IMPATH INC, 424B3, 1996-11-25

IMPATH INC
424B3, 1996-11-25
MEDICAL LABORATORIES

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<PAGE>

Rule No. 424(b)(3)
Registration No.: 333-08553

PROSPECTUS

2,109,069 SHARES

IMPATH(R)
- ------
The Cancer Information Company

COMMON STOCK
($.005 PAR VALUE)

The 2,109,069 shares of Common Stock, $.005 par value (the "Common Stock"), of
Impath Inc. (the "Company") offered hereby may be sold from time to time by
certain security holders of the Company (the "Selling Stockholders"). See
"Principal Stockholders and Selling Stockholders." Of such shares, 42,529 are
issuable upon the conversion of currently outstanding warrants held by certain
of the Selling Stockholders.

The Company will not receive any proceeds from the sale of the shares offered
hereby by the Selling Stockholders, except that it will receive $148,852 upon
the exercise of the warrants. All expenses incurred in connection with this
offering are being borne by the Company, other than any commissions or
discounts paid or allowed by the Selling Stockholders to underwriters,
dealers, brokers or agents.

The Selling Stockholders have not advised the Company of any specific plans
for the distribution of the shares offered hereby, but it is anticipated that
the shares may be sold from time to time in transactions (which may include
block transactions) on the Nasdaq National Market at the market prices then
prevailing. Sales of the shares offered hereby may also be made through
negotiated transactions or otherwise. The Selling Stockholders and the brokers
and dealers through which the sales of the shares offered hereby may be made
may be deemed to be "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), and their commissions and discounts
and other compensation may be regarded as underwriters' compensation. See
"Plan of Distribution."

The Common Stock is included in the Nasdaq National Market under the symbol
"IMPH."

SEE "RISK FACTORS" ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON STOCK OFFERED HEREBY.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

The date of this Prospectus is August 20, 1996, except for
certain information as indicated under "Principal
Stockholders and Selling Stockholders."
<PAGE>

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement on Form S-1 under
the Securities Act with respect to the shares of Common Stock offered hereby
(the "Registration Statement"). This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information pertaining to the Company and the
shares of Common Stock offered hereby, reference is made to such Registration
Statement, including the exhibits, financial statements and schedules filed
therewith. All of these documents may be inspected without charge at the
principal office of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and at its regional offices located at Seven
World Trade Center, New York, New York 10048 and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies may
be obtained by mail from the Commission at its principal office at prescribed
rates. The statements contained in this Prospectus concerning any contract or
document are not necessarily complete; where such contract or other document
is an exhibit to the Registration Statement, each such statement is qualified
in all respects by the provisions of such exhibit.

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

The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent accountants for each
fiscal year and quarterly reports for the first three fiscal quarters of each
year containing unaudited summary financial information.

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<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Investors should carefully consider the
information set forth under "Risk Factors." Except as otherwise noted, the
information in this Prospectus: (i) reflects the conversion of all of the
outstanding shares of the Company's convertible preferred stock, $.01 par value
(the "Preferred Stock"), into Common Stock; and (ii) reflects an approximate 1-
for-2.8 reverse split of the outstanding shares of Common Stock. Certain terms
relating to the Company's business which are used in this Prospectus are
explained in the Glossary included herein.

THE COMPANY

IMPATH provides critical information focused exclusively on cancer. The
Company provides the expertise to establish correct diagnosis, accurate
prognosis, treatment determination and patient follow-up, all of which are
essential for making medically optimal and cost-effective cancer management
decisions. IMPATH believes it currently performs more specialized analyses to
establish correct diagnosis of difficult cancer cases than any other
institution in the world. The Company also believes it is the leader in
providing the most comprehensive prognostic information essential to the
management of breast cancer. IMPATH provided patient-specific prognostic
information on over 12% of all such cases in the U.S. last year and over 26% of
cases diagnosed in the New York metropolitan area, the Company's largest
market. The Company believes that large clinical laboratory companies are in
general not prepared to provide the type of intensive, highly technical,
patient-specific service that it thinks the market requires. The few
university-based medical centers which have the professional expertise and
advanced technologies required to perform such analyses do not generally
provide the same focus as the Company on service (48 hour turn-around for
IMPATH compared with 14 days or more for academic centers) and on delivery of
coordinated and integrated information. The Company has capitalized on this
competitive advantage to build one of the most significant knowledge bases
related to the diagnosis, prognosis and treatment of cancer. In addition, the
significant volume of cases the Company reviews is also enabling IMPATH to
rapidly grow its diagnostic and prognostic database into one of the largest,
most comprehensive cancer databases and tissue libraries in the world, with a
specific emphasis on patient outcomes and optimal treatment protocols.

Through the use of evolving technologies, IMPATH provides patient-specific
diagnostic and prognostic information to pathologists, oncologists, urologists
and other physicians specializing in cancer. IMPATH believes that the use of
its services is critical in both the optimization of patient care as well as
the cost-effective delivery of that care. Historically, the treatment of cancer
has frequently used an approach based upon how a particular drug or therapy
worked on the population as a whole; if one therapy (i.e., a particular
chemotherapy, radiation therapy or other treatment) proved ineffective then
another was tried until a successful therapy was found or all possibilities
were exhausted. IMPATH provides cancer specialists with the necessary
information, based upon a given individual's specific cancer, to diagnose
correctly a difficult tumor and very often to know whether a therapy is the
optimal one before it is tried, thus targeting only those therapies appropriate
to an individual's specific cancer and avoiding the trauma, risk and cost of
unnecessary treatment. In a significant number of instances, IMPATH's analysis
of particularly difficult cases has helped doctors avoid misdiagnosis. The
Company believes its services are significantly more effective than traditional
approaches in that they allow oncologists to provide the best and most cost-
effective management of cancer. IMPATH's business is based on the premise that
providing the information for optimizing treatment at the earliest possible
time is not only more beneficial to the patient, it is also inherently more
cost-effective.

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<PAGE>

The Company provides its clients, which included over 2,500 physicians in
over 1,000 hospitals in 1995, with a single source for a broad range of
sophisticated diagnostic and prognostic analyses for cancer. Although the
professional expertise and advanced technologies required to perform these
analyses are available at a few university-based medical centers, IMPATH
believes that the technologies and capabilities are often distributed among
various departments. The Company believes that its focus on service and on the
delivery of coordinated and integrated information provides the Company's
customers with the best means for obtaining a comprehensive analysis for a
cancer patient. In addition, by using IMPATH, a community hospital can provide
the same sophisticated range of services as a major academic medical center.

During 1995, the Company earned $1,043,000 on revenues of $14,714,000.
Revenues for the six months ended June 30, 1996 were $9,821,922, compared with
$6,714,227 for the six months ended June 30, 1995, and net income was $667,590,
compared with $645,848 for the comparable period of the prior year.

The market for cancer diagnosis, prognosis and treatment is significant and
growing. According to the American Cancer Society, the estimated number of
cancer cases diagnosed annually in the United States (excluding certain skin
cancers) increased from approximately 782,000 in 1980 to approximately
1,200,000 in 1994, an increase of 53%. This increase is attributable to a
number of factors, including a growing and aging population. In addition,
earlier diagnosis and better information have led to more effective treatment
and increased the relative five-year survival rate of cancer patients from 39%
in 1963 to 54% in 1990. As a result, over 8,000,000 Americans alive today have
been diagnosed with cancer. The Company anticipates that these trends will
continue and that the demand for information regarding cancer will continue to
increase. The cost of treating cancer patients is also expected to escalate.
The National Cancer Institute estimates that direct medical costs associated
with cancer totaled approximately $35 billion in 1994, not including lost
productivity and mortality costs. The Company believes that direct medical
costs associated with cancer will increase more rapidly than those associated
with most other diseases as a result of the growth in the number of cancer
patients and the high cost of new therapies.

IMPATH intends to capitalize on its competitive advantage as a leader in
cancer information by continuing to expand its diagnostic and prognostic
database through the acquisition and addition of patient diagnostic data and
outcome histories. The Company believes that its substantial knowledge base,
case flow and tissue bank will allow it to incorporate and validate new
technologies as they become available. IMPATH believes its professional and
technical expertise will also allow it to dramatically increase its database
through retrospective analyses from patient populations in which outcomes are
known. In addition to continuing to develop its database, IMPATH intends to
continue to incorporate and apply the latest, evolving technologies to the
diagnosis and prognosis of cancer. The Company believes that the experience and
distinguished reputation of its scientific and technical staff will continue to
be important in this regard. IMPATH's sales and marketing force has been
successful in establishing the Company in its target markets and IMPATH intends
to capitalize on its current market presence to expand into other geographic
areas and to increase its market penetration in existing areas. The Company
also intends to aggressively market the cost and patient benefits of its
services to expand its managed care relationships. Furthermore, the Company
believes that it will be an increasingly important partner to pharmaceutical
and biotechnology companies in helping them identify the optimal patient
population for newly developed therapies.

On July 5, 1996, there were 5,269,837 shares of Common Stock outstanding. The
Common Stock of the Company trades on the Nasdaq National Market under the
symbol "IMPH."

The Company is a Delaware corporation with executive offices at 1010 Third
Avenue, Suite 302, New York, New York 10021, and its telephone number at that
address is (212) 702-8300.

4
<PAGE>

SUMMARY FINANCIAL AND OPERATING DATA

The financial data in the following tables have been derived from the
financial statements of the Company for the respective periods presented. The
financial data should be read in conjunction with the financial statements of
the Company and the related notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------- ------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues......... $3,462 $4,993 $7,042 $10,014 $14,714 $6,714 $9,822
Operating expenses:
Salaries and related
costs................. 1,695 2,668 4,162 4,682 6,830 3,149 4,514
Selling, general and
administrative........ 1,805 2,298 3,805 4,351 6,863 2,944 4,501
------ ------ ------ ------- ------- ------ ------
Total operating
expenses.............. 3,500 4,966 7,967 9,033 13,693 6,093 9,015
------ ------ ------ ------- ------- ------ ------
Income (loss) from
operations............ (38) 27 (925) 981 1,021 621 807
Other income
(expense)............. 49 29 2 (15) 22 25 364
------ ------ ------ ------- ------- ------ ------
Income (loss) before
income tax expense.... 11 56 (923) 966 1,043 646 1,171
Income tax expense..... 3 24 19 98 0 0 503
------ ------ ------ ------- ------- ------ ------
Net income (loss)(1)... $ 8 $ 32 $ (942) $ 868 $ 1,043 $ 646 $ 668
====== ====== ====== ======= ======= ====== ======
Pro forma net income
per common
share(1)(2)........... $ .31 $ .20 $ .13
Pro forma weighted
average common and
common equivalent
shares
outstanding(2)........ 3,371 3,184 5,118
======= ====== ======
</TABLE>
- --------
(1) Does not reflect dividends accrued on the Preferred Stock. Dividends earned
prior to February 10, 1995 were forgiven in conjunction with the issuance
of Series D Preferred Stock. Dividends accrued from February 10, 1995 in
the amount of $560,000 were paid and ceased to accrue upon conversion of
the Preferred Stock on February 26, 1996.
(2) Pro forma weighted average shares outstanding give effect to the conversion
of the outstanding shares of Preferred Stock into shares of Common Stock in
accordance with the terms thereof immediately prior to the completion of
the Offering and reflects the 1-for-2.8218735 reverse split of the
outstanding shares of Common Stock.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------- ---------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Revenues............... $3,462 $ 4,993 $ 7,042 $10,014 $14,714 $ 6,714 $ 9,822
Number of cases
reported.............. 11,038 15,136 24,812 33,618 43,287 20,507 25,747
Number of hospitals
served................ 728 817 959 1,021 1,118 914 1,056
Cases per hospital
served................ 15 19 26 33 39 22 24
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1996
--------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Working capital................................................. $30,375
Total assets.................................................... 34,680
Long-term liabilities, net of current portion................... 1,072
Total stockholders' equity...................................... 32,066
</TABLE>

5
<PAGE>

RISK FACTORS

Prospective investors should consider carefully the factors set forth below
together with the other information contained in this Prospectus before making
a decision to purchase the Common Stock.

RISKS ASSOCIATED WITH DEVELOPMENT STRATEGY

The Company's strategy is to become the leading provider of a broad range of
cancer management information, including diagnostic and prognostic analyses.
To date, the Company's business has consisted primarily of providing patient-
specific diagnostic and prognostic information based on the testing of tissue
specimens and the customized analysis of test results. The Company's strategy
includes incorporating evolving technologies into cancer management,
establishing a database focused on outcomes designed to optimize cancer
management, establishing strategic partnerships and joint ventures, developing
managed care relationships and expanding into new geographic areas. Some of
the services proposed to be offered by the Company, particularly the outcomes-
oriented enhancements to its database, have not been fully developed and will
require significant additional development prior to commercialization, which
further development and commercialization may never occur. The Company may
encounter problems and delays related to establishing strategic partnerships
and joint ventures, the continued development and expansion of its database or
the expansion of sales and marketing, and the failure to address such problems
and delays successfully could have a material adverse effect on the Company's
business and prospects. Moreover, the Company intends to pursue strategic
acquisitions if such acquisitions further aspects of the Company's strategy
outlined above. To the extent that the Company's strategy is dependent upon
acquisitions, there can be no assurance that suitable acquisition candidates
will be identified by the Company in the future, that, if required, suitable
financing for any such acquisitions can be obtained by the Company, or that
any such acquisitions will occur. If the Company successfully completes a
strategic acquisition or acquisitions, the financial performance of the
Company will be subject to various risks associated with the acquisition of
businesses, including the financial impact of expenses associated with the
integration of such businesses. There can be no assurance that such
acquisitions will not have an adverse effect on the business operations or
profitability of the Company. See "Business--Company Strategy."

ACCESS TO NEW TECHNOLOGIES; LACK OF PROPRIETARY TECHNOLOGY

To date, the Company has not engaged in the development or patenting of its
own technologies for use in the analytical services it provides, and access to
new technologies developed by third parties has been an important element in
the Company's current business as well as the Company's long-term strategy. If
the Company's access to critical technologies were substantially diminished,
the Company's business could be adversely affected. See "Business--Company
Strategy--Incorporate Evolving Technologies into Cancer Management."

In addition, the Company currently relies on certain technologies which are
not patentable or proprietary and are therefore available to the Company's
competitors. Furthermore, the Company relies on certain proprietary trade
secrets and know-how, which are not patentable. Although the Company has taken
steps to protect its unpatented trade secrets and know-how, in part through
the use of confidentiality agreements with its employees, there can be no
assurance that these agreements will not be breached, that the Company would
have adequate remedies for any breach or that the Company's trade secrets will
not otherwise become known or be independently developed or discovered by
competitors. If the Company's trade secrets become known or are independently
developed or discovered by competitors, it could have a material adverse
effect on the Company.

6
<PAGE>

RISKS ASSOCIATED WITH CALIFORNIA EXPANSION

In December 1995, the Company established a facility in Southern California.
Rapid growth had put the Company near its operating capacity limit at its New
York facility and required the additional capacity provided by the California
facility. The Company's capital expenditures through June 30, 1996 in
connection with the establishment of this facility were $1,160,000, which were
partially financed through capital equipment leases, a $300,000 three-year
secured term loan and a $145,200 leasehold improvement allowance from the
landlord. The Company also incurred $785,000 in operating expenses during 1995
in connection with this facility, reducing earnings for 1995. This facility
will continue to have a negative effect on earnings through at least the
second quarter of 1996 or until it generates sufficient incremental volume and
revenues to cover the facility's operating expenses. There can be no assurance
that the Company will be able to generate sufficient incremental volume and
revenues to fully utilize the additional capacity of this facility or that
this facility will operate as efficiently as the Company's New York facility
or will not otherwise be adversely affected by the risks normally associated
with a start-up facility. See "Business--Company Strategy--Geographic
Expansion" and "--Properties."

RISKS ASSOCIATED WITH ESTABLISHING JOINT VENTURES

During 1996, the Company plans to pursue strategic partnerships and joint
ventures with oncology networks, hospital groups, managed care companies and
pharmaceutical companies, primarily for the purposes of expanding IMPATH's
diagnostic and prognostic database, participating in the development of new
cancer therapies and demonstrating to the medical community the importance of
the services provided by IMPATH. There can be no assurance that the Company
will be able to negotiate acceptable partnership or joint venture arrangements
or that such arrangements will be successful or that potential partners will
not pursue alternative means of developing treatments for cancer. No assurance
can be given that the Company's joint venture partners will be able to obtain
regulatory approval for any new treatments, that any such new treatments if so
approved will be commercialized successfully or that the Company will realize
any revenues in connection with such arrangements. Although the Company
believes that other parties to joint ventures generally have an economic
motivation to perform their contractual responsibilities, their devotion of
resources to such activities will not be within the control of the Company.
Depending on the Company's obligations in such joint ventures, the termination
or cancellation of such arrangements could also adversely affect the Company's
financial condition and results of operations.

REIMBURSEMENT

The Company typically bills third party payors, such as private insurance
plans, managed care plans and governmental programs (i.e., Medicare) as well
as hospitals, for its services. These third party payors are increasingly
negotiating prices with the goal of lowering reimbursement rates. The Company
expects these pricing pressures to cause reduced pricing on average for tests
in future periods.

In 1992, 1993, 1994, 1995 and the six months ended June 30, 1996,
approximately 18%, 20%, 22%, 24% and 25%, respectively, of the Company's net
revenues for diagnostic and prognostic services were derived from analyses
performed for beneficiaries under the Medicare program. The Company accepts
Medicare reimbursement as payment in full for its services, subject to
applicable copayments and deductibles. Medicare may retroactively audit and
review its payments to the Company, and may determine that certain payments
for services must be repaid. Significant disapprovals of payment for any of
the Company's services by various carriers, including Medicare and private
insurance and managed care, reductions or delays in the establishment of
reimbursement rates, and carrier limitations on the coverage of the Company's
services could have a material adverse effect on the Company's future
revenues. See "Business--Reimbursement." The services

7
<PAGE>

furnished by the Company are characterized for the purposes of the Medicare
program as physician pathology services. See "Business--Reimbursement--
Medicare Payment for Physician Pathology Services."

Any future changes in government and other third-party payor reimbursement
which may come about as a result of enactment of health care reform or of
deficit-reduction legislation also likely will continue the downward pressure
on prices, and make the market for cancer analytical services more
competitive. Because of the uncertainties about the nature, content and timing
of any reform initiative, the Company currently is unable to predict the
ultimate impact thereof on the Company.

COMPETITION

DEPENDENCE ON KEY MANAGEMENT AND QUALIFIED PERSONNEL

The Company is dependent upon the efforts of its senior management and
medical professionals. The loss of the services of one or more members of its
senior management or medical professionals could impede the achievement of the
Company's development objectives. In addition, the Company's growth strategy
will require additional skill and expertise, the addition of new management
personnel and the development of additional expertise by existing management
personnel. The loss of, or failure to recruit, scientific, technical and
managerial personnel could have a material adverse effect on the Company. See
"Business--Employees" and "Management."

REGULATORY MATTERS

As a provider of health care related services, the Company is subject to
extensive and frequently changing federal, state and local regulations
governing licensure, billing, financial relationships, referrals, conduct of
operations, purchase of existing businesses, cost-containment, direct
employment of licensed professionals by business corporations and other
aspects of the Company's business relationships. Federal and state
certification and licensure programs establish standards for the day-to-day
operation of facilities such as the Company's. Compliance with such standards
is verified by periodic inspections and requires participation in proficiency
testing programs. No assurances can be given that the Company's facilities
will pass all future inspections conducted to ensure compliance with federal
or any other applicable licensure or certification laws. See "Business--
Regulatory Matters--Laboratory Licensure."

Existing federal laws governing Medicare, as well as some state laws,
regulate certain aspects of the relationship between health care providers,
including the Company, and their referral sources,

8
<PAGE>

including physicians, hospitals and other facilities. The Social Security Act,
and the anti-kickback and self-referral rules thereunder, prohibit providers
and others from soliciting, offering, receiving or paying, directly or
indirectly, any remuneration in return for either making a referral for a
Medicare-covered service or item or ordering any such covered service or item
and prohibit physicians, subject to certain exceptions, from making such
referrals to certain entities in which they have an investment interest or
with which they have a compensation arrangement. Violation of these
prohibitions is punishable by disallowance of submitted claims, civil monetary
and criminal penalties and exclusion from the Medicare and other federally
financed programs. See "Business--Regulatory Matters--Anti-Kickback/Self-
Referral Regulations."

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 Company believes its current
and planned activities do not constitute fee-splitting or violate any
prohibition against the corporate practice of medicine. However, there can be
no assurance that future interpretations of such laws will not require
structural or organizational modifications of the Company's existing business.
See "Business--Regulatory Matters--Fee-Splitting; Corporate Practice of
Medicine."

RISK OF LIABILITY; ADEQUACY OF INSURANCE COVERAGE

The marketing and sale of health care services could expose the Company to
the risk of certain types of litigation, including medical malpractice.
Damages assessed in connection with, and the costs of defending, any legal
action could be substantial. Although the Company is presently covered by
general liability insurance in the amount of $6,000,000 per occurrence and
$7,000,000 in the aggregate and has obtained professional liability insurance
in the amount of $1,000,000 per occurrence and $3,000,000 in the aggregate for
the Company's Medical Directors and other individuals who practice medicine in
the course of their duties, there can be no assurance that insurance coverage
will provide sufficient funds to satisfy any judgments which, in the future,
may be entered against the Company or that liability insurance in such amounts
will be available or affordable in the future. In addition, there can be no
assurance that all of the activities encompassed within the Company's business
are covered under the Company's policies. The Company's liability insurance
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. Furthermore, there can be no assurance that the Company will have
other resources sufficient to satisfy any liability or litigation expenses
that may result from any uninsured or underinsured claims. Moreover, although
the Company maintains personal property and business interruption insurance
and has taken what it believes to be adequate safeguards, the catastrophic
loss of the Company's tissue library could have a material adverse effect on
the continued development of its database in a manner which would not be fully
compensated by insurance.

CONTROL BY SELLING STOCKHOLDERS; ANTI-TAKEOVER MEASURES

The Selling Stockholders in the aggregate beneficially own approximately
42.3% of the Company's outstanding shares of Common Stock. See "Principal
Stockholders and Selling Stockholders." As a result, these stockholders,
acting together, would be able to control many matters requiring approval by
the stockholders of the Company, including the election of directors. The
Company's certificate of incorporation provides for authorized but unissued
Preferred Stock, the terms of which may be fixed by the Board of Directors.
Such provisions could have the effect of delaying, deferring or preventing a
change of control of the Company. See "Capital Stock of the Company."

9
<PAGE>

POSSIBLE VOLATILITY OF STOCK PRICE

There has been a history of significant volatility in the market prices for
shares of companies engaged in the health care and biotechnology fields, and
it may be expected that the market price of the shares of Common Stock offered
hereby may be highly volatile. Factors such as fluctuations in the Company's
quarterly revenues and operating results, announcements of technological
innovations or new analytical services by the Company and its competitors, and
changes in third party reimbursement and governmental regulation may have a
significant effect on the market price of the Common Stock.

DIVIDENDS

The Company does not currently pay dividends on its Common Stock and does
not anticipate paying any dividends in the foreseeable future. It is
anticipated that the terms of any future debt financings may restrict the
payment of dividends. See "Dividend Policy."

DIVIDEND POLICY

The Company has never paid a cash dividend on its Common Stock and does not
anticipate paying dividends in the foreseeable future. It is the present
policy of the Company's Board of Directors to retain earnings, if any, to
finance the expansion of the Company's business. The payment of dividends in
the future will depend on the results of operations, financial condition,
capital expenditure plans and other cash obligations of the Company and will
be at the sole discretion of the Board of Directors. In addition, certain
provisions of existing, proposed and future indebtedness of the Company may
prohibit or limit the Company's ability to pay dividends. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."

10
<PAGE>

SELECTED FINANCIAL AND OPERATING DATA

The following table sets forth selected financial and operating data of the
Company as of December 31 in each of 1991 through 1995 and for each of the
years in the five-year period ended December 31, 1995. The following table
also presents selected financial and operating data for the Company as of June
30, 1996 and for the six-month periods ended June 30, 1995 and 1996. The
statement of operations and balance sheet data as of December 31 in each of
1991 through 1995 and for each of the years in the five-year period ended
December 31, 1995 have been derived from the Company's audited financial
statements of which such financial statements as of December 31, 1994 and 1995
and for each of the years in the three-year period ended December 31, 1995 and
the notes thereto are included elsewhere in this Prospectus. The statement of
operations data for the six-month periods ended June 30, 1995 and 1996 and the
balance sheet data as of June 30, 1996 have been derived from the Company's
unaudited financial statements also appearing herein which, in the opinion of
the Company, include all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial information included
therein. Results for the interim periods are not necessarily indicative of
results for the full year. The historical financial data should be read in
conjunction with and is qualified in its entirety by reference to the
financial statements of the Company and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------- ------- ------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues......... $3,462 $4,993 $ 7,042 $10,014 $14,714 $6,714 $9,822
Operating expenses:
Salaries and related
costs................ 1,695 2,668 4,162 4,682 6,830 3,149 4,514
Selling, general and
administrative....... 1,805 2,298 3,805 4,351 6,863 2,944 4,501
------ ------ ------- ------- ------- ------ ------
Total operating ex-
penses................ 3,500 4,966 7,967 9,033 13,693 6,093 9,015
------ ------ ------- ------- ------- ------ ------
Income (loss) from op-
erations.............. (38) 27 (925) 981 1,021 621 807
Other income (ex-
pense)................ 49 29 2 (15) 22 25 364
------ ------ ------- ------- ------- ------ ------
Income (loss) before
income tax expense.... 11 56 (923) 966 1,043 646 1,171
Income tax expense..... 3 24 19 98 0 0 503
------ ------ ------- ------- ------- ------ ------
Net income (loss)...... 8 32 (942) $ 868 1,043 646 668
Accrued dividends on
Preferred Stock(1).... (291) (314) (371) (427) (478) (255) (82)
------ ------ ------- ------- ------- ------ ------
Net income (loss)
available to common
stockholders.......... $ (283) $ (282) $(1,313) $ 441 $ 565 $ 391 $ 585
====== ====== ======= =======
Pro forma net income
per common
share(2)(3)........... $ .31 $ .20 $ .13
======= ====== ======
Pro forma weighted av-
erage common and com-
mon equivalent shares
outstanding(2)....... 3,371 3,184 5,118
======= ====== ======
</TABLE>
- --------
(1) Reflects dividends accrued on the Preferred Stock. Dividends earned prior
to February 10, 1995 were forgiven in conjunction with the issuance of
Series D Preferred Stock. Dividends accrued from February 10, 1995 in the
amount of $560,000 were paid and ceased to accrue upon conversion of the
Preferred Stock on February 26, 1996.
(2) Pro forma weighted average shares outstanding give effect to the
conversion of the outstanding shares of Preferred Stock into shares of
Common Stock in accordance with the terms thereof on February 26, 1996 and
reflect the 1-for-2.8218735 reverse split of the outstanding shares of
Common Stock.
(3) Does not reflect $560,000 in dividends accrued on the Preferred Stock from
February 10, 1995, which dividends were paid and ceased to accrue upon
conversion of the Preferred Stock on February 26, 1996.

11
<PAGE>

<TABLE>
<CAPTION>
SIX MONTH
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------------- ---------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Revenues............... $ 3,462 $ 4,993 $ 7,042 $10,014 $14,714 $ 6,714 $ 9,822
Number of cases report-
ed.................... 11,038 15,136 24,812 33,618 43,287 20,507 25,747
Number of hospitals
served................ 728 817 959 1,021 1,118 914 1,056
Cases per hospital
served................ 15 19 26 33 39 22 24
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------------------- --------
1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............... $1,517 $1,429 $1,736 $2,500 $3,622 $30,375
Total assets.................. 2,061 2,221 3,152 4,144 9,261 34,680
Long-term liabilities, net of
current portion.............. -- -- 120 241 1,130 1,072
Redeemable preferred stock.... 4,038 4,352 5,979 6,407 -- --
Total stockholders' equity
(deficiency)................. (2,184) (2,464) (3,741) (3,266) 5,655 32,066
</TABLE>

12
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

IMPATH was founded in 1988 to provide specialized cancer information to the
medical community. The Company uses sophisticated technologies to provide
customized analyses which assist physicians in correctly diagnosing difficult
tumors, accurately determining prognostic status and selecting the optimal,
patient-specific treatment. The Company conducts these analyses based upon
three main technologies: immunohistochemistry, flow and image cytometry, and
molecular pathology. See "Business--Company Diagnostic and Prognostic
Services" for a description of these technologies. The Company serves
physicians specializing in cancer, mainly pathologists, oncologists and
urologists, throughout the United States. IMPATH's client list has grown to
include approximately 4,000 physicians in over 1,000 hospitals.

The diagnosis and prognosis of cancer has become increasingly important in
determining successful individualized therapies. Historically, the treatment
of cancer has frequently used an approach based upon how a particular drug or
therapy worked on the population as a whole; if one therapy (i.e. a particular
chemotherapy, radiation therapy or other treatment) proved ineffective then
another was tried until a successful therapy was found or all possibilities
were exhausted. The Company's cancer knowledge base allows oncologists to use
patient-specific data to select an optimal therapy before it is tried, thereby
targeting only those therapies most likely to be effective, avoiding the pain,
risk and cost associated with excess or inappropriate treatment. Furthermore,
the increased understanding of the molecular basis of cancer will lead to the
development of new diagnostic and prognostic methods and therapeutic tools
with specialized cancer analysis becoming a significant tool for optimizing
the management of all phases of cancer.

Since its inception, the Company has raised approximately $32,800,000 of
capital through the initial public offering of Common Stock and private
placements of Preferred Stock, all of which was converted into Common Stock at
the closing of the public offering. At June 30, 1996, the Company had working
capital of $30,375,000 and cash and cash equivalents of approximately
$10,954,000.

RESULTS OF OPERATIONS

GENERAL

The Company derives its revenues by performing specialized cancer analyses
and typically bills various third party payors, such as hospitals, private
insurance plans, managed care plans and governmental programs (i.e. Medicare),
as well as individual patients. The Company has over the last few years
experienced increased pressures on reimbursement and expects such pressures to
cause reduced pricing on average for diagnostic and prognostic analyses in
future periods. See "Business--Reimbursement" and "Risk Factors--
Reimbursement." Despite those pressures, through June 30, 1996, the Company
has on average experienced increasing reimbursement trends due to changes in
its product and payor mix and the application of new technologies. This has
been accomplished without instituting a price increase over the last three
years. For the six months ended June 30, 1996, the Company's payor mix
relating to diagnostic and prognostic services, expressed as a percentage, was
38% for hospitals, 34% for private insurance and managed care, 25% for
Medicare and 3% for individual patients.

Historically, from January 1, 1992 through December 31, 1995, the Company's
revenues increased an average of 42.9% per year. For the six months ended June
30, 1996, revenues increased 46.3% over the comparable period of the prior
year. The Company reported net income of $868,000 for 1994 and $1,043,000 for
1995, even after incurring approximately $785,000 of operating expenses during
1995 in connection with the establishment of the Company's California
facility, which commenced operations in December 1995.

13
<PAGE>

The Company believes that its business is generally unaffected by
seasonality, except for slower growth in revenues during the third quarter of
its fiscal year due to reduced activity during the summer months.

In 1993, the Company experienced its only loss in the last five fiscal
years. This loss was due primarily to increased operating expenses, inadequate
cost controls associated with its purchasing and personnel policies resulting
in increased expenses of approximately $239,000 and $124,000 of expenses
incurred in connection with a change in the Company's executive management
(including severance payments and search fees), including the replacement of
the Company's former President and Chief Executive Officer with Anu D. Saad,
Ph.D. Since 1993, the Company's current management has instituted extensive
cost controls, including specific purchasing guidelines and the engagement of
an outside payroll and human resources service, resulting in a decrease in
selling, general and administrative expenses as a percentage of total revenues
from 54.0% in 1993 to 43.4% in 1994, generating net income in 1994 of
$868,000.

The following table sets forth the percentages of total revenues represented
by certain items reflected in the Company's Statement of Operations. The
information that follows should be read in conjunction with the financial
statements and notes thereto included elsewhere herein. The results of the
periods presented below were not significantly affected by inflation.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Total revenues................ 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Salaries and related costs.. 59.1 46.8 46.4 46.9 46.0
Selling, general and admin-
istrative.................. 54.0 43.4 46.7 43.8 45.8
------- ------- ------- -------- --------
Total operating expenses...... 113.1 90.2 93.1 90.7 91.8
------- ------- ------- -------- --------
Operating income (loss)....... (13.1) 9.8 6.9 9.3 8.2
Other income (expense)........ -0- (.1) .2 .4 3.7
------- ------- ------- -------- --------
Income (loss) before income
tax expense.................. (13.1) 9.7 7.1 9.7 11.9
Income tax expense............ .3 1.0 -0- -0- 5.1
------- ------- ------- -------- --------
Net income (loss)............. (13.4) 8.7 7.1 9.7 6.8
Accrued dividends on Preferred
Stock........................ (5.3) (4.3) (3.3) (3.8) (.8)
------- ------- ------- -------- --------
Net income (loss) available to
common stockholders.......... (18.7)% 4.4% 3.8% 5.9% 6.0%
======= ======= ======= ======== ========
</TABLE>

14
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THREE MONTHS
ENDED JUNE 30, 1995

The Company's total revenues for the three months ended June 30, 1996 and
1995 were $5,080,000 and $3,499,000, respectively, representing an increase of
$1,581,000, or 45.2%, in 1996. This growth was partially attributable to a
19.0% increase in case volume resulting from increased sales and marketing
activities. In addition, revenue realization per case increased due to product
mix changes toward cases which carry higher reimbursement rates.

Salaries and related costs for the three months ended June 30, 1996 and 1995
were $2,258,000 and $1,676,000, respectively, representing an increase of
$582,000, or 34.7%, in 1996. The 1996 increase was primarily due to an
increase in personnel headcount necessitated by increasing case volume. As a
percentage of total revenues, salaries and related costs, decreased to 44.4%
in 1996 from 47.9% in 1995.

Selling, general and administrative expenses for the three months ended June
30, 1996 and 1995 were $2,242,000 and $1,553,000, respectively, representing
an increase of $689,000, or 44.4%, in 1996. The largest component of this
increase was an increase in bad debt expense of approximately $230,000
associated with higher revenues, and a shift to more revenues requiring
copayments. The Company also incurred higher supply costs due to its increased
volume as well as higher travel related expenses associated with expanded
sales and marketing activities. Selling, general and administrative expenses
as a percentage of total revenues decreased to 44.1% in 1996 from 44.4% in
1995.

Income from operations for the three months ended June 30, 1996 and 1995 was
$580,000 and $270,000, respectively, representing an increase of $310,000, or
114.8%, in 1996. The 1996 figure reflects the effect on earnings of increasing
revenue growth and a decrease in operating expenses as a percentage of revenue
from 92.3% in the 1995 period to 88.6% in the 1996 period.

Interest income, net for the three months ended June 30, 1996 and 1995 was
$289,000 and $19,000, respectively, representing an increase of $270,000 in
1996. The increase was the result of increased interest income generated from
the proceeds of the Company's initial public offering of common stock in
February 1996, partially offset by increased interest expense due to
additional capital lease obligations.

The tax provision for the three months ended June 30, 1996 of approximately
$369,000 reflects federal, state and local income tax expense. The Company has
estimated its annual effective tax rate for 1996 to be approximately 43% which
is in line with the current provision. For 1995, the Company had recorded
deferred tax assets to the extent of taxes that it expected to pay on
estimated 1995 taxable earnings. Management believes that realization of such
deferred assets is more likely than not. As such, it estimated its annual
effective tax rate for 1995 to be zero.

As a result, net income for the three months ended June 30, 1996 and 1995
was $499,000 and $289,000, respectively, representing an increase of $210,000
or 72.7% in 1996. As a percentage of total revenues, net income increased to
9.8% in 1996 from 8.3% in 1995.

SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS
ENDED JUNE 30, 1995

The Company's total revenues for the six months ended June 30, 1996 and 1995
were $9,822,000 and $6,714,000, respectively, representing an increase of
$3,108,000, or 46.3%, in 1996.

15
<PAGE>

This growth was primarily due to a 26% increase in case volume and an increase
in revenue realization per case resulting from product mix changes toward
cases with higher reimbursement rates.

Salaries and related costs for the six months ended June 30, 1996 and 1995
were $4,514,000 and $3,149,000, respectively, representing an increase of
$1,365,000, or 43.3%, in 1996. This increase was due to case volume growth and
personnel costs associated with the establishment of the Company's California
facility which commenced operations in December 1995. Salaries and related
costs, as a percentage of total revenues decreased to 46.0% in 1996 from 46.9%
in 1995.

Selling, general and administrative expenses for the six months ended June
30, 1996 and 1995 were $4,501,000 and $2,944,000, respectively, representing
an increase of $1,557,000, or 52.9%, in 1996. This increase was partially due
to an increase in bad debt expense of approximately $523,000 associated with
higher revenues, as well as a shift to more revenues requiring copayments. The
Company also incurred higher supply costs due to increasing case volume and
higher travel related expenses associated with expanded sales and marketing
activities. In addition, the Company incurred approximately $200,000 of
selling, general and administrative expenses at its California facility which
commenced operations in December 1995. Selling, general and administrative
expenses as a percentage of total revenues increased to 45.8% in 1996 from
43.8% in 1995 as a result of the costs associated with the establishment of
the Company's California facility.

Income from operations for the six months ended June 30, 1996 and 1995 was
$807,000 and $621,000, respectively, representing an increase of $186,000, or
30.0%, in 1996. The 1996 figure reflects the effect on earnings of the net
operating expenses incurred in connection with the establishment of the
Company's California facility, which commenced operations during December
1995. In June 1996, this facility began to generate sufficient incremental
revenue to cover operating expenses.

Interest income, net for the six months ended June 30, 1996 and 1995 was
$364,000 and $25,000, respectively, representing an increase of $339,000 in
1996. The increase was the result of increased interest income generated from
the proceeds of the Company's initial public offering of common stock in
February 1996, partially offset by increased interest expense due to
additional capital lease obligations.

The tax provision for the six months ended June 30, 1996 of approximately
$504,000 reflects federal, state and local income tax expense. The Company has
estimated its annual effective tax rate for 1996 to be approximately 43% which
is in line with the current provision. For 1995, the Company had recorded
deferred tax assets to the extent of taxes that it expected to pay on
estimated 1995 taxable earnings. Management believes that realization of such
deferred assets is more likely than not. As such, it estimated its annual
effective tax rate for 1995 to be zero.

As a result, net income for the six months ended June 30, 1996 and 1995 was
$668,000 and $646,000, respectively, representing an increase of $22,000, or
3.4%, in 1996. As a percentage of total revenues, net income decreased to 6.8%
in 1996 from 9.7% in 1995.

See the Company's unaudited financial statements as of June 30, 1996 and for
the six months ended June 30, 1995 and 1996 included under "Financial
Statements."

YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994

The Company's total revenues in 1995 and 1994 were $14,714,000 and
$10,014,000, respectively, representing an increase of $4,700,000, or 46.9%,
in 1995. This growth was primarily attributable to a 28.8% increase in case
volume resulting from increased sales and marketing activities. In addition,
revenue realization per case increased due to product mix changes towards
cases which carry a higher reimbursement rate.

16
<PAGE>

Salaries and related costs in 1995 and 1994 were $6,830,000 and $4,682,000,
respectively, representing an increase of $2,148,000, or 45.9%, in 1995. This
increase was the result of increased personnel, as well as personnel costs
incurred in connection with the establishment of the Company's
California facility. As a percentage of total revenues, salaries and related
costs decreased to 46.4% in 1995 from 46.8% in 1994.

Selling, general and administrative expenses in 1995 and 1994 were
$6,863,000 and $4,351,000, respectively, representing an increase of
$2,512,000, or 57.7%, in 1995. The largest component of this increase was an
increase in bad debt expense of approximately $784,000 associated with higher
revenues and particularly revenue generated from third-party billing, which
has historically had a higher bad debt rate than institutional billing. In
addition, depreciation expense and equipment-related rental and service costs
increased by $390,000 and $133,000, respectively, due to planned laboratory
and office equipment additions. The Company also incurred higher travel and
recruitment expenses associated with its expanded sales, marketing and
database development activities.

Income from operations in 1995 and 1994 was $1,021,000 and $981,000,
respectively, representing an increase of $40,000, or 4.1%, in 1995. The 1995
figure reflects approximately $785,000 of operating expenses incurred in
connection with the establishment of the Company's California facility. As a
percentage of total revenues, income from operations decreased to 6.9% in 1995
from 9.8% in 1994 as a result of the previously noted increase in the
provision for bad debts and due to the increase in operating expenses
associated with the start-up of the California facility.

In 1995, the Company's operating activities provided approximately $515,000
in cash and the Company used approximately $737,000 for capital expenditures.
IMPATH financed its deferred registration costs and capital expenditures
through its operating activities, proceeds of approximately $1,912,000 from
the issuance of preferred stock in February 1995 and bank loans in the
principal amount of $300,000.

As a result, net income in 1995 and 1994 was $1,043,000 and $868,000,
respectively, representing an increase of $175,000, or 20.2%, in 1995. As a
percentage of total revenues, net income decreased to 7.1% in 1995 from 8.7%
in 1994.

YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEAR ENDED DECEMBER 31, 1993

Total revenues in 1994 and 1993 were $10,014,000 and $7,042,000,
respectively, representing an increase of $2,972,000, or 42.2%, in 1994. This
increase was primarily attributable to a 35.5% increase in case volume as well
as increased revenue realization per case resulting from an increased number
of breast prognostic analyses and tumor diagnosis cases, which carry a higher
reimbursement rate.

Salaries and related costs in 1994 and 1993 were $4,682,000 and $4,162,000,
respectively, representing an increase of $520,000, or 12.5%, in 1994. This
increase was due to increased sales personnel and increased technical and
operating personnel required to support the increased case volume. As a
percentage of total revenues, salaries and related costs decreased to 46.8% in
1994 from 59.1% in 1993 as a result of economies of scale and an increased
focus on cost controls in 1994. See "General" above.

Selling, general and administrative expenses in 1994 and 1993 were
$4,351,000 and $3,805,000, respectively, representing an increase of $546,000,
or 14.3%, in 1994. This increase was primarily due to increased bad debt
expense associated with the increased revenues and increased variable costs
resulting from the increased case volume. As a percentage of total revenues,
selling, general and administrative expenses decreased to 43.4% in 1994 from
54.0% in 1993 due to an increased focus on cost controls in 1994. See
"General" above.

17
<PAGE>

Income (loss) from operations in 1994 and 1993 was $981,000 and ($925,000),
respectively, representing an increase of $1,906,000 in 1994. This increase
was primarily attributable to increased revenues coupled with increased
operating margins and charges incurred during 1993 in connection with a change
in the Company's management.

Other income (expense) in 1994 and 1993 was ($15,000) and $2,000,
respectively. This was due to increased interest expense associated with
increased capital lease obligations.

Income tax expense in 1994 and 1993 was $98,000 and $19,000, respectively,
representing an increase of $79,000 in 1994 due to the Company's increased
earnings and utilization of a portion of the Company's net operating loss
carryforward for federal income tax purposes.

As a result, net income (loss) for 1994 and 1993 was $868,000 and
$(942,000), respectively, representing an increase of $1,810,000 in 1994.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the Company has financed its operations through its
February 1996 initial public offering, the private issuance of convertible
preferred stock, secured term loans and operating and capital equipment
leases. Since its inception, the Company has raised approximately $32,500,000
of capital through the initial public offering of Common Stock and private
placements of Preferred Stock, all of which was converted into Common Stock at
the closing of the public offering. The Company's working capital and capital
expenditure needs have increased and are expected to continue to increase as
the Company expands its existing facilities into California and pursues its
growth strategy. See "Business--Strategy--Geographic Expansion" and "Risk
Factors--Risks Associated with Development Strategy" and "--Risks Associated
with California Expansion."

The Company's cash and cash equivalent balances at June 30, 1996 and
December 31, 1995 were $10,954,000 and $1,513,000, respectively, representing
an increase of $9,441,000 in 1996. In addition, the Company has invested
approximately $14,194,000 in marketable securities. These increases were
primarily attributable to approximately $26,000,000 of net proceeds from the
initial public offering of the Company's common stock, which was consummated
on February 26, 1996.

For the six months ended June 30, 1996, the Company used net cash in
operating activities of approximately $15,786,000. This resulted from an
increase in investments of approximately $14,194,000 and an increase in
accounts receivable net of allowance for bad debt of approximately $1,892,000
due to rapid sales growth. In addition, the Company paid approximately
$560,000 in accrued dividends on preferred stock prior to the initial public
offering.

Historically, the Company's operating activities have not consistently
generated positive cash flow due to increases in accounts receivable of the
Company resulting from rapid sales growth. For the six months ended June 30,
1996, the Company used net cash in operating activities of approximately
$15,786,000. This utilization of net operating cash was the result of an
investment in short-term marketable securities of approximately $14,194,000
and an increase in accounts receivable of approximately $3,025,000 due to
rapid sales growth. In addition, the Company paid approximately $560,000 in
accrued dividends on preferred stock prior to the initial public offering. The
Company expects this operating cash flow usage trend to continue during 1996
due to its expansion into California, but believes its existing cash resources
are sufficient to cover any shortfall.

In August 1995, the Company established a line of credit in the aggregate
amount of $1,000,000 with Chemical Bank. Borrowings under the line will bear
interest at .5% over Chemical Bank's prime rate. The availability of the line
of credit is subject to the execution of such additional documentation as
Chemical Bank may request. As of June 30, 1996, the Company had not drawn on
the line of credit.

18
<PAGE>

At June 30, 1996, the Company had working capital of approximately
$30,375,000. The Company's capital expenditures through June 30, 1996 in
connection with the establishment of its California facility were
approximately $1,160,000, which were partially financed through capital
equipment leases, a $300,000 secured term loan, and a $145,200 leasehold
improvement allowance from the landlord. The Company prepaid the balance of
the $300,000 secured term loan with the proceeds from the initial public
offering.

The Company's growth strategy is anticipated to be financed through the net
proceeds from the initial public offering, its current cash resources and
existing third party credit facilities. The Company believes the combination
of these sources will be sufficient to fund its operations and satisfy the
Company's cash requirements for the next 12 months and the foreseeable future.
There may be circumstances, however, that would accelerate the Company's use
of proceeds from the initial public offering. If this occurs, the Company may,
from time to time, incur additional indebtedness or issue, in public or
private transactions, equity or debt securities. However, there can be no
assurance that suitable debt or equity financing will be available to the
Company.

IMPACT OF INFLATION AND CHANGING PRICES

The impact of inflation and changing prices on the Company has been
primarily limited to salary, laboratory and operating supplies and rent
increases and has not been material to date to the Company's operations. In
the future, the Company may not be able to raise the prices for its cases by
an amount sufficient to cover the cost of inflation, although the Company is
responding to these concerns by attempting to increase the volume and adjust
the product mix of its business.

19
<PAGE>

BUSINESS

GENERAL

IMPATH provides critical information focused exclusively on cancer. The
Company provides the expertise to establish correct diagnosis, accurate
prognosis, treatment determination and patient follow-up, all of which are
essential for making medically optimal and cost-effective cancer management
decisions. IMPATH believes it currently performs more specialized analyses to
establish correct diagnosis of difficult cancer cases than any other
institution in the world. The Company also believes it is the leader in
providing the most comprehensive prognostic information essential to the
management of breast cancer. IMPATH provided patient-specific prognostic
information on over 12% of all such cases in the U.S. last year and over 26%
of cases diagnosed in the New York metropolitan area, the Company's largest
market. The Company believes that large clinical laboratory companies are in
general not prepared to provide the type of intensive, highly technical,
patient-specific service that it thinks the market requires. The few
university-based medical centers which have the professional expertise and
advanced technologies required to perform such analyses do not generally
provide the same focus as the Company on service (48 hour turn-around for
IMPATH compared with 14 days or more for academic centers) and on delivery of
coordinated and integrated information. The Company has capitalized on this
competitive advantage to build one of the most significant knowledge bases
related to the diagnosis, prognosis and treatment of cancer. In addition, the
significant volume of cases the Company reviews is also enabling IMPATH to
rapidly grow its diagnostic and prognostic database into one of the largest
and most comprehensive cancer databases and tissue libraries in the world,
with a specific emphasis on patient outcomes and optimal treatment protocols.

IMPATH's potential market includes all physicians involved in the diagnosis
and treatment of cancer in the United States. This includes approximately
16,000 pathologists, 7,000 oncologists and 9,000 urologists, as well as other
specialists for whom cancer is important, such as surgeons, gynecologists and
radiologists. Historically, pathologists have been the focus of the Company's
marketing efforts because they are responsible for providing the information
from which all cancer management decisions flow.

Currently, IMPATH's major customers are the pathology departments of small
to medium sized community hospitals (100 to 500 beds). According to the
American Hospital Association, there are approximately 3,200 hospitals of this
size in the United States. Of these, approximately 2,650 are located in
geographic areas targeted by IMPATH (i.e. states with high cancer incidence).
The Company believes that direct medical costs associated with cancer will
increase more rapidly than those associated with most other diseases as a
result of the growth in the number of cancer patients and the high cost of new
therapies. As a result, the delivery of cost-effective treatment will become

20
<PAGE>

increasingly important. The cornerstone of cost-effective cancer treatment is
accurate diagnosis and prognostic assessment: this constitutes IMPATH's core
business.

The diagnosis, assessment and treatment of cancer is extremely complex and
requires a multidisciplinary approach. Among the key specialties involved in
cancer management are surgery (for diagnosis and treatment), oncology (for
treatment and follow-up), radiology (for diagnosis and follow-up), radiation
oncology (for treatment) as well as a number of subspecialties for which
cancer is an important disease, such as urology and gynecology. However,
absolutely central to all of the specialties and the decisions made by them is
the accurate diagnosis and prognostic assessment of the cancer. This
information (which is necessary for any treatment decision) is provided by the
pathologist.

Through the development and use of sophisticated technologies, IMPATH
provides patient-specific diagnostic and prognostic information to
pathologists, urologists and oncologists specializing in the disease of
cancer. IMPATH believes that the use of its services is critical in both the
optimization of patient care as well as the cost-effective delivery of that
care. Historically, the treatment of cancer has frequently used an approach
based upon how a particular drug or therapy worked on the population as a
whole; if one therapy (i.e. a particular chemotherapy, radiation therapy or
other treatment) proved ineffective then another was tried until a successful
therapy was found or all possibilities were exhausted. IMPATH provides care
givers with the necessary information, based upon a given individual's
specific cancer, to diagnose correctly a difficult tumor and very often know
whether a therapy is the optimal one before it is tried, thus targeting only
those therapies appropriate to an individual's specific cancer and avoiding
the trauma, risk and cost of unnecessary treatment. In a significant number of
instances, IMPATH's analysis of particularly difficult cases has helped
doctors avoid misdiagnosis. The Company believes that significant cost savings
can be achieved through the relatively inexpensive but highly valuable
services provided by IMPATH. Furthermore, as an increased understanding of the
molecular basis of cancer leads to the development of new evaluation methods
and therapeutic tools, the information provided by IMPATH is expected to
become increasingly significant in optimizing the management of all phases of
cancer, including cancer predisposition, diagnosis, prognostic and therapeutic
assessment and treatment follow-up.

CANCER INFORMATION MARKET

Oncology analysis currently represents a small but important portion of the
overall clinical testing market and has significant growth opportunities. The
emphasis on cost-containment within the health care industry has placed a
heavy burden on the hospital laboratory. Hospitals are demanding more cost-
effective operations, while providing services which satisfy the medical
staff, encourage patient admissions, discourage patient transfers, and
generate maximum revenue. Thus the target hospitals are often faced with the
following choices: operating a small scale, under-utilized and costly immuno-
and molecular pathology laboratory in-house; referring these tests to a major
medical center, resulting in long turnaround service times and the possibility
of losing the patient entirely to that center; or referring the case to an
outside, independent laboratory, substantially all of which provide a limited
number of mostly automated tests with little or no analysis of test results.
IMPATH provides a valuable, cost-effective and expeditious alternative for
these hospitals by providing a single source for a broad range of
sophisticated, labor-intensive diagnostic and prognostic analyses for cancer
patients.

The continuing trend towards the organization of health care providers into
managed care networks that emphasize cost containment is the major focus of
medical delivery. IMPATH believes that, as a result of this trend, there will
be a major effort to outsource sophisticated cancer analysis in order to
optimize patient care and control costs. IMPATH is positioned to take
advantage of this trend by providing diagnostic and prognostic information
that is the basis for optimal and less costly therapy choices. In many cases,
unnecessary treatment can be avoided.

In the past decade, the oncology analysis industry has experienced many new
products and services resulting from the increased understanding of cancer and
its cellular and molecular biology.

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As new therapies emerge, management believes the demand for services which
provide information regarding specific diagnosis, prognosis and therapeutic
assessment for individual cancers will increase substantially. In fact, the
effort to identify new cancer therapies represents an enormous multinational
effort which is yielding, and is likely to continue to yield, a great many new
therapeutic options. IMPATH believes that it is in an ideal position to take
advantage of this growing and evolving market; its services are synergistic
with the development of new therapies because these therapies will often
require specific information about individual cancers to achieve optimal
effect. As such therapies become available to the public, they can only be
applied and evaluated using the types of information provided by IMPATH. Thus,
IMPATH believes it is well positioned to take advantage of the advances in
cancer therapy into the future.

COMPANY STRATEGY

The Company's objective is to be the leading cancer information company and
to become the comprehensive resource for integrating all aspects of the
management of cancer information. The Company believes that its position as a
leader in providing valuable information on cancer, its demonstrated expertise
in the application of sophisticated technologies for better and more cost-
effective treatment of cancer, its large case flow and diagnostic and
prognostic database and the distinguished reputation of its scientific staff
give the Company significant competitive advantages. The Company is pursuing
the following strategies to achieve its objective:

Focus on Cancer. IMPATH believes that a significant opportunity exists for a
company focused on combining sophisticated technologies with an expanding
knowledge base to provide information critical to the optimal evaluation and
treatment of cancer. IMPATH is providing advanced information for virtually
all forms of cancer, and has developed a special expertise in breast cancer.

Incorporate Evolving Technologies into Cancer Management. The Company
intends to continue to identify and incorporate new technologies that provide
better information about cancer. IMPATH's medical staff and scientific
consultants are leaders in the development and validation of technologies that
are, and will be, important in the evaluation of various cancers. The Company
seeks to consolidate its leadership in cancer information and management by
matching the changing therapeutic choices of the medical community with the
latest diagnostic tools of the research community. IMPATH has a well developed
relationship with the biotechnology industry which has resulted from its
extensive and continuing work to evaluate new technologies as they are being
developed. Although this area of business represents a very small portion of
the Company's revenues, it allows IMPATH to expand continuously its expertise
in emerging technologies.

Expand and Enhance Database. IMPATH has one of the most significant
knowledge bases related to the diagnosis, prognosis and treatment of cancer.
In addition, the significant volume of cases the Company reviews is also
enabling IMPATH to rapidly grow its diagnostic and prognostic database into
one of the largest and most comprehensive cancer databases and tissue
libraries in the world, with a specific emphasis on patient outcomes and
optimal treatment protocols. IMPATH expects to continue to link the data
obtained from diagnostic and prognostic analyses with therapy choice and
patient outcomes. The management of cancer information at all stages from
predisposition to monitoring of disease following therapy is expected to
position the Company to develop data regarding the medical value and cost-
effectiveness of various diagnostic and prognostic analyses, as well as the
efficacy of currently used and newly developed therapeutic regimens.
Management believes that this constantly expanding and evolving database will
result in the development of optimal protocols and will have a significant
impact on the management of cancer.

Establish Strategic Partnerships and Joint Ventures. The Company believes
that the most comprehensive and therefore the most valuable database will be
established through the coordinated

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efforts of groups that are key components in the cancer care network. During
1996, the Company plans to pursue strategic partnerships and joint ventures
with oncology networks, hospital groups, managed care companies and
pharmaceutical companies. Oncology networks, hospital groups and managed care
companies can provide the Company access to additional comprehensive patient
data for inclusion in IMPATH's database. A potential area of great synergy is
between IMPATH and groups developing new cancer therapies, including biotech
companies, pharmaceutical companies and research centers. As therapies evolve
to take advantage of new advances in the cellular and molecular basis of
cancer, a more detailed knowledge of an individual's cancer will be essential
in order to select those individuals that will benefit most from particular
approaches. IMPATH is well positioned with these groups to become an integral
part of the therapy development process. For example, IMPATH's prognostic
expertise can identify patient groups which are most likely to respond to a
new cancer treatment so that clinical trials of the treatment's efficacy can
be targeted to these patient groups. Also, IMPATH can assist physicians in
determining whether a new cancer treatment would be effective for a specific
patient's cancer. This will have the added advantage of demonstrating the
importance of the services provided by IMPATH. The Company has not entered
into any agreements or letters of intent with respect to any future strategic
partnerships or joint ventures.

Develop Managed Care Relationships. The organization of health care
providers into 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 IMPATH. A typical IMPATH case analysis costs
approximately $300 and provides the physician with the information to
potentially avoid ineffective courses of therapy costing many thousands of
dollars. The Company has targeted the managed care market by establishing
managed care provider contracts with organizations that are active within
current IMPATH accounts. The Company also intends to expand its presence in
managed care by aggressively marketing the cost effectiveness and patient
benefits of IMPATH's services, highlighting the savings that would result from
the information provided by the Company and assisting managed care companies
in developing cancer treatment protocols.

In order to achieve its goal, the Company has established a managed care
group within its sales organization including the Director of Sales and the
Director of Corporate Marketing. Management believes that the combined efforts
of the existing sales force and the managed care group will allow the Company
to expand significantly its presence in managed care.

Geographic Expansion. In December 1995, IMPATH established a facility in
Southern California, thereby expanding the Company's national presence.
California currently represents IMPATH's second largest market (after the New
York metropolitan area) and has the highest concentration of patients enrolled
in managed care. The California facility provides the Company with additional
operating capacity. Furthermore, the California facility broadens the
Company's technical capabilities by providing an added focus on molecular
analysis and cytogenetics. The Company incurred $785,000 in operating expenses
during 1995 in connection with this facility, reducing earnings for such
period. This facility will continue to have a negative effect on earnings
through at least the second quarter of 1996 or until it generates sufficient
incremental volume and revenues to cover the facility's operating expenses. In
general, geographic expansion involves expansion of the Company's sales force,
with focus on regions where the number of cancer cases and the market
potential warrant the presence of full-time sales representatives.

IMPATH believes that foreign markets in cancer information represent a
significant opportunity for the Company. IMPATH intends to pursue this
opportunity by partnering with foreign oncology networks or hospital groups.
These efforts will focus primarily on Europe, Southeast Asia, Japan, Canada
and Australia, as these regions represent areas where sophisticated treatment
technologies

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currently exist and therefore the demand for IMPATH's services will be
greatest. These areas also represent regions with the economic ability to
provide for the advanced types of cancer management that can best utilize the
Company's services.

Acquisitions. The Company intends to pursue selective acquisitions of
companies that will enhance its cancer management information base. These
acquisitions may be in three different areas: companies that have expertise
that is complementary to, and synergistic with, the Company's current
technologies; companies that are establishing tumor registries in hospitals;
and companies that have expertise in the evaluation of medical data and cost
analysis. The Company has not entered into any agreements or letters of intent
with respect to any future acquisitions.

COMPANY DIAGNOSTIC AND PROGNOSTIC SERVICES

IMPATH provides individualized diagnostic and prognostic information to
pathologists, oncologists and others specializing in the disease of cancer
through the use of sophisticated technologies. At present, approximately 65%
of the Company's revenues are derived from the provision of prognostic
analyses and 35% are derived from the provision of diagnostic analyses.

Recent advances in immunology, biochemistry and molecular biology have
created new tools with tremendous potential in the management of cancer
patients. IMPATH specializes in cancer tests that require a sophisticated
level of medical knowledge and technical expertise that is beyond the
capability of pathology laboratories in the average community hospital. In
fact, the expertise required to develop and maintain a high quality immuno-and
molecular pathology laboratory is found in a relatively small group of
individuals, almost all of whom are located at academic institutions and major
medical centers. The average community hospital pathologist does not see a
substantial volume or range of cases and therefore very rarely has the
experience in choosing the correct tests and in evaluating the data, or the
technical support for achieving high quality results. IMPATH addresses these
issues by virtue of extensive experience in developing and carrying out these
tests and by the background and expertise of its medical/technical/scientific
staff. IMPATH currently receives an average of over 180 cases a day. Because
IMPATH sees a great many of these cases each day, its professionals have been
able to expand on their considerable experience, and have been able to develop
individual areas of expertise. In contrast, a community hospital pathology
department may only see a few cases a day requiring advanced analysis; on an
individual basis, a pathologist may see particular types of cases very rarely.
Furthermore, the technical staff in a community hospital will only
occasionally perform the actual tests; the technicians will not have full time
responsibility for the assays, and will most likely work with prefabricated
kits. When assays do not work or are suboptimal, the technical and
professional personnel may not have the experience to recognize this. IMPATH's
in-house staff and consultants include internationally known experts in
immuno- and molecular pathology and highly experienced technologists.

Some of the diagnostic and prognostic analyses provided by the Company are
described below:

Pathology/Oncology Core Diagnostic Analyses. IMPATH's core diagnostic
analyses provide information regarding tumors that are difficult to diagnose
using conventional pathology procedures. Certain biopsy specimens cannot be
easily classified as a specific tumor type since many tumors are
morphologically very similar. This limitation is amplified when the specimen
is small. Furthermore, morphological examination alone is often insufficient
to establish the origin of a metastasized tumor. IMPATH's analyses are able to
provide information leading to a specific diagnosis in the vast majority of
these cases.

Pathology/Oncology Prognostic Analyses. IMPATH's prognostic tests provide
information to pathologists and oncologists regarding the aggressiveness of
the tumor. Although the tests described below are currently most commonly used
for breast cancer, they can also be applied to prostate, bladder and colon
cancer. These tests include hormone receptors, cell proliferation and/or DNA

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ploidy analysis, tumor suppressor gene products, oncogene expression and
examination of micrometastases in the lymph nodes and bone marrow.

--Hormone Receptors. The presence of estrogen and progesterone receptors in
breast cancer identifies women who are more likely to respond to a commonly
used therapy, i.e. hormonal manipulation of the tumor. This important test is
now required by the American College of Surgeons. The hormonal receptor
status, as examined by immunohistochemistry (IHC), has been shown to be better
correlated with clinical outcome than standard biochemical assays.
Furthermore, smaller tumor specimens, including fine needle aspirates (FNAs),
which are less invasive, less painful and less costly, can only be effectively
examined by IHC.

--Cell Proliferation and/or DNA Ploidy Analysis. Proliferative rate and
ploidy have been well documented as important prognostic indicators in many
cancers, including breast cancer. The ploidy compares the DNA content of a
tumor cell with that of a normal (diploid) cell. The proliferative rate
measures the percentage of cells that are actively dividing. High
proliferative rates and abnormal DNA content have been strongly correlated
with faster progression and earlier recurrences. Using image analysis and flow
cytometry, the DNA of the tumor can be examined by IMPATH on tissue specimens,
FNAs and other cytological specimens. IHC can also be used visually to
evaluate cell proliferation.

--Lymph Node Micrometastases. The single most reliable prognostic indicator
in breast and most other cancers is regional lymph node status. For breast
cancer, numerous studies have shown that survival rates are significantly
lower when metastases are found in the axillary lymph nodes after surgery.
However, according to the American Cancer Society, 25% to 30% of breast cancer
patients for whom routine pathological analysis indicates no lymph node
involvement will eventually experience a recurrence of their cancer. The basis
for breast cancer recurrences is the presence of undetected spread of tumor.
Technology developed by IMPATH's founders allows for the detection of
microscopic spread of cancer prior to detection by any other method. Studies
conducted by IMPATH's founders as well as others, have shown that as many as
25% of women with breast cancer initially thought to be localized to the
breast using traditional, standard methods have microscopic deposits of tumors
in their regional lymph nodes (lymph node micrometastases) not detectable by
any other method. There is evidence that the presence of occult
micrometastases identifies a group of patients with axillary node negative
breast cancer who are at a significantly increased risk for developing distant
metastases. The use of IHC significantly increases the ability to detect tumor
cells and allows for the accurate evaluation of occult metastases, i.e. small
numbers of tumor cells previously undetected by conventional hematoxylin and
eosin (H&E) analysis in lymph nodes. The detection of lymph node
micrometastases identifies patients who will most benefit from aggressive
adjuvant chemotherapy. Furthermore, identifying those patients who do not have
lymph node (or bone marrow) micrometastases may indicate the patients who will
not require such therapy, and who thus can be spared the pain, side effects
and substantial costs of chemotherapy.

--Bone Marrow Micrometastases. IMPATH believes that it is one of the very
few companies currently offering tests for the detection of micrometastases in
lymph nodes and bone marrow. The presence of bone marrow micrometastases in
patients with cancer, particularly breast, lung, colon and prostate cancers,
appears to be a clinically important variable which is predictive of early
recurrence and may be useful in identifying patients who are most likely to
benefit from more aggressive therapy. Furthermore, in patients undergoing
high-dose chemotherapy followed by autologous stem cell transplants, accurate
assessment of tumor cells in bone marrow harvests may be important for
accurately evaluating the response to therapy and in order to avoid reinfusing
the patient with cancerous cells. Examining the bone marrow tumor burden in
these patients following high dose chemotherapy may also be useful in tracking
the effectiveness of the treatment regimens. Evolving data strongly suggest
that IHC can be used to detect as few as two to five tumor cells in a
population of 1,000,000 normal bone marrow cells. This technique is
significantly superior to standard cytology in reliably evaluating the
presence of tumor cells in bone marrow.

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IMPATH's diagnostic and prognostic analyses are performed using three
principal technologies: immunohistochemistry, flow cytometry and image
analysis and molecular pathology.

Immunohistochemistry. IHC is a technique in which an antibody (often a
monoclonal antibody) is used to seek out and identify antigens characteristic
of specific diseases in cells. A skilled pathologist can then microscopically
examine the stained cells, and draw conclusions about the disease state,
aggressiveness and its metastatic potential, and the likely outcome of
therapy.

An example of the changes brought about by IHC is the analysis of steroid
hormone receptors in breast cancer. Analysis of steroid hormone receptors is
the most important test of breast cancer; it provides prognostic information
and also serves specifically to direct treatment by predicting the type of
therapy to which the tumor will respond. The analysis of hormone receptor
status in breast cancer has been traditionally performed using a biochemical
assay. In this assay, a piece of tissue is frozen, ground up, and mixed with
radioactively labeled hormones; the degree of radioactive uptake by the tissue
is then assessed. This assay has several problems: tissue must be rapidly
frozen, it is not possible to determine if the ground-up tissue actually
contained cancer, and there is no good possibility of storing the samples for
future analysis. Despite such shortcomings, this is the test that virtually
all facilities currently use. IHC has now been shown to be superior to
standard biochemical assays for the determination of hormone receptor content
in breast cancer. IHC tests are more rapid, can be used on smaller tissue
samples and have less stringent requirements for specimen storage and
transport. Furthermore, the results of IHC tests have now been shown more
accurately to determine outcome. It should be noted that there are
approximately 180,000 breast cancers diagnosed annually; only a fraction are
currently tested by IHC. However, because tumors are being diagnosed earlier,
i.e. from smaller specimens, and because IHC is a superior technology, the
Company expects that there will be a gradual but significant conversion to
breast cancer receptor analysis being performed by IHC. The IHC test is more
technically and professionally demanding, requiring greater experience and
professional interpretation. This is the method used by IMPATH to determine
hormone receptor content. Pathologists are not required to change the way they
process tissue specimens in order to take advantage of IMPATH's IHC analyses.
Furthermore, tissue analyzed using IHC can be stored for future use.

Flow Cytometry and Image Analysis. Various components of tumor cells can be
quantified by one of two methods: image analysis and flow cytometry. In image
analysis, a pathologist selects the area to be examined. Then a computerized
image analyzer measures the component based on staining intensity. Flow
cytometry is an alternative technique which requires a large number of cells
to be examined. The tumor specimen is disaggregated into single cells, stained
with the appropriate marker(s), passed through a funnel-like device and
analyzed by an optical reader.

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

Currently, molecular pathology is primarily used at major academic centers.
In situ-hybridization (ISH) which IMPATH employs on a limited basis,
represents one of the first commercial applications of the technology. In
terms of technique, ISH is similar to IHC except that a DNA probe is used
rather than a monoclonal antibody. This technology has proved extremely useful
in the sensitive diagnosis of infectious disease. Another technique of
molecular pathology is the amplification of specific DNA sequences by
polymerase chain reaction (PCR). PCR is the most sensitive method for
detecting alterations in DNA. Another extremely useful way of examining
chromosomes is through the examination of their architecture, using
cytogenetics. Cytogenetic analysis of tumors has become extremely useful in
the diagnosis or prognostic assessment of lymphomas, leukemias, soft tissue
cancers (sarcomas), and pediatric cancers. IMPATH expects this technology will
become more useful in adult tumors (such as colon, lung, and prostate cancer)
as well in the near future.

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All of these molecular pathology techniques are being used, are under
development or will be developed in the near future at IMPATH, consistent with
IMPATH's strategy of facilitating the transfer of new technologies from the
academic environment to the commercial marketplace. IMPATH's strategy is to
integrate all of these technologies in order to provide comprehensive cancer
information. Currently, even when these technologies exist at academic medical
centers, they exist in different departments; and management believes that
there is no real integration of information, except what the clinician and
pathologist are able to piece together. IMPATH believes it is in a unique
position to provide all of these advanced technologies in the integrated way
that will be necessary to address the overall management of cancer.

FOCUS ON CANCER MANAGEMENT

IMPATH's core business has been focused on the central role of pathology in
cancer management and it is the only company with this focus. IMPATH's
strategy is to concentrate on the use of evolving technologies to address
virtually all of the shortcomings of traditional cancer assessment. The
Company believes that this role will be critical to the efficient coordination
and optimal implementation of the integrated management of cancer. As it
implements this strategy, IMPATH's business will affect all phases and
specialties of cancer as described below:

Predisposition. In the large majority of cancers, genetic defects occur in
the course of an individual's life which may lead to the development of
cancer. However, in some cases an individual has an inherited predisposition
for developing certain types of cancer. It is possible that the genes
responsible for this inheritance pattern may be identified prior to the overt
manifestation of that cancer. It is believed that as many as 5% of certain
types of cancers are based at least in part on this inheritable
predisposition. IMPATH currently possesses the technology capable of detecting
the genetic defects associated with predisposition to certain cancers. While
very few of these genes have been identified to date (for example, genes
responsible for the inherited form of colon cancer, breast cancer, ovarian
cancer and retinoblastoma), this is a very active area of research at academic
medical centers. As these genes are identified, IMPATH will be in the position
to screen for these types of inheritable cancers.

Diagnosis. Although most tumors can be characterized based on visual
examination by the pathologist, as many as 15% of all cancers (180,000 per
year in the U.S. alone) defy specific classification by this method. This may
result in treatment decisions that are approximated, incorrect or ineffective
leading to unnecessary repeated treatment, complications and increased cost.
Traditionally, this information has been based on a purely morphological
assessment of the origin of the cancer and the extent of spread, i.e., what
does the tumor look like under the microscope (for example, does it look like
breast cancer?) and can the pathologist see it in various metastatic sites
(such as, regional lymph nodes and bone marrow). While this type of
morphological assessment is well accepted, it has important and critical
limitations. For example, as described above, up to 15% of all cancers defy
traditional morphological assessment. More importantly, morphological
assessment is able to provide very little information about the biological
aggressiveness of an individual cancer and can provide virtually no meaningful
information regarding the specific type of treatment to which the individual
will respond.

IMPATH has shown that in a majority of these cases the use of advanced
technologies and the medical expertise provided by IMPATH leads to the
accurate diagnosis, thus ensuring optimization of therapy, greater
predictability of outcome, increased survival and decreased overall costs.
Furthermore, this eliminates the need for other costly and nonspecific
detection procedures (i.e. MRI, CT scans), decreases the length of hospital
stays, and leads to the most effective treatment program.

Prognosis. 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 more rationally to treat
that cancer. For example, one breast cancer may have a "low" biological
aggressiveness, and may therefore have a very low propensity to recur, while
another

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breast cancer (which looks identical under the microscope) may be very
aggressive. These tumors should be treated very differently, but may not be if
these differences are not identified. IMPATH provides the prognostic expertise
to differentiate such difficult cases, providing the oncologist with the
critical information necessary to treat appropriately patients with maximum
effectiveness as well as minimal pain and cost.

Treatment Determination. In an increasing number of cancer cases, IMPATH
also provides information that can help to predict the specific types of
therapy to which a tumor will, or will not, respond. For example, in the case
of breast cancer, IMPATH's expertise allows for the determination of whether
or not the patient is likely to respond to specific types of hormonal
treatment and chemotherapy before they are tried. This type of information is
becoming increasingly available for other types of tumors as well. The Company
believes that these technologies will become essential for optimal cancer
management.

Treatment Follow-up. Once a cancer has been diagnosed, assessed and treated,
the patient must undergo many years of follow-up care. This care not only
provides for the treatment of therapeutic complications (often resulting from
inappropriate therapy due to inaccurate diagnosis and insufficient assessment)
but is designed to determine, at the earliest possible time, if a patient has
suffered a recurrence. IMPATH's expertise is capable of providing highly
sensitive patient monitoring in an increasing number of cancers. For example,
the Company is able to establish whether or not certain types of lymphomas
have recurred prior to their detection by any other method, including serum
testing. The identification of tumor recurrence at the earliest possible time
increases the likelihood of a beneficial therapeutic response. From a
strategic perspective, cancer treatment follow-up requires multiple patient
contacts and repeat analysis, which will be increasingly beneficial to the
Company's revenue stream.

Breast Cancer Management--A Model

IMPATH believes that it is the leader in providing the most comprehensive
prognostic information essential to the management of breast cancer. The
Company provided patient-specific prognostic information on 12% of all such
cases in the U.S. last year and over 26% of cases diagnosed in the New York
metropolitan area, the Company's largest market. The Company's special
expertise in breast cancer has not only allowed it to play a significant role
in optimizing patient specific breast cancer treatment nationwide but has also
allowed it to be well positioned to develop the most comprehensive outcomes
focused database in breast cancer.

Breast cancer is the most common cancer in women in the United States. In
1995, 182,000 cases were diagnosed and over 46,000 women died of this disease.
While the incidence of breast cancer has been increasing, the number of deaths
resulting from this disease has been slowly but steadily decreasing; this is
despite the fact that there have been few advancements in treatment options.
It is now widely recognized that earlier detection (by mammography and self
examination) has played a significant role in decreased mortality. However, a
significant advancement in the management of breast cancer has been the
development of technologies that provide patient specific information that
allows oncologists to optimize treatment for each individual woman's cancer.

Although breast cancer management is more advanced than that of any other
cancer, there are still significant issues that remain unanswered. It has been
shown that as many as 25% to 30% of the women who are diagnosed with localized
disease (confined to the breast) actually have tumors that have already
metastasized. Traditional methods of breast cancer analysis cannot identify
who these individuals are. Confronted with this possibility, oncologists are
faced with the dilemma of having to treat everybody with chemotherapy, whether
or not they will benefit from such therapy.

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Research focused on determining the biological aggressiveness of breast
cancer (prognostic analysis) has been and continues to be extremely active and
has led to major discoveries. These discoveries have fundamentally impacted on
the way that breast cancer must be assessed. For example, the Her-2/neu
oncogene identifies tumors which are more biologically aggressive and
therefore require more intensive treatment. The Her-2/neu oncogene may also
identify breast cancers which are resistant to certain types of chemotherapy.

The basis of breast cancer recurrence is the presence of undetected spread
of tumor. Technology developed by IMPATH's founders allows for the detection
of microscopic spread of tumor prior to detection by any other method. Studies
conducted by IMPATH's founders and others have shown that as many as 25% of
women with breast cancer initially thought to be localized to the breast have
microscopic deposits of tumor in their regional lymph nodes (lymph node
micrometastases) not detectable by any other method. These women have twice
the risk of developing overt breast cancer metastases. In addition, about 30%
of women with breast cancer who have no evidence of spread to the body
(systemic metastasis) have microscopic deposits of tumor in their bone marrow
(bone marrow micrometastases); these women recur at much higher rates. The
detection of lymph node and bone marrow micrometastases identifies women at
greatly increased risk for breast cancer recurrence; these are the individuals
who may benefit from aggressive adjuvant chemotherapy. The detection of
micrometastases allows for a substantially modified treatment in these
individuals. It also allows for the identification of patients who do not need
such therapy, and who do not need to suffer the pain and side effects of
chemotherapy. These and other discoveries regarding the aggressiveness of
cancer have greatly affected the management of this disease.

It is now possible to identify the specific type of treatment to which the
breast cancer might respond. The model for treatment selection is the
evaluation of a breast cancer's response to hormonal manipulation through the
identification of specific hormone receptors (i.e. estrogen and progesterone).
IMPATH is the leader in the tissue based analysis of estrogen and progesterone
receptors. IMPATH provides oncologists with the ability to identify the
response of an individual's breast cancer to a specific form of therapy before
therapy commences, reducing the trial and error historically prevalent in
cancer treatment.

The identification of these prognostic and treatment determinants is
essential to improved patient specific management of breast cancer. Among the
important results of these advances is the ability to identify patients who
have more aggressive cancers and who therefore require more intensive therapy.
Just as important, these advances allow for the identification of women who
have less aggressive cancers that do not require additional treatment, thus
sparing these women from the harmful short- and long-term consequences of
treatments designed for aggressive cancers and resulting in a significant
decrease in pain, risk and total treatment cost. This is increasingly true for
other cancers as well.

Management of Other Cancers

The integration of prognostic information into the management of cancer is
happening for other cancers as well. As medical research progresses and as
increasing numbers of treatment options evolve, IMPATH believes that its
expertise will play an ever increasing role in the decision making processes
for all cancers.

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

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The determination of patient-specific characteristics in optimizing therapy
is becoming essential as more outcomes-related biological determinants are
defined. Important examples of this are mutations in tumor suppressor genes
(such as p53 and Rb) and oncogenes (such as Her-2/neu). The presence of these
mutations in a patient with specific types of tumors (e.g. bladder, breast or
colon) identifies the biological aggressiveness of that individual's tumor.
Other characteristics help to establish the responsiveness to therapy, e.g. if
a patient's cancer has the multi drug resistance (MDR) receptor, his/her tumor
will be unresponsive to many forms of therapy including taxol.

Furthermore, the most significant problem in treating cancer is the
accurate, early assessment of disease dissemination, i.e. metastases. IMPATH
has a special expertise in identifying the presence of lymph node and bone
marrow micrometastases at times earlier than that detected by any other
method. This analysis is now useful in correct staging of prostate, colon or
lung cancers and increasingly in other types of cancers.

Information that establishes the biological aggressiveness of an
individual's tumor and predicts response to therapy for that particular
patient is crucial to optimizing outcome for that patient. IMPATH's expertise
and growing importance in this area, as well as IMPATH's access to increasing
numbers of patient specimens, will allow it to continue to expand its
comprehensive database for predicting outcomes in various types of cancer.
This database will be increasingly valuable in the medically optimal and cost
effective management of the cancer patient.

Integration of Cancer Management Information

The consolidation of oncology practices into comprehensive coordinated
cancer treatment groups and the increasing presence of other types of managed
care organizations in the oncology marketplace are based on the ability of
these groups to provide high quality and cost-effective cancer care. IMPATH
believes that it can provide these groups with information that is critical
for optimizing cancer management. This information will become even more
important to these groups as a result of IMPATH's outcomes oriented database
which will provide for optimal utilization of resources in a cost-effective
manner.

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

In addition to providing important information regarding cancer diagnosis,
prognosis, treatment determinants and patient follow-up, IMPATH also expects
to be a major resource in providing information regarding cancer
predisposition. As a result, IMPATH's expertise can direct and optimize all of
the complex and multidisciplined decisions that must be made in the
comprehensive management of a patient with cancer.

SALES AND MARKETING

Sales Force. As of June 30, 1996, the Company's sales force consisted of 24
employees, including a Director of Sales, two full-time Regional Managers, two
part-time Regional Managers and 19 sales representatives. The IMPATH sales
force consists of highly trained individuals with extensive scientific
backgrounds and successful sales records with health care companies. IMPATH
believes that the technical and clinical knowledge of its sales force
distinguishes it from other companies.

30
<PAGE>

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

EMPLOYEES

As of June 30 1996, the Company had 123 full-time and 36 permanent part-time
employees, of which 40 were management, administrative and clerical personnel,
29 were engaged primarily in marketing and sales activities and 90 were
engaged in laboratory and related operations. None of the Company's employees
is covered by collective bargaining agreements. The Company believes its
employee relations are good.

OPERATIONS

The Company's operations emphasize (i) customer service, including
comprehensive detailed reports, and (ii) quality assurance procedures.

Customer Service; Reports

The Company emphasizes customer service, including the provision of a
comprehensive detailed report to the referring physician after each analysis
is completed. In general, the Company returns its completed analysis and
report to the referring physician or clinician within 48 hours of receipt of
the tissue specimen, compared with 14 days or more for academic institutions.
The Company also employs several customer service representatives, who are
responsible for inquiries made by referring physicians and provide support for
the Company's sales staff.

The Company's reports summarize the qualitative and quantitative result of
each analysis, with each result being categorized as favorable, borderline or
unfavorable. Supporting data for any DNA analyses are provided in a histogram.
When appropriate, the report will include a brief interpretation by the
Company's medical staff. On the back of each report, IMPATH provides
information regarding the analyses performed and the basis for the medical
staff's interpretation, including a description of each analysis, the range of
results and selected references to the analyses in medical publications. These
references serve to educate pathologists and clinicians, many of whom may not
be familiar with the analyses performed by IMPATH, as well as to provide
authoritative support for the accuracy and validity of such analyses. IMPATH's
management believes that the Company's report format is superior to others in
the industry.

Quality Assurance

IMPATH engages in quality control procedures, many of which are not in
common practice. For instance, its facilities do not buy untested commercially
available reagent test kits. Instead, each of IMPATH's reagents is selected
from various suppliers based on an exhaustive in-house test of purity, batch-
to-batch variability, potency and performance. IMPATH believes that its
quality review procedures are unmatched in industry and in 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 Company's

31
<PAGE>

facilities are CAP accredited, certified by Medicare, licensed by New York
State, the City of New York and the State of California, and licensed under
the Clinical Laboratories Improvement Act of 1967 ("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 and New York City
agencies.

The Company's New York and California facilities are supervised by medical
directors whose qualifications meet all regulatory requirements. Their primary
role is to ensure the accuracy and quality of the Company's analyses. As a
further quality assurance procedure, the Company occasionally undergoes peer
review with third-party facilities, including Norris Cancer Center and
Memorial Sloan-Kettering Cancer Center. The Company's most recent peer review
occurred in January 1996, and the results of such peer review were
satisfactory to the Company.

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. The CAP is an
independent nongovernmental organization of board-certified pathologists which
offers an accreditation program to which facilities can voluntarily subscribe.
The CAP accreditation program involves both periodic inspections of the
Company's facilities and participation in the CAP's proficiency testing
program for all categories in which its facilities seek to attain or maintain
accreditation.

COMPETITION

The Company provides services in a segment of the health care industry that
is highly fragmented and extremely competitive. The Company's actual or
potential competitors include large university or teaching hospitals; large
clinical laboratories that have substantially greater financial, marketing,
logistical and laboratory resources than the Company; special purpose clinical
laboratories that have limited test offerings and a highly focused product and
marketing strategy; and the Company's customers or potential customers who may
choose to perform services similar to those performed by the Company. It is
anticipated that competition will continue to increase due to such factors as
the perceived potential for commercial applications of biotechnology and the
continued availability of investment capital and government funding for
cancer-related research. According to the Health Care Financing Administration
("HCFA"), there are over 12,000 federally regulated clinical laboratories,
including the 4,000 independent clinical laboratories, which might be deemed
actual or potential competitors for the testing business of a cancer-treating
physician. There are several large clinical laboratory companies which market
a broad range of services nationally, and which have substantially greater
financial, selling, logistical and laboratory resources than the Company.
These companies typically offer hundreds of different tests. Management
believes that these companies compete in general on quality, price and the
time required to report results. They are in general not prepared to provide
the type of intensive, highly technical, patient-specific service that IMPATH
believes the market requires. In addition, management has identified a number
of specialized clinical laboratories in the U.S. established since 1987 which
have limited test offerings and a highly focused product and marketing
strategy.

Competitive factors aiding the Company's business include a highly skilled
medical staff, and a close relationship with founders and consultants who
continue to provide new technologies, expertise and direction. IMPATH also has
a highly trained and knowledgeable sales force and markets its services based
on the quality of service to physicians, accuracy of test results and speed of
turnaround (i.e., 48 hours for IMPATH's standard tests compared with 14 days
or more for academic centers). Unlike IMPATH, sales forces of most clinical
laboratories market hundreds of test services, making it more difficult for
them to be thoroughly familiar with the clinical applications of the
individual tests that they offer, particularly new clinical tests. In
addition, academic institutions, which perform

32
<PAGE>

some of the same tests as the Company, typically do not have substantial
financial and marketing resources and the pathology laboratories at large
regional hospitals are generally dedicated to servicing their resident and
affiliated physicians.

REIMBURSEMENT

During 1993, 1994, 1995 and the six months ended June 30, 1996, the Company
received the following estimated percentages of its total revenues for
diagnostic and prognostic services from the respective payors identified
below:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
PAYOR YEAR ENDED DECEMBER 31, JUNE 30,
- ----- --------------------------- ----------
1993 1994 1995 1996
------- ------- ------- ----
<S> <C> <C> <C> <C>
Hospitals.............................. 48% 45% 43% 38%
Private Insurance/Managed Care......... 26 29 29 34
Medicare............................... 21 22 24 25
Individual Patients.................... 5 4 4 3
------- ------- ------- ---
Total................................ 100% 100% 100% 100%
======= ======= ======= ===
</TABLE>

Medicare is a federal health insurance program which provides health
insurance coverage for certain disabled persons, for persons aged 65 and older
and for certain persons with end stage renal disease. Medicaid is the state
administered and state and federally funded program for certain low income
individuals. During the years ended December 31, 1993, 1994, and 1995 and the
six months ended June 30, 1996, the Company recorded net revenues of
approximately $1,352,000, $2,207,000, $3,576,022 and $2,384,000, respectively,
from Medicare and at the end of such periods accounts receivable from
Medicare, net of allowance for doubtful accounts, were approximately $258,000,
$320,000, $578,000 and $1,488,000, respectively. To date, the Company has
derived no revenues from the Medicaid program. 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
copayments and deductibles.

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

Reimbursement rates for some services of the type or similar to the type
performed by the Company have been established by Medicare and some other
third-party payors, but have not been established for all services or by all
carriers with respect to any particular service. Most carriers, including
Medicare, do not cover services they determine to be experimental or
investigational, or otherwise not reasonable and necessary for diagnosis or
treatment. However, a formal coverage determination is made with respect to
relatively few new procedures. When such determinations do occur for Medicare
purposes, they most commonly are made by the local Medicare carrier which
processes claims for reimbursement within the carrier's geographic
jurisdiction. The Company currently receives Medicare reimbursement through
two Medicare carriers. Medicare may retroactively audit and review its
payments to the Company, and may determine that certain payments for services
must be repaid. 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

33
<PAGE>

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.

Medicare Payment for Physician Pathology Services. The 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. A Final Notice updating the RBRVS
payment methodology, published November 25, 1992, as well as updates issued
subsequently, have not had any significant effect on the Company's
reimbursement rates. There have been proposals to reform the RBRVS system by
using a single conversion factor rather than the current three and by making
changes to the way in which fees are updated. The Company cannot predict
whether any of the proposals will be enacted or what the potential impact of
any of the proposed changes to the RBRVS will be on the Company's future
Medicare reimbursement.

REGULATORY MATTERS

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, purchase of existing businesses, cost containment,
direct employment of licensed professionals by business corporations and other
aspects of the Company's business relationships. The various types of
regulatory activity affect the Company's business either by controlling its
growth, restricting licensure of the business entity or by controlling the
reimbursement for services provided.

Laboratory Licensure. The Company's facilities are certified or licensed
under the federal Medicare program and CLIA, as amended by the Clinical
Laboratory Improvement Amendments of 1988 ("CLIA '88"). Licensure is
maintained under the clinical laboratory licensure laws of New York and
California, 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 both facilities are accredited by CAP.

The federal and state certification and licensure programs establish
standards for the day-to-day operation of facilities, including, but not
limited to, personnel and quality control. Compliance with such standards is
verified by periodic inspections by inspectors employed by federal or state
regulatory agencies. As of March 1996, clinical facilities with exceptional
performance, i.e., no deficiencies and satisfactory proficiency testing, are
eligible to participate in the Alternate Quality Assessment Survey, which is a
self-survey for recertification instead of an on-site survey every two years.
HCFA will continue to survey participating laboratories at least every four
years, instead of every two, and will perform random on-site surveys every two
years of a sample of laboratories using the new system, in order to verify the
new system's effectiveness. 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
licensure 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 facility. The Company has reviewed
the Final Rule (and subsequent revisions thereto), including, among other
things, the rule's requirements regarding facility administration,
participation

34
<PAGE>

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.

Anti-Kickback/Self-Referral Regulations. The Social Security Act imposes
criminal penalties and exclusion from the Medicare program upon persons who
make or receive kickbacks, bribes or rebates in connection with the Medicare
program. 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 Medicare-covered
service or item or ordering any such covered service or item. In order to
provide guidance with respect to the anti-kickback rules, the Office of the
Inspector General ("OIG") issued final regulations outlining certain "safe
harbor" practices, which although potentially capable of inducing prohibited
referrals, would not be prohibited if all applicable requirements are met. A
relationship which fails to satisfy a safe harbor is not necessarily illegal,
but could be scrutinized on a case-by-case basis.

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, as there is
currently no procedure for advisory opinions from government officials. The
Congressional Republican proposal provides for the issuance of interpretive
rulings by the OIG, upon request. Exclusion of the Company from the Medicare
program could result in a significant loss of reimbursement and have a
significant adverse effect on the Company.

Under another provision, known as the "Stark" law or "self-referral"
prohibition, physicians who have an investment or compensation relationship
with an entity furnishing clinical laboratory services (including pathology
services) may not, subject to certain exceptions, refer clinical laboratory
analyses for Medicare patients to that entity. Similarly, facilities may not
bill Medicare or any other party for services furnished pursuant to a
prohibited referral. Violation of these provisions may result in disallowance
of Medicare claims for the affected analysis services, as well as the
imposition of civil monetary penalties and program exclusion. Under OBRA '93,
a provision added to the Stark law allows a physician to 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, without the payments meeting any particular pricing standards. On
August 14, 1995, HHS published the Final Rule, with comment, implementing the
Stark law. Under the Final Rule, HCFA declined to interpret the OBRA '93 rule
with respect to pricing standards. The Final Rule does make clear however,
that supplies or services, other than clinical laboratory services, purchased
by a physician from a clinical laboratory must be at fair market value.

A number of states, including New York and California, have enacted similar
prohibitions to the Stark law covering referrals of non-Medicare as well as
Medicare 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 has no 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

35
<PAGE>

by HHS, any state, or any other regulatory authority, would have a material
adverse effect on the Company's business. Any significant civil monetary or
criminal penalty resulting from such proceedings could have a material adverse
effect on the Company.

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

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

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

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

PROPERTIES

The Company's main facility and executive offices are located at 1010 Third
Avenue, New York, New York, where the Company leases approximately 10,300
square feet of space under four leases expiring in August 1999. The leases
provide for minimum aggregate annual rental payments of approximately
$278,000. The Company is also required to pay for repairs, property taxes and
insurance relating to this facility. The Company believes that its facility is
well maintained, in good operating condition and is adequate for its current
needs. The Company believes that it can renew its leases or enter into a new
lease for equivalent space on commercially reasonable terms.

The Company's California facility and offices are located at 5230 Pacific
Concourse Drive, Los Angeles, California, where the Company has entered into a
lease expiring November 2000 for approximately 16,400 square feet of space.
This facility commenced operations in December 1995. The lease provides for
minimum annual rental payments of approximately $281,000. The Company is also
required to pay for repairs, property taxes and insurance relating to this
facility.

LEGAL PROCEEDINGS

From time to time, the Company is a party to various legal proceedings
incidental to its business. The Company believes that none of these legal
proceedings will have a material adverse effect on the Company's financial
position, results of operations or liquidity.

36
<PAGE>

INSURANCE

The Company is presently covered by general liability insurance in the
amount of $6,000,000 per occurrence and $7,000,000 in the aggregate and has
obtained professional liability insurance in the amount of $1,000,000 per
occurrence and $3,000,000 in the aggregate for the Company's Medical Directors
and other individuals who practice medicine in the course of their duties. The
Company's liability insurance 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.

37
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The following table sets forth certain information regarding the executive
officers and directors of the Company.

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Anu D. Saad, Ph.D....... 39 President, Chief Executive Officer and Director
John P. Gandolfo........ 35 Executive Vice President, Chief Operating Officer
and Chief Financial Officer
Rogelio R. Rojas-Corona, 55 Vice President, Medical Affairs and Medical Director,
M.D.................... Western Division
Bruce C. Horten, M.D.... 53 Medical Director, Eastern Division
Richard P. Adelson...... 31 Director of Sales
Yiatin Chu.............. 29 Director of Corporate Marketing
John L. Cassis.......... 48 Chairman of the Board and Director
Richard J. Cote, M.D.... 41 Director
Richard Kessler......... 65 Director
Joseph A. Mollica....... 55 Director
Marcy H. Shockey........ 42 Director
David B. Snow, Jr....... 41 Director
</TABLE>

The following is a brief summary of the business experience of each of the
executive officers and directors of the Company:

ANU D. SAAD, PH.D. President and Chief Executive Officer and a director. Dr.
Saad has been the Company's President, Chief Executive Officer and a director
since late 1993. Prior to that, she was the Company's Scientific Director and
Director of Business Development. Before joining the Company in 1990, Dr. Saad
was Assistant Professor of Cell Biology and Anatomy at Cornell University
Medical College/New York Hospital. Dr. Saad has published extensively and has
been the recipient of many awards, including those from the National Institute
of Health, Muscular Dystrophy Association, Andrew W. Mellon Foundation,
Charles H. Revson Foundation, Inc. and the American Cancer Society. Dr. Saad
received her Bachelor's Degree from the University of Pennsylvania and her
Ph.D. in Developmental Biology from the University of Chicago.

JOHN P. GANDOLFO. Executive Vice President, Chief Operating Officer and
Chief Financial Officer. Mr. Gandolfo has been Executive Vice President and
Chief Financial Officer of the Company since April 1994 and Chief Operating
Officer of the Company since November 1995. From 1987 through March 1994, Mr.
Gandolfo served as Controller, Senior Vice President and Chief Financial
Officer of Medical Resources Inc., a publicly held medical diagnostic imaging
management company. Mr. Gandolfo was employed at the accounting firm of Price
Waterhouse from 1982 to 1986, and with Dow Jones Telerate, Inc. in 1987. Mr.
Gandolfo, a Certified Public Accountant, received his B.A. in Economics and
Business Administration from Rutgers University.

ROGELIO R. ROJAS-CORONA, M.D. Vice President, Medical Affairs and Medical
Director, Western Division. Prior to joining IMPATH, Dr. Rojas-Corona was
Division Head of Immunopathology and Chief of the Immunology Laboratory at
Montefiore Medical Center. Dr. Rojas-Corona was trained at Harvard University,
Indiana University Medical Center, the University of Pittsburgh, Albert
Einstein College of Medicine and Montefiore Medical Center. He was also
Assistant Professor of Pathology at Albert Einstein College of Medicine. He
earned his M.D. from the National University of Mexico.

38
<PAGE>

BRUCE C. HORTEN, M.D. Medical Director, Eastern Division. Dr. Horten
received his anatomic pathology training at New York Hospital-Cornell
University Medical College, and clinical pathology training at the University
of California, San Francisco and completed a neuropathology fellowship with
Lucien Rubinstein at Stanford University. Dr. Horten earned his M.D. from Duke
University. Dr. Horten has been a member of the pathology staffs at the
University of California-San Francisco, Memorial Sloan-Kettering Cancer Center
and most recently at Lenox Hill Hospital. He continues to serve as a
consultant at Lenox Hill Hospital and an instructor in pathology at Cornell
University Medical College.

RICHARD P. ADELSON. Director of Sales. Mr. Adelson has been Director of
Sales since August 1994. From January 1992 to August 1994, Mr. Adelson served
as District and Regional Sales Manager for the New York Metro Region. Mr.
Adelson received his Bachelor's Degree in Biology from the State University of
New York at Albany and did graduate studies at the Harvard School of Dental
Medicine. Prior to joining IMPATH, Mr. Adelson was a Sales Representative for
Surgipath Medical Industries, Inc., a medical equipment company.

YIATIN CHU. Director of Corporate Marketing. Ms. Chu has been Director of
Corporate Marketing since July 1994. In addition to managing new product
introductions, Ms. Chu is responsible for overseeing research studies. Since
August 1991, she has also served as Project Manager and Director for IMPATH's
biotechnology services. Ms. Chu received her Bachelor's Degree in Economics
from the State University of New York at Binghamton and received her M.B.A.
from Boston University.

JOHN L. CASSIS. Chairman of the Board of Directors. Mr. Cassis has been the
Chairman of the Board since 1993 and a director since 1991. Mr. Cassis joined
Hambro America Biosciences, Inc. in 1994 as a co-founder. Prior to that, he
was a director of Salomon Brothers Inc, where he co-founded Salomon Brothers
Venture Capital in 1986 and headed it from 1990 to 1994. From 1976 to 1981, he
was a Managing Director of Ardshiel Associates Inc., a merchant bank. In 1972,
Mr. Cassis was employed by Johnson & Johnson where he founded the J&J
Development Corp., that firm's venture capital arm, and was J&J's Manager of
Acquisitions. Mr. Cassis is currently on the Board of Directors of Articulate
Systems Inc., LifeQuest Medical Inc., and Ilex Oncology Inc, and is Chairman
of the Board of Directors of Dome Imaging Systems, Inc. Mr. Cassis received
his Bachelor's Degree and M.B.A. from Harvard University.

RICHARD J. COTE, M.D. Founder, Consulting Immunopathologist and a director.
Dr. Cote has been a director since 1988. Dr. Cote is Attending Pathologist at
the Kenneth J. Norris Cancer Center and an Associate Professor of Pathology at
the University of Southern California. He was trained at the University of
Michigan, Cornell University Medical College/New York Hospital and Memorial
Sloan-Kettering Cancer Center. Dr. Cote holds patents on monoclonal antibody
technology and is a leader in the developmental use of monoclonal antibodies
in cancer diagnosis and prognosis. Dr. Cote is also known for his work in
breast, prostate and bladder cancers and in the immunopathological analysis of
cancer. Dr. Cote has been or is on the Scientific Advisory Boards of Johnson &
Johnson and Neoprobe Corporation, and is a consultant to various national and
international organizations, such as the National Cancer Institute. Dr. Cote
graduated Phi Beta Kappa from the University of California with a B.S. in
Biology and a B.A. in Chemistry. He received his M.D. from the University of
Chicago Pritzker School of Medicine.

RICHARD KESSKER. Director. Mr. Kessler has been a director since 1991. Mr.
Kessler is a private investor and is President of Empire City Capital
Corporation and President and Managing Partner of various closely held
corporations and partnerships with a broad base of investments. Mr. Kessler
received his Bachelor's Degree in Economics from Colgate University.

JOSEPH A. MOLLICA. Director. Mr. Mollica has been a director since 1995. Mr.
Mollica is the Chairman and Chief Executive Officer of Pharmacopeia, Inc., a
Princeton, New Jersey-based company engaged in the field of research to
discover low molecular weight drug compounds using

39
<PAGE>

combinatorial chemistry and automated high throughput screening. Prior to
joining Pharmacopeia, Mr. Mollica was President and Chief Executive Officer of
DuPont Merck Pharmaceutical Company. He also served as Vice President, Medical
Products for DuPont, and Senior Vice President of Ciba-Geigy Corp. Mr. Mollica
is currently on the Boards of USP, Inc. and Biotechnology Council of New
Jersey. He received his Bachelor's Degree from the University of Rhode Island
and his M.S. and Ph.D. from the University of Wisconsin.

MARCY H. SHOCKEY. Director. Ms. Shockey has been a director since 1994. Ms.
Shockey has been a general partner of Middlewest Ventures, II, L.P., a venture
capital limited partnership, since 1988. From 1981 to 1988, Ms. Shockey made
investments for The Allstate Venture Capital Division, primarily in early
stage companies. These included Altera Corp., DM Management Company, (Inc.),
Kenetech Corporation, Rehab Systems Company and Advo-Systems Inc. From 1978 to
1981, Ms. Shockey was employed by First Chicago's First Scholar Program. Ms.
Shockey also serves as a director of First Merchants Acceptance Corporation,
LNS Group Inc. and Wes-Tech Inc. Ms. Shockey received her Bachelor's Degree
from Denison University and her M.B.A. from the University of Chicago.

DAVID B. SNOW, JR. Director. Mr. Snow has been a director since 1995. Mr.
Snow has been the Executive Vice President of Oxford Health Plans, Inc. since
1993. He is responsible for the Marketing, Medical Delivery/Health Services
and Government Programs for the 850,000 member managed health care company, as
well as serving as President of several Oxford subsidiaries. From 1988 to
1992, Mr. Snow was co-founder and President of Managed Healthcare Systems,
Inc. ("MHS"), a managed health care company committed to the development and
operation of Medicaid managed care programs. Prior to MHS, Mr. Snow worked for
U.S. Healthcare Inc., as Chief Operating Officer and subsequently President of
their 300,000 member HMO subsidiary called Health Maintenance Organization of
New Jersey, Inc. Mr. Snow received his Bachelor's Degree in Economics from
Bates College and his Masters Degree in Health Care Administration from Duke
University.

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

The current directors were elected to the Board pursuant to the terms of a
shareholders' agreement. Effective upon the completion of the Offering, such
shareholders' agreement will terminate.

40
<PAGE>

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors has a Compensation Committee, an Audit Committee and
a Nominating Committee. The members of the Compensation Committee are John L.
Cassis, Richard Kessler and Marcy H. Shockey. The Compensation Committee makes
recommendations to the full Board as to the compensation of senior management,
administers the Company's 1989 Stock Option Plan and determines the persons
who are to receive options and the number of shares subject to each option.

The members of the Audit Committee are John L. Cassis, Joseph A. Mollica and
Marcy H. Shockey. The Audit Committee acts as a liaison between the Board and
the independent accountants and annually recommends to the Board the
appointment of the independent accountants. The Audit Committee reviews with
the independent accountants the planning and scope of the audits of the
financial statements, the results of those audits and the adequacy of internal
accounting controls and monitors other corporate and financial policies.

The members of the Nominating Committee are John L. Cassis, Richard J. Cote,
M.D., Anu D. Saad, Ph.D. and Marcy H. Shockey. The Nominating Committee
recommends to the Board of Directors nominees for election as directors of the
Company.

COMPENSATION OF DIRECTORS

The Company pays its directors who are not employees of the Company a fee of
$1,000 for each directors' meeting and committee meeting attended. During
1995, the Company granted each of the current outside directors stock options
to purchase 10,632 shares of Common Stock at a purchase price of $3.50 per
share. The options vest ratably on a monthly basis over the next three years.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

All executive officer compensation decisions have been made by the
Compensation Committee of the Board of Directors. The Compensation Committee
reviews and makes recommendations regarding the compensation for management
and key employees of the Company, including salaries and bonuses. No member of
the Compensation Committee is an executive of the Company. The current members
of the Compensation Committee are John L. Cassis, Richard Kessler and Marcy H.
Shockey.

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EXECUTIVE COMPENSATION

The following table sets forth compensation paid or awarded by the Company
during the fiscal year ended December 31, 1995 to the Company's Chief
Executive Officer and each of the Company's next four most highly compensated
executive officers whose total annual salary plus bonus exceeded $100,000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------
ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1)(2)
- --------------------------- ---------- --------- ------------------
<S> <C> <C> <C>
Anu D. Saad, Ph.D. .................... $ 165,000 $ 50,000 $ --
President and Chief
Executive Officer
John P. Gandolfo ...................... 140,000 30,000 758
Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
Rogelio R. Rojas-Corona, M.D. ......... 210,000 -- 1,143
Vice President, Medical Affairs
and Medical Director, Western Division
Bruce C. Horten, M.D. ................. 200,000 -- 1,083
Medical Director, Eastern Division
Richard P. Adelson .................... 90,000 45,000 617
Director of Sales
</TABLE>
- --------
(1) The dollar value of perquisites and other personal benefits was less than
the lesser of $50,000 or 10% of the total annual salary and bonus for each
of the named executive officers, and, accordingly, has been omitted.
(2) Consists of contributions made by the Company to the Retirement Plan (as
hereinafter defined) on behalf of such executive officer.

The following table sets forth the number and value of options held by the
executive officers of the Company named in the Summary Compensation Table at
December 31, 1995. No options held by such executive officers were exercised
during the fiscal year ended December 31, 1995.

AGGREGATED FISCAL YEAR END
OPTION VALUES AT DECEMBER 31, 1995

<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
DECEMBER 31, 1995 DECEMBER 31, 1995(1)
------------------------------- -------------------------
NAME EXERCISABLE(2) UNEXERCISABLE(2) EXERCISABLE UNEXERCISABLE
- ---- -------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Anu D. Saad, Ph.D....... 89,719 71,524 $955,483 $727,726
John P. Gandolfo........ 8,326 20,025 85,050 201,294
Rogelio R. Rojas-Corona,
M.D.................... 21,801 172 267,626 1,866
Bruce C. Horten, M.D.... 3,537 5,323 36,997 55,679
Richard P. Adelson...... 3,539 7,093 36,891 71,609
</TABLE>
- --------
(1) The value of the options is based upon the difference between the exercise
price and an assumed market value of $13.00, the initial public offering
price.
(2) Reflects the effectiveness of a 1-for-2.8218735 reverse split of the
outstanding shares of Common Stock.

42
<PAGE>

The Company maintains a $3,000,000 term life insurance policy on the life of
Anu D. Saad, Ph.D., the President and Chief Executive Officer of the Company.
The Company is the beneficiary of such insurance policy.

STOCK OPTION PLAN

The Company sponsors the 1989 Stock Option Plan (the "Plan"). Under the
Plan, options to purchase up to an aggregate of 884,688 shares of Common Stock
may be granted to key employees, directors and consultants of the Company, of
which 768,190 had been granted prior to June 30, 1996.

The following discussion of the material features of the Plan is qualified
by reference to the text of the Plan filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.

The Plan is administered by the Compensation Committee (the "Committee") of
the Board of Directors which determines the persons who are to receive options
and the number of shares to be subject to each option. In selecting
individuals for options and determining the terms thereof, the Committee may
take into consideration any factors it deems relevant including present and
potential contributions to the success of the Company. Options granted under
the Plan must be exercised within a period fixed by the Committee, which may
not exceed ten years from the date of the grant of the option or, in the case
of incentive stock options granted to any holder on the date of grant of more
than ten percent of the total combined voting power of all classes of stock of
the Company, five years from the date of grant of the option. Options may be
made exercisable in whole or in installments, as determined by the Committee.

Options may not be transferred other than by will or the laws of descent and
distribution and during the lifetime of an optionee may be exercised only by
the optionee. The exercise price may not be less than the par value of the
Common Stock or, in the case of incentive stock options, not less than the
fair market value of the Common Stock on the date of grant of the option. In
the case of incentive stock options granted to any holder on the date of grant
of more than ten percent of the total combined voting power of all classes of
stock of the Company and its subsidiaries, the exercise price may not be less
than 110% of the market value per share of the Common Stock on the date of
grant. Unless designated as "incentive stock options" intended to qualify
under Section 422 of the Internal Revenue Code of 1986 (the "Code"), options
which are granted under the Plan are intended to be "nonstatutory stock
options". The exercise price may be paid in cash, shares of Common Stock owned
by the optionee, or in a combination of cash and shares.

The Plan provides that, in the event of changes in the corporate structure
of the Company or certain events affecting the Common Stock, the Board of
Directors may, in its discretion, make adjustments with respect to the number
of shares which may be issued under the Plan or which are covered by
outstanding options, in the exercise price per share, or both. The Board of
Directors may in its discretion provide that in connection with any merger or
consolidation involving the Company or any sale or transfer by the Company of
all or substantially all its assets, all outstanding options under the Plan
will become exercisable in full on or prior to the effective date of the
merger, consolidation, sale or transfer.

As of June 30, 1996, options to purchase 637,277 shares of Common Stock were
outstanding under the Plan and 116,498 shares of Common Stock remained
available for future grants of stock options.

401(K) RETIREMENT SAVINGS PLAN

Effective June 1, 1995, the Company implemented the Impath Inc. 401(k)
Retirement Savings Plan (the "Retirement Plan"). The purpose of the Retirement
Plan is to provide employees of the Company with an opportunity to save for
retirement on a tax advantaged basis.

43
<PAGE>

All employees are eligible to participate in the Retirement Plan as of the
January 1 or July 1 following completion of six months of service with the
Company and attainment of age 21. The Retirement Plan permits employees to
defer receipt of a portion of their compensation in accordance with Section
401(k) of the Code, and have it contributed, by way of payroll deductions, to
the Retirement Plan. An employee's interest in his or her 401(k) contributions
is fully vested at all times. The Retirement Plan also provides for a Company
matching contribution of 25% of the first 4% of compensation contributed by an
employee. For plan participants who were employed as of the effective date of
the Retirement Plan, Company matching contributions are fully vested and for
plan participants who became employees subsequent to that date, Company
matching contributions vest over a three-year period.

An employee generally will be entitled to payment of his or her account
balance under the Retirement Plan upon retirement (usually at age 65), death,
permanent disability or other termination of employment. Payment under the
Retirement Plan will be made in the form of a lump sum.

LIMITATION OF LIABILITY AND INDEMNIFICATION

The certificate of incorporation of the Company (the "Certificate") provides
that a director of the Company shall not be personally liable to the Company
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for the unlawful payment of dividends or unlawful stock purchases
under Section 174 of the Delaware General Corporation Law (the "Delaware
Law"), or (iv) for any transaction from which the director derived any
improper personal benefit. If the Delaware Law is amended to eliminate further
or limit the personal liability of directors, then the liability of a director
of the Company shall be eliminated or limited to the fullest extent permitted
by the Delaware Law, as so amended. Any repeal or modification of such
provision of the Certificate by the stockholders of the Company shall be
prospective only and shall not adversely affect any right or protection of a
director of the Company existing at the time of such repeal or modification.

While the Certificate provides directors with protection from awards for
monetary damages for breaches of their duty of care, it does not eliminate
such duty. Accordingly, the Certificate will have no effect on the
availability of equitable remedies such as an injunction or rescission based
on a director's breach of his or her duty of care. The provisions of the
Certificate described above apply to an officer of the Company only if he or
she is a director of the Company and is acting in his or her capacity as
director, and do not apply to officers of the Company who are not directors.

The Certificate provides that, to the fullest extent permitted by Section 145
of the Delaware Law, or any comparable successor law, as the same may be
amended and supplemented from time to time, the Company (i) may indemnify all
persons whom it shall have power to indemnify under the Delaware Law from and
against any and all of the expenses, liabilities or other matters referred to
in or covered thereby, (ii) shall indemnify each such person if he is or is
threatened to be made a party to an action, suit or proceeding by reason of
the fact that he is or was a director, officer, employee or agent of the
Company or because he was serving the Company or any other legal entity in any
capacity at the request of the Company while a director, officer, employee or
agent of the Company and (iii) shall pay the expenses of such a current or
former director, officer, employee or agent incurred in connection with any
such action, suit or proceeding in advance of the final disposition of such
action, suit or proceeding. The Certificate further provides that the
indemnification and advancement of expenses provided for therein shall not be
deemed exclusive of any other rights to which those entitled to
indemnification or advancement of expenses may be entitled under any by-law,
agreement, contract or vote of stockholders or disinterested directors or
pursuant to the direction (however embodied) of any court of competent
jurisdiction or otherwise, both as to action in his official capacity and as
to action in another capacity while holding such office, and shall continue as
to a person who

44
<PAGE>

has ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.

SCIENTIFIC CONSULTANTS

The Company has consulting agreements with a number of scientists (the
"Consultants") with expertise in the Company's core services and technologies
who are consulted from time to time by the Company. The Consultants assist the
Company in identifying new technologies which may be useful in the Company's
business.

The current Consultants are as follows:

RICHARD J. COTE, M.D. Founder, director and Consulting Immunologist. Dr.
Cote's background is described under "Management--Directors and Executive
Officers of the Company."

CARLOS CORDON-CARDO, M.D., PH.D. Founder, Consulting Immunobiologist and
Molecular Biologist. Dr. Cordon-Cardo is Director, Division of Molecular
Pathology at Memorial Sloan-Kettering Cancer Center where he is an Associate
Member. Dr. Cordon-Cardo is also Associate Professor of Pathology at Cornell
University Medical College. He is recognized for his work in tumor biology and
molecular analysis of human cancers, mainly in the area of bladder and
prostatic carcinomas, melanoma and soft tissue sarcomas. Dr. Cordon-Cardo has
worked extensively on oncogenes, tumor suppressor genes and multi-drug
resistance receptors as they relate to the diagnosis and prognosis of human
neoplasms. Dr. Cardon-Cardo received his M.D. from the Autonomous University
of Barcelona, School of Medicine, and his Ph.D. in Cell Biology and Genetics
from Cornell University Medical College.

JUAN ROSAI, M.D. Consulting Pathologist. Dr. Rosai is the James Ewing Alumni
Chairman of Pathology at Memorial Sloan-Kettering Cancer Center and Professor
of Pathology at Cornell University. Previously, he was Professor of Pathology
and Director of Anatomic Pathology, Department of Pathology, Yale University
School of Medicine. Dr. Rosai is internationally recognized in the field of
tumor pathology, particularly in the fields of thyroid, mediastinal and
vascular tumors. Dr. Rosai received his M.D. from the University of Buenos
Aires, Argentina.

CHARLES L. HITCHCOCK, M.D., PH.D. Consulting Pathologist for Flow and Image
Cytometry. Dr. Hitchcock is an Assistant Professor of Pathology at The Ohio
State University and The Arthur G. James Cancer Hospital and Research
Institute. He was trained at the University of Florida, and previously was the
Director of the Flow Cytometry Laboratory, Department of Cellular Pathology,
at the Armed Forces Institute of Pathology. Dr. Hitchcock is recognized for
his work in flow cytometric analyses. Dr. Hitchcock received his M.D. and
Ph.D. in anatomy from The Ohio State University.

VICTOR REITER, M.D. Consulting Uropathologist. Dr. Reuter is an Associate
Member at Memorial Sloan-Kettering Cancer Center and Associate Attending
Pathologist at Memorial Hospital. Dr. Reuter has done extensive work in the
morphologic, cytogenetic and molecular characterization of genitourinary
tumors. He received his M.D. degree from Universidad Nacional Pedro Henriquez
Urena in the Dominican Republic and his anatomic and clinical pathology
training at Thomas Jefferson University Hospital.

CLIVE R. TAYLOR, M.D. Consulting Pathologist. Dr. Taylor is the Chairman of
the Department of Pathology at the University of Southern California and the
Director of Laboratories at the Los Angeles County/University of Southern
California Medical Center. He is also on the attending staff at Kenneth
Norris, Jr. Cancer Hospital and Research Institute. Dr. Taylor received his
M.D. from Emmanuel College at the University of Cambridge and his Ph.D. from
the Oxford University Clinical Medical School.

45
<PAGE>

The Consultants are reimbursed for their expenses, receive cash compensation
in connection with their service and have been issued options to purchase
shares of Common Stock. The Consultants have been granted stock options to
purchase a total of 105,439 shares at a weighted average exercise price of
$4.91 per share. The Consultants are all employed by, or have consulting
agreements with, entities other than the Company, some of which may compete
with the Company. The Consultants are expected to devote only a small portion
of their time to the business of the Company, although no specific time
commitment has been established. They are not expected to participate actively
in the Company's affairs or in the development of the Company's technology.
Certain of the institutions with which the Consultants are affiliated may
adopt new regulations or policies that limit the ability of the Consultants to
render services to the Company, which could adversely affect the Company to
the extent that the Company is pursuing development in areas of such
Consultants' expertise. To the extent the Consultants have consulting
arrangements with or become employed by any competitor of the Company, the
Company could be materially adversely affected.

Any inventions or processes independently discovered by the Consultants will
likely not become the property of the Company and will probably remain the
property of such persons or of such persons' employers. In addition, the
institutions with which the Consultants are affiliated may make available the
research services of their personnel, including the Consultants, to
competitors of the Company pursuant to sponsored research agreements. The
Company requires the Consultants to enter into confidentiality agreements
which prohibit the disclosure of confidential information to anyone outside
the Company. However, no assurance can be given that competitors of the
Company will not gain access to trade secrets and other proprietary
information developed by the Company and disclosed to the Consultants.

46
<PAGE>

CERTAIN TRANSACTIONS

ISSUANCE OF SERIES D PREFERRED STOCK AND WARRANTS

In February 1995, the Company issued an aggregate of 1,612,904 shares of
Series D Convertible Participating Preferred Stock, $.01 par value (the
"Series D Stock"), for a purchase price of $1.21 per share, and warrants, for
a purchase price of $1.13 per warrant share, to purchase an aggregate of
42,529 shares of Common Stock at an exercise price of $3.50 per warrant share
(after giving effect to a 1-for-2.8218735 reverse split of the outstanding
shares of Common Stock) to certain investors, including 1,092,279 shares and
28,799 warrants to Cross Atlantic Partners K/S ("CAP"); 188,949 shares and
4,982 warrants to Middlewest Ventures, II, L.P.; 186,457 shares and 4,916
warrants to Salomon Brothers Holding Company, Inc. ("SBHC"), an affiliate of
Salomon Brothers Inc; 62,173 shares and 1,640 warrants to PB-SB 1985
Investment Partnership VII ("PB-SB"), an affiliate of Salomon Brothers Inc;
20,161 shares and 532 warrants to Anu D. Saad, Ph.D., President, Chief
Executive Officer and a director of the Company; 8,064 shares and 213 warrants
to John P. Gandolfo, Executive Vice President and Chief Financial Officer of
the Company; and 6,048 shares and 160 warrants to Rogelio R. Rojas-Corona,
M.D., Vice President, Medical Affairs and Medical Director, Western Division
of the Company. The aggregate purchase price for the Series D Stock and the
warrants was $2,000,000 (before issuance costs). One of the general partners
of Middlewest Ventures, II, L.P. is Marcy H. Shockey, a director of IMPATH;
and John L. Cassis, the Chairman of the Board of the Company, may be deemed to
beneficially own the shares held by SBHC, PB-SB and CAP, which beneficial
ownership Mr. Cassis disclaims. The holders of the Series D Stock are entitled
to receive quarterly dividends at a rate per annum of $.0994 per share, when
and if declared by the Board of Directors. The liquidation value of the Series
D Stock is $1.24 per share plus accrued but unpaid dividends thereon. The
warrants may be exercised at any time on or before February 10, 2001. After
giving effect to the 1-for-2.8218735 reverse split of the outstanding shares
of Common Stock, each share of Series D Stock was converted into 0.35437 of a
share of Common Stock immediately prior to the completion of the Company's
initial public offering on February 26, 1996. At the closing price on July 8,
1996 of $17.75 per share, the combined unrealized gain on such shares and
warrants would be $5,926,781 for CAP, $1,025,253 for Middlewest Ventures, II,
L.P., $1,011,727 for SBHC, $337,365 for PB-SB, $109,401 for Dr. Saad, $43,761
for Mr. Gandolfo and $32,824 for Dr. Rojas-Corona.

47
<PAGE>

PRINCIPAL STOCKHOLDERS AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of July 1, 1996 (except as otherwise noted
below), and after giving effect to the Offering, by (i) each of the Selling
Stockholders, (ii) each person who is known by the Company to beneficially own
more than five percent of the Common Stock, (iii) each of the Company's
directors, (iv) each of the executive officers named in the Summary
Compensation Table and (v) all executive officers and directors as a group.
Except as otherwise indicated, the persons named in the table have sole voting
and investment power with respect to all shares beneficially owned, subject to
community property laws where applicable.

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49
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50
<PAGE>

51
<PAGE>

52
<PAGE>

53
<PAGE>

54
<PAGE>

55
<PAGE>

56
<PAGE>

57
<PAGE>

58
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59
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60
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63
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<PAGE>

<TABLE>
<CAPTION>
ASSUMING SALE OF ALL SHARES
PRIOR TO OFFERING SUBJECT TO THE OFFERING
----------------------- MAXIMUM --------------------------------
NUMBER OF NUMBER OF NUMBER OF
NAME AND ADDRESS OF SHARES PERCENTAGE OF SHARES SHARES PERCENTAGE OF
BENEFICIAL OWNER HELD(1) OWNERSHIP(1) OFFERED HELD(1) OWNERSHIP(1)
------------------- --------- ------------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Anu D. Saad, Ph.D.(5)... 119,112 2.2 7,677 111,425 2.1
John P. Gandolfo(6)..... 17,621 * 3,071 14,550 *
Rogelio R. Rojas-Corona,
M.D.(7)................ 82,160 1.6 57,430 24,730 *
Bruce C. Horten,
M.D.(8)................ 5,368 * 0 5,368 *
Richard P. Adelson(9)... 5,633 * 0 5,633 *
John L. Cassis(10)++.... 6,641 * 802 5,839 *
Richard J. Cote,
M.D.(11)............... 105,393 2.0 70,655 34,738 *
Richard Kessler(12)..... 128,406 2.4 119,863 8,543 *
Joseph A. Mollica(13)... 2,953 * 0 2,953 *
Marcy H. Shockey(14).... 3,543 * 0 3,543 *
David B. Snow, Jr.(15).. 2,953 * 0 2,953 *
Directors and officers
as a group (13 persons)
(5), (6), (7), (8),
(9), (10), (11), (12),
(13), (14), (15),
(16)................... 486,873 8.9 258,696 228,477 4.2
</TABLE>
- --------
* Indicates ownership percentage of less than one percent.
+ Indicates beneficial ownership as of August 20, 1996.
++ Indicates beneficial ownership as of September 27, 1996.
(1) Amounts and percentages include outstanding warrants or options which are
exercisable within 60 days of July 1, 1996.
(2) Includes 4,916 shares issuable pursuant to currently exercisable
warrants. Does not include 3,826 shares held by PB-SB Ventures, Inc., a
wholly-owned subsidiary of SBHC and the sole general partner of PB-SB.
Does not include 41,365 shares sold by PB-SB between August 20, 1996 and
October 4, 1996. By virtue of the relationship between SBHC and PB-SB
Ventures, Inc., SBHC may be deemed to beneficially own shares of Common
Stock held by PB-SB Ventures, Inc.
(3) Includes 28,799 shares issuable pursuant to currently exercisable
warrants.
(4) Includes 4,982 shares issuable pursuant to currently exercisable
warrants.
(5) Includes 111,435 shares issuable pursuant to currently exercisable stock
options and 532 shares issuable pursuant to currently exercisable
warrants.
(6) Includes 14,550 issuable pursuant to currently exercisable stock options
and 213 shares issuable pursuant to currently exercisable warrants.
(7) Includes 22,555 shares issuable pursuant to currently exercisable stock
options and 160 shares issuable pursuant to currently exercisable
warrants.
(8) Includes 4,868 shares issuable pursuant to currently exercisable stock
options.
(9) Includes 5,133 shares issuable pursuant to currently exercisable stock
options.
(10) Includes 3,839 shares issuable pursuant to currently exercisable stock
options and 2,000 shares held by Tower Hall Profit Sharing Trust for the
benefit of Mr. Cassis. Does not include shares beneficially owned by
SBHC, PB-SB or CAP. The shares beneficially owned by SBHC, PB-SB and CAP
may be deemed to be beneficially owned by Mr. Cassis. Mr. Cassis
disclaims any such beneficial ownership.
(11) Includes 34,238 shares issuable pursuant to currently exercisable stock
options.
(12) Includes 3,543 shares issuable pursuant to currently exercisable stock
options.
(13) Consists of 2,953 shares issuable pursuant to currently exercisable stock
options.
(14) Consists of 3,543 shares issuable pursuant to currently exercisable stock
options. Does not include shares beneficially owned by Middlewest
Ventures, II, L.P., of which Ms. Shockey is a general partner, or
Middlewest Ventures, I, L.P., which designated her as a director of
IMPATH. See "Management." The shares beneficially owned by Middlewest
Ventures, II, L.P. and Middlewest Ventures, I, L.P. may be deemed to be
beneficially owned by Ms. Shockey. Ms. Shockey disclaims any such
beneficial ownership.
(15) Consists of 2,953 shares issuable pursuant to currently exercisable stock
options.
(16) Includes 9,488 shares issuable pursuant to currently exercisable stock
options held by another officer of the Company.

65
<PAGE>

CAPITAL STOCK OF THE COMPANY

The following description of the Company's capital stock does not purport to
be complete and is subject in all respects to applicable Delaware law and to
the provisions of the Company's Certificate and By-laws, copies of which have
been filed as exhibits to the Registration Statement of which this Prospectus
is a part.

The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock and 1,000,000 shares of Preferred Stock, issuable in one or more
series. As of July 5, 1996, there were 5,269,837 shares of Common Stock issued
and outstanding (excluding treasury shares) held of record by approximately 79
stockholders and 679,806 shares of Common Stock will be issuable upon the
exercise of outstanding options and warrants.

COMMON STOCK

Holders of Common Stock are entitled to one vote per share on all matters
which, pursuant to the Delaware Law, require the approval of the Company's
stockholders, other than matters relating solely to another class of stock. In
the event of a liquidation, dissolution or winding up of the Company, holders
of Common Stock are entitled to participate ratably in all distributions to
the holders of Common Stock after payment of liabilities and satisfaction of
any preferential rights of holders of Preferred Stock. Holders of Common Stock
are not entitled to any preemptive rights. Subject to any preferences that may
be applicable to any outstanding shares of Preferred Stock, holders of Common
Stock are entitled to receive cash dividends ratably on a per share basis if
and when such dividends are declared by the Board of Directors from funds
legally available therefor.

The rights, preferences and privileges of holders of shares of Common Stock
are subject to, and may be adversely affected by, the rights of holders of
shares of any series of Preferred Stock which the Company may designate and
issue in the future.

PREFERRED STOCK

The Board of Directors of the Company is authorized to provide for the
issuance by the Company of Preferred Stock in one or more series and to fix
the rights, preferences, privileges, qualifications, limitations and
restrictions thereof, including, without limitation, dividend rights, dividend
rates, conversion rights, voting rights, terms of redemption or repurchase,
redemption or repurchase prices, limitations or restrictions thereon,
liquidation preferences and the number of shares constituting any series or
the designation of such series, without any further vote or action by the
stockholders. The issuance of any series of Preferred Stock may have an
adverse effect on the rights of holders of Common Stock, and could decrease
the amount of earnings and assets available for distribution to holders of
Common Stock. In addition, any issuance of Preferred Stock could have the
effect of delaying, deferring or preventing a change in control of the
Company.

Since its formation, the Company has issued an aggregate of 5,579,820 shares
of Convertible Participating Preferred Stock, $.01 par value (the "Redeemable
Preferred Stock"), in three series. The Series A Redeemable Preferred Stock,
the Series B Redeemable Preferred Stock and the Series C Redeemable Preferred
Stock originally had cumulative preferred dividends at the annual rate of 9%.
The holders of the Series A, Series B and Series C Redeemable Preferred Stock
had the right to cause the Company to redeem the shares at a redemption price
equal to $.76 per share, $.88 per share and $.90 per share, respectively, plus
accrued but unpaid dividends. The redemption rights vested over three-year
periods. In connection with the issuance of the Series D Stock, the terms of
the outstanding Series A, B and C Redeemable Preferred Stock were amended to
eliminate all

66
<PAGE>

previously existing redemption rights, eliminate all previously accrued
dividends and change the dividend rate to 8%. After giving effect to the 1-
for-2.8218735 reverse split of the outstanding shares of Common Stock, on
February 26, 1996 each outstanding share of Preferred Stock was automatically
converted into 0.35437 of a share of Common Stock.

The Company has no present plans to issue any additional shares of Preferred
Stock.

WARRANTS

The holders of the Warrants, which were issued in February 1995, have the
right, prior to February 10, 2001, to purchase 42,529 shares of Common Stock
at $3.50 per share, taking into account a 1-for-2.8218735 reverse split of the
outstanding shares of Common Stock.

PURPOSES AND EFFECTS OF CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION
AND BY-LAWS

The description set forth below of certain provisions of the Certificate and
the By-laws of the Company (the "By-laws") is intended as a summary only and
is qualified in its entirety by reference to the Certificate and the By-laws,
the forms of which are included as exhibits to the Registration Statement of
which this Prospectus is a part.

Number of Directors; Removal; Vacancies; Special Meetings; Quorum. The By-
laws provide that the number of directors of the Company may be fixed from
time to time by vote of the stockholders or of the Board of Directors, but
that the number of directors which constitutes the whole Board shall be no
less than five. Except where a vacancy on the Board is created pursuant to the
removal of a director as described below or where vacancies occur
contemporaneously in the offices of all of the directors, which vacancies will
be filled by the stockholders, vacancies may be filled by a majority of the
directors then in office or by a sole remaining director. The By-laws provide
that directors may be removed from the Board, with or without cause, by the
affirmative vote of the Company's stockholders holding a majority of the
shares of the Common Stock.

The By-laws further provide that special meetings of the Board of Directors
may be called by the Chairman of the Board, Vice-Chairman of the Board or by
the President, any director or the holders of 40% of the outstanding shares of
Common Stock. The presence of a majority of the directors constituting the
Board of Directors shall constitute a quorum for the transaction of business
at any regularly held or special meeting of the Board.

Special Meetings; Actions by Written Consent; Advance Notice Provisions. The
By-laws provide that except as otherwise provided by Delaware Law, special
meetings of stockholders of the Company may only be called by resolution of
the Board of Directors, by the President or by the holders of 40% of the
outstanding shares of Common Stock. The By-laws also require advance notice of
any special meeting of the Company's stockholders to be delivered to each
stockholder entitled to vote at such a meeting.

Amendment of Certain Provisions of the Certificate and By-laws. Under
Delaware Law, the stockholders have the right to adopt, amend or repeal the
by-laws and, with the approval of the board of directors, the certificate of
incorporation of a corporation. In addition, subject to the terms of one or
more series of preferred stock as designated from time to time by the Board of
Directors, the Certificate provides that the By-laws may be adopted, altered
or repealed by the Board of Directors.

67
<PAGE>

ANTITAKEOVER LEGISLATION

Section 203 of the Delaware Law provides that, subject to certain exceptions
specified therein, a corporation shall not engage in any business combination
with any "interested stockholder" for a three-year period following the date
that such stockholder becomes an interested stockholder unless (i) prior to
such date, the board of directors of the corporation approved either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder, (ii) upon consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding
certain shares), or (iii) on or subsequent to such date, the business
combination is approved by the board of directors of the corporation and by
the affirmative vote of at least 66% of the outstanding voting stock which is
not owned by the interested stockholder. Except as specified in Section 203 of
the Delaware Law, an interested stockholder is defined to include (x) any
person that is the owner of 15% or more of the outstanding voting stock of the
corporation, or is an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation, at
any time within three years immediately prior to the relevant date and (y) the
affiliates and associates of any such person.

Under certain circumstances, Section 203 of the Delaware Law makes it more
difficult for a person who would be an "interested stockholder" to effect
various business combinations. The Certificate does not exclude the Company
from the restrictions imposed under Section 203 of the Delaware Law. It is
anticipated that the provisions of Section 203 of the Delaware Law may
encourage companies interested in acquiring the Company to negotiate in
advance with the Board of Directors, since the stockholder approval
requirement would be avoided if a majority of the directors then in office
approve, prior to the time the stockholder becomes an interested stockholder,
either the business combination or the transaction which results in the
stockholder becoming an interested stockholder.

STOCK TRANSFER AGENT

The transfer agent for the Common Stock will be American Stock Transfer &
Trust Company, New York, New York.

68
<PAGE>

PLAN OF DISTRIBUTION

The shares offered hereby may be offered and sold from time to time by the
Selling Stockholders, or by pledgees, donees, transferees or other successors
in interest. Such offers and sales may be made from time to time through the
Nasdaq National Market or otherwise, at prices and on terms then prevailing or
at prices related to the then-current market price, or in negotiated
transactions. The methods by which the shares may be sold may include, but are
not limited to, the following: (a) a block trade in which the broker or dealer
so engaged will attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction; (b)
purchases by a broker or dealer as principal and resale by such broker or
dealer for its account; (c) an exchange distribution in accordance with the
rules of such exchange; (d) ordinary brokerage transactions and transactions
in which the broker solicits purchasers; (e) privately negotiated
transactions; (f) short sales; and (g) a combination of any such methods of
sale. In effecting sales, brokers or dealers engaged by the Selling
Stockholders may receive commissions or discounts from the Selling
Stockholders or from the purchasers in amounts to be negotiated immediately
prior to the sale. The Selling Stockholders may also sell shares in accordance
with Rule 144 under the Securities Act.

The Selling Stockholders and any brokers and dealers participating in such
sales may be deemed to be "underwriters" within the meaning of the Securities
Act. There can be no assurance that the Selling Stockholders will sell any or
all of the shares offered hereby.

The Company is bearing all of the costs relating to the registration of the
shares, except commissions, discounts or other fees payable to a broker,
dealer, underwriter, agent or market maker in connection with the sale of any
of the shares, all of which will be borne by the Selling Stockholders. The
Company will not receive any of the proceeds from the Offering, except that it
will receive $148,852 upon the exercise of the warrants.

Pursuant to the registration rights granted to the Selling Stockholders, the
Company has agreed to indemnify the Selling Stockholders and any person who
controls a Selling Stockholder against certain liabilities and expenses
arising out of or based upon the information set forth or incorporated by
reference in this Prospectus, and the Registration Statement of which this
Prospectus is a part, including liabilities under the Securities Act. Any
commissions paid or any discounts or concessions allowed to any broker,
dealer, underwriter, agent or market maker and, if any such broker, dealer,
underwriter, agent or market maker purchases any of the shares as principal,
any profits received on the resale of such shares, may be deemed to be
underwriting commissions or discounts under the Securities Act.

LEGAL MATTERS

The validity of the Common Stock being offered hereby will be passed upon
for the Company by Haythe & Curley, 237 Park Avenue, New York, New York 10017.

EXPERTS

The financial statements of Impath Inc. as of December 31, 1994 and 1995 and
for each of the years in the three-year period ended December 31, 1995,
included herein and elsewhere in the registration statement, have been
included herein and in the registration statement in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.

69
<PAGE>

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.

BACKGROUND: Usually refers to excess staining, beyond the intended target
tissue/organelle.

BIOPSY: Removal of tissue from the body for diagnostic reasons.

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

CLINICAL: Pertaining to the symptoms and course of a disease.

CYTOLOGY: The study of cells.

DIAGNOSIS: The process for deciding what disease is present.

DIPLOID: Having two sets of chromosomes (one set from each parent) as normally
found in the somatic cells of higher organisms.

DNA: Deoxyribonucleic acid. The biochemical constituents of chromosomes.

EOSIN: A pink/red cytoplasmic dye.

ESTROGEN RECEPTOR: A protein which specifically binds to estrogen and mediates
its biological activity. When present in breast and other cancers, predicts
response to hormonal therapy.

FINE NEEDLE ASPIRATE OR FNA: Specimen acquired through insertion of a thin
needle into a lesion whereby cells are withdrawn using negative pressure.

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

HEMATOXYLIN: A blue dye for staining cell nucleii.

HER-2/NEU: Oncoprotein (product of an oncogene); overexpression is a negative
prognostic indicator in many cancers, including breast and ovarian carcinoma.

HISTOGRAM: Two dimensional graph of data (i.e. content vs. cell number).

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

IMAGE ANALYZER: Instrument consisting of a microscope, camera and computer,
used to quantify cellular components that have been marked or stained.

IMMUNOHISTOCHEMISTRY (IHC): Technique that uses antibodies to identify and
mark antigens expressed by cells in tissues.

IN SITU-HYBRIDIZATION: Use of labeled fragments of DNA (probes) that can bind
(hybridize) to specific, complementary sequences.

LYMPH NODES: Small nodular bodies 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.

MICROMETASTASES: Presence of a small number of tumor cells, particularly in
the lymph nodes and bone marrow, not readily detected by standard methods.

70
<PAGE>

LYMPHOMA: Any neoplasm of lymphoid tissue.

MONOCLONAL ANTIBODY: An antibody produced by a single clone of cells
comprising a single species of antibody molecules. Reacts with only one
antigen.

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.

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

ONCOLOGY: The study of cancer.

P53: A tumor suppressor gene. Mutations in the p53 gene are associated with
many different cancers, and are related to cancer progression.

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

PLOIDY: The number of chromosomal sets, e.g. diploid.

PROGNOSTIC: Referring to potential future behavior of a disease.

PROGESTERONE RECEPTOR: A protein which specifically binds to progesterone and
mediates its biological activity. When present in breast and other cancers,
predicts response to hormonal therapy.

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

RB: The first tumor suppressor gene described; associated with the childhood
tumor retinoblastoma, as well as many other types of cancers.

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.

SENSITIVITY: In IHC, the ability of an antibody to detect the presence of an
antigen, particularly at low antigen levels.

SERUM: Fluid component of blood (noncellular).

SPECIMEN: Material sent in for evaluation, biopsy (tissue) or cell suspensions
(body fluids).

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

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

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

TUMOR SUPPRESSOR GENE: A gene involved in the normal growth regulation of
cells. Abnormalities (mutations) of tumor suppressor genes are associated with
the cause and progression of cancer based on abnormal cell growth.

71
<PAGE>

IMPATH INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Independent Auditors' Report.............................................. F-2
Audited Financial Statements:
Balance Sheets as of December 31, 1994 and 1995.......................... F-3
Statements of Operations for the years ended December 31, 1993, 1994 and
1995 ................................................................... F-4
Statements of Stockholders' Equity (Deficiency) for the years ended De-
cember 31, 1993, 1994 and 1995.......................................... F-5
Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995.................................................................... F-6
Notes to Financial Statements............................................ F-7
Condensed Financial Statements (Unaudited):
Condensed Balance Sheets as of December 31, 1995 and June 30, 1996....... F-15
Condensed Statements of Operations for the three months and six months
ended June 30, 1995 and June 30, 1996................................... F-16
Condensed Statements of Cash Flows for the six months ended June 30, 1995
and June 30, 1996....................................................... F-17
Condensed Statement of Stockholders' Equity for the six months ended June
30, 1996................................................................ F-18
Notes to Condensed Financial Statements.................................. F-19
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors Impath Inc.:

We have audited the accompanying balance sheets of Impath Inc. as of
December 31, 1994 and 1995, and the related statements of operations,
stockholders' equity (deficiency) and cash flows for each of the years in the
three-year period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Impath Inc. as of December
31, 1994 and 1995, and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 1995 in
conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP

March 4, 1996 New York, New York

F-2
<PAGE>

IMPATH INC.

BALANCE SHEETS

DECEMBER 31, 1994 AND 1995

<TABLE>
<CAPTION>
1994 1995
ASSETS ---------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 615,317 1,512,695
Accounts receivable, net of allowance for doubtful
accounts of $810,218 in 1994 and $1,485,375 in 1995... 2,555,870 3,807,376
Prepaid expenses....................................... 58,769 214,245
Deferred tax assets, net............................... -- 505,000
Other current assets................................... 32,410 59,116
---------- ---------
Total current assets................................. 3,262,366 6,098,432
Fixed assets, less accumulated depreciation and
amortization........................................... 832,028 2,305,739
Deposits and other assets............................... 49,128 79,961
Deferred registration costs............................. -- 746,462
Goodwill, net of accumulated amortization of $1,246 in
1995................................................... -- 30,727
---------- ---------
$4,143,522 9,261,321
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current portion of loan payable--bank.................. $ 100,000 100,000
Current portion of capital lease obligations........... 64,878 321,125
Accounts payable....................................... 235,449 1,013,537
Income taxes payable................................... 15,014 78,415
Accrued expenses....................................... 346,649 485,195
Accrued dividends payable.............................. -- 478,000
---------- ---------
Total current liabilities............................ 761,990 2,476,272
---------- ---------
Capital lease obligations, net of current portion....... 240,902 946,723
Loan payable--bank, net of current portion.............. -- 183,333
Redeemable preferred stock.............................. 6,406,507 --
Stockholders' equity (deficiency):
Convertible preferred stock:
Series D 8% Convertible Participating Preferred Stock,
$.01 par value. Authorized, issued and outstanding
1,612,904 shares in 1995 (aggregate involuntary
liquidation value $2,142,000)......................... -- 1,911,879
Series C 8% Convertible Preferred Stock, $.01 par
value. Authorized, issued and outstanding 3,035,320
shares in 1995 (aggregate involuntary liquidation
value $2,925,000)..................................... -- 2,702,546
Series B 8% Convertible Preferred Stock, $.01 par
value. Authorized, issued and outstanding 668,182
shares in 1995 (aggregate involuntary liquidation
value $630,000)....................................... -- 562,952
Series A 8% Convertible Preferred Stock, $.01 par
value. Authorized, issued and outstanding 1,876,318
shares in 1995 (aggregate involuntary liquidation
value $1,527,000)..................................... -- 1,387,908
Common stock, $.005 par value. Authorized 20,000,000
shares; 439,113 shares issued in 1994 and 455,007 and
3,003,940 shares issued in 1995, respectively; 432,025
shares outstanding in 1994 and 447,919 and 2,996,852
shares outstanding in 1995, respectively.............. 2,195 2,275
Additional paid-in capital (deficiency)................ (1,676,111) 11,447
Accumulated deficit.................................... (1,591,861) (548,672)
---------- ---------
(3,265,777) 6,030,335
Less:
Cost of 7,088 shares of common stock held in
treasury.............................................. (100) (100)
Notes receivable from stockholders..................... -- (31,335)
Deferred compensation.................................. -- (343,907)
Commitments..........................................
---------- ---------
Total stockholders' equity (deficiency).............. (3,265,877) 5,654,993
---------- ---------
$4,143,522 9,261,321
========== =========
</TABLE>

See accompanying notes to financial statements.

F-3
<PAGE>

IMPATH INC.

STATEMENTS OF OPERATIONS DATA

YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995

<TABLE>
<CAPTION>
1993 1994 1995
------------ ---------- ----------
<S> <C> <C> <C>
Revenues:
Net diagnostic and prognostic
services............................. $ 6,659,313 9,888,084 14,578,326
Contract laboratory services.......... 383,071 126,258 135,238
------------ ---------- ----------
Total revenues...................... 7,042,384 10,014,342 14,713,564
------------ ---------- ==========
Operating expenses:
Salaries and related costs............ 4,161,689 4,681,992 6,830,210
Selling, general and administrative... 3,805,430 4,351,038 6,862,503
------------ ---------- ----------
Total operating expenses............ 7,967,119 9,033,030 13,692,713
------------ ---------- ----------
Income (loss) from operations....... (924,735) 981,312 1,020,851
Interest income......................... 14,553 16,466 102,711
Interest expense........................ 13,296 31,427 80,373
------------ ---------- ----------
Income (loss) before income tax
expense............................ (923,478) 966,351 1,043,189
Income tax expense...................... 18,910 97,921 --
------------ ---------- ==========
Net income (loss)................... (942,388) 868,430 1,043,189
Accrued dividends on preferred stock.... (371,010) (427,121) (478,000)
------------ ---------- ----------
Net income (loss) available to common
stockholders........................... $ (1,313,398) 441,309 565,189
============ ========== ==========
Pro forma net income per share.......... $ .31
==========
Pro forma weighted average common and
common equivalent shares outstanding... 3,371,400
==========
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE>

IMPATH INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995

<TABLE>
<CAPTION>
NONREDEEMABLE
CONVERTIBLE ADDITIONAL NOTES
COMMON STOCK PREFERRED STOCK PAID-IN RECEIVABLE DEFERRED
-------------- -------------------- CAPITAL ACCUMULATED TREASURY FROM COMPEN-
SHARES AMOUNT SHARES AMOUNT (DEFICIENCY) DEFICIT STOCK STOCKHOLDERS SATION TOTAL
------- ------ --------- ---------- ------------ ----------- -------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1992............ 335,621 $1,678 -- $ -- (947,200) (1,517,903) (100) -- -- (2,463,525)
Common shares
issued upon
exercise of
stock options... 86,231 431 -- -- 26,369 -- -- -- -- 26,800
Common shares
issued as
compensation for
services
rendered........ 3,972 20 -- -- 9,168 -- -- -- -- 9,188
Preferred stock
issuance........ -- -- -- -- -- -- -- -- --
Accrual of
preferred stock
dividends on
redeemable
preferred
stock........... -- -- -- -- (371,010) -- -- -- -- (371,010)
Net loss for the
year ended
December 31,
1993............ -- -- -- -- -- (942,388) -- -- -- (942,388)
------- ------ --------- ---------- ---------- ---------- ---- ------- -------- ----------
Balance at
December 31,
1993............ 425,824 2,129 -- -- (1,282,673) (2,460,291) (100) -- -- (3,740,935)
Common shares
issued as
compensation for
services
rendered........ 13,289 66 -- -- 33,683 -- -- -- -- 33,749
Accrual of
preferred stock
dividends on
redeemable
preferred
stock........... -- -- -- -- (427,121) -- -- -- -- (427,121)
Net income for
the year ended
December 31,
1994............ -- -- -- -- -- 868,430 -- -- 868,430
------- ------ --------- ---------- ---------- ---------- ---- ------- -------- ----------
Balance at
December 31,
1994............ 439,113 2,195 -- -- (1,676,111) (1,591,861) (100) -- -- (3,265,877)
Common shares
issued upon
exercise of
stock options... 6,443 33 -- -- 6,122 -- -- -- -- 6,155
Common shares
issued as
compensation for
services
rendered........ 9,451 47 -- -- 23,959 -- -- -- -- 24,006
Preferred stock
issuance........ -- -- 1,612,904 1,911,879 -- -- -- (33,085) -- 1,878,794
Accrual of
preferred stock
dividends on
redeemable
preferred
stock........... -- -- -- -- (46,808) -- -- -- -- (46,808)
Restructuring of
redeemable
preferred stock
in conjunction
with Series D
preferred stock
issuance........ -- -- 5,579,820 4,653,406 1,799,909 -- -- -- -- 6,453,315
Accrual of
preferred stock
dividends....... -- -- -- -- (478,000) -- -- -- -- (478,000)
Compensation
associated with
issuance of
options......... -- -- -- -- 382,376 -- -- -- (382,376) --
Amortization of
deferred
compensation.... -- -- -- -- -- -- -- -- 38,469 38,469
Repayments of
loans to
stockholders.... -- -- -- -- -- -- -- 1,750 -- 1,750
Net income for
the year ended
December 31,
1995............ -- -- -- -- -- 1,043,189 -- -- -- 1,043,189
------- ------ --------- ---------- ---------- ---------- ---- ------- -------- ----------
Balance at
December 31,
1995............ 455,007 $2,275 7,192,724 $6,565,285 11,447 (548,672) (100) (31,335) (343,907) 5,654,993
======= ====== ========= ========== ========== ========== ==== ======= ======== ==========
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE>

IMPATH INC.

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995

<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................... $ (942,388) 868,430 1,043,189
Adjustments to reconcile net income (loss)
to net cash
provided by (used in) operating activi-
ties:
Depreciation and amortization........... 104,857 154,992 395,901
Provision for uncollectible accounts re-
ceivable............................... 480,241 797,126 1,580,733
Amortization of deferred compensation... -- -- 38,469
Changes in assets and liabilities (net of
the effects of the acquisition of
OncoCare in 1995):
Increase in accounts receivable......... (1,043,626) (1,688,692) (2,812,333)
Increase in prepaid expenses............ (5,759) (5,995) (123,548)
Increase in deferred tax asset.......... -- -- (505,000)
Decrease (increase) in other current as-
sets................................... 22,089 8,754 (26,706)
Decrease (increase) in deposits and
other assets........................... (8,640) 9,276 (30,833)
Increase in accounts payable............ 239,148 -- 753,088
Increase (decrease) in income taxes pay-
able................................... (23,189) -- 63,401
Increase (decrease) in accrued ex-
penses................................. 223,189 (175,270) 138,546
Decrease in other noncurrent liabili-
ties................................... (1,905) -- --
---------- ---------- ----------
Total adjustments...................... (13,595) (899,809) (528,282)
---------- ---------- ----------
Net cash provided by (used in) operating
activities............................. (955,983) (31,379) 514,907
---------- ---------- ----------
Cash flow from investing activities:
Acquisition of OncoCare, net of cash ac-
quired................................. -- -- (19,955)
Redemption of short-term investments,
net.................................... 507,672 -- --
Capital expenditures.................... (118,521) (217,028) (737,239)
---------- ---------- ----------
Net cash provided by (used in) investing
activities............................. 389,151 (217,028) (757,194)
---------- ---------- ----------
Cash flows from financing activities:
Issuance of common stock................ 37,988 33,749 30,161
Issuance of preferred stock............. 1,256,789 -- 1,911,879
Proceeds from bank loan................. -- 100,000 300,000
Repayments of bank loan................. -- -- (164,667)
Payments of capital lease obligations... -- (40,992) (159,911)
Issuance of loans to stockholders....... -- -- (33,085)
Repayments of loans to stockholders..... -- -- 1,750
Deferred registration costs............. -- -- (746,462)
---------- ---------- ----------
Net cash provided by financing activi-
ties..................................... 1,294,777 92,757 1,139,665
---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents.............................. 727,945 (155,650) 897,378
Cash and cash equivalents at beginning of
year..................................... 43,022 770,967 615,317
---------- ---------- ----------
Cash and cash equivalents at end of year.. $ 770,967 615,317 1,512,695
========== ========== ==========
Supplemental disclosures of cash flow in-
formation:
Cash paid during the period for income
taxes.................................. $ 35,144 44,989 441,599
========== ========== ==========
Cash paid during the period for inter-
est.................................... $ 13,296 31,427 80,373
========== ========== ==========
Fixed assets acquired pursuant to capi-
tal leases............................. $ 141,000 206,000 1,121,979
========== ========== ==========
Accrual of dividends on preferred
stock.................................. $ 371,010 427,121 524,808
========== ========== ==========
Forgiveness of dividends on preferred
stock.................................. $ -- -- 1,799,909
========== ========== ==========
</TABLE>

See accompanying notes to financial statements.

F-6
<PAGE>

IMPATH INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1993, 1994 AND 1995

(1) ORGANIZATION

Impath Inc. (the "Company") was incorporated on March 1, 1988 under the laws
of the State of Delaware. The Company was organized for the purpose of
establishing a specialized facility dedicated to the use of the most
sophisticated technologies to provide diagnostic and prognostic information to
physicians specializing in cancer. The Company conducts these analyses by
utilizing immunohistochemistry, flow and image cytometry and molecular
pathology technologies. The Company's revenues are derived through:

. diagnostic and prognostic analytical services to hospitals, medical
centers, clinical laboratories and physicians; and

. monoclonal antibody and molecular probe characterization services to
biotechnology companies and other researchers.

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

(2) SIGNIFICANT ACCOUNTING POLICIES

(a) Cash Equivalents

Cash equivalents of $477,360 at December 31,1994 consist of money market
funds in the amount of $427,360 and certificates of deposit in the amount of
$50,000. Cash equivalents of $1,494,976 at December 31, 1995 consist of US
treasury bills in the amount of $1,481,935, and money market funds in the
amount of $13,041. For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments with original maturities of three
months or less to be cash equivalents.

(b) Fixed Assets

Leasehold improvements and furniture, fixtures, laboratory equipment and
personal computers 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 represent external costs capitalized for software
developed to meet the specific needs of the Company. These costs are being
amortized over a three-year period using the straight-line method.

Revenues are recognized on an accrual basis as earned at such time as the
Company has completed performance of its diagnostic or prognostic services.

(d) Goodwill

Goodwill is being amortized over a 15-year period using the straight-line
method.

F-7
<PAGE>

IMPATH INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(e) Deferred Registration Costs

Deferred registration costs represent costs incurred through December 31,
1995, in connection with the Company's initial public offering (see note 13).

(f) Income Taxes

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

(g) Amendment to Certificate of Incorporation

On October 31, 1995, the Company filed an amendment to its Certificate of
Incorporation that provided for a 1-for-2.8218735 reverse stock split of
outstanding common stock. All common stock share and per share amounts
(including preferred stock conversion rates) in the accompanying financial
statements have been retroactively adjusted for the reverse stock split.

(h) Pro Forma Net Income Per Share

Pro forma net income per share is based on the weighted average number of
shares of common stock outstanding after giving effect to the conversion
(calculated using the as-converted method) of the convertible preferred stock
that converted (see note 9) upon the completion of the Company's initial
public offering. Common equivalent shares from stock options and warrants are
included in the computation using the treasury stock method to the extent that
their effect is dilutive. All stock options and warrants issued within a one
year period prior to the initial filing of the registration statement (see
notes 9(a), 9(b) and 13) relating to the initial public offering have been
treated as outstanding for all reported periods.

(i) Use of Estimates

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

(3) FAIR VALUE OF FINANCIAL INSTRUMENTS

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

The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximate fair value because of the
short maturity of those instruments.

F-8
<PAGE>

IMPATH INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The fair value of the loan payable approximates the carrying value as its
stated interest rate is consistent with rates currently available to the
Company for similar debt instruments of comparable maturities.

(4) BUSINESS AND CREDIT CONCENTRATIONS

At December 31, 1995, approximately 50% of the Company's clients are located
in the Metropolitan New York area and in California. Accounts receivable from
clients as a percentage of total net receivables at December 31, 1994 and 1995
are as follows:

<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Medicare......................................................... 13% 15%
Commercial insurance............................................. 35 33
Hospitals, clinics and other institutions........................ 38 37
Patients......................................................... 14 15
--- ---
100% 100%
=== ===
</TABLE>
(5) FIXED ASSETS
At December 31, 1994 and 1995, fixed assets consisted of the following:
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Personal computers....................................... $ 56,340 283,096
Software development costs............................... 181,119 629,361
Furniture, fixtures and laboratory equipment............. 758,527 1,442,646
Leasehold improvements................................... 247,250 757,560
--------- ---------
<CAPTION>
1,243,236 3,112,663
--------- ---------
<S> <C> <C>
Less accumulated depreciation and amortization 411,208 806,924
--------- ---------
$ 832,028 2,305,739
========= =========
</TABLE>

Included in the above at December 31, 1995 are gross assets under capital
leases of approximately $1,505,000 and the related accumulated amortization at
such date was approximately $390,000.

(6) ACQUISITION

In May 1995, the Company acquired the assets and assumed certain liabilities
of OncoCare, a serum analysis facility located in California, for a total
purchase price of $20,000 plus assumed liabilities of $73,000. The acquisition
was accounted for as a purchase and resulted in goodwill of $31,973. The
results of operations of OncoCare are included in the accompanying financial
statements from the date of acquisition.

F-9
<PAGE>

IMPATH INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(7) ACCRUED EXPENSES

Accrued expenses are comprised of the following as of December 31, 1994 and
1995:

<TABLE>
<CAPTION>
1994 1995
-------- -------
<S> <C> <C>
Deferred registration costs................................. $ -- 236,373
Salaries and related costs.................................. 175,114 129,409
Other accrued expenses...................................... 171,535 119,413
-------- -------
$346,649 485,195
======== =======
</TABLE>

(8) INDEBTEDNESS

During January 1994, the Company entered into a revolving term loan
agreement ("Agreement") in the amount of $100,000 with a commercial bank.
Borrowings under the Agreement were secured by the Company's accounts
receivable. Borrowings bore interest at the bank's prime rate plus 1%. The
outstanding indebtedness under the loan at December 31, 1994 was $100,000. In
March 1995, this amount was repaid out of the proceeds of the Company's 8%
Series D Convertible Participating Preferred Stock offering (see note 9(a)).
The Agreement was terminated in March 1995.

The Company entered into a new line of credit with Chemical Bank in the
aggregate amount of $1,000,000, which expires on June 30, 1996. Borrowings
under the line are secured by and limited to 60% of eligible accounts
receivable and must be reduced to zero for at least 30 consecutive days during
the term of the line. Borrowings bear interest at 0.5% over the bank's prime
rate. As of December 31, 1995, there were no amounts outstanding under this
line of credit.

On September 21, 1995, the Company entered into a $300,000 term loan with a
commercial bank. Borrowings are secured by the Company's accounts receivable
and a promissory note that requires repayment over 36 months using an
effective rate of interest equal to the bank's prime rate (8.5% at December
31, 1995) plus 1.0%. The outstanding indebtedness under the loan at December
31, 1995 was $283,333. Amounts are payable as follows for the years ended
December 31, 1996--$100,000, 1997--$100,000; 1998--$83,333.

(9) STOCKHOLDERS' EQUITY (DEFICIENCY)

(a) Preferred Stock

Redeemable preferred stock consists of the following at December 31, 1994:

<TABLE>
<S> <C>
Series C 9% Convertible Preferred Stock, $.01 par value.
</TABLE>

<TABLE>
<S> <C>
Authorized, issued and outstanding 3,035,320 shares............. $3,380,908
Series B 9% Convertible Preferred Stock, $.01 par value.
Authorized, issued and outstanding 668,182 shares............... 814,631
Series A 9% Convertible Preferred Stock, $.01 par value.
Authorized, issued and outstanding 1,876,318 shares............. 2,210,968
----------
Total redeemable preferred stock $6,406,507
==========
</TABLE>

F-10
<PAGE>

IMPATH INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Effective February 10, 1995, the Company sold 1,612,904 shares of its 8%
Series D Convertible Participating Preferred Stock and warrants to purchase
42,529 shares of its common stock at $3.50 per share for an aggregate sales
price of $2,000,000 (before issuance costs). The warrants are exercisable for
a period of six years. No value was ascribed to these warrants for financial
reporting as the Company believes such amount would not be material to the
accompanying financial statements. The warrants are considered to be
outstanding for all periods presented for the purpose of the calculation of
pro forma net income per share. The holders of this preferred stock may
convert their shares into shares of common stock, subject to certain
adjustments. Concurrent with the issuance of the 8% Series D Convertible
Participating Preferred Stock and common stock warrants, the terms of the
outstanding Series A, B and C Redeemable Preferred Stock were revised,
resulting in the elimination of all previously existing redemption rights,
elimination of all previously accrued dividends in the amount of $1,799,909
and a change in the future dividend rate from 9% to 8%, which would be payable
when declared by the Board of Directors or, whether or not so declared, in the
event of a liquidation or deemed liquidation, and participation in liquidation
on a pro-rata basis to common and preferred stockholders on an as-converted
basis. The holders of the Series D preferred stock are entitled to preference
in liquidation amounts. The available assets would be distributed pro rata to
common and preferred stockholders on an as-converted basis.

In June 1988 and March 1990, the Company sold 1,776,318 and 100,000 shares,
respectively, of its Series A 9% Convertible Preferred Stock (subsequently
amended to 8%) with a par value of $.01 per share for $1,350,000 (before
issuance costs) and $76,000, respectively. The holders of this preferred stock
may convert their shares into shares of common stock at any time. Each of
these preferred shares is convertible into .3543745 shares of common stock.
The conversion ratio is subject to adjustment upon the occurrence of certain
capital transactions as defined. The agreements under which these shares were
sold contain anti-dilutive provisions and preemptive rights with respect to
new stock issuances.

The holders of the Series A 8% Convertible Preferred Stock are entitled to
receive a cumulative dividend at the annual rate of 8%, commencing February
10, 1995, when and as declared by the Board of Directors, or whether or not so
declared, in the event of a liquidation or deemed liquidation. Further, these
preferred stockholders shall participate in any dividends declared on the
common stock and shall be entitled to voting rights, on an as-converted basis.
The liquidation value of each of these preferred shares is $.76 per share,
plus accrued dividends commencing February 10, 1995.

In March 1990, the Company issued 668,182 shares of its Series B 9%
Convertible Preferred Stock (subsequently amended to 8%; terms are
substantially identical to those of the Series A 8% Convertible Preferred
Stock) for an aggregate consideration of $587,998 (before issuance costs). The
holders of the Series B 8% Convertible Preferred Stock are entitled to
preference in liquidation over holders of the Series A 8% Convertible
Preferred Stock. The liquidation value of each of these preferred shares is
$.88 per share, plus accrued dividends commencing February 10, 1995.

In March 1991, the Company issued 1,638,887 shares of its Series C 9%
Convertible Preferred Stock (subsequently amended to 8%; terms are
substantially identical to those of the Series A 8% Convertible Preferred
Stock) for an aggregate consideration of $1,475,000 (before issuance costs).
In June and July 1993, the Company issued 1,396,433 additional shares of its
Series C 9% Convertible Preferred Stock (subsequently amended to 8%) for an
aggregate consideration of $1,256,789. The holders of the Series C 8%
Convertible Preferred Stock are entitled to preference in liquidation over
holders of the Series A 8% Convertible Preferred Stock and the Series B 8%
Convertible Preferred Stock. The liquidation value of each of these preferred
shares is $.90 per share, plus accrued dividends commencing February 10, 1995.

F-11
<PAGE>

IMPATH INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Upon the consummation of the Company's initial public offering on February
20, 1996 (see note 13), all preferred shares were converted into 2,548,933
shares of common stock.

In October of 1995, the Financial Accounting Standards Board issued SFAS
No.123, "Accounting for Stock-Based Compensation," which must be adopted by
the Company in 1996. The Company has elected not to implement the fair value
based accounting method for employee stock options, but has elected to
disclose, commencing in 1996, the pro forma net income and earnings per share
as if such method had been used to account for stock-based compensation cost
as described in the Statement.

(b) Stock Option Plan

In February 1989, the Company adopted (and subsequently amended) a Stock
Option Plan, which provides for granting to certain key employees of the
Company, directors and consultants, options to purchase up to 884,688 shares
of common stock. Options granted are exercisable over a period not to exceed
ten years. At December 31, 1995, options to purchase approximately 533,357
shares of common stock at exercise prices ranging from $.28 to $8.00 per share
were outstanding, 271,885 of which were exercisable.

In August of 1995, four directors were granted options to purchase a total
of 42,528 shares at an exercise price of $3.50 per share under the Company's
Stock Option Plan, which vest ratably over 36 months. Management of the
Company estimated the fair market value of the underlying common stock to be
approximately $8.00 per share and, accordingly, recorded deferred compensation
of $191,000, which amount will be amortized ratably over the vesting period.
In October of 1995, three additional directors were granted options to
purchase a total of 31,896 shares at an exercise price of $3.50 per share,
which vest ratably over 36 months. Management of the Company estimated fair
market value of the underlying common stock to be approximately $9.50 per
share and, accordingly, recorded deferred compensation of $191,000, which
amount will be amortized ratably over the vesting period. All such options
issued to directors (and other options issued subsequent to November 1, 1994)
are considered to be outstanding for all periods presented for purposes of the
calculation of pro forma net income per share.

The following is a summary of option activity during the years ended
December 31, 1993, 1994 and 1995:

<TABLE>
<CAPTION>
SHARES PRICE
UNDER OPTIONS RANGE ($)
------------- ---------
<S> <C> <C>
Options outstanding at December 31, 1992............. 306,993 .28-2.54
Granted.............................................. 84,089 2.54
Exercised............................................ (86,231) .28-2.54
Canceled............................................. (43,647) 2.54
-------
Options outstanding at December 31, 1993............. 261,204 .28-2.54
Granted.............................................. 204,297 2.54-3.50
Canceled............................................. (35,615) 2.54
-------
Options outstanding at December 31, 1994............. 429,886 .28-3.50
Granted.............................................. 126,692 3.50-8.00
Exercised............................................ (6,444) .56-3.50
Canceled............................................. (16,777) .56-3.50
-------
Options outstanding at December 31, 1995............. 533,357 .28-8.00
=======
</TABLE>

F-12
<PAGE>

IMPATH INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(10) 401(K) RETIREMENT SAVINGS PLAN

Effective June 1, 1995, the Company adopted the Impath Inc. 401(k)
Retirement Savings Plan (the "Plan") benefiting certain employees. Employees
who are over the age of 21 and have completed six months of service are
eligible for voluntary participation in the Plan. Employees may contribute 1%
to 20% of their total salaries on a before tax basis, and the Company will
match up to 25% of the first 4% of employee contributions. Plan participants
who were employees as of June 1, 1995 are 100% vested in all contributions.
Any employees hired subsequent to June 1, 1995 are 100% vested in their own
contributions and will vested in employer contributions over a three-year
period. Employer contributions for the year ended December 31, 1995 were
$22,129.

(11) INCOME TAXES

The components of the provision for income taxes for 1993, 1994 and 1995 are
as follows:

<TABLE>
<CAPTION>
1993 1994 1995
------- -------- --------
<S> <C> <C> <C>
Current:
Federal......................................... $ -- 336,000 463,000
State and local................................. 18,910 337,921 321,000
Benefit of operating loss carryforwards......... -- (576,000) (279,000)
------- -------- --------
18,910 97,921 505,000
------- -------- --------
Deferred:
Federal......................................... -- -- (298,000)
State and local................................. -- -- (207,000)
------- -------- --------
-- -- (505,000)
------- -------- --------
$18,910 97,921 --
======= ======== ========
</TABLE>
Net deferred tax assets at December 31, 1994 and 1995 are as follows:

<TABLE>
<CAPTION>
1994 1995
-------- -------
<S> <C> <C>
Net operating loss carryforwards.......................... $279,000 --
Allowance for doubtful accounts........................... 365,000 667,000
All other................................................. (30,000) (77,000)
-------- -------
614,000 590,000
Less: Valuation allowance................................. (614,000) (85,000)
-------- -------
Deferred tax assets, net.................................. $ -- 505,000
======== =======
</TABLE>

F-13
<PAGE>

IMPATH INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The Company has reduced its valuation allowance against net deferred tax
assets in 1995 to increase the carrying value of such assets to the extent of
taxes that it expects to pay on estimated current year taxable earnings
through December 31, 1995. As a result, management of the Company believes
that it is more likely than not that future tax benefits will be realized as a
result of the reversal of its temporary differences.

A reconciliation of the Federal statutory income tax rate to the effective
tax rate for the years ended December 31, 1993, 1994 and 1995 follows:

<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Federal statutory income tax rate.................... (34.0%) 34.0% 34.0%
State and local taxes, net of Federal income tax ben-
efit................................................ (1.4) 23.1 20.3
Change in valuation allowance........................ 37.5 (48.7) (50.7)
Other................................................ -- 1.7 (3.6)
----- ----- -----
2.1% 10.1% 0.0%
===== ===== =====
</TABLE>

(12) LEASES

The Company utilizes laboratory and office facilities and leases equipment
pursuant to the terms of operating and capital leases, which expire in 1996
through 2001 (certain leases expiring in 1999 are cancelable at the Company's
option in 1996).

The present value of future minimum lease payments (including those
cancelable at the Company's option in 1996 and subject to increases in the
Consumer Price Index and real estate taxes) for the operating and capital
leases are as follows:

<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
YEAR ENDING DECEMBER 31 ---------- ---------
<S> <C> <C>
1996................................................... $ 665,483 469,206
1997................................................... 629,989 487,407
1998................................................... 593,791 450,166
1999................................................... 467,828 172,450
2000................................................... 266,754 --
Thereafter............................................. 3,116 --
---------- ---------
$2,626,961 1,579,229
==========
</TABLE>

<TABLE>
<S> <C>
Less amount representing interest................................. (311,381)
---------
Present value of minimum lease payments........................... 1,267,848
Less current portion.............................................. 321,125
$ 946,723
=========
</TABLE>

For the years 1993, 1994 and 1995, rent expense totaled $250,955, $316,498
and $328,580, respectively.

(13) INITIAL PUBLIC OFFERING

On October 13, 1995, the Board of Directors authorized the Company to file a
registration statement with the Securities and Exchange Commission to register
shares of its common stock in connection with an initial public offering. Such
offering was consummated on February 26, 1996, for a total of 2,242,500 common
shares at an offering price of $13 per share. The net proceeds to the Company
amounted to approximately $26,062,000.

F-14
<PAGE>

IMPATH INC.

CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1995
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $1,512,695 $10,954,102
Investments, at fair value..................... 14,194,148
Accounts receivable, net of allowance for
doubtful accounts............................. 3,807,376 5,699,690
Prepaid expenses and other current assets...... 273,361 563,814
Deferred tax assets, net....................... 505,000 505,000
---------- -----------
Total current assets......................... 6,098,432 31,916,754
Fixed assets, less accumulated depreciation and
amortization.................................... 2,305,739 2,644,914
Deposits and other assets........................ 79,961 88,878
Deferred registration costs...................... 746,462 --
Goodwill, net of accumulated amortization........ 30,727 29,481
$9,261,321 $34,680,027
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loan payable-current portion................... 100,000 --
Current portion of capital lease obligations... $ 321,125 $ 466,743
Accounts payable and accrued expenses.......... 1,498,732 1,075,094
Income taxes payable........................... 78,415 --
Accrued dividends payable...................... 478,000 --
---------- -----------
Total current liabilities.................... 2,476,272 1,541,837
---------- -----------
Capital lease obligations, net of current por-
tion............................................ 946,723 1,071,819
Loan payable, net of current portion............. 183,333 --
Stockholders' equity:
Convertible preferred stock
Series D 8% Convertible Participating Pre-
ferred Stock, $.01 par value.................. 1,911,879 --
Series C 8% Convertible Preferred Stock, $.01
par value.................................... 2,702,546 --
Series B 8% Convertible Preferred Stock, $.01
par value.................................... 562,952 --
Series A 8% Convertible Preferred Stock, $.01
par value.................................... 1,387,908 --
Common stock, $.005 par value.................. 2,275 26,349
Additional paid-in capital..................... 11,447 32,229,740
Accumulated earnings (deficit)................. (548,672) 118,918
---------- -----------
6,030,335 32,375,007
Less:
Cost of shares of common stock held in trea-
sury......................................... (100) (100)
Notes receivable from officers................ (31,335) (28,421)
Deferred compensation......................... (343,907) (280,115)
Total stockholders' equity.................... 5,654,993 32,066,371
---------- -----------
$9,261,321 $34,680,027
========== ===========
</TABLE>

See accompanying notes to condensed financial statements.

F-15
<PAGE>

IMPATH INC.

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- --------------------------
1995 1996 1995 1996
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Net diagnostic and
prognostic services.. $ 3,470,737 $ 5,021,886 $ 6,649,095 $ 9,716,236
Contract laboratory
services............. 27,839 58,011 65,132 105,686
------------- ------------- ------------ ------------
Total revenues...... 3,498,576 5,079,897 6,714,227 9,821,922
------------- ------------- ------------ ------------
Operating expenses:
Salaries and related
costs................ 1,675,559 2,257,961 3,148,986 4,513,525
Selling, general and
administrative....... 1,552,671 2,242,402 2,943,823 4,500,990
------------- ------------- ------------ ------------
Total operating ex-
penses............... 3,228,230 4,500,363 6,092,809 9,014,515
------------- ------------- ------------ ------------
Income from opera-
tions................ 270,346 579,534 621,418 807,407
Interest income......... 30,814 334,069 49,733 454,807
Interest expense........ 12,208 45,042 25,303 90,747
------------- ------------- ------------ ------------
Income before income
tax expense........ 288,952 868,561 645,848 1,171,467
Income tax expense...... -- (369,137) -- (503,877)
------------- ------------- ------------ ------------
Net income.......... 288,952 499,424 645,848 667,590
============= ============= ============ ============
Accrued dividends on
preferred stock........ (134,546) -- (255,280) (82,346)
------------- ------------- ------------ ------------
Net income available to
common
stockholders........... $ 154,406 $ 499,424 $ 390,568 $ 585,244
============= ============= ============ ============
Net income and pro forma
net income per share... $ 0.09 $ 0.09 $ 0.20 $ 0.13
============= ============= ============ ============
Weighted average and pro
forma weighted average
common and common
equivalent shares
outstanding............ 3,315,000 5,760,000 3,184,000 5,118,000
============= ============= ============ ============
</TABLE>

See accompanying notes to condensed financial statements.

F-16
<PAGE>

IMPATH INC.

CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
1995 1996
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 645,848 $ 667,590
Adjustments to reconcile net income to net cash
provided
by operating activities:
Depreciation and amortization................... 135,942 369,607
Provision for uncollectible accounts receiv-
able........................................... 610,001 1,132,625
Amortization of deferred compensation.......... -- 63,792
Changes in assets and liabilities..............
Increase in accounts receivable................ (1,067,063) (3,024,939)
Increase in prepaid expenses and current as-
sets.......................................... (302,173) (319,934)
Increase in marketable securities.............. (1,971,643) (14,194,148)
Decrease (Increase) in deposits and other as-
sets.......................................... (9,568) 21,276
Decrease in accounts payable and accrued ex-
penses........................................ (164,887) (423,640)
Decrease in income taxes payable............... -- (78,415)
------------ -------------
Total adjustments............................. (2,769,391) (16,453,776)
------------ -------------
Net cash used in operating activities.......... (2,123,543) (15,786,186)
------------ -------------
Cash flow from investing activities:
Capital expenditures............................. (175,884) (210,904)
------------ -------------
Net cash used in investing activities............. (175,884) (210,904)
------------ -------------
Cash flows from financing activities:
Issuance of common stock......................... 2,440 25,759,428
Issuance of preferred stock...................... 1,999,982 --
Payment of dividends on preferred stock.......... -- (560,346)
Repayments of bank loan.......................... (100,000) (283,333)
Payments on capital lease obligations............ (80,253) (226,629)
Payments received on officer loans............... -- 2,914
Deferred Registration Costs...................... -- 746,463
------------ -------------
Net cash provided by financing activities......... 1,822,169 25,438,497
------------ -------------
Net increase (decrease) in cash and cash equiva-
lents............................................ (477,258) 9,441,407
Cash and cash equivalents at beginning of period.. 615,317 1,512,695
------------ -------------
Cash and cash equivalents at end of period........ $ 138,059 $ 10,954,102
============ =============
</TABLE>

See accompanying notes to condensed financial statements.

F-17
<PAGE>

IMPATH INC.

CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)

<TABLE>
<CAPTION>
NONREDEEMABLE
CONVERTIBLE
COMMON STOCK PREFERRED STOCK ADDITIONAL
---------------- ---------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... 455,007 $2,275 7,192,724 $6,565,285 11,447
Common shares issued
upon initial public of-
fering................. 2,242,500 11,212 25,726,054
Common shares issued
upon exercise of
stock options.......... 23,397 117 22,045
Conversion of preferred
shares into common
shares upon initial
public offering........ 2,648,933 12,745 (7,192,724) (6,565,285) 6,552,540
Accrual of preferred
stock dividends........ (82,346)
Amortization of deferred
compensation...........
Repayments of loans to
officers...............
Net income for the pe-
riod ended June 30,
1996...................
--------- ------ ---------- ---------- ----------
Balance at June 30,
1996................. 5,269,837 26,349 -- -- 32,229,740
========= ====== ========== ========== ==========
</TABLE>

<TABLE>
<CAPTION>
NOTES
RECEIVABLE
ACCUMULATED TREASURY FROM DEFERRED
DEFICIT STOCK OFFICERS COMPENSATION TOTAL
----------- -------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... (548,672) (100) (31,335) (343,907) 5,654,993
Common shares issued
upon initial public
offering............... 25,737,266
Common shares issued
upon exercise of
stock options.......... 22,162
Conversion of preferred
shares into common
shares upon initial
public offering........ --
Accrual of preferred
stock dividends........ -- (82,346)
Amortization of deferred
compensation........... 63,792 63,792
Repayments of loans to
officers............... 2,914 2,914
Net income for the pe-
riod ended June 30,
1996................... 667,590 667,590
-------- ---- ------- -------- ----------
Balance at June 30,
1996................... 118,918 (100) (28,421) (280,115) 32,066,371
======== ==== ======= ======== ==========
</TABLE>

F-18
<PAGE>

IMPATH INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1--GENERAL:

The accompanying unaudited condensed financial statements have been prepared
by management in accordance with the rules and regulations of the United
States Securities and Exchange Commission.

In the opinion of Impath Inc. (the "Company" or "IMPATH"), the accompanying
unaudited condensed financial statements contain all adjustments, consisting
only of normal recurring adjustments necessary for the fair presentation of
the financial information for all periods presented. Results for the interim
periods are not necessarily indicative of the results for an entire year and
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. These
financial statements should be read in conjunction with the financial
statements and the notes thereto contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.

NOTE 2--NET INCOME AND PRO FORMA NET INCOME PER SHARE:

Pro forma net income per share for the six months ended June 30, 1996 and
1995 and for the three months ended June 30, 1995 is based on the weighted
average number of shares of common stock outstanding after giving effect to
the conversion (calculated using the as-converted method) of the convertible
preferred stock that converted upon the completion of the Company's initial
public offering in February 1996. Net income per share for the three months
ended June 30, 1996 is based on the weighted average number of shares of
common stock outstanding. Common equivalent shares from stock options and
warrants are included in the computation using the treasury stock method to
the extent their effect is dilutive. All stock options and warrants issued
within a one year period prior to the initial public offering have been
treated as outstanding for all reported periods.

NOTE 3--INITIAL PUBLIC OFFERING

On October 13, 1995 the Board of Directors authorized the Company to file a
registration statement with the Securities and Exchange Commission to register
shares of its common stock in connection with an initial public offering. Such
offering was consummated on February 26, 1996, for a total of 2,242,500 common
shares at an offering price of $13 per share. The net proceeds to the Company
amounted to approximately $25,790,000.

NOTE 4--INVESTMENTS

The Company invested approximately $20,000,000 of the net proceeds from its
initial public offering in a portfolio of short term fixed income securities
that are actively traded by an investment manager. In accordance with
Statement of Financial Accounting Standards No. 115, the Company's investments
are being recorded at fair value with gains and losses reported in the
Statement of Operations. At June 30, 1996, approximately $6,000,000 of
securities with original maturities of three months or less were included as
cash equivalents. The remaining securities included in the investment
portfolio with original maturities that exceed three months are included in
current assets.

F-19
<PAGE>

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE SELLING STOCKHOLDERS. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIR-
CUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AF-
FAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS
PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHO-
RIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALI-
FIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information................................................... 2
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Dividend Policy.......................................................... 10
Selected Financial and Operating Data.................................... 11
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 13
Business................................................................. 20
Management............................................................... 38
Certain Transactions..................................................... 47
Principal Stockholders and Selling Stockholders.......................... 48
Capital Stock of the Company............................................. 66
Plan of Distribution..................................................... 69
Legal Matters............................................................ 69
Experts.................................................................. 69
Glossary................................................................. 70
Index to Financial Statements............................................ F-1
</TABLE>

2,109,069 SHARES

[LOGO OF IMPATH APPEARS HERE]

COMMON STOCK
($.005 PAR VALUE)

PROSPECTUS

DATED AUGUST 20, 1996, EXCEPT FOR CERTAIN INFORMATION AS INDICATED UNDER
"PRINCIPAL STOCKHOLDERS AND SELLING STOCKHOLDERS."
<PAGE>

PROSPECTUS SUPPLEMENT
(To Prospectus dated August 20, 1996, except for certain information as
indicated under "Principal Stockholders and Selling Stockholders.")

2,109,069 SHARES

IMPATH
The Cancer Information Company

COMMON STOCK
($.005 PAR VALUE)

Set forth in this Prospectus Supplement is the Quarterly Report on Form 10-Q
of Impath Inc. (the "Company") for the quarterly period ended September 30,
1996, excluding Part II thereof.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus Supplement is November 14, 1996.
<PAGE>

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

(MARK ONE)

[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996.

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

FOR THE TRANSITION PERIOD FROM TO .

COMMISSION FILE NUMBER 0-27750
----------------

IMPATH INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

DELAWARE 8071 13-3459685
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)

1010 THIRD AVENUE, SUITE 302 NEW YORK, NEW YORK 10021 (212) 702-8300

(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

YES [_] NO [X] (due to initial public offering,
effective 2/15/96)

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

CLASS OUTSTANDING AT NOVEMBER 1, 1996
----- -------------------------------
Common Stock, par value
$.005 per share 5,293,525
<PAGE>

INDEX

IMPATH INC.

<TABLE>
<CAPTION>
PAGE
NUMBER
------
<C> <S> <C>
PART I FINANCIAL INFORMATION
Item 1 Condensed Financial Statements (Unaudited):
Condensed Balance Sheets at September 30, 1996 and December 31,
1995............................................................ S-3
Condensed Statements of Operations for the Three and Nine Months
Ended September 30, 1996 and September 30, 1995................. S-4
Condensed Statements of Cash Flows for the Nine Months Ended
September 30, 1996 and September 30, 1995....................... S-5
Condensed Statement of Stockholders' Equity for the Nine Months
Ended September 30, 1996........................................ S-6
Notes to Condensed Financial Statements......................... S-7
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... S-8-10
</TABLE>

S-2
<PAGE>

IMPATH INC.

CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
SEPTEMBER 30,
1996 DECEMBER 31,
(UNAUDITED) 1995
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 6,776,860 $1,512,695
Investments, at fair value........................ 17,802,718 --
Accounts receivable, net of allowance for doubtful
accounts......................................... 6,083,598 3,807,376
Prepaid expenses and other current assets......... 725,008 273,361
Deferred tax assets, net.......................... 1,143,000 505,000
----------- ----------
Total current assets............................ 32,531,184 6,098,432
Fixed assets, less accumulated depreciation and
amortization....................................... 3,135,151 2,305,739
Deposits and other assets........................... 98,878 79,961
Deferred registration costs......................... -- 746,462
Goodwill, net of accumulated amortization........... 28,947 30,727
----------- ----------
$35,794,160 $9,261,321
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loan payable--current portion..................... $ -- $ 100,000
Current portion of capital lease obligations...... 620,483 321,125
Accounts payable and accrued expenses............. 963,812 1,498,732
Income taxes payable.............................. 134,438 78,415
Accrued dividends payable......................... -- 478,000
----------- ----------
Total current liabilities....................... 1,718,733 2,476,272
----------- ----------
Capital lease obligations, net of current portion... 1,307,789 946,723
Loan payable, net of current portion................ -- 183,333
Stockholders' equity:
Convertible preferred stock
Series D 8% Convertible Participating Preferred
Stock,
$.01 par value.................................. -- 1,911,879
Series C 8% Convertible Preferred Stock, $.01 par
value........................................... -- 2,702,546
Series B 8% Convertible Preferred Stock, $.01 par
value........................................... -- 562,952
Series A 8% Convertible Preferred Stock, $.01 par
value........................................... -- 1,387,908
Common stock, $.005 par value..................... 26,501 2,275
Additional paid-in capital........................ 32,296,611 11,447
Retained earnings (accumulated deficit)........... 721,266 (548,672)
----------- ----------
33,044,378 6,030,335
Less:
Cost of shares of common stock held in treasury... (100) (100)
Notes receivable from officers.................... (28,421) (31,335)
Deferred compensation............................. (248,219) (343,907)
----------- ----------
Total stockholders' equity...................... 32,767,638 5,654,993
----------- ----------
$35,794,160 $9,261,321
=========== ==========
</TABLE>

See accompanying notes to condensed Financial Statements

S-3
<PAGE>

IMPATH INC.

CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ------------------------
1996 1995 1996 1995
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Net diagnostic and
prognostic services...... $5,312,255 $3,786,228 $15,028,491 $10,435,323
Contract laboratory
services................. 57,779 30,650 163,465 95,782
---------- ---------- ----------- -----------
Total revenues.......... 5,370,034 3,816,878 15,191,956 10,531,105
---------- ---------- ----------- -----------
Operating expenses:
Salaries and related
costs.................... 2,251,841 1,782,922 6,765,367 4,931,908
Selling, general and
administrative........... 2,343,144 1,826,423 6,844,134 4,770,246
---------- ---------- ----------- -----------
Total operating
expenses............... 4,594,985 3,609,345 13,609,501 9,702,154
---------- ---------- ----------- -----------
Income from operations.. 775,049 207,533 1,582,455 828,951
---------- ---------- ----------- -----------
Interest income............. 418,055 28,823 872,860 78,556
Interest expense............ 141,082 18,001 231,829 43,304
---------- ---------- ----------- -----------
Income before income tax
expense................ 1,052,022 218,355 2,223,486 864,203
Income tax expense.......... (449,671) -- (953,548) --
---------- ---------- ----------- -----------
Net income.............. 602,351 218,355 1,269,938 864,203
========== ========== =========== ===========
Accrued dividends on
preferred stock............ $ -- $ (87,720) $ (82,346) (343,000)
---------- ---------- ----------- -----------
Net income available to
common stockholders........ $ 602,351 $ 130,635 $ 1,187,592 $ 521,203
========== ========== =========== ===========
Pro forma net income per
share...................... $ 0.11 $ 0.06 $ 0.24 $ 0.26
========== ========== =========== ===========
Pro forma weighted average
common and common
equivalent shares
outstanding................ 5,707,000 3,399,000 5,359,000 3,312,000
========== ========== =========== ===========
</TABLE>

See accompanying notes to condensed Financial Statements

S-4
<PAGE>

IMPATH INC.

CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1996 1995
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 1,269,938 $ 864,203
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization..................... 559,202 253,375
Provision for uncollectible accounts receivable... 1,633,492 1,122,523
Amortization of deferred compensation............ 95,688 8,000
Changes in assets and liabilities
Increase in accounts receivable................. (3,909,714) (1,806,073)
Increase in prepaid expenses and other current
assets......................................... (451,647) (73,755)
Increase in deferred tax asset.................. (638,000) (405,000)
Increase in investments......................... (17,802,718) --
Increase in deposits and other assets........... (18,917) (76,672)
(Decrease) in accounts payable and accrued
expenses....................................... (534,920) (90,703)
(Decrease) increase in income taxes payable..... 56,023 68,403
------------ -----------
Total adjustments............................. (21,011,511) (999,902)
------------ -----------
Net cash used in operating activities............... (19,741,573) (135,699)
------------ -----------
Cash flow from investing activities:
Acquisition of OncoCare, net of cash acquired...... -- (19,955)
Capital expenditures............................... (328,309) (382,091)
------------ -----------
Net cash used in investing activities............... (328,309) (402,046)
------------ -----------
Cash flows from financing activities:
Issuance of common stock........................... 25,826,451 2,440
Issuance of preferred stock........................ -- 1,911,879
Payment of dividends on preferred stock............ (560,346) --
Proceeds from bank loan............................ -- 300,000
Repayments of bank loan............................ (283,333) (148,000)
Payments of capital lease obligations.............. (398,101) (62,264)
Issuance of loans to stockholders.................. -- (33,085)
Payments received on officer loans................. 2,914 --
Deferred Registration Costs........................ 746,462 --
------------ -----------
Net cash provided by financing activities........... 25,334,047 1,970,970
------------ -----------
Net increase in cash and cash equivalents........... 5,264,165 1,433,225
Cash and cash equivalents at beginning of period.... 1,512,695 615,317
------------ -----------
Cash and cash equivalents at end of period.......... $ 6,776,860 $ 2,048,542
============ ===========
</TABLE>

See accompanying notes to condensed Financial Statements

S-5
<PAGE>

IMPATH INC.

CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
NONREDEEMABLE
CONVERTIBLE
COMMON STOCK PREFERRED STOCK ADDITIONAL
----------------- ---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- ------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... 455,007 $ 2,275 7,192,724 $6,565,285 11,447 (548,672)
========= ======= ========== ========== ========== =========
Common shares issued
upon initial public
offering............... 2,242,500 11,212 25,726,054
Common shares issued
upon exercise of stock
options................ 53,807 269 88,916
Conversion of preferred
shares into common
shares upon initial
public offering ....... 2,548,933 12,745 (7,192,724) (6,565,285) 6,552,540
Accrual of preferred
stock dividends........ (82,346)
Amortization of deferred
compensation...........
Repayments of loans to
officers...............
Net income for the
period ended
September 30, 1996..... 1,269,938
--------- ------- ---------- ---------- ---------- ---------
Balance at September 30,
1996................... 5,300,247 $26,501 -- -- 32,296,611 721,266
========= ======= ========== ========== ========== =========
</TABLE>

<TABLE>
<CAPTION>
NOTES
RECEIVABLE
TREASURY FROM DEFERRED
STOCK OFFICERS COMPENSATION TOTAL
-------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1995...... (100) (31,335) (343,907) 5,654,993
===== ======= ======== ==========
Common shares issued upon initial
public offering.................. 26,737,266
Common shares issued upon exercise
of stock options................. 89,185
Conversion of preferred shares
into common shares upon initial
public offering.................. --
Accrual of preferred stock
dividends........................ (82,346)
Amortization of Deferred
Compensation..................... 95,688 95,688
Repayments of loans to officers... 2,914 2,914
Net income for the period ended
September 30, 1996............... 1,269,938
----- ------- -------- ----------
Balance at September 30, 1996..... (100) (28,421) (248,219) 32,767,638
===== ======= ======== ==========
</TABLE>

S-6
<PAGE>

IMPATH INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1--GENERAL:

The accompanying unaudited condensed financial statements have been prepared
by management in accordance with the rules and regulations of the United
States Securities and Exchange Commission.

NOTE 2--PRO FORMA NET INCOME PER SHARE:

Pro forma net income per share for the nine months ended September 30, 1996
and September 30, 1995 and for the three months ended September 30, 1995 is
based on the weighted average number of shares of common stock outstanding
after giving effect to the conversion (calculated using the as-converted
method) of the convertible preferred stock that converted upon the completion
of the Company's initial public offering in February 1996. Common equivalent
shares from stock options and warrants are included in the computation using
the treasury stock method to the extent their effect is dilutive. All stock
options and warrants issued within a one year period prior to the initial
public offering have been treated as outstanding for all reported periods.

NOTE 3--INITIAL PUBLIC OFFERING

NOTE 4--INVESTMENTS

The Company invested approximately $20,000,000 of the net proceeds from its
initial public offering in a portfolio of short term fixed income securities
that are actively traded by an investment manager. In accordance with
Statement of Financial Accounting Standards No. 115, the Company's investments
are being recorded at fair value with gains and losses reported in the
Statement of Operations. At September 30, 1996, approximately $2,600,000 of
securities with original maturities of three months or less were included as
cash equivalents. The remaining securities included in the investment
portfolio with original maturities that exceed three months are included in
current assets.

S-7
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1995

The Company's total revenues for the three months ended September 30, 1996
and 1995 were $5,370,000 and $3,817,000, respectively, representing an
increase of $1,553,000, or 40.7%, in 1996. This growth was primarily
attributable to a 25.8% increase in case volume resulting from increased sales
and marketing activities. In addition, revenue realization per case increased
due to product mix changes toward cases which carry higher reimbursement
rates.

Salaries and related costs for the three months ended September 30, 1996 and
1995 were $2,252,000 and $1,783,000, respectively, representing an increase of
$469,000, or 26.3%, in 1996. The 1996 increase was primarily due to an
increase in personnel costs necessitated by increasing case volume. Salaries
and related costs, as a percentage of total revenues decreased to 42.0% in
1996 from 46.8% in 1995.

Selling, general and administrative expenses for the three months ended
September 30, 1996 and 1995 were $2,343,000 and $1,826,000, respectively,
representing an increase of $517,000, or 28.4%, in 1996. The largest component
of this increase was an increase in bad debt expense of approximately $213,000
associated with higher revenues, and a shift to more revenues requiring
copayments. The Company also incurred higher supply costs due to its increased
volume as well as higher travel related expenses associated with expanded
sales and marketing activities. Selling, general and administrative expenses
as a percentage of total revenues decreased to 43.7% in 1996 from 47.9% in
1995.

Income from operations for the three months ended September 30, 1996 and
1995 was $775,000 and $208,000, respectively, representing an increase of
$567,000, or 272.6%, in 1996. The 1996 figure reflects the effect on earnings
of increasing revenue growth and a decrease in operating expenses as a
percentage of revenue from 94.6% in the 1995 period to 85.6% in the 1996
period.

Interest income, net for the three months ended September 30, 1996 and 1995
was $277,000 and $11,000, respectively, representing an increase of $266,000
in 1996. The increase was the result of increased interest income generated
from the proceeds of the Company's initial public offering of common stock in
February 1996, partially offset by increased interest expense due to
additional capital lease obligations.

The tax provision for the three months ended September 30, 1996 of
approximately $450,000 reflects federal, state and local income tax expense.
The Company has estimated its annual effective tax rate for 1996 to be
approximately 43% which is in line with the current provision. For 1995, the
Company had recorded deferred tax assets to the extent of taxes that it
expected to pay on estimated 1995 taxable earnings. Management believes that
realization of such deferred assets was more likely than not. As such, it
estimated its annual effective tax rate for 1995 to be zero.

As a result, net income for the three months ended September 30, 1996 and
1995 was $602,000 and $218,000, respectively, representing an increase of
$384,000 or 176.2% in 1996. As a percentage of total revenues, net income
increased to 11.3% in 1996 from 5.8% in 1995.

NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1995

The Company's total revenues for the nine months ended September 30, 1996
and 1995 were $15,192,000 and $10,531,000, respectively, representing an
increase of $4,661,000, or 44.3%, in

S-8
<PAGE>

1996. This growth was primarily due to a 25.7% increase in case volume and an
increase in revenue realization per case resulting from product mix changes
toward cases with higher reimbursement rates.

Salaries and related costs for the nine months ended September 30, 1996 and
1995 were $6,765,000 and $4,932,000, respectively, representing an increase of
$1,833,000, or 37.2%, in 1996. This increase was due to an increase in
personnel costs associated with case volume growth. Salaries and related
costs, as a percentage of total revenues decreased to 44.6% in 1996 from 46.9%
in 1995.

Selling, general and administrative expenses for the nine months ended
September 30, 1996 and 1995 were $6,844,000 and $4,770,000, respectively,
representing an increase of $2,074,000 or 43.5%, in 1996. This increase was
due to an increase in bad debt expense of approximately $511,000 associated
with higher revenues, as well as a shift to more revenues requiring
copayments. The Company also incurred higher supply costs due to increasing
case volume and higher travel related expenses associated with expanded sales
and marketing activities. Selling, general and administrative expenses as a
percentage of total revenues decreased to 45.1% in 1996 from 45.3% in 1995.

Income from operations for the nine months ended September 30, 1996 and 1995
was $1,582,000 and $829,000, respectively, representing an increase of
$753,000, or 91%, in 1996. As a percentage of total revenues, income from
operations increased to 10.5% in 1996 from 7.9% in 1995.

Interest income, net for the nine months ended September 30, 1996 and 1995
was $641,000 and $35,000, respectively, representing an increase of $606,000
in 1996. The increase was the result of increased interest income generated
from the proceeds of the Company's initial public offering of common stock in
February 1996, partially offset by increased interest expense due to
additional capital lease obligations.

The tax provision for the nine months ended September 30, 1996 of
approximately $954,000 reflects federal, state and local income tax expense.
The Company has estimated its annual effective tax rate for 1996 to be
approximately 43% which is in line with its provision. For 1995, the Company
had recorded deferred tax assets to the extent of taxes that it expected to
pay on estimated 1995 taxable earnings. Management believes that realization
of such deferred assets is more likely than not. As such, it estimated its
annual effective tax rate for 1995 to be zero.

As a result, net income for the nine months ended September 30, 1996 and
1995 was $1,270,000 and $864,000, respectively, representing an increase of
$406,000, or 47%, in 1996. As a percentage of total revenues, net income
decreased to 8.4% in 1996 from 8.2% in 1995.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash and cash equivalent balances at June 30, 1996 and
December 31, 1995 were $6,777,000 and $1,513,000, respectively, representing
an increase of $5,264,000 in 1996. This increase was primarily attributable to
approximately $26,000,000 of net proceeds from the initial public offering of
the Company's common stock, which was consummated on February 26, 1996. In
addition, the Company has invested approximately $17,803,000 of the net
proceeds in marketable securities.

For the nine months ended September 30, 1996, the Company used net cash in
operating activities of approximately $19,742,000. This utilization of net
operating cash was the result of an increase in investments of approximately
$17,803,000 and an increase in accounts receivable of approximately $3,910,000
due to rapid sales growth.

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At September 30, 1996, the Company had working capital of approximately
$30,813,000. The Company's capital expenditures through September 30, 1996 in
connection with the establishment of its California facility were
approximately $1,331,000, which were partially financed through capital
equipment leases, a $300,000 secured term loan, and a $145,200 leasehold
improvement allowance from the landlord. The Company prepaid the balance of
the $300,000 secured term loan with the proceeds from the initial public
offering.

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