SECURITIES AND EXCHANGE COMMISSION
                     Washington D.C.  20549
                                
                            FORM 10-Q

   [X] Quarterly Report Pursuant to Section 13 or 15(d) of the
                 Securities Exchange Act of 1934
        For the quarterly period ended September 30, 1996
                               or
 [  ] Transition Report Pursuant to Section 13 or 15(d) of the
                 Securities Exchange Act of 1934
                                
                Commission File Number:  0-25210


                          NEOPATH, INC.
     (Exact name of registrant as specified in its charter)


       Washington                                 91-1436093
(State or other jurisdiction of              (I.R.S. Employer
incorporation or organization)              Identification No.)


8271 - 154th Avenue NE, Redmond, Washington         98052
(Address of principal executive offices)          (Zip Code)

Registrant's telephone number, including area code:  (206) 869-7284
                                

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  the  number  of shares outstanding  of  each  of  the
issuer's  classes of common stock, as of the latest practicable
date.
          Class                   Outstanding at October 31, 1996
(Common stock, $.01 par value)           13,646,430

<PAGE>                                
                                
                                
                                
                                
                                
                                
                                
                                
                          NEOPATH, INC.
                                
                 QUARTERLY  REPORT ON FORM 10-Q
                                
                        TABLE OF CONTENTS
     
     
                                
     Part I FINANCIAL INFORMATION                              Page

     Item 1.  Financial Statements                               1
     
              Balance Sheets - September 30, 1996 (unaudited)
               and December 31, 1995
     
              Statements of Operations (unaudited)  --  for  the
              three months and nine months ended September 30,
              1996 and 1995
     
              Statements of Cash Flows (unaudited)  --  for  the
              three months and nine months ended September 30,
              1996 and 1995
     
              Notes to Financial Statements
     
     Item 2.  Management's Discussion and Analysis of
              Financial Condition and Results of Operations       6
     
     
     Part II  OTHER  INFORMATION
     
     Item 1.  Legal Proceedings                                   8
     
     Item 6.  Exhibits and Reports on Form 8-K                    8
     
     
     Signatures                                                   9
     
<PAGE>     
     
                                
Part I     FINANCIAL INFORMATION                                           
Item 1.    Financial Statements                                            
                                                                     
               NEOPATH, INC.

               BALANCE SHEETS
                                                                     
                                                                     
<TABLE>
<CAPTION>
                                                                     
                                                                     
                                                September 30,  December 31,
                                                    1996           1995
                                                -------------  ------------
Assets                                           (Unaudited)         
<S>                                              <C>             <C>     
Current assets:                                                            
   Cash and cash equivalents                     $ 1,965,937     $ 4,150,923
   Securities available-for-sale                  62,679,884      19,278,839
   Accounts receivable                               800,468               -
   Inventories                                     6,749,450       1,841,560
   Other current assets                              796,677         229,555
                                                 -----------      ----------
Total current assets                              72,992,416      25,500,877
                                                                           
Pay-per-use systems, net                           3,270,181               -
Property and equipment, net                        4,385,564       2,192,984
Deposits                                             255,298         245,068
Other assets                                              -           77,227
                                                 -----------     -----------
Total assets                                     $80,903,459     $28,016,156
                                                 ===========     ===========
Liabilities and shareholders' equity                                       
                                                                           
Current liabilities:                                                       
   Accounts payable and accrued liabilities      $ 1,918,625     $   987,977
   Salaries and wages payable                      1,944,068       1,443,131
   Customer deposits                                  52,500               -
   Deferred revenue                                  500,000               -
   Current portion of obligations                                          
     under capital leases                             87,517         193,442
                                                 -----------     -----------  
Total current liabilities                          4,502,710       2,624,550
                                                                           
Obligations under capital leases,                                          
  less current portion                               201,101         258,395
                                                                           
                                                                           
                                                                           
Shareholders' equity:                                                      
   Common stock                                  136,220,839      71,649,971
   Deferred compensation                             (79,883)       (175,782)
   Accumulated deficit                           (59,941,308)    (46,340,978)
                                                 -----------     ------------
Total shareholders' equity                        76,199,648      25,133,211
                                                 -----------     ------------
Total liabilities and shareholders' equity       $80,903,459     $28,016,156
                                                 ===========     ============         
                                                                           
</TABLE>

                                                                           
                                                                           
                                                                     
See accompanying notes.                              
Page 1
<PAGE>                                
                                
            NEOPATH, INC.
                             
       STATEMENTS OF OPERATIONS
             (Unaudited)
<TABLE>
<CAPTION>
                                                                                               
                                                                                               
                                           Three months ended            Nine months ended
                                              September 30,                September 30,
                                           1996          1995           1996          1995
                                         ----------   ---------      -----------      ----------                                
<S>                                      <C>           <C>          <C>              <C>             
Revenues                                 $  877,424    $      -      $ 1,504,051      $       -
Cost of revenues                            414,017           -          979,725              -
                                         ----------   ---------      -----------      ---------- 
   Gross margin                             463,407           -          524,326              -
                                                                                               
                                                                                               
Operating expenses:                                                                            
   Research and development               2,916,124    2,288,350       8,200,000      6,893,690
   Selling, general and administrative    3,100,200    1,839,096       7,943,604      4,431,488
                                          ---------    ---------      ----------     ----------
     Total operating expenses             6,016,324    4,127,446      16,143,604     11,325,178
                                                                                               
Loss from operations                      5,552,917    4,127,446      15,619,278     11,325,178
                                                                                               
Interest expense                             10,889       19,525          38,465         62,554
Interest income                            (940,323)    (544,794)     (2,884,637)    (1,368,363)
                                         ----------   ----------     ------------   ----------- 
Net loss                                 $4,623,483   $3,602,177     $12,773,106    $10,019,369
                                         ==========   ==========     ===========    =========== 
                                                                                                
Net loss per share                            $0.35        $0.37           $1.00          $1.15
                                              =====        =====           =====          ======
                                                                                               
Shares used in computation of                                                                  
   net loss per share                    13,284,449    9,684,305      12,823,190      8,732,957
                                         ==========    =========      ==========      ========= 
Pro forma, reflecting assumed                                                                  
  conversion of convertible
  preferred stock:                                                             
                                                                                               
   Pro forma net loss per share               $0.35        $0.37           $1.00          $1.08
                                              =====        =====           =====          =====
                                                                                               
   Shares used in computation of                                                               
    pro forma net loss per share         13,284,449    9,684,305      12,823,190      9,272,277
                                         ==========    =========      ==========      =========
</TABLE>
See accompanying notes.
Page 2
<PAGE>
                    NEOPATH, INC.
                                                                             
              STATEMENTS OF CASH FLOWS
                     (Unaudited)
<TABLE>
<CAPTION>
                                                  
                                                                                    
                                                                                    
                                                            Nine months ended
                                                              September 30,
                                                           1996            1995
                                                         ----------    ----------
<S>                                                     <C>             <C>
Operating activities                                                                
Net loss                                                $(12,773,106)   $(10,019,369)
Adjustments to reconcile net loss to net cash                                       
  used in operating activities:                                                    
   Depreciation and amortization                           1,261,065         370,947
   Deferred compensation                                      72,154         193,935
   Common stock issued for services/donation                  18,278         350,000
   Accrued interest on securities available-for-sale         427,535        (468,976)
   Net change in operating accounts:                                                
     Accounts receivable                                    (800,468)              -
     Inventories and pay-per-use systems                  (8,464,786)       (173,452)
     Accounts payable and accrued liabilities              1,484,085           9,082
     Deferred revenue                                        500,000               -
     Other                                                  (558,063)        (68,953)
                                                        ------------     -----------
Net cash used in operating activities                    (18,833,306)     (9,806,786)
                                                                                    
                                                                                    
Investing activities                                                                
Purchases of securities available-for-sale               (75,750,434)    (30,966,166)
Maturities of securities available-for-sale               31,094,630       7,928,751
Additions to property and equipment                       (3,175,989)     (1,106,728)
Other                                                         66,997         323,013
                                                         -----------     ------------
Net cash used in investing activities                    (47,764,796)    (23,821,130)
                                                                                    
Financing activities                                                                
Proceeds from bank note                                            -         500,000
Issuance of common stock, net                             61,740,351      34,740,266
Exercise of stock options and warrants                     2,835,984         394,348
Proceeds from sale/leaseback transactions                          -         317,594
Principal payments on obligations under                                             
  capital leases                                            (163,219)       (154,444)
                                                         -----------     -----------
Net cash provided by financing activities                 64,413,116      35,797,764
Net increase (decrease) in cash and cash                                            
   equivalents                                            (2,184,986)      2,169,848
Cash and cash equivalents:                                                          
   Beginning of period                                     4,150,923               -
                                                        ------------    ------------
   End of period                                        $  1,965,937    $  2,169,848
                                                        ============    ============
                                                                                    
          Supplemental disclosure of non-cash item --
          during the nine months ended September 30, 1996,
          $3,556,896 was transferred from                                                  
          inventories to pay-per-use systems                                               
                                                                                    
                                                                                    
                                                                                    
</TABLE>
                                  
See accompanying notes.         
Page 3
<PAGE>                                
                                
                                
                                
                          NEOPATH, INC.
                                
                  NOTES TO FINANCIAL STATEMENTS
                           (Unaudited)
                                
Note 1 - Basis of Presentation

      The accompanying unaudited financial statements have been
prepared  by  NeoPath, Inc. (the "Company") in accordance  with
generally  accepted accounting principles for interim financial
information and according to the rules and regulations  of  the
Securities   and   Exchange  Commission   (the   "Commission").
Accordingly,  they  do not include all of the  information  and
footnotes  required by generally accepted accounting principles
for   complete   financial  statements.  In  the   opinion   of
management,   all  adjustments  (which  include   only   normal
recurring   adjustments)  considered  necessary  for   a   fair
presentation have been included.  The balance sheet at December
31, 1995 has been derived from the audited financial statements
at  that date, but does not include all of the information  and
footnotes  required by generally accepted accounting principles
for  complete financial statements.  The results of  operations
for  the three-month and nine-month periods ended September 30,
1996,  are not necessarily indicative of results to be expected
for  the entire year ending December 31, 1996 or for any  other
fiscal period.  For further information, refer to the financial
statements and footnotes thereto included in the Company's Form
10-K for the year ended December 31, 1995.

Note 2 - Revenue Recognition

      The  Company recognizes pay-per-use revenue based on  the
number  of  customer slides processed, subject  to  agreed-upon
minimum  processing levels, beginning in the month  an  AutoPap
System  is  initially placed in commercial use at the  customer
site and is accepted by the customer.  Sales of AutoPap Systems
are  recognized  at  date  of shipment.   In  the  event  sales
contracts  may  establish  commitments  for  installation   and
testing   prior  to  final  customer  acceptance,  revenue   is
recognized upon notification of customer acceptance.

Note 3 - Follow-On Public Offering

      In  January  1996,  the Company completed  its  follow-on
public  offering  for the sale of 2,875,000  shares  of  common
stock   at   $23.00   per  share.   The  net  proceeds,   after
underwriting discounts and offering expenses, from the sale  of
the common stock was $61.7 million.

Note 4 - Inventories

     Inventories consist of the following:

                                                               
                        September 30, 1996    December 31, 1995
                       -------------------    -----------------  
     Raw materials              $2,966,529          $   789,142
     Work-in-process             1,272,412              343,306
     Finished goods              2,510,509              709,112
                                ----------          -----------
                                $6,749,450           $1,841,560
                                ==========           ==========
Page 4
<PAGE>
Note 5 -  Litigation

      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  will
defend itself vigorously.


Note 6 -  Reclassifications

     Certain prior-period amounts have been reclassified to
conform to the current-period presentation.

Page 5
<PAGE>
Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations

Overview

       NeoPath,  Inc.  (the  "Company")  develops  and  markets
products  that  automate the interpretation of medical  images.
The  Company's  initial  products are two  automated  screening
systems  used  to  analyze and classify Pap smear  slides.   In
September  1995, the United States Food and Drug Administration
(the  "FDA")  cleared  for commercial use the  Company's  first
product, the AutoPap 300 QC Automatic Pap Screener System  (the
"AutoPap QC"). The Company seeks FDA approval for the Company's
second  product, the AutoPap 300 Automatic Pap Screener  System
(the "AutoPap Screener" and, together with the AutoPap QC,  the
"AutoPap Systems").

      During  the  first  quarter  of  1996,  the  Health  Care
Financing    Administration   officially    allowed    clinical
laboratories  to  use  the AutoPap QC in  the  quality  control
review of Pap smear slides that have been initially screened by
cytologists  as  normal.  The decision allows  AutoPap  QCs  to
replace the federally mandated rescreening requirement.

      On  September  27,  1996 a FDA Hematology  and  Pathology
Devices Advisory Panel recommended that the FDA not approve, at
that  time,  the supplement to the Company's premarket approval
(PMA) submission for the use of the AutoPap System as a primary
screener  of  Pap  smear  slides  pending  the  completion   of
additional premarket studies. The Company is working diligently
to answer the Panel's questions and resubmit this matter to the
FDA.

     The Company is compensated on either a sale or pay-per-use
basis  (subject  to  certain  license  agreements  and  minimum
payments).  Under its pay-per-use program, the Company  retains
ownership  of  AutoPap Systems placed at customer  sites  while
assessing customers a charge for each Pap smear slide analyzed.
The  retention  of ownership of the AutoPap Systems  entails  a
significant  capital commitment to purchase the  components  of
and  to  manufacture AutoPap Systems.  The cost of each AutoPap
System   is   reclassified  from  inventories  to   depreciable
equipment  upon  shipment  to the  clinical  laboratory.   Such
equipment,  reflected on the balance sheet  under  "pay-per-use
systems,  net" is depreciated on a straight-line basis  over  a
three-year period, commencing upon commercial operation.

Results of Operations

     The  Company  began  recognizing  revenues  in  the  first
quarter  of  1996.  In the third quarter of 1996,  the  Company
recognized revenues of $877,000, consisting of pay-per-use  and
sale  contracts.   The $624,000 increase in revenues  from  the
second  quarter was primarily a result of an AutoPap  QC  sale,
combined  with moderate increases in the Company's  pay-per-use
service  contracts.  Total revenues of $253,000 in  the  second
quarter  of  1996  consisted entirely  of  pay-per-use  service
contracts in the U.S.  The Company recognized total revenues of
$1.5   million  for the nine-month period ended  September  30,
1996.
     
      The  primary  components  of  cost  of  revenues  include
depreciation  on  pay-per-use systems,  allocated  service  and
support  costs, and, with regard to AutoPap Systems  sold,  the
related cost of those devices.  Because manufacturing,  service
and  support functions are at an early stage, cost of  revenues
for  the three and nine-month periods ended September 30,  1996
is not necessarily indicative of future cost of revenues.

      Research  and development expenses for the  three  months
ended September 30, 1996 increased 27.4 percent to $2.9 million
from  the comparable period in 1995.  For the nine months ended
September 30, 1996, research and development expenses increased
18.9 percent to $8.2 million from the amount recognized in  the
nine  months ended September 30, 1995.  The increase from prior
periods is primarily a result of the Company's continued  focus
on  obtaining FDA approval for the AutoPap Screener as well  as
improving the AutoPap Systems' performance.

Page 6
<PAGE>
      Selling,  general  and administrative expenses  increased
68.6  percent  to  $3.1  million for  the  three  months  ended
September  30,  1996  from  the  third  quarter  of  1995,  and
increased  79.3  percent to $7.9 million for  the  nine  months
ended  September 30, 1996 from the comparable period  in  1995.
The   increase  from  prior  periods  reflects  the   Company's
continued  expansion  of  its  marketing,  sales  and   service
functions  to a level necessary for the worldwide  roll-out  of
the AutoPap Systems.

     Interest income for the third quarter of 1996 increased to
$940,000  compared  to $545,000 for the comparable  quarter  in
1995.   For the nine months ended September 30, 1996,  interest
income increased to $2.9 million from $1.4 million in the nine-
month  period in 1995.  The increase in interest income is  due
primarily  to  the increase in cash equivalents and  securities
available-for-sale  as  a  result of  the  Company's  follow-on
public stock offering completed in January 1996.

 Liquidity and Capital Resources

      The  Company's  cash,  cash  equivalents  and  securities
available-for-sale totaled $64.6 million as  of  September  30,
1996,  which  represents an increase  of   $41.2  million  from
December 31, 1995.  The increase is primarily a result  of  the
Company's follow-on public stock offering, completed in January
1996, net of cash used in the Company's operations during 1996.
The  Company  received $61.7 million in net proceeds  from  the
stock offering.

      During  the  nine months ended September 30, 1996,  $18.8
million  was  used to fund the Company's operating  activities,
including  $3.6 million for inventories subsequently classified
as  pay-per-use  systems,  and $3.2  million  was  invested  in
property  and  equipment.   During  the  comparable  nine-month
period  in 1995, $9.8 million was used in operating activities,
and   the  Company  purchased  $1.1  million  of  property  and
equipment. Negative cash flows in 1996 were partially offset by
the receipt of $2.8 million from the exercise of stock options
and  warrants  and by the receipt in the second  quarter  of  a
$500,000  nonrefundable  fee from a  foreign  distributor  with
which  the  Company has entered into a letter of  intent.   The
Company  has  deferred revenue recognition of the nonrefundable
fee   in   accordance   with  generally   accepted   accounting
principles.  The investment in pay-per-use systems is  expected
to  increase as the Company continues to place AutoPap  Systems
into commercial service under pay-per-use service contracts.

      The Company expects negative cash flow from operations to
continue  for  the  next few years as it  manufactures  AutoPap
Systems  that  are placed under pay-per-use service  contracts,
expands  its  marketing, sales, customer  service  and  support
capabilities,   continues   its   research   and    development
activities, and satisfies regulatory requirements to market its
products.   The Company currently estimates that  its  existing
cash,  cash equivalents and securities available-for-sale  will
be  sufficient  to fund its operations for at  least  the  next
seven  quarters.  There can be no assurance, however, that  the
Company will not be required to seek additional capital  at  an
earlier  date.  The Company's future capital requirements  will
depend on many factors, including those factors listed below.

Certain Factors Affecting Forward-Looking Statements

      The forward-looking statements in this report are subject
to  certain  risks  and uncertainties that could  cause  actual
results  to  differ  materially, including without  limitation,
market acceptance of the Company's products;  the acceptance of
the  Company's  pay-per-use program;  product and manufacturing
regulatory  approvals;   the Company's  limited  manufacturing,
marketing,  customer  service  and  support  capabilities;  the
Company's   sole  or  limited  source  of  supply  of   certain
components;    the   status   of   competing   products;    and
uncertainties  relating to international  transactions.   These
and  other  risks are detailed in the Company's  reports  filed
with  the  Securities  and Exchange Commission,  including  the
Company's  Annual  Report  on Form  10-K  for  the  year  ended
December 31, 1995.

Page 7
<PAGE>
Part II   OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 6.  Exhibits and Reports on Form 8-K

(a)  The following exhibits are filed as part of this report.

     Exhibit No. Description
     -----------------------
     11          Computation of net loss per share
     
     27          Financial Data Schedule

(b)  Reports on Form 8-K

     No reports on Form 8-K were filed during the quarter ended
     September 30, 1996.


Page 8                                
<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.

                                        NeoPath, Inc.


Date:   November 11, 1996               By:  /s/ ALAN C. NELSON
                                            -------------------
                                            Alan C. Nelson
                                            President, Chief Executive Officer



                                        By:  /s/ ROBERT C. BATEMAN
                                             ---------------------
                                             Robert C. Bateman
                                             Corporate Controller
                                             Acting Chief Accounting Officer
Page 9
<PAGE>



                          NEOPATH, INC.
                                
                        INDEX TO EXHIBITS



     Exhibit No. Description
     ----------------------
     11          Computation of net loss per share
     
     27          Financial Data Schedule


Page 10