<PAGE>   1

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
                                   FORM 10-K

<TABLE>
<C>               <S>
   (Mark One)
      [X]         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                  THE SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended December 31, 1999
                                               OR
      [  ]        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                  THE SECURITIES EXCHANGE ACT OF 1934
                  For the transition period from ____________ to ____________
</TABLE>

                         COMMISSION FILE NUMBER 0-22885
                            ------------------------

                             TRIPATH IMAGING, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                            <C>
                   DELAWARE                                      56-1995728
       (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                     IDENTIFICATION NUMBER)
</TABLE>

             780 PLANTATION DRIVE, BURLINGTON, NORTH CAROLINA 27215
          (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)

              REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
                                 (336) 222-9707

Securities registered pursuant to Section 12(b) of the Act:

                                      NONE

Securities registered pursuant to Section 12(g) of the Act:

                         COMMON STOCK, $0.01 PAR VALUE
                             (TITLE OF EACH CLASS)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.     YES [X]     NO [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.     [ ]

     The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 21, 2000 was: $148,408,211.

     There were 28,232,914 shares of the registrant's Common Stock outstanding
as of March 21, 2000.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the definitive proxy statement of the Registrant for the
Registrant's 2000 Annual Meeting of Shareholders to be held on June 1, 2000,
which definitive proxy statement will be filed with the Securities and Exchange
Commission not later than 120 days after the registrant's fiscal year of
December 31, 1999, are incorporated by reference into Part III of this Form
10-K.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2

                                     PART I

ITEM 1.  BUSINESS

     The discussion included in this section as well as elsewhere in the Annual
Report on Form 10-K may contain forward-looking statements based on current
expectations of the Company's management. Such statements are subject to risks
and uncertainties that could cause actual results to differ from those
projected. See "Important Factors Regarding Forward-Looking Statements" attached
hereto as Exhibit 99.1 and incorporated by reference into this Form 10-K.
Readers are cautioned not to place undue reliance on the forward looking
statements, which speak only as the date hereof. The Company undertakes no
obligation to publicly release the result of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
occurring after the date hereof or to reflect the occurrence of unanticipated
events.

THE COMPANY

     TriPath Imaging, Inc. ("TriPath" or the "Company") develops, manufactures
and markets products to improve cervical cancer screening. Improved sample
preparation technology is delivered through the AutoCyte PREP System(TM)
("PREP"), a proprietary automated thin-layer cytology sample preparation system
that produces representative slides with a homogeneous, thin-layer of cervical
cells. In June 1999, PREP was approved by the U.S. Food and Drug Administration
("FDA") as one of only two FDA approved sample preparation systems as a
replacement for the conventional Pap smear. TriPath also delivers visual
intelligence technology to increase accuracy and productivity in sample testing
through the AutoPap(R) Primary Screening System ("AutoPap"), which utilizes
proprietary technology to distinguish between normal Pap smears and those that
have the highest likelihood of abnormality. In May 1998, AutoPap was approved by
the FDA as the first and only fully automated device for primary screening of
Pap smear slides. On October 6, 1999, TriPath announced submission of a
supplement to the FDA for the screening of PREP slides using AutoPap.

     TriPath generates PREP revenue from the sale or rental of PREP systems and
the sale of the related test kits, comprised of proprietary reagents and other
disposables. For system sales, customers purchase the PREP instrument and make
separate purchases of test kits. For system rentals, customers pay a fixed
monthly fee for the equipment and make separate purchases of test kits. The
Company also has an Integrated Purchase Option ("IPO") program where the PREP
instrument is placed at the customer's site free of charge, and the customer
pays a higher per-test price for the reagents and disposables. Each PREP system
placed typically provides a recurring revenue stream as the customers process
the test kits sold by the Company.

     TriPath generates AutoPap revenue from the sale of AutoPap systems or on a
fee-per-use basis. Fee-per-use revenue commences in the month a system is
initially placed in commercial use at a customer site and consists of per-slide
monthly billings, fixed rental billings, and minimum payments due on certain
fee-per-use contracts.

OVERVIEW OF THE CERVICAL CANCER SCREENING MARKET

  Cervical Cancer

     Cancer of the uterine cervix, or cervical cancer, is the second most common
form of cancer among women worldwide, with approximately 500,000 new cases
reported each year. In 1996, approximately 247,000 deaths worldwide were
attributable to cervical cancer. The American Cancer Society projects that in
the United States alone, doctors would diagnose approximately 12,800 new cases
of invasive cervical cancer and approximately 4,600 women would die of cervical
cancer in 2000. In addition, recent studies have indicated that cervical cancer
is linked to the presence of certain strains of Human Papillomavirus.

     Almost all deaths due to cervical cancer can be prevented through
early-stage detection and treatment. Cervical cancer is preceded by curable
precancerous lesions that progress without symptoms over a period of years until
they become invasive, penetrating the cervical epithelium (cellular covering)
and entering the bloodstream or lymph system. Treatment of early-stage
noninvasive cervical cancer may be accomplished

                                        2
<PAGE>   3

through various low-risk and low-cost procedures designed to remove the abnormal
cells. Once the cancer reaches the invasive stage, however, the patient's
chances for recovery are diminished, and more radical treatment, such as a
hysterectomy and chemotherapy or radiation therapy, is typically required. These
procedures are costly and may expose the patient to substantial physical
morbidity and psychological stress.

     Because treatment of cervical cancer at an early stage is almost always
successful, early detection is critical to medical management of the disease.
Thus, regular cervical screening examinations are recommended in the United
States and many foreign countries. The conventional Pap smear is currently the
most widely used screening test for cervical cancer. It is estimated that
clinical laboratories in the United States perform over 55 million conventional
Pap smears annually. The Company believes that annual test volume outside of the
United States is in excess of 60 million. Of the 55 million annual Pap smear
tests performed in the United States, industry sources estimate that about 2.5
million, or 5%, are diagnosed with precancerous conditions or cancer.

     In the United States, although widespread and regular use of the
conventional Pap smear has contributed to a greater than 70% decrease in
mortality, the mortality rate from the disease has remained fairly constant
since 1970. The Company believes that there are practical limitations to the
conventional Pap smear test which contribute to an estimated $5.0 billion of
annual costs associated with the treatment of advanced precancerous and
cancerous cervical disease. Additional costs are also incurred by third-party
payors due to repeat testing and by clinical laboratories due to litigation
associated with inaccurate diagnoses.

  The Conventional Pap Smear Test Process

     The conventional Pap smear test was developed by Dr. George N. Papanicolaou
in the 1940's. The Pap smear test serves as a screening procedure for the early
detection of precancerous and cancerous conditions of the uterine cervix by
identifying abnormalities that may progress to cervical cancer.

     The conventional Pap smear process involves the science of cytology, which
includes the microscopic interpretation of precancerous, malignant and
morphological changes in cells. The process begins with the collection of
cervical cells during a gynecologic examination. To obtain a Pap smear, a
gynecologist, general practitioner, or a clinician uses a sampling device to
scrape the surface of a woman's uterine cervix to collect a sample of cervical
cells. This sample is manually smeared onto a microscope slide and the sampling
device is discarded. The sample is then sprayed with a fixative agent within a
few seconds to prevent damage to the cell specimen from air drying, creating
what is known as a conventional Pap smear.

     After the Pap smear sample has been taken, the sample and patient
information are sent to a clinical laboratory for further preparation, screening
and diagnosis. At the clinical laboratory, a technician stains the Pap smear
sample to highlight important cellular features and then seals it with a
protective coverslip. The slide containing the Pap smear sample is then given to
a cytotechnologist, the analyst responsible for reviewing samples at a
laboratory, who generally spends about five to ten minutes screening each Pap
smear slide and completing related paper work.

     The cytotechnologist reviews the Pap smear slide with a microscope to
determine whether the sample is adequate for evaluation and to assess the
presence of abnormal cells. In determining slide adequacy, cytotechnologists
classify each slide into one of three categories: (i) satisfactory for
evaluation, (ii) satisfactory but limited by certain characteristics ("SBLB") or
(iii) unsatisfactory for evaluation. The percentage of unsatisfactory and SBLB
slides varies widely among laboratories. In the United States, approximately 1%
to 2% of all conventional Pap smear slides are classified as unsatisfactory and
as many as 20% to 30% are classified as SBLB. Frequent reasons for
unsatisfactory or SBLB classifications include excess blood or mucus or the
presence of inflammatory cells, all of which obscure the diagnostic cells of
interest, a lack of diagnostic cells and too few cells per slide.

     After determining whether the sample is adequate for evaluation, the
cytotechnologist manually screens the slide with a microscope to differentiate
diseased or abnormal cells from normal cells based on size, shape and structural
details of the cells and their nuclei. In the United States, each conventional
Pap smear slide is then typically classified according to the Bethesda System
for Reporting Cervical/Vaginal Cytological

                                        3
<PAGE>   4

Diagnoses (the "Bethesda System"), a five point classification system that
assigns a rating for cervical cytology slides ranging from negative to
carcinoma. The following table summarizes the Bethesda System classification and
other characteristics of all conventional Pap smear slides prepared annually in
the United States:

<TABLE>
<CAPTION>
                                     APPROXIMATE                   PRECANCEROUS/      CLINICAL
BETHESDA SYSTEM CLASSIFICATION        INCIDENCE    INTERPRETATION    CANCEROUS         ACTION
------------------------------       -----------   --------------  -------------  -----------------
<S>                                  <C>           <C>             <C>            <C>
Negative                                  92%      Normal          Not Cancerous  Continued Regular
                                                                                  Testing
Atypical Squamous Cells of                 5%      Equivocal       Undetermined   Repeat Testing/
  Undetermined                                                                    Colposcopy/Biopsy
  Significance/Atypical Glandular
  Cells of Undetermined
  Significance ("ASCUS/AGUS")
Low-grade Squamous                         2%      Abnormal        Precancerous   Colposcopy/Biopsy
  Intraepithelial Lesion ("LSIL")
High-grade Squamous                       <1%      Abnormal        Precancerous   Colposcopy/Biopsy
  Intraepithelial Lesion ("HSIL")
Carcinoma                                 <1%      Abnormal        Cancerous      Colposcopy/Biopsy
</TABLE>

     Any slide classified as other than normal under the Bethesda System is
considered abnormal and may be precancerous or cancerous. Abnormalities may
indicate various conditions ranging from atypical squamous cells of undetermined
significance ("ASCUS") and atypical glandular cells of undetermined significance
("AGUS"), both commonly referred to as "atypia," and low-grade squamous
intraepithelial lesions ("LSIL") to high-grade squamous intraepithelial lesions
("HSIL") and cancer.

     ASCUS/AGUS slides contain abnormal cells that cannot be fully explained on
the basis of inflammatory or reactive processes, yet lack certain criteria for a
specific abnormal diagnosis. ASCUS/AGUS slides are generally not considered
precancerous. LSIL slides represent the lowest-grade precancerous state, with
cells characterized as exhibiting mild to moderate dysplasia or evidencing signs
of HPV. Dysplasia is a condition characterized by abnormally differentiated
cells that could either progress to a precancerous state or regress to a normal
state. HSIL slides contain precancerous cells characterized as exhibiting more
serious dysplasia or signs of HPV. All ASCUS/AGUS and abnormal slides are
referred to a pathologist for further review and final diagnosis. Typically,
about 90% to 95% of all Pap smears are classified as normal. In the remaining
cases where the cytotechnologist detects a suspicious condition, a senior
cytotechnologist then reviews the slide. Ultimately, slides confirmed to have
signs of precancerous conditions or cancer are referred to a cytopathologist who
carefully reviews the Pap smear and makes a final diagnosis.

     A woman whose Pap smear indicates the presence of high-grade lesions or
cancer will typically receive a colposcopic examination, and if necessary, a
biopsy. Treatment of early-stage noninvasive cervical cancer, which is
relatively curable, often consists of epithelial treatment in which the
cancerous tissue is removed, for example, by electrocautery. Once the cancer
reaches an invasive stage, the patient's chances for recovery decline. These
cases typically require treatment such as radiation therapy, surgery or
chemotherapy.

  Limitations of the Conventional Pap Smear Test Process

     Each Pap smear slide sample typically contains 50,000 to 300,000 cervical
cells, and the process of manually screening and interpreting a conventional Pap
smear requires intense visual examination of the slide sample through a
microscope. Errors often occur during the review process because it is difficult
to properly evaluate and categorize subtle changes in the size and/or shape of
cells and their nuclei.

     Pap smears have a highly variable false-negative rate, which is the
percentage of abnormal smears that are misclassified as normal. False-negative
rates of the conventional Pap smear vary widely among laboratories, ranging from
5% to 55%, depending on such factors as the skill and experience of the
practitioner who collects the sample and prepares the slide and the level of
training of the cytotechnologist and pathologist

                                        4
<PAGE>   5

who review the slide. Studies suggest that approximately 60% of all false
negative diagnoses are the result of inadequacies in sample collection and slide
preparation; approximately 40% are attributable to detection and interpretation
errors.

     A recent study published in the American Journal of Clinical Pathology
reported that, with a conventional Pap smear, as much as 80% of the sample taken
from a patient is not transferred to the slide and remains on the discarded
collection device. In addition to the problem of cell transfer, the conventional
Pap smear slide preparation process produces inconsistent and non-uniform slides
with extreme variability in quality, often making examination difficult.
Furthermore, the batch staining done by the laboratory technicians may result in
cross-contamination among slide samples. TriPath estimates that annual costs to
the United States health care system of repeat testing due to unsatisfactory
slides and slides that are SBLB are $50 million and $750 million, respectively.

     When using the conventional Pap smear process, a physician cannot perform
additional testing using the original patient sample. If additional testing is
required, the patient must return to the physician's office to provide a second
sample. TriPath believes that the ability to access the remaining cellular
material from the original patient sample would allow more cost effective
patient management for inconclusive Pap smear tests.

     Physical and mental stress escalates with the number of Pap smear slides
that a cytotechnologist examines, which increases the risk of false-negatives.
For this reason, federal regulations promulgated under the Clinical Laboratory
Improvement Amendments of 1988 ("CLIA") require cytology laboratories to:

     - rescreen 10% of the slides that are initially classified as negative;

     - limit the number of slides screened by a cytotechnologist per day to 100;
       and

     - perform proficiency testing and quality control by testing
       cytotechnologists in order to assure a minimum level of competence and
       expertise.

     In addition to these federal regulations, certain states have also adopted
regulations further limiting the number of slides that may be manually examined
per day by a cytotechnologist. It has become significantly more expensive for
laboratories to perform conventional Pap smear screening due to these
regulations.

THE TRIPATH SOLUTION

     TriPath develops sample preparation and screening systems for cervical
cancer intended to address the limitations inherent in the conventional Pap
smear process and nonautomation of large clinical labs. PREP is a proprietary,
automated, liquid-based cytology sample preparation system that produces slides
with a thin and uniform layer of cervical cells. AutoPap utilizes proprietary
technology to distinguish between normal Pap smears and those that have the
highest likelihood of abnormality. The Company is currently applying for FDA
approval for AutoPap screening of PREP slides. There can be no assurance that
such FDA approval will be obtained. The Company's Pathology Workstation product
line further integrates TriPath's product offerings into tools for data handling
of cytology and pathology images, and tools for determining prognosis of disease
from cytology and pathology specimens.

PRODUCTS

  The AutoCyte PREP System(TM)

     The Company's PREP system consists of a proprietary preservative fluid and
reagents, plastic disposables and automated equipment for preparing a thin-layer
of cervical cells on the microscope slide. The PREP slide process begins with
the clinician taking a patient's cervical sample using a conventional collection
device. The clinician then immediately places the collection device in a vial
containing the Company's proprietary CytoRich preservative fluid, thereby
retaining virtually all of the cells from the collection device. After receiving
the vial from the clinician, the laboratory thoroughly mixes the sample,
generating a randomized cell suspension, which is then removed from the vial and
layered onto a proprietary liquid density reagent in a plastic centrifuge tube
using the Company's patented disaggregation syringe device. Batch centrifugation
is

                                        5
<PAGE>   6

then conducted on the cell suspension to remove excess blood, inflammatory cells
and other debris from the sample.

     Once centrifugation is completed, the lab technician places the tube
containing the separated diagnostic cells onto the automated PREP pipetting
station. PREP then distributes the cells in a thin-layer on the microscope slide
and discretely stains the slide for subsequent analysis. A PREP slide typically
contains between approximately 50,000 to 160,000 diagnostic cells that are
distributed uniformly over a 13-mm diameter circle. PREP is currently capable of
preparing and discretely staining 48 thin-layer slides in approximately one
hour.

     TriPath is also currently developing a new automated front-end processor
("PREPMATE") that will reduce the number of manual preparation steps required
for the PREP system. PREPMATE is intended to reduce the time required to prepare
samples for processing on the PREP instrument. PREPMATE has not yet been
approved by the FDA.

  PREP Advantages vs. the Conventional Pap Smear Process

     The Company believes that PREP offers the following advantages over the
conventional Pap smear process:

     - More Complete Sample Collection.  Because the clinician places the
       collection device directly into the PREP vial, the entire patient sample
       is contained in the Company's proprietary preservative fluid. As a
       result, the subsample on the thin-layer preparation is more
       representative of the entire patient specimen. Using the conventional Pap
       smear process, as much as 80% of the cervical sample can be inadvertently
       discarded after smearing the sample onto the slide.

     - Improved Sample Quality.  By eliminating variations in preparation
       techniques and the fixative spraying step from the sample collection
       process, PREP virtually eliminates air-drying, generates a more complete
       fixation and provides a more standardized preparation process in a
       controlled, laboratory environment. The more uniform cell sample
       distribution also reduces cell clumping and obscuring by debris. The
       Company believes that PREP's thin-layer slides provide cytotechnologists
       with samples that are clearer, more representative and easier to diagnose
       than conventional Pap smear slides.

     - Improved Cytotechnologist Productivity.  In the Company's clinical
       studies, some laboratories using PREP experienced a greater than 50%
       increase in cytotechnologist screening productivity. The impact on
       cytotechnologist efficiency is important to clinical laboratories because
       of the growing shortage of qualified cytotechnologists in recent years
       and the need to create and maintain a desirable working environment for
       cytology professionals.

     - Automated and Discrete Staining Function.  PREP includes a discrete, or
       individual, slide staining function performed by a computer-controlled
       robotic pipetting station. Unlike conventional Pap smear slides that are
       often manually stained in a batch process using common reservoirs of
       staining reagents, PREP staining reagents are directly applied to
       individual slides. As a result, staining reagents are not shared among
       slides, which the Company believes should reduce the risk of
       cross-contamination among cell samples. Cross-contamination can lead to
       inaccurate diagnoses.

     - Multiple Testing Capability.  Because the Company's proprietary CytoRich
       preservative system enables the patient sample to be preserved for
       several months, it permits, if necessary, preparation of several slides
       from a single sample. The Company believes that the ability to perform
       additional slide-based tests using a single sample, together with the
       improved quality of the slide itself, will reduce re-testing expenses
       typically associated with inconclusive Pap smear tests. The residual
       patient sample may also be used for other diagnostic protocols such as
       HPV testing, infectious disease testing and application of specific tumor
       markers. Such testing of the residual sample will require FDA approval.

                                        6
<PAGE>   7

  PREP Advantages vs. Other Thin-Layer Sample Preparation Systems

     The Company believes that PREP offers the following advantages over other
thin-layer devices:

     - Improved Sample Quality.  The PREP sample is processed through a series
       of proprietary liquid-based reagents and centrifuge separation techniques
       designed to "enrich" the sample with a high concentration of diagnostic
       cells. The only other currently FDA approved thin-layer device relies on
       membrane filtration. The Company believes that its cell enrichment
       process more effectively controls the incidence of mucus, inflammatory
       cells and other debris that may reduce the performance of membrane
       filtration systems. The Company believes that, in populations in which
       rates of gynecological infection are high, PREP's cell enrichment process
       will result in a more representative slide sample which should ultimately
       lead to a reduction in uncertain or incorrect diagnoses.

     - Higher Throughput.  PREP has the capacity to produce 48 thin-layer slide
       preparations in approximately one hour unattended, using a hands-off
       robotic system that provides higher throughput than other available
       automated slide preparation systems. In addition to this increased
       throughput, the PREP processing unit requires less human oversight than
       other automated systems.

     - Improved Cytotechnologist Productivity.  The cell circle on a PREP slide
       is smaller than the cell circle on other available thin-layer devices,
       yet the number of diagnostic cells is approximately equal. The Company
       believes that the smaller cell circle, coupled with a lower incidence of
       infectious agents, inflammatory cells and other debris, should result in
       faster, more efficient screening by cytology professionals.

     - Familiarity with Sample Preparation Approach.  The PREP centrifugation
       and robotic liquid handling techniques are similar to procedures already
       in use in clinical laboratories.

     - Automated and Discrete Staining Function.  Unlike other thin-layer
       devices that rely on batch staining using common reservoirs of staining
       reagents, PREP staining reagents are applied directly to individual
       slides. Discrete staining offers several benefits, including a reduced
       risk of cross-contamination among cell samples, less degradation of the
       staining solution, less staining time and lower costs.

  AutoPap(R) Primary Screening System

     The FDA approved the AutoPap(R) Primary Screening System in May 1998. The
AutoPap Screener uses diagnostic algorithms to improve accuracy in the primary
screening of conventional Pap smear slides. As approved by the FDA, the AutoPap
Screener identifies up to about 25% of slides as "within normal limits" and
requiring no further review. Cytotechnologists then manually screen the
remaining 75% of slides with the assistance of the AutoPap ranked review report.
This ranked review report shows the relative scores of the processed slides. At
least 15% of the highest-ranking slides that are classified normal by manual
review then undergo quality control rescreening.

     AutoPap works with a wide range of staining procedures used on
conventionally prepared Pap smear slides. AutoPap analyzes a Pap smear in about
the same time as a cytotechnologist. It holds 288 Pap smear slides at a time, is
easy to load and unload, and can operate continuously, with minimal
intervention, for up to 24 hours per day. TriPath provides each clinical
laboratory with on-site training, system documentation, a comprehensive quality
assurance program, and ongoing customer and technical support.

     The AutoPap Screener has been approved in certain foreign countries to
identify up to 50% of slides "within normal limits." On September 30, 1999, the
Company submitted a supplement to its existing PMA for the AutoPap(R) Primary
Screening System to pursue a clinical study to obtain supplemental approval from
the FDA to use AutoPap to screen slides prepared using PREP. While FDA
regulations provide that a PMA or a PMA Supplement will be reviewed within 180
days, there can be no assurance that this PMA supplement will be approved by the
FDA in a timely manner, or at all.

                                        7
<PAGE>   8

  AutoPap Advantages Over Conventional Pap Smear Screening

     TriPath believes that clinical analysis of Pap smears is the largest
nonautomated clinical laboratory procedure. Clinical laboratories rely on the
manual screening of Pap smear slides as performed by cytotechnologists.

     The AutoPap Primary Screening System is the only instrument approved by the
FDA to process Pap smears without human review. In addition, in recent years the
medical community has increasingly focused on improving the quality of women's
healthcare. TriPath believes that AutoPap will allow laboratories to better
detect precancerous cervical conditions and cervical cancer, thereby improving
the standard of care for their female patients. Earlier detection and treatment
should lower risks of morbidity and mortality.

     Clinical studies have shown that the AutoPap Screener-assisted practice
identifies significantly more abnormal slides as compared to current practice.
This difference is statistically significant in favor of the AutoPap
Screener-assisted practice. In addition, the AutoPap Screener-assisted practice
is better able to correctly identify normal slides than is current practice.

     Laboratories that fail to accurately identify abnormal Pap smears may face
malpractice suits. Laboratories face significant exposure to liability. TriPath
believes that use of AutoPap will substantially improve the current quality of
practice, and will reduce exposure to liability for laboratories that use
AutoPap.

     The AutoPap Screener is TriPath's principal product for the Pap smear
screening market. By reducing the number of Pap smears requiring
cytotechnologist review, the AutoPap Screener increases the number of Pap smears
a laboratory can process. This reduces the per-slide processing cost while
improving overall laboratory accuracy.

  Other Applications for AutoPap Cancer Screening

     TriPath believes that its automated visual intelligence technology can be
used for other diagnostic tests that involve microscopic analysis of biological
specimens on glass slides, such as sputum, blood, or urine samples, but has not
yet developed any such applications. In addition, TriPath has identified several
other potential uses for its technology, including automated tissue analysis,
breast and skin cancers. To develop its systems for other applications, TriPath
must adapt software algorithms developed for the analysis of Pap smears to the
analysis of other tissue specimens. TriPath continues to evaluate other
applications for future development efforts, including non-medical applications.
In July 1999, TriPath announced a collaborative research agreement with Bayer
Diagnostics to develop an automated screening system for the detection of early
lung cancer.

  AutoCyte SCREEN System(TM)

     SCREEN is an automated image analysis system which combines proprietary
imaging technology and classification software with off-the-shelf computer
hardware to screen thin-layer slides prepared using the PREP system. SCREEN is
designed to function as an interactive support tool for the cytology
professional in the primary screening of cervical cells, but may also serve
quality control and adjunctive testing purposes. SCREEN is designed to use a
series of proprietary algorithms to independently classify cells and present the
cytotechnologist with 120 images of the most diagnostic cells on the sample
slide.

     SCREEN is designed to evaluate all areas of the PREP thin-layer slide and
presents high-resolution, color images of diagnostic cells in the sample. The
cytotechnologist is then able to undertake an independent analysis of these
selected cells to interpret each slide. Once the cytotechnologist inputs the
image assessment into the computer, SCREEN displays its interpretation for
comparison. Unless SCREEN and the cytotechnologist agree that the slide is
normal, the slide is referred to a senior cytotechnologist or pathologist for
reevaluation. Combining expert human review with unbiased computer
interpretation is a fundamental component of the Company's patented SCREEN
process.

     The Company filed a PMA with the FDA in July 1998. Although similarities
exist between the SCREEN and AutoPap products, the Company continues to pursue
both technologies for regulatory approval

                                        8
<PAGE>   9

in order to take advantage of the combined benefits for current and future
markets. There can be no assurance the Company will successfully receive FDA
approval to market SCREEN.

  AutoCyte Pathology Workstation

     TriPath's long-term product strategy encompasses an initiative into the
broader clinical laboratory automation market. The Pathology Workstation is a
flexible computerized microscope that supports a set of PC-based applications,
such as image telecommunications, archiving, image and patient data management
and other supplemental testing. Applications currently available from the
Company include:

     - Medical Information and Image Management

     - Cellular and Histological Measurement

     - Telepathology

     - ImageTiter(R)

     The Company is currently marketing Pathology Workstation products through
distributors. See "Marketing and Sales." The Company's strategy includes the
development of additional applications or modules to run on the proprietary
Pathology Workstation platform which support and integrate a systematic approach
to diagnostic cytology and pathology. These modules include quantitative DNA
analysis, quantitative immunocytochemistry, computer assisted tumor grading,
fluorescence measurements, slide mapping and computer supported manual cytology
screenings.

CLINICAL TRIALS AND REGULATORY STATUS

  Status of PREP System PMA

     On June 17, 1999, TriPath received regulatory approval from the FDA to
market PREP as a replacement for the conventional Pap smear.

  Supplement to AutoPap Primary Screening PMA

     On September 30, 1999, the Company submitted a supplement to its existing
PMA for the AutoPap(R) Primary Screening System to pursue a clinical study to
obtain supplemental approval from the FDA to use AutoPap to screen slides
prepared using PREP. Since the filing of the PMA supplement, the Company has had
discussions with the FDA and believes that it may need to file an amendment to
the PMA supplement. The filing of the amendment could cause a delay in the FDA
reaching a determination regarding the supplement. There can be no assurance
that this PMA Supplement will be approved by the FDA in a timely manner, or at
all.

  Status of SCREEN System PMA

     On February 18, 1999, the Company met with the FDA to address specific
questions regarding SCREEN performance and the SCREEN clinical trial. In May,
1999, the Company filed a formal amendment to the SCREEN PMA documenting its
responses in writing. In August 1999, a follow-up meeting was held with the FDA
to address remaining open issues. There can be no assurance that the Company
will successfully receive FDA approval to market SCREEN.

  TriPath's Facility

     In December 1998, the Company's Burlington, North Carolina manufacturing
facility was inspected by the FDA for compliance with the FDA's Quality System
Regulation requirements relating to the SCREEN product. In April 1999, TriPath
was notified in writing that the facility had no outstanding deficiencies and
that it had passed the inspection.

                                        9
<PAGE>   10

  Pathology Workstation

     The Company has received FDA clearance of a premarket notification
("510(k)") covering ImageTiter(R), an application for the Pathology Workstation
which TriPath is currently selling. The Company believes that it may need to
obtain 510(k) clearance to market in the United States certain additional
Pathology Workstation applications currently being developed.

MARKETING AND SALES

     Automated slide preparation and screening products have recently been
introduced into the cervical cancer screening market and the Company expects to
benefit from the increased awareness and acceptance of these new technologies.
The Company began limited international commercial sales of PREP in 1993, and in
1999 commenced commercialization in the United States. The Company began
placements of AutoPap Primary Screening Systems in 1998. AutoPap is the only
fully automated Pap smear screening device to receive regulatory clearance for
marketing in the United States.

     The Company generates PREP revenue from both system sales and rentals. For
system sales, customers purchase the instrument and make separate purchases of
related reagents and other disposables. For system rentals, the Company places
the PREP instrument at the customer's site, and customers make monthly payments
that include rent and a minimum monthly quantity of reagents and other
disposables. The term of the PREP rentals ranges from month-to-month to three
years. The Company also has an IPO program where the PREP instrument is placed
at the customer's site free of charge, and the customer pays a higher per-test
price for the reagents and disposables. For AutoPap customers in the United
States, the Company places instruments without charge at customer locations and
charges customers on a per test, or Fee-Per-Use ("FPU"), basis by assessing
customers a charge for each Pap smear slide they process. As its product
development efforts improve the performance of the AutoPap System, TriPath
intends, subject to obtaining applicable regulatory approvals, to offer upgraded
products to its customers. TriPath has not yet determined how it will charge for
its upgrade packages, but anticipates that upgrades will increase its
fee-per-use and sale pricing. As an important element of its business strategy,
the Company has obtained third-party financing to support rentals of PREP and
FPU placements of AutoPap. The principal market for gynecological applications
of PREP and AutoPap are clinical laboratories worldwide.

     The principal market for non-gynecological applications of PREP is also
clinical laboratories worldwide, although these applications are performed in
significantly lower quantities than cervical cancer screening applications.
Non-gynecological applications for the detection of cancer are performed on body
fluids, including urine samples, respiratory specimens and a variety of
fine-needle aspirates of specific organs. PREP is also being marketed for
non-gynecological applications in the United States directly through the
Company's own sales force. Foreign distribution partners are marketing PREP for
non-gynecological applications outside of the United States.

  Marketing Strategy

     The Company commenced marketing PREP in the United States for cervical
cancer screening in 1999. TriPath markets AutoPap to domestic and foreign
clinical laboratories through direct sales activities in the United States and
primarily through distributors in international markets. The Company's marketing
strategy is to achieve broad market acceptance for the integrated PREP and
AutoPap system for cervical cancer screening if FDA approval is achieved. In
implementing this strategy, the Company will address the needs of the
constituencies described below.

     Large clinical laboratories.  Conventional Pap smear testing has become a
concentrated market in the United States. The Company believes that two major
clinical laboratories, Quest Diagnostics, Inc. ("Quest"), formerly known as
Corning Clinical Laboratories, Inc., and Laboratory Corporation of America
Holdings, account for almost 17 million conventional Pap smears annually. In
September 1999, Quest completed its acquisition of the clinical laboratory
operations of SmithKline Beecham, making it the largest clinical laboratory
worldwide. In January 2000, Quest announced an exclusive supplier agreement for
thin-layer preparations with a competitor of the Company (See "Competition").
Other large testing laboratories, which

                                       10
<PAGE>   11

the Company believes perform more than 10 million conventional Pap smears in the
United States annually, account for another 20% of the market. Thus, the Company
believes that approximately 55% of cervical cancer test volume is concentrated
among a relatively small number of large laboratories. TriPath believes that
PREP's high throughput and cost-effectiveness and AutoPap's ability to identify
more abnormal slides and show improved specificity over current practice will
enable the Company to market PREP and AutoPap successfully to this concentrated
market segment. Moreover, the pressures associated with rising health care
costs, rising litigation costs and the limited supply of qualified
cytotechnologists will further facilitate adoption of PREP and AutoPap by the
large laboratory market. Large clinical laboratories have used centrifuges and
liquid-based analytical techniques for a variety of applications and,
accordingly, the Company believes that the familiar nature of its underlying
technologies will enable its products to be more readily accepted in the market
than products based on other technologies. Due to the concentrated nature of the
large clinical laboratory market, the Company believes that a relatively small
number of employees will be able to effectively market the Company's systems to
these customers.

     Medium and small clinical laboratories.  The Company also intends to devote
a substantial portion of its marketing resources to targeting medium-sized and
small clinical laboratories. Hospital consolidation, and particularly the
consolidation of laboratories of the larger hospitals, is creating a new
medium-sized customer for the Company's products. The Company expects that the
medium-sized and small clinical laboratory segment of the market generally will
utilize the Company's IPO or equipment rental program.

     Third-party payors.  To achieve market acceptance for its products, the
Company will need to ensure that the use of its products is supported by
third-party payors. The Company will promote the clinical and economic benefits
of its PREP and AutoPap systems to nationally managed care providers, major
private insurers and other third-party payors. The Company's cervical cancer
screening system will initially be more expensive than conventional Pap smear
testing on a per test variable cost basis. Because the up-front, direct costs of
using the Company's products will be greater than the cost of preparing and
diagnosing the conventional Pap smear, the Company will need to convince
third-party payors that the overall cost savings to the health care system,
resulting from earlier detection of cervical cancer, reduced ASCUS diagnoses and
the resulting reduction of unnecessary biopsies and colposcopies, and improved
specimen adequacy and resulting reduction of unnecessary repeat Pap smears, will
more than offset the cost of the Company's products. The Company's competitor
for PREP has achieved third-party reimbursement with over 150 payors for the CPT
code that is relevant to PREP. See "Third-Party Reimbursement" below.

     Health care providers.  The Company intends to promote the clinical and
economic benefits of PREP and AutoPap directly to gynecologists and primary care
physicians by marketing with reference laboratory sales organizations. TriPath's
sales and marketing program will include a significant educational effort to
communicate the advantages of its cervical cancer screening system to the
medical community.

  Marketing and Sales Organization

     The Company currently employs approximately 30 people worldwide in order to
market, to sell and to provide after-sale support of its products. The Company
anticipates that its worldwide base of sales and marketing employees will grow
to over 60 people by the end of 2000.

     In the United States, the Company plans to market its cervical cancer
screening products through a direct sales force. The majority of the direct
sales organization will focus on the laboratory market to achieve appropriate
market penetration, acceptance and availability of the Company's products. The
Company will also hire a small highly-specialized sales organization which will
market to managed care and other third-party payor organizations to achieve
appropriate reimbursement levels and to create demand for the products. The
Company will also emphasize co-marketing agreements with sales organizations of
major reference laboratories to market its products directly to health care
providers. The Company will further support the needs of third-party payors,
laboratories and individual physicians through development of reimbursement
hotlines and cost-effectiveness software models.

     In international markets, the Company markets and sells its products
primarily through distributors. To support these efforts, the Company employs
five people, consisting of sales professionals, supporting product

                                       11
<PAGE>   12

managers and after sales support personnel located in Europe and Australia. The
Company anticipates that these distributor organizations will ultimately assume
responsibility for all sales and after sales support activities as well as a
portion of the Company's marketing activities. Both large distribution
organizations with products focused on the clinical diagnostic market, and
smaller distribution organizations with products focused specifically on the
anatomic pathology market have been employed to distribute TriPath products
worldwide.

     TriPath distributes AutoPap Systems in Japan through an agreement with
Nikon Corporation. Under this agreement, Nikon markets TriPath products to
customers and handles maintenance and service, and TriPath provides training for
Nikon sales personnel and service engineers, who in turn train Japanese
customers. The Company has finalized a distribution agreement in Germany with
Carl Zeiss Jena Gmbh for the Workstation products. In the U.S., the Company has
finalized a distribution agreement with Dynamic Healthcare, Inc. for the AIMS
workstation product. The Company has also entered into an exclusive distribution
agreement with Medical and Biological Laboratories Co. ("MBL") to distribute the
AutoCyte ImageTiter software system in support of MBL's autoimmune diagnostic
reagent offering to laboratories worldwide. MBL will also distribute AutoCyte
Pathology Workstation products in Japan, Korea, and Taiwan. As part of these
distribution agreements, the Company expects to continue to provide integration
services.

     After-sale support services, including customer training, product
installation, telephone technical support and repair service is offered directly
to customers in the United States. Personnel providing these services are
located both at the Company's headquarters and in select major metropolitan
areas. Internationally, the Company plans to provide these services through
distributor organizations.

MANUFACTURING

  The PREP System

     The Company currently assembles, tests and packages components of the PREP
system at its manufacturing facility in Burlington, North Carolina. The Company
also manufactures its CytoRich line of reagents and stains for PREP at the
Burlington facility. The Company believes that its existing manufacturing and
assembly processes are adequate to meet the near-term, full-scale production
requirements of its PREP system for cervical cancer screening.

     The Company purchases certain of the PREP instrument components from a
single OEM supplier in Europe. The consumable items used with PREP, including
glass slides, centrifuge tubes, pipette tips, settling chambers and other
disposable components, are purchased from a variety of third-party vendors, some
of which are sole source suppliers. In 1998, the Company agreed to new
multi-year exclusive contracts with two suppliers of manufactured plastic
components that are incorporated into its products. The first contract covers a
specially engineered component that is required for the PREPMATE system. The
contract commenced in March 1998 and will terminate in March 2001. Pricing is
fixed, but is subject to adjustment based upon changes in raw material costs. In
addition, the Company has the ability to renegotiate pricing, or obtain the
product elsewhere, if the Company can identify another third-party supplier that
is willing to supply the product on more competitive terms.

     The second contract covers three plastic components used with the PREP
system. The contract commenced in June 1998 and will terminate in June 2002.
Pricing is fixed, but is subject to adjustment based upon changes in raw
material costs. The Company's obligation to use this supplier exclusively for
the components is contingent upon this supplier supplying the Company at prices
competitive with those offered by third parties on similar terms, and upon this
supplier meeting the Company's quality and production requirements.

     The Company believes that both suppliers have sufficient capacity to meet
its present and future requirements for plastic components.

     Subject to any contractual limitations upon its ability to do so, the
Company may seek to establish other relationships with additional suppliers or
vendors for components of its products, although there can be no assurance that
it will be successful in doing so. The incorporation of new components, or
replacement

                                       12
<PAGE>   13

components from alternative suppliers into the Company's products may require
the Company to submit PMA supplements to, and obtain further regulatory
approvals from the FDA before marketing the products with the new or replacement
components.

  AutoPap

     Final assembly, integration and testing of the electronic, mechanical and
optical components and modules of AutoPap takes place in the Company's Redmond,
Washington facility. TriPath's manufacturing operations have produced sufficient
AutoPap systems to meet customer demand since it began commercial operations in
1996. The Company believes it has sufficient capacity to meet anticipated
customer needs for its AutoPap product.

     TriPath purchases all components for the AutoPap system from outside
vendors. A major component of the AutoPap system, the slide tray motion system,
is supplied by a sole-source vendor. In addition, TriPath purchases all of its
AutoPap optics from a large microscope vendor, and all of its video cameras from
a large electronics vendor. Certain other components are currently purchased
from single-source vendors. TriPath would need to modify any components provided
by additional or replacement suppliers for use in AutoPap. TriPath would be
unable to quickly establish additional or replacement sources of supply for many
AutoPap components. In addition, TriPath may need to obtain regulatory approval
to substitute certain components. There can be no assurance that TriPath would
be able to obtain the necessary approvals. If one of its vendors becomes unable
to supply acceptable components in a timely manner and in the quantity required,
TriPath may need to delay or halt its manufacturing process. Any delay or
cessation of manufacturing could adversely affect its business.

     In its manufacturing process, TriPath must meet and adhere to all
applicable requirements of U.S. and international regulatory agencies, including
Quality Systems Regulations issued by the FDA. As part of the FDA regulatory
process, TriPath faces periodic FDA inspections and other periodic inspections
by U.S. and foreign regulatory agencies. See "Governmental Regulation."

  Pathology Workstation Products

     The Company currently integrates and assembles the Pathology Workstation
products at its Burlington facility and believes it has sufficient capacity to
meet anticipated customer demand for this product. To prepare a Workstation for
shipment, a computer is first configured with the proper hardware and software
components. It is then integrated with an automated microscope and other related
components.

     The Company's Workstation Products consist primarily of off-the-shelf
components and proprietary software. The components are supplied by a variety of
vendors, some of which are sole-source suppliers. The Company has been
integrating and selling Workstation products since 1993.

  Manufacturing Standards

     The Company's manufacturing process is subject to extensive regulation by
the FDA, including the FDA's Quality System Regulation ("QSR," also known as
Good Manufacturing Practice, or "GMP") requirements. Both the Burlington, North
Carolina and Redmond, Washington facilities are subject to periodic FDA
inspections. The Company's Burlington, North Carolina manufacturing facility was
inspected by the FDA in October 1997 for compliance with QSR requirements
relating to the PREP product. The Company was notified by the FDA in December
1997 that the facility had no outstanding deficiencies and that it had passed
the inspection. Failure to comply with the FDA's QSR requirements would
materially impair the Company's ability to achieve or maintain commercial-scale
production. In addition, if the Company is unable to maintain full-scale
production capability, acceptance by the market of PREP and AutoPap would be
impaired, which in turn would have a material adverse effect on the Company's
business, financial conditions, and results of operations.

     In addition to QSR requirements, the Company is required to meet certain
requirements relating to ISO 9001 certification and other European regulatory
requirements. A European "CE" certification is required to

                                       13
<PAGE>   14

successfully sell PREP in Europe according to certain directives of the European
Union. The addition of other European directives may require TriPath to further
demonstrate compliance with new or modified requirements in order to apply the
CE mark specific to those directives. The OEM supplier of the PREP instrument
components has ISO 9001 certification and has obtained CE certification for the
main PREP component. CE compliance for the entire PREP system is expected by
mid-2000.

     The Company commenced its efforts for ISO 9001 certification in 1998 and
obtained certification in 1999.

     Failure to either attain or maintain compliance with the applicable
manufacturing requirements of regulatory agencies would have a material adverse
effect on the Company's business, financial condition and results of operations.

RESEARCH AND DEVELOPMENT

     The Company's research and development programs are currently focused on
(i) continued enhancement of the PREP instrument, related reagents and
disposables and further automation of the PREP slide preparation and handling
process, (ii) continued development of the next generation AutoPap ("AutoPap
II") product and (iii) development of additional Pathology Workstation
applications to address the needs of the broader pathology automation market.

     Enhancements to PREP under development are particularly focused on
increasing PREP's efficiency, ease of use, reliability and cost-effectiveness.
The Company is also working to extend the shelf life of its CytoRich line of
reagents and preservatives.

     PREPMATE, an automated front-end processor for PREP, is designed to reduce
the number of manual pre-preparation steps required for the PREP system.
PREPMATE is designed to function as a robotic mixer of the cell suspension in
the preservative vial, and to layer the cell sample before centrifugation.
PREPMATE is designed to further enhance the throughput of the PREP system. The
use of PREPMATE does not have FDA approval.

     AutoPap II, a next-generation product intended to ultimately replace
AutoPap, is designed to be a more cost effective platform that will utilize off
the shelf components. AutoPap II will rely on an enhanced proprietary algorithm
classification technology and will be designed to have increased information
management and storage capabilities. The Company is developing AutoPap II to
include networking and sophisticated database capabilities.

     The Company is continuing to develop additional applications to run on its
Pathology Workstation platform. These applications include quantitative image
analysis, tumor grading and slide management. One image analysis application
performs a quantitative analysis of DNA, nuclear texture and morphology to
assess the aggressiveness of various types of tumors. Another image analysis
application, immunocytochemistry, performs quantitative analysis of hormone
receptors and proliferation markers in histological sections and single cell
preparations. The tumor grading application is designed to evaluate the
arrangement of tumor cells within sections, much the same way that tissue
sections are evaluated and graded by a pathologist. The SlideWizard module
facilitates slide mapping and computer assisted manual cytology screening and
cell relocation.

     There can be no assurance that any product enhancement or development
project undertaken by the Company either currently or in the future will be
successfully completed, receive regulatory approvals or be successfully
commercialized. The failure of any such enhancement or project to be completed,
approved or commercialized could prevent the Company from successfully competing
in its targeted markets and could have a material adverse effect on the
Company's business, financial condition and results of operations.

     As of December 31, 1999, the Company had approximately 37 employees engaged
in research and development. The Company's expenditures for research and
development were approximately $18.7 million, $16.0 million and $12.3 million
for the years ended December 31, 1997, 1998 and 1999, respectively.

                                       14
<PAGE>   15

THIRD-PARTY REIMBURSEMENT

     Some private third-party medical insurance providers and governmental
agencies offer reimbursement for laboratory testing associated with routine
medical examinations, including Pap smears. In the United States, the level of
reimbursement by those third-party payors varies considerably, often resulting
in payments by patients for Pap smears. Third-party healthcare payors in the
United States are increasingly sensitive to containing healthcare costs and
heavily scrutinize new technology. Third-party payors may influence the pricing
or perceived attractiveness of TriPath's products and services by regulating the
maximum amount of reimbursement they provide, or by not providing any
reimbursement at all. Successful commercialization of PREP and AutoPap for
cervical cancer screening in the United States and other countries will depend
on the availability of reimbursement from such third-party payors. Because the
up-front, direct costs of using the Company's products will be greater than the
cost of the conventional Pap smear, the Company will need to convince
third-party payors that the overall cost savings to the health care system,
resulting from earlier detection of cervical cancer, reduced ASCUS diagnoses and
resulting reduction of unnecessary biopsies and colposcopies, and improved
specimen adequacy and resulting reduction of unnecessary repeat Pap smears, will
more than offset the cost of the Company's products.

     Restrictions on reimbursement may limit the price TriPath can charge for
the PREP and AutoPap systems or reduce the demand for such products. If these
payors do not reimburse for the PREP and AutoPap systems, or provide
reimbursement significantly below the amount laboratories charge patients to
perform PREP preparations and AutoPap screening, TriPath's potential market will
be reduced. The Company is focusing on obtaining coverage and reimbursement from
major national and regional managed care organizations and insurance carriers
throughout the United States. In early 1998, TriPath established a reimbursement
team to work with third-party insurers and managed care organizations to
establish and improve third-party reimbursement rates for the AutoPap System.
Most third-party payor organizations independently evaluate new diagnostic
procedures by reviewing the published literature and the Medicare coverage and
reimbursement policy on the specific diagnostic procedure. To assist third-party
payors in their respective evaluations of PREP and AutoPap, the Company provides
scientific and clinical data to support its claims of the safety and efficacy of
the Company's products. The Company focuses on improved disease detection and
cost savings benefits in obtaining reimbursement for PREP and AutoPap for
cervical cancer screening.

     A critical component in the reimbursement decision by most private insurers
and the United States Health Care Financing Administration ("HCFA"), which
administers Medicare, is the assignment of a Current Procedural Terminology
("CPT") code which is used in the submission of claims to insurers for
reimbursement for medical services. CPT codes are assigned, maintained and
revised by the CPT Editorial Board administered by the American Medical
Association. The Company is aware that certain clinical laboratories using other
gynecological thin-layer systems have received reimbursement from certain third-
party payors using existing CPT codes. In January 1998 the CPT Editorial Board
established two separate CPT codes (88142 and 88143) for liquid-based cervical
cytology preparations by a cytotechnologist and, if necessary, a pathologist,
respectively. In January 1999, CPT codes became effective for the AutoPap
Screener (88147 and 88148). Payment for these new CPT codes as well as other new
cervical cytology technologies are currently being "gap filled" by local
Medicare intermediaries, meaning no national limit has been set. HCFA had
originally targeted September 1999 as a deadline for establishing a national
limit on reimbursement for these procedures. HCFA has now extended this deadline
to September 2000. There can be no assurance that monetary reimbursement will be
established at a level sufficient to support use of the PREP system on a routine
basis. Failure to secure sufficient reimbursement could have a material adverse
effect on the Company's business, financial condition and results of operations.
There are currently no CPT codes in place for screening thin-layer preparations
on the AutoPap and will not be until January 2001 at the earliest.

     The Company has limited experience in obtaining reimbursement for its
products in the United States or other countries. In addition, third-party
payors are routinely limiting reimbursement and coverage for medical devices
and, in many instances, are exerting significant pressure on medical suppliers
to lower their prices. Lack of, or inadequate reimbursement by government and
other third-party payors for the Company's products would have a material
adverse effect on the Company's business, financial condition and results of
operations. Further, outside of the United States, health care reimbursement
systems vary from country to

                                       15
<PAGE>   16

country, and there can be no assurance that third-party reimbursement will be
made available at an adequate level, if at all, for PREP or AutoPap under any
other reimbursement system.

     Although the Company's major competitor has already received some
reimbursement approval for their product, there is significant uncertainty
concerning third-party reimbursement for the use of any medical device
incorporating new technology. In February 1998, the Medical Advisory Panel
("MAP") of the Blue Cross and Blue Shield Association's Technology Evaluation
Center completed a cost-effectiveness study pertaining to certain of the
Company's competitors. The MAP concluded that Cytyc Corporation's ThinPrep(R)
process, TriPath, Inc.'s AutoPap(R) 300 QC System (for quality control and
adjunctive testing only) and Neuromedical Systems, Inc.'s PAPNET(R) system (for
adjunctive testing only) offer only modest improvements in diagnostic accuracy
at a high cost. TriPath has discontinued the AutoPap(R) 300 QC System;
Neuromedical Systems, Inc. has liquidated. While the companies have stated that
they disagree with the MAP report, there can be no assurance that the report
will not have an adverse effect on market acceptance of the Company's products.
Further, in July 1998, the American College of Obstetricians and Gynecologists
released a report stating that, while the new technologies improve sensitivity
of the Pap test, their routine use cannot be recommended based on costs and a
lack of sufficient data demonstrating a reduction in incidence of late-stage
disease or an improvement in cervical cancer survival rate. Reimbursement by a
third-party payor depends on a number of factors, including the level of demand
by health care providers and the payor's determination that the use of PREP and
AutoPap represents a clinical advance compared to current technology and is safe
and effective, medically necessary, cost-effective and appropriate for specific
patient populations. Since reimbursement approval is required from each payor
individually, seeking such approvals is a time-consuming and costly process that
requires the Company to provide scientific and clinical data to support the use
of PREP and AutoPap to each payor separately. There can be no assurance that
third-party payors will provide such coverage or coverage for any other products
developed by the Company, that reimbursement levels will be adequate or that
health care providers or clinical laboratories will use PREP and AutoPap for
cervical cancer screening in lieu of the conventional Pap smear method.

     Recent health care cost containment initiatives in the United States that
have focused on reduction in reimbursement levels may effect the Company
negatively. However, emphasis on preventative measures to reduce the overall
costs to the health care system could lead to more frequent testing for cervical
cancer and use of PREP and AutoPap. The Company is unable to predict the outcome
or the effect on its business of the current health care reform debate.
Recently, Congress passed a bill directing HCFA to increase reimbursement for
the conventional Pap smear from $7.15 to $14.60.

PATENTS, COPYRIGHTS, LICENSES AND PROPRIETARY RIGHTS

     Because of the substantial length of time and expense required to bring new
products through development and regulatory approval to the marketplace, the
Company relies on a combination of patents, trade secrets, copyrights and
confidentiality agreements to protect its proprietary technology, rights and
know-how. The Company holds 107 issued or allowed United States patents and has
25 United States patent applications pending. These patents cover system
components, such as the disaggregation syringe, the PREP process, and various
aspects of its high-speed image-interpretation technology. TriPath holds 31
foreign patents and has applied for patent protection for certain aspects of its
technology in various foreign countries. TriPath intends to continue to pursue
patent protection where it is available and cost-effective, both in the United
States as well as in other countries. There can be no assurance, however, that
the claims allowed in any of the Company's existing or future patents will
provide competitive advantages for the Company's products or will not be
successfully challenged or circumvented by competitors.

     Under current law, patent applications in the United States are maintained
in secrecy until patents are issued and patent applications in foreign countries
are maintained in secrecy for a period after filing. The right to a patent in
the United States is attributable to the first to invent, not the first to file
a patent application. The Company cannot be sure that its products or
technologies do not infringe patents that may be granted in the future pursuant
to pending patent applications or that its products do not infringe any patents
or proprietary rights of third parties. There can be no assurance that a court
would rule that the Company's products do not infringe other third-party patents
or would invalidate such third-party patents. The Company may incur

                                       16
<PAGE>   17

substantial legal fees in defending against a patent infringement claim or in
asserting claims of invalidity against third parties. In the event that any
relevant claims of third-party patents are upheld as valid and enforceable, the
Company could be prevented from selling its products or could be required to
obtain licenses from the owners of such patents or be required to redesign its
products to avoid infringement. There can be no assurance that such licenses
would be available or, if available, would be on terms acceptable to the Company
or that the Company would be successful in any attempt to redesign its products
or processes to avoid infringement. The Company's failure to obtain these
licenses or to redesign its products would have a material adverse effect on the
Company's business, financial condition and results of operations.

     On September 13, 1999, Cytyc Corporation filed suit against TriPath in the
United States District Court for the District of Delaware. The complaint alleges
that the Company's CytoRich (R) proprietary preservative fluid infringes Cytyc's
patent titled "Cell Preservative Solution." The complaint seeks a determination
that TriPath is infringing Cytyc's patent and an injunction preliminarily and
permanently enjoining and restraining TriPath from further infringing Cytyc's
patent. The complaint also seeks treble damages, plus interest, in an amount to
be determined, as well as costs and reasonable attorneys' fees. On October 18,
1999, TriPath filed its response denying Cytyc's claims. On December 6, 1999,
the Company demanded Cytyc withdraw its motion for preliminary injunction. On
December 7, 1999, Cytyc complied with this request and withdrew their motion for
preliminary injunction. On March 10, 2000, the Company filed a motion for
summary judgment.

     The Company has entered into confidentiality agreements with all of its
employees and several of its consultants and third-party vendors. These
agreements also require employees and consultants to disclose to TriPath ideas,
developments, discoveries or inventions they conceive during employment or
consultation. They also must assign their proprietary rights in such matters if
the matters relate to TriPath business and technology. There can be no assurance
that the obligations of employees of the Company and third parties with whom the
Company has entered into confidentiality agreements to maintain the
confidentiality of trade secrets and proprietary information will effectively
prevent disclosure of the Company's confidential information or provide
meaningful protection for the Company's confidential information if there is
unauthorized use or disclosure, or that the Company's trade secrets or
proprietary information will not be independently developed by the Company's
competitors.

     TriPath has registered trademarks in the United States, Australia, Japan,
Canada, France, the Benelux countries, Germany, the United Kingdom, Italy and
Spain for "NeoPath" and "AutoPap." TriPath has applied for registration of its
trademarks in several other foreign countries. The Company also holds
unregistered rights to copyrights on documentation and operating software
developed by it for the PREP and SCREEN systems. There can be no assurance that
any copyrights owned by the Company will provide competitive advantages for the
Company's products or will not be challenged or circumvented by its competitors.
Litigation may be necessary to defend against claims of infringement, to enforce
patents and copyrights of the Company, or to protect trade secrets and could
result in substantial cost to, and diversion of effort by, the Company. There
can be no assurance that the Company would prevail in any such litigation. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights to the same extent as do the laws of the United States.

COMPETITION

     The cervical cancer screening market is comprised of the conventional Pap
smear process and certain technologies that have been introduced in recent years
or are currently under development to provide improvements over the conventional
Pap smear process. The Company's competitors in the development and
commercialization of alternative cervical cancer screening technologies include
both publicly traded and privately held companies. The alternative technologies
known to the Company have focused on improvements in slide sample preparation,
the development of automated, computerized screening systems and adjunctive
testing technologies. Nevertheless, some competitors' products have already
received FDA approval and are being marketed in the United States. In addition,
one of the Company's competitors has substantially greater financial, marketing,
sales, distribution and technical resources than the Company, and more
experience in research and development, clinical trials, regulatory matters,
customer support, manufacturing and marketing. The Company believes that its
products will compete on the basis of a number of factors, including slide

                                       17
<PAGE>   18

specimen adequacy, screening sensitivity, ease of use, efficiency, cost to
customers and performance claims. While the Company believes that its products
will have competitive advantages based on some of these factors, there can be no
assurance that various competitors' products will not have competitive
advantages based on other factors that, when coupled with the earlier market
entry of some products, will adversely effect the market acceptance of PREP and
AutoPap. Moreover, there can be no assurance that the Company will be able to
compete successfully against current or future competitors or that competition,
including the development and commercialization of new products and
technologies, will not have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's products could be
rendered obsolete or uneconomical by technological advances of the Company's
current or potential competitors, the introduction and market acceptance of
competing products or by other approaches.

     The Company's primary competitor in thin-layer slide preparation is Cytyc
Corporation ("Cytyc"). Cytyc's system, the ThinPrep(R) 2000 Processor(TM)
("ThinPrep 2000"), is based on a membrane-filtration separation system rather
than the centrifugation approach used in the AutoCyte PREP process. ThinPrep
2000 is the only other thin-layer sample preparation system approved by the FDA
as a replacement for the conventional Pap smear. It is also used for
non-gynecological applications. The FDA has allowed Cytyc to conclude in the
discussion section of the package insert for ThinPrep 2000 that the sample
preparation ". . . is significantly more effective than the conventional Pap
smear for the detection of Low Grade Squamous Intraepithelial (LSIL) and more
severe lesions in a variety of patient populations." The FDA has also allowed
Cytyc to conclude in the package insert that specimen quality ". . . is
significantly improved over that of conventional Pap smear preparation in a
variety of patient populations." In addition, in October of 1996, Cytyc
announced a non-exclusive co-marketing agreement with Digene Corporation, which
has developed a product that detects the presence or absence of HPV in
precancerous cervical lesions. In September 1997, the FDA approved PMA
supplements submitted by Cytyc and Digene enabling testing for HPV directly from
Cytyc's ThinPrep process cell suspension. The Company anticipates working with
Digene on a PMA supplement for use of PREP's cell suspension with Digene's HPV
test in the United States. In Europe, the AutoCyte PREP cell suspension is
already in routine use with Digene's HPV test. Cytyc has also announced that it
is developing a higher throughput version of its ThinPrep 2000 system (the
ThinPrep 3000). The PMA was submitted to the FDA in the fall of 1999. In January
1999, Cytyc announced that it was expanding its direct sales force by 75 people
to sell directly to hospitals, laboratories and doctors. Finally, in January
2000, Cytyc and Quest Diagnostics announced a multi-year agreement naming
ThinPrep as the exclusive liquid based cervical cancer screening methodology for
Quest. Cytyc's success with implementation of any of the foregoing arrangements
or marketing initiatives may make it more difficult for the Company to promote
PREP in markets in which it competes with Cytyc.

GOVERNMENT REGULATION

     The manufacture and sale of medical diagnostic devices are subject to
extensive governmental regulation in the United States and in other countries.
PREP and AutoPap are regulated for cervical cytology applications in the United
States as medical devices by the FDA under the Federal Food, Drug, and Cosmetic
Act (the "FDC Act") and require premarket approval by the FDA prior to
commercial distribution. In addition, certain modifications to medical devices,
their manufacture or their labeling also are subject to FDA review and approval
before marketing. Pursuant to the FDC Act, the FDA regulates the preclinical and
clinical testing, manufacture, labeling, distribution, sales, marketing,
advertising and promotion of medical devices in the United States. Noncompliance
with applicable requirements, including good clinical practice requirements, can
result in the refusal of the government to grant premarket approval for devices,
suspension or withdrawal of clearances or approvals, total or partial suspension
of production, distribution, sales and marketing, fines, injunctions, civil
penalties, recall or seizure of products, and criminal prosecution of a company
and its officers and employees.

     Medical devices are classified into one of three classes, Class I, II or
III, on the basis of the controls deemed by the FDA to be necessary to
reasonably ensure their safety and effectiveness. Class I devices are subject to
general controls (e.g., labeling and adherence to FDA-mandated quality system
(including QSR) requirements and, in some cases, premarket notification
("510(k)")). Class II devices are subject to general

                                       18
<PAGE>   19

controls including, in most cases, premarket notification, and to special
controls (e.g., performance standards, patient registries and FDA guidelines).
Generally, Class III devices are those that must receive premarket approval by
the FDA to ensure their safety and effectiveness (e.g., life-sustaining,
life-supporting and implantable devices) and also include most devices that were
not on the market before May 28, 1976 ("new medical devices") and for which the
FDA has not made a finding of "substantial equivalence" based on a premarket
notification. Class III devices usually require clinical testing that
demonstrates the device is safe and effective, and must have FDA approval prior
to marketing and distribution. The Company's PREP and AutoPap products, when
intended for gynecological use, are regulated as Class III medical devices.

     PREP and AutoPap and any other products manufactured or distributed by the
Company pursuant to an approved PMA application and supplements (or to 510(k)
clearances) will be subject to pervasive and continuing regulation by the FDA,
including record-keeping requirements and reporting of adverse experience with
the use of the device. TriPath will continue to be inspected on a routine basis
by the FDA for compliance with regulations with respect to manufacturing,
testing, distribution, storage and control activities. TriPath must establish
and maintain a system for tracking AutoPap Systems through the chain of
distribution and conduct postmarket surveillance, and must provide periodic
reports containing safety and effectiveness information. Device manufacturers
are required to register their establishments and list their devices with the
FDA. The FDC Act requires that medical devices be manufactured in accordance
with the FDA's QS regulation. Product labeling and promotional activities are
also subject to scrutiny by the FDA and, in certain instances, by the Federal
Trade Commission. Products may only be promoted by the Company and any of its
distributors for their approved indications. No assurance can be given that
modifications to the labeling which may be required by the FDA in the future
will not adversely affect the Company's ability to market or sell PREP, AutoPap
or other products of the Company.

     In addition, the FDA's Medical Device Reporting regulations require medical
device companies such as TriPath to provide information to the FDA whenever
evidence reasonably suggests that a device may have caused or contributed to a
death or serious injury. These regulations also apply if the device malfunctions
and the device or a similar device sold by the company would be likely to cause
or contribute to a death or serious injury if the malfunction were to recur.

     If the FDA believes that TriPath has not complied with the law, it can take
one or more of the following actions:

     - refuse to review or clear applications to market its products in the
       United States

     - refuse to allow TriPath to enter into government supply contracts;

     - withdraw approvals already granted;

     - require that TriPath notify users regarding newly found risks;

     - request repair, refund or replacement of faulty devices;

     - request corrective advertisements, recalls or temporary marketing
       suspension; or

     - initiate legal proceedings to detain or seize products, enjoin future
       violations or assess criminal penalties against TriPath or its officers
       or employees.

These actions could disrupt TriPath's operations for an indefinite period of
time.

     The Company also is subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. There can be no assurance that the Company
will not be required to incur significant costs to comply with such laws and
regulations in the future, or that such laws or regulations will not have a
material adverse effect upon the Company's business, financial condition and
results of operations.

     Sales of medical devices outside of the United States are subject to
foreign regulatory requirements that vary widely from country to country. The
time required to obtain approval by a foreign country may be longer

                                       19
<PAGE>   20

or shorter than that required for FDA approval, and the requirements may differ.
No assurance can be given that such foreign regulatory approvals will be granted
on a timely basis, or at all. The Company has been advised by various parties,
including consultants engaged by the Company and foreign distributors, that no
regulatory approvals for a device analogous to FDA approval of a PMA are
currently required by any country where the Company currently sells PREP. Such
approval requirements may be imposed in the future. In addition to regulatory
approvals in the United States, the AutoPap System is approved for primary
screening and quality control rescreening in Japan, Canada, Australia, New
Zealand, The Netherlands, Italy, Hong Kong, Korea, and Taiwan. TriPath intends
to pursue additional product registrations in other foreign countries. The
Company received an FDA permit to export PREP and AutoPap to all foreign
countries in which the Company is currently selling these products and where
such a permit was required. There can be no assurance that the Company will meet
the FDA's export requirements or receive additional FDA export approval when
such approval is necessary, or that countries to which the devices are to be
exported will approve the devices for import. Failure of the Company to meet the
FDA's export requirements or obtain FDA export approval when required to do so,
or to obtain approval for import, could have a material adverse effect on the
Company's business, financial condition and results of operations.

     TriPath's products are subject to a variety of regulations in Europe,
including the European Union. In vitro medical devices, including the AutoPap
System, must now comply with the EU's In-Vitro Diagnostic Medical Devices
Directive. The Directive was published in the Official Journal of European
Communities in December 1998. The EU member states will likely implement the
Directive into national law by December 1999. A transition period, which begins
from the date of publication of the Directive and ends December 2003, applies to
all devices placed on the market in the EU. During this transition period, both
Directive "CE" marked and non CE-marked devices may be placed on the market. In
other words, companies may choose to follow either the CE mark or the national
legislation, if any. If no such national legislation exists, the devices can be
freely placed on the market. By the conclusion of this transition period,
TriPath's products must comply with the requirements of the Directive and member
state local language requirements. Products not bearing the CE mark may not be
commercially distributed in European Union member countries.

     Other European countries may enact national laws that would conform to the
Directive. Member states of the EU and the European Economic Area may enact
requirements in addition to those imposed by the Directive. Some European
countries have established national regulations relating to in vitro diagnostic
medical devices. EU directives and national laws impose requirements for
electrical safety and electromagnetic compatibility that apply to the PREP
System, PREPMATE, and AutoPap System. TriPath has performed the requisite
testing procedures and related documentation to apply the European CE mark to
the AutoPap System. TriPath cannot guarantee that the AutoPap System or any
other product it may develop will obtain any required regulatory clearance or
approval on a timely basis, if at all.

     Congress has directed the Department of Health and Human Services to issue
regulations designed to improve the quality of biomedical analytic services,
particularly the examination of Pap smears. These regulations require clinical
laboratories to rescreen at least 10% of the Pap smears classified on initial
manual screen as normal. This 10% must include normal cases selected from the
laboratory's total caseload, and from patients or groups of patients that have a
high probability of developing cervical cancer based on available patient
information. The laboratories that would purchase the Company's PREP and AutoPap
products are subject to extensive regulation under CLIA, which requires
laboratories to meet specified standards in the areas of personnel
qualifications, administration, participation in proficiency testing, patient
test management, quality control, quality assurance and inspections. The Company
believes that its PREP and AutoPap products operate in a manner that will allow
laboratories using the products to comply with CLIA requirements. However, there
can be no assurance that interpretations of current CLIA regulations or future
changes in CLIA regulations would not make compliance by the laboratory
difficult or impossible and therefore have an adverse effect on sales of the
Company's products.

     In addition, laboratories often must comply with state regulations,
inspection, and licensing. In recent years, a few states, including New York and
California, have adopted regulations that limit the number of slides that may be
manually examined by a cytotechnologist within a given period of time. TriPath
cannot

                                       20
<PAGE>   21

guarantee that states will not directly regulate the AutoPap System in the
future. TriPath cannot predict the effect, if any, regulation may have on its
business or operations.

PRODUCT LIABILITY

     Commercial use of any Company products may expose the Company to product
liability claims. The Company currently carries general liability (including
product liability) insurance coverage and believes that the amount carried is
adequate to meet its present needs. The medical device industry has experienced
increasing difficulty in obtaining and maintaining reasonable product liability
coverage, and substantial increases in insurance premium costs in many cases
have rendered coverage economically impractical. To date, the Company has not
experienced difficulty obtaining an amount of insurance coverage commensurate
with its level of sales. As the Company's sales expand, however, there can be no
assurance that the Company's existing product liability insurance will be
adequate or that additional product liability insurance will be available to the
Company at a reasonable cost, or that any product liability claim would not have
a material adverse effect on the Company's business, financial condition and
results of operations.

EMPLOYEES

     As of December 31, 1999 the Company employed approximately 160 people on a
full-time basis. The Company believes that its relations with its employees are
good. None of the Company's employees are a party to a collective bargaining
agreement.

ITEM 1A.  EXECUTIVE OFFICERS OF THE REGISTRANT

     The current executive officers of the Company are as follows:

<TABLE>
<CAPTION>
NAME                                        AGE                     POSITION
----                                        ---                     --------
<S>                                         <C>   <C>
James B. Powell, M.D. ....................  61    President, Chief Executive Officer and
                                                  Director
Thomas Gahm...............................  43    Vice President of Cytology Research and
                                                    Development
Ernest A. Knesel..........................  54    Vice President of Business Development
Eric W. Linsley...........................  38    Chief Financial Officer, Vice President of
                                                    Finance and Treasurer
Roger W. Martin...........................  52    Vice President of Sales and Marketing
Mary K. Norton............................  36    Vice President of Regulatory Affairs and
                                                    Quality Assurance
David H. Robison..........................  49    Vice President of Operations
</TABLE>

     James B. Powell, M.D. has served as a director of the Company since
November 1996 and as its President and Chief Executive Officer since January
1997. Prior to joining TriPath, Dr. Powell served as the President and Chief
Executive Officer of Laboratory Corporation of America Holdings ("LabCorp") from
May 1995 until January 1997. From 1982 until May 1995, Dr. Powell served as
President of Biomedical Reference Laboratories/Roche Biomedical Laboratories,
Inc. ("RBL"), the predecessor to both LabCorp and Roche Image Analysis Systems,
Inc. ("RIAS"), the predecessor of AutoCyte and which he co-founded. He continues
to serve on the board of LabCorp, a publicly traded company. Dr. Powell received
a B.A. degree from Virginia Military Institute and an M.D. from Duke University,
and is board certified in anatomical and clinical pathology.

     Thomas Gahm, Ph.D. has served as Vice President of Computer Science of the
Company since November 1996. Previously, he served RIAS and RBL in the same
capacity since August 1993. From 1983 to 1993, Dr. Gahm was a Scientific Advisor
and Project Coordinator of Kontron Electronics, Image Analysis Division, where
he focused on the commercial development of microscopic image analysis. Dr. Gahm
received an engineering degree from the University of Stuttgart (Institute of
Physical Electronics) and a Ph.D. from the Medical and Technical University of
Hannover, Germany.

     Ernest A. Knesel has served as Executive Vice President of the Company
since November 1996 and served as its interim President from November 1996 until
January 1997. Previously, Mr. Knesel was a founder

                                       21
<PAGE>   22

of RIAS and served as President of RIAS from May 1989 until joining TriPath. Mr.
Knesel also was a co-founder of RBL, for which he served as Senior Vice
President and was responsible for Scientific Affairs from June 1969 until 1993.
Mr. Knesel received a B.S. in medical technology and an M.S. in biochemistry
from Fairleigh Dickinson University.

     Eric W. Linsley has served as Vice President of Operations and Business
Development of the Company since May 1997. Prior to joining TriPath, Mr. Linsley
was a partner with Ampersand Ventures ("Ampersand"), a venture capital firm,
from 1991 to May 1997, and, in connection with such position, served as interim
management in operating and financial roles for various industrial products and
health care companies. From 1989 to 1991, Mr. Linsley was a management
consultant with Bain & Co. In 1988, he served in the same capacity with McKinsey
& Co. He also has worked as a certified public accountant with Arthur Andersen
LLP from 1984 to 1987. He received a B.A. from Trinity College, an M.S. in
accounting from New York University and an M.B.A. from the Wharton School at the
University of Pennsylvania.

     Roger W. Martin has served as Vice President of Sales and Marketing since
December 1999. Prior to joining TriPath, Mr. Martin provided sales and marketing
consultation for several development stage companies. From 1994 to 1998, he was
employed by Roche Diagnostic Systems, a division of Hoffmann-La Roche as the
Western Area Sales Manager. Additionally, Mr. Martin was responsible for
National Account Management. Mr. Martin was employed by Becton Dickinson Primary
Care, a division of Becton Dickinson and Co., from 1979 to 1994. He held various
sales management and sales positions with Becton Dickinson.

     Mary K. Norton has served as Vice President of Regulatory/Government
Affairs and Quality Assurance since May 1998. Ms. Norton joined TriPath in
August 1996 and served as the Company's Director of Regulatory and Clinical
Affairs. In May 1998, Ms. Norton was named Vice President, Regulatory Affairs
and Quality Assurance, and in January 1999, was named Vice President,
Regulatory/Government Affairs & Quality Assurance. Prior to joining TriPath, Ms.
Norton managed Regulatory Affairs and Quality Assurance from July 1994 through
May 1996 at Bioject, Inc., a company that develops, manufactures and markets
advanced needle-free drug delivery systems. Ms. Norton was employed by Siemens
Medical Systems, Ultrasound Group, as Senior Biomedical Engineer from August
1992 to June 1994. From September 1987 to October 1990, Ms. Norton was employed
by Advanced Technology Laboratories.

     David H. Robison has served as Vice President of Operations since May 1996.
Prior to joining TriPath, Mr. Robison was employed by Abbott Laboratories in
various positions from February 1978 through May 1996. From February 1995 to May
1996, Mr. Robison was Research and Development Director for Abbott's Diagnostic
Division, and from May 1990 to February 1995 he was Director, Customer
Satisfaction.

ITEM 2.  PROPERTIES

     The Company currently leases a total of 43,000 square feet of space devoted
to manufacturing, warehousing, administrative, research and development and
engineering functions, at 780 Plantation Drive, Burlington, North Carolina under
a seven-year lease expiring in July 2005. The lease is renewable for five
additional one-year terms. TriPath leases approximately 72,000 square feet of
office and manufacturing space in Redmond, Washington under operating leases
expiring through January 2007, with various renewal options. TriPath believes
that its facilities and other available office space are adequate for its
current needs. The Company also currently leases a 5,000 square foot education
facility at 1111 Huffman Mill Road in Burlington, North Carolina under a
three-year lease expiring in June 2001. The education facility lease is
renewable for one additional three-year term, and also contains an option to
expand the leased space by 4,500 square feet. TriPath also leases office space
in Brussels, Belgium, under an operating lease expiring in August 2007.

ITEM 3.  LEGAL PROCEEDINGS

     On September 13, 1999, Cytyc Corporation filed suit against TriPath in the
United States District Court for the District of Delaware. The complaint alleges
that the Company's CytoRich(R) proprietary preservative fluid infringes Cytyc's
patent titled "Cell Preservative Solution." The complaint seeks a determination
that TriPath is infringing Cytyc's patent and an injunction preliminarily and
permanently enjoining and restraining TriPath from further infringing Cytyc's
patent. The complaint also seeks treble damages, plus interest, in an amount to
be determined, as well as costs and reasonable attorneys fees. On October 18,
1999, TriPath filed its

                                       22
<PAGE>   23

response denying Cytyc's claims. On December 6, 1999, the Company demanded Cytyc
withdraw its motion for preliminary injunction. On December 7, 1999, Cytyc
complied with this request and withdrew their motion for preliminary injunction.
On March 10, 2000, the Company filed a motion for summary judgement.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     There were no matters submitted to a vote of security holders of the
Company during the fourth quarter of the fiscal year ended December 31, 1999.

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's common stock, $0.01 par value per share (the "Common Stock"),
is traded on the Nasdaq National Market under the symbol "TPTH". The following
table sets forth, for the calendar periods indicated, the range of high and low
sales prices for the Common Stock of the Company on the Nasdaq National Market.
These prices do not include retail mark-up, mark-down or commissions and may not
represent actual transactions.

<TABLE>
<CAPTION>
                                                               HIGH        LOW
                                                              ------      ------
<S>                                                           <C>         <C>
FISCAL YEAR 1998:
  First Quarter.............................................  $8.375      $4.000
  Second Quarter............................................  $8.250      $4.500
  Third Quarter.............................................  $6.375      $2.875
  Fourth Quarter............................................  $4.438      $2.250
FISCAL YEAR 1999:
  First Quarter.............................................  $7.750      $3.188
  Second Quarter............................................  $8.250      $5.188
  Third Quarter.............................................  $7.125      $3.500
  Fourth Quarter............................................  $6.625      $3.500
</TABLE>

     On March 21, 2000, the last reported sales price of the Common Stock on the
Nasdaq National Market was $8.25 per share. As of March 21, 2000, there were
approximately 271 holders of record of the Common Stock.

     Use of proceeds information is provided herewith in connection with the
Company's initial public offering in September 1997 (the "Offering"). The
Company's Registration Statement on Form S-1, Commission file number 333-30227,
was declared effective by the Securities and Exchange Commission on September 4,
1997.

     In connection with the Offering, the Company incurred the following
expenses through December 31, 1999: underwriting discounts and commissions of
$2,187,000 and other expenses of $1,169,339. After expenses incurred through
December 31, 1999, the Company's net proceeds from the Offering were
$27,893,661. From September 5, 1997 (the effective date of the Company's
Registration Statement on Form S-1) through December 31, 1999, the amount of net
offering proceeds used by the Company was as follows: $2,896,943 for purchases
of machinery and equipment, $18,942,014 to fund current operations (of which
$2,886,661 was paid to officers of the Company), $4,307,426 for the purchase of
intangible assets, and $1,747,278 for working capital purposes.

DIVIDEND POLICY

     The Company has never declared or paid cash dividends on its capital stock.
The Company currently intends to retain its future earnings, if any, for use in
its business and therefore does not anticipate paying cash dividends in the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of the Company's Board of Directors after taking into account various
factors, including the Company's financial condition, operating results, current
and anticipated cash needs and plans for expansion.

                                       23
<PAGE>   24

ITEM 6.  SELECTED FINANCIAL DATA

     The selected consolidated financial data presented below has been restated
to reflect the pooling transaction that occurred on September 30, 1999. The
selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and related
Notes thereto included in this Form 10-K.

<TABLE>
<CAPTION>
                                                                     TRIPATH        TRIPATH        TRIPATH
                                      YEAR ENDED     YEAR ENDED     YEAR ENDED     YEAR ENDED     YEAR ENDED
                                     DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                       1995 (1)       1996 (2)         1997           1998           1999
                                     ------------   ------------   ------------   ------------   ------------
                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                  <C>            <C>            <C>            <C>            <C>
STATEMENT OF OPERATIONS DATA:
  Net sales........................    $  3,396       $  4,938       $ 13,492       $ 16,849       $ 18,466
  Gross profit.....................         982            125          6,765          7,155          8,098
  Research and development.........      14,458         15,568         18,711         15,969         12,258
  Selling, general and
     administrative................      14,522         23,786         24,278         25,408         17,724
  Operating loss...................     (27,998)       (39,229)       (36,224)       (37,307)       (33,251)
  Net loss.........................    $(26,353)      $(35,501)      $(34,582)      $(35,271)      $(32,557)
                                       ========       ========       ========       ========       ========
  Net loss per Share (basic and
     diluted) (3)..................                                  $  (1.91)      $  (1.46)      $  (1.17)
                                                                     ========       ========       ========
  Weighted-average shares
     outstanding (3)...............                                    18,123         24,098         27,819
                                                                     ========       ========       ========
</TABLE>

<TABLE>
<CAPTION>
                                                                     TRIPATH
                                     ------------------------------------------------------------------------
                                     DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                       1995 (1)         1996           1997           1998           1999
                                     ------------   ------------   ------------   ------------   ------------
                                                                  (IN THOUSANDS)
<S>                                  <C>            <C>            <C>            <C>            <C>
BALANCE SHEET DATA:
  Cash, cash equivalents and
     securities available for
     sale..........................    $ 23,440       $ 68,005       $ 57,374       $ 28,941       $ 13,962
  Working capital..................      26,461         71,493         64,881         32,553         17,338
  Total assets.....................      38,730         92,815         95,962         68,176         58,874
  Long term obligations............         258            183            151          2,051          1,117
  Redeemable convertible preferred
     stock.........................          --          9,882             --             --             --
  Total stockholders' equity.......      35,135         76,837         88,255         55,075         47,025
</TABLE>

---------------

(1) Reflects the operations of TriPath, as conducted by NeoPath, Inc., and the
    Company's predecessor, the cytology and pathology automation business as
    conducted by Roche Image Analysis Systems, Inc. ("RIAS").
(2) Reflects the operations of the cytology and pathology automation business as
    conducted by RIAS from January 1, 1996 through November 21, 1996, the
    operations of TriPath, as conducted by NeoPath for the year ended December
    31, 1996, and the operations of the TriPath, as conducted by AutoCyte, Inc.,
    from November 22, 1996 through December 31, 1996.
(3) See Note 2 of Notes to the Company's Consolidated Financial Statements for
    information concerning the computation of net loss per share and shares used
    in computing net loss per share. Net loss per share is not disclosed for
    periods prior to November 22, 1996 since RIAS operated as a wholly owned
    subsidiary of Roche Holding Ltd. prior to the formation of AutoCyte.

                                       24
<PAGE>   25

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

OVERVIEW

     The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere in this Form 10-K.

  Background

     TriPath develops, manufactures and markets products to improve cervical
cancer screening. Improved slide preparation technology is delivered through the
AutoCyte PREP System(TM) ("PREP"), a proprietary automated thin-layer cytology
sample preparation system that produces representative slides with a
homogeneous, thin-layer of cervical cells, and is one of only two sample
preparation systems approved by the FDA as a replacement for the conventional
Pap smear. TriPath also delivers visual intelligence technology to increase
accuracy and productivity in medical testing through the AutoPap(R) Primary
Screening System ("AutoPap"), which utilizes proprietary technology to
distinguish between normal Pap smears and those that have the highest likelihood
of abnormality. In May 1998, AutoPap was approved by the U.S. Food and Drug
Administration as the first and only fully automated device for primary
screening of Pap smear slides. On October 6, 1999, TriPath announced submission
of a supplement to the FDA for the screening of PREP slides by the AutoPap.

     TriPath generates PREP revenue from the sale or rental of PREP systems and
the sale of the related test kits, comprised of proprietary reagents and other
disposables. For system sales, customers purchase the PREP instrument and make
separate purchases of test kits. For system rentals, customers pay a fixed
monthly fee for the equipment and make separate purchases of test kits. The
Company also has an Integrated Purchase Option ("IPO") program where the PREP
instrument is placed at the customer's site free of charge, and the customer
pays a higher per-test price for the reagents and disposables. Each PREP system
placed typically provides a recurring revenue stream as the customers process
the test kits sold by the Company.

     TriPath generates AutoPap revenue from the sale of AutoPap systems or on a
fee-per-use basis. Fee-per-use revenue commences in the month a system is
initially placed in commercial use at a customer site and consists of per-slide
monthly billings, fixed rental billings, and minimum payments due on certain
fee-per-use contracts.

     The Company's strategy is to maximize the number of instruments placed with
customers and thereby increase its ongoing, higher margin reagent and
fee-per-use revenue streams. As an important element of this strategy, the
Company has entered into an agreement with a finance company to support the
placement of PREP rental and IPO systems and AutoPap fee-per-use systems.

     TriPath's future revenues and the results of operations may change
significantly from quarter to quarter and will depend on many factors,
including:

     - the extent to which the Company's products gain market acceptance;

     - the timing and volume of system placements;

     - regulatory and reimbursement matters;

     - introduction of alternative technologies by competitors;

     - pricing of competitive products; and

     - the cost and effect of promotional discounts and marketing programs we
       adopt.

     Having received FDA approval to market PREP for gynecological uses, TriPath
expects marketing and sales expenditures to increase significantly. TriPath also
anticipates that manufacturing expenses will increase as product
commercialization increases.

     The Company has not generated any taxable income to date and, therefore,
has not paid any federal income taxes since its inception. Realization of
deferred tax assets is dependent on future earnings, if any, the

                                       25
<PAGE>   26

timing and amount of which are uncertain. Accordingly, valuation allowances, in
amounts equal to the net deferred tax assets as of December 31, 1999 and 1998,
have been established in each period to reflect these uncertainties.

     At December 31, 1999, the Company had net operating losses, for tax
purposes, of approximately $158.8 million that may be carried forward to offset
future taxable income. This amount expires in 2011 through 2013. Utilization of
net operating losses and any tax credit carryforwards are subject to complex
treatment under the Internal Revenue Code of 1986, as amended (the "Code").
Pursuant to Section 382 of the Code, the change in ownership resulting from the
Company's initial public offering in September 1997 (the "Offering") and any
other future sale of stock may limit utilization of future losses in any one
year. The Company believes that the sale of Common Stock in the Offering did not
create any immediate limitations on the Company's utilization of net operating
losses.

     The consolidated financial results for 1999, 1998 and 1997 have been
restated to include the results of NeoPath, Inc., with which the Company merged
on September 30, 1999 (the "Merger"). The Merger was a tax-free reorganization
and was accounted for as a pooling of interests.

RESULTS OF OPERATIONS

  Years ended December 31, 1999 and 1998

     Revenues -- Revenues for the year ended December 31, 1999 were $18.5
million, a 10% increase from revenues of $16.8 million for 1998. The increase in
revenues is attributable to a $4.7 million increase in AutoPap fee-per-use
revenue, offset by a $4.1 million decrease in AutoPap product sales, and a $2.4
million increase in PREP revenue offset by a $1.4 million decrease in Pathology
Workstation products.

     Gross Margin -- Gross margin increased from 42% in 1998 to 44% in 1999.
Contributing to the increase in 1999 was an increase in PREP revenue for
gynecological purposes, partially offset by a decrease in foreign sales of
AutoPap units.

     Research and Development -- Research and development expenses for 1999 were
$12.3 million, a 23% decrease from $16.0 million in 1998. This decrease was
primarily attributable to decreased net development costs on additional AutoPap
applications, elimination of Pathfinder development expenses and the elimination
of redundant research and development efforts after the merger.

     Selling, General and Administrative -- Selling, general and administrative
expenses for 1999 were $17.7 million, a 30% decrease from $25.4 million in 1998.
This decrease is due to headcount reduction occurring during 1999 and the
elimination of redundant functions after the merger.

     Transaction, Integration and Restructuring Costs -- In connection with its
merger with NeoPath, the Company incurred approximately $8.4 million of
nonrecurring transaction, integration and restructuring costs. These costs
consisted primarily of $2.6 million in write-offs of assets, primarily property
and equipment, $1.9 million of professional and transaction fees, a $1.3 million
write-off of intangible assets, and $1.1 million of severance costs.

     Net Loss from Operations -- Net loss from operations during 1999 was $33.3
million, an 11% improvement from $37.3 million in 1998. This improvement is due
to the 10% increase in revenues and the reduction of research and development
expenses in 1999, partially offset by the $8.4 million in non-recurring expenses
related to the merger.

     Interest Income and Expense -- Interest income for 1999 was $1.1 million, a
52% decrease from $2.3 million during 1998, primarily attributable to the lower
average cash balance during 1999. Interest expense for 1999 was $416,000
compared to $274,000 during 1998. This increase is due to additional equipment
financing entered into in 1999.

                                       26
<PAGE>   27

  Years ended December 31, 1998 and 1997

     Revenues -- Revenues for 1998 were $16.8 million, a 25% increase from $13.5
million in 1997. This increase was due primarily to a $1.0 million increase in
AutoPap fee-per-use revenue. The increase in fee-per-use revenues resulted from
higher overall per-slide pricing and increased placements during 1998. Also
contributing to the increase in revenues was a $500,000 increase in sales of
PREP units and related consumables and a $1.7 million increase in Pathology
Workstation revenues.

     Gross Margin -- Gross margin for 1998 was 42%, a decrease from 50% in 1997.
This decrease was primarily attributable to discounts and incentives the Company
offered in AutoPap QC sale pricing in the first half of 1998 as customers
anticipated FDA approval of the AutoPap Primary Screener, as well as pricing
incentives the Company offered in the second half of the year as it signed
initial orders for AutoPap Primary Screeners. Additionally, due to
lower-than-optimal usage of certain AutoPap Systems on fee-per-use contracts,
the overall gross margin percentage on fee-per-use revenues was lower than the
gross margin percentage on AutoPap Systems sold.

     Research and Development -- Research and development expenses for 1998 were
$16.0 million, a 15% reduction from $18.7 million in 1997. The Company incurred
higher research and development costs in 1997 than in 1998 primarily due to its
AutoPap Screener clinical study, which the Company completed in 1997.

     Selling, General and Administrative -- Selling, general and administrative
expenses remained relatively flat, increasing 5% from $24.3 million in 1997 to
$25.4 million in 1998. Although the Company increased expenses in the first half
of 1998 to launch the AutoPap Primary Screener, the Company reduced overall
spending in the second half of 1998 as it carefully focused corporate spending.

     Nonrecurring Expenses -- During the fourth quarter of 1998, the Company
wrote off $3.1 million of intangible assets related to the Pathfinder System
product line. The write-off did not require any cash expenditure. The Company
acquired the Pathfinder System product line in June 1997 and recognized $4.3
million in intangible assets that were to be amortized over five years. Due to
continuing low sales levels of Pathfinder systems, and related losses
attributable directly to the Pathfinder product line, the Company identified
indications of impairment in the fourth quarter of 1998 and later decided to
discontinue development and commercialization of this product line. The Company
compared the carrying value of these intangible assets to expected future cash
flows applicable to the Pathfinder product and, as a result, wrote off the
remaining balance of intangible assets. Pathfinder product sales accounted for
approximately 2% total revenues in 1998 and 1997.

     Net Loss from Operations -- Net loss from operations for 1998 was $37.3
million. Excluding the nonrecurring transaction, net loss from operations was
$34.2 million, a 6% improvement from $36.2 million in 1997.

     Interest Income and Expense -- Interest income for 1998 was $2.3 million, a
27% decrease from $3.2 million during 1997, primarily attributable to the lower
average cash balance during 1998. Interest expense for 1998 was $274,000, a
decrease from $1.5 million in the corresponding period of 1997. The significant
interest expense in 1997 was due to the one-time, non-cash expense resulting
from the issuance of warrants as a commitment fee for a credit agreement between
the Company and certain of its principal stockholders.

RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133, as amended by Statement of Financial Accounting Standards No.
137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral
of the FASB No. 133" ("SFAS 137"), is effective for years beginning after June
15, 2000. SFAS 133 establishes a comprehensive and consistent standard for the
recognition and measurement of derivatives and hedging activities. The Company
will adopt SFAS 133 in 2001, which may result in additional disclosures. The
application of the new rules is not expected to have a significant impact on the
Company's financial position or results from operations.

                                       27
<PAGE>   28

LIQUIDITY AND CAPITAL RESOURCES

     Since its formation on October 24, 1996, the Company's expenses have
significantly exceeded its revenues, resulting in an accumulated deficit of
$167.4 million as of December 31, 1999. The Company has funded its operations
primarily through the private placement and public sale of equity securities,
resulting in net proceeds of $148.6 million, debt facilities and limited product
sales. As of December 31, 1999, the Company had cash and cash equivalents of
$14.0 million.

     Cash used in the Company's operations was $23.0 million in 1999, $30.5
million during 1998 and $37.0 million during 1997. Negative operating cash flow
during 1999, 1998 and 1997 was caused primarily by operating losses. The
Company's capital expenditures were $500,000 in 1999, $2.3 million during 1998
and $1.8 million during 1997, with the expenditures primarily attributable to
the purchase of PREP and AutoPap units for rental and demonstration purposes.
The Company has no material commitments for capital expenditures.

     On February 8, 2000 the Company closed on an agreement for a $7.0 million
subordinated debt facility. The Company has drawn $5.25 million under the
facility and expects to draw the remaining $1.75 million in May 2000 or sooner.

     On February 10, 2000, the Company obtained a $5.0 million working capital
facility from a bank. The Company has drawn on this line to retire a $1.2
million term loan that had been in place.

     The Company believes that its existing cash and anticipated additional debt
and lease financing for internal use assets, rental placements of PREP and
fee-per-use placements of AutoPap, will be sufficient to enable the Company to
meet its future cash obligations through 2000. The Company's future liquidity
and capital requirements will depend upon numerous factors, including the level
of placements of IPO and rental PREP systems and fee-per-use AutoPap systems,
the resources required to further develop its marketing and sales capabilities
domestically and internationally, the resources required to expand manufacturing
capacity and the extent to which the Company's products generate market
acceptance and demand. In particular, the Company anticipates that marketing and
sales expenditures for the PREP market launch for gynecological uses in the
United States, capital expenditures associated with placements of PREP IPO and
rental units, and expenditures related to manufacturing and other administrative
costs will increase significantly. There can be no assurance that the Company
will not require additional financing or will not in the future seek to raise
additional funds through bank facilities, debt or equity offerings or other
sources of capital. Additional funding may not be available when needed or on
terms acceptable to the Company, which would have a material adverse effect on
the Company's business, financial condition and results of operations.

     The discussion included in this section, as well as elsewhere in the Annual
Report on Form 10-K, may contain forward-looking statements based on current
expectation of the Company's management. Such statements are subject to risks
and uncertainties that could cause actual results to differ from those
projected. See "Important Factors Regarding Forward-Looking Statements" attached
hereto as Exhibit 99.1 and incorporated by reference into this Form 10-K.
Readers are cautioned not to place undue reliance on the forward looking
statements, which speak only as the date hereof. The Company undertakes no
obligation to publicly release the result of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
occurring after the date hereof or to reflect the occurrence of unanticipated
events.

YEAR 2000 DISCLOSURE

     The Company has assessed its computer systems for year 2000 readiness and
replaced all systems and software it found to be noncompliant. These
replacements were generally part of a regular upgrade program. In addition, the
Company tested all of its systems and software and has obtained verifications
from its vendors that systems they supplied are year 2000 ready. The Company
believes that any year 2000 problem is unlikely to arise in the future, and that
if any problem does arise, it will be able to fix the problem quickly and
without material expenses.

                                       28
<PAGE>   29

     To date, the Company has not experienced any disruptions of operations due
to year 2000 problems, nor has it received notice from any of its customers
about problems resulting from non-year 2000 compliant software.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     The Company's financial results and cash flows are subject to fluctuation
due to changes in interest rates, primarily from its investment of available
cash balances in highly rated institutions. Under its current policies, the
Company does not use interest rate derivative instruments to manage exposure to
interest rate changes.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The information required by this item may be found on pages F-1 through
F-19 of this Form 10-K.

ITEM 9.  DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     There have been no changes in or disagreements with accountants on
accounting or financial disclosure matters in the last fiscal year.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The response to this item is contained in part under the caption "Executive
Officers of the Registrant" in Part I, Item 1A hereof and the remainder is
incorporated herein by reference from the discussion responsive thereto under
the captions "Election of Directors" and "Section 16(a) Beneficial Reporting
Compliance" in the Company's Proxy Statement relating to its Annual Meeting of
Stockholders scheduled for June 1, 2000 (the "Proxy Statement").

ITEM 11.  EXECUTIVE COMPENSATION

     The response to this item is incorporated herein by reference from the
discussion responsive thereto under the captions "Election of Directors,"
"Director Compensation," "Executive Compensation" and "Compensation Committee
Interlocks and Insider Participation" in the Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The response to this item is incorporated herein by reference from the
discussion responsive thereto under the caption "Share Ownership" in the Proxy
Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The response to this item is incorporated herein by reference from the
discussion responsive thereto under the caption "Certain Transactions" in the
Proxy Statement.

                                       29
<PAGE>   30

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

(a) 1.Financial Statements

      The consolidated financial statements are listed under Part II, Item 8 of
      this report.

     2.Financial Statement Schedule

       Schedules not listed above have been omitted because the information
       required to be set forth therein is not applicable or is shown in the
       accompanying Consolidated Financial Statements and related notes thereto.

     3.Exhibits

       The exhibits are listed under Part IV, Item 14(c) of this report.

(b) Reports on Form 8-K

     On October 7, 1999, the Company filed on Form 8-K to include financial
information of NeoPath, Inc. giving effect to TriPath's September 30, 1999
merger with NeoPath, Inc.

     On November 19, 1999, the Company filed an amendment on Form 8-K to include
pro forma financial information of TriPath giving effect to TriPath's September
30, 1999 merger with NeoPath, Inc.

     On December 6, 1999, the Company filed on Form 8-K to include financial
information of TriPath giving effect to TriPath's first month of operations as a
combined company, ended as of October 31, 1999,

(c) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<C>       <S>
  2.1     Agreement and Plan of Merger dated June 4, 1999 among
          AutoCyte, Trilogy Acquisition Corp. and NeoPath, Inc. Filed
          as Exhibit 2.1 to the Company's Form 8-K (File No.
          333-30227) filed on June 23, 1999 and incorporated herein by
          reference.
  3.1     Restated Certificate of Incorporation of the Company. Filed
          as Exhibit 3.5 to the Company's Registration Statement on
          Form S-1 (File No. 333-30227) and incorporated herein by
          reference.
  3.2     Amended and Restated By-laws of the Company. Filed as
          Exhibit 3.7 to the Company's Registration Statement on Form
          S-1 (File No. 333-30227) and incorporated herein by
          reference.
  4.1     Specimen of Common Stock Certificate. Filed as Exhibit 4.1
          to the Company's Registration Statement on Form S-1 (File
          No. 333-30227) and incorporated herein by reference.
 10.1*    Amended and Restated 1996 Equity Incentive Plan (including
          forms of incentive stock option certificate and nonstatutory
          stock option certificate). Filed as Exhibit 10.1 to the
          Company's Registration Statement on Form S-1 (File No.
          333-30227) and incorporated herein by reference.
 10.2*    1997 Director Stock Option Plan (including form of director
          nonstatutory stock option certificate). Filed as Exhibit
          10.2 to the Company's Registration Statement on Form S-1
          (File No. 333-30227) and incorporated herein by reference.
 10.3     Lease Agreement dated as of March 10, 1993 by and between
          Carolina Hosiery Mills, Inc. and Roche Biomedical
          Laboratories, Inc. ("RBL"), the predecessor of the Company's
          predecessor (including notices of renewal thereof dated
          December 27, 1995 and March 24, 1997). Filed as Exhibit 10.3
          to the Company's Registration Statement on Form S-1 (File
          No. 333-30227) and incorporated herein by reference.
</TABLE>

                                       30
<PAGE>   31

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<C>       <S>
 10.4     Lease Agreement dated as of April 25, 1995 by and between
          RBL, the predecessor of the Company's predecessor, and Roche
          Image Analysis Systems, Inc. ("RIAS"), the Company's
          predecessor (including notices of renewal thereof dated
          January 10, 1996 and March 18, 1997). Filed as Exhibit 10.4
          to the Company's Registration Statement on Form S-1 (File
          No. 333-30227) and incorporated herein by reference.
 10.5+    OEM Supply Agreement dated January 13, 1995 between Tecan AG
          and RIAS, the Company's predecessor. Filed as Exhibit 10.6
          to the Company's Registration Statement on Form S-1 (File
          No. 333-30227) and incorporated herein by reference.
 10.6+    Amendment to the OEM Supply Agreement dated October 14, 1996
          between Tecan AG and RIAS, the Company's predecessor. Filed
          as Exhibit 10.7 to the Company's Registration Statement on
          Form S-1 (File No. 333-30227) and incorporated herein by
          reference.
 10.7     Agreement dated July 26, 1993 by and between Technical
          Precision Plastics, Inc. and RIAS, the Company's
          predecessor. Filed as Exhibit 10.8 to the Company's
          Registration Statement on Form S-1 (File No. 333-30227) and
          incorporated herein by reference.
 10.8     Registration Rights Agreement dated as of November 22, 1996
          by and among the Company and the individuals and entities
          listed on Exhibit A thereto (including amendment thereof
          dated June 26, 1997). Filed as Exhibit 10.9 to the Company's
          Registration Statement on Form S-1 (File No. 333-30227) and
          incorporated herein by reference.
 10.9     Contribution Agreement dated as of November 22, 1996 by and
          among HLR Holdings Inc., RIAS and the Company. Filed as
          Exhibit 10.10 to the Company's Registration Statement on
          Form S-1 (File No. 333-30227) and incorporated herein by
          reference.
 10.10    Form of Indemnification Agreement between the Company and
          its Directors and Executive Officers. Filed as Exhibit 10.11
          to the Company's Registration Statement on Form S-1 (File
          No. 333-30227) and incorporated herein by reference.
 10.11    Lease Agreement dated as of July 28, 1997 by and between
          Carolina Hosiery Mills, Inc. and the Company. Filed as
          Exhibit 10.12 to the Company's Registration Statement on
          Form S-1 (File No. 333-30227) and incorporated herein by
          reference.
 10.12    Renewal dated January 6, 1998 of Lease Agreement dated as of
          April 25, 1995 by and between RBL, the predecessor of the
          Company's predecessor, and RIAS, the Company's predecessor.
          Filed as Exhibit 10.12 to the Company's Form 10-K for the
          year ended December 31, 1997 (File No. 0-22885) and
          incorporated herein by reference.
 10.13    Lease Agreement dated July 8, 1998 by and between Laboratory
          Corporation of America (TM) Holdings and AutoCyte, Inc.
          Filed as Exhibit 10.1 to the Company's Form 10-Q for the
          quarter ended September 30, 1998 (File No. 0-22885) and
          incorporated herein by reference.
 10.14    Lease Agreement dated June 12, 1998 by and between Carolina
          Hosiery Mills, Inc. and AutoCyte, Inc. Filed as Exhibit 10.1
          to the Company's Form 10-Q for the quarter ended June 30,
          1998 (File No. 0-22885) and incorporated herein by
          reference.
 10.15+   Supply Agreement dated June 1, 1998 by and between Technical
          Precision Plastics, Inc. and AutoCyte, Inc. Filed as Exhibit
          10.2 to the Company's Form 10-Q for the quarter ended June
          30, 1998 (File No. 0-22885) and incorporated herein by
          reference.
 10.16+   Supply Agreement dated March 5, 1998 by and between Tecan AG
          and AutoCyte, Inc. Filed as Exhibit 10.3 to the Company's
          Form 10-Q for the quarter ended June 30, 1998 (File No.
          0-22885) and incorporated herein by reference.
 10.17    Master Loan and Security Agreement dated December 21, 1998
          by and between Oxford Venture Finance, LLC and AutoCyte,
          Inc. Filed as Exhibit 10.17 to the Company's Form 10-K for
          the year ended December 31, 1998 (File No. 0-22885) and
          incorporated herein by reference.
</TABLE>

                                       31
<PAGE>   32

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<C>       <S>
 10.18    Amendment dated March 2, 1999 to Lease Agreement dated July
          28, 1997 between Carolina Hosiery Mills, Inc. and AutoCyte,
          Inc. Filed as Exhibit 10.1 to the Company's Form 10-Q for
          the quarter ended March 31, 1999 (File No. 0-22885) and
          incorporated herein by reference.
 10.19    Asset Purchase Agreement by and between AutoCyte, Inc. and
          Neuromedical Systems, Inc. dated as of March 25, 1999. Filed
          as Exhibit 10.2 to the Company's Form 10-Q for the quarter
          ended March 31, 1999 (File No. 0-22885) and incorporated
          herein by reference.
 10.20+   OEM Supply Agreement dated as of June 26, 1999 by and
          between Tecan AG and AutoCyte, Inc. Filed as Exhibit 10.20
          to the Amendment No. 2 to the Company's S-1 (File No.
          333-82121) and incorporated herein by reference.
 10.21    Intellectual Property Purchase Agreement dated as of April
          24, 1999 by and between NeoPath, Inc. and AutoCyte, Inc.
          Filed as Exhibit 10.20 to the Amendment No. 2 to the
          Company's S-1 (File No. 333-82121) and incorporated herein
          by reference.
 10.22+   Master Agreement dated as of November 18, 1999 by and
          between TriPath Imaging, Inc. and Laboratory Corporation of
          America Holdings. Filed herewith.
 23.1     Consent of Ernst & Young LLP, independent auditors to the
          Company. Filed herewith.
 27.1     Financial Data Schedule. Filed herewith. (For SEC use only).
 99.1     Important Factors Regarding Forward-Looking Statements.
          Filed herewith.
</TABLE>

---------------

* Indicates a management contract or compensatory plan.
+ Certain confidential material contained in the document has been omitted and
  filed separately with the Securities and Exchange Commission pursuant to both
  Rule 406 of the Securities Act of 1933, as amended, and Rule 24b-2 of the
  Securities Exchange Act, as amended, as applicable. Omitted information is
  identified with asterisks in the appropriate places in the agreement.

                                       32
<PAGE>   33

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Burlington, State of North Carolina, on March 30, 2000.

                                          TRIPATH IMAGING, INC.

                                          BY:   /s/ JAMES B. POWELL, M.D.
                                             -----------------------------------
                                                    James B. Powell, M.D.
                                                PRESIDENT AND CHIEF EXECUTIVE
                                                           OFFICER

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on this 30th day of March, 2000.

<TABLE>
<CAPTION>
                      SIGNATURE                                            TITLE
                      ---------                                            -----
<C>                                                    <S>

              /s/ JAMES B. POWELL, M.D.                President, Chief Executive Officer and
-----------------------------------------------------    Director (Principal Executive Officer)
                JAMES B. POWELL, M.D.

                 /s/ ERIC W. LINSLEY                   Chief Financial Officer, Vice President of
-----------------------------------------------------    Finance and Treasurer (Principal Financial
                   ERIC W. LINSLEY                       Officer and Principal Accounting Officer)

            /s/ THOMAS A. BONFIGLIO, M.D.              Director
-----------------------------------------------------
              THOMAS A. BONFIGLIO, M.D.

               /s/ RICHARD A. CHARPIE                  Director
-----------------------------------------------------
                 RICHARD A. CHARPIE

            /s/ HAYWOOD D. COCHRANE, JR.               Director
-----------------------------------------------------
              HAYWOOD D. COCHRANE, JR.

                 /s/ ROBERT E. CURRY                   Director
-----------------------------------------------------
                   ROBERT E. CURRY

                 /s/ ALAN C. NELSON                    Director
-----------------------------------------------------
                   ALAN C. NELSON

                /s/ DAVID A. THOMPSON                  Director
-----------------------------------------------------
                  DAVID A. THOMPSON
</TABLE>

                                       33
<PAGE>   34

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<C>       <S>
   2.1    Agreement and Plan of Merger dated June 4, 1999 among
          AutoCyte, Trilogy Acquisition Corp. and NeoPath, Inc. Filed
          as Exhibit 2.1 to the Company's Form 8-K (File No.
          333-30227) filed on June 23, 1999 and incorporated herein by
          reference.
   3.1    Restated Certificate of Incorporation of the Company. Filed
          as Exhibit 3.5 to the Company's Registration Statement on
          Form S-1 (File No. 333-30227) and incorporated herein by
          reference.
   3.2    Amended and Restated By-laws of the Company. Filed as
          Exhibit 3.7 to the Company's Registration Statement on Form
          S-1 (File No. 333-30227) and incorporated herein by
          reference.
   4.1    Specimen of Common Stock Certificate. Filed as Exhibit 4.1
          to the Company's Registration Statement on Form S-1 (File
          No. 333-30227) and incorporated herein by reference.
  10.1*   Amended and Restated 1996 Equity Incentive Plan (including
          forms of incentive stock option certificate and nonstatutory
          stock option certificate). Filed as Exhibit 10.1 to the
          Company's Registration Statement on Form S-1 (File No.
          333-30227) and incorporated herein by reference.
  10.2*   1997 Director Stock Option Plan (including form of director
          nonstatutory stock option certificate). Filed as Exhibit
          10.2 to the Company's Registration Statement on Form S-1
          (File No. 333-30227) and incorporated herein by reference.
  10.3    Lease Agreement dated as of March 10, 1993 by and between
          Carolina Hosiery Mills, Inc. and Roche Biomedical
          Laboratories, Inc. ("RBL"), the predecessor of the Company's
          predecessor (including notices of renewal thereof dated
          December 27, 1995 and March 24, 1997). Filed as Exhibit 10.3
          to the Company's Registration Statement on Form S-1 (File
          No. 333-30227) and incorporated herein by reference.
  10.4    Lease Agreement dated as of April 25, 1995 by and between
          RBL, the predecessor of the Company's predecessor, and Roche
          Image Analysis Systems, Inc. ("RIAS"), the Company's
          predecessor (including notices of renewal thereof dated
          January 10, 1996 and March 18, 1997). Filed as Exhibit 10.4
          to the Company's Registration Statement on Form S-1 (File
          No. 333-30227) and incorporated herein by reference.
  10.5+   OEM Supply Agreement dated January 13, 1995 between Tecan AG
          and RIAS, the Company's predecessor. Filed as Exhibit 10.6
          to the Company's Registration Statement on Form S-1 (File
          No. 333-30227) and incorporated herein by reference.
  10.6+   Amendment to the OEM Supply Agreement dated October 14, 1996
          between Tecan AG and RIAS, the Company's predecessor. Filed
          as Exhibit 10.7 to the Company's Registration Statement on
          Form S-1 (File No. 333-30227) and incorporated herein by
          reference.
  10.7    Agreement dated July 26, 1993 by and between Technical
          Precision Plastics, Inc. and RIAS, the Company's
          predecessor. Filed as Exhibit 10.8 to the Company's
          Registration Statement on Form S-1 (File No. 333-30227) and
          incorporated herein by reference.
  10.8    Registration Rights Agreement dated as of November 22, 1996
          by and among the Company and the individuals and entities
          listed on Exhibit A thereto (including amendment thereof
          dated June 26, 1997). Filed as Exhibit 10.9 to the Company's
          Registration Statement on Form S-1 (File No. 333-30227) and
          incorporated herein by reference.
  10.9    Contribution Agreement dated as of November 22, 1996 by and
          among HLR Holdings Inc., RIAS and the Company. Filed as
          Exhibit 10.10 to the Company's Registration Statement on
          Form S-1 (File No. 333-30227) and incorporated herein by
          reference.
  10.10   Form of Indemnification Agreement between the Company and
          its Directors and Executive Officers. Filed as Exhibit 10.11
          to the Company's Registration Statement on Form S-1 (File
          No. 333-30227) and incorporated herein by reference.
</TABLE>

                                       34
<PAGE>   35

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<C>       <S>
  10.11   Lease Agreement dated as of July 28, 1997 by and between
          Carolina Hosiery Mills, Inc. and the Company. Filed as
          Exhibit 10.12 to the Company's Registration Statement on
          Form S-1 (File No. 333-30227) and incorporated herein by
          reference.
  10.12   Renewal dated January 6, 1998 of Lease Agreement dated as of
          April 25, 1995 by and between RBL, the predecessor of the
          Company's predecessor, and RIAS, the Company's predecessor.
          Filed as Exhibit 10.12 to the Company's Form 10-K for the
          year ended December 31, 1997 (File No. 0-22885) and
          incorporated herein by reference.
  10.13   Lease Agreement dated July 8, 1998 by and between Laboratory
          Corporation of America (TM) Holdings and AutoCyte, Inc.
          Filed as Exhibit 10.1 to the Company's Form 10-Q for the
          quarter ended September 30, 1998 (File No. 0-22885) and
          incorporated herein by reference.
  10.14   Lease Agreement dated June 12, 1998 by and between Carolina
          Hosiery Mills, Inc. and AutoCyte, Inc. Filed as Exhibit 10.1
          to the Company's Form 10-Q for the quarter ended June 30,
          1998 (File No. 0-22885) and incorporated herein by
          reference.
 10.15+   Supply Agreement dated June 1, 1998 by and between Technical
          Precision Plastics, Inc. and AutoCyte, Inc. Filed as Exhibit
          10.2 to the Company's Form 10-Q for the quarter ended June
          30, 1998 (File No. 0-22885) and incorporated herein by
          reference.
 10.16+   Supply Agreement dated March 5, 1998 by and between Tecan AG
          and AutoCyte, Inc. Filed as Exhibit 10.3 to the Company's
          Form 10-Q for the quarter ended June 30, 1998 (File No.
          0-22885) and incorporated herein by reference.
  10.17   Master Loan and Security Agreement dated December 21, 1998
          by and between Oxford Venture Finance, LLC and AutoCyte,
          Inc. Filed as Exhibit 10.17 to the Company's Form 10-K for
          the year ended December 31, 1998 (File No. 0-22885) and
          incorporated herein by reference.
  10.18   Amendment dated March 2, 1999 to Lease Agreement dated July
          28, 1997 between Carolina Hosiery Mills, Inc. and AutoCyte,
          Inc. Filed as Exhibit 10.1 to the Company's Form 10-Q for
          the quarter ended March 31, 1999 (File No. 0-22885) and
          incorporated herein by reference.
  10.19   Asset Purchase Agreement by and between AutoCyte, Inc. and
          Neuromedical Systems, Inc. dated as of March 25, 1999. Filed
          as Exhibit 10.2 to the Company's Form 10-Q for the quarter
          ended March 31, 1999 (File No. 0-22885) and incorporated
          herein by reference.
 10.20+   OEM Supply Agreement dated as of June 26, 1999 by and
          between Tecan AG and AutoCyte, Inc. Filed as Exhibit 10.20
          to the Amendment No. 2 to the Company's S-1 (File No.
          333-82121) and incorporated herein by reference.
  10.21   Intellectual Property Purchase Agreement dated as of April
          24, 1999 by and between NeoPath, Inc. and AutoCyte, Inc.
          Filed as Exhibit 10.20 to the Amendment No. 2 to the
          Company's S-1 (File No. 333-82121) and incorporated herein
          by reference.
 10.22+   Master Agreement dated as of November 18, 1999 by and
          between TriPath Imaging, Inc. and Laboratory Corporation of
          America Holdings. Filed herewith.
  23.1    Consent of Ernst & Young LLP, independent auditors to the
          Company. Filed herewith.
  27.1    Financial Data Schedule. Filed herewith.
  99.1    Important Factors Regarding Forward-Looking Statements.
          Filed herewith.
</TABLE>

---------------

* Indicates a management contract or compensatory plan.
+ Certain confidential material contained in the document has been omitted and
  filed separately with the Securities and Exchange Commission pursuant to both
  Rule 406 of the Securities Act of 1933, as amended, and Rule 24b-2 of the
  Securities Exchange Act, as amended, as applicable. Omitted information is
  identified with asterisks in the appropriate places in the agreement.

                                       35
<PAGE>   36

                             TRIPATH IMAGING, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Independent Auditors..............................  F-2
Consolidated Balance Sheets as of December 31, 1999 and
  1998......................................................  F-3
Consolidated Statements of Operations for the Years Ended
  December 31, 1999, 1998 and 1997..........................  F-4
Consolidated Statements of Redeemable Convertible Preferred
  Stock and Stockholders' Equity for the Years Ended
  December 31, 1999, 1998 and 1997..........................  F-5
Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1999, 1998 and 1997..........................  F-6
Notes to Consolidated Financial Statements..................  F-7
</TABLE>

                                       F-1
<PAGE>   37

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
TriPath Imaging, Inc.

     We have audited the accompanying consolidated balance sheets of TriPath
Imaging, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, redeemable convertible preferred stock
and stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of TriPath
Imaging, Inc. and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States.

                                                      /s/ ERNST & YOUNG LLP

Raleigh, North Carolina
February 4, 2000, except for Note 15,
as to which the date is February 10, 2000

                                       F-2
<PAGE>   38

                             TRIPATH IMAGING, INC.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                      DECEMBER 31,
                                                              -----------------------------
                                                                  1999            1998
                                                              -------------   -------------
<S>                                                           <C>             <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $  13,962,337   $  25,565,974
  Securities available-for-sale.............................             --       3,374,549
  Accounts receivable, less allowance of $1,347,142 and
     $650,993 at December 31, 1999 and 1998, respectively...      5,388,972       3,930,289
  Inventory.................................................      7,802,907       9,985,286
  Other current assets......................................        916,126         746,293
                                                              -------------   -------------
     Total current assets...................................     28,070,342      43,602,391
Customer use assets.........................................     16,111,380      15,504,888
Property and equipment......................................      2,754,812       5,391,764
Other assets................................................        294,331         913,850
Patents, less accumulated amortization of $418,420 and $0 at
  December 31, 1999 and 1998, respectively..................      9,108,738          78,700
Goodwill, less accumulated amortization of $465,625 and
  $315,625 at December 31, 1999 and 1998, respectively......      2,534,375       2,684,375
                                                              -------------   -------------
     Total assets...........................................  $  58,873,978   $  68,175,968
                                                              =============   =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $   2,536,180   $   3,973,040
  Accrued expenses..........................................      4,602,252       3,447,135
  Deferred revenue..........................................      1,676,180         962,670
  Current portion of long-term debt.........................      1,917,345       2,666,795
                                                              -------------   -------------
     Total current liabilities..............................     10,731,957      11,049,640
Long-term debt, less current portion........................      1,020,030       1,928,413
Other long-term liabilities.................................         96,643         122,910
Stockholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares
  authorized; none issued and outstanding...................             --              --
Common stock, $0.01 par value; 49,000,000 shares authorized;
  28,107,362 and 24,192,928 shares issued and outstanding at
  December 31, 1999 and 1998, respectively..................        281,074         241,929
Additional paid-in capital..................................    214,892,392     191,540,956
Deferred compensation.......................................       (779,645)     (1,880,516)
Accumulated deficit.........................................   (167,368,473)   (134,811,633)
Accumulated other comprehensive loss........................             --         (15,731)
                                                              -------------   -------------
     Total stockholders' equity.............................     47,025,348      55,075,005
                                                              -------------   -------------
     Total liabilities and stockholders' equity.............  $  58,873,978   $  68,175,968
                                                              =============   =============
</TABLE>

                            See accompanying notes.
                                       F-3
<PAGE>   39

                             TRIPATH IMAGING, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                       ------------------------------------------
                                                           1999           1998           1997
                                                       ------------   ------------   ------------
<S>                                                    <C>            <C>            <C>
Revenues.............................................  $ 18,465,774   $ 16,848,622   $ 13,492,217
Cost of revenues.....................................    10,368,173      9,693,512      6,727,611
                                                       ------------   ------------   ------------
Gross profit.........................................     8,097,601      7,155,110      6,764,606
Operating expenses:
  Research and development...........................    12,258,089     15,969,366     18,710,550
  Selling, general and administrative................    17,723,571     25,408,119     24,278,487
  Transaction, integration & restructuring costs.....     8,445,343             --             --
  In-process research & development..................     2,922,000             --             --
  Write-off of intangible assets.....................            --      3,084,289             --
                                                       ------------   ------------   ------------
                                                         41,349,003     44,461,774     42,989,037
                                                       ------------   ------------   ------------
Operating loss.......................................   (33,251,402)   (37,306,664)   (36,224,431)
Interest income......................................     1,110,627      2,309,716      3,171,680
Interest expense, including credit agreement
  commitment fee.....................................      (416,065)      (273,705)    (1,529,034)
                                                       ------------   ------------   ------------
Net loss.............................................  $(32,556,840)  $(35,270,653)  $(34,581,785)
                                                       ============   ============   ============
Net loss per common share (basic and diluted)........  $      (1.17)  $      (1.46)  $      (1.91)
                                                       ============   ============   ============
Weighted-average common shares outstanding...........    27,818,600     24,098,206     18,123,422
                                                       ============   ============   ============
</TABLE>

                            See accompanying notes.
                                       F-4
<PAGE>   40

                             TRIPATH IMAGING, INC.

               CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE
                    PREFERRED STOCK AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                             REDEEMABLE                                                              ACCUMULATED
                             CONVERTIBLE               ADDITIONAL                                       OTHER           TOTAL
                              PREFERRED     COMMON      PAID-IN        DEFERRED      ACCUMULATED    COMPREHENSIVE   STOCKHOLDERS'
                                STOCK       STOCK       CAPITAL      COMPENSATION      DEFICIT      INCOME(LOSS)       EQUITY
                             -----------   --------   ------------   ------------   -------------   -------------   -------------
<S>                          <C>           <C>        <C>            <C>            <C>             <C>             <C>
Balance at January 1,
  1997.....................  $ 9,882,000   $150,686   $144,046,810   $(1,858,189)   $ (64,959,195)    $(543,158)    $ 76,836,954
  Issuance of redeemable
    convertible preferred
    stock and stock
    options................      100,000         --        432,000            --               --            --          432,000
  Issuance of warrants.....           --         --      1,475,002            --               --            --        1,475,002
  Exercise of options and
    warrants...............           --      7,634      4,233,750            --               --            --        4,241,384
  Sale of common stock.....           --     31,250     27,862,411            --               --            --       27,893,661
  Issuance of common stock
    for purchase of
    Pathfinder Product
    Line...................           --        384        849,616            --               --            --          850,000
  Conversion of preferred
    stock..................   (9,982,000)    48,819      9,933,181            --               --            --        9,982,000
  Deferred compensation
    related to grant of
    stock options..........           --         --      1,664,694    (1,664,694)              --            --               --
  Amortization of deferred
    compensation...........           --         --             --       779,603               --            --          779,603
  Unrealized appreciation
    on securities
    available-for-sale.....           --         --             --            --               --       346,509          346,509
  Net loss.................           --         --             --            --      (34,581,785)           --      (34,581,785)
                                                                                                                    ------------
    Comprehensive loss.....                                                                                          (34,235,276)
                             -----------   --------   ------------   -----------    -------------     ---------     ------------
Balance at December 31,
  1997.....................           --    238,773    190,497,464    (2,743,280)     (99,540,980)     (196,649)      88,255,328
  Exercise of options and
    warrants...............           --      2,692        164,028            --               --            --          166,720
  Release of common stock
    held in escrow.........           --        332        548,946            --               --            --          549,278
  Issuance of common stock
    under employee stock
    purchase plan..........           --        132        130,518            --               --            --          130,650
  Issuance of stock based
    compensation to
    consultant.............           --         --        200,000            --               --            --          200,000
  Amortization of deferred
    compensation...........           --         --             --       862,764               --            --          862,764
  Unrealized appreciation
    on securities
    available-for-sale.....           --         --             --            --               --       180,918          180,918
  Net loss.................           --         --             --            --      (35,270,653)           --      (35,270,653)
                                                                                                                    ------------
    Comprehensive loss.....                                                                                          (35,089,735)
                             -----------   --------   ------------   -----------    -------------     ---------     ------------
Balance at December 31,
  1998.....................           --    241,929    191,540,956    (1,880,516)    (134,811,633)      (15,731)      55,075,005
  Exercise of options and
    warrants...............           --      2,146        150,125            --               --            --          152,271
  Private issuance of
    common stock...........           --     22,919     14,098,336            --               --            --       14,121,255
  Issuance of common stock
    for intellectual
    property...............           --     14,000      9,335,917            --               --            --        9,349,917
  Issuance of common stock
    under employee stock
    purchase plan..........           --         80         46,689            --               --            --           46,769
  Issuance of stock based
    compensation to
    consultant.............           --         --          7,100            --               --            --            7,100
  Adjustment to deferred
    compensation...........           --         --       (286,731)      286,731               --            --               --
  Amortization of deferred
    compensation...........           --         --             --       814,140               --            --          814,140
  Unrealized appreciation
    on securities
    available-for-sale.....           --         --             --            --               --        15,731           15,731
  Net loss.................           --         --             --            --      (32,556,840)           --      (32,556,840)
                                                                                                                    ------------
    Comprehensive loss.....                                                                                          (32,541,109)
                             -----------   --------   ------------   -----------    -------------     ---------     ------------
Balance at December 31,
  1999.....................  $        --   $281,074   $214,892,392   $  (779,645)   $(167,368,473)    $      --     $ 47,025,348
                             ===========   ========   ============   ===========    =============     =========     ============
</TABLE>

                            See accompanying notes.
                                       F-5
<PAGE>   41

                             TRIPATH IMAGING, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31,
                                                            ------------------------------------------
                                                                1999           1998           1997
                                                            ------------   ------------   ------------
<S>                                                         <C>            <C>            <C>
OPERATING ACTIVITIES
Net loss..................................................  $(32,556,840)  $(35,270,653)  $(34,581,785)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
    Depreciation..........................................     6,894,994      5,707,956      4,427,851
    Amortization of intangible assets.....................       604,081        998,914        525,992
    Amortization of deferred compensation.................       814,140        862,764        779,603
    Non-cash restructuring costs..........................     4,239,489             --             --
    Purchased in-process research and development.........     2,922,000             --             --
    Write off of intangible assets........................            --      3,084,289             --
    Accrued interest on securities available-for-sale.....            --        562,267      1,152,187
    Issuance of preferred stock and stock options for
       services rendered..................................         7,100        200,000        432,000
    Issuance of warrants as consideration for credit
       agreement commitment fee...........................            --             --      1,475,002
    Other non-cash items..................................        22,455             --             --
    Changes in operating assets and liabilities:
       Accounts receivable................................    (1,836,385)       839,683     (3,168,599)
       Inventory..........................................    (4,677,607)    (7,987,234)    (8,769,919)
       Other current assets...............................      (169,833)      (158,636)      (340,725)
       Other long-term assets.............................       619,519       (184,570)      (573,381)
       Accounts payable and accrued expenses..............      (547,360)       426,212      1,244,915
       Deferred revenue...................................       713,510        400,793        397,547
                                                            ------------   ------------   ------------
Net cash used in operating activities.....................   (22,950,737)   (30,518,215)   (36,999,312)
INVESTING ACTIVITIES
Purchases of property and equipment.......................      (515,825)    (2,320,913)    (1,827,259)
Purchases of securities available-for-sale................    (7,199,372)    (1,743,949)    (5,349,511)
Maturities of securities available-for-sale...............    10,589,652     23,397,684     29,750,677
Additions to intellectual property........................    (4,259,797)       (63,962)       (14,738)
Purchase of Pathfinder product line.......................            --             --     (2,696,114)
Other.....................................................            --         (6,756)         3,379
                                                            ------------   ------------   ------------
Net cash (used in) provided by investing activities.......    (1,385,342)    19,262,104     19,866,434
FINANCING ACTIVITIES
Net proceeds from issuance of common stock................    14,411,255             --     27,893,661
Net proceeds from issuance of redeemable convertible
  preferred stock.........................................            --             --        100,000
Issuance of common stock under employee stock purchase
  plan....................................................        46,769        130,650             --
Proceeds from exercise of stock options and warrants......       152,271        166,720      4,241,384
Other.....................................................      (220,020)       (34,545)       (26,790)
Payment on Pathfinder short-term note.....................            --             --       (500,000)
Proceeds from long-term debt..............................     1,242,565      5,855,019             --
Payments on long-term debt................................    (2,900,398)    (1,259,811)            --
                                                            ------------   ------------   ------------
Net cash provided by financing activities.................    12,732,442      4,858,033     31,708,255
                                                            ------------   ------------   ------------
Net (decrease) increase in cash and cash equivalents......   (11,603,637)    (6,398,078)    14,575,377
Cash and cash equivalents at beginning of period..........    25,565,974     31,964,052     17,388,675
                                                            ------------   ------------   ------------
Cash and cash equivalents at end of period................  $ 13,962,337   $ 25,565,974   $ 31,964,052
                                                            ============   ============   ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest....................................  $    416,065   $    273,705   $     54,032
                                                            ============   ============   ============
NONCASH INVESTING AND FINANCING ACTIVITIES
Common stock issued for acquisition of intellectual
  property................................................  $  9,450,000   $         --   $         --
                                                            ============   ============   ============
</TABLE>

                            See accompanying notes.
                                       F-6
<PAGE>   42

                             TRIPATH IMAGING, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY

     TriPath Imaging, Inc. ("TriPath" or the "Company"), formerly known as
AutoCyte, Inc. ("AutoCyte"), develops, manufactures and markets products to
improve cervical cancer screening. Improved slide preparation technology is
delivered through the AutoCyte PREP System(TM) ("PREP"), a proprietary automated
thin-layer cytology sample preparation system that produces representative
slides with a homogeneous, thin-layer of cervical cells, and is one of only two
sample preparation systems approved by the FDA as a replacement for the
conventional Pap smear. TriPath also delivers visual intelligence technology to
increase accuracy and productivity in medical testing through the AutoPap(R)
Primary Screening System ("AutoPap"), which utilizes proprietary technology to
distinguish between normal Pap smears and those that have the highest likelihood
of abnormality.

     On September 30, 1999, AutoCyte completed its merger with NeoPath, Inc.
("NeoPath") in exchange for approximately 13.8 million shares of AutoCyte common
stock. The transaction was structured as a merger (the "Merger") of a
wholly-owned subsidiary of AutoCyte with and into NeoPath. The Merger was a
tax-free reorganization and was accounted for as a pooling of interests in
accordance with Accounting Principles Board ("APB") Opinion No. 16, "Business
Combinations". NeoPath developed and marketed products to increase accuracy in
medical testing. In conjunction with the Merger, AutoCyte changed its name to
TriPath Imaging, Inc.

     The results of operations for the separate companies and the combined
amounts presented in the consolidated financial statements follow:

<TABLE>
<CAPTION>
                                                  NINE MONTHS ENDED     YEAR ENDED DECEMBER 31,
                                                    SEPTEMBER 30,      --------------------------
                                                        1999              1998           1997
                                                  -----------------    -----------    -----------
                                                     (UNAUDITED)
<S>                                               <C>                  <C>            <C>
Revenues
  AutoCyte......................................     $ 3,882,442       $ 4,769,686    $ 2,667,837
  NeoPath.......................................       8,203,803        12,078,936     10,824,380
                                                     -----------       -----------    -----------
     Combined...................................     $12,086,245       $16,848,622    $13,492,217
                                                     ===========       ===========    ===========
Net Loss
  AutoCyte......................................     $14,419,778       $ 9,090,072    $10,984,873
  NeoPath.......................................      15,092,893        26,180,581     23,596,912
                                                     -----------       -----------    -----------
     Combined...................................     $29,512,671       $35,270,653    $34,581,785
                                                     ===========       ===========    ===========
</TABLE>

     The accompanying consolidated financial statements include operations of
the combined companies for all periods presented.

     Revenues from sales of products have not generated sufficient cash to
support the Company's operations. The Company has incurred substantial losses
since inception. The Company has funded its operations primarily through the
private placement and public sale of equity securities, debt and lease
financing, and limited product sales. The Company continues to be subject to
certain risks and uncertainties common to early stage medical device companies
including the uncertainty of availability of additional financing, extensive
government regulation, uncertainty of market acceptance of its products, limited
manufacturing, marketing and sales experience and uncertainty of future
profitability.

2. SIGNIFICANT ACCOUNTING POLICIES

  Principles of Consolidation

     The consolidated financial statements include the accounts of TriPath and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.

                                       F-7
<PAGE>   43
                             TRIPATH IMAGING, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Use of Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

  Revenue Recognition

     Revenue is recognized from product sales and fee-per-use arrangements,
including service and license agreements, rental contracts, and minimum
fee-per-use contracts. Product sales revenue is generally recognized when
products are shipped. Fee-per-use revenue is recognized as earned.

  Cash and Cash Equivalents

     The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

  Securities Available-for-Sale

     TriPath's investment portfolio is classified as available-for-sale, and
such securities are stated at fair value, with unrealized gains and losses
included in other comprehensive income or loss. Interest earned on securities
available-for-sale is included in interest income. The amortized cost of
investments in this category is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization and accretion are included
in interest income. The cost of securities sold is calculated using the specific
identification method.

  Inventory

     Inventory is stated at the lower of cost or net realizable value (first-in
first-out basis). Net realizable value of inventory is reviewed in detail on an
on-going basis, with consideration given to deterioration, obsolescence and
other factors.

  Customer-Use Assets

     PREP and AutoPap systems manufactured for rental or fee-per-use placements
are carried in inventory until the systems are shipped, at which time they are
reclassified to customer-use assets (non-current assets). Customer-use assets
are depreciated on a straight-line basis over an estimated useful life of four
years. Depreciation expense of customer-use assets amounted to $4,115,767,
$2,431,152 and $1,587,128 during 1999, 1998 and 1997, respectively.

  Property and Equipment

     Property and equipment is stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives (three to seven years)
of the individual assets. Depreciation expense of property and equipment
amounted to $2,829,761, $3,276,804 and $2,774,491 during 1999, 1998 and 1997,
respectively.

  Goodwill

     The excess cost over the fair value of net assets acquired ("goodwill") is
being amortized using the straight-line method over 20 years.

                                       F-8
<PAGE>   44
                             TRIPATH IMAGING, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Patents

     Patents consist of patents and core technology acquired from Neuromedical
Systems, Inc. Such assets are amortized using the straight-line method over
estimated useful lives ranging from 14 to 20 years.

  Asset Impairment

     The Company periodically reviews the value of its long-lived assets to
determine if an impairment has occurred. In accordance with Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", if this review indicates that the assets will not be
recoverable, as determined based on an analysis of undiscounted cash flows over
the remaining amortization period, the Company would reduce the carrying value
of its long-lived assets accordingly. During 1998, the Company recognized such a
loss for the write-off of intangible assets related to the Pathfinder product
line (see note 5). There were no such losses recognized in 1999 or 1997.

  Deferred Revenue

     Deferred revenue consists of upfront cash receipts related to AutoPap
service and equipment contracts and a worldwide exclusive international
distributor agreement for the Company's ImageTiter(R) product. Pursuant to the
terms of the agreement, the Company received a $1,000,000 non-refundable payment
for the agreement, services to be performed, and as a payment for future product
shipments. Revenue related to the worldwide exclusive international distributor
agreement is recognized ratably over five years. Revenue related to service and
equipment contracts is recognized as earned.

  Income Taxes

     The Company accounts for income taxes using the liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes". Under the liability
method, deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities.

  Research and Development Costs

     Research and development costs are charged to operations as incurred.

  Stock Based Compensation

     The Company accounts for stock options issued to employees in accordance
with APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25").
Under APB 25, no compensation expense is recognized for stock or stock options
issued with an exercise price equivalent to the fair value of the Company's
Common Stock. For stock options granted at exercise prices below the deemed fair
value, the Company records deferred compensation expense for the difference
between the exercise price of the shares and the deemed fair value. Any
resulting deferred compensation expense is amortized ratably over the vesting
period of the individual options.

     In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"). For companies that continue to account for stock
based compensation arrangements under APB 25, SFAS 123 requires disclosure of
the pro forma effect on net income (loss) and earnings (loss) per share as if
the fair value based method prescribed by SFAS 123 had been applied. The Company
has adopted the pro forma disclosure requirements of SFAS 123.

                                       F-9
<PAGE>   45
                             TRIPATH IMAGING, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Net Loss Per Common Share

     The Company incurred losses during all periods presented. As a result, the
effect of options, warrants and convertible preferred stock is anti-dilutive.
Accordingly, there is no difference between basic and diluted loss per share.

  Comprehensive Income

     As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). SFAS 130 established 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
consolidated operating results or stockholders' equity. SFAS 130 requires
unrealized gains or losses on the Company's securities available-for-sale, which
prior to adoption were reported within stockholders' equity, to be included in
other comprehensive income or loss.

  Advertising Expense

     The cost of advertising is expensed as incurred. Advertising and marketing
expense, including trade show expense, amounted to $240,662, $1,335,580 and
$903,292 during 1999, 1998 and 1997, respectively.

  Business Segments and Markets

     TriPath currently operates in a single business segment and is engaged in
the development and sale of cytology and pathology automation systems for use in
clinical laboratory applications.

     TriPath's domestic revenues are generated primarily through the Company's
direct sales activities; international revenues are derived primarily through
distributors. International revenues accounted for 29%, 31% and 49% of total
revenues during 1999, 1998 and 1997, respectively. The Company's four largest
customers accounted for 50%, 33% and 48% of total revenues in 1999, 1998 and
1997, respectively.

  Concentration of Credit Risk

     The Company's principal financial instruments subject to potential
concentration of credit risk are cash, cash equivalents, securities
available-for-sale and unsecured accounts receivable. The Company invests its
funds in highly rated institutions, and limits its investment in any individual
debtor. The Company provides an allowance for doubtful accounts equal to the
estimated losses to be incurred in the collection of accounts receivable, which
have historically been minimal and within management's expectations.

  Recently Issued Accounting Standards

     In June 1999, the FASB approved the Exposure Draft to defer for one year
the effective date of SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133"), which is now effective for years beginning
after June 15, 2000. SFAS 133 establishes a comprehensive and consistent
standard for the recognition and measurement of derivatives and hedging
activities. The Company will adopt SFAS 133 in 2001, which may result in
additional disclosures. The application of the new rules is not expected to have
a significant impact on the Company's consolidated financial position or results
from operations.

                                      F-10
<PAGE>   46
                             TRIPATH IMAGING, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. SECURITIES AVAILABLE-FOR-SALE

     Securities available-for-sale consist of the following:

<TABLE>
<CAPTION>
                                                                 GROSS         GROSS
                                                               UNREALIZED    UNREALIZED
DECEMBER 31, 1998                            AMORTIZED COST      GAINS         LOSSES      FAIR VALUE
-----------------                            --------------    ----------    ----------    ----------
<S>                                          <C>               <C>           <C>           <C>
Corporate Bonds............................    $3,390,280        $5,608       $(21,339)    $3,374,549
                                               ==========        ======       ========     ==========
</TABLE>

4. BALANCE SHEET INFORMATION

     Detailed balance sheet information is as follows:

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                            --------------------------
                                                               1999           1998
                                                            -----------    -----------
<S>                                                         <C>            <C>
Inventory
  Raw materials...........................................  $ 2,371,531    $ 3,779,243
  Work-in-process.........................................    1,913,914      2,365,472
  Finished goods..........................................    3,517,462      3,840,571
                                                            -----------    -----------
                                                            $ 7,802,907    $ 9,985,286
                                                            ===========    ===========
Customer-use assets
  Customer-use systems....................................  $24,226,104    $19,421,820
  Accumulated depreciation................................   (8,114,724)    (3,916,932)
                                                            -----------    -----------
                                                            $16,111,380    $15,504,888
                                                            ===========    ===========
Property and equipment
  Machinery and equipment.................................  $ 5,324,491    $ 5,069,144
  Demonstration equipment.................................      723,678      1,291,105
  Furniture, fixtures and improvements....................    1,098,382      1,317,692
  Leasehold Improvements..................................    1,311,445      1,222,093
  Computer equipment and software.........................    3,213,797      4,182,814
                                                            -----------    -----------
     Total property and equipment.........................   11,671,793     13,082,848
     Accumulated depreciation.............................   (8,916,981)    (7,691,084)
                                                            -----------    -----------
                                                            $ 2,754,812    $ 5,391,764
                                                            ===========    ===========
Accrued expenses
  Accrued payroll and related benefits....................  $   505,782    $ 1,843,171
  Accrued warranty costs..................................    1,159,691        687,643
  Other accrued expenses..................................    2,936,779        916,321
                                                            -----------    -----------
                                                            $ 4,602,252    $ 3,447,135
                                                            ===========    ===========
</TABLE>

                                      F-11
<PAGE>   47
                             TRIPATH IMAGING, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. ALLOWANCE FOR DOUBTFUL ACCOUNTS

     A summary of the allowance for doubtful account activity is as follows:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                        --------------------------------
                                                           1999        1998       1997
                                                        ----------   --------   --------
<S>                                                     <C>          <C>        <C>
Balance, beginning of year............................  $  650,993   $585,000   $192,500
Amounts charged to expense............................     815,832    102,000    392,500
Amounts written off...................................    (119,683)   (36,007)        --
                                                        ----------   --------   --------
Balance, end of year..................................  $1,347,142   $650,993   $585,000
                                                        ==========   ========   ========
</TABLE>

6. PATHFINDER SYSTEM PRODUCT LINE

     In the quarter ended December 31, 1998, the Company wrote off $3.1 million
of intangible assets related to the Pathfinder System product line. The Company
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 the issuance of shares of common stock valued at approximately
$1.4 million. As a result of the purchase, TriPath recognized $4.3 million in
intangible assets that were to be amortized over five years. Due to continuing
low sales levels of Pathfinder systems, and related losses attributable directly
to the Pathfinder product line, the Company identified indications of impairment
in the fourth quarter of 1998 and later decided to discontinue development and
commercialization of this product line. The Company compared the carrying value
of these intangible assets to expected future cash flows applicable to the
Pathfinder product and, as a result, wrote off the remaining balance of
intangible assets. Pathfinder product sales accounted for approximately 2% total
revenues in 1998 and 1997.

7. ACQUISITION OF INTELLECTUAL PROPERTY

     On March 25, 1999, TriPath entered into a purchase and sale agreement to
acquire the intellectual property estate of Neuromedical Systems, Inc. ("NSI"),
a developer of interactive, neural net technology for the computer screening of
conventional Pap smears. Under the terms of the agreement, TriPath agreed to
acquire the entire patent estate (including the right to pursue any claims
relating to the patent estate), trademarks, regulatory applications, clinical
data and all other intellectual and intangible property rights relating to the
business of NSI, which, concurrent with the execution of the agreement, filed a
voluntary Chapter 11 petition in the U.S. Bankruptcy Court for the District of
Delaware. The bankruptcy court approved this agreement and the transaction
closed on May 17, 1999. The purchase price consisted of:

<TABLE>
<S>                                                           <C>
Cash consideration and transaction costs....................  $ 4,201,340
Common stock (valued at $6.75 per share)....................    9,450,000
                                                              -----------
                                                              $13,651,340
                                                              ===========
</TABLE>

     The purchase price was allocated as follows:

<TABLE>
<S>                                                           <C>
Patents.....................................................  $ 9,390,000
In-process research and development.........................    2,922,000
Core technology.............................................    1,339,340
                                                              -----------
                                                              $13,651,340
                                                              ===========
</TABLE>

     The Company charged to expense at the date of acquisition $2,922,000
relating to the portion of the purchase price allocated to those in-process
research and development projects where technological feasibility

                                      F-12
<PAGE>   48
                             TRIPATH IMAGING, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

had not yet been established. In connection with the merger, the Company wrote
off $1,339,340 relating to the core technology (Note 11).

8. LONG-TERM OBLIGATIONS AND COMMITMENTS

  Note Payable to Bank

     In April 1998, TriPath entered into a loan agreement with a bank pursuant
to which the Company could borrow amounts based on the manufacturing cost of
AutoPap systems placed on fee-per-use contracts. Accordingly, in June 1998, the
Company borrowed $5.0 million under the loan agreement. At December 31, 1999,
the Company had outstanding borrowings of $1.2 million under the agreement. The
bank debt is secured by substantially all of the Company's assets, excluding
intellectual property, and amounts are repaid over 24 months from the date of
each drawdown. In addition, the Company must comply with certain financial
covenants. Borrowings under this agreement bear interest at the bank's prime
rate (8.75% at December 31, 1999) plus 1 percent per annum.

  Note Payable to Finance Company

     In December 1998, the Company entered into an agreement with an equipment
financing company to provide the Company with a $5,000,000 line of credit to
finance certain of the Company's equipment purchases. At December 31, 1999, the
Company had outstanding borrowings of $1.3 million under the agreement with a
loan term of 48 months. The loan is secured by a security interest in the
financed equipment. Interest is calculated based on the four-year Treasury Bill
Weekly Average rate plus 6.121%.

  Notes Payable to Finance Company

     During 1999, the Company entered into agreements with a financing company
to finance the purchase of various insurance policies. At December 31, 1999, the
Company had outstanding borrowings of $414,046 under the agreements with loan
terms ranging from 8 to 36 months. The loans are secured by a security interest
in the policies. Interest is calculated at a rate of 8.37%.

     At December 31, 1999, maturities of the outstanding debt are as follows:

<TABLE>
<S>                                                           <C>
2000........................................................  $1,917,345
2001........................................................     592,574
2002........................................................     422,971
2003........................................................       4,485
                                                              ----------
                                                              $2,937,375
                                                              ==========
</TABLE>

     The fair value of the Company's long term debt, which approximates its
carrying value, is estimated using discounted cash flow analysis based on the
Company's current incremental borrowing rates for similar type borrowing
arrangements.

  Leases

     The Company leases its office and manufacturing facilities and certain
office equipment under operating leases, with various renewal options, expiring
at various times through 2007.

                                      F-13
<PAGE>   49
                             TRIPATH IMAGING, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     At December 31, 1999, future minimum lease payments under these leases are
as follows:

<TABLE>
<S>                                                           <C>
2000........................................................  $1,282,210
2001........................................................   1,210,910
2002........................................................   1,222,477
2003........................................................   1,265,716
2004........................................................   1,302,267
Thereafter..................................................     221,551
                                                              ----------
                                                              $6,505,131
                                                              ==========
</TABLE>

     Rent expense amounted to $1,239,923, $1,211,594 and $1,113,407 during 1999,
1998 and 1997, respectively.

9. INCOME TAXES

     At December 31, 1999, the Company had net operating loss carryforwards of
approximately $158.8 million and research and development credit carryforwards
of approximately $3.4 million for federal income tax purposes, which expire
between 2004 and 2013. Due to the prior issuance and sale of shares of preferred
stock, the Company has incurred "ownership changes" pursuant to applicable
regulations in effect under the Internal Revenue Code of 1986, as amended.
Therefore, the Company's use of losses incurred through the date of these
ownership changes will be limited during the carryforward period. The Company
estimates that the use of approximately $28.0 million of losses incurred prior
to one or more of the ownership changes would be limited in the carryforward
periods. To the extent that any single-year loss is not utilized to the full
amount of the limitation, such unused loss is carried over to subsequent years
until the earlier of its utilization or the expiration of the relevant
carryforward period. Approximately $5.1 million of the net operating loss
carryforward is attributed to the deduction for stock options, the tax effect of
which will be credited to equity when recognized.

     Deferred income taxes reflect the net tax effects of temporary differences
between the tax basis of assets and liabilities and the corresponding financial
statement amounts. Significant components of the Company's deferred income tax
assets (liabilities) are as follows:

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                            ---------------------------
                                                                1999           1998
                                                            ------------   ------------
<S>                                                         <C>            <C>
Net operating loss carryforwards..........................  $ 63,546,000   $ 46,632,000
Research and development credits..........................     3,500,000      3,377,000
Amortization and write-off of intangible assets...........     1,331,000      1,331,000
Allowance for doubtful accounts...........................       538,000        243,000
Deferred compensation.....................................       192,000        192,000
Accrued vacation..........................................       160,000        155,000
Charitable contribution carryforwards.....................       130,000        126,000
Other.....................................................       600,000      1,386,000
Intangible assets.........................................     2,835,000      1,007,000
Property and equipment....................................       616,000      1,016,000
Valuation allowance.......................................   (73,448,000)   (55,465,000)
                                                            ------------   ------------
                                                            $         --   $         --
                                                            ============   ============
</TABLE>

     Due to the uncertainty of the Company's ability to generate taxable income
to realize its deferred tax assets, a valuation allowance has been established
for financial reporting purposes equal to the amount of the

                                      F-14
<PAGE>   50
                             TRIPATH IMAGING, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

net deferred tax assets. The Company's valuation allowance was $68,143,000 and
$55,465,000 at December 31, 1999 and 1998, respectively.

10. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

  Redeemable Convertible Preferred Stock

     The 9,925,000 shares of Series A Convertible Preferred Stock automatically
converted into 4,881,936 shares of Common Stock upon completion of AutoCyte's
initial public offering in September 1997.

     Pursuant to the Company's amended and restated Certificate of
Incorporation, the Board of Directors has the authority, without further vote or
action by the stockholders, to issue up to 1,000,000 shares of Preferred Stock
in one or more series and to fix the relative rights, preferences, privileges,
qualifications, limitations and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences, sinking fund terms and the number of
shares constituting any series or the designation of such series, any or all of
which may be greater than the rights of Common Stock. At December 31, 1999 there
were no shares of Preferred Stock outstanding.

  Private Equity Transaction

     On February 9, 1999, the Company completed a $14.5 million private equity
transaction, issuing 2,300,000 shares of common stock to investors at a price of
$6.33 per share. In connection with the financing, the Company issued to a
related party five-year warrants to purchase 79,030 shares of common stock at an
exercise price of $7.45 per share.

  Equity Incentive Plans

     The Company has stock option plans (the "Plans") under which incentive and
non-statutory stock options, stock appreciation rights and restricted stock may
be granted to employees, directors or consultants of the Company. Generally,
options and restricted stock grants vest ratably over a 48-month term. Stock
options expire ten years from the date of grant.

     A summary of activity under the Plans is as follows:

<TABLE>
<CAPTION>
                                                                   OPTIONS OUTSTANDING
                                                              -----------------------------
                                                              NUMBER OF    WEIGHTED-AVERAGE
                                                                SHARES      EXERCISE PRICE
                                                              ----------   ----------------
<S>                                                           <C>          <C>
Outstanding at December 31, 1997............................   2,537,944        $12.01
  Options granted...........................................   1,875,927         16.74
  Options exercised.........................................    (265,533)         0.58
  Options canceled/expired..................................  (1,507,398)        24.54
                                                              ----------        ------
Outstanding at December 31, 1998............................   2,640,940         12.57
  Options granted...........................................   1,564,982          5.14
  Options exercised.........................................    (213,814)         0.74
  Options canceled/expired..................................    (835,631)        14.14
                                                              ----------        ------
Outstanding at December 31, 1999............................   3,156,477        $12.57
                                                              ==========        ======
</TABLE>

                                      F-15
<PAGE>   51
                             TRIPATH IMAGING, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                            OPTIONS OUTSTANDING                       OPTIONS EXERCISABLE
               ----------------------------------------------   -------------------------------
                                 WEIGHTED-
                   NUMBER         AVERAGE                           NUMBER
               OUTSTANDING AT    REMAINING       WEIGHTED-      EXERCISABLE AT     WEIGHTED-
                DECEMBER 31,    CONTRACTUAL       AVERAGE        DECEMBER 31,       AVERAGE
PRICE RANGE         1998        LIFE (YEARS)   EXERCISE PRICE        1998        EXERCISE PRICE
------------   --------------   ------------   --------------   --------------   --------------
<S>            <C>              <C>            <C>              <C>              <C>
       $0.20       485,596          7.0            $ 0.20           264,419          $ 0.20
   0.76-0.76         2,416          1.7              0.76             2,416            0.76
   1.52-2.28        21,856          3.3              1.61            21,856            1.61
   2.69-3.13       105,260          5.5              3.04            88,654            3.04
   4.19-6.25     1,667,820          8.7              4.78           608,909            4.75
   6.50-9.75        94,327          9.0              7.58            39,021            7.89
 10.00-14.24        13,394          4.8             14.00            13,394           14.00
 15.34-21.51       736,831          7.0             16.62           736,831           16.62
 29.89-29.89        28,977          5.4             29.89            28,977           29.89
                 ---------          ---            ------         ---------          ------
$0.20-$29.89     3,156,477          7.9            $ 7.11         1,804,477          $ 9.34
                 =========          ===            ======         =========          ======
</TABLE>

     In 1996, the Company sold 590,260 shares of restricted Common Stock with a
deemed fair value of $1.63 per share to the Company's Chief Executive Officer at
a price of $0.20 per share. Under the terms of the restricted stock purchase
agreement, the shares vest ratably over a 48-month term and are subject to
repurchase by the Company at the issuance price if the CEO ceases to be employed
by the Company. Under the terms of an amendment to the restricted stock purchase
agreement, in the event that the Chief Executive Officer terminates employment
with the Company other than for cause, in addition to all other shares that have
vested pursuant to the original agreement, 50% of the unvested shares as of the
date of departure shall become vested as of that date.

  SFAS 123

     The Company has adopted the disclosure-only provisions of SFAS 123. In
accordance with SFAS 123, the fair value of each option grant was determined by
using the Black-Scholes option-pricing model with the following weighted-average
assumptions:

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                  ------------------------------------
                                                     1999         1998         1997
                                                  ----------   ----------   ----------
<S>                                               <C>          <C>          <C>
Risk-free interest rate.........................       5.34%        5.29%        6.20%
Expected dividend yield.........................       0.00%        0.00%        0.00%
Expected lives..................................   48 months    48 months    48 months
Expected volatility.............................        0.87         0.75         0.71
Weighted-average fair value of grants...........  $     5.14   $     5.87   $     7.72
</TABLE>

     Had compensation cost for the Company's stock options been determined based
on the fair value at the date of grant consistent with the provisions of SFAS
123, the Company's pro forma net loss and net loss per share would have been as
follows:

<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                           --------------------------------------------
                                               1999            1998            1997
                                           ------------    ------------    ------------
<S>                                        <C>             <C>             <C>
Net loss:
  As reported............................  $(32,556,840)   $(35,270,653)   $(34,581,785)
  Pro forma..............................  $(38,274,434)   $(42,469,238)   $(38,918,555)
Net loss per common share (basic &
  diluted):
  As reported............................  $      (1.17)   $      (1.46)   $      (1.91)
  Pro forma..............................  $      (1.38)   $      (1.76)   $      (2.15)
</TABLE>

                                      F-16
<PAGE>   52
                             TRIPATH IMAGING, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Warrants

     On June 27, 1997, the Company entered into a credit agreement with certain
of its institutional stockholders and the Company's Chief Executive Officer. The
agreement provided the Company with access to a credit line of up to $8,000,000
at an interest rate of prime plus 1%. As consideration for this agreement, the
Company issued warrants to purchase 207,291 shares of its Common Stock at an
exercise price of $2.033 per share. The warrants were immediately exercisable,
with an expiration date ten years from the date of issuance. The Company
estimated the expense associated with the warrant issuance to be approximately
$1,475,000, all of which was expensed at the time of issuance as a credit
agreement commitment fee. No borrowings were made under this credit arrangement,
which expired in September 1997. On October 24, 1997, all of the outstanding
warrants were exercised.

     In 1998, the Company issued a warrant to a consultant to purchase 47,418
shares of common stock at $5.45 per share, which was the closing price of the
Company's Common Stock on the date of the initial agreement. The Company had
also issued a comparable stock option grant to the same consultant. As a result,
in 1998 the Company recognized $200,000 in non-cash expenses related to the
consulting agreement and will continue to recognize expenses during the one-year
agreement.

     As of December 31, 1999, there were 79,030 warrants outstanding with a
weighted-average exercise price of $7.45. These warrants expire at various dates
through 2004.

  Common Stock Reserved for Future Issuance

     At December 31, 1999, the Company has reserved authorized shares of Common
Stock for future issuance as follows:

<TABLE>
<CAPTION>
                                                              DECEMBER 31, 1999
                                                              -----------------
<S>                                                           <C>
Outstanding stock options...................................      3,156,477
Possible future issuance under equity incentive plans.......        149,285
Common stock warrants.......................................         79,030
                                                                  ---------
          Total shares reserved.............................      3,384,792
                                                                  =========
</TABLE>

  Deferred Compensation

     The Company recorded deferred compensation for the difference between the
exercise price and the deemed fair value of the Company's Common Stock option
and restricted stock grants. The amount is being amortized over the vesting
period of the individual options or restricted stock grants, generally 48
months. Amortization of deferred compensation amounted to $814,140, $862,764 and
$779,603 during 1999, 1998 and 1997, respectively. In 1999, the Company adjusted
the deferred compensation amount by $286,731 to reflect the cancellation of
options granted to terminated employees.

                                      F-17
<PAGE>   53
                             TRIPATH IMAGING, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. TRANSACTION, INTEGRATION AND RESTRUCTURING COSTS

     In connection with the Merger with NeoPath, certain expenses of the
transaction, costs to integrate the two organizations, and expenses associated
with the restructuring of the Company's business have been accrued and recorded
as an expense. The following table presents the components of the expense
recorded and the amounts paid through December 31, 1999:

<TABLE>
<CAPTION>
                                                              TOTAL EXPENSE   PAID TO DATE
                                                              -------------   ------------
<S>                                                           <C>             <C>
Cash expenses:
  Transaction and professional fees.........................   $2,554,314      $1,296,694
  Personnel separation costs................................    1,098,540         443,987
  Other costs...............................................      553,000         428,822
                                                               ----------      ----------
                                                                4,205,854       2,169,503
                                                                               ==========
Non-cash expenses:
  Write-off of assets.......................................    4,239,489
                                                               ----------
Total expenses..............................................   $8,445,343
                                                               ==========
</TABLE>

     Transaction costs are comprised of amounts owed to investment bankers and
advisors for services rendered in conjunction with the Merger. Personnel
separation costs reflect severance payments to be made to employees terminated
as a result of the Merger. The non-cash write-off of assets primarily relates to
property and equipment and the core technology acquired from NSI deemed to have
become redundant or obsolete as a result of the Merger. Other costs include
integration costs directly related to the Merger and other costs resulting from
actions taken to merge the operations.

12. RELATED PARTY TRANSACTIONS

     The Company has entered into certain ongoing arrangements with Laboratory
Corporation of America Holdings, Inc. ("LabCorp"), a public company partially
owned by Roche Holding Ltd. ("Roche"), for selling its products to LabCorp.
Roche is a shareholder of the Company and the Company's Chief Executive Officer
is a Director of LabCorp. Sales to LabCorp amounted to $397,238, $634,884 and
$127,399 during 1999, 1998 and 1997, respectively.

     The Company had an arrangement with LabCorp for leasing a portion of
LabCorp's facility in Elon College, North Carolina. This arrangement ended in
1999. Total rent paid to LabCorp amounted to $23,333, $61,995 and $111,375
during 1999, 1998 and 1997, respectively. Additionally, the Company owed
approximately $98,554 and $249,000 at December 31, 1999 and December 31, 1998,
respectively, to Roche or its affiliates for services provided.

13. EMPLOYEE BENEFITS

     The Company maintains qualified 401(k) Retirement Plans covering
substantially all employees that provide for voluntary salary deferral
contributions. Total expense for the plans, including employer contributions,
amounted to $108,897, $128,451 and $82,198 during 1999, 1998 and 1997,
respectively.

14. LITIGATION

     On September 13, 1999, Cytyc Corporation ("Cytyc") filed a lawsuit against
AutoCyte in the United States District Court for the District of Delaware. The
complaint alleges patent infringement and related claims. The lawsuit is still
in the discovery stage. A trial date has been set for April 2, 2001. On March 6,
2000, the Company filed a motion for summary judgment. The Company believes it
has a strong position in this action and continues to defend itself vigorously.

                                      F-18
<PAGE>   54
                             TRIPATH IMAGING, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. SUBSEQUENT EVENTS

     On February 8, 2000, the Company closed a $7,000,000 subordinated debt
facility with a syndicate of lenders. The debt is payable in 36 month
installments, including interest at the three year U.S. Treasury note rate plus
8%. The Company drew $5,250,000 of this facility in February 2000.

     On February 10, 2000, the Company closed a $5,000,000 working capital
facility with a bank. The outstanding balance is limited to an amount equal to
80% of eligible accounts receivable. The line commitment expires on January 31,
2001. The line bears interest at the bank's prime rate plus 1%.

                                      F-19