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, 1997 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: (425) 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.  [X]

     Aggregate market value of voting and nonvoting stock held  by
non-affiliates  of  the  registrant as of February  27,  1998  was
$105,453,079.

     Number  of shares of Common Stock outstanding as of  February
27, 1998:  14,419,604 shares.

             DOCUMENTS INCORPORATED BY REFERENCE

     Portions  of  the  1997  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 21, 1998.

<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. ("NeoPath" or the "Company"),  a  Washington
Corporation  incorporated  in  1989,  develops  and  markets
visual  intelligence  technology  to  increase  accuracy  in
medical testing.  NeoPath's initial products include (i) 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 for the early detection  of
cervical  cancer and (ii) the Pathfinder(R) System  product-
line acquired in 1997.

 In  1995,  the  United States Food and Drug  Administration
(the  "FDA") cleared for commercial use the Company's  first
product, the AutoPap(R) 300 QC Automatic Pap Screener System
(the   "AutoPap  QC").   In  early  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  and  classified as  normal.   The  decision
allows  AutoPap QCs to be used in determining  which  slides
will  be rescreened under the federally mandated rescreening
requirement.

 NeoPath's   second   product  is  the  AutoPap(R)   Primary
Screener  System (the "AutoPap Screener" and, in combination
with  the  AutoPap  QC, the "AutoPap System").  The  AutoPap
Screener  utilizes  the  same  hardware  components  as  the
AutoPap  QC;  however, it uses enhanced software,  including
additional  cell-classification  algorithms.   During  1997,
NeoPath completed a prospective intended-use clinical  study
to  evaluate  the performance of the AutoPap Screener  as  a
primary  screening system.  This study included analysis  of
more   than  25,000  Pap  smear  slides  at  five   clinical
laboratories  in  the United States and Canada.   In  August
1997,  NeoPath  submitted the results of  the  study  in  an
amendment   to   its  pending  PreMarket  Approval   ("PMA")
Supplement to the FDA, for use of the AutoPap Screener as  a
primary screener of Pap smear slides.  In January 1998,  the
Hematology  and Pathology Devices Advisory Panel unanimously
recommended  that  the  FDA approve,  with  conditions,  the
supplement  to  NeoPath's  PMA submission  for  use  of  the
AutoPap  Screener as a primary Pap smear  screener.   As  of
March 1998, the Company is awaiting FDA approval on this PMA
application.

 NeoPath's  Pathfinder System provides improved productivity
and quality assurance in the clinical cytology laboratory by
computerizing  the  cytotechnologists' microscopes,  thereby
helping  to  eliminate  screening  errors  and  facilitating
critical  cell identification in applications  such  as  Pap
smear screening.

 The  Company  believes  that  the  AutoPap  and  Pathfinder
Systems   can  facilitate  the  earlier  and  more  accurate
detection  of  precancerous conditions as well  as  cervical
cancer,  thereby  decreasing  the  risks  of  morbidity  and
mortality.

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

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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.

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  slide  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 manual 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")
generally limit the number of slides 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 normal is considered abnormal  and
may be precancerous or cancerous.  Abnormalities evident  in
Pap  smears  may  indicate various conditions  ranging  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

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process  over  50  million  Pap  smears  annually  and  that
laboratories outside the United States process more than  60
million  Pap  smears  annually.  Pap  smears  are  generally
processed   in   hospital-based  or   independent   clinical
laboratories.

  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  quality  of
practice, thereby enabling 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 AutoPap QC and AutoPap Screener employ identical
hardware   components.   The  AutoPap   Screener,   however,
contains  enhanced  software,  including  additional   cell-
classification  algorithms, that allow it  to  be  used  for
primary  screening.  In addition to regulatory approvals  in
the  United  States,  the  AutoPap System  is  approved  for
primary screening and quality control rescreening in  Japan,
Canada, Australia, New Zealand, The Netherlands, Italy,  and
Hong  Kong.   The  AutoPap QC is also approved  for  quality
control    rescreening   in   Korea.    See    "Governmental
Regulation."

  The  AutoPap System is used on-site by general  laboratory
personnel  and is compatible with a wide range  of  staining
procedures used on conventionally prepared Pap smear slides.
The   AutoPap  System  currently  requires  use   of   glass
coverslips,  which are widely used by most laboratories  and
provide  consistent  optical characteristics.   The  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 unload, and is designed to operate continuously, or
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.

  NeoPath  believes  that its automated image-interpretation
technology  has substantial application for 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, including non-medical
applications.

  The Company's research and development expenses were $14.2
million, $11.2 million, and $9.4 million in the years  ended
December 31, 1997, 1996, and 1995, respectively.

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  the  detection
of   false-negatives   and,  thereby,   improve   diagnostic
accuracy.  The AutoPap QC classifies slides based  on  their
likelihood of being abnormal; a percentage (10% or more)  of
those  slides 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 either a quality-control
or  an  adjunct  rescreening device for previously  manually
screened   Pap   smears.    This  flexibility   will   allow
laboratories either to implement the AutoPap

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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.

AutoPap Primary Screener System

 During  1997,  NeoPath completed a prospective intended-use
clinical  study to evaluate the performance of  the  AutoPap
Screener.   This study included more than 25,000  Pap  smear
slides  at  five clinical laboratories in the United  States
and Canada.  The AutoPap Screener used in the clinical study
incorporates  new diagnostic algorithms (not currently  used
in  the  AutoPap  QC)  that provide a  "second  opinion"  to
improve diagnostic accuracy in the primary screening of  Pap
smear slides.

 The  clinical  study  was designed to compare  the  AutoPap
System-assisted  practice  to  current  practice,  with  the
results   subjected  to  an  extensive  truth  determination
process  for  slide diagnosis.  The AutoPap  System-assisted
practice  identified up to approximately 25% of the  lowest-
ranking  slides as "within normal limits" and  requiring  no
further  review; the remaining approximately 75%  of  slides
were  subjected to manual screening with the  assistance  of
the   AutoPap  ranked  review  report  which  indicates  the
relative scores of the processed slides (of which, at  least
15%  of  the highest-ranking slides that were classified  as
within  normal  limits  by manual review  underwent  quality
control  rescreening).  "High-risk" slides  (as  defined  by
each laboratory) were excluded from the study, as were other
slides that were unsuitable for AutoPap Screener processing.
As  a  result  of  the  study, the  AutoPap  System-assisted
practice identified more abnormal slides compared to current
practice,  and this difference was statistically significant
in  favor  of  the  AutoPap  System-assisted  practice.   In
addition,   the  AutoPap  System-assisted  practice   showed
improved  specificity  (the ability  to  correctly  identify
normal slides) over current practice.

 Based  on the results of the study, in August 1997  NeoPath
submitted an amendment to its PMA Supplement to the FDA  for
use  of  the AutoPap Screener as a primary screener  of  Pap
smear slides.  In January 1998, the Hematology and Pathology
Devices Advisory Panel unanimously recommended that the  FDA
approve, with conditions, NeoPath's PMA submission.   As  of
March 1998, the Company is awaiting FDA approval on this PMA
application.

  NeoPath believes that 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  improving
overall laboratory accuracy.

  The AutoPap Screener is designed to initial screen all  of
the  laboratory's  eligible Pap  smears  and  classify  them
according  to  the likelihood of abnormality.   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.

Pathfinder System

 NeoPath's  Pathfinder  System  provides  improved   quality
assurance   in   the   clinical   cytology   laboratory   by
computerizing  the  cytotechnologists' microscopes,  thereby
helping  to  eliminate  screening  errors  and  facilitating
critical-cell relocation in applications such as  Pap  smear
screening.  The Pathfinder System's

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position   sensors   attach  to  the   microscope.    As   a
cytotechnologist  examines a slide,  the  Pathfinder  System
records  the exact areas scanned, the location and  identity
of  any  cells  or  cell clusters that  were  electronically
marked,  and patient identification information.  This  data
can be accessed electronically by other laboratory personnel
or reviewed through report-writing features.  The Pathfinder
System is not subject to FDA regulation.

 In  June  1997,  NeoPath  acquired  the  Pathfinder  System
product  line  from  CompuCyte Corporation  for  an  initial
purchase price of $4.1 million.  The initial purchase  price
included cash of $2.7 million (including transaction-related
expenses), a $500,000 short-term note paid in October  1997,
and  48,564  shares of NeoPath common stock.   In  addition,
48,563  shares of NeoPath common stock were issued  and  are
held  in  escrow contingent upon certain specific technology
decisions  to  be  made  within one  year  of  closing.   In
accordance   with  accounting  rules,  the  value   of   the
contingent  shares  was excluded from the  initial  purchase
price  allocation,  and  the 48,563  contingent  shares  are
excluded  from  the calculation of weighted  average  shares
outstanding. Including the value of contingent shares at the
closing  date, which value the Company expects to  recognize
as  an  intangible asset if the contingency is removed,  the
total purchase price approximated $5.1 million.

 As  a  result  of  the acquisition, the Company  recognized
$3.8  million  in  acquired  intangible  assets  which   are
amortized  over  five  years.   NeoPath  began  selling  the
Pathfinder  System  as a stand-alone product  in  the  third
quarter of 1997 and continues to evaluate the integration of
the  technology into the AutoPap System.  Pathfinder  System
sales  accounted  for  less  than  three  percent  of  total
revenues in 1997.

Marketing and Sales

 On  January  28, 1998, the FDA's Hematology  and  Pathology
Devices Advisory Panel unanimously recommended that the  FDA
approve,  with  conditions, NeoPath's  PMA  supplement  with
respect  to  the AutoPap Screener.  Upon FDA  approval,  the
AutoPap  Screener will become the first device  approved  in
the United States for the automated initial screening of Pap
smear  slides.  There can be no assurance that the FDA  will
clear  the AutoPap Screener for commercial use.  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 either a quality-control rescreening  mode
or  an adjunct rescreening mode.  The Company believes  that
use of the AutoPap Screener or the AutoPap QC will serve  to
distinguish  its  customers'  laboratories  as  providing  a
higher  quality  of  Pap smear screening compared  to  those
laboratories that have not adopted the AutoPap System.

 NeoPath's  primary  market includes  domestic  and  foreign
clinical  laboratories.   Domestic  revenues  are  generated
primarily  through  NeoPath's  direct  sales  force,   while
international   revenues  are  derived   primarily   through
independent distributors.  International product  placements
accounted  for 51% and 45% of total 1997 and 1996  revenues,
respectively.    The   Company's  four   largest   customers
accounted  for 65% and 86% of total 1997 and 1996  revenues,
respectively.  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 these  companies  operate
multiple laboratory facilities nationwide.  The Company  has
AutoPap QCs placed with each of these three large laboratory
corporations.   SmithKline  Beecham  Clinical  Laboratories,
with AutoPap QCs installed in eleven separate facilities, is
NeoPath's largest customer, based on total number of AutoPap
QCs  placed;  however, UniLab Corporation, with  13  AutoPap
QCs,  represents the Company's largest single-site  customer
to date.

 NeoPath  distributes AutoPap Systems in  Japan  through  an
agreement  with  Nikon Corporation ("Nikon")  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  for  a
country.   Nikon was NeoPath's largest customer in 1997  and
1996, based on revenues.

  In  addition  to  Japan,  the Company  has  also  received
regulatory approvals to export and market the AutoPap System
in  Canada, Australia, New Zealand, The Netherlands,  Italy,
and Hong Kong.  The

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AutoPap  QC is also approved for quality control rescreening
in  Korea.   In  1997, NeoPath established  NeoPath  Europe,
located in Belgium, as its first international branch.   The
Company intends to increase its marketing efforts in  Europe
and other international locations in 1998.

  NeoPath recognizes revenue on either a sale or fee-per-use
basis   (subject   to  certain  license  agreements,   lease
contracts,  and minimum payments on fee-per-use  contracts).
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.
NeoPath's AutoPap System placements have primarily consisted
of  fee-per-use  contracts in the United  States  and  sales
contracts  internationally.  The  Company  anticipates  that
future AutoPap System placements will continue to consist of
both  fee-per-use and sale contracts; however,  the  Company
expects  that  revenues for the next several  quarters  will
continue to consist of greater sales of AutoPap Systems than
revenues generated from NeoPath's fee-per-use program.

 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.

  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 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
Quality Systems Regulations ("QSR"), as promulgated  by  the
FDA.   As  part of the FDA regulatory process, the Company's
AutoPap  System  manufacturing processes and facilities  are
subject  to periodic FDA QSR inspections and may be  subject
to   further  periodic  inspections  by  U.S.  and   foreign
regulatory   agencies.    See   "Governmental   Regulation."
NeoPath's  manufacturing operations have produced sufficient
AutoPap  Systems  to meet customer demand  since  commercial
operations began in 1996.

  The  Company  purchases  all components  for  the  AutoPap
System and Pathfinder 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 single source vendors, 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 or halt the Company's manufacture  of
its  products.   Any such delay or cessation  could  have  a
material adverse effect on the Company.

Core AutoPap System Technology

  The Company's core AutoPap System 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.

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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 cell 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  background  and   cell
distributions of a conventional Pap smear. The image capture
and  focus module also digitizes images, evaluates image and
focus quality, decides whether to accept or reject the image
for analysis and identifies the location of a rejected image
for a repeat scan.

  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
and  analyzes 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
measurable  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  more  than  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
 certain  general  categories  of  features,  including  the
 following:   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.

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   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.

 The  AutoPap  Screener  utilizes new diagnostic  algorithms
that provide an adjunctive evaluation score, in addition  to
the  original  evaluation score, for superior  detection  of
glandular  abnormalities.  This  was  accomplished  by   the
development  of  new  algorithms that classify  clusters  of
cells.  The adjunctive evaluation score was implemented as a
second  opinion  to the decision of the original  evaluation
score.   The combination of the adjunctive evaluation  score
and  the  original  evaluation score produces  an  increased
detection sensitivity for all abnormal categories.

Field-of-View (FOV) 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   current
configuration for the AutoPap System contains 15  FOVs,  and
the  Company  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 39 U.S.  patents  (issued  or
allowed)  and  has  34  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 holds  four  foreign
patents  and  has applied for patent protection for  certain
aspects of its technology in various 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

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<PAGE>

infringement  action  was filed against  the  Company  by  a
competitor;  in  March  1997, the  Company  filed  a  patent
infringement lawsuit against that competitor.  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   or   consultant   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 or consultation, 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,   Australia,  Japan,  Canada,  France,  the  Benelux
countries, Germany, The United Kingdom, Italy and Spain  for
"NeoPath"  and  "AutoPap."  The Company also has  registered
trademarks    for   "Pathfinder,"   "Visual   Intelligence,"
"AutoReview" and "PapMap" in the United States.  NeoPath has
applied for registration of its trademarks in several  other
foreign countries.

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  payers  that  provide
reimbursement  varies  considerably.   Third-party   payers,
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 payers 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 become  widely
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 payers in the United States.

 NeoPath  believes that increased third-party  reimbursement
of  Pap  smears in general, and increased reimbursement  for
screening  utilizing the AutoPap System in particular,  will
significantly increase the Company's potential for  revenues
in  1998  and beyond.  In October 1997, the American Medical
Association   published  its  revised  Physicians'   Current
Procedural Terminology (CPT-4) codes which included  a  code
that applies to the AutoPap QC for automated cervical cancer
rescreening.   CPT  codes  are a universal  system  used  by
physicians  and  clinical laboratories to identify  specific
procedures  when  billing insurers for their  services.   In
early  1998, NeoPath formed a five-person team to work  with
third-party  insurers  and  managed  care  organizations  to
establish    and/or    review   and   improve    third-party
reimbursement  levels  for  Pap  smear  screening  with  the
AutoPap  System.  These managed care specialists  will  work
closely with NeoPath's field sales personnel throughout  the
United States.

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<PAGE>

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.  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 conjunction with FDA approval of the
PMA  application and supplements with respect to the AutoPap
System,  the Company's manufacturing operations are  subject
to  FDA  QSR  inspection.  The Company will continue  to  be
inspected on a routine basis by the FDA for compliance  with
QSR  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 is 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 each country's regulatory agency  to  export
the AutoPap System to, and market it

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<PAGE>

for   commercial  use  in,  Japan,  Canada,  Australia,  New
Zealand, The Netherlands, Italy, and Hong Kong.  The AutoPap
QC  is  also  approved  for quality control  rescreening  in
Korea.    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  has  performed  the  requisite   testing
procedures  and related documentation to apply the  European
"CE" mark to the AutoPap and Pathfinder Systems.  There  can
be no assurance 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;  this  10%  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  System  is not intended to replace  a  laboratory's
current  practices  regarding screening or  rescreening  Pap
smears of "high-risk" patients.

  In   addition,  laboratories  may  be  subject  to   state
regulations, 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 cytotechnologist  within  a  given
period of time.  There can be no assurance that states  will
not directly regulate the AutoPap System in the future.  The
Company  cannot  predict  the  effect,  if  any,  that  such
regulation may have on its business or operations.

 In  early  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 and classified
as  normal.  The decision allows AutoPap QCs to be  used  in
determining  which  slides  will  be  rescreened  under  the
federally mandated rescreening requirement.

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 as  well  as
with    certain   semi-automated   systems.    To    compete
effectively, the AutoPap System must demonstrate  comparable
or better accuracy as well as cost effectiveness relative to
manual review of Pap smears.  The Company is currently aware
of   three  potential  direct  competitors:  AutoCyte,  Inc.
("AutoCyte"), which has focused on the development of a semi-
automated  system  to prepare and analyze  liquid-based  Pap
smears (a potential alternative to conventional Pap smears);
MorphoMetrix Technologies, Inc. ("MorphoMetrix")  which  has
developed  an  automated  system to  analyze  monolayer  Pap
smears;  and  Neuromedical Systems, Inc. ("NSI"),  which  is
engaged   in  marketing  a  device  for  the  semi-automated
rescreening of conventional Pap smears and is reported to be
developing a semi-automated primary screener.

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<PAGE>

  AutoCyte announced the completion of clinical studies  for
its  liquid-based Pap smear preparation system and submitted
these results to the FDA under a PMA.  Additionally, NeoPath
believes that AutoCyte may be conducting clinical trials  of
a  screening  system  for  the  automated  analysis  of  its
monolayer  slides.   The Company believes that  MorphoMetrix
may   soon   commence  clinical  trials  for  its  monolayer
screening product.  NSI is marketing its semi-automated  Pap
smear  rescreening service as an adjunct to human Pap  smear
screening.   NSI's system is currently a computerized  image
processing  service  provided  to  laboratories  for   which
selected Pap smear slides are sent for processing to an  NSI
processing  center.  NeoPath believes that NSI  is  changing
its  system  to be available for placement in  the  clinical
laboratory and that NSI also may be preparing for a clinical
trial  for use of its system in primary screening.  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.  Under NSI's current  practice,
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
liquid-based  or  monolayer slide  preparation  systems  and
devices  that automate other aspects of cytology.  In  1996,
Cytyc, Inc. received PMA approval from the FDA to market its
ThinPrep  System  which prepares slides for cervical  cancer
screening  using  a  liquid-based sampling  and  preparation
technique  as a replacement for the conventional  Pap  smear
method.

  The  Company believes that the AutoPap System 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.   The
Company  believes that the AutoPap Screener will enable  the
Company's  customer laboratories to increase the  number  of
Pap smears processed while 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 three 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 a material adverse effect  on  the
Company's business and results of operation.

Employees

  At  December 31, 1997, the Company employed 176  full-time
equivalent   personnel,  including  55   in   research   and
development  and regulatory; 54 in administration,  customer
service  and  support, and sales and marketing;  and  67  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, which speak only  as  of  their
dates.   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

Page 12
<PAGE>

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, 1997, the Company  had  an
accumulated  deficit of $87.8 million.  The Company  expects
continued  losses  in  1998 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.

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
payers  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
payers  such  as  government and  private  insurance  plans.
There  can  be  no assurance that the medical  community  or
third-party  healthcare payers 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, a
significant  proportion  of  the  Company's  sales  may   be
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, The Netherlands, Italy, and Hong Kong.  The AutoPap
QC  is  also  approved  for quality control  rescreening  in
Korea.   In  January  1998,  the  Hematology  and  Pathology
Devices Advisory Panel unanimously recommended that the  FDA
approve,  with  conditions, the supplement to NeoPath's  PMA
submission for use of the AutoPap Screener as a primary  Pap
smear  screener.  There can be no assurance that  applicable
governmental  regulatory  agencies  in  United   States   or
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  QSR,  the  Company's  manufacturing  processes  remain
subject to QSR regulation and inspection.

Page 13
<PAGE>

Limited  Marketing,  Sales  and  Service  Experience;  Risks
Inherent in International Transactions

 The  Company  markets, sells, services,  and  supports  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  international
distribution  arrangements  for  the  placement  of  AutoPap
Systems,  the  Company  depends  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.

Sole or Limited Source of Supply; Governmental Regulation of
Manufacturing

 The  Company  purchases  all  components  for  the  AutoPap
System and Pathfinder 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 single source vendors, 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 or halt the Company's manufacture  of
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 QSR  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  QSR
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
QSR  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 as  well  as
with    certain   semi-automated   systems.    To    compete
effectively, the AutoPap System must demonstrate  comparable
or better accuracy and cost effectiveness relative to manual
review  of  Pap smears.  The Company is currently  aware  of
three direct competitors: AutoCyte, which has focused on the
development  of  a  semi-automated  system  to  prepare  and
analyze liquid-based Pap smears (a potential alternative  to
conventional Pap smears); MorphoMetrix, which has  developed
an  automated  system to analyze monolayer Pap  smears;  and
NSI,  which is engaged in marketing a service for the  semi-
automated  rescreening of conventional  Pap  smears  and  is
reported to be developing a semi-automated primary screener.
In   addition  to  direct  competition,  the  Company  faces
indirect  competition  through  companies  that  manufacture
liquid-based  or  monolayer slide  preparation  systems  and
devices that automate various aspects of cytology.  In 1996,
Cytyc, Inc. received PMA approval from the FDA to market its

Page 14
<PAGE>

ThinPrep  System  which prepares slides for cervical  cancer
screening  using  a  liquid-based sampling  and  preparation
technique  as a replacement for the conventional  Pap  smear
method.

  The  Company believes that the AutoPap System 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 three 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 a material adverse effect  on  the
Company's  business and results of operation.  See "Business
- Competition."

Dependence  on Reimbursement; Potential Effect of Healthcare
Reform

 Various third-party healthcare payers in the United  States
are  increasingly  sensitive to containing healthcare  costs
and have focused on new technology as being a primary factor
in   increased   healthcare  costs.    Third-party   payers,
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 payers 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 become  widely
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 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
primarily 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

Page 15
<PAGE>

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  four
foreign  patents, 39 U.S. patents (issued or  allowed),  and
has  34  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.

 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
continues to defend itself vigorously.  In September 1997, a
motion  for  preliminary injunction against the Company  was
heard by a judge in the United States District Court for the
Southern  District of New York.  No decision  has  yet  been
rendered.

 On  March 31, 1997, the Company filed a patent infringement
lawsuit  against Neuromedical Systems, Inc.  in  the  United
States   District   Court  for  the  Western   District   of
Washington.   The complaint alleges patent infringement  and
seeks   preliminary   and  permanent   injunctions   against
Neuromedical  Systems, Inc.  This suit is currently  in  the
discovery stage.

 There  can  be  no  assurance as  to  the  outcome  of  the
aforementioned 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 small  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.

Page 16
<PAGE>

 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.

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<PAGE>

Item 2.PROPERTIES

  The  Company  leases approximately 72,000 square  feet  of
office and manufacturing space in Redmond, Washington  under
operating leases expiring through January 2000, with various
renewal  options.   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.  In  September
1997,  a  motion  for  preliminary  injunction  against  the
Company  was heard by a judge in the United States  District
Court  for  the Southern District of New York.  No  decision
has yet been rendered.  The Company believes it has a strong
position  in  this  action and continues  to  defend  itself
vigorously.

 On  March 31, 1997, the Company filed a patent infringement
lawsuit  against Neuromedical Systems, Inc.  in  the  United
States   District   Court  for  the  Western   District   of
Washington.   The complaint alleges patent infringement  and
seeks   preliminary   and  permanent   injunctions   against
Neuromedical  Systems, Inc. This suit is  currently  in  the
discovery stage.

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 1997.


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<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  1997  Annual
Report to Shareholders, page 30.

Item 6.    SELECTED FINANCIAL DATA

      The   information  required  by  Item  6   is   hereby
incorporated  by  reference  to the  Company's  1997  Annual
Report to Shareholders, page 9.

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  1997  Annual
Report to Shareholders, pages 10-14.

Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

  Not applicable.

Item 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

   The   information   required  by   Item   8   is   hereby
incorporated  by  reference  to the  Company's  1997  Annual
Report to Shareholders, pages 15-29.

Item 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING  AND FINANCIAL DISCLOSURE

   None.


Page 19
<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  1998  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, 1997.

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

  Not applicable.


Page 20
<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 1997
       Annual Report to Shareholders:

                                                      Annual Report
                                                          Page #


       Balance Sheets at December 31, 1997 and 1996         15

       Statements of Operations for the years ended
       December 31, 1997, 1996 and 1995                     16

       Statements of Shareholders' Equity for the years
       ended December 31, 1997, 1996 and 1995               17

       Statements of Cash Flows for the years ended
       December 31, 1997, 1996 and 1995                     18

       Notes to Financial Statements                     19-27

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(7)   NeoPath, Inc. 1989  Stock  Option
                Plan,  Amended and Restated on  December  10,
                1996

      10.2(7)   NeoPath, Inc. Stock Option Plan for
                Nonemployee  Directors, 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 21
<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

     10.14(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(7)   Form   of   Senior   Management Employment Agreement

     10.24(7)   International    Distribution
                Agreement  between NeoPath,  Inc.  and  Nikon
                Corporation, dated as of December 19, 1996

     10.25(8)   Purchase  and  Sale  Agreement
                between  CompuCyte Corporation  and  NeoPath,
                Inc., Dated as of June 23, 1997

     10.26(8)   NeoPath,  Inc.   Registration
                Rights Agreement, Dated as of June 23, 1997

     10.27(9)   NeoPath, Inc. 1997 Employee  Stock Purchase Plan

Page 22
<PAGE>

        10.28   Third  Amendment  to  Lease  by   and
                between    Teachers   Insurance   &   Annuity
                Association and NeoPath, Inc. dated  November
                6, 1997

         13.1   1997 Annual Report to Shareholders

         23.1   Consent  of  Ernst & Young LLP,  Independent
                Auditors

           27   Financial Data Schedule
_____________________________

          (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.

         (7)    Filed as an exhibit to the registrant's Report on Form
                10-K filed on March 28, 1997 and incorporated herein by
                reference.

         (8)    Filed as an exhibit to the registrant's Report on Form
                10-Q filed on August 12, 1997 and incorporated herein by
                reference.

         (9)    Filed as an exhibit to the registrant's Registration
                Statement on Form S-8 (File No. 333-40371) and incorporated
                herein by reference.

(b)  Reports on Form 8-K:

         None.




Page 23
<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, 1998.

                                   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, 1998.

Signature                 Title


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


/s/WILLIAM L. SCOTT       Vice President and Chief Financial Officer and
______________________    Director
William L. Scott


/s/ROBERT C. BATEMAN      Corporate Controller and Treasurer
______________________    Principal Accounting Officer
Robert C. Bateman


/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/DAVID A. THOMPSON      Director
_______________________
David A. Thompson


/s/GAIL R. WILENSKY       Director
_______________________
Gail R. Wilensky, Ph.D.


Page 24
<PAGE>
<TABLE>
<CAPTION>
                                                                           SCHEDULE II

                        NEOPATH, INC.
              VALUATION AND QUALIFYING ACCOUNTS




                               Balance
                                 at      Charged to Charged to              Balance at
Description                   Beginning   Costs &      Other                   End of
                              of Period   Expenses   Accounts    Deductions    Period
----------------------------- --------   ---------- ----------  ------------  --------
<S>                           <C>         <C>         <C>         <C>       <C>
Allowance for doubtful accounts:

 Year ended December 31, 1997 $175,000    $325,000     $ --        $ --       $500,000

 Year ended December 31, 1996    --        175,000       --          --        175,000

 Year ended December 31, 1995    --             --       --          --             --

</TABLE>



Page 25
<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(7)      NeoPath, Inc. 1989  Stock  Option
                       Plan,  Amended and Restated on  December  10,
                       1996

          10.2(7)      NeoPath, Inc. Stock Option Plan for
                       Nonemployee  Directors, 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

          10.14(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

Page 26
<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(7)     Form   of   Senior   Management
                       Employment Agreement

          10.24(7)     International    Distribution
                       Agreement  between NeoPath,  Inc.  and  Nikon
                       Corporation, dated as of December 19, 1996

          10.25(8)     Purchase  and  Sale  Agreement
                       between  CompuCyte Corporation  and  NeoPath,
                       Inc., Dated as of June 23, 1997

          10.26(8)     NeoPath,  Inc.   Registration
                       Rights Agreement, Dated as of June 23, 1997

          10.27(9)     NeoPath, Inc. 1997 Employee  Stock
                       Purchase Plan

             10.28     Third  Amendment  to  Lease  by   and
                       between    Teachers   Insurance   &   Annuity
                       Association and NeoPath, Inc. dated  November
                       6, 1997

              13.1     1997 Annual Report to Shareholders

              23.1     Consent   of  Ernst   &   Young   LLP,
                       Independent Auditors

                27     Financial Data Schedule
_____________________________

               (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.

Page 27
<PAGE>

               (7)     Filed   as  an  exhibit  to  the  registrant's
                       Report  on Form 10-K filed on March 28,  1997
                       and incorporated herein by reference.

               (8)     Filed   as  an  exhibit  to  the  registrant's
                       Report on Form 10-Q filed on August 12,  1997
                       and incorporated herein by reference.

               (9)     Filed   as  an  exhibit  to  the  registrant's
                       Registration Statement on Form S-8 (File  No.
                       333-40371)   and   incorporated   herein   by
                       reference.

Page 28
<PAGE>