SECURITIES AND EXCHANGE COMMISSION
                    WASHINGTON D.C. 20549
                 ___________________________
                          FORM 10-K

  [X] Annual Report Pursuant to Section 13 or 15(d) of the
               Securities Exchange Act of 1934
       For the Fiscal Year Ended December 31, 1996 or
  [  ] Transition Report Pursuant to Section 13 or 15(d) of
             the Securities Exchange Act of 1934
                              
              Commission File Number:  0-25210

                        NeoPath, Inc.
   (Exact name of registrant as specified in its charter)
                              
       Washington                                   91-1436093
      (State or other jurisdiction of           (I.R.S. Employer
       incorporation or organization)           Identification No.)
                              
  8271 - 154th Avenue NE, Redmond, Washington          98052
   (Address of principal executive offices)          (Zip Code)
                              
 Registrant's telephone number, including area code:  (206) 869-7284
                              
   Securities registered pursuant to Section 12(b) of the Act:
                              
                                     Name of each exchange
    Title of each class               on which registered
         None                                 N/A
                              
   Securities registered pursuant to Section 12(g) of the Act:
                Common Stock, $.01 par value
                      (Title of Class)
                              
     Indicate by check mark whether the registrant (1) has
filed  all reports required to be filed by Section  13  or
15(d)  of  the Securities Exchange Act of 1934 during  the
preceding 12 months (or for such shorter period  that  the
registrant was required to file such reports), and (2) has
been  subject to such filing requirements for the past  90
days.
                              
                   Yes [X]        No [  ]
                              
     Indicate  by  check mark if disclosure of  delinquent
filers  pursuant  to  Item 405 of Regulation  S-K  is  not
contained herein, and will not be contained, to  the  best
of   registrant's  knowledge,  in  definitive   proxy   or
information statements incorporated by reference  in  Part
III  of this Form 10-K or any amendment to this Form 10-K.
[    ]
                              
     Aggregate market value of voting stock held by non-
  affiliates of the registrant as of February 28, 1997 was
                        $189,718,059.

     Number  of shares of Common Stock outstanding  as  of
February 28, 1997:  13,730,440 shares.

             DOCUMENTS INCORPORATED BY REFERENCE
                              
     Portions  of  the 1996 Annual Report to  Shareholders
are incorporated by reference into Part II.
                              
     Part   III  is  incorporated  by  reference  to   the
definitive Proxy Statement to be filed in connection  with
the Company's Annual Meeting of Shareholders to be held on
May 22, 1997.

<PAGE>
                           PART I

Item 1.     BUSINESS

  The  following Business section contains "forward  looking
statements"  within  the meaning of the  Private  Securities
Litigation   Reform  Act  of  1995.   Such   forward-looking
statements  are subject to certain risks, uncertainties  and
other factors that may cause actual results, performance and
achievements to differ materially from historical results or
those  anticipated.  See "Factors Affecting  Future  Results
and Forward-Looking Statements."
  
The Company
  
 NeoPath,  Inc. (the "Company" or "NeoPath"),  a  Washington
Corporation  incorporated  in  1989,  develops  and  markets
products that automate the interpretation of medical images.
The  Company's initial products are two automated  screening
systems   that   integrate  proprietary   high-speed   image
processing   computers,   video   imaging   technology   and
sophisticated image interpretation software to  capture  and
analyze  thousands of microscopic images from a Papanicolaou
("Pap")  smear slide.  In September 1995, the United  States
Food  and  Drug  Administration  (the  "FDA")  cleared   for
commercial use the Company's first product, the AutoPap  300
QC Automatic Pap Screener System (the "AutoPap QC").  During
the  first  quarter  of  1996,  the  Health  Care  Financing
Administration  officially allowed clinical laboratories  to
use  the  AutoPap QC in the quality control  review  of  Pap
smear   slides   that  have  been  initially   screened   by
cytologists as normal.  The decision allows AutoPap  QCs  to
replace the federally mandated rescreening requirements.  As
a  result  of these approvals, NeoPath transitioned  from  a
"development stage" company to a commercial entity, with the
Company's first product revenues recognized in 1996.
 
 NeoPath  is  seeking FDA approval for the Company's  second
product,  the  AutoPap  Automatic Pap Screener  System  (the
"AutoPap Screener" and, in combination with the AutoPap  QC,
the  "AutoPap System").  On September 27, 1996 a  Hematology
and  Pathology Devices Advisory Panel recommended  that  the
FDA  not  approve,  at  that time,  the  supplement  to  the
Company's premarket approval ("PMA") submission for the  use
of  the AutoPap Screener as a primary screener of Pap  smear
slides   pending  the  completion  of  additional  premarket
studies.    The  FDA  subsequently  followed   the   Panel's
recommendation.    The  Company  is  performing   additional
clinical  studies,  as requested by the FDA,  and  plans  to
resubmit this matter to the FDA in 1997.
  
  The   Company  believes  that  the  AutoPap   System   can
facilitate  the  earlier  and  more  accurate  detection  of
precancerous   cervical  conditions  and  cervical   cancer,
thereby  decreasing  the morbidity and mortality  rates  for
cervical cancer.

Background

Cancer of the Uterine Cervix

  Cancer  of  the uterine cervix is one of the  most  common
cancers among women throughout the world, with approximately
500,000  new  cases reported each year. The American  Cancer
Society  projected  that,  in the  United  States  in  1996,
approximately 14,500 new cases of cervical cancer  would  be
diagnosed  and  approximately  4,800  women  would  die   of
cervical  cancer. Almost all deaths due to  cervical  cancer
could be prevented with early-stage detection and treatment.
Cancer  of the uterine cervix is preceded by a precancerous,
curable  stage  that generally progresses  without  symptoms
over  a  period of years until it reaches an invasive stage.
Treating  uterine cervical cancer after it has  reached  the
invasive stage becomes more difficult and expensive, and may
not be successful. Industry sources have estimated that,  of
the approximately 50 million Pap tests conducted annually in
the  United  States, approximately 2.5 million, or  5%,  are
diagnosed with precancerous conditions or cancer.

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The Pap Test

  The  Pap  test,  developed in the 1940s by Dr.  George  N.
Papanicolaou,  is  a  screening  procedure  for  the   early
detection  of precancerous and cancerous conditions  of  the
uterine  cervix.  The  Pap  test was  designed  to  identify
abnormalities that may progress to cervical cancer,  thereby
facilitating early medical intervention. If early  detection
is  made,  treatment  is relatively inexpensive  and  almost
always successful. To obtain a Pap smear, a gynecologist  or
general  practitioner  scrapes  the  surface  of  a  woman's
uterine cervix to collect a sample of cells. The specimen is
smeared  onto  a  microscope  slide  and  preserved  with  a
fixative  agent such as alcohol. This Pap smear, along  with
patient  information, is then sent to a clinical  laboratory
for further preparation, screening and diagnosis.

  At  the laboratory, the specimen, which typically consists
of 50,000 to 300,000 cervical cells, is stained to highlight
important  cellular features and sealed  with  a  protective
coverslip.   The Pap smear is then placed under a microscope
and examined by a cytotechnologist for signs of abnormality.
Cytotechnologists,   medical  professionals   with   special
training in cytology (the study of cells), generally require
five  to  ten minutes to screen each Pap smear and  complete
related  paperwork.  Typically, about 90% to 95% of all  Pap
smears are classified as normal.  In the remaining cases,  a
cytotechnologist  has detected a suspicious  condition  that
must  be reviewed by a senior cytotechnologist. Those slides
confirmed  to  have  signs  of  precancerous  conditions  or
cancer, typically about 5% of all cases, are referred  to  a
cytopathologist,  who carefully reviews the  Pap  smear  and
makes a final diagnosis.

  Despite  the  acknowledged success of the Pap test,  there
are  certain limitations in the current method of human  Pap
smear  review.  Pap smears are subject to a highly  variable
false-negative rate (the percentage of abnormal smears  that
are misclassified as normal).  In certain laboratories, this
false-negative  rate may exceed 25% (that is,  one  of  four
abnormal Pap smears may be misclassified as normal).  Partly
because physical and mental stress escalates with the number
of Pap smears examined, thereby increasing the risk of false-
negatives,   federal  regulations  promulgated   under   the
Clinical  Laboratory Improvement Amendments of 1988 ("CLIA")
limit    the    number   of   slides   (gynecological    and
nongynecological) that a cytotechnologist  may  screen  each
day  to  no more than 100.  As an additional quality control
measure, the CLIA regulations also require that laboratories
rescreen  a  minimum  of  10% of all  Pap  smears  initially
classified as normal.

Treatment

  In  the  United States, each Pap smear slide is  typically
classified  in  accordance  with  The  Bethesda  System  for
Reporting  Cervical/Vaginal Cytologic Diagnoses.  Any  slide
classified as other than negative is considered abnormal and
may be precancerous or cancerous.  Abnormalities evident  in
Pap  smears  may  indicate various conditions  ranging,  for
example,   from  atypical  squamous  cells  of  undetermined
significance  ("ASCUS")  and  atypical  glandular  cells  of
undetermined  significance ("AGUS"), both commonly  referred
to  as  "atypia,"  and  low-grade  squamous  intraepithelial
lesions  ("LSILs")  to  high-grade squamous  intraepithelial
lesions  ("HSILs")  and  cancer.  A woman  whose  Pap  smear
indicates  the  presence of HSILs or cancer  will  typically
receive  a  colposcopic examination,  and  if  necessary,  a
biopsy.    Treatment  of  early-stage  noninvasive  cervical
cancer, which is relatively curable, may be accomplished  by
epithelial  treatment  in  which  the  cancerous  tissue  is
removed,  for example, by electrocautery.  Once  the  cancer
reaches  an  invasive  stage,  the  patient's  chances   for
recovery are diminished and typically require treatment such
as radiation therapy, surgery, or chemotherapy.

Market

  The  Company believes that clinical analysis of Pap smears
currently  represents  the  largest  nonautomated   clinical
laboratory procedure. Industry statistics indicate that U.S.
clinical  laboratories process over 50  million  Pap  smears
annually. The Company believes that laboratories outside the
United  States  process  more than  60  million  Pap  smears
annually.  Pap  smears are processed in  hospital-based  and
independent clinical laboratories.

Page 2
<PAGE>

  Laboratories that fail to accurately identify  Pap  smears
that  contain  indications  of  precancerous  conditions  or
cancer  may be subject to malpractice suits. Because federal
law  requires  all Pap smears to be retained by laboratories
for five years, these laboratories face significant exposure
to  liability. The Company believes that use of its  AutoPap
System  will  substantially improve the current standard  of
practice, thereby assisting those laboratories that use  the
AutoPap System to reduce their exposure to such liability.

  In  addition, in recent years there has been an increasing
focus  on improving the quality of women's healthcare.   The
Company   believes  that  the  AutoPap  System  will   allow
laboratories   to   better  detect   precancerous   cervical
conditions  and  cervical  cancer,  thereby  improving   the
standard  of  care  for  their  female  patients.    Earlier
detection  will  facilitate more timely treatment  and  will
lower risks of morbidity and mortality.

Products

  NeoPath's  initial  products are the AutoPap  QC  and  the
AutoPap    Screener,   which   employ   identical   hardware
components.    The   AutoPap  Screener,  however,   contains
upgraded software features that allow it to perform  primary
screening,  as  well  as quality-control  rescreening.   The
AutoPap QC has been cleared by the FDA for commercial use in
the  United  States.   The Company is performing  additional
clinical  studies to support the supplement to the Company's
PMA  submission for the AutoPap Screener.  In January  1997,
the  Company  introduced its next-generation AutoPap  System
which incorporates new diagnostic algorithms that operate in
coordination  with the original AutoPap Screener  algorithms
to  improve diagnostic accuracy.  The Company is  using  the
next-generation  AutoPap  System  in  its  current  clinical
trials.
  
  The Company will limit the use of the AutoPap Screener  to
clinical  trials  and  to commercial use  in  those  foreign
countries in which such use is approved, unless and until it
is  cleared  by  the FDA for commercial use  in  the  United
States.    The  AutoPap  System  is  approved  for   primary
screening  and quality control in Japan, Canada,  Australia,
New   Zealand   and  The  Netherlands.   See   "Governmental
Regulation."

  The  AutoPap  System  is designed to be  used  on-site  by
general  laboratory personnel and to be  compatible  with  a
wide  range  of  staining procedures and all standard  glass
microscope slides.  Thus, most laboratories should not  find
it  necessary to change their current Pap smear  preparation
procedures  to  implement use of the  AutoPap  System.   The
AutoPap  System currently requires use of glass  coverslips,
which  are  widely  used  by most laboratories  and  provide
consistent optical characteristics.  Currently, each AutoPap
System  analyzes a Pap smear in approximately the same  time
as  a  cytotechnologist.  The AutoPap  System,  which  holds
approximately  300 Pap smear slides at a time,  is  easy  to
load  and  is  designed  to operate  continuously  and  with
minimal  intervention  for up to  24  hours  per  day.   The
Company  provides  each  clinical  laboratory  with  on-site
training,  system  documentation,  a  comprehensive  quality
assurance   program  and  ongoing  customer  and   technical
support.
  
  The  Company  believes that its automated  medical  image-
interpretation  technology  has substantial  application  in
other diagnostic tests that involve microscopic analysis  of
biological specimens on glass slides, such as sputum, blood,
tissue  or  urine  samples.  In addition,  the  Company  has
identified  several  other potential  applications  for  its
technology,  including  automated image  interpretation  for
lung, breast, bladder and skin cancers. The Company believes
that the technology embodied in the hardware platform of the
AutoPap   System  is  appropriate  for  other   applications
involving analysis of cellular images on microscope  slides.
Developing systems for such applications primarily  involves
adapting  software algorithms developed for the analysis  of
Pap  smears  to the analysis of other tissue specimens.  The
Company  continues to evaluate the indications on  which  it
may focus future development efforts.
  
  The Company's research and development expenses were $11.2
million,  $9.4 million, and $9.2 million in the years  ended
December 31, 1996, 1995, and 1994, respectively.

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     AutoPap 300 QC Automatic Pap Screener System

  The  AutoPap  QC is designed to rescreen Pap  smears  that
have been previously screened and classified as normal by  a
cytotechnologist.  Its purpose is to  improve  detection  of
false-negatives  and, thereby, improve laboratory  accuracy.
The AutoPap QC analyzes Pap smears originally classified  as
normal and adequate for analysis. Those Pap smears that  the
AutoPap  QC classifies as showing the highest potential  for
abnormality are identified as requiring additional review by
a cytotechnologist qualified to perform quality control. The
AutoPap QC is intended for use as both a quality-control and
an  adjunct  rescreening device for previously screened  Pap
smears.  This flexibility will allow laboratories either  to
implement   the   AutoPap  QC  into  their   quality-control
procedures or to offer Pap smear rescreening by the  AutoPap
QC  as  an  additional service for those women who  seek  an
additional review of their Pap smears.

  Preclinical  and  clinical trials  demonstrated  that  the
AutoPap  QC, operating in a quality-control mode, showed  up
to  a  five-fold  improvement  in  the  detection  of  false
negative slides over a 10% random selection method.  By  the
same  standard, the AutoPap QC achieved up to an  eight-fold
improvement  in the detection of biopsy-confirmed  HSIL  and
cancer  slides.  The Company believes that  the  substantial
improvement  over  current methodology demonstrated  by  the
AutoPap  QC  can result in consistent earlier  detection  of
precancerous  conditions  and cancer,  thereby  facilitating
more timely treatment and reducing the risk of morbidity and
mortality.

  Currently, most laboratories that have not adopted AutoPap
technology  satisfy  CLIA  quality  control  regulations  by
manually rescreening a minimum of 10%, randomly selected, of
all  Pap smears initially classified as normal. Because  the
AutoPap  QC  automatically rescreens substantially  all  Pap
smears  initially  classified as  normal  and  provides  the
laboratory  with  an  enriched sample of  Pap  smear  slides
determined  most likely to exhibit abnormality, the  Company
believes  that  use  of the AutoPap  QC  will  result  in  a
substantial improvement over random selection in identifying
false-negatives.   During the first quarter  of  1996,  HCFA
officially allowed clinical laboratories to use the  AutoPap
QC  in  the quality control review of Pap smear slides  that
have been initially screened by cytologists as normal.  CLIA
regulations also require rescreening of slides from patients
or  groups of patients that are identified as having a  high
probability of developing cervical cancer based on available
patient  information.  The AutoPap QC  is  not  intended  to
replace   a   laboratory's   current   practices   regarding
rescreening Pap smears of these "high-risk" patients.

  The  Company  believes that, compared to current  methods,
the  AutoPap  QC  enables  clinical laboratories  to  detect
precancerous   cervical  conditions  and   cervical   cancer
substantially   earlier   and  more  consistently,   thereby
decreasing   the   laboratory's  false-negative   rate   and
demonstrating  the laboratory's commitment to achieving  the
highest standard of practice.  This improvement over current
rescreening  methods  should increase healthcare  providers'
ability  to  treat  precancerous  cervical  conditions   and
cervical cancer, thus reducing the instances in which  women
will   require   treatments  such   as   hysterectomies   or
chemotherapy,   or  die.   The  AutoPap  QC  also   provides
laboratories  with  the  capacity to  monitor  and  evaluate
clinical    laboratory   processes   and    cytotechnologist
proficiency,  thereby  improving  the  laboratory's  overall
performance on all initial Pap smear screening.

AutoPap Automatic Pap Screener System

  NeoPath believes that if FDA clearance for commercial  use
is  received, the AutoPap Screener will become the Company's
principal  product  for the Pap smear screening  market.  By
reducing the number of Pap smears requiring cytotechnologist
review,  the  AutoPap Screener increases the number  of  Pap
smears  a  laboratory can process, potentially reducing  the
per-slide  processing  cost while maintaining  or  improving
overall laboratory accuracy.

  Unlike  the  AutoPap QC, the AutoPap Screener is  designed
for  use  as a primary screener for Pap smears.  The AutoPap
Screener could screen all of the laboratory's Pap smears and
classify them according to the level of detected abnormality
such  as  (a)  normal and needing no further review  or  (b)
potentially   abnormal  and  selected  for   review   by   a
cytotechnologist.  Normal Pap smears would pass directly  to
the  laboratory's archive. The second group,  consisting  of
the   remaining  Pap  smears,  would  be  reviewed  by   the
laboratory's   cytotechnologists   according    to    normal
laboratory procedures. The threshold for classifying Pap

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<PAGE>
smears  as  normal  and  needing no  human  review  will  be
established  for each laboratory during System installation.
Because  the  AutoPap  Screener is an upgrade,  designed  to
incorporate  the  features of the AutoPap  QC,  the  AutoPap
Screener  allows the laboratory to continue to  perform  its
AutoPap   QC-assisted  quality-control  rescreening  without
having to process Pap smear slides twice through the AutoPap
System.

  Because  of  the AutoPap Screener's ability to  act  as  a
primary  Pap smear screener, the Company intends  to  charge
higher  fee-per-use and sale prices for use of  the  AutoPap
Screener than for the AutoPap QC.  The AutoPap Screener  has
not  been  cleared for commercial use in the United  States.
The  Company  is conducting clinical trials  of the  AutoPap
Screener  and,  if  appropriate data is obtained,  plans  to
submit a revised PMA supplement to the FDA in 1997.  Because
the  AutoPap Screener classifies a portion of Pap smears  as
requiring no human intervention or review, there can  be  no
assurance  that  the  FDA  review process  for  the  AutoPap
Screener will not be longer and more extensive than  it  was
for  the  AutoPap  QC,  or that the FDA  will  grant  market
clearance   of  the  AutoPap  Screener.   See  "Governmental
Regulation."

Marketing and Sales

  The  AutoPap  QC  is  the only fully automated  Pap  smear
rescreening  device  to  receive  regulatory  clearance  for
marketing  in  the United States. The AutoPap  QC  has  been
cleared  by  the FDA for commercial use in both  a  quality-
control  rescreening mode and an adjunct  rescreening  mode.
The  Company believes that use of the AutoPap QC  and,  upon
its commercial introduction, the AutoPap Screener, may serve
to  distinguish its customers' laboratories as  providing  a
higher  quality  of  Pap smear screening compared  to  those
laboratories  that  have  not adopted  use  of  the  AutoPap
System.

 NeoPath's  primary  market includes  domestic  and  foreign
clinical  laboratories.  The Company markets the AutoPap  QC
in  North America through its direct sales force and markets
the   AutoPap   System  internationally  primarily   through
relationships with independent distributors.  The  Company's
four  largest  customers accounted for 86%  of  total
1996 revenues, and foreign product placements accounted  for
45%  of  total 1996 revenues.  The Company's  market
research indicates that over 35% of all U.S. Pap smears  are
screened   by  the  three  largest  laboratories,  including
SmithKline  Beecham Clinical Laboratories, Quest Diagnostics
Incorporated, and Laboratory Corporation of America, each of
which  operates  multiple laboratory facilities  nationwide.
The  Company has AutoPap QCs placed under contract with each
of  these  three  large  laboratory corporations.   However,
Unilab  Corporation,  with 13 AutoPap  QCs,  represents  the
Company's largest single-site contract signed to date.
 
 In  March 1997, NeoPath received approval from the Japanese
Ministry of Health and Welfare to market the AutoPap  System
as  a primary screener.  NeoPath distributes AutoPap Systems
in Japan through an agreement with Nikon Corporation whereby
Nikon  markets products to customers and handles maintenance
and  service.   NeoPath provides training  for  Nikon  sales
personnel and service engineers, who in turn train  Japanese
customers.   The  Japanese  market,  with  approximately  12
million  Pap smear tests conducted annually, is second  only
to the United States in current screening volume.

  The  Company  has  also received regulatory  approvals  to
export  and  market the AutoPap System in Canada, Australia,
New  Zealand  and  The Netherlands. The Company  intends  to
increase   its  marketing  efforts  in  Europe   and   other
international locations in 1997.
  
  NeoPath  is  compensated on either a sale  or  fee-per-use
basis  (subject  to certain license agreements  and  minimum
payments).   Under  its  fee-per-use  program,  the  Company
retains  ownership  of AutoPap Systems  placed  at  customer
sites  and  assesses customers a charge for each  Pap  smear
slide  analyzed.   The  Company's  product  placements  have
primarily  consisted of fee-per-use contracts in the  United
States  and  sales contracts internationally.   The  Company
anticipates that future product placements will continue  to
consist of a mixture of fee-per-use and sale contracts.
  
 The   Company  installs  the  AutoPap  System  at  customer
laboratories.   By  providing  this  on-site  service,   the
Company  believes that clinical laboratories will be  better
able  to  integrate  use of the AutoPap  System  into  their
normal workflow.  Installing the AutoPap System on site also
allows  clinical  laboratories  to  maintain  control   over
patient  specimens  and  associated  data,  minimize   slide
handling and avoid delays in reporting their test results.

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<PAGE>
  Subject  to  obtaining FDA clearance for commercialization
of  the AutoPap Screener, the Company anticipates being able
to  upgrade  an  AutoPap QC to an AutoPap  Screener  in  the
field.  As the Company's product development efforts improve
the performance and functionality of the AutoPap System, the
Company  intends, subject to obtaining applicable regulatory
approvals,  to  market  upgraded  product  versions  to  its
customers.  The Company has not yet determined how  it  will
charge  for  its  upgrade  packages,  but  anticipates  that
certain upgrades will result in increases in its fee-per-use
and sale pricing.

Manufacturing

  The  Company's manufacturing operations are located at its
headquarters  in  Redmond, Washington and consist  of  final
assembly,  integration and testing of electronic, mechanical
and  optical  components and modules comprising the  AutoPap
System.   In  its  manufacturing  process,  the  Company  is
required  to  meet and adhere to all applicable requirements
of  U.S.  and  international regulatory agencies,  including
Good   Manufacturing  Practices  ("GMP")   regulations,   as
promulgated  by  the  FDA.  As part of  the  FDA  regulatory
process,   the   Company's   manufacturing   processes   and
facilities  are subject to periodic FDA GMP inspections  and
may  be subject to further periodic inspections by U.S.  and
foreign  regulatory agencies. See "Governmental Regulation."
During   1996,   the  Company  expanded  its   manufacturing
capabilities and produced a total of 66 AutoPap  Systems  in
the Company's first full year as a commercial entity.

  The  Company  purchases  all components  for  the  AutoPap
System  from  outside  vendors.  A major  component  of  the
AutoPap System, the slide tray motion system, is supplied by
a sole-source vendor.  Certain other components, such as the
video  cameras,  are currently supplied by a single  vendor,
and   components  provided  by  additional  or   replacement
suppliers would require some modification to be incorporated
into the AutoPap System.  The establishment of additional or
replacement  sources  of  supply  for  many  AutoPap  System
components  cannot be accomplished quickly, and substitution
of components could require regulatory approval, the receipt
of   which  cannot  be  assured.   Accordingly,  a  vendor's
inability to supply acceptable components in a timely manner
and  in  the  quantity  required could delay  the  Company's
manufacture of, or cause the Company to cease manufacturing,
its  products.   Any such delay or cessation  could  have  a
material adverse effect on the Company.

Core Technology

  The  Company's  core technology consists of  a  means  for
acquiring  high-quality images through an  integrated  high-
speed  video  microscope, comprehensive image interpretation
software to accurately analyze images and classify cells and
slides,   and   high-speed  custom   field-of-view   ("FOV")
computers   to  run  the  software  at  high  speed.    This
technology  is  able  to automatically analyze  and  extract
important  features of cellular material and to  classify  a
specimen based on those features.

High-Speed Video Microscope

  To capture high-quality images, the Company has designed a
high-speed  video  microscope consisting  of  an  integrated
mechanical/optical system with a custom microscope and video
cameras that focus, capture and digitize images from  a  Pap
smear.    The   microscope  and  three  video  cameras   are
stationary  while  the platform holding  the  Pap  smear  is
moved, which allows the camera system to scan the Pap  smear
in  a  continuous,  systematic motion.   The  Pap  smear  is
illuminated  by  high-intensity,  narrowband  light  from  a
strobe  that enhances image contrast and freezes each  image
without interrupting the motion of the platform holding  the
Pap smear.

  The  mechanical/optical system is controlled by a  custom-
designed  image  capture and focus module that  incorporates
specialized  integrated circuits and software.  This  module
calibrates   the  image  acquisition  system,  automatically
focuses the system to obtain diagnostically relevant  images
and  adjusts  for  the non-uniform cell distributions  of  a
conventional  Pap smear. The image capture and focus  module
also  digitizes  images,  evaluates image  quality,  decides
whether  to  accept  or reject the image  for  analysis  and
identifies  the location of a rejected image  for  a  repeat
scan.

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<PAGE>

  The mechanical/optical system generally scans the slide in
three  separate  operations.  First, it  performs  a  setup,
which  consists  of  locating  the  slide,  identifying  the
coverslip   area   and  mapping  three-dimensional   surface
irregularities of the Pap smear.  The system  then  captures
low-magnification images from the slide in a systematic scan
of  the  slide  coverslip area.  Finally, using  information
from  the low-magnification scan, the system captures  high-
magnification  images from those areas of the  slide  having
the greatest diagnostic interest.

Image-Interpretation Software

  NeoPath's   image-interpretation  software  integrates   a
series  of image-interpretation algorithms to examine  slide
images  and  select  and analyze those  that  are  the  most
relevant indicators of normality and abnormality.  An image-
interpretation    algorithm   consists   of    multiple-step
mathematical  and  algorithmic  processes  that  detect  and
classify an object or collection of objects based on  shape,
structure,  optical density, contextual features  and  other
visible characteristics.  The process executed by the image-
interpretation  software consists of five  steps:  selecting
images  from  a  slide, segmenting the images into  objects,
measuring   object   features,   classifying   objects   and
classifying the slide.

   Selection  of Images.  By analyzing images  from  a  low-
 magnification scan of the slide coverslip area,  algorithms
 first  identify  the areas most likely to contain  cellular
 material of diagnostic significance. This information  then
 guides  the  high-speed  video microscope  to  analyze  the
 locations  of  greatest diagnostic interest in  a  separate
 high-magnification   scan.   The   AutoPap   System    also
 accumulates and stores information gathered in  this  first
 step for later use in the slide classification process.
   
   Segmentation  Into  Objects.  In  the  high-magnification
 scan,  the  AutoPap System locates and segments  the  well-
 defined  cells  or  group  of  cells  in  each  image  into
 objects,  while  excluding  from  further  analysis  poorly
 defined  objects and obvious artifacts (blood, mucus,  dust
 particles and similar matter).
   
   Measurement of Object Features.  Once objects  or  groups
 of  objects are segmented from other elements of the image,
 algorithms  measure up to 100 features  from  each  object.
 Features   are   characteristics  of   the   objects   that
 independently   or   in   combination   provide   effective
 discrimination among normal cells, artifacts  and  abnormal
 cells.  The  algorithms discriminate on the basis  of  five
 general  categories  of features: density,  texture,  size,
 shape  and  context. Density features are measures  of  the
 optical  density of various portions of the cell,  such  as
 the   cytoplasm  and  nucleus,  and  the  ratios  of  these
 densities to each other. Texture is a localized measure  of
 optical  density  variation. Size  features  refer  to  the
 physical  areas of the segmented objects and  their  ratios
 to   each   other.  Shape  features  measure  the  boundary
 complexity  of  the  segmented objects,  can  differentiate
 cell  types,  and are used to discriminate  among  isolated
 and  overlapping objects. Context compares an object to its
 surroundings and the proximity of objects to each other.
   
   Classification  of  Objects.  Using the  measured  object
 features,  a  series  of  algorithms  then  classifies  the
 objects  contained  in  the  images.   Each  classification
 algorithm  contains  multiple  stages  that  proceed   from
 easily   identifiable  objects  to  increasingly  difficult
 objects,   adding   more  features   at   each   level   of
 classification.   Three complementary algorithms  are  used
 to   analyze  the  cells  and  cell  groupings  that  could
 indicate   normality  and  abnormality:   the   single-cell
 algorithm,   the   group  algorithm  and  the   thick-group
 algorithm.  An  "anomaly likelihood" value is  computed  at
 various  steps of the classification process in which  pre-
 defined  thresholds are applied to provide "alarms,"  which
 identify  objects  that have a higher likelihood  of  being
 abnormal  cells.  The results of the three  algorithms  are
 integrated   to   achieve   high   overall   classification
 accuracy.
   
   Classification  of  the  Slide.   All  the  gathered  and
 analyzed  information from objects is compiled in a  series
 of  scores that are used to classify the slide for purposes
 of  quality-control  rescreening,  adjunct  rescreening  or
 primary   screening.   Other   algorithms   evaluate    the
 suitability  of  the slide for machine processing  (quality
 of  staining, adequacy of cell collection, presentation  of
 material on the slide and image quality) and determine  the
 probable  presence  of certain important cellular  material
 such as endocervical, endometrial and squamous cells.
 
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<PAGE>
Field-of-View Computer

  Image-interpretation   algorithms   are   implemented   in
computer  programs  that must be executed  by  a  high-speed
computing system.  These algorithms must be run for each Pap
smear  image,  a  process  requiring  significant  computing
power.   To  address  this  requirement,  NeoPath  developed
specialized   FOV  computers,  which  are   powerful   image
processors   that  contain  application-specific  integrated
circuits  and  other processing components.   The  execution
speed   of   NeoPath's  image-interpretation   software   is
accelerated   through  the  use  of  these   special-purpose
computers.   The Company estimates that one FOV can  perform
elemental  pixel operations at a rate exceeding 1.6  billion
per  second and at proportionately higher rates when several
FOVs  are linked to run in parallel.  The Company's  current
configuration for the AutoPap System contains 15  FOVs,  and
it  expects  that  future versions will be faster  (thus  an
AutoPap System may require fewer FOVs).  The FOVs are  fully
programmable and can be programmed to execute algorithms for
other applications.

Patents and Proprietary Rights

  Because  of  the  substantial length of time  and  expense
associated  with  bringing new products through  development
and  regulatory  approval  to the marketplace,  the  medical
device  industry places considerable importance on obtaining
patent  protection  and  protecting trade  secrets  for  new
technologies,  products  and  processes.   Accordingly,  the
Company  files  patent applications to protect  technologies
that  it believes are significant to the development of  its
business.   The  Company holds 19 U.S. patents  and  has  24
additional  U.S. patent applications pending.   The  patents
and  patent  applications relate to various aspects  of  the
Company's  high-speed image-interpretation technology.   The
Company  has also applied for patent protection for  certain
aspects of its technology in foreign countries.  The Company
intends to continue to pursue patent protection where it  is
available  and cost-effective, both in the United States  as
well as in other countries.

  The  medical  device  industry has been  characterized  by
extensive    litigation   regarding   patents   and    other
intellectual property rights, and the Company may  institute
or  otherwise be involved in such litigation to enforce  its
patents,  protect  its trade secrets or know-how,  challenge
the  validity  of  proprietary rights of  others  or  defend
against  its alleged infringement of proprietary  rights  of
others.   In  July  1996, a patent infringement  action  was
filed  against the Company.  See "Item 3. Legal Proceedings"
and  "Factors  Affecting Future Results and  Forward-Looking
Statements  - Dependence on Patents and Proprietary  Rights;
Risk of Third-Party Claims of Infringement."

  NeoPath  relies on a combination of patents, trade secrets
and  confidentiality agreements to protect  its  proprietary
technology, rights and know-how.  The Company's policy is to
have  each  employee enter into a confidentiality  agreement
containing provisions prohibiting disclosure of confidential
information to anyone outside the Company.  These provisions
also   require   disclosure  to  the   Company   of   ideas,
developments,  discoveries  or inventions  conceived  during
employment,  and  assignment to the Company  of  proprietary
rights   to  such  matters  related  to  the  business   and
technology of the Company.

  The  Company has two registered trademarks in  the  United
States, Canada, France, the Benelux countries, Germany,  The
United Kingdom, Italy and Spain for "NeoPath" and "AutoPap."
The  Company also has registered trademarks for "AutoReview"
and  "PapMap"  in  the  United  States,  and  "NeoPath"   in
Australia.   NeoPath  has applied for  registration  of  its
trademarks in several other foreign countries.

Page 8
<PAGE>
     Third-Party Reimbursement

  Some  private third-party medical insurance providers  and
governmental  agencies  offer reimbursement  for  laboratory
testing   associated  with  routine  medical   examinations,
including Pap smears.  In the United States, many Pap smears
are  currently  paid for by the patient, and  the  level  of
reimbursement  by  those  third-party  payors  that  provide
reimbursement  varies  considerably.   Third-party   payors,
including  Medicare  and Medicaid, Blue  Cross/Blue  Shield,
private  health insurance, health administration authorities
in foreign countries and other organizations, may affect the
pricing or relative attractiveness of the Company's products
and   services   by   regulating  the  maximum   amount   of
reimbursement  provided by such payors or by  not  providing
any  reimbursement.  Restrictions on reimbursement may limit
the  price  that  the Company can charge for AutoPap  System
screening or reduce the demand for AutoPap System screening.
In  addition, if there is no provision for reimbursement  of
the   AutoPap   System  screening,  or  if  the   level   of
reimbursement is significantly below the amount laboratories
charge  patients  to perform AutoPap System  screening,  the
size  of the potential market available to the Company would
likely  be  reduced.  There can be no assurance  that  costs
associated  with AutoPap System screening will  ever  become
reimbursable or that the level of reimbursement to  clinical
laboratories for AutoPap System screening will achieve or be
maintained  at  levels necessary to permit  the  Company  to
generate substantial revenue.  In the international  market,
reimbursement  by  private  third-party  medical   insurance
providers,  including governmental insurers  and  providers,
varies  by  country.   In certain countries,  the  Company's
ability to achieve significant market penetration may depend
on  whether  third-party  or governmental  reimbursement  is
available.   The  Company  intends  to  focus  on  obtaining
coverage  and reimbursement from major national and regional
third-party payors in the United States.

Governmental Regulation

United States

  The  AutoPap  QC  and  the AutoPap  Screener  are  medical
devices subject to extensive regulation in the United States
by   the   FDA  and  by  other  federal,  state  and   local
authorities.  The  FDA regulates the research,  development,
clinical   studies,   manufacturing,  packaging,   labeling,
distribution,  promotion  and  postmarket  surveillance   of
medical  devices  in  the  United States.   Preclinical  and
clinical  trials  of medical devices must  be  conducted  in
conformity   with   all  applicable  FDA  regulations.    In
addition,  state  and local permits may  be  required  under
regulations relating to clinical activities.

  Under  the  Federal  Food, Drug,  and  Cosmetic  Act,  the
AutoPap  System  is a Class III medical device,  subject  to
stringent FDA review to ensure that the device is  safe  and
effective  before  commencement  of  marketing,  sales   and
distribution in the United States. After completing clinical
trials with respect to the AutoPap QC, the Company submitted
a  PMA  application supported by extensive  data,  including
preclinical  and  clinical trial data,  to  demonstrate  the
safety  and  effectiveness of the AutoPap QC  for  specified
uses.  As part of the PMA application, the Company submitted
a  full description of the AutoPap QC and its components,  a
full  description  of the methods, facilities  and  controls
used  for manufacturing, and proposed labeling. PMA  reviews
by  the FDA generally take at least two years from the  date
of  filing  to complete. The Company filed a PMA application
for  the  AutoPap QC on February 24, 1995 and  received  FDA
clearance  for commercial marketing on September  29,  1995.
During  1996, the Company submitted a supplement to its  PMA
submission to use the AutoPap Screener as a primary screener
of  Pap  smear  slides.   The FDA has  not  granted  current
approval,  but  instead  requested additional  data.   As  a
result, the Company is conducting additional clinical trials
of   the  AutoPap  Screener  and,  if  appropriate  data  is
obtained,  plans  to  submit  to  the  FDA  a  revised   PMA
supplement  in 1997. Because the AutoPap Screener classifies
a  portion  of Pap smears as requiring no human intervention
or  review,  there can be no assurance that the  FDA  review
process for the AutoPap Screener will not be longer and more
extensive  than it was for the AutoPap QC, or that  the  FDA
will  grant clearance of the AutoPap Screener for commercial
use.

  Once  a  PMA  application receives FDA  approval  and  the
Company  commences marketing the applicable product,  it  is
required  to  register  with the FDA and  to  submit  device
listing information for products in commercial distribution.
In  addition,  the  FDA  may  impose  certain  post-approval
requirements  in  a  PMA  approval  order  at  the  time  of
approval,  with which NeoPath would be required  to  comply.
In

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<PAGE>
conjunction  with  FDA approval of the PMA application  with
respect  to  the  AutoPap  QC, the  Company's  manufacturing
operations  are subject to FDA GMP inspection.  The  Company
will continue to be inspected on a routine basis by the  FDA
for   compliance  with  GMP  regulations  with  respect   to
manufacturing,  testing, distribution, storage  and  control
activities.   Labeling and promotional activities  are  also
regulated  by the FDA.  The Company is required to establish
and  maintain a system for tracking AutoPap Systems  through
the   chain   of  distribution  and  to  conduct  postmarket
surveillance,  and  will  be required  to  provide  periodic
reports containing safety and effectiveness information.

  In   addition,   the  Medical  Device  Reporting   ("MDR")
regulations  obligate  medical  device  companies  such   as
NeoPath to provide information to the FDA whenever there  is
evidence to reasonably suggest that a device may have caused
or   contributed   to   a  death  or  serious   injury,   or
malfunctioned and the device or a similar device marketed by
the  company  would be likely to cause or  contribute  to  a
death or serious injury if the malfunction were to recur.

  If,  as  a  result  of  FDA inspections,  MDR  reports  or
information derived from any other source, the FDA  believes
that  the Company is not in compliance with the law, it  can
take  one or more of the following actions: refuse to review
or clear applications to market the Company's product in the
United  States  or  to  allow  the  Company  to  enter  into
government  supply  contracts; withdraw previously  approved
applications; require notification to users regarding  newly
found risks; request repair, refund or replacement of faulty
devices;  request  corrective  advertisements,  recalls   or
temporary   marketing   suspension;   or   institute   legal
proceedings  to  detain  or seize  products,  enjoin  future
violations or assess criminal penalties against the Company,
its  officers or employees. Civil penalties for Food,  Drug,
and  Cosmetic Act violations may be assessed by the  FDA  in
lieu  of  or in addition to instituting other legal  action.
Any such action by the FDA could result in disruption of the
Company's  operations for an indeterminate period  of  time.
Various  states in which the Company's products may be  sold
in the future may impose additional regulatory requirements.

International Markets

  A  Class III medical device that has not been approved for
marketing in the United States may be exported for sale only
after  the  FDA has determined that the exportation  of  the
device is not contrary to public health and safety and  that
the  Company has received approval of the country  to  which
the device is intended for export. Approval of a device by a
comparable  regulatory authority of a non-U.S. country  must
generally  be  obtained prior to applying  to  the  FDA  for
clearance to export and commence marketing in that  country.
Sales  of  medical devices outside of the United  Sates  are
subject to foreign regulatory requirements that vary  widely
from country to country.

  The   Company   has  received  the  necessary   regulatory
clearances   from  the  FDA  and  the  necessary  regulatory
approvals from the Japanese Ministry of Health and  Welfare,
the  Canadian  Health  Protection Branch,  The  Netherlands'
Ministry  of  Health,  Welfare  and  Sport,  the  Australian
Therapeutic  Goods Association and the New Zealand  Ministry
of Health to export the AutoPap System to, and market it for
commercial use in, Japan, Canada, The Netherlands, Australia
and  New  Zealand.   NeoPath intends  to  pursue  additional
product registrations in other foreign countries.
  
  The  Company's  products  are  subject  to  a  variety  of
regulations in Europe.  In vitro diagnostic medical devices,
including  the AutoPap System, are not currently subject  to
medical  device  directives issued  by  the  European  Union
("EU").  The Company anticipates that the EU will finalize a
directive for in vitro diagnostic medical devices that would
establish a basis for harmonized regulation of such  devices
among  EU member states.  NeoPath would be subject  to  this
directive,   including   any   established   deadlines   for
compliance.  If enacted, the directive would apply  only  to
member  states  of  the EU and the European  Economic  Area.
Other  European countries, however, may enact national  laws
that  would conform to the directive.  Member states of  the
EU  and the European Economic Area may enact requirements in
addition  to those imposed by the directive.  Some  European
countries have established national regulations relating  to
in  vitro  diagnostic medical devices.   EU  directives  and
national laws impose requirements for electrical safety  and
electromagnetic  compatibility that  apply  to  the  AutoPap
System.   NeoPath  is  currently  performing  the  requisite
testing  procedures and related documentation to  apply  the
European "CE" mark, and the Company intends to complete  the
requirements by mid 1997.  There can be no assurance that

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<PAGE>
NeoPath  will obtain the CE mark in 1997 or that the AutoPap
System  or  any other product that the Company  may  develop
will obtain any required regulatory clearance or approval on
a timely basis, if at all.
  
Regulation of Cervical Pap Smear Analysis
  
  Pursuant  to  CLIA,  Congress directed the  Department  of
Health and Human Services to promulgate regulations designed
to  improve  the  quality of biomedical  analytic  services,
particularly   the   examination  of   Pap   smears.    CLIA
regulations  require clinical laboratories  to  rescreen  at
least  10%  of  the Pap smears classified on initial  manual
screen as normal, which Pap smears must include normal cases
selected at random from the laboratory's total caseload,  as
well  as  from  patients  or groups  of  patients  that  are
identified  as  having  a  high  probability  of  developing
cervical cancer based on available patient information.  The
AutoPap QC is not intended to replace a laboratory's current
practices  regarding rescreening Pap smears of these  "high-
risk" patients.
  
  In   addition,  laboratories  may  be  subject  to   state
regulation,  inspection and licensing.  In recent  years,  a
few  states, including New York and California, have adopted
regulations  that  limit the number of slides  that  may  be
manually examined by a cytotechnolgist within a given period
of  time.   There can be no assurance that states  will  not
directly regulate the AutoPap QC in the future.  The Company
cannot predict the effect, if any, that such regulation  may
have on its business or operations.

Competition

  Competition in the medical device industry is intense, and
the  industry is characterized by rapid product  development
and  technological change.  The AutoPap System competes with
existing  manual  methods of screening  Pap  smears  through
human review as well as with certain semi-automated systems.
To  compete effectively, the AutoPap System must demonstrate
comparable  or better accuracy relative to human  review  of
Pap  smears.  The Company is currently aware of  two  direct
competitors: AutoCyte, Inc. ("AutoCyte"), which has  focused
on the development of a semi-automated system to prepare and
analyze  monolayer  Pap smears (a potential  alternative  to
conventional  Pap  smears)  and Neuromedical  Systems,  Inc.
("NSI"), which is engaged in marketing a device for the semi-
automated rescreening of conventional Pap smears.

  The  Company believes that AutoCyte is conducting clinical
trials of a system for the production and automated analysis
of  monolayer  slides.  NSI is marketing its  semi-automated
Pap  smear  rescreening device as an adjunct  to  human  Pap
smear  screening.   NSI's  system is  a  computerized  image
processing  service provided to laboratories.  According  to
NSI,  clinical laboratories will request NSI to perform  its
supplemental  procedures  when  specifically  requested   by
clinicians, patients or third-party providers.   Pap  smears
diagnosed by a laboratory as "negative" (i.e., "normal")  on
an  initial  manual  inspection and any subsequent  quality-
control rescreening would be sent by laboratory personnel to
NSI  scanning centers.  The NSI system creates a color video
picture  of  each of the 128 images of the Pap  smear  slide
deemed  by  the NSI system to be most likely to be abnormal.
These  images are recorded on a digital tape cassette  that,
together with the patient's Pap smear slide, is returned  to
the  clinical laboratory.  Trained laboratory personnel then
evaluate  each of the 128 video pictures for each Pap  smear
slide.  If the cytotechnologist believes that there might be
an  abnormality indicated on NSI's images of the Pap  smear,
then  a  cytotechnologist would manually  rescreen  the  Pap
smear slide using a microscope.
  
  In  addition  to  direct competition,  the  Company  faces
indirect competition through companies that manufacture thin
layer  slide  preparation systems and devices that  automate
various  aspects  of  cytology.  In May  1996,  Cytyc,  Inc.
received  PMA  approval from the FDA to market its  ThinPrep
System  for  cervical cancer screening as a replacement  for
the  conventional  Pap  smear  method.   In  November  1996,
NeoPath  announced that it had completed a joint study  with
Cytyc  in  which,  using  the existing  AutoPap  algorithms,
ThinPrep-prepared  slides  were  processed  on  the  AutoPap
System.   The  results of the preliminary study support  the
AutoPap's  ability  to accurately process monolayer-prepared
Pap  smears,  and  the Company expects to pursue  regulatory
approval to process Pap smears prepared via thin layer slide
preparation systems.

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<PAGE>
  The  Company believes that the AutoPap QC and, subject  to
the  Company's obtaining requisite regulatory approvals, the
AutoPap Screener, will compete on the bases of accuracy  and
effectiveness, cost (including both charges by  the  Company
to  the  laboratory and the laboratory's labor and  overhead
costs   for  its  cytotechnologists),  convenience  to   the
laboratory,  perception  among influential  cytopathologists
and  laboratories and processing speed and  reliability.  If
the  AutoPap  Screener is approved for commercialization  in
the  United States, the Company believes that it will enable
the  Company's customer laboratories to increase the  number
of  Pap  smears  processed  while maintaining  or  improving
accuracy  and  allow  them to focus their cytotechnologists'
attention on the careful review of Pap smears that are  most
likely to contain meaningful indication of abnormality.

  There  can  be no assurance that the Company's competitors
will  not  develop new technologies and products  that  will
compete  with, or will prove to be more effective than,  the
AutoPap  System.   Furthermore,  although  the  Company   is
currently aware of only two direct competitors, there can be
no  assurance  that  others will  not  purchase  or  develop
technologies that would compete with the AutoPap  System  or
render it obsolete.  Competitors may manufacture, market and
sell  their products or services more successfully than  the
Company, which could have an adverse effect on the Company's
business and results of operation.

Employees

  At  December 31, 1996, the Company employed 185  full-time
equivalent   personnel,  including  72   in   research   and
development  and regulatory; 50 in administration,  customer
service  and  support, and sales and marketing;  and  63  in
manufacturing.   None   of  the  Company's   employees   are
represented  by  a  union or other  bargaining  group.   The
Company  believes  its relationship with  its  employees  is
good.

Factors  Affecting  Future  Results  and  Forward-Looking
Statements

 The  preceding  "Business"  section  contains  "forward-
looking  statements" within the meaning  of  the  Private
Securities Litigation Reform Act of 1995.  Such  forward-
looking  statements reflect the Company's  current  views
with  respect to future events and financial performance.
These  forward-looking statements are subject to  certain
risks, uncertainties and other factors that may cause the
Company's actual results, performance and achievements to
differ  materially  from  historical  results  or   those
anticipated.   The words "plan," "expect,"  "anticipate,"
"believe"  and  similar  expressions  identify   forward-
looking  statements.  Readers are cautioned not to  place
undue reliance on these forward-looking statements.   The
Company  undertakes no obligation to publicly  update  or
revise  any  forward-looking  statements,  whether  as  a
result  of  new information, future events, or otherwise.
Factors  that  could  cause  actual  results  to   differ
materially  from historical results or those  anticipated
include, without limitation, the items that follow.
 
Limited Operating History; History of Losses
 
 The  Company has a limited operating history and,  prior
to  1996,  was  focused primarily on product development,
obtaining    regulatory   approvals   and    establishing
manufacturing  capability.   NeoPath  began   recognizing
product revenues in 1996.
 
 The  Company has incurred substantial losses  since  its
inception  and, as of December 31, 1996, the Company  had
an  accumulated  deficit of $64.6 million.   The  Company
expects  continued  losses in 1997  as  it  continues  to
expand  its  sales, marketing, and customer  service  and
support  capabilities  and  continues  its  research  and
development  activities  (including  additional  clinical
studies).   There  can be no assurance that  the  Company
will  achieve profitability or that the Company will  not
be  required to seek additional capital.  There can be no
assurance  that  adequate funding will be  available,  if
needed, or on terms acceptable by the Company.

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<PAGE>
Uncertainty of Market Acceptance; Market Consolidation
 
 The  Company's  success  and  growth  depend  on  market
acceptance   of   the  AutoPap  System   among   clinical
laboratories,    healthcare    providers,     third-party
healthcare payors and patients, of which there can be  no
assurance.    The  Company's  success  also  depends   on
customers' acceptance of NeoPath's fee-per-use  and  sale
programs.   Even if the Company's products were  to  gain
market acceptance, the amount of revenue to be derived by
the  Company from the AutoPap System would depend to some
extent  on the availability of reimbursement from  third-
party  healthcare payors such as government  and  private
insurance  plans.   There can be no  assurance  that  the
medical  community or third-party healthcare payors  will
accept  an  automated  Pap smear  rescreening  system  to
supplement or replace current laboratory Pap smear review
practices.   Moreover, due in part to a  continued  trend
toward   consolidation  of  clinical  laboratories,   the
Company  expects  that the number of  potential  domestic
customers  for its products will decrease.   Due  to  the
relative  size  of  the  largest U.S.  laboratories,  the
Company is likely to have a significant proportion of its
sales  concentrated among a relatively  small  number  of
customers.   These  factors may  increase  the  Company's
dependence  on sales to the largest clinical laboratories
and the bargaining leverage of those potential customers.
 
Uncertainty of Product Regulatory Clearance
 
 The  manufacture and sale of medical diagnostic  devices
intended  for  commercial use are  subject  to  extensive
governmental  regulation in the United  States.   Similar
requirements   are  imposed  by  comparable  governmental
agencies  in  certain  other  countries.   The  Company's
initial  product,  the AutoPap QC, has been  cleared  for
commercialization  in  the United States.   Both  AutoPap
Systems  have  been cleared for commercial  marketing  in
Japan,   Canada,   Australia,   New   Zealand   and   The
Netherlands.   Before any U.S. commercial  sales  of  the
Company's  second  product,  the  AutoPap  Screener,  can
commence,  additional clinical testing and FDA  clearance
are  required.  The Company is conducting clinical trials
of  the  AutoPap  Screener and, if  appropriate  data  is
obtained, plans to submit a revised PMA supplement to the
FDA  in  1997.  There can be no assurance, however,  that
the  Company's  clinical trials will  support  a  revised
submission,  or  that  the  Company  will  file   a   PMA
supplement in 1997, if at all.  Moreover, the FDA  review
process can be lengthy and unpredictable.  There  can  be
no  assurance  that  applicable  governmental  regulatory
agencies in the United States and elsewhere will  approve
the  AutoPap  Screener for commercial  use  on  a  timely
basis,  if  at  all. If clearance to market  is  granted,
there  can  be  no assurance that it will cover  all  the
clinical   indications  for  which  the   Company   seeks
clearance   or  that  it  will  not  contain  significant
limitations,  which may include warnings, precautions  or
contraindications,  or requests for  postmarket  studies.
Additional  regulatory requirements could be  imposed  by
legislation   or  regulation.   The  Company   may   also
encounter   delays  or  rejections  of   its   regulatory
applications  based  on changes in applicable  regulatory
policies  or regulations.  Although the FDA has inspected
the  Company's manufacturing operations with  respect  to
the  AutoPap  QC for compliance with GMP,  the  Company's
manufacturing processes remain subject to GMP  regulation
and inspection.
 
Limited  Marketing, Sales and Service  Experience;  Risks
Inherent in International Transactions
 
 The   Company  intends  to  market,  sell,  service  and
support  the  AutoPap System in countries  where  it  has
obtained regulatory approval through a combination  of  a
direct  sales  force  (primarily in  North  America)  and
independent   foreign  distributors.   The  Company   has
limited  marketing,  sales and  service  experience,  and
there  can be no assurance that the Company will be  able
to  recruit and retain skilled sales, marketing,  service
or support personnel or foreign distributors, or that the
Company's marketing and sales efforts will be successful.
With   regard  to  distribution  arrangements   for   the
placement of AutoPap Systems, the Company will depend  on
the  efforts of third parties.  There can be no assurance
that  such  efforts will be successful.  In  addition,  a
number   of   risks   are   inherent   in   international
transactions, including regulatory delays or disapprovals
with   respect  to  the  Company's  products,  government
controls,    export   license   requirements,   political
instability, price controls, trade restrictions,  changes
in tariffs or difficulties with foreign distributors.

Page 13
<PAGE>
Sole or Limited Source of Supply; Governmental Regulation
of Manufacturing
 
 The  Company  purchases all components for  the  AutoPap
System  from outside vendors.  A major component  of  the
AutoPap System, the slide tray motion system, is supplied
by  a sole-source vendor.  Certain other components, such
as  the video cameras, are currently supplied by a single
vendor,   and   components  provided  by  additional   or
replacement suppliers would require some modification  to
be   incorporated   into   the   AutoPap   System.    The
establishment  of  additional or replacement  sources  of
supply  for  many  AutoPap System  components  cannot  be
accomplished  quickly,  and  substitution  of  components
could  require regulatory approval, the receipt of  which
cannot be assured.  Accordingly, a vendor's inability  to
supply  acceptable components in a timely manner  and  in
the   quantity   required  could  delay   the   Company's
manufacture   of,   or  cause  the   Company   to   cease
manufacturing, its products.  Any such delay or cessation
could have a material adverse effect on the Company.
 
 Manufacturers of medical diagnostic devices are  subject
to  strict  federal regulations regarding validation  and
the  quality  of  manufacturing, including  periodic  FDA
inspections of the manufacturing facilities of diagnostic
device  manufacturers to determine  compliance  with  GMP
regulations.   The  Company's  manufacturing  operations,
including any expansion of such operations, will continue
to  be  required  to  comply with  these  and  all  other
applicable  regulations, and with applicable  regulations
imposed  by other governments.  The Company's failure  to
comply  with  GMP regulations could result  in  civil  or
criminal  penalties  or  enforcement  proceedings   being
imposed on the Company, including the recall of a product
or  a "cease distribution" order requiring the Company to
stop  placing  its  products in service  or  selling  its
products,  as  the  case may be.  Similar  results  could
occur if the Company were to violate foreign regulations.
There  can be no assurance that the Company will be  able
to  attain  or maintain compliance with GMP requirements.
Failure   to  maintain  compliance  with  the  applicable
manufacturing requirements of various regulatory agencies
would have a material adverse effect on the Company.
 
Competition
 
  Competition in the medical device industry is intense, and
the  industry is characterized by rapid product  development
and  technological change.  The AutoPap System competes with
existing  manual  methods of screening  Pap  smears  through
human review as well as with certain semi-automated systems.
To  compete effectively, the AutoPap System must demonstrate
comparable  or better accuracy relative to human  review  of
Pap  smears.  The Company is currently aware of  two  direct
competitors: AutoCyte, which has focused on the  development
of  a semi-automated system to prepare and analyze monolayer
Pap  smears  (a  potential alternative to  conventional  Pap
smears) and NSI, which is engaged in marketing a device  for
the  semi-automated rescreening of conventional Pap  smears.
In   addition  to  direct  competition,  the  Company  faces
indirect competition through companies that manufacture thin
layer  slide  preparation systems and devices that  automate
various  aspects  of  cytology.  In May  1996,  Cytyc,  Inc.
received  PMA  approval from the FDA to market its  ThinPrep
System  for  cervical cancer screening as a replacement  for
the conventional Pap smear method.
  
  The  Company believes that the AutoPap QC and, subject  to
the  Company's obtaining requisite regulatory approvals, the
AutoPap Screener, will compete on the bases of accuracy  and
effectiveness, cost (including both charges by  the  Company
to  the  laboratory and the laboratory's labor and  overhead
costs   for  its  cytotechnologists),  convenience  to   the
laboratory,  perception  among influential  cytopathologists
and laboratories and processing speed and reliability.

  There  can  be no assurance that the Company's competitors
will  not  develop new technologies and products  that  will
compete  with, or will prove to be more effective than,  the
AutoPap  System.   Furthermore,  although  the  Company   is
currently aware of only two direct competitors, there can be
no  assurance  that  others will  not  purchase  or  develop
technologies that would compete with the AutoPap  System  or
render it obsolete.  Competitors may manufacture, market and
sell  their products or services more successfully than  the
Company, which could have an adverse effect on the Company's
business   and  results  of  operation.   See  "Business   -
Competition."

Page 14
<PAGE>
     Dependence  on  Reimbursement; Potential  Effect  of
  Healthcare Reform
 
 Various  third-party  healthcare payors  in  the  United
States,   including  Medicare,  Medicaid,  managed   care
organizations   and  private  insurance  companies,   are
increasingly sensitive to containing healthcare costs and
have  focused on new technology as being a primary factor
in increased healthcare costs.  There can be no assurance
that   third-party   healthcare   payors   will   provide
reimbursement  for procedures performed  by  the  AutoPap
System or that such reimbursement will be obtained  in  a
timely  manner  or  will  be  adequate.   If  Pap   tests
conducted  using the AutoPap System are not approved  for
adequate  levels of reimbursement, the Company's  ability
to  commercialize the AutoPap System would  be  adversely
affected.   In  addition, there can be no assurance  that
future  healthcare legislation or other  changes  in  the
administration or interpretation of government healthcare
or  third-party reimbursement programs will  not  have  a
material   adverse   effect  on  the  Company.    Foreign
countries have various healthcare reimbursement  systems,
and   there   can   be  no  assurance  that   third-party
reimbursement  will  be made available  for  the  AutoPap
System under any foreign reimbursement system.
 
Dependence on Single Product Line
 
 To  date,  the  Company  has  concentrated  its  efforts
primarily  on development of the AutoPap System  and  has
performed only limited research on other applications  of
its  core  technology.   Accordingly,  the  Company  will
depend on the successful development and marketing of the
AutoPap  System to generate revenues.  There  can  be  no
assurance  that  the AutoPap System will be  successfully
commercialized.

Product Liability
 
 The   commercial  screening  of  Pap  smears  has   been
characterized by significant malpractice litigation.   As
a  result, the Company faces risk of exposure to  product
liability, errors and omissions or other claims if use of
the  AutoPap  System  or  other  products  that  may   be
developed by the Company is alleged to have resulted in a
false-negative diagnosis.  Although the Company currently
has  product  liability  insurance,  the  medical  device
industry   has   experienced  increasing  difficulty   in
obtaining  and  maintaining reasonable product  liability
coverage, and substantial increases in insurance  premium
costs  in  many cases have rendered coverage economically
impractical.   There  can  be no assurance  that  product
liability insurance will continue to be available to  the
Company  when needed at a reasonable cost, that insurance
coverage obtained by the Company will be adequate or that
any  product  liability claim would not have  a  material
adverse effect on the Company.
 
Dependence on Patents and Proprietary Rights; Risk of Third-
Party Claims of Infringement
 
 NeoPath  relies  on  a  combination  of  patents,  trade
secrets  and  confidentiality agreements to  protect  its
proprietary technology, rights and know-how.  The Company
holds  19 U.S. patents and has 24 additional U.S. patents
pending.   There can be no assurance that pending  patent
applications  will  ultimately issue as  patents  or,  if
patents  do  issue,  that  the  claims  allowed  will  be
sufficiently  broad to protect what the Company  believes
to  be its proprietary rights.  In addition, there can be
no  assurance that issued patents or pending applications
will not be challenged or circumvented by competitors, or
that   the   rights  granted  thereunder   will   provide
competitive advantages to the Company.  There can  be  no
assurance  that  the  obligations  of  employees  of  the
Company  and  third  parties with whom  the  Company  has
entered  into confidentiality agreements to maintain  the
confidentiality   of   trade  secrets   and   proprietary
information  will effectively prevent disclosure  of  the
Company's  confidential information or provide meaningful
protection for the Company's confidential information  if
there  is  unauthorized use or disclosure,  or  that  the
Company's  trade secrets or proprietary information  will
not be independently developed by NeoPath's competitors.
 
Page 15
<PAGE>
 On  July  15, 1996, Neuromedical Systems, Inc.  filed  a
lawsuit  against  NeoPath,  Inc.  in  the  United  States
District  Court for the Southern District  of  New  York.
The   complaint   alleges  patent  infringement,   unfair
competition, false advertising, and related  claims.   On
September  5,  1996,  the Company filed  its  answer  and
counter  claims.  The Company believes it  has  a  strong
position   in   this  action  and  is  defending   itself
vigorously.  There can be no assurance as to the  outcome
of this litigation.

Dependence on Key Personnel
 
 The   Company  is  highly  dependent  on  the  principal
members of its management and scientific staff, the  loss
of   whose  services  might  impede  achievement  of  its
strategic  or  research and development objectives.   The
Company's  success will depend on its ability  to  retain
key   employees  and  to  attract  additional   qualified
employees.   Competition among medical  device  companies
for highly skilled scientific and management personnel is
intense, and the failure to recruit such personnel or the
loss  of existing personnel could have a material adverse
effect  on  the Company.  The Company does not carry  key
person  life  insurance on its executives  or  other  key
personnel.
 
Highly  Volatile  Stock Price; Potential Fluctuations  in
Future Quarterly Results
 
   The  market  price of shares of the  Company's  Common
Stock,  like  that  of  the common stock  of  many  other
medical   device  companies,  may  be  highly   volatile.
Factors  such as the results of the Company's  sales  and
marketing programs, clinical trials by the Company or its
competitors, concern as to the safety or efficacy of  the
Company's  products or its competitors, announcements  of
technological innovations or new products by the  Company
or  its  competitors, governmental regulation, healthcare
legislation, developments in patent or other  proprietary
rights of the Company or its competitors, fluctuations in
the  Company's operating results, and general market  and
economic  conditions  are likely to  have  a  significant
impact on the future price of the Common Stock.
 
 The  Company  expects  that its operating  results  will
fluctuate  significantly from quarter to quarter  in  the
future  and will depend on a number of factors,  many  of
which  are  outside  of  the  Company's  control.   These
factors   include:   the  rate  and  extent   of   market
acceptance of the AutoPap System; the mixture of fee-per-
use and sale contracts; the rate and size of expenditures
incurred  as  NeoPath  expands its domestic  and  foreign
marketing  and sales programs and continues its  research
and  development  efforts; the timing  of  approvals  for
AutoPap reimbursement; the timing of domestic and foreign
regulatory  approvals;  and the introduction  and  market
acceptance of competing products or technologies.

Page 16
<PAGE>
Item 2.PROPERTIES

  The  Company  leases approximately 53,000 square  feet  of
office and manufacturing space in Redmond, Washington  under
operating leases expiring in May 1998 through January  2000,
with various renewal options.  Under a sublease, the Company
intends  to lease an additional 16,000 square feet of  space
starting  April  1,  1997.   Management  believes  that  the
Redmond  facility  and  other  available  office  space   is
adequate  for the Company's current needs.  Management  also
believes  that additional space is available  in  the  area,
should it be needed.
  
Item 3.   LEGAL PROCEEDINGS

   On  July  15,  1996, Neuromedical Systems, Inc.  filed  a
lawsuit  against NeoPath, Inc. in the United States District
Court  for the Southern District of New York.  The complaint
alleges  patent  infringement,  unfair  competition,   false
advertising, and related claims.  On September 5, 1996,  the
Company  filed its answer and counter claims.   The  Company
believes  it  has a strong position in this  action  and  is
defending itself vigorously.

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

   No  matters were submitted to a vote of security  holders
during the fourth quarter of 1996.

Page 17
<PAGE>
                           PART II

Item  5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS

      The   information  required  by  Item  5   is   hereby
incorporated  by  reference  to the  Company's  1996  Annual
Report to Shareholders, page 41.

Item 6.     SELECTED FINANCIAL DATA

      The   information  required  by  Item  6   is   hereby
incorporated  by  reference  to the  Company's  1996  Annual
Report to Shareholders, page 19.

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

      The   information  required  by  Item  7   is   hereby
incorporated  by  reference  to the  Company's  1996  Annual
Report to Shareholders, pages 20-23.

Item 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
   
   The   information   required  by   Item   8   is   hereby
incorporated  by  reference  to the  Company's  1996  Annual
Report to Shareholders, pages 24-40.
   
Item 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
            ON ACCOUNTING  AND FINANCIAL DISCLOSURE
   
   None.
   
Page 18
<PAGE>
                          PART III
                              
Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
                              
    The   information  required  by  Item   10   is   hereby
incorporated by reference to the section entitled  "Election
of  Directors  and Management Information" in the  Company's
definitive  Proxy  Statement relating  to  its  1997  annual
meeting of Shareholders (the "Proxy Statement").  Such Proxy
Statement  will  be filed within 120 days of  the  Company's
last fiscal year end, December 31, 1996.

Item 11.  EXECUTIVE COMPENSATION

    The   information  required  by  Item   11   is   hereby
incorporated by reference to the section entitled "Executive
Compensation" in the Proxy Statement.

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
          AND MANAGEMENT

    The   information  required  by  Item   12   is   hereby
incorporated by reference to the section entitled  "Security
Ownership  of  Certain Beneficial Owners and Management"  in
the Proxy Statement.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The   information  required  by  Item   13   is   hereby
incorporated  by reference to the section entitled " Certain
Relationships  and  Related  Transactions"  in   the   Proxy
Statement.

Page 19
<PAGE>
                           PART IV

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

(a)  Index to list of documents filed as part of this
report.

  1.   Financial Statements

       The following financial statements of NeoPath, Inc.
are included in Item 8 by reference to the  Company's
1996 Annual Report to Shareholders:

                                                          Annual Report
                                                              Page #


       Balance Sheets at December 31, 1996 and 1995             24

       Statements of Operations for the years ended
          December 31, 1996, 1995 and 1994                      25

       Statements of Shareholders' Equity for the year ended
          December 31, 1996, 1995 and 1994                     26-27

       Statements of Cash Flows for the years ended
          December 31, 1996, 1995 and 1994                     28-29

       Notes to Financial Statements                           30-38

  2.   Financial Statement Schedule

       Schedule II - Valuation and Qualifying Accounts

       All other schedules have been omitted because they
were not applicable.

  3.   Exhibits

               3.1   (1)   Articles  of  Incorporation  of  the
               registrant

               3.2   (1)   Bylaws of the registrant

               10.1  NeoPath, Inc. 1989 Stock  Option  Plan, as
               Amended and Restated on December 10, 1996

               10.2  NeoPath, Inc. Stock Option  Plan  for
               Nonemployee  Directors, as Amended and  Restated
               on February 27, 1997

               10.3  (1)   Form of Indemnification Agreement
               for officers and directors of the registrant

               10.4  (1)   Consolidated Amended and Restated
               Shareholders Agreement dated March 27,  1992,
               by   and   among   NeoPath,  Inc.   and   the
               Shareholders listed on Exhibit A thereto  and
               First  Amendment to Consolidated Amended  and
               Restated Agreement dated January 14, 1994
Page 20
<PAGE>
               10.6  (5)   First Amendment to Lease  by  and
               between    Teachers   Insurance   &   Annuity
               Association and NeoPath, Inc. dated  February
               16,  1995, Second Amendment to Lease  by  and
               between  Teachers  Insurance  &  Annuity  and
               NeoPath,  Inc. dated November  21,  1995  and
               Letter  from  Teachers  Insurance  &  Annuity
               dated December 15, 1995

               10.7  (5)   Sublease (Tunturi,  Inc./NeoPath)
               dated   December  22,  1995  by  and  between
               NeoPath, Inc. and Tunturi, Inc.

               10.8  (1)   Form  of  Agreement   regarding
               clinical study of the AutoPap 300 QC  System:
               Confidentiality      of      Records      and
               Indemnification

               10.9  (1)   Agreement by and between NeoPath,
               Inc.  and  Kyto  Diagnostic,  L.P.  regarding
               clinical study of the AutoPap 300 QC  System:
               Confidentiality      of      Records      and
               Indemnification

               10.10  (1)   Product  Development  and  Supply
               Agreement between Applied Precision, Inc. and
               NeoPath, Inc. dated January 1, 1992

               10.13  (1)   Master Equipment Lease Line  dated
               August   6,   1994  between  First   Portland
               Technology Corp. and NeoPath, Inc.

               10.14  (2)   Master  Equipment  Lease  by  and
               between  NeoPath,  Inc. and  Haworth  Leasing
               dated January 31, 1995

               10.15  (3)   Master  Equipment  Lease  between
               NeoPath,  Inc. and Pacific Office  Automation
               dated March 16, 1995

               10.17  (4)   NeoPath,   Inc.   Proposal   to
               SmithKline   Beecham  Clinical   Laboratories
               dated as of October 4, 1995, countersigned by
               SmithKline  Beecham Clinical Laboratories  on
               October 4, 1995

               10.18  (4)   NeoPath, Inc. Proposal to  Corning
               Clinical  Laboratories Inc.  executed  as  of
               October  11, 1995, countersigned  by  Corning
               Clinical Laboratories on October 13, 1995

               10.19  (4)   Master  Equipment  Lease  by  and   between
               NeoPath,  Inc. and Pacific Office  Automation
               dated as of September 30, 1995

               10.20  (6)   NeoPath,   Inc.   Proposal   to
               SmithKline   Beecham  Clinical  Laboratories,
               accepted May 9, 1996

               10.21  (6)   NeoPath,   Inc.   Proposal   to
               Laboratory  Corporation of America  Holdings,
               accepted May 15, 1996

               10.22  (6)   NeoPath, Inc. Amended and Restated
               Proposal  to Kaiser IMMC Agreement No.  0249,
               accepted June 25, 1996

               10.23    Form   of  Senior  Management   Employment
               Agreement

               10.24*  International Distribution  Agreement
               between  NeoPath, Inc. and Nikon Corporation,
               dated as of December 19, 1996

               11.1        Computation of net loss per share

               13.1        1996 Annual Report to Shareholders
Page 21
<PAGE>

               23.1        Consent of Ernst & Young LLP, Independent
               Auditors

               27          Financial Data Schedule
_____________________________
* Confidential treatment requested

        (1)   Filed   as  an  exhibit  to  the  registrant's
               Registration Statement on Form S-1 (File  No.
               33-86822)   and   incorporated   herein    by
               reference.
        
        (2)   Filed   as  an  exhibit  to  the  registrant's
               Report  on form 10-Q filed on March 29,  1995
               and incorporated herein by reference.
        
        (3)   Filed   as  an  exhibit  to  the  registrant's
               Report on Form 10-Q filed on August 10,  1995
               and incorporated herein by reference.
        
        (4)   Filed   as  an  exhibit  to  the  registrant's
               Report  on  Form 10-Q filed on  November  14,
               1995  as  amended on December  12,  1995  and
               incorporated herein by reference.
        
        (5)   Filed   as  an  exhibit  to  the  registrant's
               Registration Statement on Form S-1 (File  No.
               33-80377)   and   incorporated   herein    by
               reference.
        
        (6)   Filed   as  an  exhibit  to  the  registrant's
               Report on Form 10-Q filed on August 14,  1996
               and incorporated herein by reference.

(b)  Reports on Form 8-K:

       None
                              

Page 22
<PAGE>
                         SIGNATURES
                              
     Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Redmond, State of Washington on
the 27th day of March, 1997.
     
                                   NEOPATH, INC.


                                   By:  /s/  ALAN C. NELSON
                                      ---------------------
                                      Alan C. Nelson, Ph.D.
                                      President and Chief
Executive Officer
                              
                              
     Pursuant to the requirements of the Securities Exchange
Act  of  1934,  this  report has been signed  below  by  the
following  persons on behalf of the Registrant  and  in  the
capacities indicated below on this 27th day of March, 1997.

Signature                  Title


/s/    ALAN   C.   NELSON            President,   Chief
-------------------------            Executive Officer and Director
Alan  C.  Nelson, Ph.D.              (Principal  Executive Officer)


/s/   ROBERT C. BATEMAN              Corporate Controller and
-----------------------              Corporate Secretary
Robert  C.  Bateman                  (Acting Chief Accounting Officer)


/s/  WALTER L. ROBB                  Chairman of the Board
--------------------
Walter L. Robb, Ph.D.


/s/  ALAN D. FRAZIER                 Director
--------------------
Alan D. Frazier


/s/  CRISTINA H. KEPNER              Director
-----------------------
Cristina H. Kepner


/s/  C. RICHARD KRAMLICH             Director
------------------------
C.  Richard Kramlich


/s/  DAVID A. THOMPSON               Director
----------------------
David A. Thompson


/s/  GAIL R. WILENSKY                Director
---------------------
Gail R. Wilensky

Page 23
<PAGE>
<TABLE>
<CAPTION>
                                                 SCHEDULE II

                        NEOPATH, INC.
              VALUATION AND QUALIFYING ACCOUNTS


                                                                  
                                       Balance     Charged    Charged                 Balance
                                          at         to         to                      at
                                      Beginning   Costs &     Other                    End of
Description                           of Period   Expenses   Accounts   Deductions     Period
-------------------------------       ---------   --------   --------   ----------    -------
<S>                                    <C>         <C>        <C>       <C>         <C>
Allowance for doubtful accounts:
                                                               
 Year ended December 31, 1996          $   --      $ 175,000  $   --    $    --     $ 175,000
                                                               
 Year ended December 31, 1995              --           --        --         --          --
                                                               
 Year ended December 31, 1994              --           --        --         --          --
                                                               


</TABLE>
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<PAGE>
                              
                        NEOPATH, INC.
                      INDEX TO EXHIBITS
                              

               Exhibit No.     Description

               3.1  (1)   Articles  of  Incorporation  of  the
               registrant

               3.2  (1)   Bylaws of the registrant

               10.1  NeoPath, Inc. 1989 Stock  Option  Plan,
               as Amended and Restated on December 10, 1996

               10.2    NeoPath, Inc. Stock Option  Plan  for
               Nonemployee  Directors, as  Amended and  Restated
               on February 27, 1997

               10.3  (1)   Form of Indemnification Agreement
               for officers and directors of the registrant

               10.4  (1)   Consolidated Amended and Restated
               Shareholders Agreement dated March 27,  1992,
               by   and   among   NeoPath,  Inc.   and   the
               Shareholders listed on Exhibit A thereto  and
               First  Amendment to Consolidated Amended  and
               Restated Agreement dated January 14, 1994

               10.6  (5)   First Amendment to Lease  by  and
               between    Teachers   Insurance   &   Annuity
               Association and NeoPath, Inc. dated  February
               16,  1995, Second Amendment to Lease  by  and
               between  Teachers  Insurance  &  Annuity  and
               NeoPath,  Inc. dated November  21,  1995  and
               Letter  from  Teachers  Insurance  &  Annuity
               dated December 15, 1995

               10.7  (5)   Sublease (Tunturi,  Inc./NeoPath)
               dated   December  22,  1995  by  and  between
               NeoPath, Inc. and Tunturi, Inc.

               10.8  (1)    Form  of  Agreement   regarding
               clinical study of the AutoPap 300 QC  System:
               Confidentiality      of      Records      and
               Indemnification

               10.9  (1)   Agreement by and between NeoPath,
               Inc.  and  Kyto  Diagnostic,  L.P.  regarding
               clinical study of the AutoPap 300 QC  System:
               Confidentiality      of      Records      and
               Indemnification

               10.10  (1)   Product  Development  and  Supply
               Agreement between Applied Precision, Inc. and
               NeoPath, Inc. dated January 1, 1992

               10.13  (1)   Master Equipment Lease Line  dated
               August   6,   1994  between  First   Portland
               Technology Corp. and NeoPath, Inc.

               10.14  (2)   Master  Equipment  Lease  by  and
               between  NeoPath,  Inc. and  Haworth  Leasing
               dated January 31, 1995

               10.15  (3)   Master  Equipment  Lease  between
               NeoPath,  Inc. and Pacific Office  Automation
               dated March 16, 1995

               10.17  (4)   NeoPath,   Inc.   Proposal   to
               SmithKline   Beecham  Clinical   Laboratories
               dated as of October 4, 1995, countersigned by
               SmithKline  Beecham Clinical Laboratories  on
               October 4, 1995
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<PAGE>
               10.18  (4)   NeoPath, Inc. Proposal to  Corning
               Clinical  Laboratories Inc.  executed  as  of
               October  11, 1995, countersigned  by  Corning
               Clinical Laboratories on October 13, 1995

               10.19  (4)   Master  Equipment  Lease  by  and   between
               NeoPath,  Inc. and Pacific Office  Automation
               dated as of September 30, 1995

               10.20  (6)   NeoPath,   Inc.   Proposal   to
               SmithKline   Beecham  Clinical  Laboratories,
               accepted May 9, 1996

               10.21  (6)   NeoPath,   Inc.   Proposal   to
               Laboratory  Corporation of America  Holdings,
               accepted May 15, 1996

               10.22  (6)   NeoPath, Inc. Amended and Restated
               Proposal  to Kaiser IMMC Agreement No.  0249,
               accepted June 25, 1996

               10.23    Form   of  Senior  Management   Employment Agreement

               10.24*  International Distribution  Agreement
               between  NeoPath, Inc. and Nikon Corporation,
               dated as of December 19, 1996

               11.1        Computation of net loss per share

               13.1        1996 Annual Report to Shareholders

               23.1        Consent of Ernst & Young LLP, Independent
               Auditors

               27          Financial Data Schedule
_____________________________
* Confidential treatment requested

        (1)   Filed   as  an  exhibit  to  the  registrant's
               Registration Statement on Form S-1 (File  No.
               33-86822)   and   incorporated   herein    by
               reference.
        
        (2)   Filed   as  an  exhibit  to  the  registrant's
               Report  on form 10-Q filed on March 29,  1995
               and incorporated herein by reference.
        
        (3)   Filed   as  an  exhibit  to  the  registrant's
               Report on Form 10-Q filed on August 10,  1995
               and incorporated herein by reference.
        
        (4)   Filed   as  an  exhibit  to  the  registrant's
               Report  on  Form 10-Q filed on  November  14,
               1995  as  amended on December  12,  1995  and
               incorporated herein by reference.
        
        (5)   Filed   as  an  exhibit  to  the  registrant's
               Registration Statement on Form S-1 (File  No.
               33-80377)   and   incorporated   herein    by
               reference.
        
        (6)   Filed   as  an  exhibit  to  the  registrant's
               Report on Form 10-Q filed on August 14,  1996
               and incorporated herein by reference.

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