As filed with the Securities and Exchange Commission on May 24, 1999
Registration No. 333-72261
_______________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________________
NEOPATH, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1436093
_______________________________ ______________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8271 - 154th Avenue NE
Redmond, Washington 98052
(425) 869-7284
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
RONALD R. BROMFIELD
President and Chief Executive Officer
NeoPath, Inc.
8271 - 154th Avenue NE
Redmond, Washington 98052
(425) 869-7284
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
_____________________
Copies to:
MICHAEL E. STANSBURY
Perkins Coie LLP
1201 Third Avenue, 40th Floor
Seattle, Washington 98101-3099
(206) 583-8888
_____________________
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes
effective.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please
check the following box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, other than securities offered only in
connection with dividend or interest reinvestment plans, check the
following box. [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act of 1933,
please check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering. [ ]
<PAGE>
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act of 1933, check the following box
and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
_____________________
The registrant hereby undertakes to amend this Registration
Statement on such date or dates as may be necessary to delay its
effective date until the registrant shall file a further amendment
which specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall
become effective on such date as the SEC, acting pursuant to said
Section 8(a), may determine.
<PAGE>
The information in this prospectus is not complete and may be changed.
The selling shareholders may not sell these securities until the
registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell
these securities and is not soliciting an offer to buy these
securities in any state where the offer of sale is not permitted.
Subject to completion, dated May 24, 1999
2,900,000 Shares
NEOPATH, INC.
Common Stock
_____________________
Certain shareholders of NeoPath may offer for sale up to 2,900,000
shares of common stock at various times at market prices prevailing at
the time of sale or at privately negotiated prices.
NeoPath will not receive any proceeds from the sale of the shares by
the selling shareholders.
The common stock trades on the Nasdaq National Market under the symbol
"NPTH." On May 20, 1999, the last reported sales price of the common
stock on Nasdaq was $4.25 per share.
Investing in the common stock involves a high degree of risk. See
"Risk Factors" beginning on page 2.
_____________________
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities
or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
_____________________
<PAGE>
TABLE OF CONTENTS
ABOUT NEOPATH 1
Recent Events. 1
RISK FACTORS 2
The information in this prospectus is forward-looking,
and our actual results may be different from our
predictions. 2
We have incurred substantial losses since we began
doing business. 2
We need additional capital to fund our operations. 3
Our products may not achieve market acceptance. 4
Our sales are concentrated among a relatively small
number of customers, and as consolidation
continues in the laboratory industry, the number
of potential customers will decrease. 4
Our success depends upon the availability of health
care reimbursement. 4
We may be unable to maintain regulatory clearance for
our products. 5
We have limited marketing, sales and service experience. 5
We face risks inherent in international transactions. 6
We have a sole or limited source of supply for many of
our product components. 6
The government heavily regulates manufacturing of
medical diagnostic devices. 7
We face intense competition. 7
There are risks associated with acquisitions. 9
All of our sales depend on a single product line. 9
We may face product liability claims. 10
We depend heavily on patents and proprietary rights. 10
We have faced, and may continue to face, third-party
claims of infringement. 10
The loss of our key personnel, particularly highly
skilled scientific and management personnel, could
cause our business prospects to decline. 11
<PAGE>
Our stock price has been highly volatile. 11
Our quarterly results may fluctuate in future periods. 12
The year 2000 problem may cause disruption of our
operations. 12
FORWARD-LOOKING INFORMATION 13
HOW TO OBTAIN MORE INFORMATION 13
SELLING SHAREHOLDERS 15
PLAN OF DISTRIBUTION 16
VALIDITY OF COMMON STOCK 17
EXPERTS 17
<PAGE>
ABOUT NEOPATH
NeoPath develops and markets visual intelligence technology to
increase accuracy in medical testing. NeoPath's initial products
include two automated screening systems that integrate proprietary
high-speed morphology computers, video imaging technology and
sophisticated image interpretation software to capture and analyze
thousands of microscopic images from a Pap smear slide for the early
detection of cervical cancer.
The FDA approved our AutoPap(R) 300 QC Automatic Pap Screener
System in 1995. The AutoPap QC is a rescreening device used for
quality control and rescreening of previously screened Pap smear
slides. Clinical studies have shown that the AutoPap QC detects a
significantly higher proportion of undetected abnormal slides than
procedures typically employed by clinical laboratories to meet federal
rescreening requirements.
The FDA approved our AutoPap(R) Primary Screening System in May
1998. The AutoPap Primary Screener uses the same hardware components
as the AutoPap QC, but uses enhanced software to perform the initial
screening of Pap smear slides and to classify up to 25% of such slides
as requiring no further review. Clinical studies have shown that the
AutoPap Primary Screener provides superior sensitivity and specificity
when compared to existing laboratory practice. Currently it is the
only instrument approved by the FDA that allows Pap smear slides to
bypass human review. We believe that this feature of the AutoPap
Primary Screener provides customers with an economic incentive to
adopt the technology.
The AutoPap System refers to the AutoPap Primary Screener and the
AutoPap QC together.
Recent Events.
In the quarter ended December 31, 1998, we wrote off $3.1 million
of intangible assets related to our Pathfinder System product line.
The write-off did not involve any cash expenditure. NeoPath acquired
the Pathfinder System product line in June 1997 for a total purchase
price of $4.6 million, including transaction-related expenses. As a
result of the purchase, we recognized $4.3 million in intangible
assets that were to be amortized over five years. Despite our
attempts to market the Pathfinder System, we experienced continued
losses and negative cash flows directly attributable to the product
line. In the fourth quarter of 1998, revised projections for the
product line showed continuing future losses, which clearly
demonstrated indications of impairment. In accordance with required
accounting practices, we compared the carrying value of these
intangible assets to expected future discounted cash flows applicable
to the Pathfinder product and, as a result of the analysis, wrote off
the remaining balance of intangible assets. Pathfinder product sales
accounted for 3 percent of total revenues in 1998.
Page 1
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On February 9, 1999, we completed a $14.5 million private equity
transaction in which we issued 2.9 million shares of common stock to
investors at a price of $5.00 per share. On February 9, 1999, the
last reported sale price of the common stock on Nasdaq was $5.125. We
have filed this shelf registration statement on Form S-3 to allow
resale of these shares. We have agreed to use our best efforts to
keep this registration statement effective for two years. In
connection with the financing, we issued to Invemed Associates, Inc.,
an investment banking firm, five-year warrants to purchase 100,000
shares of common stock at an exercise price of $5.89 per share. The
proceeds of the private placement have been, and will be, used to fund
our operating cash requirements.
On March 26, 1999, AutoCyte, Inc. announced an agreement to
purchase certain Neuromedical, Inc. technology, including patent
rights, for $4.0 million in cash and 1.4 million shares of AutoCyte
common stock. On April 26, 1999, NeoPath and AutoCyte announced an
agreement whereby NeoPath may acquire an undivided interest in the
intellectual property estate of Neuromedical that AutoCyte had agreed
to acquire. Subject to completion of the agreement between AutoCyte
and Neuromedical and other conditions, NeoPath will pay AutoCyte $2.2
million in cash and issue AutoCyte 1.2 million shares of NeoPath
common stock at the later of the transaction closing date or September
1, 1999. On May 18, 1999, AutoCyte announced that it had completed
its acquisition of the Neuromedical technology.
RISK FACTORS
The information in this prospectus is forward-looking, and our actual
results may be different from our predictions.
This prospectus and the documents we incorporate by reference
contain forward-looking statements that involve risks and
uncertainties. The statements in this prospectus that are not purely
historical are forward-looking statements. Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks,"
estimates," and similar expressions identify forward-looking
statements. But the absence of these words does not mean the
statement is not forward-looking. We cannot guarantee these
statements, which are subject to risks, uncertainties and assumptions
that are difficult to predict. Our actual results may differ
materially from those we forecast in forward-looking statements due to
a variety of factors, including those set forth in the following risk
factors, elsewhere in this prospectus and in the documents we have
incorporated by reference. We will not update any forward-looking
statements due to new information, future events or otherwise. Before
investing in the common stock, you should consider carefully the
following factors, as well as the information contained in the rest of
this prospectus and in the documents we incorporate by reference.
We have incurred substantial losses since we began doing
business.
As of March 31, 1999, our accumulated deficit was $118.9 million.
We first began recognizing product revenue in 1996. For 1996, 1997,
1998 and the first three months of 1999, we incurred cumulative losses
of $72.5 million on revenues of $28.0 million. We expect continued
losses in 1999 as we market the AutoPap Primary Screener primarily
under a fee-per-use strategy in the United States, continue product
development initiatives and perform additional clinical studies. We
cannot guarantee that our business will ever become profitable.
Page 2
<PAGE>
We need additional capital to fund our operations.
We expect negative cash flow from operations to continue at least
through 1999. At March 31, 1999, NeoPath had approximately
$14.9 million in cash; however, we may require additional funds to
produce AutoPap Systems for our fee-per-use program and cover
continuing losses. We may be unable to obtain adequate funds, whether
obtained through financial markets or from collaborative or other
arrangements with corporate partners or other sources, when we need
them, or we may be unable to find adequate funding on favorable terms,
if at all. If we raise additional funds by issuing equity securities,
existing shareholders will suffer dilution of their interest in
NeoPath. In addition, if we obtain additional funds through
arrangements with collaborative partners, we may have to relinquish
rights to certain of our technologies or potential products that we
would otherwise seek to develop or commercialize ourselves.
Our future capital requirements will depend on numerous factors,
including:
- sales of AutoPap Primary Screeners and fee-per-use revenues;
- research and development programs for the development of enhanced
products;
- additional clinical trials;
- relationships with existing and future corporate collaborators,
if any;
- competing technological and market developments;
- the time and costs involved in obtaining regulatory approvals;
- the costs involved in filing, prosecuting, defending and
enforcing patent claims; and
- the time and costs of manufacturing scale-up and
commercialization activities.
We estimate that our existing cash and cash equivalents will meet
our capital requirements through 1999. In the year 2000, our cash
requirement are estimated to depend primarily on the placement rate
and pricing of fee-per-use AutoPap Primary Screeners which require
that NeoPath invest in initial manufacturing costs to achieve long-
term return through monthly customer payments. We cannot guarantee
that the assumptions underlying our estimates will prove to be
accurate. We intend to seek additional funding through private debt
financing to provide additional resources to support AutoPap Primary
Screener production, but we may be unable to do so. To date, we have
had discussions with various potential lenders. A lender's collateral
would be based primarily on AutoPap Systems placed on multi-year fee-
per-use contracts. SmithKline Beecham Clinical Laboratories is our
largest customer; therefore, the February 1999 announcement that Quest
Diagnostics Incorporated agreed to purchase SmithKline may delay our
ability to obtain debt financing.
Page 3
<PAGE>
Our products may not achieve market acceptance.
Our products may never be commercially successful. NeoPath's
growth depends on market acceptance of the AutoPap Primary Screener by
clinical laboratories, healthcare providers, third-party healthcare
payers and patients. Our success also depends on customers'
acceptance of our fee-per-use and sale programs. Even if our products
gain market acceptance, the availability of reimbursement from third-
party healthcare payers such as government and private insurance plans
may limit our revenues.
Our sales are concentrated among a relatively small number of
customers, and as consolidation continues in the laboratory
industry, the number of potential customers will decrease.
A significant proportion of our sales is concentrated among a
relatively small number of customers, and this likely will be true for
the foreseeable future. For the year ended December 31, 1998,
approximately 28% of our revenues were from two customers, SmithKline
Beecham Clinical Laboratories in the United States and Chang's
Instrument Company Limited in Taiwan. The loss of SmithKline would be
materially detrimental to our business.
Moreover, due to consolidation in the clinical laboratory
industry, we expect that the number of potential domestic customers
for our products will decrease. These factors increase our dependence
on sales to the largest clinical laboratories and the bargaining power
of those potential customers. Our market research indicates that over
35% of all U.S. Pap smears are screened by the three largest
laboratories, including SmithKline, Quest Diagnostics Incorporated and
Laboratory Corporation of America. Each of these companies operates
multiple laboratory facilities nationwide.
In February 1999, SmithKline and Quest announced that Quest had
agreed to purchase SmithKline. The combined entity would be the
largest clinical laboratory company in the world. NeoPath's national
agreement with SmithKline is binding on successor organizations, and
we believe that the AutoPap Primary Screeners installed under the
SmithKline agreement will continue to generate revenues in accordance
with the underlying agreement. However, additional AutoPap Primary
Screener orders have been delayed as the two laboratories work through
their combined business issues. Future negotiations with SmithKline
and Quest could result in changes to the overall pricing and placement
rate under the existing SmithKline agreement.
Our success depends upon the availability of health care
reimbursement.
Third-party healthcare payers in the United States are
increasingly sensitive to containing healthcare costs and heavily
scrutinize new technology as a primary factor in increased healthcare
costs. Third-party payers may influence the pricing or perceived
attractiveness of our products and services by regulating the maximum
amount of reimbursement they provide or by not providing any
reimbursement. Medical community or third-party healthcare payers may
delay acceptance of an automated Pap smear screening or rescreening
system that replaces or supplements current laboratory Pap smear
review practices.
Page 4
<PAGE>
Virtually all of our revenues are dependent on customers who rely
on third party reimbursement. Restrictions on reimbursement may limit
the price we can charge for AutoPap System screening or reduce the
demand for AutoPap System screening. If these payers do not reimburse
for the AutoPap System screening, or provide reimbursement
significantly below the amount laboratories charge patients to perform
AutoPap System screening, our product will be less attractive to our
customers and potential customers and potential market and revenues
will be significantly reduced. AutoPap System screening may never
become widely reimbursed, and AutoPap reimbursement may not be
sufficient to permit us to generate substantial revenue. Future
healthcare legislation or other changes in the administration or
interpretation of government healthcare or third-party reimbursement
programs may also adversely affect our business. Third-party
reimbursement also may not be available for the AutoPap System under
foreign reimbursement systems.
We may be unable to maintain regulatory clearance for our
products.
The U.S. government extensively regulates the manufacture and
sale of medical diagnostic devices for commercial use. Government
agencies in certain other countries impose similar requirements. The
AutoPap Primary Screener and AutoPap QC have been cleared for
commercialization in the United States and in Japan, Canada,
Australia, New Zealand, The Netherlands, Italy, Hong Kong, Korea, and
Taiwan.
Governmental regulatory agencies in the United States or
elsewhere may not approve future commercial enhancements to the
AutoPap System on a timely basis, if at all. Even if these agencies
clear the enhanced products for sale, they may not confer the clinical
indications we request, or the approval may contain significant
limitations, such as warnings, precautions or contraindications,
requests for postmarket studies, or additional regulatory
requirements. Our regulatory applications may be delayed or rejected
based on changes in regulatory policies or regulations. Although the
FDA has inspected our manufacturing operations for compliance with FDA
quality systems regulations, we remain subject to ongoing FDA quality
systems regulation and inspection.
We have limited marketing, sales and service experience.
We market, sell, service, and support the AutoPap System through
a direct sales force in North America and through independent foreign
distributors. We have limited marketing, sales and service
experience, and may find it difficult to recruit and retain skilled
sales, marketing, service or support personnel or foreign
distributors. Our marketing and sales efforts may not be successful.
We provide competitive compensation and benefits, including stock
options, and a professional, challenging environment to retain key
personnel.
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<PAGE>
We face risks inherent in international transactions.
We rely primarily on third-party distributors to place AutoPap
Systems internationally. International transactions pose a number of
risks. For NeoPath, the most significant risks are:
- regulatory delays or disapprovals with respect to enhancements
to the AutoPap Primary Screener,
- expenses and delays due to compliance with government controls,
- export license requirements,
- uncertain sales and collections due to political instability,
- reduced revenues due to price controls,
- reduced sales due to trade restrictions,
- changes in tariffs, and
- difficulties with foreign distributors.
We have a sole or limited source of supply for many of our
product components.
We purchase 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, Applied Precision,
Inc. In addition, AutoPap System optics are purchased sole-source
from Nikon Corporation, and video cameras are purchased sole-source
from Sony Electronics, Inc. Certain other components are currently
purchased from single-source vendors. Components provided by
additional or replacement suppliers would require some modification to
be used in the AutoPap System. We would be unable to quickly establish
additional or replacement sources of supply for many AutoPap System
components. In addition, we may need to obtain regulatory approval to
substitute certain components. We cannot be sure of obtaining the
necessary approvals. If one of our vendors becomes unable to supply
acceptable components in a timely manner and in the quantity required
we may need to delay or halt our manufacturing process. Any delay or
cessation of manufacturing could adversely affect our business.
Page 6
<PAGE>
The government heavily regulates manufacturing of medical diagnostic
devices.
Manufacturers of medical diagnostic devices face strict federal
regulations regarding the quality of manufacturing. For example, the
FDA periodically inspects the manufacturing facilities of diagnostic
device manufacturers to determine compliance with regulations. Our
current and future manufacturing and design operations must comply
with these and all other applicable regulations, including regulations
imposed by other governments. If we fail to comply with quality
systems regulations we could face civil or criminal penalties or
enforcement proceedings. These proceedings may require us to recall a
product or to stop placing our products in service or selling our
products. Similar results could occur if we violate foreign
regulations. We may not be able to attain or maintain compliance with
quality systems requirements. Any failure to comply with the
applicable manufacturing regulations would have a material adverse
effect on our business.
We face intense competition.
Competition in the medical device industry is intense. Our
competitors may develop new technologies and products that prove to be
more effective than the AutoPap System in important ways.
Furthermore, other companies may purchase or develop technologies that
compete with the AutoPap System or render it obsolete. These
competitors may manufacture, market and sell their products or
services more successfully than us, which could adversely affect our
business. We believe that the AutoPap System must remain competitive
in accuracy and effectiveness, cost, including both charges by us to
the laboratory and the laboratory's labor and overhead costs,
convenience, perception among influential cytopathologists and
laboratories, and processing speed and reliability. We cannot
guarantee that the AutoPap System will be competitive in any of these
areas.
The AutoPap System competes with existing manual methods of
screening Pap smears and with semi-automated systems. To effectively
compete, we must keep pace with the rapid product development and
technological change in our industry. The AutoPap System must
demonstrate accuracy and cost effectiveness that equals or exceeds
manual review of Pap smears and the technology that may be offered by
our competitors.
We are aware of two potential direct competitors:
- AutoCyte, Inc., which is developing a semi-automated system to
prepare and analyze liquid-based Pap smears, a potential alternative
to conventional Pap smears; and
- Morphometrix Technologies Inc., which is developing an automated
system to analyze monolayer Pap smears
Page 7
<PAGE>
Neuromedical Systems, Inc., had obtained regulatory approval for
a semi-automated system that rescreens conventional Pap smears and
was developing a semi-automated primary screener. On March 26, 1999,
Neuromedical announced that it had filed a voluntary chapter 11
petition for bankruptcy. On the same day, AutoCyte announced an
agreement to purchase certain Neuromedical technology, including
patent rights, for $4.0 million in cash and 1.4 million shares of
AutoCyte common stock. On April 26, 1999, NeoPath and AutoCyte
announced an agreement whereby NeoPath may acquire an undivided
interest in the intellectual property estate of Neuromedical that
AutoCyte had agreed to acquire. Subject to completion of the
agreement between AutoCyte and Neuromedical and other conditions,
NeoPath will pay AutoCyte $2.2 million in cash and issue AutoCyte 1.2
million shares of NeoPath common stock at the later of the transaction
closing date or September 1, 1999. On May 18, 1999, AutoCyte
announced that it had completed its acquisition of the Neuromedical
technology.
We also face indirect competition from companies that manufacture
liquid-based or monolayer slide preparation systems and devices that
automate various aspects of cytology. Cytyc Corporation is approved
to market its ThinPrep System that prepares slides for cervical cancer
screening using a liquid-based sampling and preparation technique as a
replacement for the conventional Pap smear method. Because the
AutoPap System is not currently approved to process Cytyc's ThinPrep
Pap smear, laboratories that choose to use ThinPrep are not currently
able to fully adopt the AutoPap System.
Page 8
<PAGE>
There are risks associated with acquisitions.
We may not be successful in integrating the technology rights or
operations from acquisitions. In June 1997, NeoPath acquired the
Pathfinder System product line, for which the resulting intangible
assets were written off in the fourth quarter of 1998. On April 26,
1999, NeoPath and AutoCyte announced an agreement whereby NeoPath may
acquire an undivided interest in the intellectual property estate of
Neuromedical that AutoCyte had agreed to acquire. We have limited
experience with completing and integrating acquisitions. Our business
may include growth by acquisition. Future acquisitions present many
risks and uncertainties generally associated with acquisitions,
including:
- diversion of management's attention from other business concerns;
- increased fixed costs, which could cause profits to decrease;
- disruption of our ongoing business and operations, which could,
among other things, impair our reputation and our relationships with
customers and employees and potentially cause the loss of our own key
employees or those of an acquired company;
- integration of an acquired company's personnel and operations
with our personnel and operations;
- maintenance of our standards, controls, procedures and policies;
- negative impact on earnings;
- issuances of equity securities that may dilute your interest in
our company;
- our taking on additional debt;
- our becoming responsible for significant liabilities of companies
we acquire; or
- large one-time write-offs and amortization expenses related to
goodwill and other intangible assets.
We have not yet established our ability to meet such challenges.
All of our sales depend on a single product line.
To date, we have concentrated on development of the AutoPap
System. We have performed only limited research on other applications
of our core technology. Accordingly, our success will depend
primarily on the successful development and marketing of the AutoPap
System to generate revenues. The AutoPap System may never be a
commercial success.
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<PAGE>
We may face product liability claims.
The commercial screening of Pap smears has generated significant
malpractice litigation. As a result, we face product liability,
errors and omissions or other claims if our products are alleged to
have caused a false-negative diagnosis. Although we have product
liability insurance, it will become increasingly difficult for us to
obtain and maintain reasonable product liability coverage. Our
current product liability coverage is limited to $25 million.
Substantial increases in insurance premium costs often make coverage
economically impractical. We may not be able to obtain adequate
product liability insurance at a reasonable cost. Thus, product
liability claims may adversely affect our business.
We depend heavily on patents and proprietary rights.
We rely on a combination of patents, trade secrets and
confidentiality agreements to protect our proprietary technology,
rights and know-how. We hold 7 foreign patents, 54 U.S. patents
(issued or allowed), and have 26 additional U.S. patents pending.
NeoPath's patents expire in 2012 - 2018. Pending patent applications
may not ultimately issue as patents or, if patents do issue, may not
be sufficiently broad to protect our proprietary rights. Competitors
may challenge or circumvent our patents or pending applications. Our
patents may never provide us with any competitive advantages. We
pursue selected international patents only in key markets. In certain
foreign countries, protection of our patent and other intellectual
property may be unavailable or very limited. Given our focused
strategy internationally, we have not experienced significant
inability to obtain sought-after intellectual property. However, such
protection may be unavailable or very limited in future markets that
we have not yet targeted. Our confidentiality agreements with
employees and other parties may not protect the confidentiality of our
trade secrets and proprietary information or provide meaningful
protection for our confidential information. In addition, our
competitors could independently develop our trade secrets or
proprietary information.
We have faced, and may continue to face, third-party claims of
infringement.
On July 15, 1996, Neuromedical filed a lawsuit against NeoPath,
Inc. in the United States District Court for the Southern District of
New York. The complaint alleged patent infringement, unfair
competition, false advertising, and related claims and requested
monetary damages and injunctive relief. On September 5, 1996, we
filed our answer and counter claims. In May 1998, a judge in the
United States District Court for the Southern District of New York
denied Neuromedical's motion for a preliminary injunction against us.
The parties agreed to dismiss their claims and counterclaims on all
but the patent issues, and Neuromedical accordingly served an amended
complaint on July 27, 1998 asserting only patent infringement claims.
Virtually all of our domestic revenues, which represented 81% of total
revenues in 1998, are derived from products that incorporate
technology covered by this patent. We believe NeoPath has a strong
position in this action, and we will defend against these claims
vigorously. On March 26, 1999, Neuromedical announced that it had
filed a voluntary chapter 11 petition for bankruptcy. On April 6,
1999, the court removed the case from its active docket pending
further developments in Neuromedical's bankruptcy proceedings.
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<PAGE>
On March 31, 1997, NeoPath filed a patent infringement lawsuit
against Neuromedical in the United States District Court for the
Western District of Washington. Our complaint alleges patent
infringement and seeks permanent injunctions against Neuromedical. In
March and April 1998 this lawsuit was amended, and NeoPath filed an
additional related patent lawsuit against Neuromedical. Neuromedical
filed a motion for summary judgment, which the court denied in April
1998. In October 1998, Neuromedical filed another motion for summary
judgment that the court denied. By court order on March 30, 1999,
proceedings have been stayed pending resolution of Neuromedical's
bankruptcy proceedings. Furthermore, the court ordered that these
cases be removed from the court's active caseload.
On March 26, 1999, AutoCyte, Inc. announced an agreement to
purchase certain Neuromedical technology, including patent rights, for
$4.0 million in cash and 1.4 million shares of AutoCyte common stock.
On April 26, 1999, NeoPath and AutoCyte announced an agreement whereby
we may acquire an undivided interest in the intellectual property
estate of Neuromedical that AutoCyte had agreed to acquire. Subject
to completion of the agreement between AutoCyte and Neuromedical and
other conditions, we will pay AutoCyte $2.2 million in cash and issue
AutoCyte 1.2 million shares of NeoPath common stock at the later of
the transaction closing date or September 1, 1999. On May 18, 1999,
AutoCyte announced that it had completed its acquisition of the
Neuromedical technology. Our agreement with AutoCyte provides that
the patent infringement litigation between NeoPath and Neuromedical
will be terminated.
We cannot predict the outcome of this patent litigation. An
unfavorable resolution of any of these issues could materially
adversely affect our business.
The loss of our key personnel, particularly highly skilled
scientific and management personnel, could cause our
business prospects to decline.
We depend heavily on the principal members of our management and
scientific staff. The loss of their services might impede achievement
of our strategic objectives or research and development. Our success
depends on our ability to retain key employees and to attract
additional qualified employees. Competition for highly skilled
scientific and management personnel is intense, particularly in the
Western Washington region, where such resources are scarce relative to
the needs of a growing high technology business sector. The failure
to recruit such personnel or the loss of existing personnel could
adversely affect our business. We do not carry key person life
insurance on our executives or other key personnel.
Our stock price has been highly volatile.
The market price of our common stock has been, and may continue
to be, highly volatile. Our stock trades on the Nasdaq National
Market. Since the beginning of 1998, our stock has traded as high as
$18.19 and as low as $3.00 per share. The future price of the common
stock is likely to be significantly influenced by results of our sales
and marketing programs, the outcome of clinical trials by us or our
competitors, concern about the safety or efficacy of our products or
our competitors' products, announcements of technological innovations
or new products, changes in governmental regulation, changes in
healthcare legislation, developments in our patent or other
proprietary rights or the rights of our competitors, fluctuations in
our operating results, and general market and economic conditions.
Page 11
<PAGE>
Our quarterly results may fluctuate in future periods.
We expect our operating results to fluctuate significantly from
quarter to quarter in the future. For instance, our revenues for the
quarter ended March 31, 1999 were $2.0 million, compared to revenues
of $3.6 million in the quarter ended March 31, 1998. Quarterly net
losses have ranged from $8.1 million in the quarter ended December 31,
1998 to $4.8 million in the quarter ended December 31, 1997. A number
of factors may cause this fluctuation, including:
- the rate and extent of domestic and international market
acceptance of the AutoPap Primary Screener;
- the mixture of fee-per-use and sale contracts;
- the timing and scope of clinical studies and corresponding
regulatory submissions;
- the timing of domestic and foreign regulatory approvals;
- the level of research and development spending required for
product enhancements and development of new technologies;
- the timing of approvals for AutoPap reimbursement; and
- the introduction and market acceptance of competing products or
technologies.
These fluctuations may cause our results to be below analysts'
and investors' expectations, causing the market price of our common
stock to decline.
The year 2000 problem may cause disruption of our operations.
We need to modify or replace certain portions of our internal
systems and product software and certain hardware so that those
systems will properly recognize dates beyond December 31, 1999.
However, we have identified no significant Year 2000 issues that
cannot be resolved through software or hardware upgrades that are
currently available or expected to be available soon. We are using
our existing internal resources to reprogram or replace noncompliant
internal systems and product hardware and software. However, if such
modifications and replacements are not made, or are not completed in a
timely manner, the Year 2000 issue could result in system errors or
failures and could significantly disrupt Neopath's and its customers'
operations.
We have asked our significant suppliers and subcontractors about
their Year 2000 compliance status. To date, we are not aware of any
external agent with Year 2000 problems that would materially affect
our results of operations, liquidity, or capital resources. However,
we have no means of ensuring that these agents will be Year 2000
ready. If our suppliers and subcontractors do not complete their Year
2000 resolution process in a timely fashion we could face significant
business interruptions that could harm our business. We cannot
accurately predict the effect of non-compliance by external agents.
Page 12
<PAGE>
The Company currently has no contingency plans in place in the
event it does not complete all phases of the Year 2000 program,
including the possibility that its external agents are not Year 2000
ready. If we or others do not make necessary modifications and
conversions, or do not complete them on time, the Year 2000 Issue
could disrupt NeoPath's operations and materially affect its business,
financial condition, and results of operations.
FORWARD-LOOKING INFORMATION
This prospectus includes "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. The
Act provides a "safe harbor" for forward-looking statements to
encourage companies to provide prospective information about
themselves so long as they identify these statement as forward-looking
and provide meaningful cautionary statements identifying important
factors that could cause actual results to differ from the projected
results. All statements other than statements of historical fact we
make in this Prospectus or in any document incorporated by reference
are forward-looking. In particular, the statements herein regarding
industry prospects and our future results of operations or financial
position are forward-looking statements. Forward-looking statements
reflect our current expectations and are inherently uncertain. Our
actual results may differ significantly from our expectations. The
section entitled "Risk Factors" describes some, but not all, of the
factors that could cause these differences.
HOW TO OBTAIN MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission. You may read any document we file
at the SEC's public reference rooms in Washington, D.C., Chicago,
Illinois and New York, New York. Please call the SEC toll free at 1-
800-SEC-0330 for information about its public reference rooms. You
may also read our filings at the SEC's web site at http://www.sec.gov.
We have filed with the SEC a registration statement on Form S-3
under the Securities Act. This prospectus does not contain all of the
information in the registration statement. We have omitted certain
parts of the registration statement, as permitted by the rules and
regulations of the SEC. You may inspect and copy the registration
statement, including exhibits, at the SEC's public reference
facilities or web site. Our statements in this prospectus about the
contents of any contract or other document are not necessarily
complete. You should refer to the copy of each contract or other
document we have filed as an exhibit to the registration statement for
complete information.
Page 13
<PAGE>
The SEC allows us to "incorporate by reference" into this
prospectus the information we file with it. This means that we can
disclose important information to you by referring you to those
documents. This information we incorporate by reference is considered
a part of this prospectus, and later information we file with the SEC
will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future
filings we make with the SEC under Sections 13(a), 13(c), 14 and 15(d)
of the Securities Exchange Act of 1934 until this offering is
completed:
1. NeoPath's Annual Report on Form 10-K for the year ended
December 31, 1998;
2. NeoPath's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999;
3. The description of the common stock in NeoPath's Registration
Statement on Form 8-A effective as of November 30, 1994,
including any amendment or report filed to update the
description; and
4. All other documents filed by NeoPath pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this prospectus and prior to the termination of this
offering.
You may obtain copies of these documents, without exhibits, free
of charge by contacting NeoPath's corporate secretary at our principal
offices, which are located at 8271 - 154th Avenue NE, Redmond,
Washington 98052, telephone number (425) 869-7284. You may visit our
website at www.neopath.com.
You should rely only on the information incorporated by reference
or provided in this prospectus or any prospectus supplement. We have
not authorized anyone else to provide you with different information.
The selling shareholders are not making an offer of these securities
in any state where the offer is not permitted. You should not assume
that the information in this prospectus or any prospectus supplement
is accurate as of any date other than the date on the front of the
document.
Page 14
<PAGE>
SELLING SHAREHOLDERS
The following table presents information regarding the selling
shareholders and the number of shares they may offer by this
prospectus.
<TABLE>
<CAPTION>
Shares That May Shares Beneficially Owned
Be Sold After Offering
____________________________ __________________________
Shares
Beneficially Percentage
Owned of
Prior Common Percentage of
to Stock Common Stock
Name of Shareholder Offering Amount Outstanding Amount Outstanding
_______________________ _________ __________ ___________ _________ ____________
<S> <C> <C> <C> <C> <C>
The Kaufmann Fund, Inc. 2,071,000 1,821,000 10.5% 250,000 1.4%
Capital Research and 1,121,400 500,000 2.9% 621,400 3.6%
Management Company
on behalf of SmallCap
World Fund, Inc.
The Jenifer Altman 21,000 7,000 * 14,000 *
Foundation
Alza Corporation 21,000 6,000 * 15,000 *
Retirement Plan
Dean Witter Foundation 21,000 6,000 * 15,000 *
The Ferris Hamilton 15,000 5,000 * 10,000 *
Family Trust
John J. & 4,000 4,000 * -- *
Catherine H. Kayola
Arthur D. Little 160,000 60,000 * 100,000 *
Employee Investment Plan
The Magee/Bernhard LLC 43,000 18,000 * 25,000 *
The Meehan Investment 16,000 4,000 * 12,000 *
Partnership I, L.P.
Margaret M. Legacy 21,000 6,000 * 15,000 *
NFIB Employee Pension Trust 32,000 12,000 * 20,000 *
NFIB Corporate Account 28,000 15,000 * 13,000 *
Norwalk Employees' 72,000 12,000 * 60,000 *
Pension Plan
Public Employee 270,000 120,000 * 150,000 *
Retirement System of Idaho
Roanoke College 26,000 6,000 * 20,000 *
The A & JS Family LLC 27,000 11,000 * 16,000 *
City of Stamford 53,000 18,000 * 35,000 *
Firemen's Pension Fund
State of Oregon PERS/ZCG 840,000 240,000 1.4% 600,000 3.5%
Van Loben Sels Foundation 21,000 5,000 * 16,000 *
The A & SW Family LLC 27,700 12,000 * 15,700 *
Wells Family LLC 31,000 6,000 * 25,000 *
Wolfson Investment 26,000 6,000 * 20,000 *
Partners LP _________ _________ _____ _________ _____
4,968,100 2,900,000 16.7% 2,068,100 11.9%
</TABLE>
____________________
* Less than 1%
Page 15
<PAGE>
None of the selling shareholders has had any material
relationship with NeoPath or its affiliates within the past three
years. The selling shareholders purchased all of the shares from
NeoPath in a private transaction on February 9, 1999. All of the
shares were "restricted securities" under the Securities Act prior to
this registration.
The selling shareholders have represented to us that they
purchased the shares for their own account for investment only and not
with a view towards selling or distributing them, except pursuant to
sales registered under the Securities Act or exemptions. NeoPath
agreed with the selling shareholders to file the registration
statement to register the resale of the shares. NeoPath agreed to
prepare and file all necessary amendments and supplements to the
registration statement to keep it effective until the earlier of (1)
February 9, 2001 and (2) the date on which the selling shareholders
have sold all the shares.
PLAN OF DISTRIBUTION
We are registering the shares on behalf of the selling
shareholders and their successors (including donees and pledgees, who
may sell shares they receive from the selling shareholders after the
date of this prospectus). The selling shareholders or their
successors may sell all of the shares from time to time in
transactions in the over-the-counter market through Nasdaq, or on one
or more other securities markets and exchanges, in privately
negotiated transactions or through writing options on the shares.
They may sell the shares at fixed prices that may change, at market
prices prevailing at the time of sale, at prices relating to
prevailing market prices or at negotiated prices. The selling
shareholders may sell the shares to or through broker-dealers. These
broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the selling shareholders and/or the
purchasers.
The selling shareholders have advised us that they have not
entered into any agreements, understandings or arrangements for the
sale of the shares with any underwriters or broker-dealers and that no
underwriter or coordinating broker is now acting in connection with
the proposed sale of shares.
NeoPath will not receive any proceeds from the sale of the shares
by the selling shareholders. NeoPath may suspend use of this
prospectus under certain circumstances.
The selling shareholders and broker-dealers who assist in the
sale of the shares may be "underwriters" within the meaning of
Section 2(11) of the Securities Act. Any commissions or profit they
earn on any resale of the shares may be underwriting discounts and
commissions under the Securities Act. Selling shareholders who are
"underwriters" within the meaning of Section 2(11) of the Securities
Act will be subject to the prospectus delivery requirements of the
Securities Act. We have informed the selling shareholders that the
anti-manipulative provisions of Regulation M of the Exchange Act may
restrict their sales in the market.
NeoPath will pay all expenses, other than selling commissions and
fees and stock transfer taxes, of the registration and sale of the
shares. NeoPath also has agreed to indemnify the selling shareholders
and broker-dealers who assist in the sale of the shares against
certain liabilities, including liabilities under the Securities Act.
The selling shareholders may indemnify any agent, dealer or broker-
dealer that assists them in selling the shares against certain
liabilities, including liabilities arising under the Securities Act.
We cannot guarantee that the selling shareholders will sell any
or all of the shares.
Page 16
<PAGE>
VALIDITY OF COMMON STOCK
Perkins Coie LLP, Seattle, Washington, will provide NeoPath with
an opinion as to legal matters in connection with the common stock
offered by this prospectus.
EXPERTS
The financial statements of NeoPath, Inc. incorporated by
reference in NeoPath, Inc.'s Annual Report (Form 10-K) for the year
ended December 31, 1998, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon
incorporated by reference therein and incorporated herein by
reference. Such financial statements are incorporated herein by
reference in reliance upon such report given on the authority of such
firm as experts in accounting and auditing.
Page 17
<PAGE>
_______________________________________________________________________
We have not authorized any person to give you any information or to
make any representations other than those contained in this
prospectus. You should not rely on any information or representations
other than this prospectus. This Prospectus is not an offer to sell
or a solicitation of an offer to buy any securities other than the
common stock. It is not an offer to sell or a solicitation of an
offer to buy securities if the offer or solicitation would be
unlawful. The affairs of NeoPath may have changed since the date of
this prospectus. You should not assume that the information in this
prospectus is correct at any time subsequent to its date.
<PAGE>
______________________________________________________________________
2,900,000 Shares
NEOPATH, INC.
Common Stock
______________
PROSPECTUS
______________
May 24, 1999
_____________________________________________________________________
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts payable, by the registrant in connection with
the sale of common stock being registered. All amounts are estimates
except the SEC registration fee and the Nasdaq National Market
additional listing fee.
SEC registration fee $ 4,233
Nasdaq National Market listing fee 17,500
Legal fees and expenses 15,000
Accounting fees and expenses 10,000
________
Total $ 46,733
========
Item 15. Indemnification of Directors and Officers
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act authorize a court to award, or a corporation's board
of directors to grant, indemnification to directors and officers on
terms sufficiently broad to permit indemnification under certain
circumstances for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act"). Section 10 of the
registrant's Bylaws provides for indemnification of the registrant's
directors, officers, employees and agents to the maximum extent
permitted by Washington law.
Section 23B.08.320 of the Washington Business Corporation Act
authorizes a corporation to limit a director's liability to the
corporation or its shareholders for monetary damages for acts or
omissions as a director, except in certain circumstances involving
intentional misconduct, knowing violations of law or illegal corporate
loans or distributions, or any transaction from which the director
personally receives a benefit in money, property or services to which
the director is not legally entitled. Article 8 of the registrant's
Articles of Incorporation contains provisions implementing, to the
fullest extent permitted by Washington law, such limitations on a
director's liability to the registrant and its shareholders.
The Registrant also has entered into indemnification agreements
under which it has agreed, among other things, to indemnify its
directors and officers against certain liabilities.
<PAGE>
Item 16. Exhibits
5.1* Opinion of Perkins Coie LLP, counsel to the registrant,
regarding the legality of the Common Stock
23.1 Consent of Ernst & Young LLP, independent auditors
23.2* Consent of Perkins Coie LLP (contained in Exhibit 5.1)
24.1* Power of Attorney (contained on signature page)
* Filed previously on February 12, 1999 (File No. 333-72261).
Item 17. Undertakings
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933; and (ii) to reflect in the prospectus any
facts or events arising after the effective date of the registration
statement (or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in
the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the
low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof; and
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
B. The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or section 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating
to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
<PAGE>
C. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
D. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly
caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunder duly authorized, in the
City of Redmond, State of Washington, on the 21st day of May, 1999.
NeoPath, Inc.
/s/ ROBERT C. BATEMAN
_____________________
By: Robert C. Bateman
Vice President, Finance, Chief
Financial Officer, Treasurer and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been signed by the
following persons in the capacities indicated below on the 21st day
of May, 1999.
Signature Title
_________ _____
/s/ RONALD R. BROMFIELD President, Chief Executive Officer,
__________________________ and Director (Principal Executive Officer)
Ronald R. Bromfield
*
___________________________ Chairman of the Board
Alan C. Nelson
/s/ ROBERT C. BATEMAN Vice President, Finance, Chief
___________________________ Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
*
___________________________ Director
Thomas A. Bonfiglio
*
___________________________ Director
Cristina H. Kepner
*
___________________________ Director
Walter L. Robb
*
___________________________ Director
William L. Scott
<PAGE>
*
___________________________ Director
David A. Thompson
* By: /s/ ROBERT C. BATEMAN
___________________________ Attorney-In-Fact
Robert C. Bateman
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" in Amendment No. 1 to the Registration Statement (Form S-3)
and related Prospectus of NeoPath, Inc. for the registration of
2,900,000 shares of its common stock and to the incorporation by
reference therein of our report dated February 9, 1999, with respect
to the financial statements of NeoPath, Inc. incorporated by reference
in its Annual Report (Form 10-K) for the year ended December 31, 1998,
filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
_____________________
ERNST & YOUNG LLP
Seattle, Washington
May 21, 1999
<PAGE>
EXHIBIT INDEX
Exhibit Number
5.1* Opinion of Perkins Coie LLP, counsel to the registrant,
regarding the legality of the Common Stock
23.1 Consent of Ernst & Young LLP, independent auditors
23.2* Consent of Perkins Coie LLP (contained in Exhibit 5.1)
24.1* Power of Attorney (contained on signature page)
* Filed previously on February 12, 1999 (File No. 333-72261).
