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 June 30, 1998
                               or
  [  ] Transition Report Pursuant to Section 13 or 15(d) of the
                 Securities Exchange Act of 1934
       For the transition period from _________________ to
                        _________________
                                
                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
                                

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 July 23, 1998
  (Common stock, $.01 par value)             14,484,113

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

                                                           Page

Item 1.  Financial Statements                                 1
     
         Balance Sheets -- June 30, 1998 (unaudited) and
           December 31, 1997
     
         Statements of Operations (unaudited) -- for the
           three months and six months ended June 30, 1998 
           and 1997
     
         Statements of Cash Flows (unaudited) -- for the 
           six months ended June 30, 1998 and 1997
     
         Notes to Financial Statements
     
Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations                 6
     
Item 3.  Quantitative and Qualitative Disclosures About
           Market Risk                                        10
     
     
Part II  OTHER  INFORMATION
     
Item 1.  Legal Proceedings                                    11
     
Item 4.  Submission of Matters to a Vote of Security Holders  11
     
Item 6.  Exhibits and Reports on Form 8-K                     12
     
     
Signatures                                                    13
     
<PAGE>
     
Part 1    FINANCIAL INFORMATION
                                                        
Item 1.   Financial Statements

                               NEOPATH, INC.

                              BALANCE SHEETS                     
                                                        
                                                        
                                              June 30,      December 31,
                                                1998           1997
                                             __________     ____________
                                            (Unaudited)  
Assets

Current Assets:
    Cash and cash equivalents             $    8,025,025    $    308,970
    Securities available-for-sale             12,419,508      25,409,633
    Accounts receivable, net                   4,872,593       3,863,818
    Inventories                                8,417,226       7,514,001
    Other current assets                         513,413         187,147
                                             ___________     ___________        
Total current assets                          34,247,765      40,283,569
                                                        
Fee-per-use systems, net                       7,981,796       8,564,189
Property and equipment, net                    5,277,006       5,979,849
Intangible assets, net                         3,524,901       3,383,925
Deposits and other assets                      1,331,248         729,280
                                             ___________     ___________
Total assets                                 $52,362,716     $58,940,812
                                             ===========     ===========
                                                        
Liabilities and shareholders' equity                                    

Current liabilities:                                                       
  Accounts payable                           $ 1,689,318     $ 2,173,179
  Salaries and wages payable                   1,949,260       2,357,045
  Customer deposits                              280,660         431,877
  Other accrued liabilities                    1,046,748         567,759
  Current portion of long-term obligations     2,442,981          80,966
                                             ___________     ___________
Total current liabilities                      7,408,967       5,610,826
                                                        
Long-term obligations, less current portion    2,652,201         101,872
                                                        
Shareholders' equity:                                                       
  Common stock                               141,754,301     141,057,881
  Accumulated deficit                        (99,359,128)    (87,633,118)
  Accumulated other comprehensive loss           (93,625)       (196,649)
                                             ___________    ____________
Total shareholders' equity                    42,301,548      53,228,114
                                             ___________    ____________
Total liabilities and shareholders' equity   $52,362,716    $ 58,940,812
                                             ===========    ============ 
See accompanying notes.

Page 1
<PAGE>

                             NEOPATH, INC.

                        STATEMENTS OF OPERATIONS
                               (Unaudited)
                                                                        
                                                                        
                            Three months ended           Six months ended
                                 June 30,                   June 30,
                     _____________ ______________   ____________ _____________ 
                         1998            1997            1998         1997
                                                                     
Revenues             $  4,308,465    $  2,240,505   $  7,871,156   $  4,475,057
Cost of revenues        2,371,840         967,928      4,412,600      2,045,440
                     ____________    ____________   ____________   ____________
  Gross margin          1,936,625       1,272,577      3,458,556      2,429,617
                                                                 
                                                                 
Operating expenses:                                                    
  Research and 
    development         2,911,427       3,922,646      5,957,243      8,309,502
  Selling, general and
    administrative      5,329,589       4,708,514      9,835,832      8,404,185
                     ____________    ____________   ____________    ___________
                        8,241,016       8,631,160     15,793,075     16,713,687
                     ____________    ____________   ____________    ___________
                                                                 
Loss from operations   (6,304,391)     (7,358,583)   (12,334,519)   (14,284,070)
                                                                 
Interest income           267,302         673,609        633,076      1,419,275
Interest expense          (15,288)         (8,125)       (24,567)       (14,610)
                     ____________    ____________    ___________    ___________
Net loss              $(6,052,377)   $ (6,693,099)  $(11,726,010)  $(12,879,405)
                     ============    ============   ============   ============ 

Basic and diluted net                           
  loss per share      $     (0.42)   $      (0.47)  $      (0.81)  $      (0.92)
                     ============    ============   ============   ============
                                                                 
Weighted average 
  common shares 
  outstanding          14,468,686      14,277,067     14,442,269     14,024,351
                     ============    ============   ============   ============
                                                                        
See accompanying notes.                                              

Page 2
<PAGE>

                                   NEOPATH, INC.

                             STATEMENTS OF CASH FLOWS
                                   (Unaudited)                        
                                                                          
                                                      Six months ended
                                                          June 30,
                                               _______________________________
                                                     1998            1997    
                                               _______________   _____________
Operating activities
Net loss                                       $ (11,726,010)    $ (12,879,405)
Adjustments to reconcile net loss to net cash
  used in operating activities:                             
    Depreciation and amortization                  2,790,942         1,623,844
    Deferred compensation                                 --            74,246
    Accrued interest on securities 
      available-for-sale                             360,694           756,975
    Net change in operating accounts:                                   
      Accounts receivable                         (1,008,775)         (681,888)
      Inventories and fee-per-use systems         (1,474,927)       (5,358,568)
      Accounts payable and accrued liabilities      (493,392)        1,482,984
      Other                                         (922,894)         (234,169)
                                              ______________     _____________
Net cash used in operating activities            (12,474,362)      (15,215,981)
                                                                            
Investing activities
Purchases of securities available-for-sale          (202,310)       (5,349,511)
Maturities of securities available-for-sale       12,934,765        18,622,760
Purchase of Pathfinder System product line                --        (2,542,917)
Additions to property and equipment                 (531,042)         (590,057)
Other                                                     --            (2,546) 
                                              ______________     _____________
Net cash provided by investing activities         12,201,413        10,137,729
                                                                            
Financing activities                                                  
Proceeds from note payable to bank                 4,950,000                --
Exercise of stock options and warrants                76,660         3,734,838
Principal payments on obligations under 
  capital leases                                     (37,656)          (39,768)
                                              ______________     _____________
Net cash provided by financing activities          4,989,004         3,695,070
                                              ______________     _____________
                                                              
Net increase (decrease) in cash and 
  cash equivalents                                 4,716,055        (1,383,182)
Cash and cash equivalents:                                            
  Beginning of period                              3,308,970         7,871,401
                                              ______________     _____________
  End of period                                $   8,025,025     $   6,488,219
                                              ==============     =============
                                                                            
Noncash transactions and supplemental 
  disclosures                                                           
Inventories reclassified to fee-per-use 
  systems, net                                 $     441,736     $   1,342,619
Inventories reclassified to property 
  and equipment                                      137,713         1,101,818
                                                                          
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.  ("NeoPath"  or  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.
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, 1997 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  six-month
periods  ended  June 30, 1998, are not necessarily indicative  of
results  to  be expected for the entire year ending December  31,
1998  or  for  any other fiscal period.  For further information,
refer   to   the  financial  statements  and  footnotes   thereto
incorporated by reference in the Company's Form 10-K for the year
ended December 31, 1997.

Note 2 - Revenue Recognition

       The   Company  recognizes  AutoPap(R)  System  fee-per-use
revenues  based  on  the  number of  customer  slides  processed,
generally  subject  to agreed-upon minimum processing  levels  or
minimum rental payments, beginning in the month an AutoPap System
is  initially  placed  in commercial use at  the  customer  site.
Sales of AutoPap and Pathfinder Systems are recognized at date of
shipment.

Note 3 - Recently Issued Accounting Standards

      As of January 1, 1998, NeoPath adopted Financial Accounting
Standards   Board   ("FASB")  Statement   No.   130,   "Reporting
Comprehensive Income."  Statement 130 establishes new  rules  for
the reporting and display of comprehensive income or loss and its
components; however, the adoption of this Statement had no impact
on  the  Company's  operating results  or  shareholders'  equity.
Statement  130  requires  unrealized  gains  or  losses  on   the
Company's securities available-for-sale, which prior to  adoption
were  reported  within shareholders' equity, to  be  included  in
other  comprehensive income or loss.  Statement 130 also requires
presentation  of accumulated other comprehensive income  or  loss
separately  in  shareholders'  equity;  accordingly,  prior  year
financial statements have been reclassified to conform  to  these
requirements.

     Components of comprehensive net loss are as follows:

                                  Three months ended June 30,
                                ___________________________________
                                      1998                1997
                                _______________     _______________
     Net loss                    $   (6,052,377)     $   (6,693,099)
     Unrealized gain on                   
       securities available-
       for-sale                          41,507             264,238
                                 ______________      ______________
     Comprehensive net loss      $   (6,010,870)     $   (6,428,861)
                                 ==============      ==============

                                     Six months ended June 30,
                                 __________________________________    
                                       1998               1997
                                 ______________      ______________
     Net loss                    $  (11,726,010)     $  (12,879,405)
     Unrealized gain on                  
       securities available-        
       for-sale                         103,024              64,074
                                 ______________      ______________ 
     Comprehensive net loss      $  (11,622,986)     $  (12,815,331)
                                 ==============      ==============

Page 4
<PAGE>

      In  1997,  the FASB issued Statement No. 131,  "Disclosures
about  Segments of an Enterprise and Related Information,"  which
is  required  to be adopted for periods beginning after  December
15,  1997.  The new Statement supersedes FASB Statement  No.  14,
"Financial  Reporting  for Segments of  a  Business  Enterprise."
Companies  will be required to report each operating segment  and
related information, as defined in Statement 131, in the notes to
financial  statements.  NeoPath plans to adopt the new  Statement
in  1998.  Statement 131 is not required to be applied to interim
financial statements in the initial year of adoption.

Note 4 - Inventories

     Inventories consist of the following:
                                                    
                              June 30, 1998      December 31, 1997
                           ________________      _________________
     Raw materials         $   3,394,052         $   3,819,830
     Work-in-process           1,811,255             1,061,900
     Finished goods            3,211,919             2,632,271
                           ________________      _________________
                           $   8,417,226         $   7,514,001
                           ================      ================= 

Note 5 - Purchase of Pathfinder System Product Line

     NeoPath acquired the Pathfinder System product line in  June
1997  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, certain shares of NeoPath common stock were issued  and
were  held  in escrow contingent upon certain specific technology
decisions  to be made within one year of closing.  In April  1998
the  Company  released  the  remaining  shares  held  in  escrow,
consisting  of  approximately 42,000  shares  of  NeoPath  common
stock,  resulting  in  recognition of an additional  $550,000  in
intangible assets that will be amortized over the remaining five-
year amortization term established in June 1997.
     
Note 6 - Note Payable to Bank

     In April 1998, NeoPath entered into a loan  agreement with a
bank  whereby  the  Company may borrow up to $10 million  through
June 1999.  The  bank  debt  is  secured by substantially  all of
NeoPath's  assets,  excluding intellectual property, and  amounts
are  repaid  over 24  months  from the date of each drawdown.  In
addition, NeoPath must comply with certain financial covenants.

     Borrowings under this agreement bear interest at the  bank's
prime rate plus 1 percent per annum (9.5% at June 30, 1998).  The
balance  outstanding  at June 30, 1998 was $4,950,000,  of  which
$2,357,988 was classified as due within one year.

Note 7 -  Litigation

        On    July   15,   1996,   Neuromedical   Systems,   Inc.
("Neuromedical")  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 May
1998,  a  judge  in  the  United States District  Court  for  the
Southern District of New York denied Neuromedical's motion for  a
preliminary injunction against NeoPath.  The parties have  agreed
to  dismiss their claims and counterclaims on all but the  patent
issues,  and Neuromedical accordingly served an amended complaint
on July 27, 1998 asserting only patent infringement claims.  This
lawsuit is still in the discovery stage and a trial date has  not
been  set.   The  Company continues to believe it  has  a  strong
position in this action and will defend itself vigorously.

      On  March 31, 1997, the Company filed a patent infringement
lawsuit against Neuromedical in the United States District  Court
for  the  Western District of Washington.  The complaint  alleges
patent  infringement  and  seeks  permanent  injunctions  against
Neuromedical.  In March and April 1998 this lawsuit was  amended,
and  NeoPath  filed an additional related patent lawsuit  against
Neuromedical.  Neuromedical filed a motion for summary  judgment,
which  was denied by the court in April 1998.  The first  lawsuit
is  scheduled  for trial in the autumn of 1998,  and  the  second
lawsuit is currently in the discovery stage.

Page 5
<PAGE>

Item  2.   Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations

Overview

     NeoPath,  Inc.  ("NeoPath" or the  "Company")  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
(the "HCFA") officially allowed clinical laboratories to use  the
AutoPap QC in the quality control review of Pap smear slides that
had  been  initially screened by cytologists  and  classified  as
normal.   The  HCFA decision allowed 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 Primary  Screening
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  of  the FDA (the  "Panel")  unanimously
recommended that the FDA approve, the supplement to NeoPath's PMA
submission.   On  May  5,  1998, the  FDA  followed  the  Panel's
recommendation and approved the AutoPap Screener  for  use  as  a
primary  Pap smear screener.  As approved by the FDA, the AutoPap
Screener  demonstrates  a statistically significant  increase  in
identifying disease when compared to current practice.
     
     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.

Results of Operations
                                                       
(in thousands)           June 30, 1998      Change      June 30, 1997
_____________________________________________________________________
              
Revenues:                                      
                                               
  Three months ended         $4,308         $2,067          $2,241    
                                               92%
                         
  Six months ended           $7,871         $3,396          $4,475   
                                               76%

     The  Company 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.
     
      The  AutoPap Screener is the only FDA-approved  system  for
primary   screening  of  Pap  smears.   In  June  1998,   NeoPath
implemented  a  strategy to take advantage  of  this  competitive
opportunity  by  offering  AutoPap Screeners  to  customers  with
initial  fee-per-use  pricing in line  with  existing  laboratory
economics.  Per-slide pricing is designed to increase during  the
contract period to reflect increases in third-party reimbursement
levels.   NeoPath will also continue to offer traditional,  fixed
price fee-per-use contracts.

Page 6
<PAGE>

     NeoPath believes that increased third-party reimbursement of
Pap  smears in general, and increased reimbursement for screening
utilizing  the  AutoPap System in  particular, will  increase the 
Company's revenue potential in the remainder of 1998  and beyond.  
In early 1998, NeoPath  formed a  five-person team  to  work with 
third-party insurers and managed care organizations  to establish 
and/or improve third-party reimbursement  levels for  the AutoPap  
System.   These  reimbursement specialists  are  working  closely  
with  NeoPath's  field  sales  personnel  throughout  the  United  
States.   Effective January 1, 1998, revised  Physicians' Current 
Procedural Terminology ("CPT") codes (established by the American 
Medical Association) became  effective  for  the AutoPap QC.  CPT 
codes  are  a  universal  system used by physicians  and clinical  
laboratories   to   identify   specific  procedures  when billing  
insurers for their services.  The Company believes  that new  CPT  
codes  which address utilization of the  AutoPap as a primary Pap  
smear screener will be published for implementation on  January 1, 
1999.  In the interim, the Company's reimbursement team  has been 
working   with  initial  primary  screening  customers  to obtain 
reimbursement when using the AutoPap System.

     The  majority of AutoPap Systems placed in the United States
are  under  fee-per-use contracts, while international placements
have been primarily sales transactions.  Approximately 78 percent
of  second quarter 1998 revenues resulted from worldwide  AutoPap
System  sales  and  upgrades of previously installed  AutoPap QCs 
to enable operation as  AutoPap  Primary  Screening Systems.  For
the  six-month period, approximately 73 percent of total revenues
were  attributable  to AutoPap System sales  and  upgrades.   The
remaining revenues represented fee-per-use contract billings  and
Pathfinder  System sales.  Pathfinder System sales accounted  for
less than 5 percent of total revenues in the first half of 1998.
     
     The   Company   anticipates  that  future   AutoPap   System
placements will continue to consist of both fee-per-use and  sale
contracts.  However, because an AutoPap sale results in NeoPath's
immediate  recognition of product revenue  (while  a  fee-per-use
contract  provides  lower initial revenues but generally  extends
over  several  years) the Company expects that near-term  AutoPap
System sale transactions will account for a higher percentage  of
total revenues than will the fee-per-use program.  The sales  mix
may  vary  as product features and markets mature, and as  third-
part reimbursement policies change.

     During  the  second quarter of 1998, NeoPath placed  AutoPap
Primary Screening Systems in Taiwan, which represents the  fourth
country  in Asia to accept AutoPap technology.  NeoPath's AutoPap
Systems  are also processing slides in Japan, China (Hong  Kong),
and Korea, as well as locations in Europe and Australia.  Year-to-
date   AutoPap   revenues  included  additional  AutoPap   System
placements  in  Hong  Kong  and  Japan.   Virtually  all  of  the
Company's  international product placements have been denominated
in  U.S.  dollars; however, future product revenues  may  include
customer contracts subject to foreign exchange rate fluctuations.
Approximately  31  percent of NeoPath's revenues  in  the  second
quarter  of  1998 represented sales to customers outside  of  the
United  States, compared to approximately 67 percent in the  same
period  in 1997.  For the six months ended June 30, international
revenues   accounted  for  approximately  27  percent  of   total
revenues, compared to 69 percent for the same period in 1997.
                                                          
                                     Percentage                     Percentage
(in thousands)      June 30,1998     of Revenues    June 30, 1997   of Revenues
_______________________________________________________________________________
                                               
Cost of revenues:
                                                    
  Three months ended    $2,372            55%            $968           43%
                                                    
  Six months ended      $4,413            56%          $2,045           46%
                                                    
Gross margin:                                       
                                                    
  Three months ended    $1,937            45%          $1,273           57%
                                                    
  Six months ended      $3,459            44%          $2,430           54%

Page 7
<PAGE>
     
     The  Company's year-to-date gross margin reflects  discounts
and  incentives  included  in AutoPap QC  pricing  in  the  first
quarter  as  customers  anticipated the  FDA's  approval  of  the
AutoPap  Screener.  Pricing incentives continued into the  second
quarter  as initial primary screening placements were made.   The
change  in gross margin from the prior year was also attributable
to  1997 international sales under a distribution agreement  with
higher initial AutoPap System pricing in comparison to 1998.
 
     Gross  margin is expected to fluctuate depending on the  mix
of  fee-per-use  revenues, AutoPap System  sales,  upgrades,  and
other  revenues, as well as sales incentive programs that may  be
offered.  The continued development of the manufacturing, service
and  support functions, as well as overall production levels, are
also  expected  to  contribute to fluctuations in  gross  margin.
Therefore,   the  Company's  historic  gross  margins   are   not
necessarily indicative of future gross margins.
                                                           
(in thousands)           June 30, 1998    Change     June 30,1997
_________________________________________________________________
                                                       
Research and development:
                                                           
  Three months ended        $2,911       $(1,012)        $3,923          
                                            (26%)
                                                           
  Six months ended          $5,957       $(2,353)        $8,310          
                                            (28%)

     The  Company incurred higher research and development  costs
in  1997  due  primarily to NeoPath's AutoPap  Screener  clinical
study which was completed in 1997.
                                                           
(in thousands)         June 30, 1998     Change     June 30, 1997
_________________________________________________________________   
                                                    
Selling, general                                        
  and administrative:
                                                           
  Three months ended        $5,330        $621          $4,709          
                                           13%
                                                           
  Six months ended          $9,836      $1,432          $8,404          
                                           17%

     Selling, general and administrative expenses increased  from
the   prior  year  due  primarily  to  continued  investment   in
significant  new sales and marketing initiatives,  including  the
market  launch of the AutoPap Screener, as well as  expansion  of
the  sales  and reimbursement team in 1998.  Costs in  the  first
half  of  1998  also included the amortization  of the  allocated
purchase  price and integration of the Pathfinder System  product
line acquired in June 1997.
                                                           
(in thousands)        June 30, 1998      Change     June 30, 1997
_________________________________________________________________             
                  
Interest income:                                           
                                                           
  Three months ended       $267          $(407)          $674          
                                          (60%)
                                                           
  Six months ended         $633          $(786)        $1,419          
                                          (55%)

     The decrease in interest income in 1998 was due to decreased
cash equivalents and securities available-for-sale resulting from
NeoPath's negative operating cash flow.

Page 8
<PAGE>

Liquidity and Capital Resources
 
     As  of June 30, 1998, the Company had $20.4 million in cash,
cash equivalents, and securities available-for-sale, compared  to
$28.7 million as of December 31, 1997.  The decrease was a result
of cash used in the Company's operations for the six months ended
June  30,  1998,  offset  by approximately  $5  million  in  cash
obtained from drawing down the first tranche of the Company's new
$10  million debt facility.  The Company's cash used in operating
activities was $12.5 million and $15.2 million in the six  months
ended June 30, 1998 and 1997, respectively.  The Company expended
cash  for  property  and  equipment,  excluding  AutoPap  Systems
reclassified  to  either fee-per-use systems or  reclassified  to
property  and  equipment, of $531,000 and  $590,000  in  the  six
months ended June 30, 1998 and 1997, respectively.

     The  Company  expects negative cash flow from operations  to
continue  at least through early 1999 as it manufactures  AutoPap
Systems  to support fee-per-use product placements, continues  to
expand  its  marketing, sales, and customer service  and  support
capabilities,  continues its research and development  activities
and  conducts  and  analyzes data from clinical  or  pre-clinical
studies.   The Company has obtained a bank financing facility  to
borrow  up to $10 million based on current and future fee-per-use
AutoPap  Systems  placed at customer sites, of which  $5  million
remains  available  through  June 1999.   The  Company  currently
estimates  that  its  existing  cash  resources  and  established
financing facility  will  enable it to sustain operations for  at
least  the  next  twelve  months.  There  can  be  no  assurance,
however, that the Company will not be required to seek additional
cash  in  the  form of either debt or equity at an earlier  date.
The  Company's  future capital requirements will depend  on  many
factors, including the extent and rate of adoption of the AutoPap
Screener;  the increased market acceptance of the Company's  fee-
per-use programs; the mix of fee-per-use and sale placements; the
market  acceptance of the Pathfinder System; the extent and  rate
of  development of the Company's marketing, sales,  and  customer
service  and  support capabilities; and the status  of  competing
products.   The  Company may, from time to time, seek  additional
funding  through  public or private financing,  including  equity
financing.  There can be no assurance that adequate funding  will
be available as needed or on terms acceptable to the Company.  If
additional   funds  are  raised  by  issuing  equity  securities,
existing  shareholders  will experience  dilution.   Insufficient
funds  may  require the Company to delay, scale back or eliminate
some  or  all  of its manufacturing, research and development  or
clinical programs.

Impact of Year 2000

     Some of the Company's internal and product software programs
were  written  using two digits rather than four  to  define  the
applicable year.  As a result, those computer programs have time-
sensitive software that recognize a date using "00" as  the  year
1900  rather  than the year 2000.  The Company  has  completed  a
preliminary  assessment  and  will  have  to  modify  or  replace
portions  of  its  internal  and product  software  so  that  its
computer systems will function properly with respect to dates  in
the  year  2000 and thereafter.  The project is estimated  to  be
completed in early 1999, and the total Year 2000 project cost  is
not expected to be material.
     
     The  Company  believes that with modifications  to  existing
software  and  conversions to new software, the Year  2000  Issue
will  not  pose significant operational problems for its computer
systems.  However, if such modifications and conversions are  not
made, or are not completed timely, the Year 2000 Issue could have
a material impact on NeoPath's operations.
 
Page 9
<PAGE>
 
Forward-Looking Statements
 
     The  preceding  Management's  Discussion  and  Analysis   of
Financial  Condition and Results of Operations contains "forward-
looking  statements"  which reflect the Company's  current  views
with  respect to future events and financial performance.   These
forward-looking  statements  are subject  to  certain  risks  and
uncertainties   that  could  cause  actual  results   to   differ
materially  from  historical results or those  anticipated.   The
words  "plan,"  "expect," "anticipate," 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 actual results to
differ  materially  from historical results or those  anticipated
include, without limitation, the following:  market acceptance of
the  Company's products, marketing and sales programs; dependence
on reimbursement; product and manufacturing regulatory approvals;
the  Company's  limited marketing, sales,  customer  service  and
support  capabilities;  uncertainties relating  to  international
transactions;   potential  need  for  additional   capital;   the
Company's sole or limited source of supply of certain components;
the  status  of competing products; dependence on single  product
line;  product  liability; dependence  on  patents  and  property
rights; and the risk of third-party claims of infringement.   For
a  more  detailed  discussion of these  and  other  factors,  see
"Factors Affecting Future Results and Forward-Looking Statements"
of the Company's Form 10-K for the fiscal year ended December 31,
1997.

Item  3.   Quantitative and Qualitative Disclosures About  Market
Risk
 
     Not applicable.

Page 10
<PAGE>

Part II   OTHER INFORMATION

Item 1. Legal Proceedings

        On    July   15,   1996,   Neuromedical   Systems,   Inc.
("Neuromedical")  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 May
1998,  a  judge  in  the  United States District  Court  for  the
Southern District of New York denied Neuromedical's motion for  a
preliminary injunction against NeoPath.  The parties have  agreed
to  dismiss their claims and counterclaims on all but the  patent
issues,  and Neuromedical accordingly served an amended complaint
on July 27, 1998 asserting only patent infringement claims.  This
lawsuit is still in the discovery stage and a trial date has  not
been  set.   The  Company continues to believe it  has  a  strong
position in this action and will defend itself vigorously.

      On  March 31, 1997, the Company filed a patent infringement
lawsuit against Neuromedical in the United States District  Court
for  the  Western District of Washington.  The complaint  alleges
patent  infringement  and  seeks  permanent  injunctions  against
Neuromedical.  In March and April 1998 this lawsuit was  amended,
and  NeoPath  filed an additional related patent lawsuit  against
Neuromedical.  Neuromedical filed a motion for summary  judgment,
which  was denied by the court in April 1998.  The first  lawsuit
is  scheduled  for trial in the autumn of 1998,  and  the  second
lawsuit is currently in the discovery stage.
  

Item 4.  Submission of Matters to a Vote of Security Holders

      At the Company's Annual Meeting of Shareholders held on May
21,  1998 (the "Annual Meeting"), the following individuals  were
elected to the Board of Directors:

                                 For           Withheld Authority
                                 ___           __________________
     Class 1 Directors
     _________________
     Alan C. Nelson            11,819,885            202,454
     Thomas A. Bonfiglio       11,820,511            201,828

     The following proposal was approved at  the Company's Annual 
Meeting:

                                       For        Against      Abstained
                                       ___        _______      _________
     Amendment of the NeoPath, 
     Inc. 1989 Restated Stock 
     Option Plan (the "1989 
     Plan") authorizing the 
     issuance of an additional 
     720,000 shares of Common 
     Stock upon exercise of 
     options under the 1989 Plan   10,942,419    1,011,252      68,668

     Total shares represented but unvoted on the above proposal:  -0-

     In accordance with the Company's Bylaws, a shareholder proposing 
to  transact  business  at  the Company's annual meeting must provide 
written  notice  of  such  proposal,  in  the  manner provided by the 
Company's Bylaws,  no  later  than  60 days prior to the date of such 
annual meeting (or, if the  Company provides less than 60 days notice 
of  such  meeting,  no  later  than  10  days  after  the date of the 
Company's notice).  In addition, if the Company receives  notice of a 
shareholder  proposal  after  March 2, 1999,  the  persons  named  as 
proxies  in  such  proxy  statement and proxy will have discretionary
authority to vote on such shareholder proposal.

Page 11
<PAGE>

Item 6.  Exhibits and Reports on Form 8-K

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

     Exhibit No.     Description
     ___________     ___________     

     27              Financial Data Schedule
     
(b)  Reports on Form 8-K

     No reports on Form 8-K were filed during the quarter ended
June 30, 1998.

Page 12
<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:  August 10, 1998             By:  /s/ ALAN C. NELSON
                                        ______________________
                                   Alan C. Nelson
                                   President, CEO and Chairman


                                   By:  /s/ ROBERT C. BATEMAN
                                        _____________________
                                   Robert C. Bateman
                                   Vice President and Chief Financial Officer

Page 13
<PAGE>


                          NEOPATH, INC.
                                
                        INDEX TO EXHIBITS



     Exhibit No.     Description
     ___________     ___________     

     27              Financial Data Schedule

<PAGE>