Reliance on laboratory testing for detection, diagnosis, evaluation, monitoring and treatment of diseases and other medical conditions creates significant market demand for clinical laboratory testing services. According to Lab Industry Strategic Outlook 2000, published by Washington G-2 Reports, in 1998 laboratories performed over 5.6 billion tests in the United States. According to Washington G-2 Reports, the U.S. clinical laboratory industry generated $31.8 billion in revenues in 1999, which represented approximately 3% of total healthcare expenditures.

Laboratory tests are provided by hospital-affiliated laboratories, physician-owned laboratories and independent clinical laboratories. The clinical laboratory testing market is highly fragmented with over 165,000 federally-regulated clinical laboratories, 8,900 of which were hospital-based clinical laboratories and 4,900 of which were independent clinical laboratories in 1998. Washington G-2 Reports estimates that in 1999, hospital-based laboratories generated 63% of all laboratory testing revenue, independent clinical laboratories generated 26% and physician-based laboratories generated the remaining 11%.

As esoteric testing has increased in complexity, it is believed that many health care providers have sought to outsource their esoteric testing needs to independent clinical laboratories. It is believed hospitals and independent clinical laboratories will continue to outsource esoteric laboratory testing services because of the complexity and high cost of performing these tests internally. It is also believed that hospitals will compete on an “outreach” basis with independent clinical laboratories for routine, physician-generated testing business in local markets. Providing these services allows hospitals to spread the fixed costs of their internal laboratory facilities across a broader revenue base.

The Company performs approximately 164,000 esoteric tests per week on average. The nature of these tests requires a high level of accuracy, quick turn around time and substantial human involvement. Because it is not cost effective for most laboratories to perform esoteric tests in-house, they generally refer many esoteric tests to outside testing laboratories.

The Company offers its clients a broad array of esoteric tests, which it believes represent substantially all of the esoteric tests typically requested. The Company has relationships with niche laboratories that perform the small number of tests that it does not perform internally. The Company acquires and licenses new esoteric tests created by others to leverage external research and reduce its development time and costs while providing the latest testing technology to its customers. The Company currently offers a wide range of genetic tests, which are tests that are based on DNA and RNA. The Company uses complex testing technologies, such as Branch DNA and polymerase chain reaction testing, to directly evaluate genetic material. These testing technologies provide earlier and more precise detection of disease and predisposition to disease than historically has been available.

The Company performs approximately 42,000 forensic toxicology tests per week on average. Forensic toxicology requires complex procedures and government licensure, which the Company has both at its Las Vegas, Nevada and Chantilly, Virginia laboratories. The Company’s forensic toxicology department screens urine and hair specimens for the presence of drugs

The Company performs approximately 228,000 routine tests per week on average. Routine clinical laboratory tests measure various important bodily health parameters such as the function of the kidneys, heart, liver, thyroid and other organs. Commonly ordered tests include blood chemistry tests; complete blood count tests; pap smears; HIV screening tests; urinalyses; and pregnancy tests. The Company performs routine testing through its primary and short turn around time laboratories. The Company also performs routine testing in hospitals where it has on-site laboratories.

As part of its comprehensive service offering, the Company offers value-added services designed to help its customers develop and strengthen their community outreach services.

Cost of services increased to $149.0 million for the nine months ended September 30, 2001 from $128.6 million for the same period in 2000, representing an increase of $20.4 million or 15.8%.

Depreciation and amortization expense increased to $11.0 million for the nine months ended September 30, 2001 from $10.1 million for the same period in 2000, representing an increase of $0.9 million or 9.5%.

Interest expense increased to $11.7 million for the nine months ended September 30, 2001 from $11.5 million for the same period in 2000, representing an increase of $0.2 million or 2.1%.

Adjusted EBITDA increased to $28.0 million for the nine months ended September 30, 2001 from $24.2 million for the same period in 2000, representing an increase of $3.8 million or 15.7%.