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, 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 November 2, 1998
(Common stock, $.01 par value)            14,499,552

                                
<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, 1998  
          (unaudited) and December 31, 1997
     
          Statements of Operations (unaudited) --  
          for the three months and nine months
          ended September 30, 1998 and 1997
     
          Statements of Cash Flows (unaudited) --  
          for the nine months ended
          September 30, 1998 and 1997
     
          Notes to Financial Statements
     
Item 2.   Management's Discussion and Analysis of 
          Financial Condition and Results of Operations    7
     
Item 3.   Quantitative and Qualitative Disclosures 
          About Market Risk                               13
     
     
Part II   OTHER INFORMATION
     
Item 1.   Legal Proceedings                               14
     
Item 6.   Exhibits and Reports on Form  8-K               14
     
     
Signatures                                                15
     
<PAGE>

Part I    FINANCIAL INFORMATION

Item 1.   Financial Statements                                         

                              NEOPATH, INC.

                             BALANCE SHEETS
                                                        

                                         September 30,      December 31,
                                             1998               1997
                                         _____________      ____________
                                          (Unaudited)  
Assets

Current assets:
  Cash and cash equivalents            $   4,095,567      $    3,308,970
  Securities available-for-sale           10,529,485          25,409,633
  Accounts receivable, net                 3,690,846           3,863,818
  Inventories                              9,683,961           7,514,001
  Other current assets                       406,563             187,147
                                       _____________      ______________
Total current assets                      28,406,422          40,283,569
                                                        
Fee-per-use systems, net                   8,127,596           8,564,189
Property and equipment, net                4,519,375           5,979,849
Intangible assets, net                     3,304,595           3,383,925
Deposits and other assets                  1,302,608             729,280
                                       _____________      ______________
Total assets                           $  45,660,596      $   58,940,812
                                       =============      ==============

Liabilities and shareholders' equity                                 
                                                        
Current liabilities:                                                       
  Accounts payable                     $   2,156,651      $    2,173,179
  Salaries and wages payable               1,769,738           2,357,045
  Customer deposits                          341,768             431,877
  Other accrued liabilities                  841,913             567,759
  Current portion of long-term 
    obligations                            2,547,290              80,966
                                       _____________      ______________
Total current liabilities                  7,657,360           5,610,826
                                                        
Long-term obligations, less current 
  portion                                  1,895,028             101,872
                                                        
Shareholders' equity:                                                       
  Common stock                           141,834,782         141,057,881
  Accumulated deficit                   (105,750,743)        (87,633,118)
  Accumulated other comprehensive
    income (loss)                             24,169            (196,649)
                                       _____________      ______________  
Total shareholders' equity                36,108,208          53,228,114
                                       _____________      ______________
Total liabilities and shareholders' 
  equity                               $  45,660,596      $   58,940,812
                                       =============      ==============
See accompanying notes.                                                       

Page 1
<PAGE>
                                        NEOPATH, INC.
                                                                  
                                  STATEMENTS OF OPERATIONS
                                         (Unaudited)
                                                                  
                                                                  
                          Three months ended               Nine months ended
                             September 30,                   September 30,
                      ___________________________   __________________________
                          1998           1997           1998          1997
                      ____________   ____________   ____________  ____________
                                                             
Revenues              $  1,873,850   $  3,109,044   $  9,745,006  $  7,584,101
Cost of revenues         1,154,404      1,230,849      5,567,004     3,276,289
                      ____________   ____________   ____________  ____________
  Gross margin             719,446      1,878,195      4,178,002     4,307,812
                                                             
                                                             
Operating expenses:                                                            
   Research and 
     development         2,800,913      3,109,225      8,758,156    11,418,727
   Selling, general and
     administrative      4,391,252      5,231,003     14,227,084    13,635,188
                      ____________   ____________   ____________  ____________
                         7,192,165      8,340,228     22,985,240    25,053,915
                      ____________   ____________   ____________  ____________

Loss from operations    (6,472,719)    (6,462,033)   (18,807,238)  (20,746,103)

Interest income            202,107        537,724        835,183     1,956,999
Interest expense          (121,003)       (14,540)      (145,570)      (29,150)
                      ____________   ____________   ____________  ____________
Net Loss              $ (6,391,615)  $ (5,938,849)  $(18,117,625) $(18,818,254)
                      ============   ============   ============  ============
Basic and diluted 
  net loss per share  $      (0.44)  $      (0.41)  $      (1.25) $      (1.33)
                      ============   ============   ============  ============

Weighted average 
  common shares
  outstanding           14,486,627     14,358,144     14,457,055    14,135,615
                      ============   ============   ============  ============
                                            
See accompanying notes.

Page 2
<PAGE>

                                 NEOPATH, INC.

                           STATEMENTS OF CASH FLOWS                       
                                 (Unaudited)                                  
                                                                          
                                                    Nine months ended     
                                                      September 30,        
                                             _________________________________ 
                                                   1998                1997  
                                             ________________   ______________  

Operating activities
Net loss                                     $  (18,117,625)    $  (18,818,254)
Adjustments to reconcile net loss to 
  net cash used in operating activities:
   Depreciation and amortization                  4,255,232          2,901,103
   Deferred compensation                                 --             74,246
   Accrued interest on securities 
     available-for-sale                             421,312            917,863
   Net change in operating accounts:
     Accounts receivable                            172,972         (2,703,273)
     Inventories and fee-per-use systems         (3,321,579)        (7,151,457)
     Accounts payable and accrued liabilities      (289,140)         1,361,189
     Other                                         (779,029)          (523,703)
                                             ______________      _____________
Net cash used in operating activities           (17,657,857)       (23,942,286)
                                                                            
Investing activities
Purchases of securities available-for-sale         (792,721)        (5,349,511)
Maturities of securities available-for-sale      15,472,375         23,624,921
Purchase of Pathfinder System product line               --         (2,696,114)
Additions to property and equipment                (591,653)          (758,679)
Other                                                    --             (4,163)
                                             ______________     ______________
Net cash provided by investing activities        14,088,001         14,816,454

Financing activities
Proceeds from note payable to bank                4,950,000                 -- 
Exercise of stock options and warrants               96,973          3,901,601
Principal payments on long-term obligations        (690,520)           (58,091)
                                             ______________     ______________
Net cash provided by financing activities         4,356,453          3,843,510
                                             ______________     ______________

Net increase (decrease) in cash and 
  cash equivalents                                  786,597         (5,282,322)
Cash and cash equivalents:
  Beginning of period                             3,308,970          7,871,401
                                             ______________     ______________
  End of period                              $    4,095,567     $    2,589,079
                                             ==============     ==============

Noncash transactions and supplemental 
  disclosures
Inventories reclassified to fee-per-use 
  systems, net                               $    1,156,785     $    3,083,867
Inventories reclassified to property
  and equipment, net                                (30,444)         1,579,191
                                                                          
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  nine-month
periods  ended September 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,
beginning  in the month an AutoPap System is initially placed  in
commercial   use  at  the  customer  site.  Certain   fee-per-use
contracts are subject to agreed-upon minimum processing levels or
minimum rental payments.  Sales of AutoPap and Pathfinder Systems
are generally 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 September 30,
                              ___________________________________________
                                          1998                   1997
                              ___________________________________________

     Net loss                       $   (6,391,615)       $   (5,938,849)
     Unrealized gain                   
       on securities 
       available-for-sale                  117,794               200,849
                              ___________________________________________

     Comprehensive net loss         $   (6,273,821)       $   (5,738,000)
                              =========================================== 

                                     Nine months ended September 30,
                              ___________________________________________
                                          1998                   1997
                              ___________________________________________
     Net loss                       $  (18,117,625)       $  (18,818,254)
     Unrealized gain                   
       on securities        
       available-for-sale                  220,818               264,923
                              ___________________________________________
     Comprehensive net loss         $  (17,896,807)       $  (18,553,331)
                              ===========================================

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:
                                                    
                            September 30, 1998       December 31, 1997
                          ____________________________________________
     Raw materials           $   2,861,105             $   3,819,830
     Work-in-process             1,614,234                 1,061,900
     Finished goods              5,208,622                 2,632,271
                          ____________________________________________  
                             $   9,683,961             $   7,514,001
                          ============================================

      The  increase in finished goods inventories as of September
30,  1998  was  attibutable  to NeoPath's  manufacturing  AutoPap
Systems  in anticipation of significant customer contracts.   The
balance  decreased  significantly  in  October  1998  as  AutoPap
Systems were shipped to fee-per-use customers and inventory costs
were  reclassified  to  fee-per-use systems,  a  long-term  asset
category.

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 are 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  pursuant to which 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 September 30, 1998).
The balance outstanding at September 30, 1998 was $4,332,381,  of
which $2,475,000 was classified as due within one year.

Page 5
<PAGE>

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  alleged  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.  In October  1998,
Neuromedical filed another motion for summary judgment for  which
the judge has not yet rendered a decision.  The first lawsuit  is
currently  scheduled  for trial in 1999,  and  the second lawsuit 
is currently in the discovery stage.

Page 6
<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 current products  include  (i)  two
automated screening systems that integrate proprietary high-speed
morpho-computers,  video  imaging  technology  and  sophisticated
visual intelligence 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  automated
screening  product, the AutoPap(R) 300 QC Automatic Pap  Screener
System  (the  "AutoPap  QC").  In early  1996,  the  Health  Care
Financing  Administration  ("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 automated screening product is the  AutoPap
Primary   Screening  System  (the  "AutoPap  Screener"  and,   in
combination  with  the  AutoPap QC, the  "AutoPap  System").  The
AutoPap Screener uses 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
Supplement  to the FDA, which requested approval 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  unanimously recommended that the FDA approve the  supplement
to  NeoPath's  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  manual
practice.
     
     In  October  1998,  HCFA notified NeoPath  that  the  slides
designated by the AutoPap Screener as "No Further Review" are not
subject  to  the  manual  random quality control  rescreening  of
negative  cases required by current rules and regulations.   This
decision  eliminates laboratory workflow uncertainty and supports
the effectiveness of the AutoPap Screener.
     
     NeoPath's  Pathfinder System provides improved  productivity
and  quality  assurance  in  clinical  cytology  laboratories  by
computerizing cytotechnologists' microscopes, thereby helping  to
eliminate manual screening errors and facilitating critical  cell
identification in applications such as Pap smear screening.
     
Page 7
<PAGE>

Results of Operations
                                                                         
($ amounts in thousands)    September 30, 1998     Change    September 30, 1997
_______________________________________________________________________________
                                                         
Revenues:

  Three months ended              $1,874          $(1,235)         $3,109 
                                                     (40%)
                              
  Nine months ended               $9,745           $2,161          $7,584  
                                                      28%
     
     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 reduction  in  revenues
from  the  third quarter of the prior year was a result of  lower
AutoPap System sales, particularly in Asian markets.  On a  year-
to-date basis, higher fee-per-use and sale revenues were reported
in  1998  in  comparison to the nine months ended  September  30,
1997.
     
      The  AutoPap Screener is the only FDA-approved  system  for
automated   primary  screening  of  Pap  smears.    NeoPath   has
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 expected increases  in  third-party
reimbursement  levels.   NeoPath  will  also  continue  to  offer
traditional, fixed price fee-per-use contracts.

      In  October  1998,  NeoPath  announced  an  agreement  with
SmithKline Beecham Clinical Laboratories ("SmithKline")  pursuant
to  which  SmithKline  has agreed to adopt the  AutoPap  Screener
throughout its domestic laboratory organization.  This  four-year
contract is intended to enable SmithKline to process 100  percent
of its Pap smear volume on AutoPap Screeners.  At current AutoPap
processing  rates, NeoPath estimates that SmithKline may  require
up  to 125 AutoPap Screeners to process its nationwide volume  of
Pap  smears under contract.  NeoPath has upgraded the AutoPap QCs
at  SmithKline's  laboratories in St. Louis and Atlanta,  and  in
October   1998  NeoPath  began  shipping  AutoPap  Screeners   to
additional   SmithKline  sites  under  the  national   agreement.
SmithKline  is  one  of  the  three largest  clinical  laboratory
companies in the United States.

     Also in October 1998, NeoPath announced a national agreement
with  Kaiser  Permanente ("Kaiser"), which is  the  largest  non-
profit  group  health  plan  in the United  States.   The  Kaiser
national  agreement  allows  Kaiser and  affiliated  entities  to
purchase  AutoPap  Screeners during  the  two-year  term  of  the
agreement, with additional annual service and licensing fees  due
over  four  years.  At current AutoPap processing rates,  NeoPath
estimates  that  Kaiser may potentially order up  to  35  AutoPap
Screeners  to process its nationwide volume of Pap  smears.   The
timing  of  specific  purchase  orders  --  and  related  AutoPap
Screener shipments -- is subject to the adoption plans of  Kaiser
laboratories and affiliates.

     NeoPath   believes   that  the  national   agreements   with
SmithKline  and Kaiser represent significant milestones  for  the
Company.
     
Page 8
<PAGE>
     
     The  majority of AutoPap Systems in the United  States  were
placed    under    multi-year   fee-per-use   contracts,    while
international  placements have been primarily sale  transactions.
The  Company anticipates that, with the exception of  the  Kaiser
agreement, future AutoPap System placements in the United  States
will  consist primarily of multi-year fee-per-use contracts  such
as  the  national  agreement  signed with  SmithKline.   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)  near-term AutoPap System sale  transactions  may
account  for a higher percentage of total revenues than will  the
fee-per-use   program.   International  product  placements   are
expected to continue to consist primarily of AutoPap sales.
     
     As   a   result  of  increased  orders,  NeoPath  has  begun
increasing  its AutoPap production rate.  NeoPath's manufacturing
process consists primarily of final assembly and test; therefore,
initial  capacity  constraints  relate  primarily  to  lead  time
associated   with   component  parts  from  suppliers.    NeoPath
maintains  excellent relations with its suppliers and is  working
closely with them to meet increasing AutoPap demand.

     Approximately  45  percent of third  quarter  1998  revenues
resulted  from  AutoPap System sales and upgrades  of  previously
installed  AutoPap QCs to enable operation as AutoPap  Screeners.
This compares to approximately 66 percent in the third quarter of
1997.   For  each of the nine-month periods ended  September  30,
1998  and  1997, approximately 67 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  3
percent of total revenues in each of the nine-month periods.
     
     NeoPath's  AutoPap technology is now available at commercial
laboratories   in  Taiwan,  Japan,  China  (Hong  Kong),   Korea,
Australia,  and  in Europe.  Year-to-date 1998  AutoPap  revenues
included  additional AutoPap System placements  in  Taiwan,  Hong
Kong  and  Japan.  The Company's international product placements
have  primarily been denominated in U.S. dollars; however, future
product  revenues  may  be  subject  to  foreign  exchange   rate
fluctuations.  Approximately 5 percent of NeoPath's  revenues  in
the  third quarter of 1998 represented sales to customers outside
of the United States, compared to approximately 45 percent in the
same  period  in 1997.  For the nine months ended  September  30,
1998,  international  revenues  accounted  for  approximately  23
percent  of total revenues, compared to 59 percent for  the  same
period in 1997.

     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 future revenues.  In early 1998, NeoPath established  a
reimbursement 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  work  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  standardized
system  used by physicians and clinical laboratories to  identify
specific  procedures  when billing insurers for  their  services.
New CPT codes that address utilization of the new AutoPap Primary
Screener  will be available on January 1, 1999.  In the  interim,
NeoPath's  reimbursement  team is  working  with  AutoPap  System
customers  to  help  them  obtain  third-party  reimbursement  by
utilizing  "miscellaneous" CPT codes.  AutoPap  customers  should
experience  decreased administrative burden after the  new  codes
become available on January 1, 1999.
     
Page 9
<PAGE>

                                                          
($ amounts in        September 30,    Percentage     September 30,   Percentage
thousands)               1998         of Revenues        1997        of Revenues
________________________________________________________________________________

Cost of revenues:
                                                    
  Three months ended    $1,154            62%           $1,231           40%
             
  Nine months ended     $5,567            57%           $3,276           43%
                                                    
Gross margin:                                       
            
  Three months ended      $719            38%           $1,878           60%
            
  Nine months ended     $4,178            43%           $4,308           57%
     
     The  decrease  in gross margin percentages in 1998  was  due
primarily to the mix of fee-per-use and sale revenues between the
periods.   Fee-per-use  revenues in the periods  included  lower-
margin initial AutoPap QC placements.  The Company's 1998 year-to-
date gross margin also reflects discounts and incentives included
in  AutoPap  QC  sale pricing in the first half of  the  year  as
customers anticipated the FDA's approval of the AutoPap  Screener
as   well  as  pricing  incentives  offered  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.  The gross margin percentage  is
expected  to  increase  in the future as NeoPath  places  AutoPap
Screeners under contracts with improved average per-slide pricing
compared  to  the  prior  AutoPap  QC  installed  base.   Primary
screening  systems  are expected to process a greater  number  of
slides,  on average, than the prior installed base of AutoPap  QC
Systems,  which  is  also expected to improve  the  gross  margin
percentage.

     Gross  margin may fluctuate depending on the mix of fee-per-
use revenues, AutoPap System sales, upgrades, and other revenues,
as  well  as initial pricing of fee-per-use contracts  and  other
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.
     
                                                              
($ amounts in thousands)    September 30, 1998    Change     September 30, 1997
________________________________________________________________________________

Research and development:
                                                              
  Three months ended               $2,801         $(308)            $3,109 
                                                   (10%)
                                                              
  Nine months ended                $8,758       $(2,661)           $11,419
                                                   (23%)

     The  Company incurred higher research and development  costs
in  1997  due  primarily to NeoPath's AutoPap  Screener  clinical
study, which was completed in 1997.
     
Page 10
<PAGE>
     
                                                              
($ amounts in thousands)    September 30, 1998     Change   September 30, 1997
_______________________________________________________________________________
                                                            
Selling, general                                           
and administrative:
                                                              
  Three months ended               $4,391          $(840)         $5,231        
                                                    (16%)
                                                              
  Nine months ended               $14,227           $592         $13,635        
                                                      4%
     
     For   the   quarter,  selling,  general  and  administrative
expenses  decreased from the prior year primarily as a result  of
lower   overall  adminstrative  expenses  as  well  as  increased
allocation of certain costs to inventories due to higher  AutoPap
production   rates.   As  a  result  of  specific  cost   control
initiatives, NeoPath reduced various sales, marketing, and  other
expenses during the third quarter of 1998, compared to the  first
two quarters of 1998.
     
     For  the  nine  months ended September  30,  1998,  selling,
general and administrative expenses increased from the prior year
due  primarily to significant new sales and marketing initiatives
in  the  first half of 1998, including the market launch  of  the
AutoPap  Screener,  and expansion of the sales and  reimbursement
team  early in 1998.  Costs in the first nine months of 1998 also
included  the  amortization of the allocated purchase  price  and
integration  of  the Pathfinder System product line  acquired  in
June 1997.

                                                              
($ amounts in thousands)   September 30, 1998     Change   September 30, 1997
______________________________________________________________________________

Interest income:                                              
                                                              
  Three months ended             $202             $(336)          $538        
                                                   (62%)
                                                              
  Nine months ended              $835           $(1,122)        $1,957        
                                                   (57%)

     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.

Liquidity and Capital Resources

     As  of September 30, 1998, the Company had $14.6 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
nine  months  ended September 30, 1998, offset by $5  million  in
cash  obtained  from  drawing  down  the  first  tranche  of  the
Company's $10 million debt facility (of which NeoPath has  repaid
$618,000 as of September 30, 1998).  The Company's cash  used  in
operating  activities was $17.7 million in the nine months  ended
September 30, 1998 and $23.9 million in the comparable period  in
1997.   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  $592,000
and  $759,000  in the nine months ended September  30,  1998  and
1997, respectively.
     
Page 11
<PAGE>
     
     NeoPath's   fee-per-use   business   strategy   requires   a
significant  investment in the production of AutoPap  Systems  as
well  as  sufficient resources to meet operating  expenses  while
this  recurring revenue stream grows.  As a result  of  NeoPath's
reemphasis  on the fee-per-use program as its core  U.S.  product
placement  strategy, the Company expects negative cash flow  from
operations  to  continue  into 2000. The  Company's  current  $10
million  bank  financing facility is based on  the  manufacturing
cost  of  fee-per-use AutoPap Systems placed at  customer  sites.
NeoPath  plans to pursue additional financing options during  the
next several months and expects that such financing will be based
primarily   on  the  contract  value  of  multi-year  fee-per-use
contracts  such as the national agreement with SmithKline.   Such
contracts  represent a series of future cash  flows  due  NeoPath
over  the term of the contracts.  There can be no assurance  that
the Company will obtain additional cash resources.

     The  Company  currently  estimates that  its  existing  cash
resources  and established financing facility will enable  it  to
sustain  operations  for at least the next three  quarters.   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
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.
     
Year 2000 Issue

General Description

     The Year 2000 Issue is the result of computer programs being
written  using  two  digits  rather  than  four  to  define   the
applicable  year.   Any  of  the Company's  internal  or  product
computer  programs or hardware that have date-sensitive  software
or  embedded  chips may recognize a date using "00" as  the  year
1900  rather  than  the year 2000.  This could result  in  system
errors  or  failures,  and  could  significantly  disrupt  normal
business activities.

     Based on recent assessments, the Company determined that  it
will  be  required to modify or replace certain portions  of  its
internal  systems  and product software and certain  hardware  so
that  those systems will properly recognize dates beyond December
31,  1999.  To date, the Company has completed its assessment  of
all  internal  and  product systems that could  be  significantly
affected by the Year 2000.  The assessment indicated that certain
of  the Company's internal and product systems could be affected.
However,  no  significant Year 2000 issues have  been  identified
that  cannot  be  resolved through software or hardware  upgrades
that  are  currently available or expected to be available  soon.
The  Company  presently  believes  that  with  modifications   or
replacements of existing software and certain hardware, the  Year
2000  Issue  as it relates to the Company's internal systems  and
products  can  be  effectively  mitigated.   However,   if   such
modifications and replacements are not made, or are not completed
in  a  timely manner, the Year 2000 Issue could have  a  material
impact on NeoPath's and its customers' operations.
     
     In  addition, the Company has gathered information about the
Year  2000  compliance  status of its significant  suppliers  and
subcontractors and continues to monitor their compliance.

Timetable and Cost

     The  Company  will  utilize existing internal  resources  to
reprogram  or  replace, test, and implement the internal  systems
and product software and certain hardware modifications necessary
for  Year  2000  compliance.  The total cost  of  the  Year  2000
project is not expected to be material.  The project is estimated
to be completed by mid-1999.

Page 12
<PAGE>

Third Parties

     The  Company  has  queried  its  significant  suppliers  and
subcontractors as to their Year 2000 compliance status.  To date,
the  Company  is not aware of any external agent with  Year  2000
problems  that would materially impact the Company's  results  of
operations,  liquidity,  or  capital  resources.   However,   the
Company  has  no means of ensuring that external agents  will  be
Year  2000  ready.  The inability of external agents to  complete
their  Year  2000  resolution process in a timely  fashion  could
materially impact the Company.  The Company cannot determine  the
effect of non-compliance by external agents.

Contingency Plans and Risk

     The  Company currently has no contingency plans in place  in
the  event  it  does not complete all phases  of  the  Year  2000
program  or  in the event that its external agents are  not  Year
2000 ready.  The Company plans to evaluate the status of its  own
Year  2000  program  in the first quarter of 1999  and  determine
whether such a plan is necessary.

     NeoPath  management believes it has an effective program  in
place  to  resolve the Year 2000 issues within its control  in  a
timely  manner.  The Company believes that with modifications  to
NeoPath's products, existing internal software and conversions to
new  software,  the  Year 2000 Issue will  not  pose  significant
operational problems for its computer systems.  However,  if  the
Company  or  external agents do not make necessary  modifications
and  conversions, or do not complete them on time, the Year  2000
Issue  could  disrupt NeoPath's operations and materially  affect
its business, financial condition, and results of operations.

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:  specific timing  of
customer   orders  under  national  agreements,   including   the
agreements with SmithKline and Kaiser; market acceptance  of  the
Company's products, marketing and sales programs; availability of
adequate  reimbursement for customers; product and  manufacturing
regulatory  approvals;  the Company's limited  marketing,  sales,
customer service and support capabilities; uncertainties relating
to   international  transactions;  availability   of   additional
capital;  the  Company's  sole or limited  source  of  supply  of
certain  components; the Company's ability to manufacture AutoPap
Screeners  at required levels; 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 13
<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  alleged  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.  In October  1998,
Neuromedical filed another motion for summary judment  for  which
the judge has not yet rendered a decision.  The first lawsuit  is
currently  scheduled  for trial in 1999,  and  the second lawsuit 
is currently in the discovery stage.
  
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
     
     10.29*           Equipment User Agreement with SmithKline
                      Beecham Clinical Laboratories dated as of 
                      September 29, 1998
     _____________________________________________________________________     
     *  Confidential treatment requested

(b)  Reports on Form 8-K

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

Page 14
<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 13, 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 15
<PAGE>


                          NEOPATH, INC.
                                
                        INDEX TO EXHIBITS



     Exhibit No.     Description
     ___________     ___________

     27              Financial Data Schedule

     10.29*          Equipment User Agreement with SmithKline
                     Beecham Clinical Laboratories dated as of 
                     September 29, 1998
     _______________________________________________________________________ 
     *  Confidential treatment requested

<PAGE>