##### 



EXHIBIT 99.1

TRIPATH IMAGING, INC.

FACTORS AFFECTING FUTURE OPERATING
RESULTS

March 2004


From time to time, TriPath Imaging, through its
management, may make forward-looking public statements, such as
statements concerning then expected future revenues or earnings
or concerning projected plans, performance, product development
and commercialization as well as other estimates relating to
future operations. Forward-looking statements may be in reports
filed under the Securities Exchange Act of 1934, as amended, in
press releases or in oral statements made with the approval of
an authorized executive officer. The words or phrases will
likely result, are expected to, will
continue, is anticipated,
estimate, project or similar expressions
are intended to identify forward-looking statements
within the meaning of Section 21E of the Securities
Exchange Act of 1934 and Section 27A of the Securities Act
of 1933, as enacted by the Private Securities Litigation Reform
Act of 1995.

We caution you not to place undue reliance on
these forward-looking statements, which speak only as of the
date on which they are made. In addition, we advise you that the
factors listed below, as well as other factors we have not
currently identified, could affect our financial or other
performance and could cause our actual results for future
periods to differ materially from any opinions or statements
expressed with respect to future periods or events in any
forward-looking statement.

We will not undertake and specifically decline
any obligation to publicly release revisions to these
forward-looking statements to reflect either circumstances after
the date of the statements or the occurrence of events which may
cause us to re-evaluate our forward-looking statements, except
as required by law.

In connection with the safe harbor
provisions of the Private Securities Litigation Reform Act of
1995, we are hereby filing cautionary statements identifying
important factors that could cause our actual results to differ
materially from those projected in forward-looking statements
made by us or on our behalf.

RISKS RELATED TO OUR BUSINESS

Our oncology products are at an early stage of
development and we cannot assure the successful development or
the commercial success of these products.

Our oncology products are in the early stages of
development and significant additional research, and
development, financial resources and personnel will be required
to develop them into commercially viable products and obtain
regulatory approvals. We are developing and commercializing
molecular diagnostic and pharmacogenomic tests for a variety of
cancers based on markers we received through our collaboration
with Becton, Dickinson and Company, or BD, as part of the
strategic alliance between BD and Millennium
Pharmaceuticals, Inc., or Millennium. Our collaboration
with BD has produced only one viable product, Melastatin. We may
fail to successfully develop and commercialize our oncology
products if:



| |   |                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------
| |  | clinical research shows our products to be
    ineffective;                                         
|
| |  | they do not receive necessary regulatory
    approvals or otherwise meet regulatory requirements; or
|
| |  | are less effective than current or alternative
    oncology diagnostic methods.                     

If we fail to develop and commercialize oncology
products, our revenues could be adversely affected.

Our products are subject to regulatory review,
approval and regulation and we may be unable to commercialize
any of our products currently in development.

The FDA and foreign regulatory agencies
extensively regulate the manufacture and sale of medical
diagnostic devices for commercial use. We must comply with
applicable FDA regulations, including obtaining





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FDA approval of products before we can market and
sell them for their principal intended uses in the United States.


To obtain FDA approval for our products, we must
submit a pre-market approval application, or PMA, to the FDA.
This process can be expensive and time-consuming and can take
several years. Several factors may affect our ability to
successfully obtain FDA approval for the commercialization of
our products, including the following:



| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | failure of the product in pre-clinical studies;                                                   
|
| |  | insufficient clinical trial data to support the
    safety or effectiveness of the product; or    
|
| |  | unanticipated delays or significant unanticipated
    costs in our efforts to secure FDA approval.

If we fail to obtain and maintain FDA approval
for any of our future products, if FDA approval is delayed, or
if we receive FDA approval for our products but labeling
restrictions make the use of the products uneconomical to our
customers, our future product sales will be far less than we
anticipate and may be insufficient to sustain our operations. We
have no assurance that the FDA will ever approve our future
products for their principal intended use. In addition to the
pre-market approval application process, we may face further
difficulties in connection with FDA approval of our products for
the following reasons:



| |   |                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | FDA regulations require submission and approval
    of a pre-market approval application supplement for certain
    changes to a product if the changes affect the safety and
    effectiveness of the product;                                              
|
| |  | even if we obtain FDA approval of our pre-market
    approval applications, that approval may still not allow us to
    make some of the specific claims for which we sought FDA
    approval; and                                                           
|
| |  | any FDA approval may include significant
    limitations on the indicated uses for which we may market our
    products, such as warnings, precautions or contraindications,
    requests for post-market studies, or additional regulatory
    requirements.

The FDA may not approve our future products or
commercial enhancements to our existing products on a timely
basis, if at all. Our regulatory applications also may be
delayed or rejected based on changes in regulatory policies or
regulations.

Government regulation imposes significant
restrictions and costs on the development and commercialization
of our products.

Any products approved by the FDA are still
subject to continual government review and regulation, so long
as the product is being marketed. Of our principal products,
PrepStain, FocalPoint and the use of PrepStain with FocalPoint,
have received FDA approval. Although we have received FDA
approvals, we are still subject to continual FDA review and
regulation regarding the ongoing marketing, sale and use of our
cervical screening products. During this continual review
process, any subsequent discovery of previously unknown or
unrecognized problems with the product or a failure of the
Company or the product to comply with any applicable regulatory
requirements can result in, among other things:



| |   |                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------
| |  | fines or other civil penalties;                                                                                                        
|
| |  | the refusal of the FDA to approve further
    pre-market approval applications;                                                        
|
| |  | suspension or withdrawal of our FDA approvals;                                                                                         
|
| |  | product recalls;                                                                                                                       
|
| |  | operating restrictions, including total or
    partial suspension of production, distribution, sales and
    marketing of our products;
|
| |  | injunctions; or                                                                                                                        
|
| |  | product seizures and criminal prosecution of us,
    our officers or our employees.                                                    

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If we are unable to keep up with technological
change, our products or services may become obsolete.

Competition in the medical device industry is
intense. The diagnostic market for cervical cancer currently
consists of both the conventional Pap smear procedure and new
and developing technologies. Some of these newly-developed
technologies have already received FDA approval with product
labeling that has been marketed as more effective than the
conventional Pap smear for the detection of disease in certain
patient populations. Within the diagnostic market for cervical
cancer, we face direct competition from companies that
manufacture thin-layer slide preparation or automated screening
systems. Our products could be rendered obsolete or uneconomical
because of:



| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | technological advances by current or future
    competitors;                        
|
| |  | the introduction and market acceptance of
    competitors products; or             
|
| |  | the introduction and market acceptance of new
    cervical cancer detection methods.

We may not be able to successfully compete
against companies marketing products based on competing
technologies. Certain of our existing and potential competitors
may have several competitive advantages over us because they:



| |   |                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | possess greater financial, marketing, sales,
    distribution and technological resources;                                                              
|
| |  | have more experience in research and development,
    clinical trials, regulatory matters, customer support,
    manufacturing and marketing;           
|
| |  | have received third-party payor reimbursement for
    their products; or                                                                                
|
| |  | they may collaborate or merge with other
    competitors in our industry and leverage their combined
    intellectual property and resources against us.

These competitors may manufacture, market and
sell their products or services more successfully than us, which
could adversely affect our product sales.

Our products must remain competitive in accuracy
and effectiveness, cost, including both charges by us to the
laboratory and the laboratorys labor and overhead costs,
convenience, perception among influential opinion leaders,
including cytopathologists, other physician groups, and
laboratories, and processing speed and reliability. To
effectively compete, we must keep pace with the product
development and technological change in our industry. Our
products must demonstrate accuracy and cost effectiveness that
equals or exceeds conventional preparation and review of Pap
smears and the technology that may be offered by our
competitors. We cannot guarantee that our products will be
competitive in any of these areas.

We depend on a limited number of products and
these products may never gain greater market
acceptance.

Sales and rentals of PrepStain and FocalPoint for
cervical cancer screening currently account for the substantial
majority of our revenues. Market acceptance of PrepStain and
FocalPoint, as well as their combined use, will depend on our
ability to convince clinical laboratories, physicians, third
party payors and other health care providers and consumers that
our products can address the limitations of the conventional Pap
smear process. We may not be able to successfully establish that
our products are better and more cost competitive compared to
the conventional Pap smear process. In addition, the market may
not accept our cervical cancer products as a replacement to the
conventional Pap smear collection process. Even if PrepStain,
FocalPoint, and the utilization of PrepStain with FocalPoint and
other products do gain market acceptance, their level of sales
will still largely depend on the availability and level of
reimbursement from third-party payors, such as private insurance
plans, managed care organizations and Medicare and Medicaid.
There can be no assurance that we will achieve greater market
acceptance for PrepStain, FocalPoint, or their combined use, and
the failure to do so would have a material adverse effect on our
business, financial condition and results of operations.

3



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In addition, the market may not accept any of the
oncology products that we develop. While various diagnostic and
pharmacological oncology tests are currently available, few
tests offer an integrated solution for diagnosing cancer at the
earliest possible stage, providing individualized predictive and
prognostic information, guiding treatment selection for patients
with cancer, and predicting disease recurrence. Market demand
for any oncology products that we develop will depend primarily
on acceptance by clinical laboratories, physicians and third
party payors. Commercial acceptance of our oncology tests, if
any, will depend upon several factors, including:



| |   |                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------
| |  | their potential advantage, including their
    cost-effectiveness over alternative diagnostic methods;
|
| |  | our ability to compete with similar or superior
    products developed by our competitors;            
|
| |  | our ability to build and maintain, or access
    through third parties, a capable sales force; and    
|
| |  | qualification of our products for third party
    medical insurance coverage and reimbursement.       

If any oncology products that we develop do not
achieve significant market acceptance, it could have a material
adverse effect on our business, financial condition and results
of operations.

We have a history of operating losses and an
accumulated deficit and we may never become
profitable.

We have a history of operating losses. While we
expect to become profitable for the first time in 2004, we
intend to continue to market our products, develop new products
and perform additional clinical studies, all of which will
continue to be a drain on profitability. While our products have
grown in acceptance as measured by our revenues, we still
operate in a very competitive environment. As of
December 31, 2003, we had cumulative net losses of
approximately $233.0 million. These losses resulted
principally from the costs of our research and development and
sales and marketing activities and other expenses in excess of
revenues. Our operating expenses have been concentrated in the
following areas:



| |   |                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |  | research and development activities;                                                                                                             
|
| |  | sales and marketing activities, including the
    cost and effect of promotional discounts, sales, and marketing
    programs and strategies; and
|
| |  | regulatory issues, including activities in
    connection with pre-market approval applications to the FDA.                                      

We expect marketing and sales expenses, as well
as regulatory expenses, associated with our products to either
continue at their current rate or increase in the future, which
could burden our drive toward profitability. These expenses are
a result of our expanded marketing and sales efforts to continue
the commercial rollout of our products and our efforts to obtain
FDA and other approvals for our products. Our profitability is
subject to uncertainty and will depend on a number of factors
including:



| |   |                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | receipt of regulatory approvals for future
    products in a timely manner;                                                              
|
| |  | successful marketing of our products in the
    United States and abroad;                                                                
|
| |  | the extent to which our products gain market
    acceptance;                                                                             
|
| |  | ability to manufacture our products at an
    acceptable cost and with acceptable quality;                                               
|
| |  | introduction of alternative technologies by our
    competitors;                                                                         
|
| |  | the timing and volume of system placements;                                                                                              
|
| |  | availability of reimbursement from third-party
    payors, and the extent of coverage; and                                               
|
| |  | ability to establish internal financial controls
    and other infrastructure necessary to support large-scale
    commercial operations.

We expect to continue incurring overall net
operating losses until product sales and service revenues
sufficiently fund our operations and while our oncology business
is developing products that can be

4



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commercially introduced into the market. While we
hope that 2004 will be profitable as a whole, we cannot be
certain that we will ever become profitable.


We cannot be certain of our future capital
needs and additional financing may not be available when we need
it.

Since beginning operations, we have financed our
operations through the private placement and public sales of
equity securities, debt facilities and limited product sales. We
have had negative cash flow from operations since inception, and
we expect negative cash flow from operations to continue at
least through the next six to twelve months. At
December 31, 2003, we had approximately $21.0 million
in cash and cash equivalents. While we believe that we will
achieve overall corporate profitability in 2004, there may be a
delay in positive cash flow generation. In any event, we believe
that our existing cash and existing debt and lease financing
will be sufficient to enable us to meet our future cash
obligations until we generate positive cash flow, which we
believe will occur in late 2004 or 2005. We cannot be certain,
however, that we will ever become or remain profitable.

We may be unable to obtain adequate funds, either
through financial markets or from collaborative or other
arrangements with corporate partners or other sources, when we
need them, or we may be unable to find adequate funding on
favorable terms, if at all. If we are unable to fund our future
capital requirements, it would significantly limit our ability
to continue our operations.

The extent of our future capital requirements
depends on several factors, including:



| |   |                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the timing of achieving profitability;                                                                                                                                                       
|
| |  | the timing and costs of product introductions;                                                                                                                                               
|
| |  | the extent of our ongoing research and
    development programs, including that at TriPath Oncology;                                                                                         
|
| |  | the progress and scope of clinical trials;                                                                                                                                                   
|
| |  | the timing and costs required to receive both
    United States and foreign governmental approvals for new
    products in development;                                                      
|
| |  | the extent to which our products gain market
    acceptance;                                                                                                                                 
|
| |  | demand for and sales of our combined PrepStain
    and FocalPoint systems for cervical cancer screening and of
    FocalPoint GS in the United States, if and when it gains FDA
    approval;
|
| |  | the resources required to further develop our
    marketing and sales capabilities domestically and
    internationally, and the success of those efforts;                                   
|
| |  | the resources required to expand manufacturing
    capacity;                                                                                                                                 
|
| |  | the costs of training laboratory personnel to
    become proficient with the use of our products; and                                                                                        
|
| |  | the cost of filing, prosecuting, defending and
    enforcing patent claims and other intellectual property rights.                                                                           

Many of these factors are out of our control.
There is no guarantee that the assumptions underlying our
estimates about our needs for future capital will prove to be
accurate.

Our future financing arrangements may impact
the value of your investment or may impact our rights to our
intellectual property.

We may choose to raise additional funding to meet
our future capital requirements through a variety of financing
methods, including lease arrangements, debt or equity
financings, or strategic alliances. If we were to raise
additional funding through the sale of equity or securities
convertible into equity, your proportionate ownership in TriPath
Imaging may be diluted. In addition, if we obtain additional
funds through arrangements with collaborative partners, we may
have to relinquish rights to certain of our technologies or
potential products that we would otherwise seek to develop or
commercialize ourselves.

5



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If our strategic partnerships are
unsuccessful, our earnings growth will be limited.

An important element of our strategy is to enter
into strategic partnerships for the research and development of
alternative applications for our extensive body of intellectual
property. We currently have a strategic arrangement with BD for
the development of diagnostic and pharmacogenomic oncology tests
and we may enter into additional partnerships in the future. We
believe that recent advances in genomics, biology, and
informatics are providing new opportunities to leverage our
proprietary technology. The success of these arrangements is
largely dependent on technology and other intellectual property
contributed by our partners, as well as their efforts, resources
and skills. Our existing and future strategic partnerships are
also dependent upon our partners continued willingness to
collaborate with us, as opposed to our competitors. There can be
no assurance that we will succeed in implementing and finalizing
any new strategic partnerships to facilitate the exploitation of
our intellectual property estate. The failure to do so could
have a material adverse effect on our future prospects inside
and outside of the cervical cytology or diagnostic oncology
markets and could impact our business, financial condition and
results of operations.

We have limited manufacturing experience and
capacity and we may not be able to establish sufficient
manufacturing capability and capacity, either of which could
have a material adverse effect on our business.

We manufacture PrepStain and FocalPoint, and
related products either at our Burlington, North Carolina, or at
our Redmond, Washington facilities. Currently, we have limited
manufacturing experience in and capabilities for high-volume
test kit manufacturing. While we believe we have sufficient
capacity to meet near term customer demand for our cervical
cytology products, and while we have introduced lean
manufacturing into our Burlington, North Carolina operations, we
may have to substantially increase our manufacturing
capabilities in the future if our products gain wider market
acceptance. We may not be able to recruit and retain skilled
manufacturing personnel to establish sufficient manufacturing
capability and capacity. Even if we are able to establish
sufficient manufacturing capability and capacity, we still may
be unable to manufacture our products:



| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | in a timely manner;                                                       
|
| |  | at a cost or in quantities necessary to make them
    commercially viable;
|
| |  | in conformance with quality system
    requirements; or                   
|
| |  | in a manner which otherwise ensures our
    products quality.            

If we cannot successfully increase our
manufacturing capability and capacity, if and when needed, or
successfully contract with third parties to manufacture our
products, our business and our profitability will suffer.

We may not be able to manufacture our products
in a timely or cost effective manner because we depend on single
and limited source suppliers for our products
components.

We currently obtain certain components for our
products on a single source basis from certain suppliers. If any
of these sole-source suppliers are unable to provide an adequate
and constant supply of components, we will need to modify any
components provided by additional or replacement suppliers. If
we are unable to establish additional or replacement sources of
supply on a cost-competitive and timely basis from these
suppliers, we may need to delay or halt our manufacturing
process. If any of the components of our products were no longer
available in the marketplace, we could be forced to further
develop our technology to incorporate alternate components. We
also may try to establish relationships with additional
suppliers or vendors for components for our products, so long as
we are not prohibited from doing so by any existing contractual
obligations. We may not be able to further develop our
technology to incorporate new components or establish
relationships with additional suppliers or vendors for the
necessary components of our products.

In addition, use of any new components or
replacement components from alternative suppliers into our
products may require us to submit PMA supplements to the FDA. We
would then need FDA approval on any

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PMA supplements we have filed before we could
market our products with new or replacement components.
Ultimately, we may not be able to successfully develop, obtain,
or incorporate replacement components into our products. Even if
we were able to successfully incorporate new components into our
products, the FDA may not approve these new components quickly,
if at all.


We have limited marketing and sales resources
which could hurt our ability to become profitable.

During the last several years, we added to our
marketing and sales forces to more effectively market our
products. Even with the increased size of our sales force, we
may not be able to successfully promote our products to clinical
laboratories, health care providers, including physicians, and
third-party payors. In addition, we must educate health care
providers and third-party payors regarding the clinical benefits
and cost-effectiveness of our products because of the
markets limited awareness. We may not be able to recruit
and retain additional skilled marketing, sales, service or
support personnel to help in our achievement these goals when
needed.

Our marketing success in the United States and
abroad will depend on whether we can:



| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | obtain required regulatory approvals;                                                             
|
| |  | successfully demonstrate the cost-effectiveness
    and clinical-effectiveness of our products;   
|
| |  | further develop our direct sales
    capabilities; and                                            
|
| |  | establish arrangements with contract sales
    organizations, distributors and marketing partners.

If we cannot successfully expand our marketing
and sales capabilities in the United States and in international
markets, we may never become profitable.

We may have difficulty managing the expansion
of our operations, and failure to do so will harm our
business.

We have experienced growth in our employee base
and in the scope of our operations, and we anticipate that
further expansion may be required to achieve growth in our
customer base and to develop and seize market opportunities.
This expansion could place a significant strain on our senior
management team and on our operational and financial resources.

To manage the expected growth of our operations
and personnel, we will need to improve existing, and implement
new operational and financial systems, procedures, and controls.
We also will need to expand, train, and manage our growing
employee base as well as expand and maintain close coordination
among our sales and marketing, finance, administrative, and
operations staff. Further, we may be required to enter into
additional relationships with various suppliers and other third
parties necessary to our business. A successful continued
expansion may also require us to further develop expertise in
complex joint venture negotiations. We cannot guarantee that our
current and planned systems, procedures, and controls will be
adequate to support our future operations, that we will be able
to hire, train, retain, motivate, and manage the required
personnel or that we will be able to identify, manage, and
benefit from existing and potential strategic relationships and
market opportunities. If we do not effectively manage the
budgeting, forecasting, and other process-control issues
presented by such expansion, our business will suffer. If we are
unable to undertake new business due to a shortage of staff or
resources, our growth will be impeded. Therefore, there may be
times when our opportunities for revenue growth may be limited
by the capacity of our internal and external resources rather
than by the absence of market demand.

In recent years, we made some significant changes
to our management team and to our Board of Directors. Although
we believe that the new members of our management team are
currently integrated with the other members of our management
team, we cannot assure you that our management team in its
current form or any future form will be able to continue to work
together effectively or manage our growth successfully. We
believe that the successful integration of any new members of
management that we may hire, and cooperation of our existing
management team is critical to our ability to manage our
operations effectively and support our anticipated future growth.

7



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We depend on patents, copyrights, licenses and
other proprietary rights to grow our business and we may not be
able to adequately protect all of our proprietary
rights.

Our long-term success largely depends on our
ability to market products that are technologically competitive.
If we fail to obtain or maintain these protections, we may not
be able to prevent third parties from using our proprietary
rights. To protect our proprietary technology, rights and
know-how, we rely on a combination of patents, trade secrets,
copyrights, and confidentiality agreements.

We currently hold over 100 foreign patents and,
over 110 U.S. patents. These patents will expire from 2004
through 2019. Our reliance on patents poses the following risks:



| |   |                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------
| |  | any patent applications that we file may not
    ultimately issue as patents;                                                     
|
| |  | patents we obtain may not be broad enough to
    protect our proprietary rights;                                                  
|
| |  | the claims allowed in any of our existing or
    future patents may not provide competitive advantages for our
    products;      
|
| |  | competitors may challenge or circumvent our
    patents or pending applications; and                                              
|
| |  | in certain foreign countries, protection of our
    patent and other intellectual property may be unavailable or
    very limited.

This may make the possibility of piracy of our
technology and products more likely. We cannot guarantee that
the steps we have taken to protect our intellectual property
will be adequate to prevent infringement or misappropriation of
our technology. In addition, detection of infringement or
misappropriation is difficult. Even if we do detect infringement
or misappropriation of our technology, we may be unable to
enforce our proprietary rights, which could result in harm to
our business.

Litigation may be necessary to defend against
claims of infringement, to enforce patents, trademarks and
copyrights, or to protect trade secrets and could result in
substantial cost to, and diversion of effort by us. There can be
no assurance that we would prevail in any such litigation. In
addition, the laws of some foreign countries do not protect our
proprietary rights to the same extent, as do the laws of the
U.S. We may engage in litigation to attempt to:



| |   |                                                                                               
| | - | ----------------------------------------------------------------------------------------------
| |  | enforce our patents;                                                                          
|
| |  | protect our trade secrets or know-how;                                                        
|
| |  | defend ourselves against claims that we infringe
    the rights of others; or                 
|
| |  | determine the scope and validity of the patents
    or intellectual property rights of others.

As of March 2004, we are engaged in patent
litigation with one of our largest competitors, Cytyc
Corporation. In this proceeding, we are claiming among other
things that Cytycs ThinPrep Imaging System infringes
certain of our patents. Cytyc is claiming that its product does
not infringe our patents and that certain of our patents are
invalid. See Legal Proceedings in our Annual Report
on Form 10-K for the year ended December 31, 2003, as
well as any updated in our Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K for the current fiscal year.

This, or any other litigation could be
unsuccessful, result in substantial cost to us, and divert our
managements attention, which could harm our business.

In addition, we have entered into confidentiality
agreements with all of our employees who we believe should sign
such agreements, and several of our consultants and third-party
vendors. These agreements also require employees and consultants
to disclose to us ideas, developments, discoveries or inventions
they conceive during employment or consultation. They also must
assign any proprietary rights in any inventions conceived or
developed while employed by us if such relate to our business
and technology. These agreements may not provide meaningful
protection for our confidential information if there is
unauthorized use or disclosure of our proprietary information.
There can be no assurance that the obligations of our employees
and consultants and third parties with whom we have entered into
confidentiality agreements to maintain the

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confidentiality of trade secrets and proprietary
information will effectively prevent disclosure of our
confidential information. There also can be no assurances that
our trade secrets or proprietary information will not be
independently developed by our competitors.


The risk of third-party claims of infringement
against us is high because our industry depends on patents and
other proprietary rights.

The large role that patents play in our industry
in general may pose the following risks for us:



| |   |                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we cannot be sure that our products or
    technologies do not infringe patents of competitors that may be
    granted in the future pursuant to pending patent applications;                   
|
| |  | we cannot be sure that our products do not
    infringe any existing patents or proprietary rights of third
    parties; and                                                                    
|
| |  | we cannot be sure that a court would rule that
    our products do not infringe any existing third-party patents or
    that a court would not invalidate any existing patents in our
    favor.

If a court were to uphold any claims of
infringement made by existing patent holders against us, we
could then be:



| |   |                                                                   
| | - | ------------------------------------------------------------------
| |  | prevented from selling our products;                              
|
| |  | required to pay damages;                                          
|
| |  | required to obtain licenses from the owners of
    the patents; or
|
| |  | required to redesign our products.                                

In the event that a court was to uphold a claim
of patent infringement against us, we may not be able to obtain
licenses from the owners of the patents or be able to
successfully redesign our products to avoid patent infringement.
If we were unable to obtain the necessary licenses or
successfully redesign our products, it could seriously harm our
ability to become a profitable company.

The cost to us of any litigation or other
proceeding relating to intellectual property rights, even if
resolved in our favor, could be substantial. Such litigation may
also cause a diversion of our managements time and
attention from our business. Some of our competitors may be able
to sustain the financial and other costs of complex patent
litigation more effectively than we can because they have
substantially greater resources. Uncertainties resulting from
the initiation and continuation of any litigation could have a
material adverse effect on our ability to continue our
operations.

We face special risks related to international
sales and operations because we have limited experience in
conducting our business in other countries.

We are currently selling our products to
customers in Australia, Asia, Canada, Europe, and South America.
While we are evaluating marketing and sales channels abroad,
including contract sales organizations, distributors and
marketing partners, we have very limited foreign sales channels
in place. There can be no assurance that we will successfully
develop significant international sales capabilities or that, if
we establish such capabilities, we will be successful in
obtaining reimbursement or any regulatory approvals required in
foreign countries. Our international sales and operations may be
limited or disrupted by the imposition of government controls,
export license requirements, political instability, trade
restrictions, changes in tariffs, difficulties in staffing and
managing international operations, changes in applicable laws,
less favorable intellectual property laws, longer payment
cycles, difficulties in collecting accounts receivable,
fluctuations in currency exchange rates and potential adverse
tax consequences. Foreign regulatory agencies often establish
product standards different from those in the United States and
any inability to obtain foreign regulatory approvals on a timely
basis, if at all, could have a material adverse effect on our
international business operations. Additionally, if significant
international sales occur, our business, financial condition and
results of operations could be adversely affected by
fluctuations in currency exchange rates as well as increases in
duty

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rates. There can be no assurance that we will be
able to successfully commercialize our products or any future
products in any foreign market.


Our stock price is highly volatile and the
value of your investment will likely fluctuate.

Our stock price has, from time to time,
experienced extreme price and volume fluctuations. Often these
fluctuations are unrelated or disproportionate to our actual
operating performance. Many factors could cause the market price
of our stock to decline, including:



| |   |                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------
| |  | failure to successfully implement aspects of our
    growth strategy;                                     
|
| |  | failure to achieve revenue and profitability
    results expected among those in the investment community;
|
| |  | failure to meet research and development goals
    related to our products and services;                  
|
| |  | technological innovations by our competitors or
    introductions of competing technologies;              
|
| |  | investor perception of the biotechnology and
    medical device industry; and                             
|
| |  | general technology or biotechnology trends.                                                               

Occasionally, when the market price of a stock
has been volatile, holders of that stock have instituted
securities class action litigation against the company that
issued the stock. If any of our stockholders brought such a
lawsuit against us, even if the lawsuit was without merit, we
could incur substantial costs defending the lawsuit. The lawsuit
would also divert the time and attention of our management from
our business.

Sales of a substantial number of shares of our
common stock could cause the market price of our common stock to
decline.

Future sales of common stock by us or any
significant shareholder could adversely affect the market price
of our common stock. For example, the lock-up provision
contained in our Securities Purchase Agreement, our largest
shareholder, expired in February 2003. As a result, in addition
to 2,950,680 shares owned by Roche and its affiliates that
have no lock-up restrictions, and subject to applicable
securities laws, Roche was entitled to sell up to
2,500,000 shares, the sale of which was previously
restricted, during the 12 months following February 2003,
and may sell up to an additional 2,500,000 shares, the sale
of which was also previously restricted, during the
12 months following February 2004. If Roche sells all or a
significant portion of these shares, our stock price may
decline. There can be no assurance that Roche will not attempt
to sell all or most of its shares and the value of your
investment may fluctuate as a result of such sales.

In addition, if we sell any equity securities,
the market price of our common stock could be adversely affected.

Our significant stockholders have the ability
to influence significant decisions regarding our
future.

Roche is our single largest stockholder. As of
March 5, 2004, Roche beneficially owned approximately 21%
of our outstanding common stock. Roche also has the right to
designate one member of our Board of Directors. In addition, as
of March 5, 2004, BD beneficially owned approximately 7% of
our outstanding common stock. As a result, those significant
stockholders are able to significantly influence all matters
requiring stockholder approval, including the election of
directors and the approval of significant corporate
transactions. This concentration of ownership could also delay
or prevent a change in control of us that may be favored by
other stockholders.

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RISKS RELATED TO OUR INDUSTRY

We may be unable to attain or maintain the
required compliance with regulations governing manufacturing of
medical diagnostic devices.

Manufacturers of medical diagnostic devices face
strict federal regulations regarding the quality of
manufacturing. For example, the FDA periodically inspects the
manufacturing facilities of diagnostic device manufacturers to
determine compliance with regulations. Our current and future
manufacturing and design operations must comply with these and
all other applicable regulations, including regulations imposed
by other governments. If we fail to comply with quality systems
regulations we could face civil or criminal penalties or
enforcement proceedings. These proceedings may require us to
recall a product, to stop placing our products in service or to
stop selling our products. Similar results could occur if we
violate equivalent foreign regulations. We may not be able to
attain or maintain compliance with quality systems requirements.
Any failure to comply with the applicable manufacturing
regulations would have a material adverse effect on our business.

If we fail to obtain adequate levels of
third-party reimbursement for our products, the commercial
success of our products will be significantly limited.

Our ability to successfully sell our products for
cervical cancer screening in the United States and other
countries depends on the availability of adequate reimbursement
from third-party payors such as private insurance plans, managed
care organizations and Medicare and Medicaid. Virtually all of
our revenues will be dependent on customers who rely on third
party reimbursement. Third-party healthcare payors in the United
States are increasingly sensitive to containing healthcare costs
and heavily scrutinize new technology as a primary factor in
increased healthcare costs. Third-party payors may influence the
pricing or perceived attractiveness of our products and services
by regulating the maximum amount of reimbursement they provide
or by not providing any reimbursement. Medical community or
third-party healthcare payors may deny or delay acceptance of
our products or may provide reimbursement at levels that are
inadequate to support adoption of our technologies.

If these third-party payors do not reimburse for
our preparation and screening products, or only provide
reimbursement significantly below the amount laboratories charge
patients to perform screening with our products, our potential
market and revenues will be significantly limited. Use of our
products may never become widely reimbursed, and the level of
reimbursement we obtain may never be sufficient to permit us to
generate substantial revenue.

A significant part of our strategy is to market
PrepStain and FocalPoint together. To successfully market
FocalPoint and PrepStain together, two Common Procedural
Terminology Codes, or CPT codes, were established covering the
combined use of these products by the Center for Medicare and
Medicaid Services (CMS). These CPT codes are
applicable to the combined use of our SurePath slides screened
using our FocalPoint slide profiler. Also included in the CMS
announcement were tentative payment determinations which were
finalized on November 8, 2002. The payment determination
for the cytopathology tests provides for an appropriate
reimbursement amount by combining current payment amounts for
the liquid based slide preparations and a portion of either of
the two codes that represent the automated screening system. CMS
issued a Program Memorandum with instructions on the 2003
Clinical Laboratory Fee Schedule to its carriers and
intermediaries on November 8, 2002. There can be no
assurance, however, that the laboratories claiming reimbursement
under these CPT codes will be successful in obtaining favorable
reimbursement.

Convincing third-party payors to provide
reimbursement is a costly and time consuming process because
reimbursement approval is required from each payor individually;
and obtaining this approval from the third-party payor typically
requires the presentation of scientific and clinical data to
support the use of the products.

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Whether a third-party payor is willing to provide
reimbursement for the use of our products at a level that can
allow our company to succeed depends on several unpredictable
factors, including:




| |   |                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the level of demand for our products by
    physicians;                                                                                                           
|
| |  | the payors determination that our products
    are an improvement over the conventional Pap smear
    process; and                                               
|
| |  | the payors determination that our products
    are safe and effective, medically necessary, appropriate for
    specific patient populations, and cost effective.

We may face particular difficulties convincing
third-party payors that our products are cost effective because
the up-front, direct costs of using the products will initially
be greater than the cost of the conventional Pap smear. As a
result, we will need to convince third-party payors that the use
of our products will result in a net overall cost savings to the
health care system.

We can only sell our products to a limited
number of customers.

A significant portion of our product sales will
be concentrated among a relatively small number of large, and
medium-sized, clinical laboratories. Moreover, due to
consolidation in the clinical laboratory industry, we expect
that the number of potential domestic customers for our products
may decrease. These factors increase our dependence on sales to
the largest clinical laboratories and the bargaining power of
those potential customers. Our market research indicates that
nearly 40% of all U.S. Pap smears are processed by the two
largest laboratories. Each of these companies operates multiple
laboratory facilities nationwide.

We will have to make this number of potential
customers aware of our products and then convince them to accept
and use our products. To gain acceptance of our products within
this small customer base, we will have to successfully
demonstrate the benefits of our products over the conventional
Pap smear process and other alternative methods of sample
collection, slide preparation and cervical cancer screening. In
addition, to generate demand for our products among these
clinical laboratories, we believe that we must:



| |   |                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | educate doctors and health care providers on, and
    convince them of, the clinical benefits and cost-effectiveness
    of our products; and       
|
| |  | demonstrate to doctors and health care providers
    that adequate levels of third-party payor reimbursement will be
    available for our products.

Ultimately, we may not be able to successfully
sell our products to large clinical laboratories. Even if we do
successfully sell our products to large clinical laboratories,
those sales may not generate enough revenue to make us a
profitable company.

We are at risk of product liability claims and
may be unable to maintain adequate insurance against such
liabilities.

The commercial screening of Pap smears has
historically generated significant malpractice litigation. As a
result, we face product liability, errors and omissions or other
claims if our products are alleged to have caused a
false-negative diagnosis. Although we have product liability
insurance, it could become increasingly difficult for us to
obtain and maintain product liability coverage at a reasonable
cost or in amounts sufficient to protect us against potential
losses. If we are unable to obtain adequate product liability
insurance at a reasonable cost a successful product liability
claim or a series of claims brought against us could require us
to pay substantial amounts that would decrease our
profitability, if any.

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Our success depends on our ability to retain
our key personnel.

We will depend heavily on the principal members
of our management and scientific staff. The loss of their
services might impede achievement of our strategic objectives or
research and development. Our success depends on our ability to
retain key employees and to attract additional qualified
employees, which may be particularly difficult to do in the
future. Competition for highly skilled scientific and management
personnel is intense, particularly in the geographic areas in
which we currently are located, and these resources are scarce
relative to the needs of a growing high technology business
sector. The failure to recruit such personnel or the loss of
existing personnel could adversely affect our business.

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