SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

For the Fiscal Year Ended December 31, 2002

Commission file number 0-27750
LOGO

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

Registrant’s telephone number, including area code (212) 698-0300

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

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

Common Stock, $.005 par value
Title of class

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

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

Aggregate market value as of June 30, 2002               $293,114,130

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

Common Stock, $.005 par value, as of February 28, 2003          16,465,472

DOCUMENTS INCORPORATED BY REFERENCE

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

     2003 Proxy Statement—Part III

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PART I

Item 1. Business.

Overview

     IMPATH Inc., the Cancer Information Company (“IMPATH” or the “Company”), is a corporation formed in 1988 by several academic pathologists seeking to bridge the gap between the way cancer is managed at an academic center and the way it is managed in the local community hospital setting, where 80–85% of all cancer patients are diagnosed and treated. The Company focuses on the clinical application of advanced technologies in the community-based hospital environment to enable clinicians to make better treatment decisions for their cancer patients. Over the years, the Company has expanded its focus to harness the biological information it generates from performing analyses on thousands of cancer specimens annually, and to broaden the applications of this important information. Since its inception, the Company has acquired and developed multiple capabilities in the field of cancer which have included: technologies, software, complementary cancer information, including treatment and outcomes data, pharmacoeconomic analytical capabilities, a tissue and serology archive of well-characterized, fully documented cancer specimens linked to longitudinal information on donors of those specimens and a network of clinical trial sites around the country providing protocol design and review, patient recruitment, data collection and analytical services. As a result of the evolution of the Company’s business and its significant resources in the area of oncology, the Company now serves the oncology community through three operating divisions: IMPATH Physician Services, IMPATH Predictive Oncology, and IMPATH Information Services.

     IMPATH Physician Services, which currently comprises approximately 81% of overall net revenue, specializes in providing patient-specific cancer diagnostic and prognostic information, with a particular expertise in difficult to diagnose tumors, prognostic profiles in breast and other cancers and lymphoma/leukemia analysis. IMPATH Physician Services clients currently include more than 8,700 physicians specializing in the treatment of cancer patients, in over 2,100 hospitals and over 630 oncology practices. IMPATH Physician Services has populated a database that currently contains over 1,000,000 patient profiles.

     In 2000, the Company formed its biopharmaceutical/genomics services business that is now centralized under the IMPATH Predictive Oncology™ division (“IPO”). IPO currently comprises approximately 12% of the Company’s overall net revenue. IPO leverages the Company’s vast resources (including its scientific expertise, extensive database of patient profiles, relevant biological data, access to cutting edge technologies, tumor tissue archive and network of physicians) to better serve the Company’s clients. IPO provides integrated services and information resources for genomics, biopharmaceutical, diagnostic products and pharmaceutical companies in the discovery, development and commercialization of targeted gene-based and protein-based therapies. Through the use of “translational genomics,” or patient-specific biologics and clinical information, IPO assists in the acceleration of oncology drug discovery and development process for earlier market arrival of FDA-approved targeted therapeutics.

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

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

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

Forward Looking Statements

     Certain terms relating to the Company’s business, which are used in this Annual Report on Form 10-K, are explained in the Glossary included at the end of this Item 1. This Annual Report on Form 10-K may contain statements that the Company believes are, or may be considered to be, “forward-looking statements” within the meaning of various provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. These forward-looking statements generally can be identified by the use of statements that include phrases such as the Company “believes,” “expects,” “anticipates,” “intends,” “plans,” “foresees” or other similar words or phrases. Similarly, statements that describe the Company’s projected growth and goals and its plans for expansion also are forward-looking statements. All of these forward-looking statements are subject to certain risks and uncertainties, many of which are outside of management’s control, and which could cause the Company’s actual results to differ materially from those contemplated by the relevant forward-looking statement. Some of the most significant factors that could cause the actual results to differ materially from the forward-looking statement, alone or in combination, include but are not limited to the failure to continue to successfully integrate the businesses acquired by the Company, unanticipated disagreements with the Company’s business partners, unanticipated changes in the healthcare industry (as a result of cost containment measures, changes in governmental regulations, including reimbursement programs and patient confidentiality issues, or other factors), an inability to procure consented, well-characterized tissue specimens,an inability to successfully integrate the Company’s new laboratory and billing system, the adverse effect of any legal proceedings involving the Company, an unanticipated failure in the commercialization of the Company’s biopharmaceutical products, or an unanticipated loss of business. In addition, the September 11, 2001 terrorist attacks, and change in international political conditions as a result of these events, may continue to affect the United States and the global economy and increase other risks Readers are urged to consider these factors carefully in evaluating the forward-looking statements. The forward-looking statements included in this Annual Report on Form 10-K are made only as of the date of this Annual Report and the Company undertakes no obligation to publicly update these forward-looking statements to reflect subsequent events or circumstances.

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Cancer Information Market

     The market for cancer diagnosis, prognosis and treatment is significant and growing. After heart disease, cancer is the leading cause of death in the United States. Approximately eight million Americans alive today have been diagnosed with cancer (excluding certain skin cancers). According to the American Cancer Society (ACS Cancer Facts and Figures 2002), the estimated number of cancer cases diagnosed annually in the United States (excluding certain skin cancers) grew from approximately 530,000 in 1963 to approximately 1.3 million in 2002, an increase of 145%. The growth in the number of cancer cases in the United States is expected to accelerate as the leading edge of the “baby boom” population approaches 55 years of age, the age at which the incidence of cancer begins to rise sharply. Earlier diagnosis and better information have led to more effective treatment and have increased the five-year survival rate of cancer patients from 39% in 1963 to approximately 62% in 2002 (ACS Cancer Facts and Figures).

     The National Institutes of Health estimates that the direct medical costs associated with cancer were approximately $56 billion (total of all health expenditures) in 2002. The Company believes that these costs will increase rapidly as a result of the growth in the number of cancer patients and the high cost of new therapies. Thus, the Company anticipates that the demand for information regarding cancer and cancer management will continue to increase.

IMPATH Physician Services

     The diagnosis, prognosis, treatment determination and follow-up of cancer are extremely complex processes, requiring a multidisciplinary approach. Among the key specialties involved in cancer management are pathology (for diagnosis), surgery (for diagnosis and treatment), oncology (for treatment and follow-up), radiology (for diagnosis and follow-up) and radiation oncology (for treatment). Affiliated specialties include urology and gynecology. In order to make optimal cancer management decisions, providers and payors require information about the specific characteristics of a patient’s cancer (e.g., how aggressive it is and how it can best be treated). In the past, patients have been treated based upon information gathered on entire classes of disease rather than on the individual’s cancer. With the development of new targeted cancer therapies, patient-specific information has become critical to cancer treatment decisions.

     The Company believes that IMPATH Physician Services currently performs more specialized analyses for difficult to diagnose cancer cases than any other institution in the world. The Company also believes that it is the leader in providing comprehensive patient-specific prognostic information for cancer. For example, IMPATH Physician Services provided patient-specific prognostic information on over 30% of all newly diagnosed breast cancer cases in the U.S. in 2002. Among the Company’s fastest growing products is the analysis of lymphomas and leukemias, with these analyses representing 40% of the Company’s case volume in 2002. In particular, lymphoma and leukemia are disease states in which IMPATH’s expertise and utilization of sophisticated, integrated technologies provides critical information for optimal disease management.

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

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

     Based upon statistics compiled by the American Hospital Association (Hospital Statistics 2002 ed.), the Company believes that there are approximately 3,200 hospitals that are potential users of its diagnostic, prognostic and treatment-defining services. IMPATH Physician Services’ primary hospital customers remain the pathology departments in small- to medium-sized community hospitals (100 to 750 beds), where a large percentage of cancers are diagnosed and treated. However, the wide range of integrated technologies offered by IMPATH Physician Services has facilitated the expansion of its target hospital customer base to include regional medical centers and some academic centers. These facilities generally do not perform their own sophisticated cancer analyses in oncology because the low case volume per hospital does not justify establishing and maintaining the required technological capabilities, facilities and expert medical staff.

     Competitive Advantages

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

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

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

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     Customer Service and Education. IMPATH Physician Services’ medical staff and customer service representatives emphasize quality of service, accuracy of results and speed of turnaround. The medical staff provides frequent expert consultation and generally returns results within 48 hours of receipt of a specimen. In addition, the IMPATH Physician Services’ sales force of more than 65 professionals, forming one of the largest oncology-focused sales forces in the country, educates clients on the benefits of the Company’s services in managing cancer. In contrast, the sales forces of most clinical laboratory companies market hundreds of disparate, cancer and non-cancer test services. Many academic institutions, which perform some of the same individual analyses as the Company, typically do not have substantial sales, marketing or customer service resources, and the pathology laboratories at large regional hospitals are generally dedicated to servicing only their affiliated physicians. The success of IMPATH Physician Services’ focus on customer service and education is demonstrated not only by the Company’s large case volume, but also by the fact that IMPATH Physician Services’ case volume from its long-term customers continues to grow. See “Sales and Marketing.”

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

IMPATH Predictive Oncology

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

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

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IMPATH Predictive Oncology (“IPO”) plays an integral role in the process it calls “translational genomics” or translating potential gene-based targets into new oncology therapeutics. IPO assists the genomics, biotechnology and pharmaceutical industry throughout the pre-clinical and clinical development stages of drug development with an integrated platform of products and clinical services. This includes the use of our IMPATH GeneBank™ (“GeneBank”) resources that include thousands of fully consented tumor tissues together with clinical follow-up information. By placing these tissues in our unique high-throughput array procedure (“OptimArray™”), targets can be efficiently validated and qualified. For example, a target can be assessed for expression on early stage versus late stage disease, aggressive versus non-aggressive tumors, or chemo-sensitive versus chemo-resistant tumors. IPO also provides assistance in the design, implementation and conduct of clinical trials through the IMPATH Clinical Trials Network and provides many of the necessary resources to successfully and efficiently conduct these trials. For instance, IPO is currently assisting in the identification of the ideal target population for immunotherapy (e.g., monoclonal antibody therapy, tumor vaccines, etc.) that includes identifying patients at high-risk, early stage disease most likely to fail chemotherapy. IPO can also demonstrate, among other things, in vitro activity of a trial compound using its IMPATH Drug Resistance Assay or by identifying an increase in lymphocytes known to attack tumor cells, as well as monitoring the immune function of patients before, during, and after the clinical trial. Over the last three years, IPO has entered into numerous agreements to provide a broad range of services in this area, and is currently participating in many of the ongoing pharmaceutical initiatives in oncology.

Competitive Advantages

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

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

     IMPATH’s ability to access a large number of patients with cancer and their physicians is another critical component of its accelerated drug discovery services. This is particularly important in the case of targeted therapies where patients with specific characteristics need to be identified. The fact that only 4%-5% of patients with cancer currently participate in clinical trials in the U.S. is indicative of the complexity in recruiting the right patients for the right trial. IMPATH’s extensive physician client base provides an ideal pool from which to identify patients. In addition, the IMPATH Clinical Trials Network™ (“ICTN”), a network of approximately 25 oncology office practices around the country that conduct clinical trials, help to recruit patients and manage clinical trials in the community setting.

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

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IMPATH Information Services

      In the course of performing sophisticated analyses on hundreds of thousands of tumor samples, IMPATH gathers vast amounts of important biological information. IMPATH adds to its information database through various strategic acquisitions and alliances. Through the acquisition of Medical Registry Services Inc. (now known as IMPATH Cancer Registry™), a developer and marketer of cancer registry software, the Company increased its capabilities in generating patient-specific information correlated to treatment and outcomes information to meet the demands of physicians, payors and drug developers in the more effective management of cancer. Cancer registries are required to be kept in hospitals treating cancer patients as part of a licensing requirement from the American College of Surgeons as well as state agencies and other regulatory bodies.

        The Company also believes that its acquisition of Tamtron Corporation and its PowerPath® pathology information management software, which facilitates the collection and analysis of diagnostic data within hospitals and laboratories, will enable those hospitals and laboratories to better manage their pathology services and enable the Company to broaden its existing client relationships, while leveraging the Company’s relationships within the oncology community. These acquisitions offer IMPATH the potential to more efficiently collect data across each of its businesses and provides more comprehensive information based products to its clients.

     Competitive Advantage

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

Company Strategy

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

     IMPATH Physician Services

     Increase market penetration of diagnostic and prognostic services. IMPATH Physician Services believes that it has a significant opportunity to continue to increase its revenues and case volume from existing clients, as well as through new relationships with hospitals, physicians and payors. The Company intends to continue to grow its core business by increasing the number of cases received from existing clients, continuing to incorporate new technologies and expanding the services it offers to the oncology outpatient market. Case volume for 1998 was 129,001; in 2002 that figure increased to 220,890 (excluding discontinued products), representing an average annual growth rate of 21%. Partly as a result of the more complex analyses per case required to assess biological characteristics of the tumor, the Company’s average revenue realization per case has also increased from approximately $377 in 1998 to approximately $693 in 2002, representing an average annual increase of 12%.

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

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

     Target International Expansion. The Company believes that foreign markets represent a significant opportunity for the expansion of its cancer information business. As an example, in December 2002, the Company entered into a multi-year agreement with GeneMatrix Inc. to provide IMPATH Physician Services in South Korea. The Company intends to pursue similar opportunities by partnering with international physician oncology networks and hospital groups, and by partnering with international pharmaceutical companies for their drug development efforts. The Company’s efforts will be directed to regions or countries where sophisticated treatment technologies are currently in use and which the Company believes would benefit from its services.

     IMPATH Predictive Oncology

     IPO has assembled numerous resources derived from leveraging the Company’s expertise in diagnostic and molecular technology, significant biological resources and extensive patient-specific information to develop a business focused on supporting oncology drug discovery and development. The business has been designed to support all phases of oncology drug development, including discovery, clinical trials, pre- and post-launch marketing support and label expansion. The Company expects its role to continue to expand and evolve in this area through its activities in “translational genomics” as this new paradigm in drug development continues to evolve. IPO offers the necessary components, innovative platforms and requisite infrastructure to enable those involved in this new era of targeted drug development to accelerate their efforts. Further, as the biopharmaceutical industry increasingly utilizes predictive tests to design clinical trials and novel methodology to assess drug efficacy and patient response, IPO is well-positioned to capitalize on opportunities in this industry.

     IMPATH will continue to explore alliances in this area of its business to enhance its capabilities in meeting the evolving needs of its biopharmaceutical/genomics clients, and will continue to provide the requisite infrastructure to support its business activities while capturing the synergies between its divisions as its business continues to evolve and its role in the management of cancer grows.

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     IMPATH Information Services

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

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

IMPATH’s Role in the Cancer Management Pathway

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

     Diagnosis. IMPATH Physician Services’ diagnostic analyses provide information regarding tumors that are otherwise difficult to diagnose using conventional pathology procedures. Although in general, tumors can be diagnosed based on visual examination by the pathologist, many cancers defy specific classification by this method. This may result in treatment decisions that are approximated, incorrect or ineffective, leading to unnecessary treatment and complications, and increased costs. Traditionally, the therapeutic approach to a patient with cancer has been based on a purely morphological assessment of the origin of the cancer and the extent of spread, for example, the tumor’s appearance under the microscope (i.e., does it look like colon cancer?) and the tumor’s presence in various metastatic sites (such as regional lymph nodes and bone marrow). While this type of morphological assessment is well accepted, it has serious and critical limitations. Specifically, morphological assessment provides little information about the biological aggressiveness of an individual’s cancer and provides little meaningful information regarding the treatment to which the patient’s specific cancer will respond. IMPATH has shown that in a majority of cases which defy standard classification, the use of advanced technologies and the medical expertise provided by IMPATH leads to an accurate diagnosis, thus ensuring optimization of therapy, greater predictability of outcome, increased survival rates and decreased overall costs.

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

     Treatment Determination. Traditionally, therapeutic approaches to cancer have been based solely on the diagnosis and stage (or extent) of the disease. For example, a patient with breast cancer may be treated with a particular combination of chemotherapeutic drugs not because it is known that the cancer in question is likely to respond, but rather because a certain proportion of other breast cancers have responded in the past to similar treatment. IMPATH Physician Services provides information that can help to predict the specific types of therapy to which a particular tumor will likely not respond, thus providing information on patient-specific likelihood of treatment failure. For example, in the case of breast cancer, IMPATH Physician Services provides critical information for the determination of likely patient responses to specific therapies (e.g., hormonal treatment, chemotherapy or Herceptin(1), a targeted therapy) before such therapies are administered. This type of information is becoming increasingly available for other types of tumors as well. Thus, therapies that are most likely to be beneficial can be instituted at the earliest possible time, when the impact will be the greatest. In addition, therapies that will have little effect can be avoided, and implementation of appropriate treatment can be accelerated. The Company believes that this type of patient-specific information is essential for optimal cancer management.

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

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

(1) Herceptin is a trademark of Genentech Inc.

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Technologies

     Recent advances in immunology, biochemistry and molecular biology have created new tools with tremendous potential in the management of cancer patients. IMPATH Physician Services specializes in cancer tests that require a sophisticated level of medical knowledge and technical expertise that is beyond the capability of pathology laboratories in the average community hospital. In fact, the expertise required to develop and maintain a high quality immuno- and molecular pathology laboratory is generally only found in a relatively small number of top level academic institutions. Furthermore, even the most sophisticated medical centers perform only a small fraction of the tests that IMPATH Physician Services performs every day. This is extremely important, as increased practical experience generally leads to superior professional and technical expertise. The average community hospital pathologist most likely does not see a substantial volume or range of cases and, therefore, is less experienced in choosing the correct testing methodology to evaluate the data. Such hospital pathologists also lack the technical support or infrastructure necessary to perform the tests. Even when these technologies exist at academic medical centers, they typically exist in separate departments (e.g., pathology, genetics and molecular biology). The Company believes that there is usually less integration of information by these different departments, making it more difficult for the referring physician to diagnose and provide optimal treatment for a patient’s specific cancer.

     IMPATH Physician Services continues to identify and incorporate sophisticated technologies and analyses, consistent with the Company’s goal of remaining at the forefront of scientific advances in cancer analysis and providing the comprehensive cancer information critical for optimal cancer management.

     The following chart summarizes the Company’s use of technologies in its analyses of cancer:

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Immunohistochemistry

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

     Flow Cytometry and Image Analysis

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

     Molecular Pathology

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

     Cytogenetics

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

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     Micrometastases Detection

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

     IMPATH Drug Resistance Assay

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

     Serum Analysis

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

Cancer Management Through Information

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

     With over 1,000,000 analyzed cases to date, the Company is rapidly incorporating the diagnostic and prognostic information generated from its analyses of cases into its cancer database. The demographics of these cases include: approximately 400,000 breast cancer prognostics and treatment profiles; 260,000 complex cancer diagnoses; 285,000 lymphoma and leukemia classifications; and 105,000 analyses of other cancers (e.g., bladder, uterine and prostate).

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     Breast Cancer Management

     Because of its unique approach to breast cancer, IMPATH Physician Services believes that it is the leader in providing the most comprehensive prognostic information essential to the management of breast cancer. In 2002, the Company provided patient-specific prognostic information on approximately 30% of all such cases in the U.S., and in over 32% of cases diagnosed in the New York metropolitan area, California and Florida, which are the Company’s largest markets.

     Management of Lymphoma/Leukemia

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

     The clinical significance of the Company’s diagnostic technology is illustrated by the fact that during 2002, of all the suspected lymphoma cases sent to IMPATH Physician Services for analysis, approximately 10-15% were found to be an infection or inflammation rather than cancer. Prior to the development of certain technologies used by the Company, such cases may have been misdiagnosed as cancer. In the cases identified by IMPATH Physician Services as not being cancer, patients who were suspected of having a hematopoietic malignancy were spared the trauma, risk and cost associated with unnecessary treatment. Of the cases sent to the Company in 2002 that were, in fact, lymphomas, the technology applied by the Company permitted an assignment of the “grade” of the lymphoma, a process recommended by the International Lymphoma Study Group (1994). The grading of lymphomas is an important process that influences the treatment decisions of physicians and can result in better outcomes for a lymphoma patient.

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

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     Management of Other Cancers

     Diagnostic, prognostic and therapeutic information is being integrated increasingly into the management of other cancers. As medical research progresses and as increasing numbers of treatment options evolve, IMPATH believes that its expertise will play an increasing role in the decision making processes for all cancers. For example, prostate cancer, like breast cancer, is a disease that is responsive to hormonal manipulation. As in the case of estrogen receptors in breast cancer, the presence of androgen receptors in prostate cancer can now be evaluated. The Company believes that this information will become increasingly important in the treatment and management of prostate cancer. The growth rate of the tumor is also critical; for instance, a 50-year old man with a rapidly growing prostate cancer must be treated differently than a 90-year old man with a very slow-growing prostate cancer. The Company provides this information for prostate and other cancers, including breast, colon and bladder cancers.

Sales and Marketing

IMPATH Physician Services

     As of December 31, 2002, the IMPATH Physician Services Sales and Marketing team consisted of 87 employees, including a Senior Vice President of Sales and Marketing; a Vice President of Sales, a Vice President of Marketing; 11 marketing personnel, 4 regional directors, and 69 sales representatives and sales support staff. This sales force consists of highly trained individuals with extensive scientific backgrounds and successful sales records with healthcare companies. The sales force focuses on educating clients about the benefits of the Company’s services in providing diagnostic, prognostic and treatment-defining information for better managing their cancer patients. The Company believes that the technical and clinical knowledge of IMPATH Physician Services sales force distinguishes it from its competitors.

     IMPATH supports its IMPATH Physician Services sales force with extensive customer service and marketing programs. Due to the technical and scientific complexity of IMPATH’s business, the Company has established a strong interactive relationship with its clients. The marketing process emphasizes educating physicians regarding the development of new technologies and the value of the information provided by IMPATH. The Company emphasizes customer service, including the provision of a comprehensive detailed report to the referring physician after each analysis is completed and frequent expert consultation. The Company also employs customer service representatives, who are responsible for inquiries made by referring physicians and who provide support for the Company’s sales staff.

IMPATH Predictive Oncology

     As of December 31, 2002, IPO’s sales force consisted of six sales representatives that target hospitals and oncology office practices in order to develop new sites for the Company’s GeneBank initiative and its IMPATH Clinical Trials Network. By seeking to leverage and expand existing relationships that the Company enjoys through its IMPATH Physician Services division as well as simultaneously developing new customers, the Company believes it can successfully expand these two resources within IMPATH. In connection with providing the comprehensive products and services offered by IPO to genomics, biotechnology and pharmaceutical companies to accelerate their drug discovery and development efforts, a highly-skilled scientific and medical staff with focused technical expertise (including a Vice President and Scientific Director and a Vice President of Business Development) works closely with several sales representatives in developing customer-specific project specifications. Various members of the team interact regularly with clients to ensure integration of services and rapid response to customer needs. Company representatives attend trade shows and regional industry meetings related to The Company’s integrated oncology services and their potential application for its genomics, biotechnology and pharmaceutical clients. Collateral literature is also produced to support long-term growth objectives in each product initiative within IPO.

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IMPATH Information Services

     As of December 31, 2002, the IMPATH Cancer Registry software sales force consisted of two primary direct sales people supported, as necessary, by seven client service representatives. Additionally, sales efforts are enhanced with extensive client focused marketing programs designed to build strong, interactive relationships with clients. A Vice President of Business Development, together with an internal sales and marketing staff, guide sales efforts. In addition, a marketing manager within the corporate marketing department is dedicated to the IMPATH Information Services division. Division representatives regularly attend national and local tradeshows, plan and host seminars featuring industry related topics, participate in generating relevant case studies to demonstrate the cost effectiveness and utility of its tumor registry software capabilities and prepare newsletters and other collateral marketing support literature.

     The IMPATH Cancer Registry services emphasize customer service and support and assigns each customer a specific client services representative. There are currently twenty client services representatives located throughout the country. In addition, the division has four technical support specialists based at its main office in New Jersey.

     Tamtron’s software products include the flagship PowerPath® Anatomic Pathology System and the PowerPath® Accounts Receivable system. PowerPath® is currently being used in the collection of diagnostic data and the delivery of pathology reports at 375 sites that offer surgical pathology, cytology and autopsy services. The PowerPath® product is sold primarily by the Company’s three direct sales representatives. The Company’s marketing strategy includes attendance at national and local tradeshows, industry journal advertisements, telemarketing and direct mail campaigns. The Company’s primary goal is to create “reference quality” relationships with each customer. Customers currently include leading academic medical centers, integrated delivery networks, community hospitals and reference laboratories.

Competition

IMPATH Physician Services

     IMPATH Physician Services operates in a segment of the health care industry that is fragmented and extremely competitive. The Company’s actual or potential competitors include large university or teaching hospitals; large clinical laboratories that have substantially greater financial, marketing and logistical resources than the Company; special purpose clinical laboratories that have limited test offerings and a highly focused product and marketing strategy; and the Company’s customers or potential customers who may choose to perform services similar to those performed by the Company. It is anticipated that competition will continue to increase due to such factors as the perceived potential for commercial applications of biotechnology, the continued availability of investment capital and government funding for cancer-related research, and consolidation in the industry.

     IMPATH Predictive Oncology

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

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

IMPATH Information Services

     The IMPATH Information Services division generates revenue through the sale of its IMPATH Cancer Registry and PowerPath® software products, as well as through the maintenance and service of such software. Competitors for ICR consist of four companies and a number of state agencies. The Company believes it is not only the largest vendor of cancer registry software in the U.S., but that it also provides a product with significantly more capabilities and value-added features than its competitors. Tamtron’s proprietary PowerPath® system is currently installed in approximately 375 sites nationwide and encompasses the full perspective of anatomic pathology workflow with features such as multi-site, scalability and customizable case reporting and tracking. Competitors in this area consist of several large, public Healthcare Information Services companies.

Reimbursement

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

     During 2002, 2001 and 2000, the Company received the following estimated percentages of its total net revenue for diagnostic and prognostic services from the respective payors identified below:

     For a discussion of the changes in these percentages in 2002, see Item 7 of this Annual Report on Form 10-K.

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

     As an alternative to traditional fee-for-service Medicare, the Medicare+Choice program allows beneficiaries to have access to a wide array of private health plan choices beyond the previously existing managed care arrangements. These additional plan options include “Coordinated Care Plans” which is a healthcare management organization (“HMO”) with or without point of service option; a Provider-Sponsored Organization plan; a Preferred Provider Organization plan; and a demonstration Medical Savings Account project. The Company cannot predict what effect, if any, the Medicare+Choice program will have on the Company’s future Medicare revenues.

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     As a provider of healthcare-related services, the Company is subject to extensive and frequently changing federal, state and local laws governing licensure, reimbursement, financial relationships, referrals, conduct of operations and other aspects of the Company’s business. Additionally, in recent years, the federal government has expanded its investigative and enforcement activities relating to the billing of government programs, such as Medicare and Medicaid, by laboratories and other healthcare providers. The Company is not aware of any ongoing investigations into its billing practices. In January 2001, the Company was notified that the U.S. Attorney’s Office for the Southern District of New York was investigating certain of the Company’s billing practices. The Company subsequently settled with the government in 2001 without any admission of wrongdoing and in turn received a release of all related claims. The settlement and related expenses amounted to $9.7 million and were included in selling, general and administrative expenses for the year ended December 31, 2001.

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

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

     Most services furnished by the Company are characterized for the purposes of the Medicare program as physician pathology services. As of January 1, 1992, all physician services, including pathology services, have been reimbursed by Medicare based on a new methodology known as the resource-based relative value scale (“RBRVS”), which was phased in over a four-year period. Updates to the RBRVS payment methodology, which are issued from time to time, have not had any significant effect on the Company’s reimbursement rates. In 2001, the Centers for Medicare and Medicaid Services (“CMS”), (formerly known as the Health Care Finance Administration or “HCFA”) announced a 5.4% cut in the conversion factor (CF) used to calculate the physician fee schedule, although other factors in the formula used to calculate payments actually increased. In 2002, CMS announced other changes that affect Medicare payments for physician pathology services. On December 31, 2002, CMS announced a 4.4% cut in the CF used to calculate the physician fee schedule for 2002 effective March 1, 2003. As a result of legislation subsequently passed by Congress, however, CMS revised its calculation of the CF, negated the cut, and instituted an increase of approximately 1.6% effective March 1, 2003. The CF increase applies to all IMPATH Physician Services, including those furnished by the Company, however, payment for individual services may vary by a higher or lower percentage because of changes to other components of the payment calculation.

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

     A small portion of the services furnished by the Company are characterized for purposes of the Medicare program as clinical laboratory services and reimbursed by Medicare under its clinical laboratory fee schedule. The Balanced Budget Act of 1997 froze the clinical laboratory fee schedule payments for the years 1998-2002. These changes have not had a material adverse effect on the Company’s revenue. On January 1, 2003, payment for clinical laboratory services was increased by 1.1% to reflect recent changes in the Consumer Price Index.

     Independent companies such as IMPATH have been permitted to bill globally for the diagnostic and prognostic services furnished to hospital inpatients and outpatients. This means that a company could bill both the technical component (“TC”) and the professional component (“PC”) to the Medicare Program. However, on November 2, 1999, HCFA, now known as CMS, announced that it would change this rule for in-patients and require such companies to bill the TC to the hospital. Subsequently, it also announced that the same rule would apply to hospital outpatients. Under these rules such companies would be required to bill the hospital for the TC for services furnished to inpatients and outpatients. There were no changes proposed with respect to the billing of the PC.

     The Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000 (“BIPA”), which was signed into law on December 21, 2000, included a provision that “grandfathered” the global billing of certain of these arrangements. The grandfathered provision applies to hospitals that had arrangements in existence prior to July 22, 1999, pursuant to which such companies billed Medicare for the TC of services furnished to hospital in-patients and out-patients. For these “covered hospitals” the Company was permitted to continue to bill the TC to the Medicare Program for an additional two years. Prior to the expiration of this period, the General Accounting Office was directed to make a report to Congress on the impact of this provision. A portion of IMPATH’s hospital business falls under the “grandfathered” provision. Although the legislative grandfather provision expired on January 1, 2003, CMS has indicated its intention to extend the grandfather provision for an additional year. In addition, the GAO report, called for by BIPA, has yet to be completed.

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Quality Assurance

     IMPATH engages in a number of quality control procedures, many of which the Company believes exceed industry norms. Each of IMPATH’s reagents is selected from various suppliers based on in-house test of purity, batch-to-batch variability, potency and performance. IMPATH believes that its quality review procedures are superior to other centers performing similar analyses. In addition, the quality assurance program of the Company’s facilities includes close attention to the Company’s Standard Operating Procedures, continuing education and technical training of technologists, statistical quality control of all analytical processes, instrument maintenance, and regular inspection by governmental agencies and the College of American Pathologists ( “CAP”). The CAP is an independent non-governmental organization of board-certified pathologists that offers an accreditation program to which facilities can voluntarily subscribe. The CAP accreditation program involves both periodic inspections of the Company’s facilities and participation in the CAP’s proficiency testing program for all categories in which its facilities seek to attain or maintain accreditation. The Company’s facilities are CAP accredited, certified by the Centers for Medicare and Medicaid Services (CMS), permitted by New York State, licensed by the State of California Laboratory Field Services, the State of Florida, the State of Maryland, the State of Pennsylvania, and the State of Rhode Island and hold certificates of accreditation under the Clinical Laboratories Improvement and Amendments of 1988, as amended (“CLIA”). The Company believes it has obtained all licenses and permits required to operate its facilities. IMPATH follows the quality control and quality assurance procedures established by CLIA, the CAP and various New York State, California, Arizona and New York City agencies.

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

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

Government Regulation

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

     Licensure. The Company’s laboratory facilities are certified under the Centers for Medicare and Medicaid Services and CLIA Licensure is maintained under the clinical laboratory licensure laws of New York, California and Arizona, where the Company’s facilities are located. The Company believes it has obtained all material laboratory licenses required for its operations. In addition, the California facility is licensed by the federal Nuclear Regulatory Commission and all three facilities are accredited by the CAP.

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

     The Final Rule implementing CLIA ‘88, published by HHS on February 28, 1992, became effective September 1, 1992. This Final Rule covers all laboratories in the United States, including the Company’s facilities. The Final Rule was recently revised on January 24, 2003. The Company has reviewed the Final Rule (and subsequent revisions thereto), including, among other things, the rule’s requirements regarding facility administration, participation in proficiency testing, patient test management (including patient preparation, proper specimen collection, identification, preservation, transportation, processing and result reporting), quality control, quality assurance and personnel, for the types of analyses undertaken by the Company, and believes that it complies with these requirements. However, no assurances can be given that the Company’s facilities will pass all future inspections conducted to ensure compliance with CLIA ‘88 or with any other applicable licensure or certification laws.

     The activities of the IPO division are also subject to certain registration requirements relating to the procurement and storage of tissue/tumor samples. IPO is registered by the FDA as a Blood Establishment and holds an import permit with the CDC and is certified by CLIA, and the State of New York and the State of California Laboratory Field Services.

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

     The Social Security Act imposes criminal penalties and exclusions from federal health care programs (including Medicare) upon persons who make or receive kickbacks, bribes or rebates in connection with a federal health care program (including Medicare). The anti-kickback rules prohibit providers and others from soliciting, offering, receiving or paying, directly or indirectly, any remuneration in return for either making a referral for a service or item covered by a federal health care program (including Medicare) or ordering any such covered service or item. In order to provide guidance with respect to the anti-kickback rules, the Office of the Inspector General (“OIG”) issued final regulations outlining certain “safe harbor” practices, which although potentially capable of inducing prohibited referrals, would not be prohibited if all applicable requirements are met. A relationship that fails to satisfy a safe harbor is not necessarily illegal, but could be scrutinized on a case-by-case basis. The OIG accepts requests for and issues advisory opinions on the applicability of the anti-kickback rules to specified situations.

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

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

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

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

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

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     Food and Drug Administration. The Food and Drug Administration (“FDA”) regulates certain medical devices, including in vitro diagnostic products used for laboratory testing, pursuant to the Food, Drug and Cosmetic Act. Pursuant to this authority, the FDA regulates certain types of monoclonal antibodies, called “analyte specific reagents” (ASRs) that the Company purchases and uses to create its own proprietary, in-house tests. In the past, the FDA has asserted that it has authority to regulate such “home brew” tests, but has refrained from doing so other than with respect to those tests used to diagnose highly-contagious diseases that pose a risk to public health, such as HIV and tuberculosis. The FDA does require the Company to make disclosures on the test report when performing most tests performed with ASRs.

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

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

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

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

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

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

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

     The confidentiality of patient medical records is subject to substantial regulation by state and federal governments. State and federal laws and regulations govern both the disclosure and the use of confidential patient medical record information. Legislation governing the dissemination and use of medical record information is continually being proposed at both the state and federal levels. Additional legislation may require that holders or users of confidential patient medical information implement measures to maintain the security of such information and may regulate the dissemination of even anonymous patient information. In August 2002, the federal government finalized certain regulations required by the Health Insurance Portability and Protection Act of 1996, relating to the privacy of patient information, including the use of such information by “business associates” of health care providers. Compliance with the privacy requirements must occur by April 14, 2003. The Company, as well as physicians and other persons providing patient information to the Company is also required to comply with these federal and state laws and regulations. If the Company is found to have violated any state or federal statute or regulation with regard to confidentiality, dissemination or use of patient medical information, the Company could be liable for damages, or for fines or penalties. The Company believes that it is in material compliance with all applicable state and federal laws and regulations governing the confidentiality, dissemination and use of medical record information with respect to its various activities, and will be able to comply with the new regulations by the compliance date. However, there can be no assurance that differing interpretations of existing laws and regulations or the adoption of new laws and regulations would not have a material adverse effect on the ability of the Company to obtain or use patient information which, in turn, could have a material adverse effect on the Company’s plans to develop and market its cancer information database.

Insurance

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

Employees

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

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GLOSSARY

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

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

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

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

     Diagnosis: The process for deciding what disease is present.

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

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

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

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

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

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

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

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

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

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

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

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

     Lymphoma: Any neoplasm of lymphoid tissue origin.

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

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

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

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

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

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

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

     Occult Tumor: Clinically unidentified primary tumor with recognized metastases.

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

     Oncology: The study of cancer.

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

     Prognostic: Referring to potential outcome of a disease.

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

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

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

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

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

     Sarcoma: A malignant neoplasm derived from connective tissues.

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

     Serum: Fluid component of blood (noncellular).

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

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

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

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

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

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

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Item 2. Properties.

     The Company’s main facility and executive offices are located at 521 and 533 West 57th Street, New York, New York, where the Company currently leases approximately 80,000 square feet of space under a 12 1/2-year lease expiring in March 2010. The lease provides for minimum aggregate annual rental payments of approximately $1,017,400. The Company is also required to pay for repairs, property taxes and insurance relating to this facility.

     The Company’s primary California facility and offices are located at 5300 McConnell Avenue, Los Angeles, California, where the Company leases approximately 68,800 square feet of space. This facility commenced operations in August 2000 pursuant to a new lease agreement, which expires August 2010. The new lease provides for minimum annual rental payments of approximately $1,622,536. The Company is also required to pay for repairs, property taxes and insurance relating to this facility.

     The Company’s Arizona facility and offices are located at 810 E. Hammond Avenue, Phoenix, Arizona, where the Company leases approximately 11,171 square feet of space under a lease, which expires in September 2006. The Company commenced operations at this facility in January 1997, when it completed the acquisition of certain assets of Oncogenetics, Inc. The lease provides for minimum annual rental payments of approximately $79,524. The Company is also responsible for all maintenance, property taxes and insurance relating to the facility.

     The facility and offices of the IMPATH Cancer Registry (“ICR”) subsidiary are located at One University Plaza, Hackensack, New Jersey, where the Company has entered into a lease expiring July 2005 for approximately 3,792 square feet of space. The lease provides for minimum annual rental payments of approximately $86,787. The Company is also required to pay for repairs, property taxes and insurance relating to this facility.

     The Company has a facility and offices at 25 Kenwood Circle, Franklin, Massachusetts, where the Company leases approximately 22,000 square feet of space under a lease, which expires in March 2006. The lease provides for minimum annual rental payments of approximately $148,500. The Company is also required to pay for repairs, property taxes and insurance relating to the facility.

     The Company has a facility and offices at 11215 Knott Avenue, Cypress, California, where the Company has approximately 11,630 square feet of space under a lease, which expires in January 2004. The lease provides for minimum annual rental payments of approximately $128,019. The Company is also responsible for all maintenance, property taxes and insurance relating to the facility. The Company recently announced that it was closing its Cypress facility and therefore will no longer require this facility following the end of the lease term.

     The Company’s New Jersey office is located at 25 Rockwood Place, Englewood, New Jersey, where the Company has approximately 1,500 square feet of space under a lease, which expires January 2008. The lease provides for minimum annual rental payments of approximately $36,143. The Company is also required to pay for repairs, property taxes and insurance related to this space.

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

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

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

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Item 3. Legal Proceedings.

     From time to time, the Company is involved in various legal actions in the normal course of business, some of which seek monetary damages. While the Company cannot predict with absolute certainty the outcome of any of the proceedings in which it is involved, the Company believes any ultimate liability associated with these proceedings would not have a material adverse effect on the Company’s consolidated financial position, results of operations, or liquidity. See Note 16 of the Company’s Consolidated Financial Statements.

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

     Not applicable.

PART II

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

     The Company’s common stock trades on the Nasdaq National Market under the symbol “IMPH.” The following table sets forth the range of high and low bid prices per share for the common stock for the period from January 1, 2001 through February 28, 2003 (split adjusted).

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

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Equity Compensation Plan Information

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

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Item 6. Selected Financial Data.

     The following table sets forth selected consolidated financial and operating data of the Company as of December 31 in each of 1998 through 2002 and for each of the years in the five-year period ended December 31, 2002. Such consolidated balance sheets as of December 31, 2001 and 2002 and consolidated statements of operations for each of the years in the three-year period ended December 31, 2002 and the notes thereto are included in Item 14(a) of this Annual Report on Form 10-K. The historical consolidated financial data should be read in conjunction with and are qualified in their entirety by reference to the consolidated financial statements of the Company and the related notes thereto and to Item 7 of this Annual Report on Form 10-K.

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

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

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Overview

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

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

     The following table sets forth the percentages of total revenues represented by certain items reflected in the Company’s consolidated statements of operations. The Company’s business generally has been unaffected by seasonality, except for declines in test volume during summer months, year-end holidays and other major holidays. Test volume is also subject to declines in winter months due to weather, which can vary in severity.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

     The Company’s total net revenues for the years ended December 31, 2001 and 2000 were $163.3 million and $122.8 million, respectively, representing an increase of $40.5 million, or 32.9%, in 2001. This growth was primarily attributable to a 15% increase in case volume resulting from increased sales and marketing activities, as well as a 19% increase in revenue realization per case due to continuing product mix changes toward lymphoma/leukemia cases, which entail more analyses as well as an increase in the number of technologies applied in analyzing cases. In addition, IMPATH Predictive Oncology (“IPO”) revenues increased 69.5% to $16.1 million up from $9.5 million in the year ago period primarily driven by increases in the numbers of projects and the scopes of projects with biopharmaceutical companies.

     Cost of services, which primarily includes payroll, laboratory supplies, logistics and outside services, for the years ended December 31, 2001 and 2000 were $62.4 million and $47.4 million, respectively, representing an increase of $15 million, or 31.8%, in 2001. This increase was necessitated by rapid case volume growth, a continuing product shift to more complex cases, as well as labor costs associated with the IPO division’s expansion. In addition, the Company reported one-time charges in the third quarter of 2001 of $650,000 in severance and related costs associated with the Company’s restructuring of its clinical trial business made in connection with the acquisition of an oncology clinical trial network from Innovative Clinical Solutions Ltd. (“ICSL”) and $400,000 for salaries paid to laboratory employees idled during the events of September 11th. Cost of services as a percentage of total net revenues decreased to 38.2% in 2001 from 38.6% in 2000. This decrease was due primarily to the 19% revenue per case increase realized in physician services and improved margins generated from IPO.

     Selling, general and administrative expenses for the years ended December 31, 2001 and 2000 were $63.6 million and $44.4 million, respectively, representing an increase of $19.1 million, or 43.1%, in 2001. The increase is primarily due to certain additional $12.1 million in bad debt expense required to account for billing and collection delays precipitated by an inefficient billing system, as well as a payor mix shift resulting in an increase in the percentage of managed care and patient receivables. In addition, the Company incurred a one-time charge of $9.7 million related to the settlement reached with the government in the third quarter associated with its billing practices. Selling, general and administrative expenses as a percentage of net revenues increased to 38.9 % in 2001 from 36.2% in 2000 as a result of the aforementioned charge and the increase in bad debt expenses.

     Depreciation and amortization expense for the years ended December 31, 2001 and 2000 was $15.9 million and $10.7 million, respectively, representing an increase of $5.2 million, or 48.6%, in 2001. This increase was primarily due to $3.2 million in depreciation expense for new furniture, office and lab equipment, as well as leasehold improvements incurred in connection with the expansion of the Company’s New York and Los Angeles facilities. The Company also recorded $1.5 million in depreciation expense for enhancements made to the Company’s clinical and billing systems. Additionally, $324,000 in expense was recorded for the amortization of GeneBank assets. As a percentage of total net revenues, depreciation and amortization expense increased to 9.7% in 2001 from 8.7% in 2000, as a result of a depreciation associated with the new Los Angeles facility which commenced operations in the fourth quarter of 2000 and the amortization of GeneBank.

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     Income from operations for the years ended December 31, 2001 and 2000 was $21.4 million and $20.2 million, respectively, representing an increase of $1.2 million, or 5.5%, in 2001. The 2001 figure reflects one-time charges recorded in the third quarter of $9.7 million related to the settlement reached with the government, $650,000 associated with the Company’s restructuring of its clinical trial business and $400,000 in salaries and related expenses for employees idled during the events of September 11th. As a percentage of total net revenues, income from operations decreased to 13.1% in 2001 from 16.5% in 2000, due to the aforementioned charges.

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

     The tax provision for the year ended December 31, 2001 of approximately $8.5 million reflects federal, state and local income tax expense. The effective tax rate for 2001 was 43.5% compared to 43.0% in 2000. The increased effective tax rate resulted from an increase in the Company’s state and local tax provision, primarily due to lower tax-exempt interest income.

     Net income for the years ended December 31, 2001 and 2000 was $11 million and $12.9 million, respectively, representing a decrease of $1.9 million, or 15.1%, in 2001. Due to the aforementioned charges, net income as a percentage of net revenues decreased to 6.7% in 2001 from 10.5% in 2000.

Liquidity and Capital Resources

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

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

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     In June 2001, the Company entered into a $50 million Senior Secured Credit Facility consisting of a five-year commitment for a $25 million revolving credit line and a $25 million 364-day facility intended for acquisitions. The credit facility syndicated by Fleet National Bank, which also acts as Agent for the lenders, replaced the Company’s previous $15 million unsecured line of credit that expired on June 28, 2001. In connection with the Tamtron acquisition, on January 18, 2002, the Company amended its original credit facility and converted its $25 million 364-day facility to a $28 million term loan. The term loan is to be repaid over a five-year period, with interest only payable for the first twelve months. Thereafter, the loan is payable in seventeen payments of principal plus interest, with principal payments of $4.9 million due quarterly in each of 2003, 2004, 2005 and 2006 and a final principal payment of $8.4 million due in 2007. Both the revolving credit line and the term loan currently bears interest at LIBOR plus 1.75%, which was approximately 3.2% at December 31, 2002. On October 18, 2002, the Company amended its Senior Secured Credit Facility to increase the availability under its revolving credit line from $25 million to $40 million. The amended credit facility continues to be syndicated by Fleet National Bank, which acts as agent for the lenders. Including the Company’s $28 million term loan, the credit facility after giving effect to the amendment is $68 million. As of December 31, 2002, the Company had $27.6 million outstanding under the revolving credit line and $28 million drawn down from the term loan. The Company had fully drawn against the term loan and had $12.4 million remaining available under the line of credit at December 31, 2002. As of March 24, 2003 the Company had borrowed an additional $7 million on the line of credit and had $5.4 million remaining as available. The $27.6 million under the revolving credit line is due in full in 2006. In connection with the amended facility, the Company also amended certain debt covenants contained in the original facility.

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

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

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Stock Repurchase Plan

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

Dividend Policy

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

Contractual Obligations and Commitments

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

(dollars in thousands)

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

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

     Certain executive officers of the Company have entered into agreements which provide severance of up to one year’s salary in the event of termination without cause and provides for certain payments to the executive in the event of a change in control of the Company. The terms and conditions of such arrangements are set forth in the agreements, which have all been filed with the Securities and Exchange Commission.

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Acquisitions

     On January 18, 2002, the Company completed its acquisition of Tamtron, part of the Company’s Information Services division, for $25.9 million in cash, plus debt repayment of $651,000, as well as acquisition expenses of $2.6 million for a total purchase price of $29.2 million. Tamtron is a San Jose, California, based company whose flagship PowerPath® software is designed specifically to assist companies who provide surgical pathology, cytology and autopsy services (e.g. anatomic pathology) in streamlining operations and supporting multi-site or multi-entity healthcare networks. The source of funds for the acquisition was a combination of the Company’s available cash, as well as advances totaling $25 million under its amended credit facility.

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

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

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CRITICAL ACCOUNTING POLICIES

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

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

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

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

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

     Revenue from IPO is recognized within the guidance contained in the provisions of SEC Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements.” Revenues are recognized upon completion of analysis in accordance with the terms of the contract. In cases where the contract calls for the biological specimen to be shipped, revenue is recognized upon shipment of the biological material to the customer.

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

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

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

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

Fixed Assets. Fixed assets are stated at cost. Depreciation of furniture, fixtures, laboratory equipment and personal computers is provided over their estimated useful lives (which range from three to seven years) using the straight-line method, and leasehold improvements are being amortized over the shorter of the related lease term or the lives of the improvements using the straight-line method. Software development costs primarily represent external costs capitalized for software developed to meet the specific needs of the Company. These costs are being amortized over a five- to seven-year period using the straight-line method. Effective January 1, 1998, the Company adopted the provisions of AICPA Statement of Position 98-1 “Accounting for Software Costs.” The Company capitalized approximately $2,274,000 or approximately $0.14 per diluted share after taxes, approximately $1,932,000 or approximately $0.07 per diluted share after taxes (split adjusted) and $1,132,000 or approximately $0.04 per diluted share after taxes (split adjusted), of internal payroll costs in 2002, 2001 and 2000 respectively, as they related directly to internal system implementation, upgrade and enhancement activities.

Accounting for income taxes. As part of the process of preparing the Company’s consolidated financial statements the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. This process involves the estimation of the Company’s actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the Company’s consolidated balance sheets. The Company must then assess the likelihood that the deferred tax assets will be recovered from future taxable income and to the extent the Company believes that recovery is not likely, the Company must establish a valuation allowance. To the extent the Company establishes a valuation allowance or increases this allowance in a period, it must include an expense within the tax provision in the statement of operations.

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

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

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

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

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Impact of Inflation and Changing Prices

     The impact of inflation and changing prices on the Company has been primarily limited to salary, laboratory and operating supplies and rent increases and has not been material to date to the Company’s operations. In the future, the Company’s revenue realization per case may not be sufficient to cover the cost of inflation, although the Company believes that continued growth in its businesses and advancements in science and technology (and the resulting impact on the Company’s product mix and sales and marketing efforts) will reduce the potential impact of inflation or changing prices.

Recently Issued Accounting Standards

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

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

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

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

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

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

     The Company’s holdings of financial instruments are comprised primarily of U.S. corporate debt, U.S. government debt and commercial paper. All such instruments are classified as securities available for sale. The Company does not invest in portfolio equity securities or commodities or use financial derivatives for trading purposes. The Company’s debt security portfolio represents funds held temporarily pending use in its business and operations. The Company manages these funds accordingly. The Company seeks reasonable assuredness of the safety of principal and market liquidity by investing in rated fixed income securities while at the same time seeking to achieve a favorable rate of return. The Company’s market risk exposure consists principally of exposure to changes in interest rates. The Company’s holdings are also exposed to the risks of changes in the credit quality of issuers. The Company typically invests in the shorter-end of the maturity spectrum, and at December 31, 2002, approximately 67% of its holdings were in instruments maturing in two years or less and more than 78% of such holdings maturing in one year or less.

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

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

Item 8. Financial Statements and Supplementary Data.

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

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

     Not applicable.

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PART III

Item 10. Directors and Executive Officers of the Registrant.

     For information concerning this item, see text under the captions “Election of Directors” and “Executive Officers” in the 2003 Proxy Statement of the Company (the “Proxy Statement”) to be filed subsequent to the filing of this Annual Report on Form 10-K, which information is incorporated herein by reference.

Item 11. Executive Compensation.

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

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

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

Item 13. Certain Relationships and Related Transactions.

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

Item 14. Controls and Procedures.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

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POWER OF ATTORNEY

     The Registrant and each person whose signature appears below hereby appoint each of Carter H. Eckert, James V. Agnello and Richard C. Rosenzweig as attorneys-in-fact with full power of substitution, severally, to execute in the name and on behalf of the Registrant and each such person, individually and in each capacity stated below, one or more amendments to this Annual Report on Form 10-K, which amendments may make such changes in this Report as the attorney-in-fact acting in the premises deems appropriate and to file any such amendment to this Report with the Securities and Exchange Commission.

SIGNATURES

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

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

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

F-1

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders
IMPATH Inc.:

     We have audited the accompanying consolidated balance sheets of IMPATH Inc. and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2002. In connection with our audits of the consolidated financial statements, we also have audited the consolidated financial statement schedule as listed in the accompanying index. These consolidated financial statements and consolidated financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated financial statement schedule based on our audits.

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

     In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of IMPATH Inc. and subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

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

KPMG LLP

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

F-2

IMPATH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2002 and 2001

See accompanying notes to consolidated financial statements

F-3

IMPATH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2002, 2001 and 2000

See accompanying notes to consolidated financial statements.

F-4

IMPATH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years ended December 31, 2002, 2001 and 2000