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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-K/A

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934


                      FOR THE YEAR ENDED DECEMBER 31, 1997

                                       OR

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

             FOR THE TRANSITION PERIOD FROM _________ TO _________.

                                 AMERIPATH, INC.
             ------------------------------------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

               DELAWARE                                         65-0642485
   ------------------------------                           -------------------
    (STATE OR OTHER JURISDICTION                              (I.R.S. EMPLOYER
   INCORPORATION OR ORGANIZATION)                           IDENTIFICATION NO.)

            7289 GARDEN ROAD, SUITE 200, RIVIERA BEACH, FLORIDA 33404
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

     REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (561) 845-1850

     SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: 

     SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                     COMMON STOCK (PAR VALUE $.01 PER SHARE)
                                (TITLE OF CLASS)

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

             Indicate 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]

             The aggregate market value of voting stock held by non-affiliates
of the Company as of March 19, 1998 was approximately $243.2 million based on
the $16.875 closing sale price for the Common Stock on the NASDAQ National
Market System on such date. For purposes of this computation, all executive
officers and directors of the Company have been deemed to be affiliates. Such
determination should not be deemed to be an admission that such directors and
officers are, in fact, affiliates of the Registrant.

             The number of shares of Common Stock of the Registrant outstanding
as of March 19, 1998 was 19,737,382.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant's definitive Proxy Statement relating to the
     Registrant's 1998 Annual Meeting of Shareholders to be filed with the
     Securities and Exchange Commission no later than 120 days after the end of
     the year covered by this report are incorporated by reference into Part III
     of this report.

     This is an amendment to Form 10-K previously filed with the Securities and
     Exchange Commission on March 31, 1998, which amendment is being filed
     solely to correct typographical errors that occurred during the preparation
     of the 10-K. The corrections are on pages 26, F-13, F-17 and F-18, although
     the entire document (excluding exhibits) is being refiled for ease of use.
 
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<PAGE>   2
                                 INDEX TO ITEMS


<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                         <C>
PART I...................................................................    2
         Item 1. General Business........................................    2
         Item 2. Properties..............................................   16
         Item 3. Legal Proceedings.......................................   16
         Item 4. Submission of Matters to a Vote of Security Holders.....   17

PART II..................................................................   17
         Item 5. Market for the Registrant's Common Stock and Related   
                 Stockholder Matters.....................................   17
         Item 6. Selected Financial Data.................................   18
         Item 7. Management's Discussion and Analysis of Financial 
                 Condition and Results of Operations.....................   19
         Item 8. Financial Statements and Supplementary Data; Index to
                 Consolidated Financial Statements.......................   28
         Item 9. Changes in and Disagreements with Accountants on 
                 Accounting and Financial Disclosure.....................   28

PART III.................................................................   29
         Item 10. Directors and Executive Officers of the Registrant.....   29
         Item 11. Executive Compensation.................................   29
         Item 12. Security Ownership of Certain Beneficial Owners and
                  Management.............................................   29
         Item 13. Certain Relationships and Related Transactions.........   29

PART IV..................................................................   29
         Item 14. Exhibits, Financial Statement Schedules and Reports of
                  Form 8-K...............................................   29

Exhibits.................................................................   29

Signatures...............................................................   32

Financial Statements.....................................................  F-1

Financial Statement Schedules............................................  S-1    

</TABLE>





<PAGE>   3



                                    PART I

ITEM  1.  GENERAL BUSINESS

             AmeriPath, Inc. ("AmeriPath" and, together with its subsidiaries
and PA Contractors, the "Company") is the largest physician practice management
company focused on anatomic pathology services, based on an analysis of
geographic breadth, number of physicians, number of hospital contracts, number
of practices and net revenues. The Company owns or is affiliated with 17
physician practices (the "Practices") located in eight states. Eleven of the
Practices are directly owned and operated by eight wholly-owned subsidiaries
(the "Practice Subsidiaries") of AmeriPath and six of the Practices are managed
by four wholly-owned subsidiaries (the "Manager Subsidiaries", and, together
with the Practice Subsidiaries, the "Subsidiaries") of AmeriPath under long-term
management agreements. The Practices owned by the Company's Practice
Subsidiaries are located in Florida, Kentucky, Mississippi and Alabama, while
the Practices managed by the Manager Subsidiaries are located in Indiana, Ohio,
Pennsylvania and Texas. As of December 31, 1997, the Practices employed a total
of 133 pathologists, who provided medical services in 13 outpatient pathology
laboratories owned and operated by the Company, and in inpatient laboratories
for 75 hospitals and 31 outpatient surgery centers. Of these pathologists, 132
are board certified, one is board eligible and 65 are also board certified in a
subspecialty of anatomic pathology, including dermatopathology (diseases of the
skin), hematopathology (diseases of the blood) and cytopathology (diseases of
the cells).

             The Company provides physician practice management services, and
the physicians (the "Affiliated Physicians") employed by either the Practice
Subsidiaries or the professional associations, professional corporations or
other entities managed by the Manager Subsidiaries (the "PA Contractors")
provide medical services, in the Company's outpatient laboratories and in
inpatient laboratories owned by hospitals. As of December 31, 1997, twelve
Practices had exclusive contracts with a total of 75 hospitals to manage their
inpatient laboratories and provide professional pathology services. Ten
Practices also have established outpatient laboratories that focus on outpatient
pathology services. Unless the context requires otherwise, AmeriPath, Inc., the
Subsidiaries and the PA Contractors are collectively referred to herein as the
"Company".

             AmeriPath manages and controls all of the non-medical functions of
the Practices, including: (i) recruiting, training, employing and managing the
technical and support staff of the Practices; (ii) developing, equipping and
staffing laboratory facilities; (iii) establishing and maintaining courier
services to transport specimens; (iv) negotiating and maintaining contracts with
hospitals, national clinical laboratories and managed care organizations and
other payors; (v) providing financial reporting and administration, clerical,
purchasing, payroll, billing and collection, information systems, sales and
marketing, risk management, employee benefits, legal, tax and accounting
services to the Practices; (vi) complying with applicable laws and regulations;
and (vii) with respect to the Company's ownership and operation of anatomic
pathology laboratories, providing slide preparation and other technical
services. AmeriPath also identifies, analyzes, negotiates and consummates
acquisitions of and affiliations with pathology practices.

             During 1997, the Company acquired or affiliated with five Practices
in five states (adding a total of 45 pathologists): two of these were in states
in which the Company previously operated (Florida and Texas) and three were in
additional states (Indiana, Mississippi and Pennsylvania). Between January 1 and
March 26, 1998, the Company acquired or affiliated with two additional Practices
in Indiana and Texas (adding a total of 14 additional pathologists).

             In October 1997, the Company completed an initial public offering
of shares of its common stock, resulting in net cash proceeds to the Company of
approximately $84.7 million.

ANATOMIC PATHOLOGY; INDUSTRY OVERVIEW

             The practice of pathology includes anatomic pathology, the
diagnosis of diseases through examination of tissues and cells, and clinical
pathology, the chemical testing and analysis of body fluids, such as blood and
urine. Clinical pathology involves an interpretation of standardized laboratory
test results, a process which is frequently automated. Anatomic pathology, on
the other hand, typically requires a pathologist to make a specific diagnosis.
Anatomic pathologists do not treat patients, but rather assist physicians in
establishing a definitive diagnosis for 




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many diseases. In addition, anatomic pathologists may consult with attending
physicians regarding treatment plans. In these capacities, the anatomic
pathologist often serves as the "physician's physician," thereby creating
long-term relationships. Referring physicians remove specimens which are
transported to a laboratory by courier or an overnight delivery service. Once
received at the laboratory, a specimen is processed and mounted onto a slide by
laboratory technologists for examination by a pathologist. Since specimens are
transportable, samples can be diagnosed by a pathologist from a remote location.
Therefore, pathologists are generally not needed "on-site" to make a diagnosis.
This enhances utilization of available capacity in outpatient and inpatient
laboratories and allows the practice to service a wider geographic area.

             An anatomic pathologist must have an understanding of a broad range
of medicine. Subspecialties within anatomic pathology include the examination
and diagnosis of skin biopsies taken by a dermatologist or plastic surgeon
(dermatopathology), examination and diagnosis of tissue samples, such as
prostate or breast, taken during a surgical procedure (surgical pathology),
diagnostic analysis of diseases and disorders in blood, bone marrow and lymph
nodes (hematopathology) and interpretation of pap smears, fine needle
aspiration, biopsies, washings, brushings and body fluids (cytopathology). While
physical examination or radiology procedures may suggest a diagnosis for many
diseases, the definitive diagnosis is generally established by the anatomic
pathologist.

             Based on information published by the American Medical Association,
there are approximately 14,000 practicing pathologists in the United States.
According to the American Society of Dermatopathology, in 1994 approximately 900
practicing pathologists were Board Certified by the College of American
Pathology in dermatopathology. The Company focuses on providing outpatient
pathology services and inpatient pathology services at hospitals with 400 or
fewer beds. Based on a study prepared for the Company, the Company believes
that, as of 1995, the domestic market for non-hospital pathology services
(approximately 3,300 outpatient laboratories) was approximately $2.1 billion and
inpatient pathology services at hospitals with 400 or fewer beds was
approximately $1.1 billion. The Company expects the market for anatomic
pathology services to grow primarily due to the aging of the United States
population, increased incidence of cancer and medical advancements that allow
for earlier diagnosis and treatment of diseases. As an example, according to The
Journal of the American Academy of Dermatology, the number of new cases of
non-melanoma skin cancer diagnosed in 1977 was 480,000 as compared to over
900,000 new cases diagnosed in 1994. Further, estimates published by The
American Cancer Society in 1996 indicate that 50% of the United States
population who live to age 65 or older will develop some form of skin cancer
during their lifetimes.

             Most hospitals operate an anatomical pathology laboratory to
provide routine and emergency anatomic pathology services for the physicians on
staff. Laboratories operated by a hospital or by a single independent pathology
practice are limited in the range of sub-specialty services that they can
provide and are often constrained by the time and expense associated with
administrative functions. Cost containment pressures and medical advancements
are expected to decrease the number of procedures being performed in hospitals
and increase the number of procedures that will be performed by a physician in
an outpatient setting. Further, as hospitals consolidate their operations and
increase the outsourcing of certain services, the Company expects growth in
outpatient pathology services to continue to outpace the growth in inpatient
pathology services. The Company believes that there will be greater utilization
of outpatient pathology laboratories, such as those operated by the Company.

             Cost containment pressures are also causing hospitals to increase
their utilization of outside contract management companies to manage specialized
functions, improve physician utilization and reduce the hospital's
responsibility for certain administrative duties. Physician practice management
companies, such as the Company, can provide a hospital with professional
management of its pathology laboratory staff, including recruiting and
scheduling, as well as the assumption of certain financial risks and
administrative duties associated with physician billing and collections,
utilization and outcome data and payment of physician malpractice insurance
premiums.

             Although the selection of a pathologist is primarily made by
individual referring physicians, a trend is evolving toward decisions being made
by managed care organizations and other insurance plans. While the majority of
referrals by managed care organizations for outpatient anatomic pathology
services are made directly to pathology practices on a local basis, in certain
instances managed care organizations contract with national clinical
laboratories. Generally, these national clinical laboratories subcontract
anatomic pathology services to large practices that can provide a comprehensive
range of anatomic pathology services. The Company believes that 



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hospitals and national clinical laboratories will continue to outsource for the
provision of anatomic pathology services.

             Historically, the anatomic pathology industry has been highly
fragmented, with the majority of the services being provided by relatively small
practices. The Company estimates that there are over 3,300 pathology practices
operating in outpatient laboratories in the United States. There is an evolving
trend among pathologists to form larger practices to provide a broader range of
outpatient and inpatient services and enhance the utilization of the practice's
pathologists. The Company believes this trend can be attributed to several
factors, including cost containment pressures by government and other
third-party payors, increased competition, managed care and the increased costs
and complexities associated with operating a medical practice. Moreover, given
the current trends of increasing outpatient services, outsourcing and the
consolidation of hospitals, pathologists are seeking to align themselves with
larger practices and physician practice management companies that can assist
providers in the evolving healthcare environment. Larger practices and physician
practice management companies can offer physicians certain advantages, such as
obtaining and negotiating contracts with hospitals, managed care providers and
national clinical laboratories; marketing and selling of professional services;
providing continuing education and career advancement opportunities; making
available a broad range of specialists with whom to consult; providing access to
capital and business and management experience; establishing and implementing
more efficient and cost effective billing and collection procedures; and
expanding the practice's geographic coverage area. Each of these factors support
the pathologists in the efficient management of the complex and time-consuming
non-medical aspects of their practice.

BUSINESS STRATEGY

             The Company's objective is to enhance its position as the largest
provider of physician practice management services to anatomic pathology
practices through the following strategies:

             FOCUS ON ANATOMIC PATHOLOGY. The Company believes that its single
focus on providing management services to anatomic pathology practices provides
it with a competitive advantage in the acquisition of such practices.
Significant opportunities exist to acquire or affiliate with anatomic pathology
practices that are seeking to be acquired or to affiliate with a physician
practice management company with experienced management and access to capital.
As a result of the Company's focus on providing management services to anatomic
pathology practices, Affiliated Physicians are able to form an internal network
for consultations and to offer specialized services and testing to their
clients. Further, the Company is evaluating the opportunity of closer working
relationships with referral sources, such as dermatologists. The Company
believes that its single specialty focus enhances its expertise in managing both
inpatient and outpatient pathology practices.

             ACQUIRE LEADING PRACTICES. The Company expects to increase its
presence in existing markets and enter into new markets through acquisitions of,
affiliations with and strategic minority investments in leading practices. The
Company's acquisition/affiliation criteria include market demographics, size,
profitability, local prominence, payor relationships, synergy with other
acquisitions in a given geographic region and opportunities for growth of the
acquired Practice. The Company intends to continue to source acquisitions and
affiliations by capitalizing on the professional reputations of its acquired
Practices and the Affiliated Physicians, the Company's management experience and
the benefits of being part of a public company, including increased resources
and improved access to capital. In existing markets, the Company targets
acquisitions and affiliations that can expand its presence, provide
specialization, such as dermatopathology, and provide operational efficiencies
for the Practices in that market. In new markets, the Company seeks to acquire
and affiliate with prominent practices to serve as a platform for building upon
their long-standing relationships and reputations.

             EXPAND SALES AND MARKETING EFFORTS. The Company focuses on
generating internal growth for the Practices by augmenting their existing
physician and contractual relationships through a professional sales and
marketing program. The Company's marketing program is designed to: (i) increase
relationships with physicians over a broader geographic region; (ii) expand
contracts with national clinical laboratories that subcontract for anatomic
pathology services; and (iii) capitalize on existing managed care relationships.
Since specimens can be readily transported, the Company's sales and marketing
efforts focus on expanding the geographic scope of the Practices. Eight
Practices contract with national clinical laboratories to provide outpatient
anatomic pathology services. These contracts generally are exclusive to the
individual Practice and are limited to the local service area. The Company is
seeking to extend its existing contracts with national clinical laboratories to
include multiple Practices that cover a broader geographic region. The Company
believes that this regional business model can offer 



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national clinical laboratories and managed care organizations a convenient
single source for anatomic pathology services. The Company also intends to apply
its regional business model in obtaining managed care contracts.

             INCREASE CONTRACTS WITH HOSPITALS. The Company seeks to gain
additional exclusive hospital contracts for the Practices through the
acquisition of or affiliation with anatomic pathology practices, as well as
through the expansion of the Company's existing relationships with
multi-hospital systems. The Company believes that multi-hospital systems can
benefit from contracting with a single provider of pathology services in a
geographic region. In addition, the Company believes that providing inpatient
laboratory services to multiple hospitals within a geographic area facilitates
the development of a successful outpatient services operation by creating market
presence and economies of scale and maintaining important physician
relationships.

             ACHIEVE OPERATIONAL EFFICIENCIES. The Company believes that the
Practices will benefit from the management and administrative support provided
by the Company's relatively small corporate staff, which provides oversight,
technical and administrative support services. The Company has centralized
accounting and financial reporting, payroll and benefits administration,
purchasing, managed care contracting, risk management and regulatory compliance.
Furthermore, the Company has achieved and continues to pursue certain cost and
operational efficiencies, enhancing the Practices' profitability and efficiency
by utilizing the Company's collective buying power to negotiate discounts on
laboratory equipment and medical supplies and reductions in premiums for health,
property, casualty and professional liability insurance. Also, prior to their
acquisitions, each of the Practices either managed their billing and collections
in-house or outsourced these functions. The Company continues to evaluate the
billing and collection systems of the Practices and centralizes such functions
to the extent determined practicable and efficient. To date, the Company has
centralized the outpatient billing and collections functions for five of the
Practices at its centralized billing operation in Fort Lauderdale, and has
outsourced the inpatient billing for four of its hospital based Practices with
Medaphis Physician Services Corporation ("Medaphis"). Rates paid to Medaphis are
tied to collection volume on accounts handled by Medaphis. The Company will
continue to evaluate billing and collections systems at the Practices and may
centralize such functions for other Practices or newly acquired practices in the
future. The Company plans to introduce "bench-marking" programs to enhance the
efficiency of the Practices and, in certain markets, intends to develop a
regional business model with centralized administrative functions, common
marketing plans and integrated courier systems.

REGIONAL BUSINESS MODEL

             Through the implementation of its operating strategies, the Company
intends to develop integrated networks of anatomic pathology practices on a
regional basis. These networks will consist of a number of practices that
together: (i) have a substantial market presence; (ii) offer a broad range of
services; (iii) have extensive physician contacts; and (iv) possess
complementary strengths and opportunities for operational and production
efficiencies. The Company has developed its regional business model in Florida.
The Company believes that Florida represents an attractive market due to its
population demographics, including the growth of the general population and a
large elderly population, as well as the Company's familiarity and understanding
of the anatomic pathology market in Florida. The Company currently owns,
controls and manages eight anatomic pathology practices in Florida that extend
from Miami to Jacksonville and from Fort Myers to Tampa. Together, as of
December 31, 1997, these Practices employed a total of 570 persons, including 69
pathologists, had contracts with 30 hospitals and 22 outpatient surgery centers
and operated seven outpatient laboratories. The Company contracts with
SmithKline Beecham Clinical Laboratories, Inc. ("SmithKline"), a national
clinical laboratory, to provide anatomic pathology services on an exclusive
basis in 59 of Florida's 67 counties.

             The Company believes that its regional business model offers short
term and long-term benefits to the Company, attending physicians, third party
payors and patients. The Company continues to integrate the Practices'
administrative functions, including accounting, payroll, purchasing, risk
management, billing and collections, and expects such integration to result in
enhanced operational efficiencies. The Company's courier system for transporting
specimens enables the Practices to penetrate areas outside their current markets
and enhance the utilization of their laboratory facilities. The Company also
integrates and coordinates the sales and marketing personnel of the Practices to
promote the Practices to physicians, hospitals, surgery centers, managed care
organizations and national clinical laboratories. This marketing effort is based
upon promoting the broad geographic coverage, professional pathologist expertise
and extensive professional services the Company offers. The Company's strategy
is to leverage its size to expand its contracts with national clinical
laboratories to all of the 



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areas covered by its Practices in Florida. The Company markets its services
under the name "AmeriPath" in order to develop brand identification of products
and services to payors and other clients. The Company plans to integrate the
Practices' management information systems into a single system that will expand
the financial and diagnostic reporting capabilities of each of the Practices.
The Company believes that implementation of this regional model increases the
revenues of the Practices in the region and the Company plans to apply this
regional business model, in whole or in part, to other states in which it
operates.

AFFILIATION STRUCTURE; AFFILIATED PHYSICIANS; PRACTICES

             AmeriPath, Inc. is a holding company that currently owns, controls
and manages 17 Practices through its eight Practice Subsidiaries in Florida,
Alabama and Mississippi and Kentucky and, through its four Manager Subsidiaries,
has long-term management agreements with six PA Contractors in Texas,
Pennsylvania, Indiana and Ohio (where the Company manages and controls all
non-medical functions, owns the laboratory facilities and testing equipment and
employs the technical and non-medical personnel). Each Practice is either a
Subsidiary, a division of a Subsidiary, or a PA Contractor. In Texas,
Pennsylvania, Indiana and Ohio, the Affiliated Physicians are employed by the PA
Contractors. In Florida, Alabama, Mississippi and Kentucky, the Affiliated
Physicians are employed directly by Subsidiaries, which also own and operate the
outpatient laboratories.

             In Texas, Pennsylvania, Indiana and Ohio, states that traditionally
prohibit the corporate practice of medicine, a Subsidiary of the Company has
entered into 40-year management agreements with each of the PA Contractors in
those states. Under the terms of these management contracts, the Company
provides all non-medical and administrative support services to the Practices
including accounting and financial reporting, human resources, payroll, billing,
and employee benefits administration.

             The Board of Directors and management of AmeriPath formulate
strategies and policies which are implemented locally on a day-to-day basis by
each Practice. Each Practice has a Managing Director who reports to the
Company's Chief Operating Officer. The Company's executive officers who are
physicians, principally the Company's Medical Director, develop and review
standards for the Affiliated Physicians and their medical practices and review
quality and peer review matters with each Practice's Medical Director (or a
medical review committee). The Chief Operating Officer, a physician, oversees
all employment matters with respect to Affiliated Physicians and staffing
decisions at the Practices.

             The experience and certification of the Company's Affiliated
Physicians provides opportunities for immediate consultation in complex cases
among the internal network of Affiliated Physicians. Pathology is a specialized
field of medicine and is a core requirement in a dermatologist's training.
Through teaching at medical institutions, the Company's Affiliated Physicians
have an opportunity to develop a reputation and following among residents and
practicing physicians. Several Affiliated Physicians have teaching positions
with a university or an affiliation with another institution for training and
continuing medical education of physicians, particularly dermatologists. In
addition to compensation, the Company provides Affiliated Physicians with
uniform benefit plans, such as disability, life and group health insurance and
medical malpractice insurance.

             The Company manages and controls all of the non-medical functions
of the Practices. The Company is not licensed to practice medicine. The practice
of medicine is conducted solely by the Affiliated Physicians. All of the
Company's outpatient laboratories are licensed and certified under the
guidelines established by the federal Clinical Laboratory Improvement Act
("CLIA") and applicable state statutes and are managed by the Medical Director
of the laboratory. The Company's corporate compliance, quality assurance and
quality improvement programs are designed to assure that all laboratories and
other operations are in compliance with applicable law. Each of the Company's
laboratories has a management information system and modern laboratory
instrumentation that enables laboratory personnel to track, process, report and
archive biopsies and other specimens.

             The Practices typically contract with hospitals to provide
pathology services. The Practices staff each hospital with at least one
pathologist who generally serves as the Medical Director of the laboratory and
who facilitates the hospital's compliance with licensing requirements. The
Practices are responsible for recruiting, staffing and scheduling the Affiliated
Physicians in the local hospital's inpatient laboratories. In addition to
providing pathology services, the Medical Director of the laboratory is
responsible for: (i) the overall management of the laboratory, including quality
of care, professional discipline and utilization review; (ii) serving as a
liaison to 



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the hospital administrators and medical staff; and (iii) maintaining
professional and public relations in the hospital and the community. Three
Practices have both outpatient laboratories and hospital contracts, which allow
outpatient specimens to be processed and examined in inpatient laboratories,
enhancing utilization of Affiliated Physicians in inpatient facilities. In the
hospitals, technical personnel are typically employed by the hospital, rather
than by the Practices.

MANAGEMENT INFORMATION SYSTEMS

             The Company believes that the integration of its laboratory
information, billing and collections and financial reporting systems will enable
it to monitor the operations of the Practices, enhance utilization of the
Affiliated Physicians, develop practice protocols and archives and provide the
Company with a competitive advantage in negotiating national clinical laboratory
and managed care contracts, all on an efficient and cost-effective basis. Each
of the Company's laboratories has a laboratory information system that enables
laboratory personnel to track, process, report and archive biopsies and other
specimens. The Company acquired an outpatient billing and collections software
program and upgraded its computer hardware in 1995 to increase operating
efficiency and storage capacity at its Fort Lauderdale billing operation, and
upgraded its systems software and hardware in 1997 to handle the integration of
out-patient billing for additional Practices. The Company has installed a
complete general ledger and financial reporting system to handle accounting
for the Practices and to facilitate the consolidation of accounting and
financial information. In 1997, the Company started to implement the accounting
software in all locations, completing implementation in the first quarter of
1998.

             Historically, the Company and some of the Practices have outsourced
their billing and collections functions to Medaphis, a national provider of
physician billing services. The Company entered into a contract with Medaphis in
September 1996 to provide inpatient billing services with rates tied to
collection volume. Prior to their acquisition, the Practices either managed
their billing and collections in house or outsourced those functions. In the
course of acquiring the Practices, the Company analyzed and evaluated the
quality, capacity, efficiency and operating cost of each of the billing and
collections systems. Based on such evaluations, the Company has assumed
outpatient billing for five of the Practices at the Company's centralized
billing operation at its Fort Lauderdale billing operation and transferred the
inpatient billing for four Practices to Medaphis. The Company intends to
transfer additional billing operations of other acquired Practices to its
centralized billing operation or to Medaphis. The Company invested approximately
$1.3 million and $526,000 in information systems during the years ended December
31, 1997 and 1996, respectively, and plans to invest additional amounts
necessary to further increase the capacity of its centralized outpatient billing
system and financial information system at its Fort Lauderdale billing
operation, and to develop a plan for a company-wide laboratory information
system. While no assurance can be given, the Company intends to complete a
comprehensive plan for an integrated management information system that will
electronically link the laboratory information systems of its existing Practices
in 1998.

SALES AND MARKETING

             The Company's marketing efforts are focused on physicians, hospital
and outpatient surgery center administrators, national clinical laboratories and
managed care organizations. Prior to being acquired by the Company, the
Practices' marketing efforts were primarily based upon the professional
reputations and individual efforts of the pathologists. The Company believes
that there is an opportunity to capitalize on the professional reputations of
the Affiliated Physicians by hiring experienced personnel and applying
professional sales and marketing techniques to the Practices. Historically, some
of the Practices marketed outpatient services primarily to dermatologists. The
Company intends to increase the Practices' volume of business by also directing
its marketing efforts to other medical specialists, including plastic surgeons,
general surgeons, gynecologists, urologists and gastroenterologists. Since
specimens may be sent by courier service or overnight delivery, the Company will
utilize its sales professionals in an effort to expand the potential geographic
market for each Practice beyond its local physician community. Several of the
Practices currently market their outpatient services to a broad geographic area
including neighboring states. The Company intends to continue to augment its 23
person sales and marketing team with additional sales personnel as practices are
added. These representatives are supervised by regional sales managers who
report to the Company's Vice President of Sales and Marketing, who in turn
assists in the development of the Company's marketing strategies and is
responsible for their implementation. The sales and marketing staff includes
directors of marketing and managed care contracting.





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             Hospital contracts generally grant Practices the exclusive right
and responsibility to manage the pathology services at the hospital. In this
capacity, the Practices provide pathology services to staff physicians and
support personnel and administrative services for the laboratory, as well as an
Affiliated Physician who serves as the medical director of the laboratory. The
Company is responsible for the training and supervision of technical personnel
who are usually employed by the hospitals. As the medical director of the
laboratory, an Affiliated Physician may be responsible for hiring and
terminating laboratory personnel. Upon initiation, the contracts typically have
terms of one to five years and renew for additional terms of one year unless
otherwise terminated by either party. The contracts provide that the hospital
may terminate the agreement prior to the expiration of the initial or renewal
term. No assurance can be given that such contracts with hospitals will not be
terminated or that they will be renewed in the future. Loss of any particular
hospital contract would not only result in a loss of net revenue to the
Practice, and therefore to the Company, from that contract but also a loss of
outpatient net revenue that may be derived from the relationship with a hospital
and its medical staff. Consolidation in the hospital industry may result in
fewer hospitals or fewer laboratories as hospitals move to combine their
operations.

             As of December 31, 1997, the Practices had contracts with 75
hospitals, 25 of which were owned by Columbia/HCA Healthcare Corporation
("Columbia"), the country's largest publicly owned hospital company. The Company
plans to dedicate its professional sales force to service the needs of
multi-hospital systems with facilities of 400 or fewer beds. The Company
believes it can assist multi-hospital systems that currently have numerous
contracts for pathology services by serving as a single source provider of
pathology services. The Company's marketing efforts are directed toward
consolidating the various contracts of multi-hospital systems on a regional
basis and thus facilitating the more efficient and effective operation of
multiple laboratories owned by such systems.

             Eight Practices, including four of the PA Contractors, have an
aggregate of eight contracts with three national clinical laboratories, 
SmithKline, Quest Diagnostics (formerly known as Corning Clinical Laboratories)
and Laboratory Corporation of America Holdings ("LabCorp"). The Company is
directing marketing efforts to national clinical laboratories to expand these
contracts on a regional basis to additional Practices as well as to enter into
new contracts. In addition, the Company is seeking to secure new contracts and
expand existing contracts with managed care organizations for the provision of
anatomic pathology services. The Company is prepared to negotiate flexible
arrangements for the Practices with managed care organizations, including on a
discounted fee-for-service or capitated contract basis. The Company does not
believe that contracting directly with managed care organizations will adversely
affect the Company's relationships with national clinical laboratories because
anatomic pathology services are generally not part of a national clinical
laboratory's core business.

CLIENT AND PAYOR RELATIONSHIPS

             The Practices provide services to a wide variety of healthcare
providers and payors including physicians, government programs, indemnity
insurance companies, managed care organizations and national clinical
laboratories. Physicians who are not affiliated with a hospital or managed care
organization are a principal source of business. Fees for anatomic pathology
services rendered to physicians are billed either to the physicians, the patient
or to the patient's third party payor.

             The national clinical laboratories that contract with managed care
organizations perform clinical laboratory services and generally subcontract
anatomic pathology services to large practices. Under these contracts, the
practices bill national clinical laboratories on a fee schedule basis. Contracts
with national clinical laboratories provide for the exclusive subcontracting of
anatomic pathology services for clients of the national clinical laboratories in
a defined geographic area. These contracts have terms of one to three years and
generally provide for automatic renewal for additional one to three year terms.
The Company's relationships with managed care organizations typically provide
for the provision of services to their participants on the basis of an agreed
upon fee schedule.

PHYSICIAN, PA CONTRACTOR AND OTHER CONTRACTUAL RELATIONSHIPS

             The Company employs pathologists, or manages the PA Contractors who
employ pathologists, to provide medical services in hospitals and in other
inpatient and outpatient laboratories. Pathologist employment agreements
typically have terms of five years and generally can be terminated at any time
upon 60 to 180 days' 



                                       8

<PAGE>   10
notice. The Affiliated Physicians generally receive a base salary and a
performance bonus. The Affiliated Physicians are required to hold a valid
license to practice medicine in the jurisdiction in which they practice and,
with respect to inpatient services, to become a member of the medical staff at
the contracting hospital with privileges in pathology. The Company is
responsible for billing patients, physicians and third party payors for services
rendered by the Affiliated Physicians. Most of the Affiliated Physicians have
agreed, for a period of one to two years after termination of employment, not to
compete with the Company or the PA Contractor within a defined geographic area
and not to solicit Affiliated Physicians, other employees or clients of the
Company.

             The Company's business is dependent upon the recruitment and
retention of pathologists, particularly those with subspecialties, such as
dermatopathology. While the Company has been able to recruit (principally
through practice acquisitions) and retain pathologists, no assurance can be
given that the Company will be able to continue to do so successfully or on
terms similar to its current arrangements. The relationship between the
Company's pathologists and their respective local medical communities is
important to the profitability of the Practices. In the event that a significant
number of Affiliated Physicians, or a small number of established and reputable
Affiliated Physicians, terminate their relationships with the Company or become
unable or unwilling to continue their employment, the Company's business would
be materially and adversely affected.

             The Company, through its Manager Subsidiaries, has long-term
management agreements with each of the six PA Contractors in Texas,
Pennsylvania, Indiana and Ohio (the "PA Management Agreements"). In Texas, each
of the PA Contractors is a managed non-profit corporation, of which the Company
is the sole member. In Pennsylvania, the PA Contractor is a professional
corporation of which the Company's Chief Operating Officer, a pathologist, is
the sole shareholder. In Ohio and Indiana, the PA Contractors are owned by
trusts, of which AmeriPath is the sole beneficiary. Under the PA Management
Agreements, the Company has control over all non-medical functions of the PA
Contractors, including all administrative, management, billing and support
functions. The PA Contractors pay the Company a management fee for its services.
In Ohio, Pennsylvania, and Indiana, the fee is equal to the net revenue of the
pathology practice. In Texas, the management fee consists of a flat base fee,
which is determined on an annual basis according to the operating plan of the
Practice, and a performance-based fee, which may be paid if the performance of
the Practice exceeds budgeted targets.

GOVERNMENT REGULATION

             The Company's business is subject to a variety of governmental and
regulatory requirements relating to healthcare matters as well as laws and
regulations that relate to business corporations in general. The Company
believes that it exercises care in an effort to structure its practices and
arrangements with hospitals and physicians to comply with relevant federal and
state law and believes that such current arrangements and practices comply with
all applicable statutes and regulations.

             The Company derived approximately 39% and 29% of collections for
the years ended December 31, 1996 and 1997, respectively, from payments made by
government sponsored healthcare programs (principally Medicare and Medicaid).
The decrease in the percentage of collections attributable to government
sponsored healthcare programs resulted primarily from the acquisition of
Practices outside Florida. These programs are subject to substantial regulation
by the federal and state governments. Any change in reimbursement regulations,
policies, practices, interpretations or statutes that places limitations on
reimbursement amounts or practices could materially and adversely affect the
Company's financial condition and results of operations. Increasing budgetary
pressures at both the federal and state level and the rapidly escalating costs
of healthcare and reimbursement programs have led, and may continue to lead, to
significant reductions in government reimbursements for certain medical charges
and elimination of coverage for certain individuals under these programs.
Particularly in view of the fact that Medicaid is a substantial and growing
portion of state budgets, increases in state discretion could result in payment
reductions. Although governmental payment reductions have not materially
affected the Company in the past, it is possible that such changes or other
changes in the future could have a material adverse effect on the Company's
financial condition and results of operations. In addition, Medicare, Medicaid
and other government sponsored healthcare programs are increasingly shifting to
some form of managed care. Some states have recently enacted legislation to
require that all Medicaid patients be treated by managed care organizations, and
similar legislation may be enacted in other states, which could result in
reduced payments to the Company for such patients. In addition, a
state-legislated shift in a Medicaid plan to managed care could cause the loss
of some, or all, Medicaid business for the Company in that state if the Company
were not 



                                       9

<PAGE>   11

selected as a participating provider. Additionally, funds received under these
programs are subject to audit with respect to the proper billing for physician
services and, accordingly, retroactive adjustments of revenue from these
programs could occur. The Company expects that there will continue to be
proposals to reduce or limit Medicare and Medicaid reimbursements.

             In connection with Practice acquisitions and affiliations, the
Company performs certain due diligence investigations with respect to potential
liabilities of acquired and affiliated practices and obtains indemnification
with respect to certain liabilities from the sellers of such practices; there
can be no assurance, however, that any liabilities for which the Company becomes
responsible (despite such indemnification and any available insurance) will not
be material or will not exceed either the limitations of any applicable
indemnification provisions or the financial resources of the indemnifying
parties. Furthermore, the Company regularly reviews the Practices' compliance
with federal and state healthcare laws and regulations and revises as
appropriate the operations, policies and procedures of its Practices in order to
conform with the Company's policies and procedures and applicable law. While the
Company believes that the operations of the Practices prior to their acquisition
were generally in compliance with such laws and regulations, there can be no
assurance that the prior operations of the Practices were in full compliance
with such laws, as such laws may ultimately be interpreted. A violation of such
laws by a Practice could result in civil and criminal penalties, exclusion of
the physician, the Practice or the Company from participation in Medicare and
Medicaid programs and/or loss of a physician's license to practice medicine.

             FRAUD AND ABUSE. Federal anti-kickback laws and regulations 
prohibit any knowing and willful offer, payment, solicitation or receipt of any
form of remuneration, either directly or indirectly, in return for, or to
induce: (i) the referral of an individual for a service for which payment may be
made by Medicare and Medicaid or certain other federal healthcare programs; or
(ii) the purchasing, leasing, ordering or arranging for, or recommending the
purchase, lease or order of, any service or item for which payment may be made
by Medicare, Medicaid or certain other federal healthcare programs. Violations
of federal anti-kickback rules are punishable by monetary fines, civil and
criminal penalties and exclusion from participation in Medicare and Medicaid
programs.

             SELF-REFERRAL AND FINANCIAL INDUCEMENT LAWS. The Company is also
subject to state statutes and regulations banning payments for referral of
patients and referrals by physicians to healthcare providers with whom the
physicians have a financial relationship. State statutes and regulations
generally apply to services reimbursed by both governmental and private payors.
Violations of these laws may result in prohibition of payment for services
rendered, loss of licenses as well as fines and criminal penalties. State
statutes and regulations affecting the referral of patients to healthcare
providers range from statutes and regulations that are substantially the same as
the federal laws and the safe harbor regulations to a simple requirement that
physicians or other healthcare professionals disclose to patients any financial
relationship the physicians or healthcare professionals have with a healthcare
provider that is being recommended to the patients. These laws and regulations
vary significantly from state to state, are often vague and, in many cases,
have not been interpreted by courts or regulatory agencies. Adverse judicial or
administrative interpretations of such laws in one of more states in which the
Company operates could have a material adverse effect on the operating results
and financial condition of the Company. In addition, expansion of the Company's
operations to new jurisdictions, or new interpretations of laws in existing
jurisdictions, could require structural and organizational modifications of the
Company's relationships with physicians to comply with that jurisdiction's laws.
Such structural and organizational modifications could have a material adverse
effect on the operating results and financial condition of the Company.

             GOVERNMENT INVESTIGATIONS OF HOSPITALS AND HOSPITAL LABORATORIES.
Significant media and public attention has been focused on the health care
industry due to ongoing federal and state investigations reportedly related to
certain referral and billing practices, laboratory and home healthcare services
and physician ownership and joint ventures involving hospitals. Most notably,
Columbia is under investigation with respect to such practices. The Company
operates laboratories on behalf of and has numerous contractual agreements with
hospitals, including, as of December 31, 1997, 25 pathology service contracts
with Columbia hospitals. The government's investigation of Columbia could result
in a governmental investigation of one or more of the Company's operations which
have arrangements with Columbia. In addition, the Office of the Inspector
General and the Department of Justice have initiated hospital laboratory billing
review projects in certain states and are expected to extend such projects to
additional states, including states in which the Company operates hospital
laboratories. These projects increase the likelihood of governmental
investigations of hospital laboratories owned and operated by the Company.
Although the Company monitors its billing practices 




                                       10

<PAGE>   12

and hospital arrangements to ensure compliance with prevailing industry
practices under applicable laws, such laws are complex and constantly evolving
and there can be no assurance that governmental investigators will not take
positions that are inconsistent with the Company's or industry practices. The
government's investigations of Columbia may have other effects which could
materially and adversely affect the Company, including termination or amendment
of one or more of the Company's contracts with Columbia or the sale of hospitals
potentially disrupting the performance of services under such contracts.

             CORPORATE PRACTICE OF MEDICINE. The Company is not licensed to
practice medicine. The practice of medicine is conducted solely by the
Affiliated Physicians. The manner in which licensed physicians can be organized
to perform and bill for medical services is governed by the laws of the state in
which medical services are provided and by the medical boards or other entities
authorized by such states to oversee the practice of medicine. Business
corporations are generally not permitted under state law to exercise control
over the medical judgments or decisions of physicians, or engage in certain
practices such as fee-splitting with physicians. In states where the Company is
not permitted to directly own a medical practice, the Company performs only
non-medical and administrative and support services, does not represent to the
public or its clients that it offers medical services and does not exercise
influence or control over the practice of medicine by the PA Contractors or the
Affiliated Physicians employed by the PA Contractors.

             Corporate practice of medicine restrictions in some states in which
the Company operates (and plans to operate) prohibit a business corporation from
employing physicians to engage in the practice of medicine, but permit an entity
employing physicians to practice medicine to be owned by a trust, provided that
the trustee of such trust is a licensed physician. In addition, a business
corporation is not prohibited from being the beneficiary of such trust or from
performing administrative, marketing, billing and other non-medical or other
services on behalf of the entity employing physicians engaged in the practice of
medicine. In Ohio, the Company contracts with two PA Contractors (which are
owned by trusts of which AmeriPath is the sole beneficiary), which in turn
employ or contract with physicians to provide necessary physician and medical
services. The trustees of each of the trusts that own the stock of the Ohio PA
Contractors are physicians licensed to practice medicine in Ohio. Indiana law
also prohibits the practice of medicine by non-physician owned entities. In
Indiana, the Company uses a structure similar to that used in Ohio, with the
Company contracting with a practice entity (owned by a trust of which AmeriPath
is the sole beneficiary), which in turn employs the physicians who provide
medical services. The trustee of the Indiana trust is a physician licensed to
practice medicine in Indiana.

             The Commonwealth of Pennsylvania has similar laws addressing the
corporate practice of medicine and generally restricts the ownership, direct or
indirect, of professional corporations to licensed physicians. In Pennsylvania,
the sole shareholder of the PA Contractor is the Company's Chief Operating
Officer (a licensed physician), who has entered into a shareholders' agreement
restricting the transfer or other disposition of such shares by the shareholder,
and granting the Company an exclusive and irrevocable option to require the
shareholder to sell the shares for nominal consideration.

             In Texas, corporate practice of medicine restrictions generally
provide that only certain entities are permitted to employ physicians to engage
in the practice of medicine. However, such entities are not prohibited from
retaining business corporations to manage other aspects of the business,
including administrative, marketing, billing and other non-medical services. In
Texas, each of the PA Contractors is a special Texas non-profit corporation of
which the Company is the sole member. The non-profit corporations own the
medical-related assets and employs the physicians.

             Florida, Kentucky, Alabama and Mississippi do not have laws
prohibiting business corporations from directly employing physicians to practice
medicine. Such states, however, have medical practice acts that provide that
only licensed physicians may provide medical care. Accordingly, in Florida,
Kentucky, Alabama and Mississippi, business corporations may directly employ
physicians to engage in the provision of medical services, provided that the
physicians have control over the manner in which medical care is provided. The
Managing Directors of the Practices located in Florida, Kentucky, Mississippi
and Alabama are each physicians licensed to practice medicine in their
respective states. Pursuant to their employment agreements with the Practice
Subsidiaries, such Managing Directors have exclusive control over the actual
provision of medical care at their respective Practices and are responsible for
setting policies relating to and monitoring the practice of medicine.




                                       11


<PAGE>   13
             Based on the advice of the Company's various state health care
regulatory counsel, the Company believes that it currently is in material
compliance with the corporate practice laws in the states in which it operates.
There can be no assurance that regulatory authorities or other parties will not
assert that the Company is engaged in the corporate practice of medicine. If
such a claim were successfully asserted in any jurisdiction, the Company, the PA
Contractors and the Affiliated Physicians could be subject to civil and criminal
penalties under such jurisdiction's laws and could be required to restructure
their contractual and other arrangements. In addition, expansion of the
operations of the Company to other "corporate practice" states may require
structural and organizational modification of the Company's form of relationship
with physicians, PA Contractors or hospitals. Such results or the inability to
successfully restructure contractual arrangements could have a material adverse
effect on the Company's financial condition and results of operations.

             MEDICARE FEE SCHEDULE PAYMENT FOR CLINICAL DIAGNOSTIC LABORATORY
TESTING. In 1984, Congress enacted legislation establishing a locality-specific
fee schedule reimbursement methodology with Consumer Price Index ("CPI") related
adjustments for clinical diagnostic laboratory testing for non-hospital patients
and hospital outpatients under Medicare. Payment for these services performed
for Medicare inpatients is included within the prospectively determined
Diagnosis Related Group rate paid to the hospital. Additionally, state Medicaid
programs may pay no more than the Medicare fee schedule amount. Beginning with
the consolidated Omnibus Budget Reconciliation Act of 1985, Congress instituted
a national cap on Medicare clinical diagnostic laboratory fee schedules. This
national cap has been lowered nearly every year and now is 74% of the national
median. In addition, the Omnibus Budget Reconciliation Act of 1987 eliminated
the CPI adjustment for 1988 and, in succeeding years, Congress frequently
either limited or eliminated the annual CPI adjustments of the Medicare clinical
diagnostic laboratory fee schedules. The Omnibus Budget Reconciliation Act of
1993 eliminated the adjustment for the years 1994 and 1995. In 1996 and 1997,
however, the fee schedule adjustments were 3.2% and 2.7%, respectively. Even
these modest increases were reduced in some areas due to a recalculation of
national medians and by conversion in some carrier areas to a single statewide
fee schedule. In the Balanced Budget Act of 1997 ("BBA"), Congress again
eliminated the annual adjustments, this time for the years 1998 through 2002.
The adjustment limitations and changes in the national cap made to date have not
had, and are not expected by the Company to have, a material adverse effect on
the Company's results of operations. Any further significant decrease in such
fee schedules, however, could have a material adverse effect on the Company.

             BBA ADDITIONS TO COVERAGE. The BBA added coverage for an annual
screening pap smear for Medicare beneficiaries who are at high risk of
developing cervical or vaginal cancer and for beneficiaries of childbearing age
effective January 1, 1998, as well as coverage for annual prostate cancer
screening, including a prostate-specific antigen blood test, for beneficiaries
over age 50, effective January 1, 2000. Although most women of childbearing age
and men under age 65 are not Medicare beneficiaries, the addition of Medicare
coverage for these tests could provide additional revenues for the Company.

             LABORATORY COMPLIANCE PLAN. In February 1997, the Office of the
Inspector General ("OIG") released a model compliance plan for laboratories that
is based largely on the corporate integrity agreements negotiated with the
laboratories which settled a number of government enforcement actions against
laboratories under Operation Restore Trust, initiated in 1995. The Company has
recently adopted a compliance plan which includes components of OIG's model
compliance plan as the Company deemed appropriate to the conduct of its
business. One key aspect of the corporate integrity agreements and the model
compliance plan is an emphasis on the responsibilities of laboratories to notify
physicians that Medicare covers only medically necessary services. Although
these requirements focus on chemistry tests, especially routine tests, rather
than on anatomic pathology services or the non-automated tests which make up the
majority of the Company's business, they could affect physician test ordering
habits more broadly. The Company is unable to predict whether or to what extent
these developments may have an impact on the utilization of the Company's
services.

             SAFE HARBORS. In July 1991, the federal government published
regulations that provide exceptions, or "safe harbors," for business
transactions that will be deemed not to violate the anti-kickback statute. In
September 1993, additional safe harbors were proposed for eight activities
including referrals within group practices consisting of active investors. While
the arrangements between the Company, physicians and third parties are not in
all instances encompassed by these safe harbors or the proposed safe harbors,
the Company believes its operations are in material compliance with applicable
Medicare fraud and abuse laws. If, however, the Company's arrangements were
found to be illegal, the Company, the physician groups and/or the individual
physicians would be subject to civil and criminal 



                                       12

<PAGE>   14

penalties, including exclusion from participation in government reimbursement
programs, which could materially and adversely affect the Company.

             HEALTH CARE REFORM AND DEFICIT REDUCTION. The United States
Congress and many state legislatures routinely consider proposals to reform or
modify the health care system, including measures that would reduce health care
spending, convert all or a portion of government reimbursement programs to
managed care arrangements and balance the federal budget by reducing spending
for Medicare and state health programs. These measures can affect a health care
company's cost of doing business and contractual relationships. For example,
recent developments affecting the Company's activities include: (i) federal
legislation requiring a health plan to continue coverage for individuals who are
no longer eligible for group health benefits and prohibiting the use of
"pre-existing condition" exclusions that limit the scope of coverage; (ii) the
Health Care Financing Administration ("HCFA") policy prohibiting restrictions in
Medicare risk HMO plans on a physician recommending other health plans and
treatment options to patients; and (iii) regulations restricting physician
incentive provisions in physician-provider agreements. There can be no assurance
that such legislation, programs or other regulatory changes will not have a
material adverse effect on the Company. Other changes in government or other
third-party payor reimbursements which may come about as a consequence of the
enactment of current and future health care reform or deficit reduction measures
are likely to continue the downward pressure on prices and make clinical
laboratory services more competitive.

             For example, the BBA revises the Medicare program to permit
beneficiaries to choose between traditional fee-for-service Medicare as well as
several non-traditional Medicare options, including managed care plans and
provider-sponsored organization plans. These non-traditional Medicare plans have
considerable discretion in determining whether and how to cover and reimburse
laboratory services and also have discretion to limit the number of laboratories
with which they deal.

             The BBA also includes provisions to implement competitive bidding
for certain Medicare items and services, including laboratory services, on a
four-site demonstration project basis. If later adopted on a widespread basis,
these changes would likely have an adverse impact on the Company's revenues, and
thus on its gross profit.

             In addition, the BBA contains measures to establish market-oriented
purchasing for Medicare, including prospective payment systems for outpatient
hospital services, home health care and nursing home care, and the use of global
payments and flexible purchasing. Although the details of these measures are yet
to be finalized, they probably would increase pressure on pricing in the
laboratory industry and may have an adverse impact on the Company's revenues.

             Due to uncertainty regarding the implementation of the
above-described Medicare developments, the Company currently is unable to
predict their ultimate impact on the laboratory industry generally or on the
Company in particular. Reforms may also occur at the state level (and other
reforms may occur at the federal level) and, as a result of market pressures,
changes are occurring in the marketplace as the number of patients covered by
some form of managed care continues to increase. In the past, the Company has
offset a substantial portion of the impact of price decreases and coverage
changes through the achievement of economies of scale, more favorable purchase
contracts and greater operational efficiencies. However, if price decreases (for
example, arising from the proposed Medicare changes discussed above) or coverage
changes were to be rapidly and fully implemented, or if the government were to
seek any substantial repayments or penalties from the Company, such developments
would likely have an adverse impact on gross profits from the Company's testing
services unless management had an opportunity to mitigate such impact.

             ANTITRUST LAWS. In connection with the corporate practice of
medicine laws discussed above, the physician practices with which the Company is
affiliated in some states are organized as separate legal entities. As such, the
physician practice entities may be deemed to be persons separate both from the
Company and from each other under the antitrust laws and, accordingly, subject
to a wide range of laws that prohibit anti-competitive conduct among separate
legal entities. In addition, the Company is constantly seeking to acquire or
affiliate with established and reputable practices in its target geographic
markets. The Company believes it is in compliance with these laws and intends to
comply with any state and federal laws that may affect its development of
integrated healthcare delivery networks. There can be no assurance, however,
that a review of the Company's business by 



                                       13

<PAGE>   15

courts or regulatory authorities would not adversely affect the operations of
the Company and its affiliated physician groups.

             REEVALUATIONS AND EXAMINATION OF BILLING. Payors periodically
reevaluate the services they reimburse. In some cases, government payors such as
Medicare also may seek to recoup payments previously made for services
determined not to be reimbursable. Any such action by payors would have an
adverse affect on the Company's revenues and earnings.

             Moreover, in recent months the federal government has become more
aggressive in examining laboratory billing and in seeking repayments and even
penalties based on how services were billed (e.g., the billing codes used),
regardless of whether carriers had furnished clear guidance on this subject. The
primary focus of this initiative has been on hospital laboratories and on
routine clinical chemistry tests which comprise only a small part of the
Company's revenues. Although the scope of this initiative could expand, it is
not possible to predict whether or in what direction the expansion might occur.
The Company believes its practices differ materially from those now being
examined. However, no assurance can be given that the government will not
broaden its initiative to focus on the type of services furnished by the Company
or, if this were to happen, on how much money, if any, the Company might be
required to repay.

             Furthermore, the Health Insurance Portability and Accountability
Act of 1996 ("HIPAA") and Operation Restore Trust have strengthened the powers
of the OIG and increased the funding for Medicare and Medicaid audits and
investigations. As a result, the OIG is currently expanding the scope of its
healthcare audits and investigations. Federal and state audits and inspections,
whether on a scheduled or unannounced basis, are conducted from time to time at
the Company's facilities. An inspection was conducted in April 1997 at the
Company's laboratory facility in Fort Lauderdale, Florida by representatives of
federal and state agencies under Operation Restore Trust. A report to the
Department of Justice with respect to this inspection was expected prior to
October 1997. The Company has received and responded to a preliminary report
from the Agency of Health Care Administration ("ACHA") relating to Medicaid
which cited limited, alleged non-compliances the effects of which are immaterial
to the Company's operations as a whole. The Company has not received a report
from the agency representing Medicare, and there can be no assurance that the
findings of any such report relating to Medicare will not have a material
adverse effect on the Company.

             NEW CRIMINAL PENALTIES. HIPAA created criminal provisions which
impose criminal penalties for fraud against any health care benefit program for
theft or embezzlement involving health care and for false statements in
connection with the payment of any health benefits. HIPAA also provided broad
prosecutorial subpoena authority and authorized property forfeiture upon
conviction of a federal health care offense. Significantly, the HIPAA provisions
apply not only to federal programs, but to private health benefit programs as
well. HIPAA also broadened the authority of the OIG to exclude participants from
federal health care programs. Because of the uncertainties as to how the HIPAA
provisions will be enforced, the Company currently is unable to predict their
ultimate impact on the Company. If the government were to seek any substantial
penalties against the Company, this could have a material adverse effect on the
Company.

             LICENSING. CLIA extends federal oversight to virtually all clinical
laboratories by requiring that laboratories be certified by the government. Many
laboratories must also meet governmental quality and personnel standards,
undergo proficiency testing and be subject to biennial inspection. Rather than
focusing on location, size or type of laboratory, this extended oversight is
based on the complexity of the test performed by the laboratory. In 1992, the
Department of Health and Human Services ("HHS") published regulations
implementing CLIA. The quality standards and enforcement procedure regulations
became effective in 1992. The quality standards regulations divide all tests
into three categories (wavered, moderate complexity and high complexity) and
establish varying requirements depending upon the complexity of the test
performed. A clinical laboratory that performs high complexity tests must meet
more stringent requirements than a laboratory that performs only moderate
complexity tests, while those that perform only one or more of eight routine
"wavered" tests may apply for a waiver from most requirements of CLIA. The
Company's outpatient laboratories are licensed by CLIA to perform high
complexity testing. Generally, the HHS regulations require laboratories that
perform high complexity or moderate complexity tests to implement systems that
ensure the accurate performance and reporting of tests results, establish
quality control systems, have proficiency testing conducted by approved agencies
and have biennial inspections. The Company is also subject to state regulation.
CLIA provides that a state may adopt more stringent regulations 



                                       14

<PAGE>   16

than federal law. For example, some state laws require that laboratory personnel
meet certain qualifications, specify certain quality controls, maintain certain
records and undergo proficiency testing.

             OTHER REGULATIONS. In addition, the Company is subject to licensing
and regulation under federal, state and local laws relating to the handling and
disposal of medical specimens, infectious and hazardous waste and radioactive
materials as well as the safety and health of laboratory employees. All Company
laboratories are operated in a manner designed to comply with applicable federal
and state laws and regulations relating to the generation, storage, treatment
and disposal of all laboratory specimens and other biohazardous waste. The
Company utilizes licensed vendors for the disposal of such specimen and waste.

             In addition to its comprehensive regulation of safety in the
workplace, the federal Occupational Safety and Health Administration ("OSHA")
has established extensive requirements relating to workplace safety for
healthcare employees, including clinical laboratories, whose workers may be
exposed to blood-borne pathogens, such as HIV and the hepatitis B virus. These
regulations require work practice controls, protective clothing and equipment,
training, medical follow-up, vaccinations and other measures designed to
minimize exposure to, and transmission of, blood-borne pathogens. Regulations of
the Department of Transportation, the Public Health Services and the U.S. Postal
Service also apply to the transportation of laboratory specimens.

INSURANCE

             The Company's business entails an inherent risk of claims of
physician professional liability for acts or omissions of Affiliated Physicians
and laboratory personnel. The Company, the PA Contractors and the Affiliated
Physicians periodically become involved as defendants in medical malpractice
lawsuits, some of which are currently ongoing, and are subject to the attendant
risk of substantial damage awards. The Company has consolidated its physician
professional liability insurance coverages with Steadfast Insurance Company
(Zurich-American), whereby each of the Affiliated Physicians is insured with
primary limits of $1.0 million per occurrence and $5.0 million in the annual
aggregate, and share with the Company in surplus coverage of up to $16.0 million
per occurrence, and $20.0 million in the aggregate. The policy also provides
"prior acts" coverage for each of the Affiliated Physicians with respect to the
Practices prior to the their acquisition by the Company. Pursuant to the terms
of the purchase agreements relating to each Practice acquisition, the Company
has certain limited rights of indemnification from the sellers of the Practices.
The Company also maintains property and umbrella liability insurance policies.
While the Company believes it has adequate professional liability insurance
coverage for itself, the Subsidiaries and PA Contractors and each Affiliated
Physician, there can be no assurance that a future claim or claims will not be
successful and, if successful, will not exceed the limits of available insurance
coverage or that such coverage will continue to be available at acceptable costs
or on favorable terms. In addition, the Company's insurance does not cover all
potential liabilities arising from governmental fines and penalties,
indemnification agreements and certain other uninsurable losses. A malpractice
claim asserted against the Company, a Subsidiary, a PA Contractor or an
affiliated Physician could, in the event of an adverse outcome exceeding limits
of available insurance coverage, have a material adverse effect on the Company's
financial condition and results of operations.

COMPETITION

             The markets for the services provided by the Company and the
Practices consist of the provision of physician practice management services to
anatomic pathology practices and the provision of anatomic pathology services.
The Company competes with other physician practice management companies that are
focused on the ownership or management of anatomic pathology practices and with
certain specialty laboratories. Through its Subsidiaries and affiliations with
the PA Contractors, the Company competes with other anatomic pathology
practices, national clinical laboratories, hospitals and clinics which provide
anatomic pathology medical services. In addition, competition may result from
companies in other healthcare industry segments, such as other hospital-based
specialties or large physician group practices, that may enter the Company's
markets, some of which have greater financial and other resources than the
Company.

             With respect to physician practice management services, the Company
believes that the principal competitive factors are sales and marketing,
billing, collections and financial reporting, management of physicians,
information systems, laboratories and related medical services and human
resources. To date, the Company has not experienced significant competition in
the provision of physician practice management services to anatomic pathology
practices. The Practices do, however, experience competition in local markets in
which the Practices provide anatomic 



                                       15

<PAGE>   17

pathology services. The Company believes that the infrastructure it is building
provides a competitive advantage in such markets. The principal competitive
factors regarding the provision of anatomic pathology services are professional
reputation and skill of the pathologist, the price charged for pathology
services, the scope of services offered, the ability to operate laboratories on
an efficient basis and geographic coverage. The Company competes with several
other companies for the acquisition of or affiliation with anatomic pathology
practices, and such competition can reasonably be expected to increase. In
addition, companies in other healthcare segments, such as hospitals, HMOs and
other physician practice management companies, many of which have greater
financial and other resources than the Company, may become competitors in
acquiring or affiliating with, or providing physician practice management
services to, anatomic pathology practices. The Company competes for acquisitions
and affiliations on the basis of the reputation of the Practices, its management
experience, its status and resources as a public company and its single focus on
anatomic pathology. There can be no assurance that the Company will be able to
compete effectively or that additional competitors will not enter the Company's
markets or make it more difficult for the Company to acquire or affiliate with
practices on favorable terms.

SERVICE MARKS

             The Company has registered the service mark "AmeriPath" and
"AmeriPath -- Integrated Pathology Services" with the United States Patent and
Trademark Office, and has also filed applications for registration of the
Company's name and logo.

EMPLOYEES

             At December 31, 1997, there were a total of 994 persons, including
133 Affiliated Physicians, employed by or affiliated with the Company. Of the
Affiliated Physicians, 86 were employed by the Subsidiaries and 47 were employed
by PA Contractors. The Company's employees include 376 laboratory technicians,
79 couriers and 406 billing, marketing, transcription and administrative staff,
of which 43 personnel are located at the Company's executive offices. None of
the Company's employees or prospective employees is subject to collective
bargaining agreements.

ITEM  2.  PROPERTIES

             The Company leases its executive offices located in Riviera Beach,
Florida (approximately 12,000 square feet) and its centralized billing office in
Fort Lauderdale, Florida (approximately 5,000 square feet) and leases 26 other
facilities: 16 in Florida, one in Alabama, two in Kentucky, two in Ohio, one in
Mississippi, two in Texas and two in Pennsylvania. These facilities are used for
laboratory operations, administrative and billing and collections operations and
storage space. The 28 facilities encompass an aggregate of approximately 125,000
square feet, have an aggregate annual rent of approximately $1.2 million and
have lease terms expiring from 1997 to 2006. As laboratory leases are scheduled
to expire, the Company will consider whether to extend or renegotiate the
existing lease or move the facility to another location within the defined
geographic area of the Practice.

ITEM  3.  LEGAL PROCEEDINGS

             During the ordinary course of business, the Company has become and
may in the future become subject to pending and threatened legal actions and
proceedings. The Company may have liability with respect to its employees and
Affiliated Physicians as well as with respect to hospital employees who are
under the supervision of Affiliated Physicians. The majority of the pending
legal proceedings involve claims of medical malpractice, particularly cytology,
and are generally covered by insurance. Based upon investigations conducted to
date, the Company believes the outcome of such pending legal actions and
proceedings, individually or in the aggregate, will not have a material adverse
effect on the Company's financial condition, results of operations or liquidity.
If liability results from medical malpractice claims, there can be no assurance
that the Company's medical malpractice insurance coverage will be adequate to
cover any such liability. The Company may also, from time to time, be involved
with legal actions related to the acquisition of and affiliation with physician
practices, the prior conduct of such practices, or the employment (and
restriction on competition of) physicians. There can be no assurance any costs
or liabilities for which the Company becomes responsible in connection with such
claims or actions will not be material or will not exceed the limitations of any
applicable indemnification provisions or the financial resources of the
indemnifying parties.



                                       16


<PAGE>   18

ITEM   4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

             No matter was submitted to a vote of security holders during the
fiscal quarter ended December 31, 1997.

                                   PART II

ITEM   5.    MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
             MATTERS

             AmeriPath's Common Stock, par value $.01 per share, is listed for
quotation on the NASDAQ National Market System under the symbol "PATH". The
following table sets forth, for the period indicated, the high and low closing
sales prices for the Common Stock, as reported on the NASDAQ National Market
System. The common stock first began trading on October 21, 1997. The initial
public offering price per share of Common Stock was $16.00. As of March 19,
1998, there were approximately 135 shareholders of record.

                                YEAR ENDING 1997
                                ----------------

                                         HIGH                   LOW
                                         ----                   ---
             Fourth Quarter               $19                 $15 5/8

             The Company presently has no plans to pay any dividends on its
capital stock. All earnings will be retained for the foreseeable future to
support operations and to finance the growth and development of the Company's
business. The payment of future cash dividends, if any, will be at the
discretion of the Board of Directors of the Company and will depend upon, among
other things, future earnings, capital requirements, the Company's financial
condition, any applicable restrictions under credit agreements existing from
time to time and on such other factors as the Board of Directors may consider
relevant. The terms of the Company's existing Credit Facility prohibit payment
of dividends without the lenders' consent.

             RECENT SALES OF UNREGISTERED SECURITIES

             Effective December 1, 1997, the Company completed the acquisition
of The Dermatopathology Laboratory ("TDL"), located in Pittsburgh, Pennsylvania,
and issued to the two shareholders of TDL an aggregate of 36,294 shares of
Common Stock. Effective on December 1, 1997, the Company completed the
acquisition of Laboratory Physicians, Jacksonville, P.A. ("LPJax"), located in
Jacksonville, Florida, and issued to the Sellers of LPJax an aggregate of
300,037 shares of Common Stock. On February 1, 1998, the Company acquired
substantially all of the assets of Anatomic Pathology Associates, L.L.P.
("APA"), located in Indianapolis, Indiana, and issued to the 13 shareholders of
APA an aggregate of 186,828 shares of Common Stock.

             Each of the above issuances of shares of Common Stock was exempt
from registration under the Securities Act pursuant to an exemption provided
under Section 4(2) of the Securities Act.

             INITIAL PUBLIC OFFERING

             On October 27, 1997, the Company consummated its initial public
offering of its common stock, pursuant to Registration Statement Nos. 333-34265
(covering 5,750,000 shares, 539,770 of which were sold by certain selling
stockholders of the Company) and 333-38429 (covering an additional 690,000
shares, 64,773 of which were sold by certain selling stockholders of the
Company), filed with and declared effective by the Securities and Exchange
Commission on October 21, 1997. The managing underwriters for the offering were
Donaldson, Lufkin & Jenrette Securities Corporation, Morgan Stanley & Co.
Incorporated, Smith Barney Inc. and Piper Jaffray Inc. At the initial offering
price of $16 per share, the Company's 5,835,457 shares and the selling
stockholders' 604,543 shares were sold for an aggregate offering price of $103.0
million with an aggregate underwriting discount and commissions of $7.2 million.
Net cash proceeds to the Company, after deducting the underwriters' discount and
commission and other costs and expenses of the offering, were $84.7 million.





                                       17

<PAGE>   19


ITEM   6.    SELECTED FINANCIAL DATA

                           YEAR ENDED DECEMBER 31, (1)
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                   1993 (2)       1994             1995           1996             1997
                                                ---------       ---------       ---------       ---------       ---------
<S>                                             <C>             <C>             <C>             <C>             <C>      
CONSOLIDATED STATEMENT OF OPERATIONS DATA:

Net revenue                                     $  13,419       $  14,461       $  16,024       $  42,558       $ 108,406
                                                ---------       ---------       ---------       ---------       ---------
Operating costs:
     Cost of services                              10,803           7,026           8,517          20,106          48,833
     Selling, general and administrative
      expense                                       1,634           2,287           2,644           8,483          19,929
     Provision for doubtful accounts                  953           1,003           1,l61           3,576          10,892
     Amortization expense                              --             678             678           1,958           5,762
     Loss on cessation of clinical lab
      operations (3)                                   --              --              --             910
                                                ---------       ---------       ---------       ---------       ---------
         Total operating costs                     13,390          10,994          13,000          35,033          85,416
                                                ---------       ---------       ---------       ---------       ---------
Income from operations                                 29           3,467           3,024           7,525          22,990
Interest expense                                      (48)         (1,584)         (1,504)         (3,540)         (8,763)
Nonrecurring charge (4)                                                                                            (1,289)
Other income (expense), net                             9             (46)            (46)           (431)            (96)
                                                ---------       ---------       ---------       ---------       ---------
Income (loss) before income taxes                     (10)          1,837           1,474           3,554          12,842
Provision for income taxes (5)                         --             692             572           1,528           5,522
                                                ---------       ---------       ---------       ---------       ---------
Net income (loss)                               $     (10)      $   1,145       $     902       $   2,026       $   7,320
                                                =========       =========       =========       =========       =========

Earnings per share data (6)

       Basic earnings per common share                                          $    0.39       $    0.53       $    0.80
                                                                                =========       =========       =========

       Diluted earnings per common share                                        $    0.13       $    0.22       $    0.53
                                                                                =========       =========       =========
       Basic weighted average       
        shares outstanding                                                          1,426           3,115           8,773
                                                                                =========       =========       =========

       Diluted weighted average shares
        outstanding                                                                 7,200           9,014          13,879
                                                                                =========       =========       =========

CONSOLIDATED BALANCE SHEET DATA:

     Cash and cash equivalents                  $     322       $     103       $      58       $   2,262       $     397
     Total assets                                   2,676          20,836          20,034         157,854         269,227
     Long  term  debt,  including  current
      portion                                         513          17,005          15,146          97,239          75,074
     Redeemable equity securities (7)                  --           5,735           6,085          18,427              --
     Stockholders' equity (deficit)                   913          (2,776)         (2,224)         12,693         144,817

</TABLE>


         ----------------------

(1)  The selected financial data as of and for the year ended December 31, 1993
     are that of E.G. Poulos, M.D., M.J. Demaray, M.D., and A.P. Kowalczyk,
     M.D., P.A. ("PDK"), the predecessor to American Laboratory Associates, Inc.
     ("ALA") prior to the acquisition of PDK. The selected financial data as of
     and for the years ended December 31, 1994, 1995, 1996 and 1997 are for
     AmeriPath, Inc. and its Subsidiaries after the PDK acquisition.




                                       18


<PAGE>   20

(2)  Effective January 1, 1994, ALA acquired the net assets of PDK. The
     acquisition was accounted for using the purchase method of accounting. The
     purchase price was allocated to the net assets acquired based on the fair
     values at the date of acquisition. Cost of services for the year ended
     December 31, 1993 includes $4.4 million representing compensation paid to
     PDK's shareholders in excess of the compensation of such shareholders
     following the 1994 acquisition. Net income for the years ended December 31,
     1994, 1995, 1996 and 1997 does not reflect dividends payable on the
     Convertible Preferred Stock.

(3)  In connection with the closing of ALA's clinical operations in May 1996,
     the Company recorded a nonrecurring charge to operations aggregating
     $910,000, which included severance payments, write-downs of property,
     equipment and other assets to estimated realizable values, and the
     write-off of the unamortized balances of intangible assets associated with
     the clinical operations. See Note 18 to the Consolidated Financial
     Statements.

(4)  In the year ended December 31, 1997, the Company recorded a nonrecurring
     charge of $1.3 million, primarily professional fees and printing costs, as
     a result of the postponement of the Company's planned initial public
     offering of Common Stock. See Note 19 to the Consolidated Financial
     Statements.

(5)  For 1993, PDK elected to be taxed as a Subchapter S corporation for federal
     income tax purposes, and accordingly, the consolidated statement of
     operations does not include a provision for income taxes.

(6)  Earnings per share are computed and presented in accordance with Statement
     of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share".
     Basic earnings per share excludes dilution and is computed by dividing
     income attributable to common stockholders by the weighted-average number
     of common shares outstanding for the period. Diluted earnings per share
     reflects the potential dilution that could occur if securities or other
     contracts to issue common stock were exercised or converted into common
     stock or resulted in the issuance of common stock that then shared in the
     earnings of the entity. Prior reported earnings per share data have been
     restated in accordance with SFAS No. 128.

(7)  Includes Convertible Preferred Stock of $5.2 million plus accrued and
     unpaid dividends and at December 31, 1996 $12.2 million of Redeemable
     Common Stock.

ITEM  7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
             RESULTS OF OPERATIONS

             The following discussion of the Company's results of operations and
financial condition should be read together with the consolidated financial
statements and other financial information included elsewhere in this Report.

GENERAL

             AmeriPath is the largest physician practice management company in
the anatomic pathology sector. The Company provides physician practice
management services to pathologists in both outpatient and hospital inpatient
laboratories, with particular focus on dermatopathology (pathology related to
diseases of the skin). References to the "Company" include AmeriPath, its
Subsidiaries, including ALA, and its PA Contractors.

             The pathologists provide anatomic pathology and related histologic
services with particular emphasis on dermatopathology (diseases of the skin),
hematopathology (diseases of the blood), and cytopathology (diseases of the
cells), as well as surgical pathology (diagnostic services in connection with
surgical procedures).

             Outpatient pathology services are performed in freestanding,
independent pathology laboratories owned and operated by the Company or in
hospital-owned laboratories operated by the Company. Services performed are
billed to patients, Medicare, Medicaid, other third party payors, national
clinical laboratories and attending physicians on a fee-for-service basis, which
cover both the professional and technical components of such services.




                                       19

<PAGE>   21

             Inpatient pathology services are performed under exclusive
contractual arrangements with hospitals. Net revenue for inpatient pathology
services is dependent in large part on the level of inpatient admissions at the
hospitals the Company contracts with. Such arrangements typically provide that a
pathologist will provide diagnostic pathology services for the hospital's staff
physicians and serve as the medical director of the hospital's laboratory with
responsibility for the clinical laboratory and histology departments, as well as
the hospital's blood bank and microbiology services.

             Effective January 1, 1994, AmeriPath's predecessor, ALA, acquired
the net assets of PDK, a full service reference laboratory providing clinical
laboratory testing and anatomic pathology services, principally
dermatopathology. ALA continued to grow internally while at the same time
developing its corporate infrastructure, with particular emphasis on improving
the efficiency of its billing and collection operations in Fort Lauderdale, and
expanding its marketing programs. In January 1996, James C. New joined the
Company as its Chief Executive Officer to accelerate the Company's acquisition
program. AmeriPath was incorporated in Delaware February 1996 and, through a
share exchange ALA became a wholly-owned subsidiary of AmeriPath. During 1996,
the Company completed the acquisition of (or affiliation with) eleven Practices
with 79 pathologists, 10 outpatient laboratories and 47 hospital contracts. In
1997, the acquisition program continued and the acquisition of (or affiliation
with) five Practices was completed, adding 45 pathologists, three outpatient
laboratories and 28 hospital contracts.

             At December 31, 1997, the Company operated in eight states, with
133 pathologists providing services in 75 hospitals and 13 outpatient
laboratories. Between January 1 and March 26, 1998, the Company acquired or
affiliated with two additional pathology physician practices in Indiana and
Texas (adding a total of 14 additional pathologists). The Company focuses on
developing regional networks, such as in the state of Florida, and expanding the
practices through its internal marketing efforts. The Company plans to pursue
additional acquisitions of (or affiliations with) inpatient and outpatient
pathology practices in the foreseeable future, which represents a significant
portion of its growth strategy and is evaluating the opportunity of closer
working relationships with referral sources, such as dermatologists.

RESULTS OF OPERATIONS

             The following table sets forth, for the periods indicated, certain
consolidated financial data as a percentage of net revenue (billings net of
contractual and other allowances).

                            PERCENTAGE OF NET REVENUE

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                   ---------------------------------
                                                     1995         1996         1997
                                                   -------      -------      -------
<S>                                                   <C>          <C>          <C> 
Net revenue                                          100.0%       100.0%       100.0%
                                                   -------      -------      -------
Operating costs:
     Cost of services                                 53.2         47.2         45.0
     Selling, general and administrative              
      expense                                         16.5         19.9         18.5
     Provision for doubtful accounts                   7.2          8.4         10.0
     Amortization expense                              4.2          4.7          5.3
     Loss on cessation of clinical lab
      operations                                        --          2.1           --
                                                   -------      -------      -------
        Total operating costs and expenses            81.1         82.3         78.8
                                                   -------      -------      -------
Income from operations                                18.9         17.7         21.2
Interest expense                                      (9.4)        (8.3)        (8.1)
Nonrecurring charge                                   --           --           (1.2)
Other income (expense), net                           (0.3)        (1.0)        (0.0)
                                                   -------      -------      -------
Income before income taxes                             9.2          8.4         11.9
Provision for income taxes                             3.6          3.6          5.1
                                                   -------      -------      -------
Net income                                             5.6%         4.8%         6.8%
                                                   =======      =======      =======

</TABLE>


                                       20

<PAGE>   22

              The Company completed the acquisition of (or affiliation with)
five Practices in 1997, and eleven Practices in 1996, the results of which are
included in the Company's operating results from the date of acquisition.
Changes in operations between years were primarily due to these acquisitions.

             NET REVENUES

             The Company derives its net revenue from the net revenue of the
Practices it owns or manages. The Company typically bills government programs
(principally Medicare and Medicaid), indemnity insurance companies, managed care
organizations, national clinical laboratories, physicians and patients. Net
revenue differs from amounts billed for services due to: (i) Medicare and
Medicaid reimbursements at annually established rates; (ii) payments from
managed care organizations at discounted fee-for-service rates; (iii) negotiated
reimbursement rates with other third party payors; (iv) rates negotiated under
sub-contracts with national clinical laboratories for the provision of anatomic
pathology services; and (v) discounts and other allowances, principally from
private pay accounts.

             In recent years, there has been a shift away from traditional
indemnity insurance plans to managed care as employers and other payors move
their participants into lower cost plans. The Company benefits more from
patients covered by Medicare and traditional indemnity insurance than managed
care organizations and national clinical laboratories, many of which contract
with managed care organizations to provide anatomic pathology services. The
Company also contracts with national clinical laboratories and is attempting to
increase the number of such contracts to increase test volume. Since the
majority of the Company's operating costs -- principally the compensation of
physicians and non-physician technical personnel -- are somewhat fixed,
increases in volume resulting from contracts at discounted rates enhance the
Company's profitability. Historically, net revenue from capitated contracts has
represented an insignificant amount of net revenue.

             Virtually all of the Company's net revenue is derived from the
Practices' charging for services on a fee-for-service basis. Accordingly, the
Company assumes the financial risk related to collection, including potential
uncollectability of accounts, long collection cycles for accounts receivable and
delays attendant to reimbursement by third party payors, such as governmental
programs, private insurance plans and managed care organizations. Increases in
write-offs of doubtful accounts, delays in receiving payments or potential
retroactive adjustments and penalties resulting from audits by payors may
require the Company to borrow funds to meet its current obligations or may
otherwise have a material adverse effect on the Company's financial condition
and results of operations.

             The majority of services furnished by the Company's pathologists
are anatomic pathology services. Medicare reimbursement for these services
represented approximately 29% of the Company's cash collections in 1997. As of
January 1, 1992, Medicare reimbursed all physician services, including anatomic
pathology services, based on a methodology known as the resource-based relative
value system ("RBRVS"), which was fully phased in by 1996. Overall, anatomic
pathology reimbursement rates declined during the fee schedule phase-in period,
despite an increase in payment rates for certain pathology services performed by
the Company.

             The Medicare RBRVS payment for each service is calculated by
multiplying the total relative value units ("RVUs") established for the service
by a statutory conversion factor. The number of RVUs assigned to each service is
in turn calculated by adding three separate components -- physician's work
value, physician practice overhead and the cost of medical liability insurance.
In 1996, the Health Care Financing Administration ("HCFA") completed a five-year
review of the work value component and, as a result, revised the work value
amount assigned to many physician services. In addition, based on a default
formula established by statute, the 1997 conversion factor for non-surgical
services dropped 0.8% to $33.85. As part of its five-year review of the RBRVS
system, HCFA recalculated all of the RBRVS weights. These revisions generally
resulted in a further reduction in Medicare reimbursement. As a result of all
these changes, there was an overall decrease in reimbursement rates for
pathology services of approximately 5.3% beginning January 1, 1997. Also, HCFA
reduced the number of physician fee schedule payment localities from 210 to 89,
effective January 1, 1997. In the BBA, Congress merged the three existing
conversion factors into one for all types of services provided. This single
conversion factor will be $36.69 in 1998. These changes effectively provide for
an 8.3% increase over the 1997 conversion factor applicable to pathology
services.





                                       21
<PAGE>   23

             At the beginning of 1997, HCFA published proposed regulations which
recalculate a key component of the RBRVS fee schedule. This recalculation would
modify the practice overhead expense RVUs to reflect resource consumption,
rather than the historical charge data used to establish the original practice
expense RVUs. Overall, HCFA's predicted impact of this modification to reflect
resource-based practice expense RVUs on Medicare income of pathologists is an
increase of 1.0%. The actual impact on Medicare pathology revenues will depend
on the mix of pathology services furnished. Moreover, under the BBA,
implementation of resource based practice expense RVUs will not begin until
1999, and will be phased in over the period 1999-2002. In the past, RBRVS
program implementation and modification has had the effect of reducing
reimbursement, and thus the gross profit, of the Company. Overall, the Company
does not expect projected future RBRVS adjustments to change this trend.

             In prior years, the Company has been able to minimize the impact of
the reduced Medicare reimbursement rates for anatomic pathology services through
the achievement of economies of scale and the introduction of alternative
technologies that are not dependent upon reimbursement through the RBRVS system.
Despite these offsets, the recent substantial modifications to the physician fee
schedule, along with additional adjustments anticipated under Medicare, may have
a negative effect on the Company's average unit reimbursement.

             Net revenue increased by $65.8 million, or 155%, to $108.4 million
for the year ended December 31, 1997, from $42.6 million for the year ended
December 31, 1996. Of this increase, $52.4 million was attributable to the
acquisitions (or affiliations) the Company completed during 1996, and $13.4
million was due to the acquisitions (or affiliations) the Company completed
during 1997. Same practice revenue decreased $16,000, which was due to a 1.3%
increase in outpatient volume, offset by a 5.3% decrease in Medicare
reimbursement for surgical biopsies (discussed above), which became effective on
January 1, 1997. Revenues derived from hospital based pathology services
increased $62,000. References to same practice means practices at which the
Company provided services for the entire period for which the amount is
calculated and the entire prior comparable period.

             Net revenue increased by $26.5 million, or 166%, to $42.6 million
for the year ended December 31, 1996, from $16.0 million for the year ended
December 31, 1995. Of this increase, $26.7 million was attributable to the
acquisitions (or affiliations) the Company completed during 1996, and $1.1
million was due to same practice growth, offset by the decline in net revenue of
$1.3 million from ALA's clinical laboratory which ceased operations on May 31,
1996. Same practice net revenue increased $1.1 million, or 8.3%, to $14.8
million compared to the same period in 1995, due to an increase in test volume
and an increase in the Medicare reimbursement rate for surgical biopsies of
2.6%, which became effective on January 1, 1996.

             COST OF SERVICES

             Cost of services consists principally of the compensation and
fringe benefits of pathologists, licensed technicians and support personnel,
laboratory supplies, shipping and distribution costs and facility costs. Cost of
services increased by $28.7 million, or 143%, to $48.8 million for the year
ended December 31, 1997, from $20.1 million for the year ended December 31,
1996. Of this increase, $24.5 million was attributable to the acquisitions (or
affiliations) the Company completed during 1996 and $4.6 million was due to the
acquisitions (or affiliations) the Company completed during 1997, offset by a
$404,000 decrease in same practice costs.

             Cost of services, as a percentage of net revenues, decreased from
47.2% in 1996, to 45.0% in 1997, due primarily to the cost and operational
efficiencies implemented in 1997. Same practice cost of services decreased
$404,000, from $8.0 million in 1996 to $7.6 million in 1997.

             Cost of services increased by $11.6 million, or 136%, to $20.1
million for the year ended December 31, 1996, from $8.5 million for the year
ended December 31, 1995. Of this increase, $13.0 million was attributable to the
acquisitions (or affiliations) the Company completed during 1996, offset by a
decrease of $1.1 million attributable to ALA's clinical laboratory that ceased
operations on May 31, 1996. In addition, same practice cost of services
decreased by $273,000 for the year ended December 31, 1996 compared to the same
period in 1995, due to increased efficiency by the Affiliated Physicians. In
connection with closing ALA's clinical operations in 1996, the Company recorded
a non-recurring charge to operations aggregating $910,000, which included
severance payments, write-downs of property, equipment and other assets to
estimated realizable values, and the write-off of the unamortized balances of
intangible assets associated with the discontinued clinical operations.




                                       22

<PAGE>   24

             SELLING, GENERAL AND ADMINISTRATIVE EXPENSE

             The cost of corporate support, sales and marketing, and billing and
collections comprise the majority of what is classified as selling, general and
administrative expense. Selling, general and administrative expense, as a
percentage of net revenues, decreased from 19.9% in 1996 to 18.5% in 1997, as
the Company began to control the growth in these costs and continued to spread
these costs over a larger revenue base. These costs, as a percentage of net
revenues, are expected to decrease going forward.

             Selling, general and administrative expense increased by $11.4
million, or 135%, to $19.9 million for the year ended December 31, 1997, from
$8.5 million for the year ended December 31, 1996. Of this increase, $8.0
million, or 70%, was attributable to the acquisitions (or affiliations) the
Company completed during 1996 and 1997. The remaining increase was due to
increased staffing levels in marketing, billing, human resources and accounting
and costs incurred to expand the Company's administrative support infrastructure
and complete the conversion to an upgraded billing system.

             During 1995 and 1996, selling, general and administrative expense
increased as a percentage of net revenues, as the Company built the corporate
infrastructure to support the acquisition and integration of acquired and
managed practices. As a percentage of net revenue, these expenses increased from
16.5% in 1995 to 19.9% in 1996, and increased by $5.8 million, to $8.5 million,
for the year ended December 31, 1996, from $2.6 million for the year ended
December 31, 1995. Of this increase, $2.4 million was attributable to the
acquisitions (or affiliations) the Company completed during 1996. The remaining
increase was due to the appointment of a Chief Executive Officer, as of January
1, 1996, increased staffing levels in marketing, billing and accounting and
costs incurred to expand the Company's administrative support infrastructure and
conversion to an upgraded billing system.

             PROVISION FOR DOUBTFUL ACCOUNTS

             Provision for doubtful accounts increased by $7.3 million, or 205%,
to $10.9 million for the year ended December 31, 1997, from $3.6 million for the
year ended December 31, 1996. The provision for doubtful accounts, as a
percentage of net revenue, was 10.0% and 8.4% for the years ended December 31,
1997 and 1996, respectively. This increase in the percentage of net revenue was
primarily attributable to the acquisitions (or affiliations) the Company
completed during 1997, which acquisitions increased the percentage of net
revenue from services provided in inpatient (hospital) laboratories.

             Provision for doubtful accounts increased by $2.4 million, or 208%,
to $3.6 million for the year ended December 31, 1996, from $1.2 million for the
year ended December 31, 1995. The provision for doubtful accounts, as a
percentage of net revenue, was 8.4% and 7.2% for the years ended December 31,
1996 and 1995, respectively. This increase in the percentage of net revenue was
primarily attributable to the acquisitions (or affiliations) the Company
completed during 1996, which acquisitions increased the percentage of net
revenue from services provided in inpatient laboratories. The provision for
doubtful accounts as a percentage of net revenue is higher for inpatient
services than for outpatient services due primarily to a larger concentration of
indigent and private pay patients, more difficulties gathering complete and
accurate billing information, and longer billing and collection cycles for
inpatient services.

             AMORTIZATION EXPENSE

             The Company's acquisitions (and affiliations) completed in 1996 and
1997 resulted in significant increases in net identifiable intangible assets and
goodwill. Net goodwill and net identifiable intangible assets, which include
hospital contracts, physician client lists and laboratory contracts acquired in
the acquisitions (or affiliations) were approximately $131.5 million and $233.8
million at December 31, 1996 and 1997, respectively, representing approximately
83.3% and 86.8%, respectively, of the Company's total assets. Net identifiable
intangible assets are recorded at fair value on the date of acquisition and are
amortized over periods ranging from 10 to 40 years, or a weighted average of
30.5 years as of December 31, 1997. The Company amortizes goodwill on a
straight-line basis over periods ranging from 15 to 35 years, or a weighted
average of 33.9 years as of December 31, 1997. There can be no assurance that
the value of intangible assets will ever be realized by the Company. On an
ongoing basis, the Company makes an evaluation based on undiscounted cash flows
to determine whether events and circumstances indicate that all or a portion of
the carrying value of intangible assets may no longer be recoverable, in which
case 



                                       23

<PAGE>   25
an additional charge to earnings may be necessary. Although at December 31, 1997
the net amortized balance of intangible assets was not considered to be
impaired, any future determination requiring the write off of a significant
portion of unamortized intangible assets could have a material adverse effect on
the Company's financial condition and results of operations.

             Amortization expense increased by $3.8 million, or 194%, to $5.8
million for the year ended December 31, 1997, from $2.0 million for the year
ended December 31, 1996. This increase is attributable to the amortization of
goodwill and net identifiable intangible assets from the acquisitions (or
affiliations) the Company completed during 1997 and a full year of amortization
from the acquisitions (or affiliations) the Company completed during 1996.
Amortization expense is expected to increase on an annual basis as a result of
identifiable intangible assets and goodwill arising from acquisitions (and
affiliations), and any contingent payments required to be made pursuant to the
contingent notes issued in connection therewith. Amortization expense, as a
percentage of net revenues, increased from 4.7% in 1996 to 5.3% in 1997.

             Amortization expense increased by $1.3 million, or 189%, to $2.0
million for the year ended December 31, 1996, from $700,000 for the year ended
December 31, 1995. This increase is attributable to the amortization of goodwill
and net identifiable intangible assets from the acquisitions (or affiliations)
the Company completed during 1996.

             NONRECURRING CHARGE

             During the year ended December 31, 1997, the Company wrote-off
certain deferred offering costs aggregating $1.3 million, primarily consisting
of professional fees and printing costs related to a registration statement
(relating to an intended initial public offering of shares of common stock)
filed by the Company with the Securities and Exchange Commission that was
withdrawn in May 1997.

             INTEREST EXPENSE AND OTHER EXPENSE, NET

             Interest expense increased by $5.2 million, or 148%, to $8.8
million for the year ended December 31, 1997, from $3.5 million for the year
ended December 31, 1996. This increase was attributable to indebtedness incurred
to finance the acquisitions (or affiliations) the Company completed during 1997
and 1996. The average indebtedness outstanding in 1997 was $103.5 million, as
compared to average indebtedness of $42.6 million outstanding in 1996.

             Interest expense increased by $2.0 million, or 135%, to $3.5
million for the year ended December 31, 1996, from $1.5 million for the year
ended December 31, 1995. This increase was primarily attributable to
indebtedness incurred to finance the acquisitions (or affiliations) the Company
completed during 1996. Other expense, net increased by $385,000, to $431,000,
for the year ended December 31, 1996, from $46,000 for the year ended December
31, 1995, due primarily to the write-off of deferred debt issuance costs related
to the refinancing of the Company's credit facility.

             INCOME TAX RATE

             The effective income tax rate was 43.0% for the years ended
December 31, 1997 and 1996 and 38.8% for the year ended December 31, 1995. The
Company anticipates an increase in its effective tax rate due to the
non-deductibility of amortization expense relating to intangible assets acquired
in connection with the Company's acquisitions and affiliations.

LIQUIDITY AND CAPITAL RESOURCES

             At December 31, 1997, the Company had working capital of
approximately $12.1 million, an increase of $6.8 million from the working
capital of approximately $5.3 million at December 31, 1996. The increase in
working capital was due primarily to an increase in net accounts receivable of
$8.8 million, partially offset by a decrease in cash of $1.9 million and an
increase in accounts payable and accrued expenses of $2.0 million. The majority
of these changes resulted from the acquisitions (or affiliations) the Company
completed during the third and fourth quarters of 1997. The Company manages its
cash balances against amounts available under its revolving 



                                       24

<PAGE>   26

credit facility. Cash balances, for the most part, are managed on a zero-balance
basis and all available cash flows are used to reduce outstanding debt in order
to reduce interest cost.

             For the years ended December 31, 1997 and 1996, cash provided by
operations was $12.7 million and $551,000, respectively. For the year ended
December 31, 1997, cash flow from operations and borrowings under the Company's
credit facility were used: (i) for capital expenditures aggregating $3.2
million, primarily for the growth of the Orlando facility to accommodate the
expansion of its contract to provide anatomic pathology services to SmithKline
Beecham Clinical Laboratories, Inc., ("SmithKline") which commenced in May 1997,
and the conversion and upgrade of the Company's billing system; (ii) to fund the
$66.7 million cash portion of the acquisitions (or affiliations) the Company
completed during 1997; (iii) to make additional payments of $3.6 million in
connection with the acquisitions (or affiliations) the Company completed during
1996, including contingent note payments of $1.5 million; (iv) to fund $3.5
million of offering costs incurred in connection with the Company's initial
public offering completed in October 1997; (v) to pay $1.1 million of
refinancing costs incurred in connection with the Company's new credit facility;
and (vi) to make principal payments on long-term debt.

             During October 1997, the Company completed an initial public
offering and issued 5,835,457 shares of common stock at $16 per share resulting
in proceeds, net of underwriter commissions and offering costs, of approximately
$84.7 million. The Company used the proceeds from the offering to repay $11.1
million of outstanding principal and interest on Junior Notes and Senior Notes,
$1.3 million of accrued dividends on the Convertible Preferred Stock, and $72.3
million of indebtedness outstanding under the Company's credit facility.

             During 1997, the Company acquired or became affiliated with five
anatomic pathology practices. Total consideration in connection with these
acquisitions included cash of $67.9 million and approximately 2.2 million shares
of common stock. Generally, the shares of common stock are restricted as to
transfer, which restrictions lapse over three to five years, based solely on the
passage of time. Subsequent to December 31, 1997, the Company acquired two
additional practices. These acquisitions were made, in part, with $9.2 million
of cash and 186,828 shares of common stock restricted by a five-year vesting
schedule. In addition, for the 1997 and 1998 acquisitions, the Company issued
additional purchase price consideration in the form of contingent notes.

             At December 31, 1997, the Company had $78.4 million available under
its credit facility with a syndicate of banks led by BankBoston, N.A., as agent.
The credit facility provides for up to $150.0 million through a seven year term
loan of $65.0 million and a revolving loan of up to $85.0 million that is
available for working capital or a revolving line of credit to fund
acquisitions. An amount equal to up to 80% of eligible accounts receivable is
available under the revolving loan for general working capital purposes. Amounts
due under the revolving loan are due June 2002. Commencing July 1, 1998, the
term loan requires annual principal payments of $650,000 with the remaining
balance due June 30, 2004. As of December 31, 1997, $65 million and $6.6 million
were outstanding under the term loan and revolving loan, respectively.
Borrowings under the credit facility bear interest, at the Company's option, at
the agent's base rate (8.5% at December 31, 1997) or the Eurodollar rate plus a
premium which is adjusted quarterly based upon the Company's ratio of total debt
to cash flow. In November 1997, the Company entered into an interest rate swap
transaction which involves the exchange of floating for fixed rate interest
payments over the life of the agreement without the exchange of the underlying
principal amounts. The differential to be paid or received is accrued and
recognized as an adjustment to interest expense. The agreement is a two year
interest rate swap with a notional amount of $30 million. Under the agreement,
the Company receives interest on the notional amount to the extent the 30 day
LIBOR exceeds 6.0%, and pays interest on the notional amount to the extent 30
day LIBOR is less than 6.0%. This derivative financial instrument is being used
by the Company to reduce interest rate volatility and associated risks arising
from the floating rate structure of its credit facility and is not held or
issued for trading purposes. The Company believes that unrealized gains or
losses related to this instrument are not material. At December 31, 1997,
amounts outstanding under the term loan and revolving loan under the credit
facility had annual effective interest rates of 8.7% and 8.5%, respectively. The
Company has pledged all of its assets, including the stock of its subsidiaries,
as collateral. The credit facility also contains covenants which require the
Company to maintain certain financial ratios (including minimum net income and
operating cash flow to total debt service), limit the amount of additional
indebtedness and annual capital expenditures the Company can incur, and
prohibits the payment of dividends and specifies restrictions on investments,
mergers and sales of assets. Additionally, the Company is required to obtain the
consent of the Bank for individual acquisitions or affiliations in excess of
$10.0 million (total purchase price value). At December 31, 1997, the Company
was in compliance with the covenants in the credit facility.




                                       25
<PAGE>   27

             The Company is currently negotiating a $200 million revolving
credit facility to replace the existing agreement under terms (including
interest cost and covenants) which should be more favorable to the Company. No
assurance can be made that such refinancing will be completed or, if completed,
will be completed on terms more favorable to the Company than the existing
credit facility.

         In connection with the acquisitions (or affiliations) completed during
1996 and 1997, the Company agreed to pay a minimum purchase price and to pay
additional purchase price consideration to the sellers of the practices in
proportion to their respective ownership interest in each Practice. The
additional payments are contingent upon the achievement of stipulated levels of
operating earnings (as defined) by each of the practices over periods of three
to five years from the date of the acquisition as set forth in the respective
agreements, and are not contingent on the continued employment of the sellers of
the practices. The amount of the payments cannot be determined until the
achievement of the operating earnings levels during the terms of the respective
agreements. If the maximum specified levels of operating earnings for each
Practice are achieved, the Company would make aggregate maximum payments,
including principal and interest, of $107.2 million over the next three to five
years. A lesser amount of payments would be made if the maximum levels of
operating earnings specified in each agreement are not met. No amounts would be
paid if the minimum levels of operating earnings specified in each acquisition
agreement is not met. During the year ended December 31, 1997, the Company made
contingent note payments aggregating $1.5 million which amounts represent 57% of
the maximum amount available. 

             Historically, the Company's capital expenditures have been
primarily for laboratory equipment, management information systems and leasehold
improvements. Total capital expenditures were $488,000, $996,000 and $3.2
million in 1995, 1996 and 1997, respectively. 1997 capital expenditures included
approximately $1.3 million related to information systems, $1.2 million for
laboratory equipment and $300,000 for leasehold improvements. During 1997, the
Company spent approximately $600,000 for equipment and leasehold improvements to
the Orlando facility to accommodate the expansion of its contract to provide
anatomic pathology services to SmithKline which commenced in May 1997. The
contract provides that the Company will maintain the appropriate personnel
staffing levels to handle the estimated workload. The Company assesses and will
continue to assess the capabilities of the various information systems acquired
in connection with each of its acquisitions, and is in the process of replacing,
upgrading and integrating certain of the systems into a single network. Priority
has been given to enhancements in billing and financial information systems,
with planned capital expenditures expected to be between $1.5 million and $2.0
million during 1998. Historically, the Company has funded its capital
expenditures with cash flows from operations. For the years ended December 31,
1995, 1996 and 1997, capital expenditures were approximately 3.0%, 2.3% and
2.9%, of net revenue, respectively. The Company is consolidating and integrating
its financial information, billing and collection systems, which may result in
an increase in capital expenditures as a percentage of net revenue. The Company
believes, however, that such information systems enhancements will result in
cost efficiencies that may enable the Company to continue to fund its capital
expenditures with cash flows from operations.

             The Company expects to continue to use the revolving loan facility
to fund acquisitions and affiliations. The Company anticipates that funds
generated by operations and funds available under the credit facility will be
sufficient to meet working capital requirements and contingent note obligations,
and to finance capital expenditures, acquisitions and affiliations, over the
next 12 months. Further, in the event payments under the Contingent Notes issued
in connection with acquisitions and affiliations become due, the Company
believes that the incremental cash generated from operations would exceed the
cash required to satisfy the Company's payment, if any, of the contingent
obligations in any one year period. Such payments, if any, will result in a
corresponding increase in goodwill and the related amount of amortization
thereof in periods following the payment. Funds generated from operations and
funds available under the credit facility (including under the increased credit
facility which the Company is negotiating as discussed above) may not be
sufficient to implement the Company's longer-term growth strategy. The Company
may be required to seek additional financing through additional increases in the
credit facility, to negotiate credit facilities with other banks or institutions
or to seek additional capital through private placements or public offerings of
equity or debt securities. No assurances can be given that the Company will be
able to extend or increase the existing credit facility, secure additional bank
borrowings or complete additional debt or equity financings on terms favorable
to the Company or at all.

YEAR 2000 ISSUES

             The Year 2000 issue is the result of computer programs being
written using two digits rather than four to define the applicable year.
Computer programs that have time sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar business activities.

             In 1997, the Company initiated a plan to consolidate billing
operations and standardize billing and laboratory information systems. This plan
includes the identification and conversion or replacement of certain computer
programs to be Year 2000 compliant. Purchases of hardware and software have been
capitalized and all other costs associated with this plan are expensed as
incurred.

             The Company has also initiated formal communications with its
vendors and customers, such as hospitals, to determine the extent to which the
Company's interface systems are vulnerable to those third parties' failure to
remediate their own Year 2000 problems, if any. There can be no assurance that
the systems of other companies, including third-party payors, on which the
Company relies will be timely converted and, if not so timely converted, that
such will not have an adverse effect on the Company's systems, results of
operations or financial position.




                                        
                                       26

<PAGE>   28
             The Company will utilize both internal and external resources to
reprogram, replace and test the software for Year 2000 modifications. The
Company anticipates completing the Year 2000 project within one year, but not
later than October 31, 1999, which is prior to any anticipated impact on its
operating systems. The total cost of the Year 2000 project is presently
estimated to be between $500,000 and $1.5 million and will be primarily funded
through operating cash flow and its credit facility. The Company does not expect
these costs to have a material adverse effect on its results of operations.

             The costs of this effort and the date on which the Company believes
it will complete the Year 2000 modifications are based on management's best
estimate, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third party
modification plans and other factors. There can be no assurance that those
estimates will be achieved and actual results could differ materially from those
anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
and resources utilized in this area, the ability to locate and correct all
relevant computer codes, and similar uncertainties.

QUALIFICATION OF FORWARD LOOKING STATEMENTS

             Certain statements contained in this Report that are not purely
historical are (or contain) forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including without limitation statements regarding the
Company's expectations, beliefs, intentions, plans or strategies regarding the
future. All forward-looking statements included in this document are based on
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward-looking statements. The forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause actual results, experience and effects, and the performance or
achievements of the Company, to be materially different from those anticipated,
expressed or implied by the forward-looking statements. In evaluating the
Company's business, the following factors, in addition to the other information
set forth in this Report, should be carefully considered: competition; success
of the Company's operating initiatives and growth strategy; healthcare
regulation; payment and reimbursement rates under government sponsored
healthcare programs; dependence upon pathologists; labor and technology costs;
general economic conditions; advertising and promotional efforts; availability,
location and terms of additional practice acquisitions, affiliations and/or
development and the success of the Company's acquisition strategy. In addition,
the Company's strategy to penetrate and develop new markets involves a number of
risks and challenges and there can be no assurance that the healthcare
regulations of the new states in which the Company enters and other factors will
not have a material adverse effect on the Company. The factors which may
influence the Company's success in each targeted market in connection with this
strategy include: the selection of appropriate qualified practices; negotiation
and execution of definitive acquisition, management, affiliation and/or
employment agreements; the economic stability of each targeted market;
compliance with the healthcare and/or other laws and regulations in each
targeted market, including the regulation of the healthcare industry in each
targeted market on a national, regional and local basis (including health,
safety, waste disposal and zoning laws); compliance with applicable licensing
approval procedures; restrictions on labor and employment matters, especially
non-competition covenants; access to affordable capital; governmental
reimbursement and assistance programs; tax laws and the availability of
appropriate media for marketing efforts. Certain of the risks, uncertainties and
other factors discussed or noted above are more fully described elsewhere in
this Report, including under (Item 1) "GENERAL BUSINESS -- Anatomic Pathology;
Industry Overview", "-- Physician, PA Contractor and Other Contractual
Relationships", "-- Government Regulation", "-- Insurance", and "--
Competition"; (Item 3) "LEGAL PROCEEDINGS"; and (this Item 7) "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS".




                                       27


<PAGE>   29

ITEM  8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA; INDEX TO CONSOLIDATED
             FINANCIAL STATEMENTS

The Company's consolidated financial statements and financial statement schedule
and independent auditors' report thereon appear beginning on page F-2. See index
to such consolidated financial statements and schedules and reports on page F-1.

ITEM  9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
             FINANCIAL DISCLOSURE

             None.




                                       28
<PAGE>   30



                                    PART III

ITEM  10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

             The information required by this Item 10 will be contained in the
Company's definitive proxy materials to be filed with the Securities and
Exchange Commission and is incorporated in this Annual Report on Form 10-K by
this reference.

ITEM  11. EXECUTIVE COMPENSATION

             The information required by this Item 11 will be contained in the
Company's definitive proxy materials to be filed with the Securities and
Exchange Commission and is incorporated in this Annual Report on Form 10-K by
this reference.

ITEM  12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

             The information required by this Item 12 will be contained in the
Company's definitive proxy materials to be filed with the Securities and
Exchange Commission and is incorporated in this Annual Report on Form 10-K by
this reference.

ITEM  13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

             The information required by this Item 13 will be contained in the
Company's definitive proxy materials to be filed with the Securities and
Exchange Commission and is incorporated in this Annual Report on Form 10-K by
this reference.

                                   PART IV

ITEM  14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1. FINANCIAL STATEMENTS:

         Reference is made to the index set forth on page F-1 of this Annual
         Report on Form 10-K.

    2. FINANCIAL STATEMENT SCHEDULES:

         Reference is made to the index set forth on page F-1 of this Annual
         Report on Form 10-K.

    3. EXHIBITS:


EXHIBIT NO.                DESCRIPTION
-----------                -----------

2.1      Asset Purchase Agreement, dated February 13, 1998, by and among
         AmeriPath, Inc., Anatomic Pathology Associates, LLP, Robert P. Hooker,
         M.D., Ralph F. Winkler, M.D., Steven A. Clark, M.D., Edward R. Wills,
         M.D. Robin A. Helmuth, M.D., Garry A. Bolinger, M.D., T. Max Warner II,
         M.D., F. Donald McGovern Jr., M.D., Richard O. McClure, M.D., Ann
         Moriarty, M.D., Janis K. Fitzharris, M.D., Ph. D., James E. McDermott
         III, M.D., Robert A. Quirey, M.D., Isabelle A. Buehl, M.D.**

3.1      AmeriPath's Amended and Restated Bylaws**

3.3      AmeriPath's Certificate of Amendment to the Amended and Restated
         Certificate of Incorporation**

10.1     Management Agreement by and between AmeriPath APA, L.L.C. and AmeriPath
         Indiana, Inc., dated February 1, 1998*

10.1     Amended and Restated 1996 Stock Option Plan**



                                       29

<PAGE>   31

10.2     Employment Agreement, dated as of October 24, 1995, between AmeriPath
         and James C. New**

10.3     Employment Agreement, dated as of August 2, 1993, as amended, between
         ALA and Robert P. Wynn**

10.5     Employment Agreement, dated June 30, 1996, between AmeriPath and Alan
         Levin, M.D.**

10.6     Employment Agreement, dated as of September 30, 1996, between AmeriPath
         Florida and Alan Levin, M.D., as amended** 

10.7     Employment Agreement, dated as of June 30, 1996, between AmeriPath
         Florida and Timothy Kilpatrick, M.D.**

10.8     Employment Agreement, dated as of June 30, 1996, between AmeriPath
         Florida and Les Rosen, M.D.**

10.9     Credit Agreement originally dated as of May 29, 1996 and amended and
         restated as of June 27, 1997, among AmeriPath, Inc., the subsidiaries
         of AmeriPath, Inc. from time to time party thereto, the lenders from
         time to time party thereto and Bank of Boston, N.A.**

10.12    Stock Purchase Agreement, dated as of May 23, 1996, among AmeriPath,
         Inc., Derrick & Associates and the shareholders of Derrick &
         Associates**

10.13    Stock Purchase Agreement, dated as of September 30, 1996, by and among
         AmeriPath, Inc., David R. Barron, M.D., Inc., Ruth S. Kleier, M.D. and
         David R. Barron, M.D.**

10.14    Stock Purchase Agreement, dated as of October 31, 1996 among AmeriPath,
         Inc., Gulf Coast Pathology Associates, Inc., Richard Fernandez, M.D.,
         and George Kalemeris, M.D.**

10.15    Form of Stock Rights Surrender & Restricted Stock Grant Agreement.**

10.16    1996 Director Stock Option Plan**

10.17    American Laboratory Associates, Inc. Series A Preferred Stock, Common
         Stock and Junior Subordinated Note Purchase Agreement, dated as of
         January 1, 1994**

10.18    Letter Agreement, dated September 18, 1996, between Acquisition
         Management Services, Inc. and AmeriPath, Inc.**

10.19    AmeriPath Management Agreement by and between AmeriPath Cincinnati,
         Inc. and AmeriPath Ohio, Inc., dated September 30, 1996**

10.20    Management Agreement by and between Beno Michel, M.D., Inc. and
         AmeriPath, Inc., dated October 15, 1996**

10.21    Management Agreement by and between Clay J. Cockerell, M.D., P.A. and
         AmeriPath Texas, Inc., dated September 30, 1996, as amended January 16,
         1997**

10.22    Agreement for Professional Pathology Services between SmithKline
         Beecham Clinical Laboratories, Inc. and Derrick and Associates
         Pathology, P.A., dated April 1, 1992**

10.23    Agreement for Medical Directorship between SmithKline Beecham Clinical
         Laboratories, Inc. and Derrick and Associates Pathology, P.A., dated
         April 1, 1992**

10.24    Agreement for Professional Pathology Services between SmithKline
         Beecham Clinical Laboratories, Inc. and AmeriPath Florida, Inc., dated
         November 1, 1996**

10.25    Share Exchange Agreement, dated as of February 15, 1996, by and among
         American Laboratory Associates, Inc., AmeriPath, Inc. and the holders
         of common and convertible preferred stock of American Laboratory
         Associates, Inc.**

10.26    Trust Agreement, dated as of October 15, 1996, between AmeriPath, Inc.
         and Beno Michel, as trustee**




                                       30

<PAGE>   32

10.27    Trust Agreement, dated as of September 30, 1996, between AmeriPath,
         Inc. and David R. Barron, M.D. as trustee**

10.28    Form of Nonqualified Stock Option Agreement**

10.29    Stock Purchase Agreement, dated as of October 15, 1996, by and among
         AmeriPath, Inc., Beno Michel, M.D., Inc. and Beno Michel, M.D.**

10.30    Stock Purchase Agreement, dated as of October 10, 1996, by and among
         AmeriPath, Inc., Drs. Seidenstein, Levine and Associates, Inc.,
         Seidenstein, Levine Real Estate Partnership, Lawrence Seidenstein,
         M.D., Steven E. Levine, M.D. and David M. Reardon, M.D.**

10.31    Stock Issuance Agreement, dated as of June 26, 1996, among AmeriPath,
         Inc., The First National Bank of Boston, FSC Corp., NationsBank, N.A.
         (South) and Atlantic Equity Corporation**

10.32    Stock Issuance Agreement, dated as of August 29, 1996, among AmeriPath,
         Inc., The First National Bank of Boston, FSC Corp., NationsBank, N.A.
         (South) and Atlantic Equity Corporation**

10.33    Stock Issuance Agreement, dated as of November 4, 1996, among
         AmeriPath, Inc., The First National Bank of Boston and FSC Corp.**

10.34    Stock Purchase Agreement, dated August 21, 1997, by and among
         AmeriPath, Inc., J. Sloan Leonard, M.D., Joseph A. Sonnier, M.D., Van
         Q. Telford, M.D., William C. Burton, M.D., James Scot Milvenan, M.D.,
         Leslie L. Walters, M.D., Thomas M. James, M.D., Stephen W. Aldred,
         M.D., John E. McDonald, M.D. and Barbara A. Shinn, M.D.**

10.35    Stock Purchase Agreement, dated August 15, 1997, by and among
         AmeriPath, Inc., Colab Incorporated Professional Corporation,
         Anatomical Pathology Services, P.C., Microdiagnostics, P.C. and the
         sellers set forth therein**

10.36    Lease effective June 1, 1995 by and between Dallas Pathology Leasing
         and Unipath, Ltd.**

10.37    Trust Agreement, dated August 29, 1997, between AmeriPath, Inc. and
         Jeffery A. Mossler, M.D.**

10.38    Management Agreement, by and between Colab, Inc. and AmeriPath
         Indianapolis, L.L.C., effective September 1, 1997**

10.39    Management Agreement by and between AmeriPath Texas, Inc. and DFW 5.01,
         effective September 1, 1997**

21.1     Subsidiaries of AmeriPath**

23.2     Independent Auditors Consent of Deloitte & Touche, LLP***

24.1     Reference is made to the Signatures section of this Registration
         Statement for the Power of Attorney contained therein**

27.1     Financial Data Schedule for 12 months ended 1995 and 1996, 3 months 
         ended 1996 and 1997 (for SEC use only.)***

27.2     Financial Data Schedule for 12 months ended 1997 (for S.E.C. use
         only.)***
        

----------------------------

  *      Incorporated by reference and filed with the AmeriPath Form 8-K, dated
         February 13, 1998.

**       Incorporated by reference to the exhibit referenced and filed with the
         AmeriPath Form S-1 (File No. 333-34265), effective October 21, 1997,
         and the AmeriPath Form 8-A (File No. 000-22313), filed September 8,
         1997.

***      Filed herewith.

(b)      REPORTS ON FORM 8-K

         No reports on Form 8-K were filed during the last quarter of the period
covered by this report.




                                       31

<PAGE>   33

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amended report to be
signed on its behalf by the undersigned, thereunto duly authorized, in Riviera
Beach, Florida, on April 22, 1998.

                                       AMERIPATH, INC.


                                       /s/ JAMES C. NEW
                                       ----------------------------------------
                                       James C. New,
                                       President and Chief Executive Officer















                                       32
<PAGE>   34


                        AMERIPATH, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULE

                                                                        PAGE
                                                                     ----------
Independent Auditors' Report........................................    F-2

Consolidated Balance Sheets as of December 31, 1996 and 1997........ F-3 to F-4

Consolidated Statements of Operations for the years ended
  December 31, 1995, 1996 and 1997..................................    F-5

Consolidated Statements of Convertible Preferred Stock and
  Common Stockholders' Equity for the years ended
  December 31, 1995, 1996 and 1997..................................    F-6

Consolidated Statements of Cash Flows for the years ended
  December 31, 1995, 1996 and 1997..................................    F-7

Notes to Consolidated Financial Statements.......................... F-8 to F-27

Schedules:

Schedule II - Valuation and Qualifying Accounts                        S-1

All other schedules called for by Regulation S-X have been omitted because they
are not applicable or because the required information is included in the
financial statements or the notes thereto.





                                      F-1
<PAGE>   35



INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of AmeriPath, Inc.:

We have audited the accompanying consolidated balance sheets of AmeriPath, Inc.
and Subsidiaries (the "Company") as of December 31, 1996 and 1997 and the
related consolidated statements of operations, convertible preferred stock and
common stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1997. Our audits also included the financial statement
schedule listed on the index on page F-1. The consolidated financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1996
and 1997 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles. Also, in our opinion, such 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.

/s/ DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida

March 26, 1998





                                      F-2
<PAGE>   36


                        AMERIPATH, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)



<TABLE>
<CAPTION>

                                                          DECEMBER 31,
                                                      ----------------------
                                                        1996           1997
                                                      --------      --------
<S>                                                   <C>           <C>     
                                     ASSETS
CURRENT ASSETS:
  Cash and cash equivalents ....................      $  2,262      $    397
  Accounts receivable, net .....................        14,691        23,520
  Inventories ..................................           269           268
  Deferred tax asset ...........................                       1,667
  Other current assets .........................         1,012           865
                                                      --------      --------
 Total current assets ..........................        18,234        26,717
                                                      --------      --------
PROPERTY AND EQUIPMENT, NET ....................         3,932         6,242
                                                      --------      --------
OTHER ASSETS:
  Goodwill, net ................................        61,714       100,371
  Identifiable intangibles, net ................        69,770       133,420
  Other ........................................         4,204         2,477
                                                      --------      --------
Total other assets .............................       135,688       236,268
                                                      --------      --------
                     TOTAL ASSETS ..............      $157,854      $269,227
                                                      ========      ========
(Continued)

</TABLE>





                                      F-3
<PAGE>   37



                        AMERIPATH, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                          DECEMBER 31,
                                                                                   -------------------------
                                                                                      1996            1997  
                                                                                   ---------       ---------
<S>                                                                                <C>             <C>      
                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
 Accounts payable and accrued expenses ......................................      $   9,890       $  11,869
  Current portion of long-term debt .........................................          1,762           2,720
  Deferred tax liability ....................................................          1,307
                                                                                   ---------       ---------
        Total current liabilities ...........................................         12,959          14,589

LONG-TERM LIABILITIES:
 Revolving loan .............................................................         81,652           6,605
 Senior term loan ...........................................................                         64,350
 Senior Notes due to common stockholders ....................................          3,500
 Junior Notes due to preferred stockholders .................................          7,500
 Subordinated Notes .........................................................          2,825           1,399
 Deferred tax liability .....................................................         18,298          37,467
                                                                                   ---------       ---------
                  Total liabilities .........................................        126,734         124,410
                                                                                   ---------       ---------
COMMITMENTS AND CONTINGENCIES (Notes 3, 10 and 13)

CONVERTIBLE PREFERRED STOCK
  Series A 6% Redeemable Cumulative Convertible Preferred Stock - $.01 par
    value, 5,000 shares authorized; 3,088 shares issued and outstanding at
    December 31, 1996 .......................................................          6,217

REDEEMABLE COMMON STOCK, 1,494 shares issued and outstanding at
  December 31, 1996 .........................................................         12,210

COMMON STOCKHOLDERS' EQUITY
 Common stock, $.01 par value, 30,000 shares authorized, 4,299, and 19,551
 shares issued and outstanding at December 31, 1996 and 1997,
 respectively ...............................................................             43             196
 Additional paid-in capital .................................................          9,898         134,590
 Note receivable from officer ...............................................           (270)
 Retained earnings ..........................................................          3,022          10,031
                                                                                   ---------       ---------
         Total common stockholders' equity ..................................         12,693         144,817
                                                                                   ---------       ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................................      $ 157,854       $ 269,227
                                                                                   =========       =========
(Concluded)
</TABLE>


          See accompanying notes to consolidated financial statements.




                                      F-4
<PAGE>   38



                        AMERIPATH, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                            YEARS ENDED
                                                                            DECEMBER 31,
                                                              -----------------------------------------
                                                                  1995          1996            1997
                                                              ---------       ---------       ---------
<S>                                                           <C>             <C>             <C>      
Net revenue ............................................      $  16,024       $  42,558       $ 108,406
                                                              ---------       ---------       ---------
Operating costs:
  Cost of services .....................................          8,517          20,106          48,833
  Selling, general and administrative expense ..........          2,644           8,483          19,929
  Provision for doubtful accounts ......................          1,161           3,576          10,892
  Amortization expense .................................            678           1,958           5,762
  Loss on cessation of clinical lab operations .........                            910
                                                              ---------       ---------       ---------
        Total ..........................................         13,000          35,033          85,416
                                                              ---------       ---------       ---------
Income from operations .................................          3,024           7,525          22,990
Interest expense .......................................         (1,504)         (3,540)         (8,763)
Nonrecurring charge ....................................                                         (1,289)
Other expense, net .....................................            (46)           (431)            (96)
                                                              ---------       ---------       ---------
Income before income taxes .............................          1,474           3,554          12,842
Provision for income taxes .............................            572           1,528           5,522
                                                              ---------       ---------       ---------
Net income .............................................      $     902       $   2,026       $   7,320
                                                              =========       =========       =========
Basic Earnings Per Common Share:
         Basic weighted average shares outstanding .....          1,426           3,115           8,773
                                                              =========       =========       =========
         Basic earnings per common share ...............      $    0.39       $    0.53       $    0.80
                                                              =========       =========       =========
Diluted Earnings Per Common Share:
         Diluted weighted average shares outstanding ...          7,200           9,014          13,879
                                                              =========       =========       =========
         Diluted earnings per common share .............      $    0.13       $    0.22       $    0.53
                                                              =========       =========       =========

</TABLE>

          See accompanying notes to consolidated financial statements.




                                      F-5
<PAGE>   39




                        AMERIPATH, INC. AND SUBSIDIARIES

         CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED AND REDEEMABLE
                  COMMON STOCK AND COMMON STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                           CONVERTIBLE                 REDEEMABLE                  COMMON
                                                          PREFERRED STOCK             COMMON STOCK                  STOCK
                                                      -----------------------     ----------------------    --------------------- 
                                                                                                                                  
                                                       SHARES         AMOUNT       SHARES        AMOUNT      SHARES        AMOUNT 
                                                      --------       --------     --------      --------    --------      --------
<S>                                                   <C>           <C>           <C>           <C>         <C>           <C>     
BALANCE, JANUARY 1, 1995 .........................       3,208       $  5,735                                  1,426      $     14
  Accrued dividend on
   convertible preferred stock ...................                        350                                                     
  Net income .....................................                                                                                
                                                      --------       --------     --------      --------    --------      --------
BALANCE, DECEMBER 31, 1995 .......................       3,208          6,085                                  1,426            14
  Conversion of convertible preferred             
    Stock to common stock ........................        (120)          (207)                                   216             2
  Dividends paid on convertible
    preferred stock converted ....................                        (32)
  Settlement of ALA contingent  notes ............                                                               194             2
  Stock issued in connection with Acquisitions....                                                             2,377            24
  Redeemable common stock issued in Acquisitions .                                   1,494        12,210
  Stock issued for loan fees .....................                                                                86             1
  Accrued dividends on convertible
    preferred stock ..............................                        371                                                     
Net Income .......................................                                                                                
                                                      --------       --------     --------      --------    --------      --------
BALANCE, DECEMBER 31, 1996 .......................       3,088          6,217        1,494        12,210       4,299            43
  Accrued dividends on
    convertible preferred stock ..................                        311                                                     
  Dividends paid on
    convertible preferred stock ..................                     (1,330)
  Conversion of convertible preferred
    stock to common stock ........................      (3,088)        (5,198)                                 5,559            56
  Common  stock  issued  in
    initial public offering ......................                                                             5,835            59
  Conversion of redeemable common                 
    stock to common stock ........................                                  (1,494)      (12,210)      1,494            15
  Stock issued in connection with acquisitions ...                                                             2,341            23
  Exercise of options ............................                                                                23            
  Net income .....................................                                                                                
                                                      --------       --------     --------      --------    --------      --------
BALANCE, DECEMBER 31, 1997 .......................           0       $      0            0      $      0      19,551      $    196
                                                      ========       ========     ========      ========    ========      ========


<CAPTION>
                                                      
                                                      
                                                      ADDITIONAL
                                                         PAID-IN      RETAINED
                                                         CAPITAL      EARNINGS
                                                      -----------     --------
BALANCES, JANUARY 1, 1995 ........................      $ (3,605)     $    815
  Accrued dividend on
   convertible preferred stock....................                        (350)
  Net income .....................................                         902
                                                        --------      --------
BALANCE, DECEMBER 31, 1995 .......................        (3,605)        1,367
  Conversion of convertible preferred 
    Stock to common stock ........................           205
  Dividends paid on convertible
    preferred stock converted ....................    
  Settlement of ALA contingent  notes ............           240
  Stock issued in connection with Acquisitions ...        12,595
  Redeemable common stock
    issued in Acquisitions .......................    
  Stock issued for loan fees .....................           463
  Accrued dividends on convertible
    preferred stock ..............................                        (371)
Net Income .......................................                       2,026
                                                        --------      --------
BALANCE, DECEMBER 31, 1996 .......................         9,898         3,022
  Accrued dividends on
    convertible preferred stock ..................                        (311)
  Dividends paid on
    convertible preferred stock ..................    
  Conversion of convertible preferred
    stock to common stock ........................         5,143
  Common  stock  issued  in
    initial public offering ......................        83,388
  Conversion of redeemable common 
    stock to common stock ........................        12,195
  Stock issued in connection with acquisitions ...        23,941
  Exercise of options ............................            25
  Net income .....................................                       7,320
                                                        --------      --------
BALANCE, DECEMBER 31, 1997 .......................      $134,590      $ 10,031
                                                        ========      ========

</TABLE>


          See accompanying notes to consolidated financial statements.



                                      F-6
<PAGE>   40


                        AMERIPATH, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                                        YEARS ENDED
                                                                                        DECEMBER 31,
                                                                          -------------------------------------------
                                                                              1995             1996            1997
                                                                          ------------     ------------     ---------
<S>                                                                        <C>              <C>             <C>  
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income ..........................................................      $    902       $  2,026       $  7,320
   Adjustments to reconcile net income to net cash flows
    provided by operating activities:
     Depreciation and amortization .....................................        1,253          3,056          7,589
     (Gain) loss on disposal of assets .................................           28            775            (17)
     Deferred income taxes .............................................          243           (950)        (2,474)
     Provision for doubtful accounts ...................................        1,161          3,576         10,892
     Non-recurring charge ..............................................                                      1,289
     Changes in assets and liabilities (net of effects of acquisitions):
      Increase in accounts receivable .................................        (1,534)        (3,766)       (12,194)
      (Increase) decrease in inventories ..............................             6           (107)             1
      (Increase) decrease in other current assets .....................            39           (632)           (93)
      (Increase) decrease in other assets .............................            21         (1,426)           563
      Increase (decrease) in accounts payable and
         accrued expenses .............................................           183         (2,001)          (206)
                                                                             --------       --------       -------- 
         Net cash flows provided by operating
           activities .................................................         2,302            551         12,670
                                                                             --------       --------       -------- 

CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition of property and equipment ...............................          (488)          (996)        (3,190)
  Purchase of subsidiaries, net of cash acquired ......................                      (73,073)       (68,824)
  Payments of contingent notes ........................................                                      (1,523) 
                                                                             --------       --------       -------- 
         Net cash flows used in investing activities ..................          (488)       (74,069)       (73,537)
                                                                             --------       --------       -------- 

CASH FLOWS FROM FINANCING ACTIVITIES:
  Issuance of common stock ............................................                                      86,856
  Principal repayment on Junior Notes .................................                                      (7,500)
  Principal repayment on Senior Notes .................................                                      (3,500)
  Debt issuance costs .................................................                         (250)        (1,080)
  Offering costs ......................................................                         (992)        (3,548)
  Principal payments on long-term debt ................................                         (240)        (1,118)
  Net borrowings (payments) under revolving loan ......................        (1,859)        77,506        (75,048)
  Borrowing under term loan ...........................................                                      65,000
  Note receivable from officer ........................................                         (270)           270
  Dividends paid to convertible preferred stockholders ................                          (32)        (1,330)
                                                                             --------       --------       -------- 

         Net cash flows provided by (used in) financing
           activities .................................................        (1,859)        75,722         59,002
                                                                             --------       --------       -------- 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ......................           (45)         2,204         (1,865)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ........................           103             58          2,262
                                                                             --------       --------       -------- 
CASH AND CASH EQUIVALENTS, END OF PERIOD ..............................      $     58       $  2,262       $    397
                                                                             ========       ========       ======== 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
  Interest ............................................................      $  1,504       $  2,856       $  9,027
  Income taxes ........................................................      $     63       $  2,835       $  7,713


</TABLE>

          See accompanying notes to consolidated financial statements.




                                      F-7
<PAGE>   41

                        AMERIPATH, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1.  BUSINESS AND ORGANIZATION

AmeriPath, Inc. was incorporated in February 1996 to be the leading physician
practice management company focused on providing anatomic pathology services.
The Company provides physician practice management services to pathologists in
both outpatient and hospital inpatient laboratories, with particular focus on
dermatopathology (pathology related to diseases of the skin). References to the
Company or AmeriPath include AmeriPath, Inc., and subsidiaries, including
American Laboratory Associates, Inc. ("ALA"), the Company's predecessor.
Effective January 1, 1994, ALA purchased the net assets of E.G Polous, M.D.,
M.J. Demaray, M.D. and A.P. Kowalczyk, M.D., P.A. (the "1994 Acquisition") its
first acquisition of a pathology practice.

Services are provided under contractual arrangements with hospitals and in
free-standing, independent laboratory settings. The contractual arrangements
with hospitals vary, but essentially provide that, in exchange for physician
representatives of the Company serving as the medical director of a hospital's
anatomic and clinical laboratory operations, the Company is able to bill and
collect the professional component of the charges for medical services rendered
by the Company's health care professionals. In some cases, the Company is also
paid an annual fee for providing the medical director for the hospital's
clinical laboratory. The Company also owns and operates outpatient pathology
laboratories, for which it is able to bill patients and third party payors,
principally on a fee-for-service basis, covering both the professional and
technical components of such services. In addition, the Company contracts
directly with national clinical laboratories, principally on a fee-for-service
basis.

On January 13, 1997, the Company effected a 1.8 for 1 stock split for its common
stock in the form of a stock dividend. The effect of such stock split is
reflected in all common share amounts.

On April 30, 1997, the authorized shares of common stock were increased to
30,000,000.

In October 1997, the Company completed its initial public offering whereby
6,440,000 shares of common stock were sold, 604,543 of which were sold by
selling shareholders of the Company. The offering resulted in net cash proceeds
to the Company of $84,732, which was principally used to repay outstanding
indebtedness.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of significant accounting policies followed by the Company are as
follows:

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of AmeriPath, Inc.,
its wholly-owned subsidiaries, and companies in which the Company has the
controlling financial interest by means other than the direct record ownership
of voting stock, as discussed in Note 3. All significant intercompany accounts
and transactions have been eliminated.

ACCOUNTING ESTIMATES

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.




                                      F-8
<PAGE>   42


                        AMERIPATH, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist mainly of cash and cash equivalents,
accounts receivable, accounts payable, the Credit Facility and long-term debt.
The carrying amounts of the Company's cash and cash equivalents, accounts
receivable and accounts payable approximate fair value due to the short-term
nature of these instruments. The Credit Facility bears interest at a variable
market rate, and thus has a carrying amount that approximates fair value.

The fair value of long-term debt is estimated based on discounted cash flows
using current interest rates for financial instruments with similar
characteristics and maturity. At December 31, 1996, the carrying amount of the
Senior Notes and Junior Notes aggregated $11,000 and the fair value was $10,900.
These notes were repaid with the proceeds from the initial public offering.

CASH AND CASH EQUIVALENTS

Cash equivalents consist of highly liquid instruments with maturities at the
time of purchase of three months or less.

INVENTORIES

Inventories, consisting of laboratory supplies, are stated at the lower of cost,
determined on a first-in-first-out basis, or market.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Routine maintenance and repairs are
charged to expense as incurred, while cost of betterments and renewals are
capitalized.

Depreciation and amortization are calculated on a straight-line basis and
accelerated methods, over the estimated useful lives of the respective assets
which lives range from 3 to 7 years. Leasehold improvements are amortized over
the shorter of the term of the related lease, including renewal options, or the
useful life of the asset.

INTANGIBLE ASSETS

Identifiable intangible assets include hospital contracts, physician referral
lists and laboratory contracts acquired in connection with acquisitions. Such
assets are recorded at fair value on the date of acquisition as determined by
management based on independent consultants' reports and are being amortized
over the estimated periods to be benefited, ranging from 10 to 40 years. In
determining these lives the Company considered each practice's operating
history, contract renewals, stability of physician referral lists and industry
statistics.

Goodwill relates to the excess of cost over the fair value of net assets of the
businesses acquired. The amortization periods for goodwill were determined by
the Company with consideration given to the lives assigned to the identifiable
intangibles, the reputation of the practice, the length of the practice's
operating history, and the potential of the market in which the acquired
practice is located. Amortization is calculated on a straight line basis over
periods ranging from 15 to 35 years.





                                      F-9
<PAGE>   43

                        AMERIPATH, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Management assesses on an ongoing basis if there has been an impairment in the
carrying value of its intangible assets. If the undiscounted future cash flows
over the remaining amortization period of the respective intangible asset
indicates that the value assigned to the intangible asset may not be
recoverable, the carrying value of the respective intangible asset will be
reduced. The amount of any such impairment would be determined by comparing
anticipated discounted future cash flows from acquired businesses with the
carrying value of the related assets. In performing this analysis, management
considers such factors as current results, trends and future prospects, in
addition to other relevant factors.

DEFERRED DEBT ISSUANCE COSTS

The Company incurred costs in connection with bank financing and issuing other
debt. These costs have been capitalized and are being amortized on a
straight-line basis, which approximates the interest method, over the respective
terms of the related debt (5 and 7 years). Such amounts are included in other
assets in the consolidated balance sheet.

REVENUE RECOGNITION

The Company recognizes revenue at the time services are performed. Unbilled
receivables are recorded for services rendered during, but billed subsequent to,
the reporting period. Net revenue is reported at the estimated realizable
amounts from patients, third-party payors and others for services rendered.
Revenue under certain third-party payor agreements is subject to audit and
retroactive adjustments. Provision for estimated third-party payor settlements
and adjustments are estimated in the period the related services are rendered
and adjusted in future periods as final settlements are determined. The
provision and the related allowance are adjusted periodically, based upon an
evaluation of historical collection experience with specific payors for
particular services, anticipated collection levels with specific payors for new
services, industry reimbursement trends, and other relevant factors.

Unbilled receivables, net of allowances, as of December 31, 1996 and 1997
amounted to approximately $2,202 and $2,135, respectively.

INCOME TAXES

The Company's provision for income taxes includes federal and state income taxes
currently payable and changes in deferred tax assets and liabilities, excluding
the establishment of deferred tax assets and liabilities related to
acquisitions. Deferred income taxes are accounted for in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes" and represent the estimated future tax effects resulting from
temporary differences between financial and tax reporting bases of assets and
liabilities.

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to the 1997
presentation.

3.  ACQUISITIONS

During 1996, the Company acquired or became affiliated with eleven anatomic
pathology practices. The total consideration paid by the Company in connection
with these acquisitions included cash of $78,626, subordinated notes in the
aggregate principal amount of $4,511, and 3,870,741 shares of common stock
(aggregate value of $24,829).




                                      F-10
<PAGE>   44


                        AMERIPATH, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

In addition, the Company issued additional purchase price consideration to the
sellers in the form of contingent notes. During 1997, the Company acquired or
became affiliated with five anatomic pathology practices. The total
consideration paid by the Company in connection with these acquisitions included
cash of $67,880 and 2,247,139 shares of common stock (aggregate value of
$23,114). In addition, the Company issued additional purchase price
consideration in the form of contingent notes.

The acquisitions have been accounted for using the purchase method of
accounting. The aggregate consideration paid, and to be paid, is based on a
number of factors, including each practice's demographics, size, local
prominence, position in the marketplace and historical cash flows from
operations. Assessment of these and other factors, including uncertainties
regarding the health care environment, resulted in the sellers of each of the
practices and the Company being unable to reach agreement on the final purchase
price. The Company agreed to pay a minimum purchase price and to pay additional
purchase price consideration to the sellers of the practices in proportion to
their respective ownership interest in each practice. The additional payments
are contingent upon the achievement of stipulated levels of operating earnings
(as defined) by each of the practices over periods of three to five years from
the date of the acquisition as set forth in the respective agreements, and are
not contingent on the continued employment of the sellers of the practices. The
amount of the payments cannot be determined until the achievement of the
operating earnings levels during the terms of the respective agreements. If the
maximum specified levels of operating earnings for each Practice are achieved,
the Company would make aggregate maximum payments, including principal and
interest, of $107,195 over the next three to five years. A lesser amount of
payments would be made if the maximum levels of operating earnings specified in
each agreement are not met. No amounts would be paid if the minimum levels of
operating earnings specified in each acquisition agreement is not met. During
the year ended December 31, 1997, the Company made contingent note payments
aggregating $1,523 which amounts represent 57% of the maximum amount available.
Additional payments are accounted for as additional purchase price and increase
recorded goodwill.

The allocation of the purchase price of the 1997 acquisitions is preliminary,
while the Company continues to obtain the information necessary to determine the
fair value of the assets acquired and liabilities assumed. When the Company
obtains final information, management believes that adjustments, if any, will
not be material in relation to the consolidated financial statements.




                                      F-11
<PAGE>   45


                        AMERIPATH, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The following table presents for each acquisition, the date of the acquisition
or affiliation, the total consideration paid, excluding the contingent payments,
if any, the number of shares of common stock issued by the Company, and the
maximum amount of the contingent payments remaining as of December 31, 1997.

<TABLE>
<CAPTION>

                                                                                                            MAXIMUM
                                                                                                           REMAINING
                                                                                                           CONTINGENT
                                                                                                            PAYMENTS
                                                                      TOTAL                           --------------------
                                                      DATE         CONSIDERATION    COMMON STOCK      PERIOD
                                                    ACQUIRED           PAID        ISSUED (SHARES)    (YEARS)     AMOUNT
                                                  -----------      -------------   ---------------    -------    ---------
<S>                                                      <C>            <C>          <C>                  <C>        <C>  
  1996:
   Demaray and Poulos, P.A ..................      January 1        $   1,679
   Derrick and Associates Pathology,
     Inc ....................................       July 1             16,844      1,080,009              4      $   8,765
   Amazon and Rosen, M.D., P.A ..............       July 1              6,333        119,999              4          2,412
   SkinPath, P.C ............................      August 1             5,275        207,000              2            245
   Pathology Associates, P.S.C ..............      August 1             6,795        107,399              4            810
   Freeman-Cockerell Laboratories,
     Inc ....................................      October 1            4,806         90,000              5          1,271
   Volusia Pathology Group, M.D.,
     P.A ....................................      October 3            7,344        169,814              5          2,228
   David R. Barron, M.D.,  Inc. .............      October 4           17,700        455,999              4          3,922
   Drs. Seidenstein, Levine &
     Associates, P.A ........................      October 10          15,657        477,721              5          6,881
   Beno Michel, M.D., Inc. ..................      October 15           8,833        262,800              3          1,710
   Fernandez & Kalemeris, M.D.,
     P.A ....................................      November 1          16,700        900,000              5          8,166

1997:
   CoLab Incorporated Professional
     Corporation, Microdiagnostics,
     P.C. and Anatomical Pathology
     Services, P.C ..........................      August 15           32,542        850,390              5         16,017
   Unipath Ltd. And Affiliates ..............      August 21           42,500      1,000,001              5         42,370
   Sturgis, Henderson & Proctor
     Pathology ..............................      August 29            3,050         60,417              5          3,745
   Essman Laboratory Physicians
     Jacksonville, P.A ......................     December 12          10,283        300,037              5          6,080
   The Dermatopathology Laboratory,
     P.C......................................    December 15           2,619         36,294              5          2,570
</TABLE>


During the year ended December 31, 1997, the Company issued an additional 91,201
shares of common stock, valued at $821, and made contingent note payments of
$1,523 and other purchase price adjustments of approximately $2,121 in
connection with certain post-closing adjustments.

The agreements related to five of the 1996 acquisitions contained provisions
that would have required the Company to repurchase the common stock issued in
the acquisitions, aggregating 1,493,520 shares, for $8.33 per share if the
Company had not completed an initial public offering of its common stock within
specified periods ranging from three to five years from the date of acquisition.
Such common stock is presented in the consolidated financial statements as of
December 31, 1996, as Redeemable Common Stock. The redemption requirements were
terminated in 1997 upon the completion of the initial public offering.

The Company does not have technical majority ownership of the common stock of
the practices in Ohio, Indiana, Texas and Pennsylvania. All of the common stock
of the Ohio and Indiana companies is held in trust. AmeriPath is the sole
beneficiary of each trust and receives all income from the trusts.





                                      F-12
<PAGE>   46



                        AMERIPATH, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The Company, at its sole discretion, can replace the trustees, withdraw any
asset from the trusts, modify the terms of the trust agreements, or terminate
the trusts, and direct the trustees to distribute income and any asset from the
trusts. No assets of the trusts can be sold or otherwise disposed of without
AmeriPath's consent. In Pennsylvania, the sole shareholder of the practice is
the Company's Chief Operating Officer (a licensed physician), who has entered
into a shareholders' agreement restricting the transfer or other disposition of
such shares by the shareholder, and granting the Company an exclusive and
irrevocable option to require the shareholder to sell the shares for nominal
consideration. Additionally, wholly-owned subsidiaries of the Company entered
into 40-year management agreements with each of these practices, under which
such subsidiaries provide all management and other non-medical services to these
for a fee equal to the practice's net revenue less practice expenses, including
physician salaries, which are fixed by employment agreements, and related
professional expenses. Therefore, the Company is entitled to all of the net
income of these practices.

Based on the provisions of the purchase agreements, trust agreements and
management agreements, consolidation of the practices in Ohio, Indiana and
Pennsylvania is required to present the Company's financial position and
results of operations in conformity with generally accepted accounting
principles because the Company has the controlling financial interest in these
practices by means other than direct record ownership of voting stock.
Accordingly, these acquisitions are accounted for as purchase business
combinations and included in the consolidated financial statements.

In connection with the acquisitions in Texas, a wholly-owned subsidiary of the
Company (the "Texas subsidiary") acquired all of the laboratory facilities,
testing equipment and other assets used in connection with the pathology
services performed by the Texas physicians. The Texas subsidiary employs all of
the technical and non-technical administrative and support personnel. The Texas
subsidiary has also entered into 40-year management services agreements under
which it provides, on an exclusive basis, the technical laboratory services,
management and all other non-medical practice services to two Texas 5.01(a)
non-profit corporations which employ all of the physicians who are solely
responsible for the provision of medical services. The Company is the sole
member of the Texas 5.01(a) corporations, and appoints the members of the Board
of Directors of the Texas 5.01(a) corporation. The Company has direct voting
control over the 5.01(a) corporations and they are included in the consolidated
financial statements.

The Texas 5.01(a) corporations' payments to the Company under the management
service agreements are comprised of the reimbursement of the costs and expenses
for providing services, a base fee and a performance fee based on the
achievement of goals and objectives established annually. Assuming the Texas
5.01(a) corporations achieve their goals and objectives, such fees will result
in the Company receiving substantially all net revenue less practice expenses of
the Texas 5.01(a) corporations. Practice expenses include physician salaries
which are fixed by employment agreement and related professional expenses.
Therefore, the Company is the direct beneficiary of substantially all of the net
income of the 5.01(a) corporations which is reported in the consolidated
statement of operations.

The accompanying financial statements include the results of operations of the
acquisitions from the date acquired through December 31, 1997. The following
unaudited pro forma information presents the consolidated results of the
Company's operations and the results of operations of the 1996 and 1997
acquisitions for the years ended December 31, 1996 and 1997 after giving affect
to amortization of goodwill and identifiable intangible assets, interest expense
on long-term debt incurred in connection with these acquisitions, and the
reduced level of certain specific operating expenses (primarily compensation and
related expenses attributable to former owners) as if the acquisitions had been
consummated on January 1, 1996. Such unaudited pro forma information is based on
historical financial information with respect to the 1996 and 1997 acquisitions
and does not include operational or other changes which might have been effected
by the Company.




                                      F-13
<PAGE>   47

                        AMERIPATH, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The unaudited pro forma information for the years ended December 31, 1996 and
1997 presented below is for illustrative information purposes only and is not
necessarily indicative of results which would have been achieved or results
which may be achieved in the future:

<TABLE>
<CAPTION>

                                                                                           PRO FORMA
                                                                                          DECEMBER 31,
                                                                                     ----------------------
                                                                                       1996          1997
                                                                                     --------      --------
<S>                                                                                  <C>           <C>     
    Net revenue................................................................      $129,237      $140,760
                                                                                     ========      ========
    Net income.................................................................      $ 10,132      $ 11,798
                                                                                     ========      ========
    Net income per share (diluted).............................................      $    .70      $    .82
                                                                                     ========      ========
</TABLE>


4.  ACCOUNTS RECEIVABLE AND NET REVENUE

Accounts receivable are recorded at net realizable value. The allowance for
contractual and other adjustments and uncollectible accounts is based on
historical experience and judgments about future events. Accordingly, the actual
amounts experienced could vary significantly from the recorded allowances.

Accounts receivable consisted of the following:

<TABLE>
<CAPTION>

                                                                                             DECEMBER 31,
                                                                                        ---------------------
                                                                                          1996          1997
                                                                                        --------     --------
<S>                                                                                     <C>          <C>     
Gross accounts receivable......................................................         $ 30,841     $ 50,043
Less: Allowance for contractual and other adjustments..........................           (5,672)     (13,919)
      Allowance for uncollectible accounts.....................................          (10,478)     (12,604)
                                                                                        --------     --------
Accounts receivable, net.......................................................         $ 14,691     $ 23,520
                                                                                        ========     ========
</TABLE>




                                      F-14
<PAGE>   48




                        AMERIPATH, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The Company grants credit without collateral to individual patients, most of
whom are insured under third party payor agreements. The estimated mix of
receivables from patients and third-party payors are as follows:

<TABLE>
<CAPTION>

                                                                                         DECEMBER 31,
                                                                                      ------------------
                                                                                      1996         1997
                                                                                     -------      -------
<S>                                                                                   <C>          <C>  
Government programs............................................................       35.2%        24.8%
Third-party payors.............................................................       41.9         45.0
Private pay patients...........................................................       17.7         21.0
Other..........................................................................        5.2          9.2
                                                                                     -----        -----
                                                                                     100.0%       100.0%
                                                                                     =====        =====
</TABLE>


Net revenue consisted of the following:

<TABLE>
<CAPTION>

                                                                             YEARS ENDED DECEMBER 31,
                                                                      --------------------------------------
                                                                       1995           1996            1997
                                                                      -------       --------        --------
<S>                                                                   <C>           <C>             <C>     
Gross revenue.............................................            $19,121       $ 57,423        $148,698
Less contractual and other adjustments....................             (3,097)       (14,865)        (40,292)
                                                                      -------       --------        --------
         Net revenue......................................            $16,024       $ 42,558        $108,406
                                                                      =======       ========        ========
</TABLE>


A significant portion of the Company's net revenue is generated by the
hospital-based practices through contracts with 47 and 75 hospitals as of
December 31, 1996 and 1997, respectively, primarily as a result of the
acquisitions discussed in Note 3. Columbia Healthcare Corporation ("Columbia")
owned 20 and 25 of these hospitals as of December 31, 1996 and 1997,
respectively. For the years ended December 31, 1996 and 1997, approximately 19%
and 27%, respectively of net revenue was generated directly from contracts with
hospitals owned by Columbia. Generally, these contracts have remaining terms of
less than five years and contain renewal provisions. Some of the contracts
contain clauses that allow for termination by either party with relatively short
notice. Although the Company, through the acquired practices, has had
relationships with these hospitals for extended periods of time, the termination
of one or more of these contracts could have a material adverse effect on the
Company's financial position and results of operations.





                                      F-15
<PAGE>   49

                        AMERIPATH, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)




5. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:
<TABLE>
<CAPTION>

                                                       ESTIMATED             DECEMBER 31,
                                                      USEFUL LIFE     -----------------------
                                                        (YEARS)        1996            1997
                                                      -----------     --------       --------
<S>                                                     <C>           <C>            <C>     
Laboratory, office  and data processing equipment          5          $  4,993       $  8,069
Leasehold improvements ..........................         20             1,038          1,339
Furniture and fixtures ..........................          7             1,006          1,690
Mobile lab units ................................          3                99             99
Automotive vehicles .............................          3               393            613
Construction in progress ........................                          121
                                                                      --------       --------
                                                                         7,650         11,810
Less accumulated depreciation ...................                       (3,718)        (5,568)
                                                                      --------       --------
Property and equipment, net .....................                     $  3,932       $  6,242
                                                                      ========       ========

</TABLE>

Depreciation expense was $512, $862 and $1,543 for the years ended December 31,
1995, 1996 and 1997, respectively.

6.  INTANGIBLE ASSETS

Intangible assets and the related accumulated amortization and amortization
periods are as follows:
<TABLE>
<CAPTION>

                                                                                AMORTIZATION PERIODS
                                                                                      (YEARS)
                                                       DECEMBER 31,             --------------------
                                                 -----------------------                    WEIGHTED
                                                    1996           1997         RANGE        AVERAGE
                                                 ---------       ---------      -----        -------
<S>                                              <C>             <C>             <C>           <C> 
Hospital contracts .........................     $  29,015       $  91,250       35-40         35.5
Physician client lists .....................        40,963          43,321       17-30         22.2
Laboratory contracts .......................         1,800           4,400          10         10.0
                                                 ---------       ---------
                                                    71,778         138,971
Accumulated amortization....................        (2,008)         (5,551)
                                                 ---------       ---------
Balance, net ...............................     $  69,770       $ 133,420
                                                 =========       =========
Goodwill ...................................     $  62,593       $ 103,475       15-35         33.9
Accumulated amortization....................          (879)         (3,104)
                                                 ---------       ---------
Balance, net ...............................     $  61,714       $ 100,371
                                                 =========       =========


</TABLE>





                                      F-16
<PAGE>   50



                        AMERIPATH, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The amortization periods for the identifiable intangible assets were determined
by the Company based on reports of independent consultants. In determining these
lives, the Company considered each practice's operating history, contract
renewals, stability of physician referral lists and industry statistics.

The amortization periods for goodwill were determined by the Company with
consideration given to the lives assigned to the identifiable intangibles, the
reputation of the practice, the length of the practice's operating history, and
the potential of the market in which the acquired practice is located.

The weighted average amortization period for identifiable intangible assets and
goodwill is 32.0 years.

7.  ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following:

<TABLE>
<CAPTION>

                                                                                            DECEMBER 31,
                                                                                        ------------------
                                                                                         1996         1997
                                                                                        ------       ------

<S>                                                                                     <C>          <C>   
Accounts payable...............................................................         $  848       $1,946
Accrued compensation...........................................................          1,572        4,603
Accrued acquisition costs......................................................          1,648        1,563
Accrued interest...............................................................            683          420
Income taxes payable...........................................................            567          505
Other accrued expenses.........................................................          3,072        2,666
Amounts due to former owners of the 1996 Acquisitions..........................          1,500          166
                                                                                        ------      -------
                                                                                        $9,890      $11,869
                                                                                        ======      =======
</TABLE>





                                      F-17
<PAGE>   51


                        AMERIPATH, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

 8.  LONG-TERM DEBT

     Long-term debt consisted of the following:

<TABLE>
<CAPTION>

                                                                             DECEMBER 31,
                                                                      -----------------------
                                                                        1996           1997
                                                                      --------       --------
<S>                                                                   <C>            <C>     
Credit Facility:
  Revolving loan ...............................................      $ 81,652       $  6,605
  Senior term loan .............................................                       65,000
Senior notes due to common stockholders, principal and any
   unpaid interest thereon, due and payable on December 31, 1998         3,500
Junior notes due to preferred stockholders, principal and any
   unpaid interest thereon, due and payable on December 31, 2001         7,500
Subordinated notes issued and assumed in connection with
   acquisitions, payable in varying amounts through 2001,
  with interest at rates of 7% and 8% ..........................         4,587          3,469
                                                                      --------       --------
                                                                      $ 97,239       $ 75,074
Less current portion ...........................................        (1,762)        (2,720)
                                                                      --------       --------
Long term debt, net of current portion .........................      $ 95,477       $ 72,354
                                                                      ========       ========


</TABLE>

At December 31, 1997, maturities of long-term debt were as follows:

1998...............................................................  $  2,720
1999...............................................................     1,278
2000...............................................................     1,051
2001...............................................................     1,021
2002...............................................................     7,254
Thereafter.........................................................    61,750
                                                                      -------
Total..............................................................   $75,074
                                                                      =======


On June 26, 1997, the Company replaced its line of credit with a new revolving
line of credit and term loan agreement (the "Credit Facility") with a syndicate
of banks led by BankBoston N.A., as lender and agent (the "Agent"), which
provides for borrowings of up to $150,000 in the form of: (i) a term loan of
$65,000; and (ii) a revolving loan of up to $85,000 that may be used for working
capital purposes (in an amount limited to 80% of the Company's eligible
receivables), and to fund acquisitions if not otherwise used for working capital
purposes. Commencing July 1, 1998, the term loan requires annual principal
payments of $650 with the balance due and payable on June 30, 2004. All
outstanding advances under the revolving loan are due and payable on June 30,
2002. The Credit Facility bears interest at variable rates, based, at the
Company's option, on the Agent's base rate or the Eurodollar rate plus a premium
that is adjusted quarterly based on the Company's ratio of total debt to cash
flow. As of December 31, 1997 the revolver and term loan interest rates were
approximately 8.5% and 8.7% respectively. In November 1997, the Company entered
into an interest rate swap transaction which involves the exchange of floating
for fixed rate interest payments over the life of the agreement without the
exchange of the underlying principal amounts. The differential to be paid or
received is accrued and is recognized as an adjustment to interest expense. The
agreement is a two year interest rate swap with a notional amount of $30,000.
Under the agreement,




                                      F-18
<PAGE>   52

                        AMERIPATH, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

the Company receives interest on the notional amount to the extent the 30 day
LIBOR exceeds 6.0%, and pays interest on the notional amount to the extent 30
day LIBOR is less than 6.0%. This derivative financial instrument is being used
by the Company to reduce interest rate volatility and associated risks arising
from the floating rate structure of its credit facility and is not held or
issued for trading purposes. The Company believes that unrealized gains or
losses related to this instrument are not material. The Credit Facility also
requires the quarterly payment of an annual commitment fee equal to either 0.5%
or 0.375%, based upon the Company's ratio of total debt to cash flow, on the
unused portion of the Credit Facility.

The Credit Facility contains covenants which, among other things, require the
Company to maintain certain financial operating ratios and impose certain
limitations or prohibitions on the Company with respect to the incidence,
guaranty or assumption of indebtedness, the payment of dividends, cash
distributions, new debt issuance, sale of assets, leasing commitments and annual
capital expenditures, and contains provisions which preclude mergers and
acquisitions under certain circumstances. All of the Company's assets are
pledged as collateral under the Credit Facility. The Company believes that it is
in compliance with all of the covenants at December 31, 1997.

9.  CONVERTIBLE PREFERRED STOCK

The Convertible Preferred Stock had an annual dividend rate of 6% of the
original purchase price and such dividends were cumulative from the date of
original issuance and payable when and as declared by the Company's Board of
Directors. In connection with the Company's initial public offering in October
1997, the shares of Convertible Preferred Stock were converted into shares of
common stock at a conversion rate of 1.8 shares of common stock for each
preferred share. Upon conversion, all accumulated and unpaid dividends, up to
the date of conversion were paid in cash.

During the year ended December 31, 1996 the Company paid accrued dividends in
the amount of $32 with respect to the 120,004 shares of Convertible Preferred
Stock that were converted into 216,007 shares of common stock by the holders of
the Convertible Preferred Stock in their sale of shares of common stock to the
Company's President and Chief Executive Officer (See Note 14). During the year
ended December 31, 1997, the Company paid accrued dividends of $1,330.

10.  LEASE COMMITMENTS

The Company leases various office and laboratory space, and certain equipment
pursuant to operating lease agreements. The following information includes the
related party leases discussed in Note 14. Future minimum lease commitments
consisted of the following at December 31, 1997:

     1998..........................................................    $1,179
     1999..........................................................       866
     2000..........................................................       727
     2001..........................................................       580
     2002..........................................................       520
     Thereafter....................................................       101
                                                                       ------
                                                                       $3,973
                                                                       ======




                                      F-19
<PAGE>   53


                        AMERIPATH, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Rent expense under operating leases for the years ended December 31, 1995, 1996
and 1997 was $170, $499, and $1,093, respectively.

11.  OPTION PLAN

The Company's Stock Option Plan (the "Option Plan") provides for the grant of
options to purchase shares of common stock to key employees and others. The plan
provides that the option price shall not be less than the fair market value of
the shares on the date of the grant. At December 31, 1997, 2,357,600 shares of
common stock are reserved for issuance pursuant to options granted under the
Option Plan. All options granted have 10 year terms and vest and become
exercisable at the rate of 20% a year, following the date of grant.

The Company's Director Option Plan provides for the grant of options to purchase
shares of common stock to Directors who are not employees of the Company. All
options granted under the Director Option Plan have 10 year terms and are
exercisable during the period specified in the agreement evidencing the grant of
such Director Option. At December 31, 1997, 5,000 options have been granted
under the Director Option Plan.

The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and the related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
No. 123, "Accounting for Stock-Based Compensation," requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options approximates the fair value of the underlying stock on the date of
grant, no compensation expense is recognized.

Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using the
Black-Scholes Option Pricing Model with the following weighted-average
assumptions for 1995, 1996 and 1997:
<TABLE>
<CAPTION>

                                                                              1995          1996        1997
                                                                              -----         ----        ----
<S>                                                                           <C>            <C>         <C> 
Risk free interest rate ..............................................        5.2%           6.9%        6.5%
Dividend yield .......................................................         --             --         --
Volatility factors ...................................................         --             --        47.0%
Weighted average life (years).........................................        4.1            4.1         4.1
</TABLE>

No volatility factors of the expected market price of the Company's common stock
has been included for 1995 and 1996 because the Company was a private entity
when the options were granted. The estimated fair value of the options was
immaterial in 1995 and 1996, therefore, the Company has not provided pro forma
net income or earnings per share information. Using the Black-Scholes Option
Pricing Model, the estimated weighted-average fair value per option granted in
1997 was $7.08.

For 1997 the pro forma net income and diluted earnings per common share would
have been $7,248 and $0.52, respectively, had the fair value method of
accounting for stock options been used. For purposes of the pro forma
disclosures the estimated fair values of the options is amortized to expense
over the options vesting period.

The Black-Scholes Option Pricing Model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require highly subjective
assumptions including the expected stock price volatility. Because the Company's
employee stock options have characteristics significantly different than those
of traded options, and because changes in the assumptions can materially affect
the fair value estimate, in management's opinion, the existing models may not
necessarily provide a reliable single measure of the fair value of its employee
stock options.




                                      F-20
<PAGE>   54


                        AMERIPATH, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

A summary of the status of the option plans as of and for the changes during
each of the three years in the year ended December 31, 1997, is presented below:

<TABLE>
<CAPTION>
                                                         OPTION PRICE PER SHARE
                                     NUMBER         --------------------------------
                                    OF SHARES        LOW         HIGH      WEIGHTED     
                                   ----------       ------      ------     --------
<S>                                   <C>           <C>         <C>         <C>   
Outstanding January 1, 1995 .         234,000       $ 1.11      $ 1.11      $ 1.11
Granted in 1995 .............          18,000         1.67        1.67        1.67
                                    ---------
Outstanding December 31, 1995         252,000         1.11        1.67        1.15
Granted in 1996 .............         360,011         1.67        1.67        1.67
Granted in 1996 .............         306,000         8.33        8.33        8.33
Granted in 1996 .............          72,000        10.00       10.00       10.00
Cancelled in 1996 ...........         (19,800)        8.33       10.00        9.85
                                    ---------
Outstanding December 31, 1996         970,211         1.11       10.00        4.12
Granted in 1997 .............         258,000        10.00       10.00       10.00
Granted in 1997 .............          48,000        16.75       16.75       16.75
Cancelled in 1997 ...........         (41,400)        8.33        8.33        8.33
Exercised in 1997 ...........         (22,400)        1.11        1.11        1.11
                                    ---------
Outstanding December 31, 1997       1,212,411       $ 1.11      $16.75      $ 5.78
                                    =========
</TABLE>

The following table summarizes the information about options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>

                            Options Outstanding                                          Options Exercisable
  -------------------------------------------------------------------------        -------------------------------
                                              Weighted
                                               Average             Weighted                              Weighted
                                              Remaining            Average                                Average
     Range of              Number          Contractual Life        Exercise           Number             Exercise
  Exercise Prices        Outstanding          (in years)            Price           Exercisable           Price
  ---------------        ------------      ----------------       ---------        ------------          ---------
      <S>                    <C>                 <C>                <C>              <C>                  <C>   
      $ 1.11                 211,600             6.6                $ 1.11           118,000              $ 1.11
      $ 1.67                 378,011             8.0                $ 1.67            79,202              $ 1.67
      $ 8.33                 244,800             8.6                $ 8.33            51,840              $ 8.33
      $10.00                 330,000             9.5                $10.00            14,400              $10.00
      $16.75                  48,000             9.9                $16.75                --                  --
                        ------------                                              ------------
  $1.11 - $16.75           1,212,411             8.3                $ 5.78           263,442              $ 3.19
                        ============                                              ============
</TABLE>

12.  EMPLOYEE BENEFIT PLANS

The Company has a 401(k) retirement plan (the "401(k) Plan") which covers
substantially all eligible employees, as defined. Under the terms of the 401(k)
Plan, employees may contribute up to greater of $9,500 or 15% of their
compensation, as defined. Employer contributions are discretionary. During the
year ended December 31, 1996, the Company elected not to make contributions to
the 401(k) Plan.




                                      F-21
<PAGE>   55


                        AMERIPATH, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

In addition, in connection with the 1996 and 1997 acquisitions, the Company
assumed the obligations under certain defined contribution plans which cover
substantially all eligible employees of the acquired practices. The Company has
not made any contributions from the dates of acquisition through December 31,
1997. The Company is in the process of establishing a uniform benefit plan for
all employees.

Effective July 1, 1997, the Company consolidated the previous plans into a new
qualified 401(k) retirement plan covering substantially all eligible employees
as defined in the 401(k) plan. The new Plan requires employer matching
contributions equal to 25% of the employees' contributions up to a maximum of
$1,000 per employee. The Company made matching contributions aggregating $173 to
the new plan in 1997.

13.  COMMITMENTS AND CONTINGENCIES

Liability Insurance -- The Company is insured with respect to general liability
and medical malpractice risks on a claims made basis. The Company records an
estimate of its liabilities for claims incurred but not reported. Such
liabilities are not discounted.

ALA Contingent Notes -- In connection with the 1994 Acquisition, the Company
issued Subordinated Contingent notes in the amount of $2,500 which had an
interest rate of 8% (the "ALA Contingent Notes"). The ALA Contingent Notes were
payable in annual installments of $500, plus interest thereon, in years 1994
through 1998, if operating earnings (as defined) exceed a specified annual
level. If the specified operating earnings levels are not achieved, the amounts
payable for that year, including the related accrued interest, would be
canceled. Operating earnings for the years ended December 31, 1994 and 1995 were
not achieved, therefore, the ALA Contingent Notes of $500 and related accrued
interest for 1995 and 1994 were canceled.

In April 1996, the Company issued 194,400 shares of its common stock, with a
fair value of $242 to redeem and cancel the Company's contingent obligation
under the ALA Contingent Notes, which had a remaining principal balance of
$1,500. The remaining contingent obligation under the ALA Contingent Notes of
$1,500 and related accrued interest of approximately $270 would have become
payable in the future only if operating earnings (as defined) of ALA were to
have exceeded a specified annual level in 1996, 1997 and 1998. The issuance of
shares has been accounted for as an additional cost of the 1994 Acquisition.

Healthcare Regulatory Environment and Reliance on Government Programs -- The
healthcare industry in general, and the services that the Company provides are
subject to extensive federal and state laws and regulations. Additionally, a
significant portion of the Company's net revenue is from payments by
government-sponsored health care programs, principally Medicare and Medicaid,
and is subject to audit and adjustments by applicable regulatory agencies.
Failure to comply with any of these laws or regulations, the results of
regulatory audits and adjustments, or changes in the amounts payable for the
Company's services under these programs could have a material adverse effect on
the Company's financial position and results of operations.

14.  RELATED PARTY TRANSACTIONS

Operating Leases -- The Company leases laboratory and administrative facilities
used in the operations of eight practices from entities beneficially owned by
some of the Company's common stockholders. The terms of the leases expire from
1999 to 2003 and some contain options to renew for additional periods. Lease
payments made under leases with related parties were $140, $140, and $439 in
1995, 1996 and 1997, respectively.

Note Receivable from Officer -- In connection with the employment of the
Company's President and Chief Executive Officer, the Company provided financing
of $270 to facilitate the purchase of 216,007 shares of the Company's issued and
outstanding stock from certain holders of the Convertible Preferred Stock. The
note was repaid in full in 1997.




                                      F-22
<PAGE>   56

                        AMERIPATH, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

15.  INCOME TAXES

The provision for income taxes for the years ended December 31, 1995, 1996 and
1997 consists of the following:

<TABLE>
<CAPTION>

                                                        YEARS ENDED DECEMBER 31,
                                                  ----------------------------------
                                                    1995        1996          1997
                                                  -------      -------       -------
<S>                                               <C>          <C>           <C>    
Current:
  Federal ..................................      $   281      $ 2,133       $ 6,828
  State ....................................           48          345         1,168
                                                  -------      -------       -------
          Total current provision ..........          329        2,478         7,996
                                                  -------      -------       -------
Deferred:
  Federal ..................................          207         (817)       (2,113)
 State .....................................           36         (133)         (361)
                                                  -------      -------       -------
          Total deferred provision (benefit)          243         (950)       (2,474)
                                                  -------      -------       -------
          Total provision for income taxes .      $   572      $ 1,528       $ 5,522
                                                  =======      =======       =======
</TABLE>

The effective tax rate on income before income tax is reconciled to the
statutory federal income tax rate as follows:

<TABLE>
<CAPTION>

                                                                 YEARS ENDED DECEMBER 31,
                                                                --------------------------
                                                                1995       1996       1997
                                                                ----       ----       ----
<S>                                                             <C>        <C>        <C>  
Statutory federal rate .................................        34.0%      34.0%      35.0%
State income taxes, net of federal income tax benefit ..         3.7        3.6        3.9
Non-deductible items, primarily amortization of goodwill                    4.6        4.9
Other ..................................................         1.1         .8        (.8)
                                                                ----       ----       ----
Effective rate .........................................        38.8%      43.0%      43.0%
                                                                ====       ====       ====
</TABLE>





                                      F-23
<PAGE>   57


                        AMERIPATH, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The following is a summary of the deferred income tax assets and liabilities as
of December 31, 1996 and 1997:

<TABLE>
<CAPTION>

                                                                     DECEMBER 31,
                                                                ---------------------
                                                                  1996          1997
                                                                --------       ------
<S>                                                             <C>            <C>     
Deferred tax assets:
  Property and equipment .................................      $    307       $    253
  Allowance for doubtful accounts ........................         1,839          3,025
  Accrued liabilities ....................................           401            542
  Other ..................................................            49             --
                                                                --------       --------
Total deferred tax assets ................................         2,596          3,820
                                                                --------       --------
Deferred tax liabilities:
  Change from cash to accrual basis of accounting by the
     acquisitions ........................................        (3,547)        (4,520)
  Intangible assets acquired .............................       (18,643)       (35,100)
  Other ..................................................           (11)            --
                                                                --------       --------
Total deferred tax liabilities ...........................       (22,201)       (39,620)
                                                                --------       --------
          Net deferred tax liability .....................      $(19,605)      $(35,800)
                                                                ========       ========
</TABLE>







                                      F-24

<PAGE>   58


                        AMERIPATH, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

16.      EARNINGS PER SHARE

Earnings per share are computed and presented in accordance with SFAS No. 128,
Earnings Per Share, which the Company adopted in the fourth quarter of 1997.
Basic earnings per share excludes dilution and is computed by dividing income or
loss attributable to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the entity. The
effects of Convertible Preferred Stock are calculated using the as if converted
method and the effects of stock options are calculated using the treasury stock
method. All prior reported earnings per share data has been restated in
accordance with SFAS No. 128.

<TABLE>
<CAPTION>

                                                                                 YEARS ENDED DECEMBER 31,
                                                                          --------------------------------------
                                                                            1995           1996           1997
                                                                          --------       --------       --------
<S>                                                                       <C>            <C>            <C>     
Basic Earnings Per Common Share:
         Net income ................................................      $    902       $  2,026       $  7,320
         Preferred stock dividends .................................          (350)          (371)          (311)
                                                                          --------       --------       --------
         Income attributable to common stockholders ................      $    552       $  1,655       $  7,009
                                                                          ========       ========       ========
         Basic weighted average shares outstanding .................         1,426          3,115          8,773
                                                                          --------       --------       --------
         Basic earnings per common share ...........................      $   0.39       $   0.53       $   0.80
                                                                          ========       ========       ========

Diluted Earnings Per Common Share:
         Net income ................................................      $    902       $  2,026       $  7,320
                                                                          ========       ========       ========
          Weighted average shares outstanding ......................         1,426          3,115          8,773
          Effects of Convertible Preferred Stock and Stock Options .         5,774          5,899          5,106
                                                                          --------       --------       --------
          Diluted weighted average shares outstanding ..............         7,200          9,014         13,879
                                                                          ========       ========       ========
          Diluted earnings per common share ........................      $   0.13       $   0.22       $   0.53
                                                                          ========       ========       ========

</TABLE>

Options to purchase 48,000 shares of common stock at a price of $16.75 per share
which were outstanding at December 31, 1997 have been excluded from the
calculation of diluted earnings per share for the year ended December 31, 1997
because their effect would be anti-dilutive.




                                      F-25
<PAGE>   59


                        AMERIPATH, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

17.  SUPPLEMENTAL CASH FLOW INFORMATION

The following supplemental information presents the non-cash impact on the
balance sheet of assets acquired and liabilities assumed in connection with
acquisitions consummated during the years ended December 31, 1996 and 1997:

<TABLE>
<CAPTION>
                                                                                    YEARS ENDED
                                                                                    DECEMBER 31,
                                                                            -------------------------
                                                                              1996            1997
                                                                            ---------       --------
<S>                                                                         <C>             <C>      
Assets acquired ......................................................      $ 140,910       $ 115,540
Liabilities assumed ..................................................        (32,944)        (22,326)
Debt issued ..........................................................         (4,511)
Common stock issued ..................................................        (24,829)        (23,144)
                                                                            ---------       ---------
Cash paid ............................................................         78,626          70,070
Less cash acquired ...................................................         (5,553)         (1,246)
                                                                            ---------       ---------
          Net cash paid ..............................................      $  73,073       $  68,824
                                                                            =========       =========
</TABLE>

18.  LOSS ON CESSATION OF CLINICAL LAB OPERATIONS

In May 1996, the Company ceased the unprofitable operation of a clinical
laboratory resulting in a non-recurring charge of $910 to operations which
included severance payments, write-downs of property, equipment and other assets
to estimated realizable values, and the write-off of the unamortized balances of
intangible assets associated with the clinical operations. The following is a
summary of the net revenue and operating costs, including the non-recurring
charge, of such clinical laboratory:

<TABLE>
<CAPTION>

                                                                                 YEARS ENDED
                                                                                 DECEMBER 31,
                                                                               -----------------
                                                                                1995       1996
                                                                               ------     ------
<S>                                                                            <C>        <C>   
Net revenue............................................................        $2,385     $1,046
Operating costs........................................................         2,814      2,102

</TABLE>

19.  NONRECURRING CHARGE

In May 1997, the Company withdrew its registration statement filed with the
Securities and Exchange Commission and postponed its planned initial public
offering of common stock. During the year ended December 31, 1997, the Company
recorded a nonrecurring charge of $1,289, primarily professional fees and
printing costs, which represented offering costs incurred prior to the
postponement that did not have continuing benefit after the postponement.





                                      F-26
<PAGE>   60




                        AMERIPATH, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

20.  SUBSEQUENT EVENTS

Acquisitions -- On February 13, 1998, the Company completed the acquisition of
Anatomic Pathology Associates, an Indianapolis, Indiana, based anatomic
pathology practice. Total consideration paid by the Company in connection with
this acquisition included cash of $8,340 and 186,828 shares of common stock. In
addition, the Company issued additional purchase price to the sellers in the
form of contingent notes, which are only payable upon the achievement of
stipulated levels of cumulative operating earnings (as defined) of the practice
over a period of five years. If the maximum levels of cumulative operating
earnings specified in the contingent notes are achieved, the Company would be
required to make aggregate maximum payments, including principal and interest,
of approximately $5,950 over the next five years.

Contingent Note Payments -- Subsequent to December 31, 1997, the Company paid
approximately $2,765 on contingent notes issued in connection with the 1996
acquisitions.

21.  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following table presents certain unaudited quarterly financial data for each
of the quarters in the years ended December 31, 1996 and 1997. This information
has been prepared on the same basis as the Consolidated Financial Statements and
includes, in the opinion of the Company, all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the quarterly results
when read in conjunction with the Consolidated Financial Statements and related
Notes thereto. The operating results for any quarter are not necessarily
indicative of results for any future period or for the full year.

<TABLE>
<CAPTION>

                                  UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

                                                  1996 CALENDAR QUARTERS                         1997 CALENDAR QUARTERS
                                        -------------------------------------------    -------------------------------------------
                                          FIRST     SECOND      THIRD       FOURTH      FIRST       SECOND       THIRD     FOURTH
                                        --------   --------    --------    --------    --------    -------     --------   --------
<S>                                     <C>        <C>         <C>         <C>         <C>         <C>         <C>        <C>
Net revenue .........................   $  4,853   $  4,837    $ 11,150    $ 21,718    $ 22,057    $ 23,264    $ 27,808   $ 35,277
                                        --------   --------    --------    --------    --------    --------    --------   --------
Operating costs:
  Cost of services ..................      2,485      2,223       5,771       9,627      10,093      10,463      12,912     15,365
  Selling, general and administrative  
    expense .........................        924        898       2,020       4,641       4,314       4,273       4,990      6,352
  Provision for doubtful accounts ...        309        336       1,010       1,921       2,122       2,205       2,917      3,648
  Amortization expense ..............        152        152         510       1,144       1,199       1,211       1,430      1,922
  Loss on cessation of clinical lab
    operations ......................         --        910          --          --          --          --          --         --
                                        --------   --------    --------    --------    --------    --------    --------   --------
    Total............................      3,870      4,519       9,311      17,333      17,728      18,152      22,249     27,287
                                        --------   --------    --------    --------    --------    --------    --------   --------
Income from operations ..............        983        318       1,839       4,385       4,329       5,112       5,559      7,990
Interest expense ....................       (374)      (393)       (870)     (1,903)     (1,932)     (2,125)     (2,510)    (2,196)
Nonrecurring charge .................         --         --          --          --          --      (1,289)         --         --
Other income (expense), net .........         (2)      (199)         58        (288)         26         (83)        (63)        24
                                        --------   --------    --------    --------    --------    --------    --------   --------
Income (loss) before income taxes ...        607       (274)      1,027       2,194       2,423       1,615       2,986      5,818
Provision (benefit) for income
   taxes ............................        232       (105)        392       1,009       1,042         694       1,284      2,502
                                        --------   --------    --------    --------    --------    --------    --------   --------
Net income (loss) ...................   $    375   $   (169)   $    635    $  1,185    $  1,381    $    921    $  1,702   $  3,316
                                        ========   ========    ========    ========    ========    ========    ========   ========
Per share data:
  Basic earnings per common share ...   $    .17   $   (.14)   $    .17    $    .20    $    .22    $    .14    $    .25   $    .20
                                        ========   ========    ========    ========    ========    ========    ========   ========
  Diluted earnings per common share .   $    .05   $   (.02)   $    .07    $    .12    $    .12    $    .08    $    .13   $    .18
                                        ========   ========    ========    ========    ========    ========    ========   ========
</TABLE>


Certain reclassifications have been made to the quarterly consolidated
statements of operations to conform to the annual presentations.




                                      F-27
<PAGE>   61


                        AMERIPATH, INC. AND SUBSIDIARIES

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>


                                                        CHARGED TO                    WRITE-OFFS AND
                                         BEGINNING      STATEMENT         OTHER            OTHER          ENDING
             DESCRIPTION                  BALANCE     OF OPERATIONS    INCREASES(1)     ADJUSTMENTS       BALANCE
-----------------------------------     ----------   --------------    ------------   ---------------    ---------
<S>                                      <C>            <C>              <C>              <C>             <C>    
Year ended December 31, 1995:
  Allowances for contractual, other
  adjustments and uncollectible
  accounts...........................    $ 1,499        $ 4,258          $     0          $ (3,834)       $ 1,923
                                         =======        =======          =======          ========        =======
Year ended December 31, 1996:
  Allowances for contractual, other
  adjustments and uncollectible
  accounts...........................    $ 1,923        $18,441          $13,758          $(17,972)       $16,150
                                         =======        =======          =======          ========        =======

Year ended December 31, 1997:
  Allowances for contractual, other
  adjustments and uncollectible
 accounts...........................     $16,150        $49,609          $ 9,331          $(48,567)       $26,523
                                         =======        =======          =======          ========        =======

</TABLE>

---------------

(1)   Represents the allowances for contractual, other adjustments and
      uncollectible accounts related to the 1996 and 1997 acquisitions.






                                      S-1