[Dollars In Thousands Except Per Share Data, Total Patient Data, Or Unless Otherwise Noted]

OVERVIEW

We are a clinical laboratory located in northeastern New Jersey. Our regional footprint lies within the New York City metropolitan area and the surrounding areas of New Jersey and southern New York State as well eastern Pennsylvania and some areas of western Connecticut; under certain circumstances, we provide services further into New York State, Pennsylvania, Delaware and Maryland. As a regional provider, we are a full-service laboratory that primarily services physician office practices; our drivers pick up samples and deliver reports and supplies, we provide sophisticated technical support, phlebotomy services or patient service centers where appropriate, and electronic communication services in many cases. We have also developed a national reputation for our expertise in certain focused areas of clinical testing. GenPath, the label under which we provide our cancer and oncology services, is recognized for the superior hematopathology services it provides throughout the country. Physicians outside of our regional footprint send samples to our laboratory in order to take advantage of the expertise that we are able to provide in blood-based cancer pathology and associated diagnostics. Our correctional healthcare services are used throughout the country at prisons and jails. The focused markets we serve on a national basis outside of our regional footprint do not require many of the logistical and other ancillary support services required within the region. Even within our regional footprint, we provide the same services that we provide on a national basis as well as some regional focused diagnostic services, such as histology and pathology support services, substance abuse testing, fertility testing, hemostasis testing, women's health testing, and molecular diagnostics that are unavailable from many of the smaller regional competitors; testing in some of these areas may be provided outside of physician offices.

Over the last few years, there have been fundamental changes in the laboratory services industry. In the 1990s, the industry was negatively impacted by the growth of managed care, increased government regulation, and investigations into fraud and abuse. These factors led to revenue and profit declines and industry consolidations, especially among commercial laboratories. There are currently only three publicly-traded full service laboratories operating in the U.S. While that means that the two national mega-laboratories and BioReference Laboratories are the only remaining publicly traded full service commercial laboratories, there are numerous hospital outreach programs and smaller reference laboratories that compete for the commercial clinical laboratory business scattered throughout the country. Clinical laboratories have had to improve efficiency, leverage economies of scale, comply with government regulations and other laws and develop more profitable approaches to pricing. Moreover, there has been a proliferation of technology advancements in clinical diagnostics over the last decade that has created significant opportunities for new testing and growth.

As a full service clinical laboratory, we are constantly looking for new technologies and new methodologies that will help us to grow. Since the turn of the century, our size alone has made us attractive to companies that are driving the advances in technology. We represent a significant opportunity for these companies to market their products in one of the major population centers of the world-the New York Metropolitan area. We have had several successful strategic relationships with such technology opportunities. In addition to new technology opportunities, we have an extremely seasoned and talented management staff that has been able to identify emerging laboratory markets that are under-served or under-utilized. We are currently developing programs for cardiology, histology and women's health to go along with our existing hemostasis, hematopathology and correctional healthcare initiatives which have already been established and in which we have been increasing our market share for the past several years. We will continue to vigilantly seek focused diagnostic marketing opportunities where we can provide information, technology, service or support that expand and grow our clinical laboratory.

During the fourth quarter of fiscal 2006, the Company acquired the operating assets of GeneDx, a leading DNA sequencing laboratory. As molecular testing in general becomes a more significant element in the diagnostic testing industry, the Company believes that genetic testing will become an essential diagnostic tool of the future. GeneDx was started by two geneticists from the National Institute of Health in 2000. Over the next six years, based on the reputation and expertise of the founders and the outstanding team they built around themselves, along with a very focused and dedicated understanding of the science of genetics, GeneDx became known as one of the premier genetic testing laboratories for the diagnosis of rare genetic diseases. The Company believed that the promise of genetic testing is in the diagnosis of the genetic variants of common diseases. It is the Company's intention to leverage the expertise and reputation of GeneDx in order to take a leadership role in the expanding area of genetic testing. The Company is seeking cutting edge methods of testing that will be commercially viable diagnostic tools for the advancement of genetic testing. During the past year, GeneDx introduced GenomeDx, a new test based on Comparative Genomic Hybridization Array technology, a high-speed, chip-based technology, that has allowed GeneDx to move to the forefront of an emerging technology platform. The Company is already expanding the menu of tests offered and employing marketing techniques that were extremely successful in building GenPath, our oncology laboratory. In addition to scientists and technicians to manage testing, GeneDx employs several genetic counselors to help patients and referring physicians and geneticists understand the meaning of the test results. Prior to the acquisition, GeneDx's revenues and profits were increasing at an accelerating rate. This increase has continued through the first three quarters of fiscal 2009.

While we recognize that we are a clinical laboratory that processes samples, we also understand that we are an information company that needs to effectively communicate the results of our efforts back to healthcare providers. Laboratory results play a major role in the implementation of physician healthcare. Laboratory results are used to diagnose, monitor and classify health concerns. In many cases, laboratory results represent the confirming data in diagnosing complicated health issues. Since laboratory results play such an important role in routine physician care, we have developed informatic solutions that leverage our role in healthcare. We needed to build a web-based solution to quickly, accurately, conveniently and competitively collect ordering information and deliver results, so we built an internal solution that we call CareEvolve. That solution has been essential to our own operations. We license the technology to other laboratories throughout the country which they utilize to more effectively compete against the national laboratories. These other laboratories licensing our technology are not our competitors since they are outside our regional footprint.

We have also created our PSIMedica business unit which has developed a Clinical Knowledge Management (CKM) System that takes data from enrollment, claims, pharmacy, laboratory results and any other available electronic source to provide both administrative and clinical analysis of a population. The system uses proprietary algorithms to cleanse and configure the data and transfer the resulting information into a healthcare data repository. Using advanced cube technology methodologies, the data can be analyzed from a myriad of views and from highly granular transactional detail to global trended overview. Events such as the Katrina disaster in Louisiana two summers ago and general pressures from the government have made development of an electronic medical record system and Pay-for Performance reimbursement priority goals in the healthcare industry. A large portion of an individual's medical record consists of laboratory data and a key performance indicator in any Pay-for-Performance initiative is laboratory result data. Our CKM system is a mature, full functioning solution that will allow us to play a role in these important national initiatives.

To date, neither our PSIMedica business unit nor Care-Evolve has produced significant revenues.

Summary

During the period ended January 31, 2009, the Company executed a Restitution Agreement with John Littleton, a former Vice President in sales. Mr. Littleton paid the Company $1,600,000 for payments made to him and others that were from our perspective, improperly paid. These payments were paid for a) recruiting fees for new hires paid to parties with an undisclosed relationship to him and
b) reimbursement to him or others of improperly or insufficiently documented expenses; both of which are in violation of the Company's policies (See "Other Income" in table below). As such, in certain areas within the Management's Discussion and Analysis we will present an

analysis of our operating results including the restitution amount and pro-forma operating results excluding the restitution amount (it will be labeled as such).

                               Nine Months Ended

                                    July 31,



                               Pro Forma
                                 2009        Actual 2009        2008
Net Revenues                  $   260,342   $     260,342   $    219,834
Cost of Services                  133,090         133,090        133,396
Gross Profit on Revenues          127,252         127,252        106,438
General and Administrative        101,947         101,947         87,643
Operating Income                   25,305          25,305         18,795
Other (Income) Expense, Net         1,072            (528 )        1,439
Income Before Taxes                24,233          25,833         17,356
Taxes                              10,475          11,166          6,984
Net Income                         13,758          14,667         10,372
Income Per Share (Basic)      $      1.00   $        1.06   $       0.75
Number of Shares (Basic)       13,799,364      13,799,364     13,755,455
Income Per Share (Diluted)    $      0.99   $        1.05   $       0.74
Number of Shares (Diluted)     13,922,829      13,922,829     13,984,189

OPERATING RESULTS (In Thousands)

[In Thousands Except Per Share Data, Or Unless Otherwise Noted]

NET REVENUES:

Net revenues for the three month period ended July 31, 2008 were $77,776 as compared to $97,424 for the three month period ended July 31, 2009, which represents a 25% increase in net revenues. This increase is due to a 20% increase in patient count and a 5% increase in net revenues per patient due to a shift in business to higher reimbursement esoteric testing, which continues to be the principal driver in net revenue per patient.

The number of patients serviced during the three month period ended July 31, 2009 was approximately 1,246 thousand, which was 20% greater when compared to the prior fiscal year's three month period. Net revenue per patient for the three month period ended July 31, 2008 was $74.11 compared to net revenue per patient of $77.61 for the three month period ended July 31, 2009, an increase of $3.50 or 5%.

COST OF SERVICES:

Cost of Services increased from $39,170 for the three month period ended July 31, 2008 to $48,163 for the three month period ended July 31, 2009, an increase of $8,993 or 23% as compared to a 25% increase in net revenues. This increase in Cost of Services is fundamentally in line with the increase in Net Revenues.

GROSS PROFITS:

Gross profits increased from $38,606 for the three month period ended July 31, 2008 to $49,261 for the three month period ended July 31, 2009; an increase of $10,665 or 28%. Gross profit margins increased to 51% for the three month period ended in July 31,2009 as compared to 50% for the three month period ended July 31, 2008.

GENERAL AND ADMINISTRATIVE EXPENSES:

General and administrative expenses for the three month period ended July 31, 2008 was $30,289 as compared to $37,283 for the three month period ended July 31, 2009, an increase of $6,994 or 23%. This increase is in line with the increase in net revenues.

INTEREST EXPENSE:

Interest expense decreased to $351 during the three month period ended July 31, 2009 from $462 during the three month period ended July 31, 2008. This decrease is due to a decrease in PNC Bank's prime rate to 3.25%. Management believes that this trend will continue in the short term due to the bank's lower prime rate.

INCOME:

We realized net income of $6,439 for the three month period ended July 31, 2009, as compared to $4,737 for the three month period ended July 31, 2008, an increase of

36%. Pre-tax income for the period ended July 31, 2008 was $7,915 compared to $11,671 for the period ended July 31, 2009, an increase of 47%. The provision for income taxes increased from $3,178 for the three month period ended July 31, 2008 to $5,232 for the three month period ended July 31, 2009.

[In Thousands Except Per Share Data, Or Unless Otherwise Noted]

NET REVENUES:

Net Revenues for the nine month period ended July 31, 2008 were $219,834 as compared to $260,342 for the nine month period ended July 31, 2009. This represents an 18% increase in net revenues. This increase is due to a 9% increase in patient counts and an 8% increase in revenue per patient due to a continuing shift in business to higher reimbursement esoteric testing.

The number of patients serviced during the nine month period ended July 31, 2009 was approximately 3,339 million which was 9% greater when compared to the prior fiscal year's nine month period. Net revenue per patient for the nine month period ended July 31, 2008 was $71.36, compared to net revenue per patient for the nine month period ended July 31, 2009 of $77.37, an increase of $6.01 or 8%.

COST OF SERVICES:

Cost of Services increased to $133,089 for the nine month period ended July 31, 2009 from $113,396 for the nine month period ended July 31, 2008. This amounts to a $19,693, or a 17% increase in direct operating costs. This increase in Cost of Services is in line with the increase in net revenues.

GROSS PROFITS:

Gross profits on net revenues increased to $127,252 for the nine month period ended July 31, 2009 from $106,438 for the nine month period ended July 31, 2008, an increase of $20,816 (20%) primarily attributable to the increase in net revenues. Gross profit margins increased 1 percent to 49 percent during the current period.

GENERAL AND ADMINISTRATIVE EXPENSES:

General and administrative expenses for the nine month period ended July 31, 2009 were $101,947 as compared to $87,643 for the nine month period ended July 31, 2008, an increase of $14,304 or 16%. This increase is in line with the increase in net revenues.

INTEREST EXPENSE:

Interest expense decreased to $1,208 during the nine month period ended July 31, 2009 as compared to $1,647 during the nine month period ended July 31, 2008, a decrease of $439. This decrease is due to a decrease in PNC Bank's prime rate to 3.25%. Management believes that this trend will continue in the short term due to the bank's lower prime rate.

INCOME:

We realized net income of $10,372 for the nine months ended July 31, 2008 as compared to $14,667 for the nine month period ended July 31, 2009, an increase of $4,296 or 41%. Pre-tax income for the period ended July 31, 2008 was $17,356, as compared to $25,833 for the period ended July 31, 2009, an increase of $8,447 (49%). The provision for income taxes increased from $6,984 for the period ended July 31, 2008, to $11,166 for the current nine month period.

The most profound change on a pro-forma basis would have been that our fully-diluted earnings per share (EPS) went from $1.05 under the current operating results to $.99 on a pro-forma basis a difference of $.06 per share, which is more reflective of our true operating results.

LIQUIDITY AND CAPITAL RESOURCES:

Our working capital at July 31, 2009 was $72,489 as compared to $58,561 at October 31, 2008; an increase of $13,928. Our cash position increased by $2,182 during the current period. We had current liabilities of $59,161 at July 31, 2009. We generated $12,225 in cash from operations at July 31, 2009, compared to $14,282 in cash from operations for the nine month period ended July 31, 2008, an overall decrease of $2,057 in cash generated from operations year over year. This decrease is largely attributable to increased cash tax payments made by the Company.

Accounts receivable, net of allowance for doubtful accounts, totaled $100,840 at July 31, 2009, an increase of $7,122 from October 31, 2008 or 8%. This increase was primarily attributable to increased revenue. Cash collected during the nine month period ended July 31, 2009 increased 25% over the comparable prior year nine month period.

Credit risk with respect to accounts receivable is generally diversified due to the large number of patients comprising our client base. We have significant receivable balances with government payors and various insurance carriers. Generally, we do not require collateral or other security to support customer receivables. However, we continually monitor and evaluate our client acceptance and collection procedures to minimize potential credit risks associated with our accounts receivable and establish an allowance for uncollectible accounts. As a consequence, we believe that our accounts receivable credit risk exposure beyond such allowance is not material to the financial statements.

A number of proposals for legislation continue to be under discussion which could substantially reduce Medicare and Medicaid reimbursements to clinical laboratories. Depending upon the nature of regulatory action, and the content of legislation, we could experience a significant decrease in revenues from Medicare and Medicaid, which

could have a material adverse effect on us. We are unable to predict, however, the extent to which such actions will be taken.

Billing for laboratory services is complicated and we must bill various payors, such as the individual, the insurance company, the government (federal or state), the private company or the health clinic. Other factors that may complicate billing include:

Differences between fee schedules and reimbursement rates.

Incomplete or inaccurate billing information as provided by the physician.

Disparity in coverage and information requirements.

Disputes with payors.

Internal and external compliance policies and procedures.

Significant costs are incurred as a result of our participation in government programs since billing and reimbursement for laboratory tests are subject to complex regulations. We perform the requested tests and report the results whether the billing information is correct or not, or even missing. This adds to the complexity and slows the collection process and increases the aging of our accounts receivable ("A/R"). When patient invoices are not collected in a timely manner, the item is written off to the allowance. Days Sales Outstanding ("DSO") for the period ended July 31, 2009, decreased to 95 days; a decrease of 12 days, or 11%, from the days that we reported at the end of fiscal year 2008.