specializes in cancer tests that require a level
of medical knowledge and technical expertise not found in the average community
hospital and not readily accessible in academic medical centers. IMPATH believes
that its medical staff has more experience in providing comprehensive
tissue-based diagnostic and prognostic analyses of cancer than virtually any
other affiliated group of practitioners. In 2002, IMPATH Physician Services
received an average of approximately 880 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 more than 1,000,000
cancer cases analyzed to date, with 220,890 cases added during 2002 alone
(excluding discontinued products).


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 patient-specific diagnostic, prognostic and treatment
information, that the Company believes are not readily available from 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.


5
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 IMPATH Physician Services sales force of more than 65
professionals, forming one of the largest oncology-focused sales forces in the
country, educates clients on the benefits of the Companys services in
managing cancer. In contrast, the sales forces of most clinical laboratory
companies market hundreds of disparate, cancer and non-cancer test services.
Many academic institutions, which perform some of the same individual analyses
as the Company, typically do not have substantial sales, 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 large case volume, but
also by the fact that IMPATH 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 assess the therapeutic alternatives 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.


IMPATH Predictive Oncology


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. During the same period, proteomics, or the study of the function of
proteins made by these 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 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.


6
IMPATH Predictive
Oncology (IPO) plays 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 together with
clinical follow-up information. By placing these tissues in our unique
high-throughput array procedure (OptimArray), targets
can be efficiently validated and qualified. For example, 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 through the IMPATH Clinical Trials Network and provides many of
the necessary resources to successfully and efficiently conduct these trials.
For instance, IPO is currently assisting in the identification of the ideal
target population for immunotherapy (e.g., monoclonal antibody therapy, tumor
vaccines, etc.) that includes identifying patients at high-risk, early stage
disease most likely to fail chemotherapy. IPO can also demonstrate, among other
things, in vitro activity of a trial compound using its IMPATH 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 three years, IPO has
entered into numerous agreements to provide a broad range of services in this
area, and is currently participating in many of the ongoing pharmaceutical
initiatives in oncology.


Competitive
Advantages


IPO
has built a more integrated capability to enhance the targeted drug discovery
process by providing coordinated, interrelated platforms to facilitate faster,
cost-effective, targeted product development. This integrated approach is a
departure from the historically fragmented set of resources from which a drug
developer was forced to choose. IPO offers the integration of many critical
components of discovery, including access to patients, physicians, technologies
and outcomes data, allowing the pharmacogenomic industry to accelerate its
target discovery and development program.


IPO
has also developed a worldwide network of sites from which well-characterized
cancer tissue specimens and corresponding serology are procured through its
GeneBank program. Specimens are associated with an informed patient consent as
well as the ability to follow subsequent treatment and outcomes information on
the donors. These specimens are important resources for the identification and
validation of tumor targets for prospective therapies, and facilitate the target
discovery and validation process for genomics and biopharmaceutical companies.
IPO can use its tissue resources, in combination with multiple technologies, to
rapidly assess the validity of potential therapeutic targets. IPO is also a
valuable resource for diagnostic products companies that seek to develop assays
to identify targets in patients. Proactive assay development efforts help these
companies benefit as targeted therapies are approved by the FDA, particularly
since the FDA has been increasingly simultaneously focusing on the related or
companion diagnostic tools.


IMPATHs
ability to access a large number of patients with cancer and their physicians 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 in the U.S. 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), a network of approximately 25 oncology office practices
around the country that conduct clinical trials, help to recruit patients and
manage clinical trials in the community setting.


IMPATH
believes it provides important information on more cancer cases than any of its
competitors. The Company is well-positioned to leverage its capabilities and
resources to continue to grow its business, serving those involved in the
management of cancer.


7
IMPATH Information Services


In the course of performing sophisticated analyses on hundreds of thousands
of tumor samples, IMPATH gathers vast amounts of important biological
information. 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.


The
Company also believes that its acquisition of Tamtron Corporation and its PowerPath® pathology
information management software, which facilitates the collection and analysis of
diagnostic data within hospitals and laboratories, will enable those hospitals and
laboratories to better manage their pathology services and enable the  Company to broaden
its existing client relationships, while leveraging the Companys relationships within
the oncology community. These acquisitions 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 software provides capabilities and value-added
features that are unique in the industry. Further, because the Company believes
that IMPATH Physician Services 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 of trials. The Company is
also seeking to link this data to outcomes and cost information in order to
demonstrate the value of IMPATH Physician Services to payors and to provide new
cancer information services to providers, payors, biopharmaceutical and large
pharmaceutical companies and clinical research organizations. See Company
Strategy.


Company Strategy


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


IMPATH
Physician Services


Increase
market penetration of diagnostic and prognostic services. IMPATH 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 1998
was 129,001; in 2002 that figure increased to 220,890 (excluding discontinued
products), representing an average annual growth rate of 21%. Partly 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 also increased from approximately $377 in 1998 to approximately $693 in
2002, representing an average annual increase of 12%.


Contracting
with managed care networks represents an important business opportunity for the
Company because, in many cases, unnecessary treatment can be avoided and
significant cost savings can be achieved through the relatively inexpensive
services provided by the Company. An IMPATH Physician Services case analysis typically
costs between $300 and $1,500 and contains information which can be critical for
physicians and payors to avoid ineffective courses of therapy costing many
thousands of dollars. The Company is currently determined to expand its presence
in managed care by marketing the cost-effectiveness and clinical benefits of its
services and assisting managed care companies in developing cancer treatment
protocols. This is particularly important with the large national payors,
with whom the Company has had limited success in contracting. The Company
currently has 712 contracts in place with providers as follows: 132 contracts
with health plans, 182 with HMOs, 126 with independent physician associations
(IPAs) 70 with medical groups, 103 with preferred provider
organizations and 99 with third party administrators (TPAs), and continues in
its efforts to increase its presence as a preferred provider.


8
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 may be other similar acquisition and or alliance 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.
As an example, in December 2002, the Company entered into a multi-year agreement
with GeneMatrix Inc. to provide IMPATH Physician Services in South Korea. The Company
intends to pursue similar opportunities by partnering with international
physician oncology networks and hospital groups, and by partnering with international
pharmaceutical companies for their drug development efforts. The
Companys efforts will be directed to regions or countries where
sophisticated treatment technologies are currently in use and which the Company
believes would benefit from its services.


IMPATH
Predictive Oncology


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 business
focused on supporting oncology drug discovery and development. The business has
been designed to support all phases of oncology drug development, including
discovery, 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 continues to evolve. 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 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 provide 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.


9
IMPATH
Information Services


IMPATH
Cancer Registry software will continue to be marketed to hospitals and state
agencies while the Company continues to populate its database of relevant
biological and treatment and outcomes information in oncology.


The
Companys acquisition of Tamtron Corporation in January 2002 enables IMPATH
to market PowerPath® software products to hospitals, laboratories
and others providing pathology services. The Company also
believes there are attractive opportunities to
create internal operating efficiencies. In fact, in February 2003 the
Company announced it plans to adopt PowerPath® as its own laboratory and
billing information system to provide a foundation for operational enhancement,
increased efficiency, and improved financial performance.


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. Through the use of integrated advanced
technology, IMPATH Physician Services provides 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 in general, 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 and 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, for example, the tumors appearance under
the microscope (i.e., 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 little 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 leads
to an accurate diagnosis, thus ensuring optimization of therapy, greater
predictability of outcome, increased survival rates and decreased overall costs.


10
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 effectively. 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 cancers 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 treated aggressively and at
the earliest possible time can help 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 may be 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. IMPATH Physician
Services provides information that can help to predict the specific types of
therapy to which a particular tumor will likely 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, chemotherapy or Herceptin(1), a
targeted therapy) 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 essential for optimal cancer management.


Treatment/Follow-up.Once a cancer has been diagnosed, assessed and treated, the patient must
often undergo many years of follow-up care involving multiple patient contacts
and repeat analyses. This care not only provides for the treatment of
therapeutic complications 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 lymphoma 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.


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 resources to provide the
information necessary for optimal cancer management.


(1) Herceptin is a trademark of Genentech Inc.


11
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 generally only 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 practical
experience generally leads to superior professional and technical expertise. The
average community hospital pathologist most likely does not see a substantial
volume or range of cases and, therefore, is less experienced in choosing the
correct testing methodology to evaluate the data. Such hospital pathologists
also lack the technical support or infrastructure necessary to perform the
tests. Even when these technologies exist at academic medical centers, they
typically exist in separate 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 and providing the
comprehensive cancer information critical for optimal cancer management.


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

|12
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. IHC is superior to standard
biochemical assays because it provides faster results, can be used on smaller
tissue samples, has less stringent requirements for specimen storage, and most
importantly, predicts outcomes more accurately.


Flow
Cytometry and Image Analysis


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


Molecular
Pathology


The
next generation of commercial diagnostic and prognostic testing is generally
expected to be based on molecular biology, since a disease or condition may be
associated with the presence of an abnormality in DNA or RNA. A specimen may be
tested for a particular disease or condition by finding and marking this
abnormality. 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.


13
Micrometastases
Detection


Micrometastases
is the minute spread of cancer cells from one part of the body to another. The
presence of these occult tumor cells in bone marrow and lymph nodes serves as an
important means of stratifying cancer patients and predicting a poor clinical
outcome. IMPATH Physician Services employs IHC detection to determine
micrometastases across a range of tumor types. This method allows for the
detection of one tumor cell in as many as 1,000,000 normal cells.


IMPATH
Drug  Resistance Assay


The
primary reason cancer patients fail to respond to chemotherapy is drug
resistance. The IMPATH 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 that 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.


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, the cost of the treatment alone is
not always the best indicator. For example, more expensive initial 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 cost, 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
at the earliest point. 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.


With
over 1,000,000 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: approximately
400,000 breast cancer prognostics and treatment profiles; 260,000 complex cancer
diagnoses; 285,000 lymphoma and leukemia classifications; and 105,000 analyses
of other cancers (e.g., bladder, uterine and prostate).


14
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 2002, the Company provided
patient-specific prognostic information on approximately 30% of all such cases
in the U.S., and in over 32% of cases diagnosed in the New York metropolitan
area, California and Florida, which are the Companys largest markets.


Management
of Lymphoma/Leukemia


The
value of IMPATH Physician Services integrated approach to providing cancer
information is especially well-demonstrated in the clinical management of
hematopoietic malignancies, such as lymphomas and leukemias, particularly as
scientific advances improve our understanding of these diseases. The clinical
management of hematopoietic malignancies requires a comprehensive approach that
includes analysis by hematopathologists and the use of advanced diagnostic and
prognostic technology. The Company utilizes multiple technologies, including
immunohistochemistry, flow cytometry, cytogenetics and molecular analyses to
diagnose and classify these hematopoietic malignancies. Most community hospitals
do not have hematopathologists or the technologies required for such analyses.
Using the information from IMPATH Physician Services analysis, a physician can
tailor therapies 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 2002, of all the suspected lymphoma cases sent to
IMPATH Physician Services for analysis, approximately 10-15% were found to be an
infection or inflammation rather than cancer. Prior to the development of
certain technologies used by the Company, such cases may have been misdiagnosed
as cancer. In the cases identified by IMPATH Physician Services as not being cancer,
patients who were suspected of having a hematopoietic malignancy were spared the
trauma, risk and cost associated with unnecessary treatment. Of the cases sent
to the Company in 2002 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.


Lymphomas and
leukemias represent a type of cancer where the classification and
grading of the disease provides critical information that influences the
selection of therapy, predicts the response to therapy and indicates the likely
outcomes for the patient. The characteristics that distinguish the various types
of leukemias can be identified by the technology employed by IMPATH Physician Services.
For example, in many cases, chromosomal 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.


15
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 prostate
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


IMPATH
Physician Services


As
of December 31, 2002, the IMPATH Physician Services Sales and Marketing team
consisted of 87 employees, including a Senior Vice President of Sales and
Marketing; a Vice President of Sales, a Vice President of Marketing; 11
marketing personnel, 4 regional directors, and 69 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 IMPATH Physician
Services sales force distinguishes it from its competitors.


IMPATH
supports its IMPATH 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. 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 and
frequent expert consultation. The Company also employs customer service
representatives, who are responsible for inquiries made by referring physicians
and who provide support for the Companys sales staff.


IMPATH
Predictive Oncology


As
of December 31, 2002, IPOs sales force consisted of six sales
representatives that target 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 IMPATH 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
and a Vice President of Business Development) works closely with several sales
representatives in developing customer-specific project specifications. Various
members of the team interact regularly with clients to ensure integration of
services and rapid response to customer needs. Company representatives attend
trade shows and regional industry meetings related to The Companys
integrated oncology services and their potential application for its genomics,
biotechnology and pharmaceutical clients. Collateral literature is also produced
to support long-term growth objectives in each product initiative within IPO.


16
IMPATH
Information Services


As
of December 31, 2002, the IMPATH Cancer Registry software sales force consisted
of two primary direct sales people supported, as necessary, by
seven client service representatives. 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 an internal sales and marketing staff, guide
sales efforts. In addition, a marketing manager within the corporate marketing
department is dedicated to the IMPATH Information Services division. Division
representatives regularly attend national and local tradeshows, plan and host
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 prepare newsletters and other collateral
marketing support literature.


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.


Tamtrons
software products include the flagship PowerPath® Anatomic Pathology System
and the PowerPath® Accounts Receivable system. PowerPath® is currently
being used in the collection of diagnostic data and the delivery of pathology reports at 375 sites that offer surgical
pathology, cytology and autopsy services. The PowerPath® product is sold
primarily by the Companys three direct sales representatives. 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


IMPATH
Physician Services


IMPATH
Physician Services operates in a segment of the health care industry that is
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, the continued
availability of investment capital and government funding for cancer-related
research, and consolidation in the industry.


IMPATH
Predictive Oncology


IPO
competes in an environment of large academic centers, research boutiques,
biotechnology companies, site management organizations and contract research
organizations. The industry landscape is very fragmented, for example, genomics
companies in need of access to well-defined human tissue, clinical data, or
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. 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.


17
IPOs
actual or potential competitors include large academic centers, research
boutiques, biotechnology companies, site management organizations, contract
research organizations and diagnostic product companies. These competitors may
have substantially greater financial, marketing and logistical resources than
the Company. It is anticipated that competition will continue to increase due to
the continued growth in the biotechnology sector and continued research in this
field.


IMPATH
Information Services


The
IMPATH Information Services division generates revenue through the sale of its
IMPATH Cancer Registry and PowerPath® software products, as well as through
the maintenance and service of such software. Competitors for ICR 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 that it
also provides a product with significantly more capabilities and value-added
features than its competitors.Tamtrons proprietary
PowerPath® system is currently installed in approximately 375
sites nationwide and encompasses the full perspective of anatomic pathology
workflow with features such as multi-site, scalability and customizable case
reporting and tracking. Competitors in this area consist of several large,
public Healthcare Information Services companies.


Reimbursement


The
Company typically bills third-party payors, such as private insurance plans,
managed care plans, Medicare and Medicaid, and hospitals, for services rendered
through IMPATH Physician Services. Services rendered by the other divisions
are paid in accordance with contracts or agreements with customers.


During
2002, 2001 and 2000, the Company received the following estimated percentages of
its total net revenue for diagnostic and prognostic services from the respective
payors identified below:
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| | Year Ended December 31,        | 
| | ------------------------------ | 
|
| | Hospitals                      | 
| | Private insurance/managed care | 
| | Medicare                       | 
| | Individual patients            | 
| |                                | 
| | Total                          | 
| |                                | 
| |                                | 

|For
a discussion of the changes in these percentages in 2002, 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 a 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.


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
healthcare 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 Medicare+Choice program will
have on the Companys future Medicare revenues.


18
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. Additionally, 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. The Company is not aware of any
ongoing investigations into its billing practices. In January 2001, 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 in 2001 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 were included in
selling, general and administrative expenses for the year ended December 31,
2001.


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 (CF) used to calculate the physician fee
schedule, although other factors in the formula used to calculate payments
actually increased. In 2002, CMS announced other changes that affect Medicare
payments for physician pathology services. On December 31, 2002, CMS announced a
4.4% cut in the CF used to calculate the physician fee schedule for 2002
effective March 1, 2003. As a result of legislation subsequently passed by
Congress, however, CMS revised its calculation of the CF, negated the cut, and
instituted an increase of approximately 1.6% effective March 1, 2003. The CF
increase applies to all IMPATH Physician Services, including those furnished by the
Company, however, payment for individual services may vary by a higher or lower
percentage because of changes to other components of the payment calculation.


19
In
addition, in June 2002, CMS proposed changes in how it calculates the global
fee, and the professional and technical components of physician pathology
services. That change in the methodology could have resulted in decreases in the
payment for some physician pathology services. On December 31, 2002, however,
CMS announced it would delay for one year this change in methodology while the
laboratory industry attempted to gather additional data concerning its costs.
That data, if it is ultimately collected, could assist with the calculations of
the amount that will be paid for physician pathology services in 2004. However,
what the data will show, if it is collected, or what its impact ultimately will
be on the amounts paid for physician pathology services, cannot be predicted.


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 revenue. On January 1, 2003, payment for clinical laboratory
services was increased by 1.1% to reflect recent changes in the Consumer Price
Index.


Independent
companies such as IMPATH have been permitted to bill globally for the diagnostic
and prognostic services furnished to hospital inpatients and outpatients. This
means 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 in-patients and require such companies to bill the TC to
the hospital. Subsequently, it also announced that the same rule would apply to
hospital outpatients. 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
in-patients and out-patients. For these covered hospitals the
Company was permitted to 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 was directed to make a report to Congress on the impact of
this provision. A portion of IMPATHs hospital business falls under the
grandfathered provision. Although the legislative grandfather
provision expired on January 1, 2003, CMS has indicated its intention to extend
the grandfather provision for an additional year. In addition, the GAO report,
called for by BIPA, has yet to be completed.


20
Quality Assurance


IMPATH
engages in a number of quality control procedures, many of which the Company
believes exceed industry norms. Each of IMPATHs reagents is selected from
various suppliers based on 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 (
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 the Centers for Medicare and
Medicaid Services (CMS), permitted by New York State, licensed by the State of
California Laboratory Field Services, the State of Florida, the State of Maryland, the State
of Pennsylvania, and the State of Rhode Island and hold certificates of accreditation
under the Clinical Laboratories Improvement and 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 this 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 under the Centers for
Medicare and Medicaid Services 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.


21
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 or CAP 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 Final Rule was
recently revised on January 24, 2003. 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 registration
requirements relating to the procurement and storage of tissue/tumor samples.
IPO is registered by the FDA as a Blood Establishment and holds an import permit
with the CDC and is certified by CLIA, and the State of New York and the State
of California Laboratory Field Services.


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.


22
Because
the anti-kickback rules have been broadly interpreted, they could limit the
manner in which the Company conducts its business. The Company believes that it
currently complies with the anti-kickback rules in planning its activities, and
believes that its activities, even if not within a safe harbor, do not violate
the anti-kickback statute. However, no assurance can be given regarding
compliance in any particular factual situation. Exclusion of the Company from
the Medicare program could result in a significant loss of reimbursement and
have a material adverse effect on the Company.


Self
Referral Regulations.Under another provision, known as the
Stark law or self-referral prohibition, physicians who
have an investment or compensation relationship with an entity furnishing
certain designated health services, including clinical laboratory services
(including pathology services) may not, subject to certain exceptions, refer
clinical laboratory analyses for Medicare or Medicaid patients to that entity.
Similarly, facilities may not bill Medicare, Medicaid or any other party for
services furnished pursuant to a prohibited referral. Violation of these
provisions may result in disallowance of Medicare and Medicaid claims for the
affected analysis services, as well as the imposition of civil monetary
penalties and program exclusion. Under the Stark law and the regulations
implementing the law, a physician may make payments to a clinical laboratory in
exchange for the facilitys provision of clinical laboratory services and
continue to refer Medicare patients to that laboratory. The federal government
announced new regulations under the Stark law, which went into effect in January
2002. The Company did not experience a material impact on its business
operations as a result of these new regulations .


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 that may
exist in Arizona or New York. In California, the Company has employed
pathologists, and is restructuring its arrangements with these pathologists in a
manner that the Company believes will not violate the corporate practice
prohibition. There can be no assurance that future interpretations of the
fee-splitting laws, or the laws regarding the corporate practice of medicine
will not require other 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.


23
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 (ASRs) 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 home
brew 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 most tests performed with
ASRs.


The
FDA has recently indicated that it is reviewing the use of tests performed with
ASRs, especially with regard to genetic tests, and may impose additional
requirements on such testing. Specifically, in 2000, an HHS Advisory Committee,
the Secretarys Advisory Committee on Genetic Testing (SACGT),
recommended that FDA take a larger role in regulating genetic testing, including
that done using ASRs. The charter of that Committee has expired, and a new
Advisory Committee, the Secretarys Advisory Committee on Genetics, Heath
and Society (SACGHS), has now been formed to advise the Secretary of
HHS on the impact of genetic technologies on society. In addition, the federal
Centers for Disease Control and Prevention has published a notice of its intent
to revise the CLIA regulations to recognize genetic testing as a separate
specialty. Finally, the Secretary of HHS has said in a letter to a laboratory
trade association that the FDA is considering whether it might be appropriate to
revisit the ASR rule with respect to laboratory developed or home
brew genetic tests. The letter states that such changes would permit
interested parties an opportunity to provide comment on any proposals made. As a
result of these various initiatives, it is possible that genetic testing, such
as that furnished by the Company, could be subject to increased governmental
regulation in the future. The Company cannot predict what impact, if any, such
additional requirements could have on the Company.


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.


24
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 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 August 2002, the federal government finalized 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 14, 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.


Insurance


The
Company is currently covered by general liability insurance in the amount of $11
million per occurrence and $12 million in the aggregate, professional liability
insurance in the amount of $10 million per occurrence and $10 million in the
aggregate for the Companys Medical Directors and other physicians, and
Directors and Officers liability insurance in the amount of $20 million per
occurrence and in the aggregate. The Companys pollution liability
insurance of $5 million per occurrence and $5 million in the aggregate covers
claims relating to the handling and disposal of medical specimens and infectious
and hazardous waste, except in the event of malfeasance or fraud by the Company.
Management believes that these amounts and types of coverage are adequate to
protect the Company and its property against material loss.


Employees


As
of December 31, 2002, the Company had 1,136 full-time and 83 permanent part-time
employees. None of the Companys employees are covered by collective
bargaining agreements. The Company believes its employee relations are good.


25
GLOSSARY


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.


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.


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


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


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


Lymphoma: Any
neoplasm of lymphoid tissue origin.


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


26
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.


Prognostic: Referring
to potential outcome of a disease.


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.


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).


27
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.


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.


28
Item 2. Properties.


The
Companys main facility and executive offices are located at 521 and 533
West 57th Street, New York, New York, where the Company currently leases
approximately 80,000 square feet of space under a 12 1/2-year lease
expiring in 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 primary 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
$1,622,536. 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 11,171 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 $79,524. The Company is also
responsible for all maintenance, property taxes and insurance relating to the
facility.


The
facility and offices of the IMPATH Cancer Registry (ICR) subsidiary
are 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
$86,787. 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 $128,019. The Company is also responsible for all
maintenance, property taxes and insurance relating to the facility. The Company
recently announced that it was closing its Cypress facility and therefore will
no longer require this facility following the end of the lease term.


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 $36,143. The Company is also required to pay for
repairs, property taxes and insurance related to this space.


The
Companys San Jose office is located at 6203 San Ignacio Avenue, San Jose,
California, where the Company has approximately 8,951 square feet of space under
a lease, which expires in March 2004. The lease provides for minimum annual
rental payments of approximately $275,128. The Company is also required to pay
for repairs, property taxes and insurance related to the facility.


The
Companys New York central warehouse is located at 625 West 55th
Street, 5th Floor, New York, New York where the Company has
approximately 8,000 square feet of space under a sublease, which expires January
2005. The Lease provides for minimum annual rental payment of $121,245. The
Company is also required to pay for repairs, property taxes, insurance,
protection and security related to this space.


The
Companys California central warehouse is located at 5340 Alla Road, Los
Angeles, California where the Company has approximately 11,554 square feet of
space under a lease, which expires May 2010. The Lease provides for minimum
annual rental payment of $92,201. The Company is also required to pay for
repairs, property taxes and insurance related to this space.


29
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, results of operations, or
liquidity. See Note 16 of the Companys 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,
2001 through February 28, 2003 (split adjusted).
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------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|                                          | High |  | Low |      
|----------------------------------------- | ---- |  | --- | -----
|Fiscal 2001                               |      |  |     |      
|First Quarter                             |      |  | $   | 69.25
|Second Quarter                            |      |  | $   | 49.30
|Third Quarter                             |      |  | $   | 50.15
|Fourth Quarter                            |      |  | $   | 49.20
|                                         
|Fiscal 2002                               |      | 
|First Quarter                             |      |  | $   | 44.45
|Second Quarter                            |      |  | $   | 41.24
|Third Quarter                             |      |  | $   | 17.90
|Fourth Quarter                            |      |  | $   | 21.25
|                                         
|Fiscal 2003                               |      | 
|First Quarter (through February 28, 2003) |      |  | $   | 23.51

|On
March 21, 2003, the last sale price of the common stock as reported on the
Nasdaq National Market was $14.34. As of January 31, 2003, there were
approximately 64 holders of record of the common stock.


30
Equity Compensation Plan Information


The
table below sets forth information with respect to shares of Common Stock that
may be issued under the Companys equity compensation plans as of December
31, 2002. See note 10 to the Companys Consolidated Financial Statements,
included herein, for further equity compensation details.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                   | Number of securities
      to
      be issued upon exercise
      of outstanding options
      and warrants |           | Weighted-average
      exercise price of
      outstanding options
      and warrants |        | Number of securities
      remaining available for
      future issuance under
      equity compensation
      plans (excluding securities
      reflected in column (a) |          
|------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------- | --------- | ------------------------------------------------------------------------------------- | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------
|
|Equity
      compensation plans
      approved by security holders |                                                                                                             | 2,561,128 |                                                                                       | $21.20 |                                                                                                                                                                          | 2,429,174
|                                                                   |                                                                                                             |           |                                                                                       |        |                                                                                                                                                                          |          
|                                                                   |                                                                                                             |           |                                                                                       |        |                                                                                                                                                                          |          

|31
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 1998 through 2002 and for each of the
years in the five-year period ended December 31, 2002. Such consolidated balance
sheets as of December 31, 2001 and 2002 and consolidated statements of
operations for each of the years in the three-year period ended December 31,
2002 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 (1)                           |                         | 
|Income from operations                     |                         | 
|Net income                                 |                         | 
|Earnings per Share                         |                         | 
|Basic:                                     |                         | 
|                                           |                         | 
|Diluted:                                   |                         | 
|                                           |                         | 
|                                          
|Weighted average common and common         |                         | 
|equivalent shares outstanding              |                         | 
|Basic (2):                                 |                         | 
|                                           |                         | 
|Diluted (2):                               |                         | 
|                                           |                         | 

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

---

|(1) |  | In 2002, the Company made a decision to
reclassify certain bad debt expense
          against net revenues. See further discussion in Item 7 of this annual report on
          Form 10-K and in the footnotes to the consolidated financial statements. Amounts
          reclassified totaled $38.3 million, $26.3 million, $15.4 million, $6.8 million
          and $4.6 million for the years ended December 31, 2002, 2001, 2000, 1999 and
          1998, respectively.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | 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.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|32
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 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.


The
Companys net revenues have increased an average of approximately 39% annually
since 1998. IMPATH Physicians Services revenue have been
derived from performing specialized cancer analyses for which the Company
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. Revenue derived from contractual
relationships with third-party payors provides greater access to patients and
greater certainty regarding expected collections. These contracts also typically
entail negotiated rates, resulting in reduced revenue per case. Other factors
offsetting the impact of lower rates are the increasing number of technologies
employed per patient case and the shift in product mix with a large percentage
of total cases in lymphoma and leukemia, for example. Over the last
few years the result has been a net increase in revenue realization per case.
IPO provides revenue from contract laboratory services, cancer database
and pharmacoeconomic information and clinical trial support services to
genomics, biotechnology and pharmaceutical companies. Information Services
provides revenue by licensing its tumor registry software to community hospitals
and state agencies and pathology information management software, which is
licensed to hospitals and academic medical centers around the country.


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 declines in test volume during summer months, year-end
holidays and other major holidays. Test volume is also subject to declines in
winter months due to weather, which can vary in severity.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                          | Years
      Ended December 31, | 
|----------------------------------------- | ------------------------------ | 
|
|Total
      revenues                      |                                | 
|Operating
      expense:                  |                                | 
|Cost
      of services                    |                                | 
|Selling,
      general and administrative |                                | 
|Depreciation
      and amortization       |                                | 
|Acquired
      in Process R&D             |                                | 
|                                          |                                | 
|Total
      operating expenses            |                                | 
|                                          |                                | 
|Operating
      income                    |                                | 
|                                          |                                | 
|Net
      income                          |                                | 
|                                          |                                | 

|Billings
for services under third-party payor programs, including Medicare and contracted payors
(hospitals, managed care organizations and certain insurers), are recorded as revenues
net of contractual allowances for the differences between amounts billed and the
estimated receipts under such programs. Adjustments to the estimated receipts, based on
final settlement with the third party contracted payors, are also recorded as a reduction
in revenue upon settlement.


The
Company is actively pursuing more contracted payor arrangements, which reflects an
ongoing shift in its reimbursement model. In connection with the preparation of the 2002
consolidated financial statements, for non-contracted payors, the Company commenced
recording as revenue only the estimated payments to be received from the payors.
Previously, the Company had recognized revenue, for non-contracted payors, based on
amounts billed at its standard billing rate with differences between these amounts and
the amounts ultimately estimated to be collected recorded in bad debt expense. The
receipts are received initially from the insurance carrier and when payments are made at
a lower than invoiced amount, the Company attempts to collect the difference from the
patient directly. The Company reclassified its historical consolidated financial
statements for non-contracted payor allowances and for certain types of other
disallowances for insurers and Medicare to show them as reductions in revenue instead of
increases to bad debt expense in selling, general and administrative expense as it had
done in the past. The amounts reclassified totaled $38.3 million, $26.3 million and $15.4
million, respectively for the years ended December 31, 2002, 2001 and 2000, respectively.


The
Company records bad debt provisions which result from, among other things, estimates of
non-collectible primary and co-pay amounts from patients, estimates of certain unpaid
claims from payors from incorrect patient or insurance data. These allowances are also
estimated and recorded at the date of the original service as bad debt expense in
selling, general and administrative expenses.



33
Year Ended December 31, 2002 Compared with Year Ended December 31, 2001


The
Companys total net revenues for the years ended December 31, 2002 and 2001
were $188.1 million and $163.3 million, respectively, representing an increase
of $24.8 million, or 15.2%, in 2002. This growth was primarily attributable to a
14% increase in case volume resulting from increased sales and marketing
activities, as well as growth in lymphoma and leukemia cases, which increased
18% over the year ago period. IPO revenues increased 38.7% to $22.4 million up
from $16.1 million in the year ago period primarily due to the increase in the
numbers of projects with biopharmaceutical companies, as well as the revenue
generated by ICTN. IMPATH Information Services revenues increased 169% to $12.7
million up from $4.7 million in 2001 primarily due to the acquisition of
Tamtron.


The
Company recorded a $9.9 million adjustment to the carrying value of its December
31, 2002 net accounts receivable balance after its annual detailed assessment of
recent collection activities and certain other changes in its collection
practices and policies. The adjustment, after giving consideration to the new
revenue classification recognition approach, was estimated to reduce net
revenues by approximately $5 million and to increase bad debt expenses by
approximately $5 million. The bad debt expense component relates principally to
additional reserves for certain patient payors, including amounts due from
co-pays from insurers and original billings for uninsured patients.



Cost
of services, which primarily includes payroll, laboratory supplies, logistics
and outside services, for the years ended December 31, 2002 and 2001 were $67.5
million and $62.4 million, respectively, representing an increase of $5.1
million, or 8.2%, in 2002. Cost of services in 2002 included a charge in the
first quarter of $1.0 million related to severance agreements in conjunction
with the decision to no longer offer certain non-core products based on
technology purchased from BIS. Cost of services in 2001 included charges of
$650,000 in severance and related costs associated with the Companys
restructuring of its clinical trials business made pursuant to the acquisition
of a clinical trials network from ICSL and $400,000 in compensation expenses for
idled employees in response to the events of September 11, 2001. The increase in
cost of services was necessitated by case volume growth, a continuing product
shift to more complex cases, as well as the costs associated with the operations
of Tamtron. Cost of services as a percentage of total net revenues decreased to
35.9% in 2002, from 38.2% in 2001 due to increased sales for the IPO and IIS
divisions, which has lower associated cost of services as a percentage of
revenues.


Selling,
general and administrative expenses for the years ended December 31, 2002 and
2001 were $72.9 million and $63.6 million, respectively, representing an
increase of $9.4 million, or 14.7%, in 2002. The increase was primarily due to
an increase in the provision for bad debt as a percentage of revenues from 5% in
2001 to 8.7% in 2002 primarily as a result of the December adjustment referred to above.
Earlier in 2002, the Company incurred an additional charge of $1.3 million
related to the discontinuance of certain non-core products from BIS. In 2001,
the Company incurred a charge of $9.7 million for the settlement reached with
the government. Selling, general and administrative expenses as a percentage of net
revenue was 38.8% in 2002 compared to 38.9% in 2001.


Depreciation
and amortization expense for the years ended December 31, 2002 and 2001 was
$24.7 million and $15.9 million, respectively, representing an increase of $8.8
million, or 55.5%, in 2002. This increase was primarily due to a charge of $3.2
million in amortization expense related to the discontinuance of certain
non-core products from BIS, depreciation expense for new furniture and lab
equipment, leasehold improvements incurred in connection with the expansion of
the Companys New York and Los Angeles facilities, the build-out of
warehouses in New York and Los Angeles and the acquisition of Tamtron. The
Company also incurred depreciation expense for enhancements made to the
Companys clinical systems, as well as expenses related to the amortization
of GeneBank. Amortization of goodwill, which totaled $1.2 million in 2001,
ceased as a result of the Companys January 1, 2002 adoption of SFAS 142.
As a percentage of total net revenues, depreciation and amortization expense
increased to 13.2% in 2002 from 9.7% in 2001.


Income
from operations for the years ended December 31, 2002 and 2001 was $22.0 million
and $21.4 million, respectively, representing an increase of $600,000, or 2.8%,
in 2002. As a percentage of total net revenues, income from operations decreased to
11.7% in 2002 from 13.1% in 2001, as a result of the aforementioned charges.


The Company recorded a $900,000 charge
for acquired in process research and development as a result of the Tamtron
acquisition in January 2002.


Other
expense, net for the years ended December 31, 2002 and 2001 was $3.6 million and
$1.9 million, respectively, representing an increase of $1.7 million in 2002.
The increase was primarily due to increased interest expense associated with
capital lease obligations and long-term borrowings, as well as a reduction in
the amount of interest bearing securities on hand and lower interest rates on
its investments.


34
The
tax provision for the year ended December 31, 2002 of approximately $7.9 million
reflects federal, state and local income tax expense. The effective tax rate for
2002 was 43.0% compared to 43.5% in 2001. The decreased effective tax rate
resulted from the elimination of certain non deductible goodwill amortization
charges.


Net
income for the years ended December 31, 2002 and 2001 was $10.5 million and
$11.0 million, respectively, representing a decrease of $500,000, or 4.5%, in
2002. Due to the aforementioned charges, net income as a percentage of net revenue
decreased to 5.6% in 2002 from 6.7% in 2001.


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


The
Companys total net revenues for the years ended December 31, 2001 and 2000
were $163.3 million and $122.8 million, respectively, representing an increase
of $40.5 million, or 32.9%, 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 services, 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 31.8%, 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 2001 of $650,000 in severance and
related costs associated with the Companys restructuring of its clinical
trial business made in connection with the acquisition of an oncology 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 services as a percentage of total net revenues
decreased to 38.2% in 2001 from 38.6% in 2000. This decrease was due primarily
to the 19% revenue per case increase realized in physician services and improved
margins generated from IPO.


Selling,
general and administrative expenses for the years ended December 31, 2001 and
2000 were $63.6 million and $44.4 million, respectively, representing an
increase of $19.1 million, or 43.1%, in 2001. The increase is primarily due to
certain 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 net revenues increased to 38.9 % in 2001
from 36.2% in 2000 as a result of the aforementioned 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 net revenues,
depreciation and amortization expense increased to 9.7% in 2001 from 8.7% 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.


35
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
5.5%, 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 net
revenues, income from operations decreased to 13.1% in 2001 from 16.5% in 2000,
due to the aforementioned 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 15.1%, in
2001. Due to the aforementioned charges, net income as a percentage of net revenues
decreased to 6.7% in 2001 from 10.5% in 2000.


Liquidity and Capital Resources


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


Cash
and cash equivalents at December 31, 2002 totaled $4.8 million, a decrease of
$4.9 million from the prior year. The Company also had approximately $4.8
million in marketable securities at December 31, 2002, representing a decrease
of $11.7 million from the $16.5 million at December 31, 2001. The net decrease
in cash and cash equivalents was due to cash used in investing activities, which
included $28.6 million related to the acquisition of Tamtron, $17.3 million in
capital expenditures, and $13.3 million related to the purchase of GeneBank
tissue samples, offset by operating activities which generated cash in 2002,
and included $10.5 million of net income. Financing activities included $36.6 million drawn against the
term loan and line of credit, as well as $1.4 million from the issuance of
common stock upon exercise of the Companys stock options and $1.2 million
related to purchases under the employee stock purchase plan. There was also
$16.0 million of cash used for capital lease payments, $2.9 million in
acquisition related note payments, and $652,000 in treasury stock repurchases.


36
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 also acts as Agent for the lenders, replaced the
Companys previous $15 million unsecured line of credit that expired on
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 is to be repaid over
a five-year period, with interest only payable for the first twelve months.
Thereafter, the loan is payable in seventeen payments of principal plus
interest, with principal payments of $4.9 million due quarterly in each of 2003,
2004, 2005 and 2006 and a final principal payment of $8.4 million due in 2007.
Both the revolving credit line and the term loan currently bears interest at
LIBOR plus 1.75%, which was approximately 3.2% at December 31, 2002. On October
18, 2002, the Company amended its Senior Secured Credit Facility to increase the
availability under its revolving credit line from $25 million to $40 million.
The amended credit facility continues to be syndicated by Fleet National Bank,
which acts as agent for the lenders. Including the Companys $28 million term loan, the credit
facility after giving effect to the amendment is $68 million. As of December 31,
2002, the Company had $27.6 million outstanding under the revolving credit line
and $28 million drawn down from the term loan. The Company had fully drawn
against the term loan and had $12.4 million remaining available under the line
of credit at December 31, 2002. As of March 24, 2003 the Company had borrowed an
additional $7 million on the line of credit and had $5.4 million remaining as
available. The $27.6 million under the revolving credit line is due in full in
2006. In connection with the amended facility, the Company also amended certain
debt covenants contained in the original facility.


During the fourth quarter of
2002, the Company was non-compliant with one of the debt covenants under the
Senior Secured Credit Facility. On March 31, 2003, the fourth quarter of 2002
debt covenants and certain future covenant calculations were amended and the
Company was in compliance with the amended covenants. In connection with the
amendment, certain higher interest rates are to be charged on future borrowings
(up to 0.50% higher). The covenants are principally related to current ratios,
stockholders equity and debt to earnings before interest, depreciation and
amortization (EBITDA) ratios.


The
Companys growth strategy in 2003 is anticipated to be financed through its
current cash resources, existing third-party credit facilities, cash flows from
operations or other strategic arrangements. The Companys 2003 planned
expenditures include no cash payments for business acquisitions and decreased
investment in capital expenditures and GeneBank purchases compared to 2002,
the majority of which are discretionary and are not based on firm commitments.
In terms of financing activities, the Company expects to need approximately $16
million to fund capital lease obligations and $5 million for debt service in
2003. Based on the Companys availability under its credit facility
described above and its projected operating results (which include certain cost
containment measures which have already begun to be implemented) it believes it
will have adequate liquid resources at least through 2003. However, the Company
will carefully monitor its liquidity situation through 2003 and if required, has
the ability and intent, to further reduce planned discretionary investing
activities. If needed, the Company also has availability of approximately $13.2
million in capital lease financing which could be used, if necessary, to assist
in financing certain capital expenditures. The Company will require, over the
longer term, new funding to continue its growth strategy and fund the
Companys investment needs, including capital expenditures and other
infrastructure costs. There may be circumstances, in addition, that would expand
the Companys use of cash resources, specifically, acquisitions of
businesses or technologies that could require additional liquidity. Because of
the Companys short and long-term capital requirements, the Company may
seek access to public or private debt, equity markets or other strategic
arrangements. The Company may also seek additional funding through corporate
collaborations and other financing vehicles, potentially including off-balance
sheet financing through limited partnerships or corporations. There can be no
assurance that such funding will be available at all or at terms acceptable to
the Company. If funding is not available, the Company may have to limit its
growth and expansion activities. If the Company obtains funds through
arrangements with collaborative partners or others, the Company may be required
to relinquish rights to certain of our technologies or product candidates. See
Forward-Looking Statements


37
Stock Repurchase Plan


On
May 7, 2002, the Company announced its intentions to resume its repurchase of
shares of the Companys common stock. The share repurchase program was
approved by the Companys board of directors in January of 2000 and
authorized the repurchase of up to $15,000,000 of common stock of the Company
from time to time in open market or private transactions, depending on market
conditions, share price and other considerations. In May 2002, the Company
repurchased 30,000 shares for approximately $650,000. At December 31, 2002,
approximately $13 million remains available for repurchases under the program.
Any additional purchases will be funded from available cash and working capital.


Dividend Policy


The
Company has not declared nor paid cash dividends on its common stock and does
not anticipate paying dividends on the Companys common stock in the
foreseeable future.


Contractual Obligations and Commitments


The
following table summarizes certain contractual obligations of the Company as of
December 31, 2002. See Notes 9 and 16 of the Consolidated Financial Statements
for further details.


(dollars in thousands)
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------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|                                   | Payments Due By Period | 
|---------------------------------- | ---------------------- | 
|
|                                  
|Term loan                          |                        | 
|Revolving line of credit           |                        | 
|Capital lease obligations          |                        | 
|Operating leases obligations       |                        | 
|                                   |                        | 
|                                  
|Total contractual cash obligations |                        | 
|                                   |                        | 

|The
Company has lines of credit for financing equipment, leasehold improvements and
hardware and software with various third party lenders in addition to its
Secured Credit Facility. At December 31, 2002, the Company has several credit
lines which aggregate to $80.9 million, of which $67.7 million has been drawn
against. The leases have terms of 48 months at rates between the yield of 4-year
treasury notes and the yield of 4-year treasury notes plus .35%.


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 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 and provides for certain payments to the executive in the event of a
change in control of the Company. The terms and conditions of such arrangements
are set forth in the agreements, which have all been filed with the Securities
and Exchange Commission.


38
Acquisitions


On
January 18, 2002, the Company completed its acquisition of Tamtron, part of the Companys Information
Services division, for $25.9
million in cash, plus debt repayment of $651,000, as well as acquisition
expenses of $2.6 million for a total purchase price of $29.2 million. Tamtron is
a San Jose, California, based company whose flagship PowerPath® software is
designed specifically to assist companies who provide surgical pathology,
cytology and autopsy services (e.g. anatomic pathology) in streamlining
operations and supporting multi-site or multi-entity healthcare networks. 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.


The
acquisition has been accounted for under the purchase method, in accordance with
SFAS 141, pursuant to which the purchase price is allocated to the underlying
assets and liabilities based on their estimated fair values. The resulting
goodwill from this transaction of $21.4 million will not be amortized, and
intangibles of $11.0 million will be amortized over periods ranging from five to
fifteen years. The following table reflects the allocation of the purchase
price:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                          | 
|--------------------------------------------------------- | 
|Cash                                                      | 
|Prepaid expenses and other current assets                 | 
|Accounts receivables, net of allowance                    | 
|Property and equipment, net of accumulated depreciation   | 
|Intangible assets  customer lists and acquired software  | 
|Goodwill                                                  | 
|Acquired in process research & development                | 
|Current and other liabilities, including deferred revenue | 
|Deferred tax liability, net                               | 
|                                                          | 
|                                                          | 
|                                                          | 

|Tamtrons
current customer base includes more than 375 sites, including hospitals and
academic medical centers around the country, which process over 5 million cases
per year. Pro forma comparative historical results (unaudited) for the twelve months ended
December 31, 2001, adjusted as if Tamtron had been acquired on January 1, 2001,
were $173.1 million in revenue, $11.1 million in net income which includes
$900,000 in an acquired research and development charge, and $0.66 in diluted
earnings per share. The pro forma results are not necessarily indicative of what
actually would have occurred if the acquisition had been completed as of January
1, 2001, nor are they necessarily indicative of future results. The 2002 results
for the Company did not include 18 days of operations of Tamtron, but no pro
forma is presented as the effect is not material.



39
CRITICAL ACCOUNTING POLICIES


The
preparation of the financial statements in conformity with accounting principles
generally accepted in the United States of America requires the Company to make
estimates and assumptions and select accounting policies that affect the 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 in the
Companys financial statements. Material differences may result in the
amount and timing of the Companys revenue and expenses for any period if
management made different judgments or utilized different estimates. Due to the
nature of the Companys business, several of its accounting policies
involve significant estimates and judgments including:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |  |  | estimation
of valuation allowances, specifically contractual allowances, other revenue
allowances and allowance for doubtful accounts;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------

| |  |  | fixed
assets;
| | - |  | -------------

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

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

|Revenue
recognition. IMPATH Physician Services generally recognizes revenue for
services rendered upon completion of the testing process. Certain costs incurred
by the Company on uncompleted tests at the end of a reporting period are
deferred until the test is completed and the revenue is recognized.


Billings
for services under third-party payor programs, including Medicare and contracted payors
(hospitals, managed care organizations and certain insurers), are recorded as revenues
net of contractual allowances for the differences between amounts billed and the
estimated receipts under such programs. Adjustments to the estimated receipts, based on
final settlement with the third party contracted payors, are also recorded as a reduction
in revenue upon settlement.


The
Company is actively pursuing more contracted payor arrangements, which reflects an
ongoing shift in its reimbursement model. In connection with the preparation of the 2002
consolidated financial statements, for non-contracted payors, the Company commenced
recording as revenue only the estimated payments to be received from the payors.
Previously, the Company had recognized revenue, for non-contracted payors, based on
amounts billed at its standard billing rate with differences between these amounts and
the amounts ultimately estimated to be collected recorded in bad debt expense. The
receipts are received initially from the insurance carrier and when payments are made at
a lower than invoiced amount, the Company attempts to collect the difference from the
patient directly. The Company reclassified its historical consolidated financial
statements for non-contracted payor allowances and for certain types of other
disallowances for insurers and Medicare to show them as reductions in revenue instead of
increases to bad debt expense in selling, general and administrative expense as it had
done in the past. The amounts reclassified totaled $38.3 million, $26.3 million and $15.4
million, respectively for the years ended December 31, 2002, 2001 and 2000, respectively.


The
Company records bad debt provisions which result from, among other things, estimates of
non-collectible primary and co-pay amounts from patients, estimates of certain unpaid
claims from payors from incorrect patient or insurance data. These allowances are also
estimated and recorded at the date of the original service as bad debt expense in
selling, general and administrative expenses.



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 a portion of IMPATH Information Service is deferred and recognized on a
straight-line basis over the term of the agreement. The Company also utilizes the
percentage of completion method (AICPA Statement of Position No. 81-1, Accounting for
Performance of Construction Type and Certain Production-Type Contracts)
in order to recognize certain revenue from software sales
and installations included in this segment over the three-to-six month period of time for
installation and acceptance testing and when collection of the resulting receivable is
reasonably assured. Many of these software sales also have support and maintenance
components for which a specific payment is received in advance but is deferred and
revenue is recognized on a straight line basis over the term of the agreement.


Estimation
of valuation allowances.      The process for estimating the collection of
receivables involves significant assumptions and judgments. Receivables are presented on
the balance sheet at net realizable value and include provision for contractual and other
revenue allowances for differences between amounts billed and estimated receipts for
services under third-party payor programs, including Medicare, Medicaid, and from
non-contracted payors, and for bad debts as a result of a variety of factors. Management
specifically analyzes accounts receivable and analyzes contractual and other revenue
allowances, historical bad debts, customer concentrations, customer credit-worthiness,
current economic trends and changes in the Companys customer payment terms when
evaluating the adequacy of the contractual and other revenue allowances and allowance for
doubtful accounts. The Companys net accounts receivable balance was $69.0 million, net
of the contractual and bad debt allowance reserves of $94.9 million as of December 31,
2002.


Significant
 management  judgment is required in determining these allowances.  In the event that
actual  collections differ from these estimates,  the Company may need to establish
larger reserves which could  materially  impact the Companys  financial position and
results of operations.




40
Significant
management judgment is required in determining these allowances. In the event that actual
collections differ from these estimates, the Company may need to establish larger
reserves which could materially impact the Companys financial position and results of
operations.


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 $2,274,000 or approximately
$0.14 per diluted share after taxes, approximately $1,932,000 or approximately
$0.07 per diluted share after taxes (split adjusted) and $1,132,000 or
approximately $0.04 per diluted share after taxes (split adjusted), of internal
payroll costs in 2002, 2001 and 2000 respectively, as they related directly to
internal system implementation, upgrade and enhancement activities.


Accounting for
income taxes.As part of the process of preparing the
Companys consolidated financial statements the Company is required to
estimate its income taxes in each of the jurisdictions in which it operates.
This process involves the estimation of the Companys 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 the Companys consolidated balance sheets. The Company must
then assess the likelihood that the deferred tax assets will be recovered from
future taxable income and to the extent the Company believes that recovery is not
likely, the Company must establish a valuation allowance. To the extent the
Company establishes a valuation allowance or increases this allowance in a
period, it must include an expense within the tax provision in the statement of
operations.


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


Valuation of
long-lived and intangible assets and goodwill. The Company adopted the
provisions of SFAS 142 on January 1, 2002. Goodwill will no longer be amortized
but rather tested for impairment at least annually. As a result, the Company
ceased amortizing goodwill effective January 1, 2002. In accordance with the
provisions of SFAS 142, all goodwill was assigned to the Companys three
reporting units, which are the same as the Companys reporting segments.
Annually, the Company considers whether goodwill is impaired by comparing the
carrying value of the reporting unit, including goodwill, to the fair value of
the reporting unit. The fair values of the reporting units are based on
management estimates using discounted cash flow assumptions. Such estimates
include a considerable amount of management judgment and there is potential for
material impact to the Companys financial position and results of
operations in the event that such estimates significantly change. The Company
performed its annual impairment test as of December 31, 2002. The impairment
test indicated that no goodwill impairment existed as of December 31, 2002.


The
Company adopted the provisions of Statement of Financial Accounting Standard
(SFAS) 144 on January 1, 2002. In accordance with SFAS 144, long-lived assets,
such as property, plant and equipment, and intangible assets subject to
amortization, are reviewed for impairment whenever events and circumstances
indicate the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the carrying amount
of an asset to estimated undiscounted cash flows expected to be generated by the
asset. If the carrying amount of the asset exceeds its estimated future cash
flows, an impairment charge is recognized by the amount which the carrying
amount of the asset exceeds the fair value of the asset. The Company estimates
fair value of an asset by calculating that assets future cash flows
discounted by an interest rate that reflects its average cost of funds.


Net
long-lived assets, intangibles, and goodwill amounted to $179 million as of
December 31, 2002.


41
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 believes that continued growth in its
businesses and advancements in science and technology (and the resulting impact
on the Companys product mix and sales and marketing efforts) will reduce
the potential impact of inflation or changing prices.


Recently Issued Accounting Standards


In
June 2001, FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 requires the Company to record the fair value of
an asset retirement obligation as a liability in the period in which it incurs a
legal obligation associated with the retirement of tangible long-lived assets
that result from the acquisitions, construction, development, and/or normal use
of the assets. The Company also records a corresponding asset that is
depreciated over the life of the asset. Subsequent to the initial measurement of
the asset retirement obligation, the obligation will be adjusted at the end of
each period to reflect the passage of time and changes in the estimated future
cash flows underlying the obligation. The Company is required to adopt SFAS No.
143 on January 1, 2003. The Company has not yet determined the impact, if any,
of the adoption of SFAS No. 143 on its consolidated financial statements.


In
April 2002, the FASB issued SFAS No. 145, Rescission of FASB No. 4, 44 and
64, Amendment of FASB Statement No. 13, and Technical Corrections
(SFAS 145"). SFAS 145 updates, clarifies and simplifies existing
accounting pronouncements. SFAS 145 rescinds Statement No. 4, which required all
gains and losses from extinguishment of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. As a
result, the criteria in APB No. 30 will now be used to classify those gains and
losses because Statement No. 4 has been rescinded. Statement No. 44 was issued
to establish accounting requirements for the effects of transition to provisions
of the Motor Carrier Act of 1980. Because the transition has been completed,
Statement No. 44 is no longer necessary. SFAS 145 amends Statement No. 13 to
require that certain lease modifications that have economic effects similar to
sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. This amendment is consistent with FASBs goal
of requiring similar accounting treatment for transactions that have similar
economic effects. SFAS 145 also makes technical corrections to existing
pronouncements. While those corrections are not substantive in nature, in some
instances, they may change accounting practice. The Company is required to adopt
SFAS 145 effective for fiscal 2003. The Company does not expect the adoption of
SFAS 145 to have a material impact on its consolidated financial statements.


In
June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity. The
provisions of this Statement are effective for exit or disposal activities that
are initiated after December 31, 2002, with early application encouraged. This
statement will be applied prospectively and will depend on future actions.


42
In
November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57 and 107 and a rescission of FASB Interpretation No. 34. This
interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002 and are not expected to have a material effect on the Companys
financial statements.




Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.


The
following discussion about The Companys exposure to market risk of
financial instruments contains forward-looking statements, see Forward
Looking Statements. Actual results may differ materially from those
described.


The
Companys 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. The Company does not invest in
portfolio equity securities or commodities or use financial derivatives for
trading purposes. The Companys debt security portfolio represents funds
held temporarily pending use in its business and operations. The Company manages
these funds accordingly. The Company seeks 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 of return. The
Companys market risk exposure consists principally of exposure to changes
in interest rates. The Companys holdings are also exposed to the risks of
changes in the credit quality of issuers. The Company typically invests in the
shorter-end of the maturity spectrum, and at December 31, 2002, approximately
67% of its holdings were in instruments maturing in two years or less and more
than 78% of such holdings maturing in one year or less.


In
the normal course of business, the Company is exposed to fluctuations in
interest rates on the Companys debt and credit facilities. The Company has
cash and cash equivalents at December 31, 2002, which are exposed to the impact
of interest rate changes and its interest income fluctuates as the interest
rates change. In general, the Company does not use derivative instruments or
hedging to manage its exposures and does not currently hold any material market
risk sensitive instruments for trading purposes at December 31, 2002.


43
At
December 31, 2002 and 2001, the fair value of the Companys Senior Secured
Credit Facility was estimated at $55.6 million and $19 million, respectively.
Fair value included herein has been estimated taking into consideration the
nature and term of the debt instrument and the prevailing economic and market
conditions at the balance sheet date. The variable interest rate disclosed
represents the rate at December 31, 2002. Changes in the rate in future years
will have a positive or negative effect on interest expense. At December 31,
2002 and 2001, the Company believes the estimated fair value was equal to the
carrying value of the debt at $55.6 million and $19 million, respectively. Each
1% fluctuation in the interest rate will increase or decrease the Companys
interest expense on the Companys Senior Secured Credit Facility by
approximately $556,000 based on the debt outstanding at December 31, 2002.
Further information on the Companys debt is presented in note 9 to the
Consolidated Financial Statements.


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.


44
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 2003 Proxy Statement
of the Company (the Proxy Statement) to be filed subsequent to the
filing of this Annual Report on Form 10-K, which information is incorporated
herein by reference.


Item 11. Executive Compensation.


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


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


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


Item 13. Certain Relationships and Related Transactions.


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


Item 14. Controls and Procedures.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) |  | Based
on their evaluation as of a date within 90 days of the filing date of this
Annual Report on Form 10-K, the Companys Chief Executive Officer and Chief
Financial Officer have concluded that the Companys disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act) are effective to ensure that information required to be disclosed
by the Company in reports that it files or submits under the Securities Exchange
Act are recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) |  | There were
no significant changes in the Companys internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|45
PART IV


Item 15. 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
II-Valuation and Qualifying accounts on F-32
| | -----------------------------------------------------

| | 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:Not Applicable
| | --- |  | ----------------------------------

|46
POWER OF
ATTORNEY


The
Registrant and each person whose signature appears below hereby appoint each of
Carter H. Eckert, James V. Agnello 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.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                      | IMPATH Inc.
|--------------------- | -----------
|                     
|Dated: April 14, 2003 |            

|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 15, 2003 |  | By | /s/ CARTER H. ECKERTCarter H. EckertChief Executive Officer and Chairman of the Board of Directors
|--------------------- |  | -- | --------------------------------------------------------------------------------------------------

|Dated: April 15, 2003 |  | By | /s/ RICHARD P. ADELSONRichard P. AdelsonPresident and Chief Operating Officer
|--------------------- |  | -- | -----------------------------------------------------------------------------

|Dated: April 15, 2003 |  | By | /s/ JAMES V. AGNELLOJames V. AgnelloChief Financial Officer and Principal Accounting Officer
|--------------------- |  | -- | --------------------------------------------------------------------------------------------

|Dated: April 15, 2003 |  | By | /s/ ROBERT E. CAMPBELLRobert E. CampbellDirector
|--------------------- |  | -- | ------------------------------------------------

|Dated: April 15, 2003 |  | By | /s/ RICHARD J. COTERichard J. Cote, M.D.Director
|--------------------- |  | -- | ------------------------------------------------

|Dated: April 15, 2003 |  | By | /s/ GEORGE S. FRAZZAGeorge S. FrazzaDirector
|--------------------- |  | -- | --------------------------------------------

|Dated: April 15, 2003 |  | By | /s/ JOSEPH A. MOLLICAJoseph A. Mollica, Ph.D.Director
|--------------------- |  | -- | -----------------------------------------------------

|Dated: April 15, 2003 |  | By | /s/ MARCEL ROZENCWEIGMarcel Rozencweig, M.D.Director
|--------------------- |  | -- | ----------------------------------------------------

|47
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
|------------------------------------------------------------------------------

|Independent Auditors Report                                                          |  | F-2         | 
|------------------------------------------------------------------------------------- |  | ----------- | 
|Consolidated Balance Sheets as of December 31, 2002 and 2001                          |  | F-3         | 
|Consolidated Statements of Operations for the years ended December 31, 2002, 2001     | 
|and 2000                                                                              |  | F-4         | 
|Consolidated Statements of Stockholders Equity for the years ended December 31, 2002 | 
|2001 and 2000                                                                         |  | F-5 to F-6  | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001     | 
|and 2000                                                                              |  | F-7         | 
|Notes to Consolidated Financial Statements                                            |  | F-8 to F-30 | 
|Financial Statement Schedule
        Schedule II - Valuation and Qualifying Accounts  |  | F-32        | 

|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, 2002 and 2001, 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, 2002. In connection with
our audits of the consolidated financial statements, we also have audited the
consolidated financial statement schedule as listed in the accompanying index.
These consolidated financial statements and consolidated financial statement
schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements and consolidated 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, 2002 and 2001, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related
consolidated 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.

As discussed in Notes 2 and 13 to the Consolidated Financial Statements, the
Company adopted Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets, effective January 1, 2002. Also, as discussed in
Notes 2 and 6 to the consolidated financial statements, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 141, Business
Combinations, for business combinations consummated after June 30, 2001.



KPMG LLP


Short Hills, New Jersey
February 28, 2003, except as to the second paragraph of note 9,
which is as of March 31, 2003.


F-2
IMPATH
INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSDecember 31, 2002 and
2001
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                       | 2002 |  | 2001 |            
|---------------------------------------------------------------------- | ---- |  | ---- | -----------
|Assets                                                                 |      |  |      |            
|Current
      assets:                                                  |      | 
|Cash
      and cash equivalents                                        |      |  | $    | 1,023,788  
|Marketable
      securities, at market value                           |      |  |      | 4,805,251  
|Accounts
      receivable, net of allowance for doubtful accounts of   |      | 
|$17,058,136
      in 2002 and $10,189,646 in 2001                      |      |  |      | 69,033,544 
|Prepaid
      expenses                                                 |      |  |      | 2,434,243  
|Prepaid
      taxes                                                    |      |  |      | 1,684,284  
|Deferred
      tax assets                                              |      |  |      | 6,045,406  
|Other
      current assets                                             |      |  |      | 21,691,678 
|                                                                       |      |  |      |            
|Total
      current assets                                             |      |  |      | 106,718,194
|                                                                       |      |  |      |            
|Fixed
      assets, less accumulated depreciation and amortization     |      |  |      | 93,184,006 
|Deposits
      and other non-current assets                            |      |  |      | 537,032    
|Goodwill                                                               |      |  |      | 46,540,632 
|Intangible
      assets, net of accumulated amortization of $8,936,460 |      | 
|in
      2002 and $4,696,684 in 2001                                   |      |  |      | 39,224,709 
|                                                                       |      |  |      |            
|Total
      assets                                                     |      |  | $    | 286,204,573
|                                                                       |      |  |      |            
|                                                                      
|Liabilities
      and Stockholders Equity                             |      | 
|Current
      liabilities:                                             |      | 
|Current
      portion of capital lease obligations                     |      |  |      | 14,918,386 
|Short
      term borrowings                                            |      |  |      | 4,900,000  
|Accounts
      payable                                                 |      |  |      | 6,246,275  
|Deferred
      revenues                                                |      |  |      | 3,982,427  
|Income
      taxes payable                                             |      |  |      |           
|Accrued
      expenses                                                 |      |  |      | 5,857,077  
|                                                                       |      |  |      |            
|Total
      current liabilities                                        |      |  |      | 35,904,165 
|                                                                       |      |  |      |            
|Capital
      lease obligations, net of current portion                |      |  |      | 17,239,125 
|Notes
      payable, net of current portion                            |      |  |      | 50,700,000 
|Deferred
      tax liabilities                                         |      |  |      | 13,974,655 
|Commitments
      and contingencies                                    |      | 
|Stockholders
      equity:                                            |      | 
|Common
      stock, $.005 par value, authorized 70,000,000 shares;     |      | 
|18,609,380
      and 18,406,579 shares issued in 2002 and 2001,        |      | 
|respectively;
      16,369,904 and 16,197,103 shares outstanding       |      | 
|in
      2002 and 2001, respectively                                   |      |  |      | 93,047     
|Additional
      paid-in capital                                       |      |  |      | 141,009,994
|Retained
      earnings                                                |      |  |      | 54,722,932 
|Accumulated
      other comprehensive loss                             |      |  |      | (17,681    
|                                                                       |      |  |      |            
|                                                                       |      |  |      | 195,808,292
|Less:                                                                  |      | 
|Cost
      of 2,239,476 and 2,209,476 shares of Common Stock           |      |  |      |            
|held
      in treasury in 2002 and 2001, respectively                  |      |  |      | (27,402,470
|Deferred
      compensation                                            |      |  |      | (19,194    
|                                                                       |      |  |      |            
|Total
      stockholders equity                                       |      |  |      | 168,386,628
|                                                                       |      |  |      |            
|Total
      liabilities and stockholders equity                       |      |  | $    | 286,204,573
|                                                                       |      |  |      |            

|See accompanying notes to consolidated financial statements


F-3
IMPATH
INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONSYears ended December 31, 2002, 2001 and 2000
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                    | 2002 |  | 2001 |             | 2000 |  
|--------------------------------------------------- | ---- |  | ---- | ----------- | ---- | -
|Revenues:                                           |      |  |      |             |      |  
|Net
      IMPATH Physician Services                 |      |  | $    | 153,036,657 |      | $
|IMPATH
      Predictive Oncology                    |      |  |      | 22,361,662  |      |  
|IMPATH
      Information Services                   |      |  |      | 12,724,638  |      |  
|                                                    |      |  |      |             |      |  
|Total
      net revenues                            |      |  |      | 188,122,957 |      |  
|                                                   
|Operating
      Expenses:                           |      | 
|Cost
      of services                              |      |  |      | 67,563,121  |      |  
|Selling,
      general and administrative           |      |  |      | 72,946,080  |      |  
|Depreciation
      and amortization                 |      |  |      | 24,740,861  |      |  
|Acquired
      in-process R&D                       |      |  |      | 900,000     |      |  
|                                                    |      |  |      |             |      |  
|Income
      from operations                        |      |  |      | 21,972,895  |      |  
|                                                   
|Interest
      income                               |      |  |      | 510,083     |      |  
|Interest
      expense                              |      |  |      | (4,067,905  | )    |  
|                                                    |      |  |      |             |      |  
|Other
      (expense)/income, net                   |      |  |      | (3,557,822  | )    |  
|                                                   
|Income
      before provision for income taxes      |      |  |      | 18,415,073  |      |  
|Provision
      for income taxes                    |      |  |      | 7,918,482   |      |  
|                                                    |      |  |      |             |      |  
|Net income                                          |      |  | $    | 10,496,591  |      | $
|                                                    |      |  |      |             |      |  
|Per common
      and common equivalent share:       |      | 
|Basic:                                              |      | 
|Net
      income per common share                   |      |  | $    | 0.64        |      | $
|                                                    |      |  |      |             |      |  
|Weighted
      average common shares outstanding    |      |  |      | 16,292,000  |      |  
|                                                    |      |  |      |             |      |  
|Diluted:                                            |      | 
|Net
      income per common share                   |      |  | $    | 0.63        |      | $
|                                                    |      |  |      |             |      |  
|Weighted
      average common and common equivalent |      | 
|shares
      outstanding                            |      |  |      | 16,689,000  |      |  
|                                                    |      |  |      |             |      |  

|See accompanying notes to consolidated financial statements.


F-4
IMPATH
INC. AND SUBSIDIARIESCONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITYYears ended December 31, 2002, 2001 and 2000
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                      | Common stock |  | Commonstockto be |            | Additionalpaid-in |  | Retained |  | Accum-ulatedothercompre-hensive |            | Treasury |  | Deferredcompen- |   |  |            
|--------------------- | ------------ |  | ---------------- | ---------- | ----------------- |  | -------- |  | ------------------------------- | ---------- | -------- |  | --------------- | - |  | -----------
|
|Balance at            |              |  |                  |            |                   |  |          |  |                                 |            |          |  |                 |   |  |            
|December 31, 1999     |              |  |                  | 8,695,181  |                   |  | $43,475  |  |                                 | $1,735,000 |          |  | $122,553,938    |   |  | $20,330,152
|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       |   |  |           
|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                |              |  |                  |           |                   |  |         |  |                                 |           |          |  |                |   |  |           
|Amortization of       |              |  |                  |            |                   |  |          |  |                                 |            |          |  |                 |   |  |            
|deferred              |              |  |                  |            |                   |  |          |  |                                 |            |          |  |                 |   |  |            
|compensation          |              |  |                  |           |                   |  |         |  |                                 |           |          |  |                |   |  |           
|Tax benefit related   |              |  |                  |            |                   |  |          |  |                                 |            |          |  |                 |   |  |            
|to stock option       |              |  |                  |            |                   |  |          |  |                                 |            |          |  |                 |   |  |            
|exercises             |              |  |                  |           |                   |  |         |  |                                 |           |          |  | 4,358,777       |   |  |           
|Comprehensive         |              |  |                  |            |                   |  |          |  |                                 |            |          |  |                 |   |  |            
|income:               |              |  |                  |            |                   |  |          |  |                                 |            |          |  |                 |   |  |            
|Change in unrealized  |              |  |                  |            |                   |  |          |  |                                 |            |          |  |                 |   |  |            
|net depreciation      |              |  |                  |            |                   |  |          |  |                                 |            |          |  |                 |   |  |            
|of securities         |              |  |                  |           |                   |  |         |  |                                 |           |          |  |                |   |  |           
|Net income for the    |              |  |                  |            |                   |  |          |  |                                 |            |          |  |                 |   |  |            
|year ended            |              |  |                  |            |                   |  |          |  |                                 |            |          |  |                 |   |  |            
|December 31, 2000     |              |  |                  |           |                   |  |         |  |                                 |           |          |  |                |   |  | 12,949,465 
|                      |              |  |                  |            |                   |  |          |  |                                 |            |          |  |                 |   |  |            
|Total comprehensive   |              |  |                  |            |                   |  |          |  |                                 |            |          |  |                 |   |  |            
|income                |              |  |                  |            |                   |  |          |  |                                 |            |          |  |                 |   |  |            
|Balance at            |              |  |                  |            |                   |  |          |  |                                 |            |          |  |                 |   |  |            
|December 31, 2000     |              |  |                  | 18,000,899 |                   |  | 90,005   |  |                                 | 595,000    |          |  | 133,633,347     |   |  | 33,235,013 
|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        | ) |  |           
|Amortization of       |              |  |                  |            |                   |  |          |  |                                 |            |          |  |                 |   |  |            
|deferred              |              |  |                  |            |                   |  |          |  |                                 |            |          |  |                 |   |  |            
|compensation          |              |  |                  |           |                   |  |         |  |                                 |           |          |  |                |   |  |           
|Tax benefit related   |              |  |                  |            |                   |  |          |  |                                 |            |          |  |                 |   |  |            
|to stock option       |              |  |                  |            |                   |  |          |  |                                 |            |          |  |                 |   |  |            
|exercises             |              |  |                  |           |                   |  |         |  |                                 |           |          |  | 1,620,591       |   |  |           
|Comprehensive income: |              |  |                  |            |                   |  |          |  |                                 |            |          |  |                 |   |  |            
|Change in unrealized  |              |  |                  |            |                   |  |          |  |                                 |            |          |  |                 |   |  |            
|net depreciation      |              |  |                  |            |                   |  |          |  |                                 |            |          |  |                 |   |  |            
|of securities         |              |  |                  |           |                   |  |         |  |                                 |           |          |  |                |   |  |           
|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
|                      | (continued)  | 

|F-5
IMPATH
INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITYYears ended December 31, 2002, 2001 and 2000
|---------------------------------------------------------------------------------------------------------------------------

|                      | Common Stock |  | Commonstockto be |            | Additionalpaid-in |   | Retained |  | Accum-ulatedothercompre-hensive |   | Treasury |   | Deferredcompen- |   |   |           
|--------------------- | ------------ |  | ---------------- | ---------- | ----------------- | - | -------- |  | ------------------------------- | - | -------- | - | --------------- | - | - | ----------
|
|Common shares issued  |              |  |                  |            |                   |   |          |  |                                 |   |          |   |                 |   |   |           
|upon exercise of      |              | 
|stock options         |              |  |                  | 120,739    |                   |   | 604      |  |                                 |  |          |   | 1,419,291       |   |   |          
|Common share issues   |              | 
|as a result of        |              | 
|the employee          |              | 
|Stock Purchase        |              | 
|Plan                  |              |  |                  | 82,062     |                   |   | 410      |  |                                 |  |          |   | 1,203,558       |   |   |          
|Adjustment            |              | 
|associated with       |              | 
|issuance of           |              | 
|Options to            |              | 
|non-employees         |              |  |                  |           |                   |   |         |  |                                 |  |          |   | (75,000         | ) |   |          
|Repurchase of common  |              | 
|shares                |              |  |                  |           |                   |   |         |  |                                 |  |          |   |                |   |   |          
|Amortization of       |              | 
|deferred              |              | 
|Compensation          |              |  |                  |           |                   |   |         |  |                                 |  |          |   |                |   |   |          
|Tax benefit related   |              | 
|to stock option       |              | 
|exercises             |              |  |                  |           |                   |   |         |  |                                 |  |          |   | 202,151         |   |   |          
|Comprehensive income: |              | 
|Change in unrealized  |              | 
|net appreciation      |              | 
|of securities,        |              | 
|after tax             |              |  |                  |           |                   |   |         |  |                                 |  |          |   |                |   |   |          
|Net income for the    |              | 
|year ended            |              | 
|December 31, 2002     |              |  |                  |           |                   |   |         |  |                                 |  |          |   |                |   |   | 10,496,591
|                      |              |  |                  |            |                   |   |          |  |                                 |   |          |   |                 |   |   |           
|Total comprehensive   |              | 
|income                |              |  |                  |            |                   |   |          |  |                                 |   |          |   |                 |   |   |           
|                      |              |  |                  |            |                   |   |          |  |                                 |   |          |   |                 |   |   |           
|Balance at            |              | 
|December 31, 2002     |              |  |                  | 18,609,380 |                   | $ | 93,047   |  | $                               | 0 |          | $ | 141,009,994     |   | $ | 54,722,932
|                      |              |  |                  |            |                   |   |          |  |                                 |   |          |   |                 |   |   |           

|F-6
IMPATH
INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSYears ended December 31, 2002, 2001 and 2000
|-----------------------------------------------------------------------------------------------------------------

|                                                                   | 2002 |  | 2001 |             | 2000 |  
|------------------------------------------------------------------ | ---- |  | ---- | ----------- | ---- | -
|Cash
      flows from operating activities:                        |      |  |      |             |      |  
|Net
      income                                                   |      |  | $    | 10,496,591  |      | $
|Adjustments
      to reconcile net income to net cash provided by  |      | 
|operating
      activities:                                        |      | 
|Acquired
      in Process R&D                                      |      |  |      | 900,000     |      |  
|Depreciation
      and amortization                                |      |  |      | 24,740,861  |      |  
|Provision
      for uncollectible accounts receivable              |      |  |      | 13,353,499  |      |  
|Deferred
      taxes                                               |      |  |      | 7,450,206   |      |  
|Non-cash
      compensation                                        |      |  |      | 54,317      |      |  
|Gain
      on sale of preferred stock                              |      |  |      |            |      |  
|Changes
      in assets and liabilities (net of the effects from   |      | 
|acquisitions
      of business):                                   |      | 
|(Increase)
      in accounts receivable, net                       |      |  |      | (17,842,415 | )    |  
|(Increase)
      in prepaid expenses and other current assets      |      |  |      | (7,828,111  | )    |  
|Decrease/(increase)
      in deposits and other non-current assets |      |  |      | 549,407     |      |  
|Increase
      in accounts payable/accrued expenses                |      |  |      | 220,829     |      |  
|(Decrease)/increase
      in income taxes payable                  |      |  |      | (7,608,762  | )    |  
|(Decrease)/increase
      in deferred revenues                     |      |  |      | (1,479,064  | )    |  
|                                                                   |      |  |      |             |      |  
|Total
      adjustments                                            |      |  |      | 12,510,767  |      |  
|                                                                   |      |  |      |             |      |  
|Net
      cash provided by operating activities                    |      |  |      | 23,007,358  |      |  
|                                                                   |      |  |      |             |      |  
|                                                                  
|Cash
      flows from investing activities:                        |      | 
|(Purchases)
      of marketable securities                         |      |  |      | (9,009,878  | )    |  
|Sales/maturities
      of marketable securities                    |      |  |      | 20,706,986  |      |  
|Acquisitions
      of businesses, net of cash acquired             |      |  |      | (28,623,718 | )    |  
|Proceeds
      from liquidation in preferred stock                 |      |  |      |            |      |  
|(Purchases)
      of intangible assets                             |      |  |      | (13,287,183 | )    |  
|Capital
      expenditures                                         |      |  |      | (17,343,575 | )    |  
|                                                                   |      |  |      |             |      |  
|Net
      cash (used in) provided by investing activities          |      |  |      | (47,557,368 | )    |  
|                                                                   |      |  |      |             |      |  
|                                                                  
|Cash
      flows from financing activities:                        |      | 
|Issuance
      of common stock                                     |      |  |      | 2,623,863   |      |  
|Repurchase
      of common stock                                   |      |  |      | (652,189    | )    |  
|Proceeds
      from capital leases                                 |      |  |      |            |      |  
|Proceeds
      from bank loans                                     |      |  |      | 36,600,000  |      |  
|Payments
      of notes payable                                    |      |  |      | (2,887,300  | )    |  
|Payments
      of capital lease obligations                        |      |  |      | (15,965,204 | )    |  
|                                                                   |      |  |      |             |      |  
|Net
      cash provided by/(used in) financing activities          |      |  |      | 19,719,170  |      |  
|                                                                   |      |  |      |             |      |  
|                                                                  
|Net
      (decrease)/increase in cash and cash equivalents         |      |  |      | (4,830,840  | )    |  
|Cash
      and cash equivalents at beginning of year               |      |  |      | 5,854,628   |      |  
|                                                                   |      |  |      |             |      |  
|Cash
      and cash equivalents at end of year                     |      |  | $    | 1,023,788   |      | $
|                                                                   |      |  |      |             |      |  
|Supplemental
      disclosures of cash flow information:           |      | 
|Cash
      paid during the year for income taxes                   |      |  | $    | 7,270,026   |      | $
|                                                                   |      |  |      |             |      |  
|Cash
      paid during the year for interest                       |      |  | $    | 4,171,541   |      | $
|                                                                   |      |  |      |             |      |  
|Fixed
      assets acquired pursuant to capital leases             |      |  | $    | 8,189,631   |      | $
|                                                                   |      |  |      |             |      |  
|Note
      payable related to acquisition of business              |      |  | $    | 25,000,000  |      | $
|                                                                   |      |  |      |             |      |  
|Common
      stock issued for acquisitions                         |      |  |      |            |      |  
|                                                                   |      |  |      |             |      |  

|See  accompanying
notes to consolidated financial statements.


F-7
IMPATH
INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2002 and 2001


(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s Physician Services
Division conducts these analyses by utilizing immunohistochemistry, flow
cytometry and image analysis, molecular pathology, cytogenetics, micrometastases
detection, IMPATH Drug Resistance Assay and serum analysis
technologies. The consolidated financial statements include the accounts of all
the majority-owned subsidiaries. All intercompany balances have been eliminated
in consolidation. Specifically, 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 provided by the IPO segment to  biotechnology and genomics
companies and other researchers;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Licensing
of (i) tumor registry software to community hospitals and state  agencies and (ii)
anatomic pathology software designed to assist  companies who provide surgical,
pathology, cytology and autopsy services; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Access
to benign and malignant tissue, clinically relevant peripheral blood  specimens and
follow-up  information to support oncology  research and product development.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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


(2) Significant Accounting Policies


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.


Use of Estimates


The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and reported amounts of
revenues and expenses during the reporting period. Some of the more significant
estimates made by management involve the allowance for doubtful accounts, the
contractual allowance, the evaluation of the recoverability of goodwill,
intangible assets, equipment, leasehold improvements and deferred tax assets.
Actual results could differ from those estimates.


F-8
IMPATH
INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)


Reclassifications


Certain
prior year balances have been re-classified to conform with the 2002 and 2001
presentation.



Revenue Recognition


IMPATH
Physician Services generally recognizes revenue for services rendered upon completion of
the testing process. Certain costs incurred by the Company on uncompleted tests at the
end of a reporting period are deferred until the test is completed and the revenue is
recognized.


Billings
for services under third-party payor programs, including Medicare and contracted payors
(hospitals, managed care organizations and certain insurers), are recorded as revenues
net of contractual allowances for the differences between amounts billed and the
estimated receipts under such programs.  Adjustments to the estimated receipts, based on
final settlement with the third party contracted payors, are also recorded as a reduction
in revenue upon settlement.


The
Company is actively pursuing more contracted payor arrangements, which reflects an
ongoing shift in its reimbursement model.  In connection with the preparation of the 2002
consolidated financial statements, for non-contracted payors, the Company commenced
recording as revenue only the estimated payments to be received from the payors.
 Previously, the Company had recognized revenue, for non-contracted payors, based on
amounts billed at its standard billing rate with differences between these amounts and
the amounts ultimately estimated to be collected recorded in bad debt expense.  The
receipts are received initially from the insurance carrier and when payments are made at
a lower than invoiced amount, the Company attempts to collect the difference from the
patient directly.    The Company reclassified its historical consolidated financial
statements for non-contracted payor allowances and for certain types of other
disallowances for insurers and Medicare to show them as reductions in revenue instead of
increases to bad debt expense in selling, general and administrative expense as it had
done in the past. The amounts reclassified totaled $38.3 million, $26.3 million and $15.4
million, respectively for the years ended December 31, 2002, 2001 and 2000, respectively.


The
Company records bad debt provisions which result from, among other things, estimates of
non-collectible primary and co-pay amounts from patients, estimates of certain unpaid
claims from payors from incorrect patient or insurance data.  These allowances are also
estimated and recorded at the date of the original service as bad debt expense in
selling, general and administrative expenses.



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 IMPATH Information Services is deferred and recognized on a straight-line basis over
the term of the agreement. The Company also utilizes the percentage of completion method
(AICPA Statement of Position No. 81-1, Accounting for Performance of Construction Type
and Certain Production-Type Contracts) in order to recognize certain software revenue
over the three-to-six month period of time for installation and acceptance testing and
when collection of the resulting receivable is reasonably assured. Many license
agreements also have support and maintenance for which payment is received in advance but
is deferred and revenue is recognized on a straight line basis over the life of the
agreement.



Cash Equivalents


Cash
equivalents consist principally of bank deposits, commercial paper and U.S.
treasury securities at December 31, 2002 and 2001. 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.


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. Net unrealized losses at
December 31, 2002 and 2001 totaled $17,681 and $10,776, respectively. At
December 31, 2002, approximately $4.3 million of the securities mature in one to
three years all of which are corporate fixed income securities and approximately
$500,000 mature in more than three years (of which approximately $300,000 are
corporate fixed income securities and $200,000 million are municipal bonds.)


F-9
IMPATH
INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Accounts Receivable and
Related Allowances


Accounts
receivable are recorded at the invoiced amount and do not bear interest. The process for
estimating the collection of receivables involves significant assumptions and judgments.
Receivables are presented on the balance sheet at net realizable value and include
provision for contractual and other estimated allowances for differences between amounts
billed and estimated receipts for services under third-party payor programs, including
Medicare and Medicaid and non-contracted payors, and for bad debts as a result of a
variety of factors. Management specifically analyzes accounts receivable and analyzes
historical bad debts, customer concentrations, customer credit-worthiness, current
economic trends and changes in the Companys customer payment terms when evaluating
the adequacy of the allowance for doubtful accounts. Account balances are charged off
against the allowance after all means of collection have been exhausted and the potential
for recovery is considered remote. The Company does not have any off-balance-sheet credit
exposure related to its customers.


Estimation
of valuation allowances.      The process for estimating the collection of
receivables involves significant assumptions and judgments. Receivables are presented on
the balance sheet at net realizable value and include provision for contractual and other
revenue allowances for differences between amounts billed and estimated receipts for
services under third-party payor programs, including Medicare, Medicaid, and from
non-contracted payors, and for bad debts as a result of a variety of factors. Management
specifically analyzes accounts receivable and analyzes contractual and other revenue
allowances, historical bad debts, customer concentrations, customer credit-worthiness,
current economic trends and changes in the Companys customer payment terms when
evaluating the adequacy of the contractual and other revenue allowances and allowance for
doubtful accounts. The Companys net accounts receivable balance was $69.0 million, net
of the contractual and bad debt allowance reserves of $94.9 million as of December 31,
2002.


Significant
 management  judgment is required in determining these allowances.  In the event that
actual  collections differ from these estimates,  the Company may need to establish
larger reserves which could  materially  impact the Companys  financial position and
results of operations.




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 $2,274,000 or approximately $0.14 per diluted share
after taxes, approximately $1,932,000 or approximately $0.07 per diluted share
after taxes (split adjusted) and $1,132,000 or approximately $0.04 per diluted
share after taxes (split adjusted), of internal payroll costs in 2002, 2001 and
2000 respectively, as they related directly to internal system implementation
activities.


Software
Development Cost


The
Company, through the Tamtron acquisition (see note 6), now capitalizes certain
software development costs incurred related to software developed for resale
subsequent to the establishment of technological feasibility until the product
is released for commercial use. Similarly, costs incurred to develop upgrades
are capitalized until the upgrades are commercially released. Before
technological feasibility has been established, the Company expenses all costs
incurred for the product. These capitalized costs which total approximately
$900,000 at December 31, 2002, will be amortized over the products
life in the marketplace.


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.


F-10
IMPATH
INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)


Intangible Assets


Payments
to acquire tissue and tumor samples for use in GeneBank have been classified as
an intangible asset and total $18,310,000 and $5,023,000 as of December 31, 2002
and 2001, and accumulated amortization was $1.8 million and
$324,0000 at December 31 2002 and 2001 respectively. GeneBank is being amortized using the
straight-line method over its estimated useful life of seven years, with
amortization expense of $1.5 million and $324,000 recorded in 2002 and 2001,
respectively.


The
following disclosure presents certain information on the Companys acquired
other intangible assets as of December 31, 2002 and 2001. All intangible assets
are amortized over their estimated useful lives, as indicated below, with no
residual values.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Acquired Intangible Assets$ (in thousands) |  | Weighted-AverageAmortizationPeriod    | GrossCarryingAmount | AccumulatedAmortization | Net Balance
| | ------------------------------------------ |  | ------------------------------------- | ------------------- | ----------------------- | -----------
| |                                           
|
| |                                            |  | At December 31, 2002                  |                     |                         |            
| |                                            |  | Amortized acquired intangible assets: |                     |                         |            
| |                                            |  | Technology                            |                     |                         |            
| |                                            |  | Customer Lists                        |                     |                         |            
| |                                           
| |                                            |  |                                       |                     |                         |            
| |                                           
|
| |                                            |  | At December 31, 2001                  |                     |                         |            
| |                                            |  | Amortized acquired intangible assets: |                     |                         |            
| |                                            |  | Customer Lists                        |                     |                         |            
| |                                           
| |                                            |  |                                       |                     |                         |            
| |                                           

|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.


Stock-Based
Compensation


The
Company applies the intrinsic value-based method of accounting prescribed by
Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations including FASB
Interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation an interpretation of APB Opinion No. 25" to account for its
fixed plan stock options granted to employees and directors and for restricted
stock grants. Under this method, compensation expense is recorded on the date of
the grant only if the current market price of the underlying stock exceeds the
exercise price.


F-11
IMPATH
INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)


SFAS
No. 123, Accounting for Stock-Based Compensation, established
accounting and disclosure requirements using a fair value-basis method of
accounting for stock-based employee compensation plans. As allowed by SFAS No.
123, the Company has elected to continue to apply the intrinsic value-based
method of accounting described above, and has adopted the disclosure
requirements of SFAS No. 123. The Company uses the fair value method of
accounting for stock-based compensation to non-employees. Under the fair
value-based method, compensation costs are measured based on the value of the
award and is recognized over the vesting period. The Company recorded expense
related to non-employee stock option grants net of tax benefits, of 31,000, 314,000
and 608,000 in the years ended December 2002, 2001, and 2000, respectively.


Had
the Company elected to recognize compensation cost based on fair value of the
stock options at the date of grant under SFAS 123, such costs would have been
recognized ratably over the vesting period of the underlying instruments and the
Companys net income and net income per common share would have
decreased to the pro forma amounts indicated in the table below.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(dollars
      in thousands except per share amounts)              | 2002 |  | 2001 |        | 2000 |  
|------------------------------------------------------------------ | ---- |  | ---- | ------ | ---- | -
|                                                                   |      |  |      |        |      |  
|Net
      income as reported                                       |      |  | $    | 10,497 |      | $
|Less:                                                              |      | 
|Pro forma
      after-tax impact of employee options at fair value |      |  |      | (5,054 | )    |  
|                                                                   |      |  |      |        |      |  
|Pro forma
      net income adjusted                                |      |  |      | 5,443  |      |  
|                                                                   |      |  |      |        |      |  
|                                                                   |      | 
|Basic earnings
      per share as reported                         |      |  | $    | 0.64   |      | $
|                                                                   |      |  |      |        |      |  
|Diluted earnings
      per share as reported                       |      |  | $    | 0.63   |      | $
|                                                                   |      |  |      |        |      |  
|                                                                   |      | 
|Pro forma
      basic earnings per share                           |      |  | $    | 0.33   |      | $
|                                                                   |      |  |      |        |      |  

|F-12
IMPATH
INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)


The
fair value of stock options is estimated on the date of grant using the
Black-Scholes option-pricing calculation model. The following table outlines the
assumptions used in the Black-Scholes model.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              | 2002 |      | 2001 |  | 2000
|----------------------------- | ---- | ---- | ---- |  | ----
|Dividend yield                |      | 0.0  | %    |  | 0.0 
|Risk-free interest rate       |      | 3.0  | %    |  | 6.5 
|Expected option life in years |      | 7.0  |      |  | 7.0 
|Expected volatility           |      | 46.0 | %    |  | 60.0

|The
weighted-average fair value of stock
option grants was $8.50, $28.78, and $12.13 for the years ended December 31, 2002,
2001, and 2000, respectively.


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.


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 number of anti-dilutive shares
were 974,918, 353,221 and 1,133 for the years ended December 31, 2002, 2001 and
2000, respectively.


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):
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                     | 2002 |            | 2001 |            | 2000 |           
|---------------------------------------------------- | ---- | ---------- | ---- | ---------- | ---- | ----------
|Weighted average common shares outstanding           |      | 16,292,000 |      | 16,015,000 |      | 15,540,000
|Effect of diluted securitiesoptions                 |      | 397,000    |      | 694,000    |      | 738,000   
|                                                     |      |            |      |            |      |           
|Weighted average common and common equivalent shares |     
|outstandingincluding diluted effect                 |      | 16,689,000 |      | 16,709,000 |      | 16,278,000
|                                                     |      |            |      |            |      |           
|Basic earnings per common share                      |      | $0.64      |      | $0.69      |      | $0.83     
|                                                     |      |            |      |            |      |           
|Diluted earnings per common share                    |      | $0.63      |      | $0.66      |      | $0.80     
|                                                     |      |            |      |            |      |           

|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.


F-13
IMPATH
INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)


Goodwill and Other Intangible Assets



In
July 2001, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 141,
Business Combinations, (SFAS 141") and No. 142, Goodwill and Other Intangible Assets
(SFAS 142"). SFAS 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. SFAS 141 also specifies that
intangible assets acquired in a purchase method business combination must meet certain
criteria to be recognized and reported apart from goodwill. SFAS 142 will require that
goodwill no longer be amortized, but instead be tested for impairment at least annually
in accordance with the provisions of SFAS 142 and more frequently if events and
circumstances indicate that the asset might be impaired. For the purposes of performing
this impairment test, the Companys business segments are its reporting units. The fair
value of those reporting units, to which goodwill has been assigned, is compared with
their recorded values. If recorded values are less than the fair values, no impairment is
indicated. SFAS 142 requires that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated residual values
and reviewed for impairment in accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. The Company adopted the provisions of SFAS
141, for acquisitions initiated after June 30, 2001, and SFAS 142 effective January 1,
2002. Goodwill and intangible assets acquired in business combinations completed before
July 1, 2001, continued to be amortized until the Companys adoption of SFAS No. 142 on
January 1, 2002. The Company has approximately $46.5 million of unamortized goodwill as
of December 31, 2002, which is subject to the provisions of SFAS 142.


In
connection with the transitional goodwill impairment evaluation, SFAS 142
requires the Company to perform an assessment of whether there is an indication
that goodwill is impaired as of January 1, 2002. To the extent an indication exists
that the goodwill may be impaired, the Company must measure the impairment loss,
if any. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Companys consolidated
statements of operations. The Company had approximately $25 million of
unamortized goodwill as of January 1, 2002, which was subject to the
transitional provisions of SFAS 142. The Company completed its transitional
goodwill impairment assessment in the second quarter of fiscal year 2002. The
assessment indicated that there was no goodwill impairment. The Company
performed its annual impairment test as of December 31, 2002. The impairment
test indicated that no goodwill impairment existed as of that date.


Amortization
expense related to goodwill was approximately $1.2 million and $1.2 million for
the years ended December 31, 2001 and 2000, respectively. The Company recorded
a $3.2 million write-down in 2002 of all goodwill associated with the discontinuance of
the BIS product line.


F-14
IMPATH
INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)


Impairment of Long
Lived Assets


SFAS
No. 144 provides a single accounting model for long-lived assets to be  disposed of. SFAS
No. 144 also changes the criteria for classifying an asset as  held for sale; and
broadens the scope of businesses to be disposed of that  qualify for reporting as
discontinued operations and changes the timing of  recognizing losses on such operations.
The Company adopted SFAS No. 144 on  January 1, 2002. The adoption of SFAS No. 144 did
not effect the Companys  consolidated financial statements.


In
accordance with SFAS No. 144, long-lived assets, such as property and equipment,
and purchased intangibles subject to amortization, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of
the asset exceeds the fair value of the asset. Assets to be disposed of would be
separately presented in the balance sheet and reported at the lower of the
carrying amount or fair value less costs to sell, and are no longer depreciated.
The assets and liabilities of a disposed group classified as held for sale would
be presented separately in the appropriate asset and liability sections of the
consolidated balance sheet.


Prior
to the adoption of SFAS No. 144, the Company accounted for long-lived  assets in
accordance with SFAS No. 121, Accounting for Impairment of Long-Lived  Assets and for
Long-Lived Assets to be Disposed Of.


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.


Fair Value of
Financial Instruments


The
carrying amount of cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses approximate fair market value based on the short
maturity of these instruments. Fair value of investments in marketable
securities are based on quoted market prices.


Segment Reporting


The
Company currently operates in three reportable business segments, IMPATH Physician
Services, IMPATH Predictive Oncology, and IMPATH Information Services.
Substantially all of the Companys services are provided within the United
States, and substantially all of the Companys assets are located within
the United States.


F-15
IMPATH
INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)


New Accounting
Standards


In
June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 requires the Company to record the fair value of
an asset retirement obligation as a liability in the period in which it incurs a
legal obligation associated with the retirement of tangible long-lived assets
that result from the acquisitions, construction, development, and/or normal use
of the assets. The Company also records a corresponding asset that is
depreciated over the life of the asset. Subsequent to the initial measurement of
the asset retirement obligation, the obligation will be adjusted at the end of
each period to reflect the passage of time and changes in the estimated future
cash flows underlying the obligation. The Company is required to adopt SFAS No.
143 on January 1, 2003. The Company have not yet determined the impact, if any, of the
adoption of SFAS No. 143 on the Companys Consolidated financial statements.


In
April 2002, the FASB issued SFAS No. 145, Rescission of FASB No. 4, 44 and
64, Amendment of FASB Statement No. 13, and Technical Corrections
(SFAS 145"). SFAS 145 updates, clarifies and simplifies existing
accounting pronouncements. SFAS 145 rescinds Statement No. 4, which required all
gains and losses from extinguishment of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. As a
result, the criteria in APB No. 30 will now be used to classify those gains and
losses because Statement No. 4 has been rescinded. Statement No. 44 was issued
to establish accounting requirements for the effects of transition to provisions
of the Motor Carrier Act of 1980. Because the transition has been completed,
Statement No. 44 is no longer necessary. SFAS 145 amends Statement No. 13 to
require that certain lease modifications that have economic effects similar to
sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. This amendment is consistent with FASBs goal
of requiring similar accounting treatment for transactions that have similar
economic effects. SFAS 145 also makes technical corrections to existing
pronouncements. While those corrections are not substantive in nature, in some
instances, they may change accounting practice. The Company is required to adopt
SFAS 145 effective for fiscal 2003. The Company does not expect the adoption of
SFAS 145 to have a material impact on the Companys consolidated financial
statements.


In
June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity. The
provisions of this Statement are effective for exit or disposal activities that
are initiated after December 31, 2002, with early application encouraged. This
statement will be applied prospectively and will depend on future actions.


In
November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57 and 107 and a rescission of FASB Interpretation No. 34. This
interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002 and are not expected to have a material effect on the Companys
financial statements.


F-16
IMPATH
INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(3) Liquidity


The Companys growth
strategy in 2003 is anticipated to be financed through its current cash
resources, existing third-party credit facilities, cash flows from operations or
other strategic arrangements. The Companys 2003 planned expenditures
include no cash payments for business acquisitions and decreased investment in
capital expenditures and GeneBank purchases compared to 2002, the majority of
which are discretionary and are not based on firm commitments. In terms of
financing activities, the Company expects to need approximately $16 million to
fund capital lease obligations and $5 million for debt service in 2003. Based on
the Companys availability under its credit facility described in Note 9
and its projected operating results (which include certain cost containment
measures which have already begun to be implemented) it believes it will have
adequate liquid resources at least through 2003. However, the Company will
carefully monitor its liquidity situation through 2003 and if required, has the
ability and intent, to further reduce planned discretionary investing activities.
The Company also has availability of approximately $13.2
million in capital lease financing which could be used, if necessary, to assist
in financing certain capital expenditures. The Company will require, over the
longer term, new funding to continue its growth strategy and fund the
Companys investment needs, including capital expenditures and other
infrastructure costs. There may be circumstances, in addition, that would expand
the Companys use of cash resources, specifically, acquisitions of
businesses or technologies that could require additional liquidity. Because of
the Companys short and long-term capital requirements, the Company may
seek access to the public or private debt, equity markets or other strategic
arrangements. The Company may also seek additional funding through corporate
collaborations and other financing vehicles, potentially including off-balance
sheet financing through limited partnerships or corporations. There can be no
assurance that such funding will be available at all or at terms acceptable to
the Company. If funding is not available, the Company may have to limit its
growth and expansion activities. If the Company obtains funds through
arrangements with collaborative partners or others, the Company may be required
to relinquish rights to certain of our technologies or product candidates.


F-17
IMPATH
INC. AND SUBSIDIARIESNOTES 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, 2002 and 2001.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                              | 2002 |  | 2001 |            
|--------------------------------------------- | ---- |  | ---- | -----------
|Gross
      accounts receivable               |      |  | $    | 163,988,439
|Allowance
      for doubtful accounts         |      |  |      | (17,058,136
|Contractual
      and other allowance reserve |      |  |      | (77,896,760
|                                              |      |  |      |            
|                                              |      |  | $    | 69,033,544 
|                                              |      |  |      |            

|Accounts
receivable, by payor class, as a percentage of total net receivables at December
31, 2002 and 2001 are as follows:
|---------------------------------------------------------------------------------------------------------------------------

|                                          | 2002 |     | 2001 | 
|----------------------------------------- | ---- | --- | ---- | 
|Medicare                                  |      | 18  | %    | 
|Commercial insurance                      |      | 57  |      | 
|Hospitals, clinics and other institutions |      | 10  |      | 
|Patients                                  |      | 15  |      | 
|                                          |      |     |      | 
|                                          |      | 100 | %    | 
|                                          |      |     |      | 

|Bad
Debt expense for 2002, 2001 and 2000 totalled $13.4 million, $7.1 million and $5.9
million respectively.


(5) Fixed Assets


At
December 31, 2002 and 2001, fixed assets consist of the following:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                               | 2002 |  | 2001 |            
|---------------------------------------------- | ---- |  | ---- | -----------
|Personal computers                             |      |  | $    | 11,871,606 
|Software development costs                     |      |  |      | 43,796,233 
|Furniture, fixtures and laboratory equipment   |      |  |      | 32,023,277 
|Leasehold improvements                         |      |  |      | 53,157,508 
|                                               |      |  |      |            
|                                               |      |  |      | 140,848,624
|Less accumulated depreciation and amortization |      |  |      | (47,664,618
|                                               |      |  |      |            
|                                               |      |  | $    | 93,184,006 
|                                               |      |  |      |            

|Included
in the above at December 31, 2002 and 2001 are gross assets under capital leases
of approximately $75.4 million and $67.2 million respectively, and the related
accumulated amortization at such dates is approximately $32.8 million and $20.4
million, respectively.


F-18
IMPATH
INC. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(6) Acquisitions/Investments


On
January 18, 2002, the Company completed its acquisition of Tamtron,
part of the Companys Information Services segment, for $25.9 million
in cash, plus debt repayment of $651,000, as well as acquisition expenses of
$2.6 million for a total purchase price of $29.2 million. Tamtron is a San Jose,
California, based company whose flagship PowerPath® software is designed
specifically to assist companies who provide surgical pathology, cytology and
autopsy services (e.g. anatomic pathology) in streamlining operations and
supporting multi-site or multi-entity healthcare networks. 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 Note 9).


The
acquisition has been accounted for under the purchase method, in accordance with
SFAS 141, pursuant to which the purchase price is allocated to the underlying
assets and liabilities based on their estimated fair values. The resulting
goodwill from this transaction of $21.4 million will not be amortized, and
intangibles of $11.0 million will be amortized over periods ranging from five to
fifteen years. The following table reflects the allocation of the purchase
price.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                          | 
|--------------------------------------------------------- | 
|Cash                                                      | 
|Prepaid expenses and other current assets                 | 
|Accounts receivables, net of allowance                    | 
|Property and equipment, net of accumulated depreciation   | 
|Intangible assets  customer lists and acquired software  | 
|Goodwill                                                  | 
|Acquired in process research & development                | 
|Current and other liabilities, including deferred revenue | 
|Deferred tax liability, net                               | 
|                                                          | 
|                                                          | 
|                                                          | 

|Tamtrons
current customer base includes more than 375 sites, including hospitals and
academic medical centers around the country, which process over 5 million cases
per year. Pro forma historical results (unaudited) for the year ended
December 31, 2001, adjusted as if Tamtron had been acquired on January 1, 2001,
were $173.1 million in revenue, $11.1 million in net income, which includes $900,000
in an acquired research and development charge and $0.66 in
diluted earnings per share. The pro forma results are not necessarily indicative
of what actually would have occurred if the acquisition had been completed as of
January 1, 2001, nor are they necessarily indicative of future results. The 2002
results for the Company did not include 18 days of operations of Tamtron, but no
pro forma is presented as the effect is not material.


On
August 31, 2001, the Company purchased certain assets of 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.


F-19
IMPATH
INC. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(7) Accrued Expenses


Accrued
expenses are comprised of the following as of December 31, 2002 and 2001 $ (in
thousands):
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                 | 2002 |  | 2001 |      
|-------------------------------- | ---- |  | ---- | -----
|Salaries
      and related costs |      |  | $    | 1,939
|Other
      accrued expenses     |      |  |      | 3,300
|Customer
      deposits          |      |  |      | 618  
|                                 |      |  |      |      
|                                 |      |  | $    | 5,857
|                                 |      |  |      |      

|(8) Other Current Assets


Other
current assets are comprised of the following as of December 31, 2002 and 2001 $ (in thousands):
|---------------------------------------------------------------------------------------------------------------------------------

|                     | 2002 |  | 2001 |       
|-------------------- | ---- |  | ---- | ------
|Supply inventory     |      |  | $    | 18,173
|Other current assets |      |  |      | 3,519 
|                     |      |  |      |       
|                     |      |  | $    | 21,692
|                     |      |  |      |       

|F-20
IMPATH
INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(9) Debt


Senior Secured
Credit Facility


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 also acts as Agent for the lenders,
replaced the Companys previous $15 million unsecured line of credit that
expired on 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 is to be
repaid over a five-year period, with interest only payable for the first twelve
months. Thereafter, the loan is payable in seventeen quarterly payments of
principal plus interest, with principal payments of $4.9 million due quarterly
in each of 2003, 2004, 2005 and 2006 and a final principal payment of $8.4
million due in 2007. Both the revolving credit line and the term loan currently
bears interest at LIBOR plus 1.75%, which was approximately 3.2% at December 31,
2002. On October 18, 2002, the Company amended its Senior Secured Credit
Facility to increase the availability under its revolving credit line from $25
million to $40 million. The amended credit facility continues to be syndicated
by Fleet National Bank, which acts as agent for the lenders. Including the
Companys $28 million term loan, the credit facility after giving effect to
the amendment is $68 million. As of December 31, 2002, the Company had $27.6
million outstanding under the revolving credit line and $28 million drawn down
from the term loan. The Company had fully drawn against the term loan and had
$12.4 million remaining available under the line of credit at December 31, 2002.
The $27.6 million under the revolving credit line is due in full in 2006. In
connection with the amended facility, the Company also amended certain debt
covenants contained in the original facility.



During
the fourth quarter of 2002, the Company was non-compliant with one of the debt covenants
under the Senior Secured Credit Facility. On March 31, 2003, the fourth quarter of 2002
debt covenants and certain future covenant calculations were amended and the Company was
in compliance with the amended fourth quarter of 2002 covenants. The amended covenants also have the effect of
excluding in 2003 the impact of the acclerated depreciation of $15 million of capitalized
software expected in early 2003 (see note 17). In connection with the amendment, certain
higher interest rates are to be charged on future borrowings (up to 0.50% higher). The
covenants are principally related to current ratios, stockholders equity and debt to
earnings before interest, taxes, depreciation and amortization (EBITDA)
ratios.


At
December 31, 2002 and 2001, the fair value of the Companys Senior Secured Credit
Facility was estimated at $55.6 million and $19 million, respectively. Fair value
included herein has been estimated taking into consideration the nature and term of the
debt instrument and the prevailing economic and market conditions at the balance sheet
date.


The
process for estimating the collection of receivables involves significant assumptions and
judgments. Receivables are presented on the balance sheet at net realizable value and
include provision for contractual and other revenue allowances for differences between
amounts billed and estimated receipts for services under third-party payor programs,
including Medicare, Medicaid, and from non-contracted payors, and for bad debts as a
result of a variety of factors. Management specifically analyzes accounts receivable and
analyzes contractual and other revenue allowances, historical bad debts, customer
concentrations, customer credit-worthiness, current economic trends and changes in the
Companys customer payment terms when evaluating the adequacy of the contractual and
other revenue allowances and allowance for doubtful accounts. The Companys net accounts
receivable balance was $69.0 million, net of the contractual and bad debt allowance
reserves of $94.9 million as of December 31, 2002.


Significant
 management  judgment is required in determining these allowances.  In the event that
actual  collections differ from these estimates,  the Company may need to establish
larger reserves which could  materially  impact the Companys  financial position and
results of operations.



F-21
IMPATH
INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)


Leases


The
Company leases equipment pursuant to the terms of capital leases, which
expire through 2006. The present value of future minimum lease payments for the
capital leases are as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Year ending December 31,         |  | Capital leases |  
| | -------------------------------- |  | -------------- | -
| | 2003                             |  |                | $
| | 2004                             |  |                |  
| | 2005                             |  |                |  
| | 2006                             |  |                |  
| | 2007                             |  |                |  
| | Thereafter                       |  |                |  
| |                                  | 
| |                                  |  |                |  
| |                                  | 
| | Amount representing interest     |  |               
| | (rates range from 2.47% to 7.6%) |  |                |  
| |                                  | 
|
| | Total                            |  |                | $
| |                                  | 
| | Less: Current Portion            |  |                |  
| |                                  | 
| | Long Term Portion                |  |                | $
| |                                  | 
| |                                  |  |                |  

|The
Company has lines of credit for financing equipment, leasehold improvements and
hardware and software with various third party lenders in addition to its
Secured Credit Facility. At December 31, 2002, the Company has several capital lease credit
lines which aggregate to $80.9 million, of which $67.7 million has been drawn
against. The leases have terms of 48 months at rates between the yield of 4-year
treasury notes and the yield of 4-year treasury notes plus .35%.


(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.


F-22
IMPATH
INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(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 $15.0 million buyback program.
During January and February 2000, the Company repurchased an additional 298,000
shares of common stock for approximately $3.4 million. In May 2002, the Company
repurchased 30,000 shares for approximately $650,000. This brought the total
cost of shares repurchased since the inception of the plan to approximately
$27.4 million. Approximately $12.6 million remains available for repurchase
under the program.


(c) Long Term
Incentive Plans


The
following long term incentive plans provide eligible employees non-qualified or
incentive stock options, or both, to purchase shares of the Companys
common stock at no less than fair market value on the date of the grant. The
stock options are subject to forfeiture if employment terminates prior to the
end of the prescribed vesting period, as listed below in each plan description.
All stock option plans are exercisable over a period not to exceed ten years.


In
April 1997, the Company adopted the IMPATH Inc. 1997 Long-Term 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. There were no options granted under this plan in
2002, 2001 or 2000.


In
June 1999, the Company adopted the IMPATH Inc. 1999 Long-Term 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. There were no options granted under this plan in 2002 or 2001.
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,
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. During 2002, 2001 and 2000, grants
under this plan totaled 653,000, 886,000 and 11,000, respectively.


In
July 2002, the Company adopted the IMPATH Inc. 2002 Long-Term Incentive Plan,
which provides for granting to employees of the Company, Directors and
consultants, options to purchase up to 2,500,000 shares of common stock. Options
granted are exercisable over a period not to exceed ten years and generally vest
over three years. During 2002, grants under this plan totaled 531,000 to
employees and directors.


F-23
IMPATH
INC. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


The following is a
summary of option activity during the years ended December 31, 2000, 2001 and
2002:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                               | Shares
      under options |  | Exercise
      Price range |   | Weighted
      average
      exercise price
|---------------------------------------------- | -------------------------- |  | -------------------------- | - | -------------------------------------------
|Options
      outstanding at December 31, 1999 |                            |  | 1,400,288                  |   |                                            
|Granted                                        |                            |  | 348,800                    |   |                                            
|Exercised                                      |                            |  | (528,327                   | ) |                                            
|Canceled                                       |                            |  | (36,555                    | ) |                                            
|                                               |                            | 
|Options
      outstanding at December 31, 2000 |                            |  | 1,184,206                  |   |                                            
|Granted                                        |                            |  | 886,400                    |   |                                            
|Exercised                                      |                            |  | (344,421                   | ) |                                            
|Canceled                                       |                            |  | (71,025                    | ) |                                            
|                                               |                            | 
|Options
      outstanding at December 31, 2001 |                            |  | 1,655,160                  |   |                                            
|Granted                                        |                            |  | 1,183,800                  |   |                                            
|Exercised                                      |                            |  | (120,739                   | ) |                                            
|Canceled                                       |                            |  | (157,093                   | ) |                                            
|                                               |                            | 
|Options
      outstanding at December 31, 2002 |                            |  | 2,561,128                  |   |                                            
|                                               |                            |  |                            |   |                                            

|The
weighted-average fair value of a stock option grant was $8.50, $28.78, and $12.13 per share
for the years ended December 31, 2002, 2001, and 2000, respectively.


The following table
summarizes information about stock options outstanding and exercisable as of
December 31, 2002:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Range ofexercise prices |             | Numberoutstanding at12/31/02 |  | Weightedaverageremainingcontractual life |           | Weightedaverageexercise price |  | Numberexerciseable at12/31/02 |  | Weightedaverageexercise price
| | ----------------------- | ----------- | ---------------------------- |  | ---------------------------------------- | --------- | ----------------------------- |  | ----------------------------- |  | -----------------------------
| |                         | $1.27-15.38 |                              |  |                                          | 1,351,041 |                               |  | 6.7 years                     |  |                              
| |                         | 15.38-28.75 |                              |  |                                          | 416,460   |                               |  | 7.8 years                     |  |                              
| |                         | 28.75-38.75 |                              |  |                                          | 499,519   |                               |  | 7.9 years                     |  |                              
| |                         | 38.75-49.00 |                              |  |                                          | 291,108   |                               |  | 7.9 years                     |  |                              
| |                         | 49.00-55.00 |                              |  |                                          | 3,000     |                               |  | 7.9 years                     |  |                              
| |                         |             |                              |  |                                          |           |                               |  |                               |  |                              
| |                         | $1.27-55.00 |                              |  |                                          | 2,561,128 |                               |  |                               |  |                              
| |                         |             |                              |  |                                          |           |                               |  |                               |  |                              

|At
December 31, 2002, the Company had 2,429,174 shares reserved for future option
grants.


F-24
IMPATH
INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


Employee Stock
Purchase Plan


During 2001, the Company adopted
an Employee Stock Purchase Plan (the Purchase Plan). 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 salaries, 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. As of 2002 and 2001, 82,062 and 20,096 shares of common
stock were purchased by eligible employees. The total number of shares of stock
that may be purchased in offerings under the Purchase Plan can 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 Purchase Plan (subject to adjustment as set forth below). The aggregate
number of shares of stock that may be purchased in offerings under the Purchase
Plan, may 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; (ii)
50,000 shares or; (iii) such number of shares as determined by the Companys Board of Directors, which number shall be less than (i) and/or (ii). The
Purchase Plan meets the requirements of Section 423 of the Internal Revenue Code
of 1986 and, based upon guidance in APB 25 and related interpretations, is
considered a noncompensatory plan. Accordingly, the Company records no
compensation expense for the Purchase Plan.


Shareholders
Rights Plan


On
July 19, 2002, the Company announced that its Board of Directors has adopted a
Stockholder Rights Plan (Rights Plan) designed to protect Company
stockholders in the event of takeover activity that would deny them the full
value of their investment.


In
adopting the Rights Plan, the Board declared a dividend distribution of one
preferred stock purchase right for each outstanding share of common stock of the
Company, payable to stockholders of record at the close of business on August 1,
2002. The rights will become exercisable only in the event, with certain
exceptions, a person or group of affiliated or associated persons acquires 15%
or more of the Companys voting stock, or a person or group of affiliated
or associated persons commences a tender or exchange offer, which if
successfully consummated, would result in such person or group owning 15% or
more of the Companys voting stock. A stockholder who owns 15% or more of
the Companys voting stock as of July 19, 2002, will not trigger the
provision unless the stockholder thereafter acquires an additional one percent
or more of the outstanding stock. The rights will expire on July 19, 2012.


F-25
IMPATH
INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(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, 2002, 2001 and 2000 were
$879,764, $730,427 and $352,902, respectively.


(12)  Income Taxes


The
components of the provision for income taxes for 2002, 2001 and 2000 are as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                | 2002 |  | 2001 |           | 2000 |  
|--------------- | ---- |  | ---- | --------- | ---- | -
|Current:        |      |  |      |           |      |  
|Federal         |      |  | $    | 353,898   |      | $
|State and local |      |  |      | 112,378   |      |  
|                |      |  |      |           |      |  
|                |      |  |      | 466,276   |      |  
|                |      |  |      |           |      |  
|Deferred:       |      | 
|Federal         |      |  |      | 4,682,136 |      |  
|State and local |      |  |      | 2,770,070 |      |  
|                |      |  |      |           |      |  
|                |      |  |      | 7,452,206 |      |  
|                |      |  |      |           |      |  
|                |      |  | $    | 7,918,482 |      | $
|                |      |  |      |           |      |  

|F-26
IMPATH
INC. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


Deferred tax components
at December 31, 2002 and 2001 are as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                        | 2002 |  | 2001 |            
|----------------------------------------------------------------------- | ---- |  | ---- | -----------
|Assets:                                                                 |      |  |      |            
|Accounts
      receivable reserves                                      |      |  | $    | 2,591,052  
|Deferred
      compensation                                             |      |  |      | 1,180,853  
|Deferred
      revenue                                                  |      |  |      | 398,947    
|Net
      Operating Loss carry-forward from acquisition of Tamtron      |      |  |      | 1,317,145  
|General
      business credit carry-forward from acquisition of Tamtron |      |  |      | 557,409    
|                                                                        |      |  |      |            
|                                                                        |      |  |      | 6,045,406  
|Liabilities:                                                            |      | 
|Intangible
      assetsacquisitions                                    |      |  |      | (5,872,237 
|Depreciation                                                            |      |  |      | (7,487,031 
|Software
      development costs from the acquisition of Tamtron        |      |  |      | (383,401   
|Other                                                                   |      |  |      | (231,986   
|                                                                        |      |  |      |            
|                                                                        |      |  |      | (13,974,655
|                                                                        |      |  |      |            
|Deferred
      tax assets/(liability), net                              |      |  | $    | (7,929,249 
|                                                                        |      |  |      |            

|In
assessing the relizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax asset
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during periods in which
those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
certain limitations on the utilization of operating loss carry-forwards and tax
planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income, by
jurisdiction, over the periods which the deferred tax assets are deductible,
management believes it is more likely than not the Company will realize the
benefits of the amount of the deferred tax asset considered realizable; however,
the amount could be reduced if estimates of future taxable
income during the carry-forward period are reduced.


A
reconciliation of the Federal statutory income tax rate to the effective tax
rate for the years ended December 31, 2002, 2001 and 2000 are as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                         | 2002 |      | 2001 |      | 2000 |     
|-------------------------------------------------------- | ---- | ---- | ---- | ---- | ---- | ----
|Federal statutory income tax rate                        |      | 35.0 | %    | 35.0 | %    | 35.0
|State and local taxes, net of Federal income tax benefit |      | 9.0  |      | 8.5  |      | 8.0 
|Other                                                    |      | (1.0 | )    |     |      |    
|                                                         |      |      |      |      |      |     
|                                                         |      | 43.0 | %    | 43.5 | %    | 43.0
|                                                         |      |      |      |      |      |     

|The
Company recognized a tax benefit for stock options exercised as a reduction in
taxes payable and a corresponding increase in additional paid-in capital
totaling $202,151 in 2002, $1,620,591 in 2001 and $4,358,777 in 2000,
respectively.


F-27
IMPATH
INC. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(13) Goodwill and Intangible Assets


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 charge of $2,300,000 to account for severance and related costs, some
of which remain to be settled, as well as an increase in allowances for bad-debt
expenses related to those accounts the Company will no longer be
servicing.


The
Companys pro forma basic and diluted earnings per share for the year ended
December 31, 2001 assuming the Company adopted Statement 142 at the beginning of
fiscal 2001 would have been $0.73 and $0.70 per share respectively versus $0.69
and $0.66 per share respectively as reported, had amortization expense of
$684,000 net of tax, not been reported during the year. Net income would have been $11.7 million.
In 2000, net income would have been $13.6 million and earnings pro forma basic and diluted per share would have been
$.88 and $.84 respectively, versus $.83 and $.80.
The aggregate acquired
intangible asset amortization for the year ended December 31, 2002 was
approximately $2,740,000. The estimated acquired intangible asset amortization
expense for the fiscal years ended December 31, 2002 through 2005 is
approximately $2.7 million per year.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(in $ millions)                                 | IMPATH
      Physician
      Services | IMPATH
      Predictive
      Oncology | IMPATH
      Information
      Services | Total | 
|----------------------------------------------- | ------------------------------------- | -------------------------------------- | --------------------------------------- | ----- | 
|Balance
      at December 31, 2001              |                                       | $4.2                                   |                                         | $10.8 | 
|                                                |                                      
|Write-off
      of goodwill related to the      |                                      
|discontinuance
      of BIS                     |                                       | (3.2                                   | )                                       |       | 
|                                                |                                      
|Payment
      of contingent amounts payable for |                                      
|the BCP acquisition                             |                                       |                                        |                                         | 2.8   | 
|                                                |                                      
|Acquisition
      of Tamtron                    |                                       |                                        |                                         |       | 
|                                                |                                       |                                        |                                         |       | 
|                                                |                                      
|Balance at
      December 31, 2002              |                                       | $1.0                                   |                                         | $13.6 | 
|                                                |                                       |                                        |                                         |       | 

|The
table below reconciles the change in the carrying amout of goodwill for the reporting units
for the period December 31, 2001 to December 2002.



Payments
to acquire tissue and tumor samples for use in GeneBank have been classified as
an intangible asset and totals $18,310,000 and $5,023,000 as of December 31,
2002 and 2001 respectively. GeneBank is being amortized using the straight-line
method over its estimated useful life of seven years, as such, amortization in
future years of the balance existing at December 31, 2002 is estimated at $2.6
million per year.


(14) Related Party Transaction


The
Company paid $169,000, $153,000 and $138,000 in the years ended December 31,
2002, 2001 and 2000, respectively, to a Director who also performs certain
consulting services for the Company.


Dr.
Anu Saad and the Board agreed to the resignation of Dr. Saad effective  February 10,
2003, following a review of her expense reports, which was led by  IMPATHs Audit
Committee.


(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) IMPATH Physician Services,
(2) IMPATH Predictive Oncology and (3) IMPATH Information Services. Physician
Services derives revenue from performing specialized cancer analyses. IPO
provides (i) contract laboratory services, (ii) cancer database and
pharmacoeconomic information and (iii) clinical trial support services to
genomics, biotechnology and pharmaceutical companies. Information Services
derives revenues by licensing its tumor registry software to community hospitals
and state agencies and provides pathology information management software, which
is licensed to hospitals and academic medical centers around the country. The
Company measures the performance of its operating segments through Income
(loss) from operations as defined on the accompanying consolidated
statements of operations.


F-28
IMPATH
INC. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|($
      in Thousands)        | Total
      IMPATH Inc | IMPATH
      Physician
      Services | IMPATH
      Predictive
      Oncology | IMPATH
      Information
      Services
|----------------------------- | ---------------------- | ------------------------------------- | -------------------------------------- | ---------------------------------------
|                             
|2002                          |                        |                                       |                                        |                                        
|Revenue                       |                        |                                       |                                        | 188,123                                
|Operating
      income (loss) |                        |                                       |                                        | 21,973                                 
|Total assets                  |                        |                                       |                                        | 286,205                                
|Depreciation
      and        |                        |                                      
|amortization                  |                        |                                       |                                        | 24,741                                 
|                             
|2001                          |                        |                                      
|Revenue                       |                        |                                       |                                        | 163,290                                
|Operating
      income        |                        |                                       |                                        | 21,354                                 
|Total assets                  |                        |                                       |                                        | 236,764                                
|Depreciation
      and        |                        |                                      
|amortization                  |                        |                                       |                                        | 15,906                                 
|                             
|2000                          |                        |                                      
|Revenue                       |                        |                                       |                                        | 122,821                                
|Operating
      income (loss) |                        |                                       |                                        | 20,248                                 
|Total assets                  |                        |                                       |                                        | 196,773                                
|Depreciation
      and        |                        |                                      
|amortization                  |                        |                                       |                                        | 10,730                                 
|                             

|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 32%,
27%, and 29% of the Companys Physician Services revenue in fiscal
years 2002, 2001, and 2000, respectively. The Company receives reimbursement
through Medicare for individual patient accounts. No other customer accounted
for 10% or more of the Companys total revenue in fiscal years 2002, 2001,
and 2000.


(d)  Concentration
of Revenue


During
2002, 2001 and 2000, the Company received the following estimated percentages of
its IMPATH 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                          | 
| |                                | 
| |                                | 

|F-29
IMPATH
INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(16) Commitments and Contingencies


At
December 31, 2002 minimum rental commitments under non-cancelable operating
leases which primarily related to real estate are as follows
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Year ending December 31, |  | Operating leases |  
| | ------------------------ |  | ---------------- | -
| | 2003                     |  |                  | $
| | 2004                     |  |                  |  
| | 2005                     |  |                  |  
| | 2006                     |  |                  |  
| | 2007                     |  |                  |  
| | Thereafter               |  |                  |  
| |                          | 
| |                          |  |                  |  
| |                          | 
| |                          |  |                  |  

|For the years 2002, 2001
and 2000, rent expense was $4.3 million, $3.5 million and $2.8 million,
respectively.


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 turn received a release of all related claims. The settlement and related
expenses amounted to $9.7 million and were included in selling, general and
administrative expenses in the 2001 results of operations.


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 and provide for certain payments to the executive in the event of a change of
control of the Company.


F-30
IMPATH
INC. AND SUBSIDIARIESNOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(Continued)


(17) Subsequent Event


In
the first half of 2003, the Company plans to launch its automated
PowerPath® software solution as the Companys new laboratory
information and billing system. The Company anticipates depreciating the
remaining $15 million net capitalized software related to the old billing system
over the remaining useful life, (expected to be only a few months).


(18)
Quarterly Financial Data (unaudited) (dollars in thousands except per share
data)
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Per
      Share of
      Common Stock
      Net Income/(loss) | 
| | ------------------------------------------------------------- | 
|
| | 2002                                                          | 
| | Fourth
      (2)                                              | 
| | Third                                                         | 
| | Second                                                        | 
| | First                                                         | 
| |                                                               | 
| | Total                                                         | 
| |                                                               | 
| | 2001                                                          | 
| | Fourth                                                        | 
| | Third                                                         | 
| | Second                                                        | 
| | First                                                         | 
| |                                                               | 
| | Total                                                         | 
| |                                                               | 

|(1) | In
the fourth Quarter of 2002, the Company recorded a $9.9 million adjustment to the carrying
value of its December 31, 2002 net accounts, receivable balance after its detailed
assessment or recent collection activities and certain other changes in its collection
practices and policies. The adjustment after giving consideration to the new revenue
classification approach was estimated to reduce net revenues by approximately $5
million and to increase bad debt expense by approximately $5 million.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | In
2002, as described in Note 2, the Company made a decision to reclassify certain bad debt
expense against net revenues. Amounts have been reclassified to conform to the annual
presentation.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|F-31
Financial Statement ScheduleSchedule II-Valuation and Qualifying Accounts
|------------------------------------------------------------------------------

|                                   | Balance
      at
      Beginning
      of Period |  | Provision
      for
      Contractual
      Allowance,
      Net |            | Write-Off
      of
      Previously
      Provided
      Accounts |   | Balance
      at
      End of
      Period | 
|---------------------------------- | ------------------------------------------------ |  | ---------------------------------------------------------------- | ---------- | ----------------------------------------------------------------- | - | ------------------------------------------ | 
|Year
      Ended December 31, 2002 |                                                  |  |                                                                  |            |                                                                   |   |                                            | 
|Contractual
      Allowance        |                                                  |  | $                                                                | 58,588,571 |                                                                   | $ | 125,170,721                                | 
|Year
      Ended December 31, 2001 |                                                  | 
|Contractual
      Allowance        |                                                  |  | $                                                                | 39,378,731 |                                                                   | $ | 85,868,390                                 | 
|Year
      Ended December 31, 2000 |                                                  | 
|Contractual
      Allowance        |                                                  |  | $                                                                | 23,828,466 |                                                                   | $ | 65,176,467                                 | 

|                                      | Balance
      at
      Beginning
      of Period |  | Provision
      for
      Doubtful
      Accounts,
      Net |            | Write-Off
      of
      Previously
      Provided
      Accounts |   | Balance
      at
      End of
      Period | 
|------------------------------------- | ------------------------------------------------ |  | ------------------------------------------------------------ | ---------- | ----------------------------------------------------------------- | - | ------------------------------------------ | 
|Year
      Ended December 31, 2002    |                                                  | 
|Allowance
      for Doubtful Accounts |                                                  |  | $                                                            | 10,189,646 |                                                                   | $ | 13,353,499                                 | 
|Year
      Ended December 31, 2001    |                                                  | 
|Allowance
      for Doubtful Accounts |                                                  |  | $                                                            | 6,818,100  |                                                                   | $ | 7,065,535                                  | 
|Year
      Ended December 31, 2000    |                                                  | 
|Allowance
      for Doubtful Accounts |                                                  |  | $                                                            | 4,166,970  |                                                                   | $ | 5,924,446                                  | 

|F-32
|----

|ITEM 6. Exhibits Index

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

|ExhibitNumber | Description
|------------- | -----------

---

|3.1 | Restated
Certificate of Incorporation, (incorporated by reference to Exhibit 4.1 filed with the
              Quarterly Report on Form 10-Q for the period ended June 30, 2002 (File No.
000-27750))
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.2 | Amended
and Restated By-laws (incorporated by reference to Exhibit 4(b) filed with the
              Registration Statement on Form S-8 (File No. 333-96867))
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.3 | Certificate
of Designations of Series A Junior Participating Preferred Stock (incorporated by
              reference to Exhibit 3.1 of the Registration Statement on Form 8-A filed on
August 5, 2002               (File No. 000-27750)
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.1 | Rights
Agreement dated July 19, 2002 by and between IMPATH Inc. and American Stock Transfer
              Trust Company, as Rights Agent (incorporated by reference to the exhibit of
the same number               filed with Current Report on Form 8-K filed July 19, 2002
(File No. 000-27750)).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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))
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|1
|-

|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 (incorporated by reference to the exhibit of the
              same number filed with the Companys Annual Report on Form 10-K for the
year ended December 31,               2001) (File No. 000-27750))
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.25 | Amendment
to 1999 Long Term Incentive Plan (incorporated by reference to the exhibit of the
              same number filed with the Companys Annual Report on Form 10-K for the
year ended December 31,               2001) (File No. 000-27750))
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.26 | Amendment
to 2000 Long Term Incentive Plan (incorporated by reference to the exhibit of the
              same number filed with the Companys Annual Report on Form 10-K for the
year ended December 31,               2001) (File No. 000-27750))
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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.
(incorporated by reference to the exhibit               of the same number filed with the
Companys Annual Report on Form 10-K for the year ended               December 31, 2001)
(File No. 000-27750))
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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. (incorporated by
reference to the exhibit of the same number filed with the Companys               Annual
Report on Form 10-K for the year ended December 31, 2001) (File No. 000-27750)
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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. (incorporated by
reference to the exhibit of the same number filed with the Companys               Annual
Report on Form 10-K for the year ended December 31, 2001 (File No. 000-27750))
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2
|-

|10.31 | 2002
Long Term Incentive Plan (incorporated by reference to Exhibit 99 to the Registration
              Statement on Form S-8 (File No. 333-96867))
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------

|10.32 | Change-of-Control
Agreement, dated August 7, 2002, by the Registrant and Richard P. Adelson
         (incorporated by reference to the exhibit of the same number filed with the
Quarterly Report on               Form 10-Q for the quarter ended June 30, 2002 (File No.
000-27750))
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.33 | Third
Amendatory Agreement to Credit Agreement, Joinder and Assignment Agreement dated as of
              October 17, 2002 by and among IMPATH Inc., IMPATH Predictive Oncology,
Inc., IMPATH-BIS Inc.,               Medical Registry Services, Inc., IMPATH-BCP, Inc.,
IMPATH-PCRL Inc., IMPATH-HDC, Inc., IMPATH               Information Services Inc.,
Tamtron Corporation, IMPATH-CSL Inc., Fleet National Bank, The Bank               of New
York, Key Corporate Capital Inc.., Bank Leumi USA, and Fleet National Bank, as agent
              (incorporated by reference to the exhibit of the same number filed with the
Quarterly Report on               Form 10-Q for the quarter ended September 30, 2002
(File No. 000-27750))
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.34. | Letter
Agreement dated September 26, 2002 between James V. Agnello 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 September 30, 2002               (File No.
000-27750))
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*10.35. | Letter
Agreement dated December 30, 2002, between Richard C. Rosenzweig and IMPATH Inc.
|------- | ---------------------------------------------------------------------------------------

|*10.36: | Letter
Agreement dated February 11, 2003 between Carter H. Eckert and IMPATH Inc.
|------- | ---------------------------------------------------------------------------------

|*10.37 | Fourth
Amendatory Agreement to Credit Agreement dated as of March 31, 2003, by and among IMPATH
Inc., IMPATH               Predictive Oncology, Inc., IMPATH-BIS Inc., Medical Registry
Services, Inc., IMPATH-BCP Inc., IMPATH-PCRL, Inc.,               IMPATH HDC, Inc. IMPATH
Information Services, Inc., Tamtron Corporation, IMPATH-CSL Inc., Fleet National Bank,
The               Bank of New York, Key Corporate Capital Inc. and Bank Leumi USA.
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

|*99.1 | Certification
of Carter H. Eckert, Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant               To Section 906 of the Sarbanes-Oxley Act of 2002.
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*99.2 | Certification
of James V. Agnello, Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as
Adopted               Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002.
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|* | Filed
herwith
|- | -------------

|3
|-

|CERTIFICATIONS


I, Carter H. Eckert, certify that:
|---------------------------------------------------

| | 1. | I
have reviewed this annual report on Form 10-K of IMPATH Inc.;
| | -- | ---------------------------------------------------------------

| | 2. | Based
on my knowledge, this annual report does not contain any untrue statement           of a
material fact or omit to state a material fact necessary to make the           statements
made, in light of the circumstances under which such statements were           made, not
misleading with respect to the period covered by this annual report;
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Based
on my knowledge, the financial statements, and other financial information
          included in this annual report, fairly present in all material respects the
          financial condition, results of operations and cash flows of the registrant as
          of, and for, the periods presented in this annual report;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | The
registrants other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | designed
such disclosure controls and procedures to ensure that material           information
relating to the registrant, including its consolidated subsidiaries,           is made
known to us by others within those entities, particularly during the           period in
which this annual report is being prepared;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | evaluated
the effectiveness of the registrants disclosure controls and           procedures
as of a date within 90 days prior to the filing date of this annual           report (the
Evaluation Date); and
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) | presented
in this annual report our conclusions about the effectiveness of the           disclosure
controls and procedures based on our evaluation as of the Evaluation           Date;.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | The
registrants other certifying officers and I have disclosed, based on           our
most recent evaluation, to the registrants auditors and the audit
          committee of registrants board of directors (or persons performing the
          equivalent function):
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | all
significant deficiencies in the design or operation of internal controls           which
could adversely affect the registrants ability to record, process,
          summarize and report financial data and have identified for the
          registrants auditors any material weaknesses in internal controls; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | any
fraud, whether or not material, that involves management or other employees           who
have a significant role in the registrants internal controls; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6. | The
registrants other certifying officers and I have indicated in this           annual
report whether or not there were significant changes in internal controls           or in
other factors that could significantly affect internal controls subsequent           to
the date of our most recent evaluation, including any corrective actions with
          regard to significant deficiencies and material weaknesses.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Dated: April 15, 2003By /s/ CARTER H. ECKERT

Carter H. Eckert
Chairman of the Board of Directors and Chief Executive Officer


6
I, James V. Agnello, certify that:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 1. | I
have reviewed this annual report on Form 10-K of IMPATH Inc.;
| | -- | ---------------------------------------------------------------

| | 2. | Based
on my knowledge, this annual report does not contain any untrue statement           of a
material fact or omit to state a material fact necessary to make the           statements
made, in light of the circumstances under which such statements were           made, not
misleading with respect to the period covered by this annual report;
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Based
on my knowledge, the financial statements, and other financial information
          included in this annual report, fairly present in all material respects the
          financial condition, results of operations and cash flows of the registrant as
          of, and for, the periods presented in this annual report;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | The
registrants other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | designed
such disclosure controls and procedures to ensure that material           information
relating to the registrant, including its consolidated subsidiaries,           is made
known to us by others within those entities, particularly during the           period in
which this annual report is being prepared;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | evaluated
the effectiveness of the registrants disclosure controls and           procedures
as of a date within 90 days prior to the filing date of this annual           report (the
Evaluation Date); and
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) | presented
in this annual report our conclusions about the effectiveness of the           disclosure
controls and procedures based on our evaluation as of the Evaluation           Date;.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | The
registrants other certifying officers and I have disclosed, based on           our
most recent evaluation, to the registrants auditors and the audit
          committee of registrants board of directors (or persons performing the
          equivalent function):
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) | all
significant deficiencies in the design or operation of internal controls           which
could adversely affect the registrants ability to record, process,
          summarize and report financial data and have identified for the
          registrants auditors any material weaknesses in internal controls; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) | any
fraud, whether or not material, that involves management or other employees           who
have a significant role in the registrants internal controls; and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6. | The
registrants other certifying officers and I have indicated in this           annual
report whether or not there were significant changes in internal controls           or in
other factors that could significantly affect internal controls subsequent           to
the date of our most recent evaluation, including any corrective actions with
          regard to significant deficiencies and material weaknesses.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Date: April 15, 2003
By /s/ JAMES V. AGNELLO
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James V. Agnello
Chief Financial Officer and Senior Vice President


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