SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. 1)

 

Check the appropriate box:

NEOPROBE CORPORATION

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

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2011 ANNUAL MEETING OF STOCKHOLDERS

[•], 2011

Dear Stockholder:

You are cordially invited to attend the 2011 Annual Meeting of Stockholders of Neoprobe Corporation, which will be held at 9:00 a.m., Eastern Daylight Time, on August 15, 2011, at the Embassy Suites Hotel, 5100 Upper Metro Place, Dublin, Ohio 43017 (phone: 614-790-9000). The matters on the meeting agenda are described in the Notice of 2011 Annual Meeting of Stockholders and proxy statement which accompany this letter.

We hope you will be able to attend the meeting, but regardless of your plans, we ask that you please complete, execute, and date the enclosed proxy card and return it in the envelope provided so that your shares will be represented at the meeting.

		Very truly yours,
		Dr. Mark J. Pykett President and Chief Executive Officer

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NEOPROBE CORPORATION
425 Metro Place North, Suite 300
Dublin, Ohio 43017

 

NOTICE OF 2011 ANNUAL MEETING OF STOCKHOLDERS

To the Stockholders of
NEOPROBE CORPORATION:

The Annual Meeting of the Stockholders of Neoprobe Corporation, a Delaware corporation (the “Company”), will be held at the Embassy Suites Hotel, 5100 Upper Metro Place, Dublin, Ohio 43017 (phone: 614-790-9000), on August 15, 2011, at 9:00 a.m., Eastern Daylight Time, for the following purposes:

The Board of Directors has fixed the close of business on June 17, 2011, as the record date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting and any adjournment thereof. A list of stockholders will be available for examination by any stockholder at the Annual Meeting and for a period of 10 days before the Annual Meeting at the executive offices of the Company.

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be Held on August 15, 2011: The proxy statement and annual report to security holders is available at http://neoprobe2011.investorroom.com.

Whether or not you plan to attend the Annual Meeting, please sign, date, and return the enclosed proxy card in the envelope provided or take advantage of the opportunity to vote your proxy online. If you have any questions or need assistance voting your shares of our Common Stock, please contact [•], our proxy solicitor, by calling toll-free at [•] or by e-mailing [•].

		By Order of the Board of Directors
		Dr. Mark J. Pykett President and Chief Executive Officer

Dublin, Ohio
[•], 2011

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PROXY STATEMENT FOR
2011 ANNUAL MEETING OF STOCKHOLDERS

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		Page
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION			1
SUMMARY			3
QUESTIONS AND ANSWERS ABOUT THE ASSET SALE			8
THE ANNUAL MEETING			11
ASSET SALE			13
Parties to the Asset Sale			13
Background of the Asset Sale			13
Reasons for the Asset Sale			15
Post-Closing Business and Proceeds from the Asset Sale			18
Recommendation of Our Board of Directors			19
Opinion of Our Financial Advisor			19
Other Agreements and Transactions Related to the Asset Sale			21
Voting Agreement			21
Interests of Our Directors and Executive Officers in the Asset Sale			22
Appraisal Rights			22
Accounting Treatment of the Asset Sale			22
Financing; Source and Amount of Funds			22
Material U.S. Federal, State and Local Income Tax Consequences			22
Regulatory Matters			22
Financial Projections			22
RISK FACTORS RELATING TO THE ASSET SALE			25
ASSET PURCHASE AGREEMENT			29
General			29
Closing			29
Representations and Warranties			30
Indemnification; Survival of Indemnification Obligations			31
Covenants and Agreements			31
No Negotiation or Solicitation of Competing Transaction			32
Employee Matters			32
Recommendation			33
Covenant Not to Compete or Disclose			33
Use of Neoprobe Trade Marks and Trade Names			33
Distribution Rights			34
Conditions to Completion of the Asset Sale			34
Termination			35
Expenses			35
Amendment			35

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		Page
NEOPROBE CORPORATION AND SUBSIDIARIES SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA			36
NEOPROBE CORPORATION AND SUBSIDIARIES GDS BUSINESS UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS			37
NEOPROBE CORPORATION AND SUBSIDIARIES GDS BUSINESS NOTES TO THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS			41
NEOPROBE CORPORATION AND SUBSIDIARIES GDS BUSINESS UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS			45
NEOPROBE CORPORATION AND SUBSIDIARIES GDS BUSINESS NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS			48
NEOPROBE CORPORATION AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS			57
NEOPROBE CORPORATION AND SUBSIDIARIES NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION			64
PROPOSAL NO. 1 — THE ASSET SALE AND THE ASSET PURCHASE AGREEMENT			66
PROPOSAL NO. 2 — ELECTION OF DIRECTORS			67
Nominees for Election as Directors			67
PROPOSAL NO. 3 — THE THIRD AMENDED AND RESTATED 2002 STOCK INCENTIVE PLAN			70
PROPOSAL NO. 4 — ADVISORY VOTE ON THE FREQUENCY OF VOTING ON THE COMPENSATION OF NAMED EXECUTIVE OFFICERS			76
PROPOSAL NO. 5 — ADVISORY VOTE ON THE COMPENSATION PAID TO NAMED EXECUTIVE OFFICERS			77
PROPOSAL NO. 6 — RATIFICATION OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			78
PROPOSAL NO. 7 — ADJOURNMENT			79
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND EXECUTIVE OFFICERS			80
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			86
EXECUTIVE COMPENSATION			88
CODE OF BUSINESS CONDUCT AND ETHICS			97
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS			97
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE			99
FEES OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			99
COST OF SOLICITATION OF PROXIES			100
GOVERNANCE MATERIALS AVAILABLE ON OUR WEBSITE			100
STOCKHOLDER PROPOSALS			100
OTHER BUSINESS			100
WHERE YOU CAN FIND MORE INFORMATION; INCORPORATION BY REFERENCE			101
Appendices
Appendix A — Asset Purchase Agreement			A-1
Appendix B — Opinion of UBS Securities LLC			B-1
Appendix C — Third Amended and Restated 2002 Stock Incentive Plan			C-1

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

This proxy statement, and the documents to which we refer you to in this proxy statement, contain forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995, including, among others, under the headings “Summary,” “Questions and Answers About the Asset Sale,” “Asset Sale,” “The Asset Purchase Agreement,” “Proposal No 1 — The Asset Sale and the Asset Purchase Agreement,” and in statements containing the words “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “should,” “plans,” “targets” and/or similar words or expressions. Forward-looking statements also include the following: (1) statements containing projections of revenues, operating expenses, income (or loss), earnings (or loss) per share, capital expenditures, dividends, capital structure, and other financial items; (2) statements concerning the plans and objectives of Neoprobe management for future operations, including plans or objectives relating to its products or services; (3) statements of future economic performance; (4) statements of the assumptions underlying or relating to any statement described in (1), (2), or (3); and (5) statements regarding the timing or completion of the Asset Sale. Actual results could differ materially from those predicted by these forward-looking statements.

You should be aware that forward-looking statements involve known and unknown risks and uncertainties as well as assumptions, among other things, about us and regulatory, clinical, economic and market factors, among others. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the actual results or developments we anticipate will be realized, or even if realized, that they will have the expected effects on the business or operations of Neoprobe. These forward-looking statements speak only as of the date on which the statements were made and we undertake no obligation to publicly update or revise any forward-looking statements made in this proxy statement or elsewhere as a result of new information, future developments or otherwise.

Forward-looking statements are not guarantees of future performance, and actual results may differ materially from those contemplated by forward-looking statements. You should not place undue reliance on any forward-looking statements contained herein, which speak only as of the date of this proxy statement, or, in the case of documents referred to in this proxy statement, as of the respective dates of such documents. These and other factors are discussed in our current filings with the SEC, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, and our subsequent SEC filings. In addition to other factors and matters contained in this document, we believe the following factors could cause actual results to differ materially from those discussed in the forward-looking statements:

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The foregoing list and the risks reflected in this proxy statement should not be construed to be exhaustive. Actual results or matters related to the Asset Sale could differ materially from the forward-looking statements contained in this proxy statement as a result of the timing of the completion of the Asset Sale or the impact of the Asset Sale on our results of operations, financial condition, cash flows, capital resources, profitability, cash requirements, management resources and liquidity. In view of these uncertainties, you should not place undue reliance on any forward-looking statements, which are based on our current expectations.

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SUMMARY

This summary highlights selected information contained in this proxy statement and does not contain all of the information that may be important to you. We urge you to read carefully this proxy statement in its entirety, as well as the appendices. Additional, important information is also contained in the documents incorporated by reference into this proxy statement; see the section entitled “Where You Can Find More Information; Incorporation by Reference.”

The Annual Meeting (page 11)

The 2011 Annual Meeting of Stockholders of Neoprobe Corporation will be held at 9:00 a.m., Eastern Daylight Time, on August 15, 2011, at the Embassy Suites Hotel, 5100 Upper Metro Place, Dublin, Ohio 43017 (phone: 614-790-9000).

The Asset Sale (page 13)

On May 23, 2011, the members of our Board of Directors present at a meeting duly called and held (one member of our Board of Directors, Dr. Jess Emery Jones, was not present at the meeting), unanimously adopted and approved the Asset Sale pursuant to the Asset Purchase Agreement, a copy of which is included as Appendix A to this proxy statement (portions of which have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment). Please read it carefully. Pursuant to the terms of the Asset Purchase Agreement:

If all necessary approvals have been obtained or waived, including stockholder approval and any third party consents, we expect to complete the Asset Sale shortly after this Annual Meeting scheduled for August 15, 2011.

Parties to the Asset Sale (page 13)

Neoprobe Corporation

Neoprobe is a biomedical company focused on enhancing oncology patient care and improving patient benefit through radiopharmaceutical product development. Neoprobe is actively developing two radiopharmaceutical agent platforms — Lymphoseek and RIGScan — to help physicians better identify and treat certain types of cancer. Neoprobe’s subsidiary, Cira Biosciences, Inc., is also advancing a patient-specific cellular therapy technology platform called ACT. Neoprobe’s strategy is to deliver superior growth and shareholder return by bringing to market novel radiopharmaceutical agents and advancing the Company’s pipeline program through continued investment and selective licenses or acquisitions. We have agreed to sell our GDS Business pursuant to the Asset Purchase Agreement. For more information please visit our website at www.neoprobe.com. Our common stock is listed on the NYSE Amex stock exchange under the symbol “NEOP.” Neoprobe is a Delaware corporation. Our principal executive office is located at 425 Metro Place North, Suite 300, Dublin, Ohio 43017. The telephone number there is (614) 793-7500.

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Devicor Medical Products, Inc.

Devicor is a company dedicated to acquiring and growing medical device companies. With an initial focus on the breast cancer market, the company is focused on building a global business through the investment in, and development of, tools and technologies that facilitate minimally invasive medical procedures. For more information, please visit www.devicormedical.com. Devicor is a Delaware corporation. Its principal executive office is located at Summit Woods Corporate Center II, 5th Floor, 300 E-Business Way, Cincinnati, Ohio 45241. The telephone number there is (513) 864-9000.

Reasons for the Asset Sale (page 15)

In evaluating the Asset Sale, our Board of Directors considered various factors. For the material factors considered by our Board of Directors in reaching its decision to adopt and approve the Asset Sale and the Asset Purchase Agreement, see “Proposal No. 1 — The Asset Sale and the Asset Purchase Agreement — The Asset Sale — Reasons for the Asset Sale,” beginning on page 66.

Post-Closing Business and Proceeds from the Asset Sale (page 18)

If the Asset Sale is approved by our stockholders and the other conditions to the closing of the Asset Sale are satisfied or waived, Devicor will acquire the GDS Business. We expect to focus on our remaining businesses following the closing of the Asset Sale, including: (i) developing, commercializing, marketing, selling and distributing biologics or pharmaceuticals, (ii) developing and commercializing personalized cell processing technology and cellular therapeutics; and (iii) advancing our technology for the detection of fluorescence labeled compounds and antibodies (hereinafter referred to collectively as the “Remaining Businesses”). If the Asset Sale is consummated, our lead radiopharmaceutical pipeline products and drug development portfolio will be our only operating businesses and, accordingly, our profitability will be entirely dependent upon those lines of business. If the Asset Sale is not approved by the holders of a majority of our outstanding shares of Common Stock, then Devicor may terminate the Asset Purchase Agreement and our Board of Directors, along with our management, will reassess our options in light of our long-term strategic goals. We currently anticipate that we will retain all of the net cash proceeds from the Asset Sale for working capital and general corporate purposes. We may use a portion of the net cash proceeds for future acquisitions complementary to the Remaining Businesses. However, at this time, no specific acquisition targets have been identified. If we have adequate working capital and establish adequate cash reserves without using all of our cash, and if we are unable to identify suitable acquisition targets that are appropriately valued, we will consider alternate uses of any excess cash in order to enhance stockholder value.

Recommendation of Our Board of Directors (page 19)

After careful consideration our Board of Directors:

Opinion of Our Financial Advisor (page 19 and Appendix B)

In connection with the Asset Sale, our Board of Directors received a written opinion, dated May 23, 2011, from our financial advisor, UBS Securities LLC, referred to as UBS, as to the fairness, from a financial point of view and as of the date of such opinion, to Neoprobe of the consideration to be received by Neoprobe in the Asset Sale. The full text of UBS’ written opinion, dated May 23, 2011, is attached to this proxy statement as Appendix B. Holders of our Common Stock are encouraged to read UBS’ opinion carefully in its entirety for a description of the assumptions made, procedures followed, matters considered and limitations on the review undertaken by UBS. UBS’ opinion was provided for the benefit of our Board of Directors (in its capacity as such) in connection with, and for the purpose of, its evaluation of the consideration from a financial point of view and did not address any other aspect of the Asset Sale. The opinion did not address the relative merits of the Asset Sale as compared to other business strategies or transactions that might be available with respect to the GDS Business or Neoprobe’s underlying business decision to effect the Asset Sale. The opinion does not constitute a recommendation to any stockholder as to how to vote or act with respect to the Asset Sale.

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Other Agreements and Transactions Related to the Asset Sale (page 21)

In addition to the Asset Purchase Agreement, we intend to enter into a number of related agreements, including a transition services agreement with Devicor pursuant to which we shall provide certain transitional, administrative and support services to Devicor on a short-term basis.

Interests of Our Directors and Executive Officers in the Asset Sale (page 22)

In considering the recommendation of our Board of Directors to vote for the proposal to adopt and approve the Asset Sale and the Asset Purchase Agreement, you should be aware that some of our directors and executive officers may have personal interests in the Asset Sale that are, or may be, different from, or in addition to, your interests. All of our directors and executive officers own shares of our Common Stock and/or options to purchase shares of our Common Stock, and to that extent, their interests in the Asset Sale are the same as that of other holders of our Common Stock. To the extent our directors and executive officers are parties to agreements that confer certain rights and obligations upon a change in control, such individuals have executed waivers provided that the Asset Sale is not a change in control under such agreements. See “Interests of Our Directors and Executive Officers in the Asset Sale,” beginning on page 22.

Appraisal Rights (page 22)

You will not experience any change in your rights as a stockholder as a result of the Asset Sale. Delaware law, our certificate of incorporation, and our bylaws do not provide for appraisal or other similar rights for dissenting stockholders in connection with the Asset Sale, and we are not independently providing stockholders with any such right. Accordingly, you will have no right to dissent and obtain payment for your shares in connection with the Asset Sale.

Material U.S. Federal, State and Local Income Tax Consequences (page 22)

The Asset Sale will not result in any material U.S. federal, state or local income tax consequences to our stockholders. The transaction will be a taxable event to us for U.S. federal, state and local income tax purposes, but we anticipate that a portion of the taxable gain for U.S. federal, state and local income tax purposes resulting from the Asset Sale will be offset by net operating losses and tax credits. For a complete description of the material tax consequences of the Asset Sale to Neoprobe, please see “Material U.S. Federal, State and Local Income Tax Consequences,” beginning on page 22.

Regulatory Matters (Page 22)

The Asset Sale is not subject to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or the reporting and waiting requirements of any other United States antitrust law. We are not aware of any other material regulatory consents that are required in connection with the Asset Sale.

Asset Purchase Agreement (Page 29 and Appendix A)

General (page 29)

Pursuant to the Asset Purchase Agreement, Devicor has agreed to:

The method of calculating the royalty payments is set forth in Schedule 2.9 to the Asset Purchase Agreement. Potential royalty payments to the Seller are calculated based on the Buyer’s “Net Revenue” derived from the purchased GDS Business and is defined as gross revenue derived from the sale, distribution, licensing or other disposition of the Products, and related warranties, offset by adjustments to reduce revenue for discounts, allowances, rebates and other gross to net reductions, and bad debt expense, as such net

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revenues are determined by Buyer in accordance with GAAP, applied in a manner consistent with Buyer’s accounting policies and procedures. The Annual Royalty Amount payable by Buyer for any Performance Period shall be determined in accordance with the following:

Net Revenue for Performance Period (i.e., the “Brackets”)		% of Net Revenue Payable as Annual Royalty Amount
Equal to or greater than $21,000,000 but less than $25,000,000			5.00	%
Equal to or greater than $25,000,000 but less than $30,000,000			8.75	%
Equal to or greater than $30,000,000			20.00	%

Percentages of Net Revenues payable are not cumulative, and no Annual Royalty Amount shall be payable to Seller once the aggregate Royalty Amount has been paid. Net Revenues are calculated based on a single Performance Period and will not be aggregated with Net Revenues of any other Performance Period. A sample calculation illustrating the manner in which the royalty will be calculated at various hypothetical levels of net revenue is included in Schedule 2.9 to the Asset Purchase Agreement.

Covenants and Agreements (page 31)

The parties have agreed to certain covenants, including, without limitation, covenants requiring that:

Covenant Not to Compete (page 33).

Under the Asset Purchase Agreement, we have also agreed, subject to certain exceptions, that for five years following the closing of the Asset Sale, the Company will not compete with, assist in or provide financial resources to any activity which involves the marketing, distribution or sale of devices primarily used for the diagnosis or identification of cancer in human beings.

Distribution Rights (page 34)

In the event the Company desires to engage a third party to distribute any medical device used in surgical oncology primarily having a diagnostic purpose, including, without limitation, medical devices used for the detection of fluorescence labeled compounds or antibodies, during the 12-year period following the consummation of the Asset Sale, the terms of the Asset Purchase Agreement give Devicor certain rights of first refusal to distribute such products based on the terms of the existing distribution agreement between Devicor and the Company (during the first 5 years) and the terms offered by an unaffiliated third party (during the succeeding 7 years).

No Negotiation (page 32)

The Asset Purchase Agreement restricts our ability to solicit or engage in discussions or negotiations with third parties regarding specified transactions involving the GDS Business or the sale of Neoprobe as a whole.

Conditions to Completion of the Asset Sale (page 34)

Before we can complete the Asset Sale, a number of conditions must be satisfied. These include, among other things:

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In addition, the obligations of Devicor to complete the Asset Sale are subject to the satisfaction by us or waiver by Devicor of conditions, including the following:

Finally, our obligations to complete the Asset Sale are subject to the satisfaction by Devicor or waiver by us of certain conditions, including that the representations and warranties made by Devicor are true and correct in all material respects, except for those representations and warranties that are qualified as to materiality which shall be true and correct in all respects, on and as of the closing date of the Asset Sale with the same effect as if such representations and warranties had been made on that date (except to the extent that any such representation or warranty by its terms relates to an earlier date), and Devicor shall have complied in all material respects with all agreements contained in the Asset Purchase Agreement required to be performed or complied with at or prior to the closing of the Asset Sale.

Termination (page 35)

The parties may, by mutual written consent, terminate the Asset Purchase Agreement at any time prior to the completion of the Asset Sale. Devicor may terminate the Asset Purchase Agreement at any time following the Annual Meeting of Stockholders if the Company does not receive stockholder approval for the Asset Sale at the meeting.

In addition, either we or Devicor may, in writing, terminate the Asset Purchase Agreement at any time prior to the effective date of the Asset Sale:

Termination Fee (page 35)

If the Asset Sale is not approved by our stockholders pursuant to the terms of the Asset Purchase Agreement, we will be required to reimburse Devicor for its expenses not to exceed $500,000. We may also be required to pay an additional $1,000,000 termination fee if the Asset Purchase Agreement is terminated by Devicor as a result of our breach of any of certain covenants set forth in the Asset Purchase Agreement which require, among other things that the Company’s Board of Directors use its reasonable best efforts to obtain the approval of the Company’s stockholders for the Asset Sale, and not withdraw or modify, or propose publicly to withdraw or modify, in a manner adverse to Devicor, its recommendation that the stockholders approve the Asset Sale or approve or recommend, or propose publicly to approve or recommend, or otherwise permit or cause the Company to accept, any other transaction which effects an acquisition, merger, consolidation or other business combination involving the GDS Business or the Company.

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QUESTIONS AND ANSWERS ABOUT THE ASSET SALE

The following questions and answers briefly address some commonly asked questions about the Asset Sale and the Asset Purchase Agreement. These questions and answers may not address all questions that may be important to you as a stockholder. You should still carefully read this entire proxy statement, including each of the appendices.

This proxy statement is furnished to the holders of common stock, $0.001 par value per share (“Common Stock”), of Neoprobe Corporation, a Delaware corporation (“Neoprobe” or the “Company”), in connection with the solicitation of proxies for use at the Annual Meeting of stockholders, and at any adjournment of that meeting. In this proxy statement the terms “Neoprobe,” “Company,” “we,” “our,” “ours,” and “us” refer to Neoprobe Corporation and its subsidiaries. The term “Asset Purchase Agreement” refers to the asset purchase agreement, dated as of May 24, 2011, by and between the Company and Devicor Medical Products, Inc., as it may be amended, restated, modified or superseded from time to time in accordance with its terms (the “Asset Purchase Agreement”). The term “GDS Business” refers to the Company’s GDS line of gamma detection device systems as further described in the Asset Purchase Agreement. The term “Asset Sale” refers to the proposed sale of the GDS Business pursuant to the Asset Purchase Agreement. The term “Devicor” or the “Buyer” refers to Devicor Medical Products, Inc., a Delaware corporation. Each of Neoprobe and Devicor are sometimes referred to in this proxy statement as a party, or collectively as the parties.

The Asset Sale

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NEOPROBE CORPORATION

 

2011 ANNUAL MEETING OF STOCKHOLDERS

August 15, 2011

 

PROXY STATEMENT

Dated [•], 2011

 

GENERAL INFORMATION

Date, Time and Place of Annual Meeting.  The Annual Meeting of the Stockholders of Neoprobe Corporation will be held at the Embassy Suites Hotel, 5100 Upper Metro Place, Dublin, Ohio 43017 (phone: 614-790-9000), on August 15, 2011, at 9:00 a.m., Eastern Daylight Time.

Solicitation.  This proxy statement is furnished to the stockholders of Neoprobe Corporation, a Delaware corporation, in connection with the solicitation by the Board of Directors of the Company of proxies to be voted at the Company’s 2011 Annual Meeting of Stockholders to be held on August 15, 2011, and any adjournment thereof. This proxy statement and the accompanying proxy card are first being mailed to stockholders on or about [•], 2011. All expenses in connection with this solicitation of proxies will be paid by us. Proxies will be solicited principally by mail, but directors, officers and certain other individuals authorized by us may personally solicit proxies. We have retained [•], a proxy solicitation firm, to assist in the solicitation of proxies. We will reimburse custodians, nominees or other persons for their out-of-pocket expenses in sending proxy materials to beneficial owners and will pay [•] a fee of approximately [•], plus out-of-pocket expenses.

Company Address.  The mailing address of our principal executive offices is 425 Metro Place North, Suite 300, Dublin, Ohio 43017.

Voting Rights.  Stockholders of record at the close of business on July 5, 2011 (the “Record Date”), are entitled to notice of and to vote at the Annual Meeting. As of that date, there were [•] shares of Common Stock outstanding. Each holder of Common Stock of record on July 5, 2011, is entitled to one vote per share held with respect to all matters which may be brought before the Annual Meeting.

Authorization.  The shares represented by the accompanying proxy will be voted as directed if the proxy is properly completed, signed, and received by us. The proxy will be voted at the discretion of the persons acting under the proxy to transact such other business as may properly come before the Annual Meeting and any adjournment thereof. If you are a holder of record and you sign, date, and send in your proxy but do not indicate how you want to vote, your proxy will be voted “For” each of the proposals to be voted on at the Annual Meeting and “For” holding an advisory vote on executive compensation every third year.

Revocation.  Any stockholder returning the accompanying proxy has the power to revoke it at any time before its exercise by giving notice of revocation to the Company, by duly executing and delivering to the Company a proxy card bearing a later date, or by voting in person at the Annual Meeting. Please note, however, if your shares are held of record by a broker, bank, or other nominee and you wish to vote at the Annual Meeting, you must obtain from the record holder a proxy issued in your name.

Tabulation.  Under Section 216 of the Delaware General Corporation Law (DGCL) and our bylaws, the presence, in person or by proxy, of the holders of a majority of the outstanding shares of our Common Stock is necessary to constitute a quorum for the transaction of business at the Annual Meeting. Shares represented by signed proxies that are returned to the Company will be counted toward the quorum even though they are marked as “Abstain,” “Against” or “Withhold Authority” on one or more, or all matters, or they are not marked at all. Brokers, banks, or other nominees who hold their customers’ shares in street name, may, under

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the applicable rules of the exchanges and other self-regulatory organizations of which such brokers, banks, or other nominees are members, sign and submit proxies for such shares and may vote such shares on routine matters. The proposal to ratify the appointment of BDO USA, LLP as the Company’s independent registered public accounting firm is considered a routine matter. Brokers, banks, or other nominees may not vote on matters considered non-routine without specific instructions from the customer who owns the shares. The proposals to approve the Asset Sale, elect directors, approve the 2002 Plan, approve the compensation of our named executive officers and the frequency of voting to approve such compensation, and adjourn the Annual Meeting, if necessary or appropriate, are not considered routine matters. Proxies signed and submitted by brokers, banks, or other nominees that have not been voted on certain matters are referred to as broker non-votes. Such proxies count toward the establishment of a quorum. We encourage you to provide voting instructions to any broker, bank or other nominee that holds your shares by carefully following the instructions provided in the notice from such entity.

Under Section 271 of the DGCL, the proposal to approve the Asset Sale pursuant to the terms of the Asset Purchase Agreement requires the affirmative vote of the holders of a majority of our Common Stock outstanding as of the Record Date. Broker “non-votes” and abstentions will have the same effect as votes “Against” the proposal.

Under Section 216 of the DGCL and our bylaws, the election of the director nominees requires the favorable vote of a plurality of all votes cast by the holders of our Common Stock at a meeting at which a quorum is present. Proxies that are marked “Withhold Authority” and broker non-votes will not be counted toward a nominee’s achievement of a plurality and, thus, will have no effect.

Under Section 216 of the DGCL and our bylaws, the proposal to approve and amend the 2002 Plan requires the affirmative vote of a majority of the shares of our Common Stock represented in person or by proxy at the Annual Meeting. Abstentions will be counted as represented and entitled to vote and will therefore have the effect of a vote “Against” the proposal. Broker non-votes are disregarded and will have no effect.

Under our bylaws, approval of the proposal relating to the compensation of our named executive officers requires the affirmative vote of a majority of the shares of our Common Stock represented in person or by proxy at the Annual Meeting. Abstentions will be counted as represented and entitled to vote and will therefore have the effect of a vote “Against” the proposal. Broker non-votes are disregarded and will have no effect.

The ratification of BDO USA, LLP as our independent registered public accounting firm requires the affirmative vote of a majority of the shares of our Common Stock represented in person or by proxy at the Annual Meeting. Abstentions will be counted as represented and entitled to vote and will therefore have the effect of a vote “Against” the proposal. Broker non-votes are disregarded and will have no effect.

If submitted to our stockholders at the Annual Meeting, the proposal to adjourn the Annual Meeting, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the Asset Sale, requires the affirmative vote of a majority of the shares of our Common Stock represented in person or by proxy at the Annual Meeting. Neither broker non-votes nor abstentions are included in the tabulation of the voting results and, therefore, they do not have the effect of votes “Against” such proposal.

Effect of Not Casting Your Vote.  If you hold your shares in street name it is critical that you cast your vote if you want it to count. In the past, if you held your shares in street name and you did not indicate how you wanted your shares voted in the election of directors, your bank, broker, or other nominee was allowed to vote those shares on your behalf in the election of directors as they felt appropriate. Recent changes in regulation were made to take away the ability of your bank, broker, or other nominee to vote your uninstructed shares in the election of directors on a discretionary basis. If you hold your shares in street name and you do not instruct your bank, broker, or other nominee how to vote, no votes will be cast on your behalf for any of the proposals to be considered at the Annual Meeting; except, your bank, broker, or other nominee will continue to have discretion to vote any uninstructed shares on the proposal to ratify the appointment of BDO USA, LLP as the Company’s independent registered public accounting firm.

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ASSET SALE

The following is a description of the material aspects of the Asset Sale, including background information relating to the proposed terms of the Asset Purchase Agreement. While we believe that the following description covers the material terms of the Asset Sale, the Asset Purchase Agreement, and other arrangements between Devicor and us, the description may not contain all of the information that is important to you. You should carefully read this proxy statement and the other documents to which we refer, including the Asset Purchase Agreement, for a complete understanding of the terms of the Asset Sale.

Parties to the Asset Sale

Neoprobe Corporation

Neoprobe is a biomedical company focused on enhancing oncology patient care and improving patient benefit through radiopharmaceutical product development. Neoprobe is actively developing two radiopharmaceutical agent platforms — Lymphoseek® and RIGScan^TM — to help surgeons better identify and treat certain types of cancer. Neoprobe’s subsidiary, Cira Biosciences, Inc., is also advancing a patient-specific cellular therapy technology platform called ACT. Neoprobe’s strategy is to deliver superior growth and shareholder return by bringing to market novel radiopharmaceutical agents and advancing the Company’s pipeline program through continued investment and selective acquisitions. We have agreed to sell our GDS Business pursuant to the Asset Purchase Agreement. For more information please visit our website at www.neoprobe.com. Our Common Stock is listed on the NYSE Amex stock exchange under the symbol “NEOP.” Neoprobe is a Delaware corporation. Our principal executive office is located at 425 Metro Place North, Suite 300, Dublin, Ohio 43017. The telephone number there is (614) 793-7500.

Devicor Medical Products, Inc.

Devicor is a company dedicated to acquiring and growing medical device companies. With an initial focus on the breast cancer market the company is focused on building a global business through the investment in, and development of, tools and technologies that facilitate minimally invasive medical procedures. For more information, please visit www.devicormedical.com. Devicor is a Delaware corporation. Its principal executive office is located at Summit Woods Corporate Center II, 5th Floor, 300 E-Business Way, Cincinnati, Ohio 45241. The telephone number there is (513) 864-9000.

Background of the Asset Sale

Our senior management and Board of Directors periodically review the performance of our businesses and our strategies, opportunities, and objectives in the markets in which we operate. In conjunction with those reviews, we assess the short- and long-term prospects of our business segments and our company as a whole. We evaluate opportunities to grow our businesses based on our current assets and technology platforms, as well as, by means of mergers, acquisitions, licenses, divestitures, asset sales, and strategic alliances with other companies.

In March 2010, the Company was initially approached by senior management from Devicor regarding Devicor’s interest in potentially acquiring the GDS Business. From March through July of 2010, our senior management met internally and discussed a number of potential strategic alternatives to enhance stockholder value, including, without limitation, the possibility of selling the GDS Businesses. Our management discussed these potential strategic alternatives at length with our Board of Directors at the regularly-scheduled meeting of our Board of Directors in July 2010. Our Board of Directors instructed our management to continue to evaluate potential strategic alternatives for the GDS Businesses and to further apprise the Board regarding those alternatives.

On August 24, 2010, the Company entered into a confidentiality agreement with Devicor for the purpose of supporting preliminary diligence discussions following its expression of interest. In October 2010, our senior management met with management from Devicor to determine in greater detail Devicor’s level of interest in the potential acquisition by Devicor of the GDS Business. Also in October 2010, we discussed with UBS Securities LLC (“UBS”), which previously had been engaged as our financial advisor, potential strategic alternatives, including, without limitation, a potential sale of the GDS Business. On October 26, 2010, Devicor commenced preliminary due diligence.

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On October 27, 2010, we engaged Porter, Wright, Morris & Arthur LLP (“Porter Wright”), our outside legal counsel, to advise us with respect to any potential strategic alternatives.

From November 2010 through December 2010, we explored a potential sale of the GDS Business to buyers other than Devicor. Two potential acquirers were approached and provided with an initial set of materials describing the GDS Business generally. Neither of the parties expressed interest.

On December 7, 2010, we coordinated a second-phase diligence process and provided to Devicor additional materials about the GDS Business and its customers, products, operations, financial results, employees and intellectual property.

On January 28, 2011, our Board of Directors met to discuss further potential strategic options for the GDS Business in light of our long-term strategy and prospects for the GDS Business and our other businesses. Senior management and the Board discussed the anticipated benefits, risks and effects of a sale of the GDS Business, including, without limitation, the impact on enhancing stockholder value in light of our strategic objectives and plans for our other businesses following a sale of the GDS Business.

On February 9, 2011, we received a non-binding indication of interest from Devicor to acquire the GDS Business for an amount of up to $30 million.

On February 17, 2011, we received a second indication of interest from an unsolicited third party that had not been contacted originally regarding its interest in acquiring the GDS Business. We evaluated, with the assistance of our management and advisors, the party’s interest and ability to execute on an acquisition and subsequently entered into a confidentiality agreement with the party.

On March 1, 2011, our Board of Directors met, together with our management, to discuss the non-binding indications of interest which had been received and a proposed strategy to continue discussions with Devicor as well as initiating discussions with the second interested party. We subsequently provided initial diligence materials to the second interested party and received a written, non-binding indication of interest in purchasing the GDS Business for $24 million. We responded to the third party that the indication was significantly less than our other indication of interest and such party declined to make any additional proposals.

On March 21, 2011, Devicor also provided an updated letter of interest that included a provision for royalties to us following the Asset Sale in the event Devicor achieved annual revenue from the GDS Business in excess of $21 million.

On April 5, 2011, we executed a letter agreement providing Devicor with exclusivity in negotiations regarding the GDS Business for a period of time that, as extended, covered the period through which a definitive asset purchase agreement was executed.

On April 6, 2011, the Company began receiving a third phase of diligence material requests from Devicor.

On April 19, 2011, our Board of Directors met to discuss the diligence being conducted by Devicor. Our senior management reviewed the progress of diligence and document review, the schedule for management meetings with Devicor, and the timeline for preparation of asset purchase documents. At this meeting, our senior management also reviewed with our Board of Directors the status of the GDS Business sale process, including the non-binding indication of interest received from Devicor and the expected timeline and next steps in the sale process.

On April 21, 2011, we received an initial draft of the proposed Asset Purchase Agreement from Devicor.

On May 11, 2011, our senior management and Porter Wright met with Devicor and Bryan Cave LLP (“Bryan Cave”), Devicor’s outside legal counsel, in Devicor’s offices in Cincinnati, Ohio to discuss Devicor’s proposed asset purchase agreement.

From May 12, 2011 through May18, 2011, our senior management and legal advisor held additional conference calls with Devicor and its advisors to discuss the proposed terms of the Asset Purchase Agreement and to address certain due diligence items raised by Devicor.

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On May 16, 2011, our Board of Directors met to, among other things, discuss the status of negotiations with Devicor. The Board of Directors directed our senior management to continue negotiating with Devicor through the end of the week.

On May 18, 2011, Porter Wright, on our behalf, sent a draft of the disclosure schedules to the Asset Purchase Agreement to Devicor.

Between May 18, 2011 and May 23, 2011, our senior management and legal advisor and representatives of Devicor and its advisors continued negotiating various terms and conditions of the Asset Purchase Agreement and related documents and circulated revised drafts of such documents. Also during this period, representatives of Devicor continued their due diligence review of the GDS Business and its products.

On May 23, 2011, our Board of Directors convened a meeting to discuss the proposed terms of the transaction and the proposed Asset Purchase Agreement and related documents. Our senior management and representatives of our legal and financial advisors also were present at the meeting. At the meeting, a representative of Porter Wright updated our Board of Directors with respect to the resolution of the remaining open items relating to the Asset Purchase Agreement and the related documents. UBS reviewed with our Board of Directors UBS’ financial analysis of the proposed consideration and delivered to our Board an oral opinion, confirmed by delivery of a written opinion dated May 23, 2011, to the effect that, as of that date and based upon and subject to various assumptions, matters considered and limitations set forth in its opinion, the consideration to be received by Neoprobe in the Asset Sale was fair, from a financial point of view, to Neoprobe. Our Board of Directors also discussed the advantages and risks of the proposed transaction that are described in “Reasons for the Asset Sale” below. Following discussion, our Board of Directors determined that the Asset Sale and Asset Purchase Agreement were in the best interests of Neoprobe and our stockholders, approved the Asset Purchase Agreement and the Asset Sale, and recommended that our stockholders adopt and approve the Asset Purchase Agreement and the Asset Sale.

The Asset Purchase Agreement was executed by Neoprobe and Devicor on the evening of May 24, 2011.

On May 25, 2011, following the close of trading on the NYSE Amex that day, Neoprobe issued a press release announcing the execution of the Asset Purchase Agreement and other matters.

Reasons for the Asset Sale

Our Board of Directors recommends approving the Asset Sale because we believe that separating the GDS Business from our Remaining Businesses will enhance value for our stockholders. We believe that focusing on our Remaining Businesses will permit greater management and resource focus on what we believe to be the most substantial opportunity for growth and the creation of long-term stockholder value. The separation of the GDS Business from our Remaining Businesses will better position the GDS Business and our Remaining Businesses to each realize its full potential without any restrictions from the other.

We have been in the GDS Business since the late 1990s when we launched our first commercial gamma detection probe. However, our roots in developing, commercializing, marketing, distributing and selling biologics or pharmaceuticals (the “Pharmaceutical Business”) began approximately a decade before that, and in the last ten years, our Remaining Businesses have again assumed a more prominent role in our overall company strategy. Our Remaining Businesses now comprise 65% of our employees and have represented an average of 85% of our research and development efforts for the last three years.

We believe that the specialty pharmaceutical market for products such as our radiopharmaceutical pipeline products, Lymphoseek (tilmanocept) and RIGScan, offers us the opportunity for continuing strong growth in our Pharmaceutical Business, and the opportunity to pursue efforts to expand our drug development portfolio. According to one industry research report, sales of radiopharmaceuticals are projected to grow to $5.4 billion by 2015. In light of this large and growing market, we believe the radiopharmaceutical pipeline products offered by our Pharmaceutical Business afford us a meaningful opportunity to create revenue growth and enable short- and long-term value for our stockholders.

The growth of our Pharmaceutical Business will require increasing investment of our resources and focus as we seek to increase revenue, diversify revenue sources, and achieve profitability in that business. The Asset Sale will allow us to increase our focus on the Pharmaceutical Business.

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As we have expressed in our previous public filings, the rate of growth of the GDS Business, in the absence of a new impetus such as Lymphoseek, may decline over time. The recent volatility in the global financial markets and macroeconomic environment also poses challenges for our GDS Business as an enterprise generally. There is no guarantee that economic conditions will improve or that the opportunity to find a suitable purchaser for the GDS Business will arise again in the future.

In evaluating the Asset Purchase Agreement and the Asset Sale, our Board of Directors consulted with our senior management, outside legal counsel and financial advisor. Our Board of Directors also consulted with outside legal counsel regarding our Board of Directors’ fiduciary duties, legal due diligence matters, and the terms of the Asset Purchase Agreement and related agreements. Based on the factors discussed below, our Board of Directors concluded that the Asset Sale is in the best interests of our stockholders and recommended that our stockholders adopt and approve the Asset Purchase Agreement and the Asset Sale.

The factors that our Board of Directors considered in reaching its determination included, but were not limited to, the following:

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Our Board of Directors also identified and considered a number of uncertainties, risks and potentially negative factors in its deliberations concerning the Asset Sale, including:

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After careful and due consideration, our Board of Directors concluded that overall, the risks, uncertainties, restrictions and potentially negative factors associated with the Asset Sale were outweighed by the potential benefits of the Asset Sale, and that many of these risks could be managed or mitigated prior to the consummation of the Asset Sale or were unlikely to have a material adverse effect on our company.

The foregoing information and factors considered by our Board of Directors are not intended to be exhaustive. In view of the variety of factors and the amount of information considered, our Board of Directors did not find it practicable to, and did not, quantify, rank or otherwise assign relative weights to the specific factors it considered in approving the Asset Sale and the Asset Purchase Agreement. In addition, individual members of our Board of Directors may have given different weights to different factors. Our Board of Directors considered all of these factors as a whole, and overall considered them to be favorable to and to support its determination.

Post-Closing Business and Proceeds from the Asset Sale

Upon the closing of the Asset Sale, our Board of Directors and management will focus their attention on our Pharmaceutical Business. We will continue to pursue our Pharmaceutical Business growth strategy and the development of our radiopharmaceutical pipeline products, Lymphoseek and RIGScan. We will also investigate possibilities for enhancing our Pharmaceutical Business that may have been less available to us, due to competitive factors, resource issues, or otherwise, when we operated both the GDS Business and the Pharmaceutical Business.

Our goals following the conclusion of the Asset Sale will be to continue to grow and diversify revenue in our other businesses while driving to achieve profitability. To achieve growth, our plan is to bolster our product development pipeline with the addition of relatively late stage assets (i.e., product candidates that are in or have completed Phase II clinical testing and/or are in or ready to enter Phase III testing). We expect to continue to explore both internal and external growth opportunities in our Pharmaceutical Business. In particular, we plan to pursue growth of our pipeline with other product candidates and may license complementary technologies and product candidates or acquire complementary companies that can contribute to the strategic, operational and financial performance of our Pharmaceutical Business. During our growth process, we expect to add some additional employees to assist us both in identifying and securing additional development assets as well as developing and commercializing such assets; however, we also expect to continue to outsource certain capabilities to augment our internal subject matter experts. In the event that we are unable to identify suitable product candidates and acquisition targets that are appropriately valued, we will evaluate other possible uses of our available cash reserves consistent with the best interests of our stockholders.

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Recommendation of Our Board of Directors

After careful consideration, the members of our Board of Directors adopted and approved the Asset Purchase Agreement and determined the Asset Sale to be in the best interests of the Company and our stockholders, and recommended to our stockholders that the Asset Purchase Agreement and the transactions contemplated thereby, including the Asset Sale, be approved by our stockholders.

Opinion of Our Financial Advisor

On May 23, 2011, at a meeting of Neoprobe’s Board of Directors held to evaluate the proposed Asset Sale, UBS delivered to Neoprobe’s Board an oral opinion, confirmed by delivery of a written opinion dated May 23, 2011, to the effect that, as of that date and based on and subject to various assumptions, matters considered and limitations described in its opinion, the consideration to be received by Neoprobe in the Asset Sale was fair, from a financial point of view, to Neoprobe.

The full text of UBS’ opinion describes the assumptions made, procedures followed, matters considered and limitations on the review undertaken by UBS. This opinion is attached as Appendix B and is incorporated into this proxy statement by reference. Holders of Neoprobe Common Stock are encouraged to read UBS’ opinion carefully in its entirety. UBS’ opinion was provided for the benefit of Neoprobe’s Board of Directors (in its capacity as such) in connection with, and for the purpose of, its evaluation of the consideration from a financial point of view and did not address any other aspect of the Asset Sale. The opinion did not address the relative merits of the Asset Sale as compared to other business strategies or transactions that might be available with respect to the GDS Business or Neoprobe’s underlying business decision to effect the Asset Sale. The opinion does not constitute a recommendation to any stockholder as to how to vote or act with respect to the Asset Sale. The following summary of UBS’ opinion is qualified in its entirety by reference to the full text of UBS’ opinion.

In arriving at its opinion, UBS, among other things:

In connection with its review, with the consent of Neoprobe’s Board of Directors, UBS assumed and relied upon, without independent verification, the accuracy and completeness in all material respects of the information provided to or reviewed by UBS for the purpose of its opinion. In addition, with the consent of Neoprobe’s Board of Directors, UBS did not make any independent evaluation or appraisal of any of the assets or liabilities (contingent or otherwise) of the GDS Business, and was not furnished with any such evaluation or appraisal. With respect to the financial forecasts and estimates referred to above, UBS assumed, at the direction of Neoprobe’s Board of Directors, that they had been reasonably prepared on a basis reflecting the best currently available estimates and judgments of Neoprobe’s management as to the future financial performance of the GDS Business. These forecasts and estimates contemplated that Neoprobe would not receive any royalty payments pursuant to the Asset Purchase Agreement following consummation of the Asset Sale. As Neoprobe’s Board of Directors was aware, the financial and operating characteristics of the GDS Business caused its financial results to have limited comparability, for valuation purposes, to those of

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companies and transactions that UBS reviewed in the medical technology industry and, accordingly, UBS relied primarily on a discounted cash flow analysis for purposes of its opinion. UBS also relied, at the direction of Neoprobe’s Board of Directors, without independent verification, upon the assessments of Neoprobe’s management as to the products and technology of the GDS Business and the risks associated with such products and technology. UBS’ opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information available to UBS as of, the date of its opinion.

At the direction of Neoprobe’s Board of Directors, UBS was not asked to, and it did not, offer any opinion as to the terms, other than the consideration to be received by Neoprobe in the Asset Sale to the extent expressly specified in UBS’ opinion, of the Asset Purchase Agreement or any related documents or the form of the Asset Sale. In addition, UBS expressed no opinion as to the fairness of the amount or nature of any compensation to be received by any officers, directors or employees of any parties to the Asset Sale, or any class of such persons, relative to the proposed consideration in such transaction. In rendering its opinion, UBS assumed, with the consent of Neoprobe’s Board of Directors, that (i) the final executed form of the Asset Purchase Agreement would not differ in any material respect from the draft that UBS reviewed, (ii) the parties to the Asset Purchase Agreement would comply with all material terms of the Asset Purchase Agreement, and (iii) the Asset Sale would be consummated in accordance with the terms of the Asset Purchase Agreement without any adverse waiver or amendment of any material term or condition of the Asset Purchase Agreement. UBS also assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the Asset Sale would be obtained without any material adverse effect on Neoprobe, the GDS Business or the Asset Sale. At the request of Neoprobe’s Board of Directors, UBS contacted third parties to solicit indications of interest in a possible transaction with Neoprobe in early 2010, and UBS also more recently contacted selected third parties to solicit indications of interest in a possible transaction with respect to the GDS Business and held discussions with a third party that contacted Neoprobe regarding such a transaction prior to the date of UBS’ opinion. Except as described in this summary, Neoprobe’s Board of Directors imposed no other instructions or limitations on UBS with respect to the investigations made or the procedures followed by UBS in rendering its opinion. The issuance of UBS’ opinion was approved by an authorized committee of UBS.

In connection with rendering its opinion to Neoprobe’s Board of Directors, UBS performed a financial analysis which is summarized below. The following summary is not a complete description of the financial analysis performed and all factors considered by UBS in connection with its opinion. The preparation of a financial opinion is a complex process involving subjective judgments and is not necessarily susceptible to partial analysis or summary description. UBS’ financial analysis necessarily involves complex considerations and judgments concerning financial and operating characteristics and other factors that could affect such analysis. UBS believes that its financial analysis and the summary below must be considered as a whole and that selecting portions of its financial analysis and factors without considering all portions of its financial analysis and factors could create a misleading or incomplete view of the processes underlying UBS’ financial analysis and opinion. UBS did not draw, in isolation, conclusions from or with regard to any one factor for purposes of its opinion, but rather arrived at its ultimate opinion based on the results of all factors assessed as a whole.

The estimates of the future performance of the GDS Business provided by Neoprobe’s management in or underlying UBS’ financial analysis are not necessarily indicative of future results or values, which may be significantly more or less favorable than those estimates. In performing its financial analysis, UBS considered industry performance, general business and economic conditions and other matters, many of which were beyond Neoprobe’s control. Estimates of the financial value of companies do not purport to be appraisals or necessarily reflect the prices at which businesses or securities actually may be sold or acquired.

The consideration in the Asset Sale was determined through negotiations between Neoprobe and Devicor and the decision by Neoprobe to enter into the Asset Purchase Agreement was solely that of Neoprobe’s Board of Directors. UBS’ opinion and financial analysis were only one of many factors considered by Neoprobe’s Board of Directors in its evaluation of the Asset Sale and should not be viewed as determinative of the views of Neoprobe’s Board of Directors or management with respect to the Asset Sale or the proposed consideration.

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The following is a brief summary of the discounted cash flow analysis performed by UBS and reviewed with Neoprobe’s Board of Directors on May 23, 2011 in connection with UBS’ opinion relating to the proposed Asset Sale. Considering the data below without considering the full narrative description of UBS’ financial analysis, including the methodologies and assumptions underlying the analysis, could create a misleading or incomplete view of UBS’ financial analysis.

Discounted Cash Flow Analysis of the GDS Business.  UBS performed a discounted cash flow analysis of the GDS Business utilizing financial forecasts and estimates relating to the GDS Business prepared by Neoprobe’s management. UBS calculated a range of implied present values (as of May 31, 2011) of the standalone unlevered, after-tax free cash flows that the GDS Business was forecasted to generate from June 1, 2011 through the fiscal year ending December 31, 2022, and of estimated terminal values for the GDS Business, representing the value of the estimated unlevered after-tax free cash flows to be generated after such period based on estimated unlevered after-tax free cash flows for the fiscal year ending December 31, 2022, using a range of perpetuity growth rates of (1%) to 1%. Present values of cash flows and terminal values were calculated using discount rates ranging from 15% to 20%. The discounted cash flow analysis indicated a range of implied present values for the GDS Business of approximately $16.4 million to $20.0 million, as compared to the $30 million consideration to be received by Neoprobe in the Asset Sale (assuming no royalty payments).

Miscellaneous

Under the terms of UBS’ engagement, Neoprobe has agreed to pay UBS for its financial advisory services in connection with the Asset Sale an aggregate fee of $2.5 million, a portion of which was payable in connection with UBS’ opinion and a significant portion of which is contingent upon consummation of the Asset Sale. In addition, Neoprobe has agreed to reimburse UBS for its reasonable expenses, including fees, disbursements and other charges of counsel, and to indemnify UBS and related parties against liabilities, including liabilities under federal securities laws, relating to, or arising out of, its engagement.

In the past, UBS and its affiliates provided services to Devicor and its affiliate, GTCR Golder Rauner II, LLC and certain of its portfolio companies or other affiliates unrelated to the proposed Asset Sale (“GTCR”), for which UBS and its affiliates received compensation, including, without limitation, during the two-year period prior to the date of UBS’ opinion, (i) acting as a financial advisor to Devicor in connection with a potential acquisition and (ii) providing financing to GTCR and certain of its portfolio companies or other affiliates in connection with certain acquisitions. In addition, an affiliate of UBS as of the date of UBS’ opinion was a participant in credit facilities of certain portfolio companies of GTCR, for which such UBS affiliate had received and, as of the date of UBS’ opinion, continued to receive fees and interest payments. In the ordinary course of business, UBS and its affiliates may hold or trade, for their own accounts and the accounts of their customers, securities of Neoprobe and certain portfolio companies and other affiliates of GTCR and, accordingly, may at any time hold a long or short position in such securities.

Neoprobe’s Board of Directors selected UBS as its financial advisor in connection with the Asset Sale because UBS is an internationally recognized investment banking firm with substantial experience in similar transactions. UBS is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities and private placements.

Other Agreements and Transactions Related to the Asset Sale

Transition Services Agreement

Pursuant to the Asset Purchase Agreement, we have agreed to enter into a transition services agreement with Devicor pursuant to which we shall provide certain transitional, administrative and support services to Devicor following the closing of the Asset Sale.

Voting Agreement

In connection with the Asset Purchase Agreement, David C. Bupp, our former CEO and a director of Neoprobe has agreed to vote shares held by him in favor of the Asset Sale.

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Interests of Our Directors and Executive Officers in the Asset Sale

In connection with the signing of the Asset Purchase Agreement, each of our executive officers who is party to an employment agreement that provides for payment upon a change in control has executed a waiver providing that the Asset Sale is not a change in control for purposes of the employment agreements. Additionally, David C. Bupp, our former CEO and a director of Neoprobe, has executed a waiver providing that the Asset Sale will not trigger any rights or obligations under that certain Certificate of Designations, Voting Powers, Preferences, Limitations, Restrictions, and Relative Rights of Series C Convertible Preferred Stock governing the Series C Convertible Preferred Stock held by Mr. Bupp.

Appraisal Rights

You will not experience any change in your rights as a stockholder as a result of the Asset Sale. None of Delaware law, our certificate of incorporation, or our bylaws provides for appraisal or other similar rights for dissenting stockholders in connection with the Asset Sale, and we are not independently providing stockholders with any such right. Accordingly, you will have no right to dissent and obtain payment for your shares in connection with the Asset Sale. Our shares of Common Stock will remain publicly traded on the NYSE Amex Equities stock market following the closing of the Asset Sale.

Accounting Treatment of the Asset Sale

Under accounting principles generally accepted in the United States of America, we expect to reflect the results of operations of the GDS Business as discontinued operations beginning on the date of the closing of the Asset Sale. The anticipated gain on the sale, net of any applicable taxes, will be reflected in our financial statements commencing with the quarter during which the Asset Sale is completed, following stockholder approval of the Asset Sale pursuant to the terms of the Asset Purchase Agreement. For further information, see the unaudited pro forma condensed financial information included in this proxy statement.

Financing; Source and Amount of Funds

The Asset Sale is not conditioned on Devicor’s ability to obtain financing.

Material U.S. Federal, State and Local Income Tax Consequences

The Asset Sale will not result in any material U.S. federal, state or local income tax consequences to our stockholders. The transaction will be a taxable event to Neoprobe for U.S. federal, state and local income tax purposes. The Asset Sale is expected to result in the recognition of gain for U.S. federal income tax purposes and the imposition of some U.S. federal income tax on Neoprobe in the year of the sale and may be subject to alternative minimum tax despite our cumulative federal net operating losses and federal income tax credits. In addition, we expect that all or substantially all of the taxable gain resulting from the Asset Sale will be subject to state and local income taxes and the imposition of state and local income tax on Neoprobe despite our cumulative state and local income tax losses and income tax credits. The Asset Sale also may result in Neoprobe being subject to state or local sales, use, gross receipts or other taxes in jurisdictions in which we file tax returns or have assets or activities.

Regulatory Matters

We have determined that the Asset Sale is not subject to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or the reporting and waiting requirements of any other United States antitrust law. We are not aware of any other material regulatory approvals that are required to complete the Asset Sale.

Financial Projections

Neoprobe’s management does not as a matter of course make public full year projections. However, in connection with the process of evaluating a potential sale of the GDS Business, our management provided certain GDS Business projections to Devicor in connection with its diligence process. We believe Devicor, by virtue of its acquisition of the breast care biopsy business of Ethicon Endo-Surgery, Inc., our previous distribution partner, was uniquely qualified to evaluate the growth potential of the GDS Business. As such, as a part of its diligence process, we provided two projection scenarios to Devicor, which we refer to as the middle case and the optimistic case, the net operating incomes from which are summarized below. The middle

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case and the optimistic case were based on Devicor’s own sales projections for 2011 and 2012 with an average growth rate of 7.1% and 18.2%, respectively by scenario, per year thereafter through 2015 and a modest growth rate of 0.6% and 0.4%, respectively by scenario, thereafter through 2022. The optimistic case reflected the possibility that our drug product, Lymphoseek, may positively influence future sales of our gamma detection devices for several years following Lymphoseek’s approval. This assumed growth was the basis for the “earn-out” royalty which we may earn if Devicor achieves net revenue related to the GDS Business in excess of $21 million. In addition, we provided these two projection scenarios to our financial advisor, and also provided our financial advisor with a third scenario, referred to as the conservative case, which is also summarized below. The third scenario also used Devicor’s sales projections for 2011 as a starting point, but then assumed that, starting in 2012, the GDS Business, in the absence of positive external influences or if the current installed base of devices were underutilized, would begin to experience market saturation and that sales would start to decline at an estimated rate of 8.7% per year. Our management informed our financial advisor that, in management’s opinion, the conservative case was the most appropriate scenario to use for purposes of UBS’s opinion.

Below, we have included material portions of these projections, which we refer to as the Projections, to give our stockholders access to certain nonpublic information prepared for purposes of considering and evaluating the Asset Sale. In all scenarios prepared, gross margins on product sales were held consistent with our historical range of experience and direct operating expenses were assumed at historical levels with an assumed growth. The Projections were prepared by Neoprobe’s management for internal use and were not prepared with a view toward public disclosure or compliance with published guidelines of the SEC or the American Institute of Certified Public Accountants regarding forward-looking information or generally accepted accounting principles.

Neither Neoprobe’s independent registered public accounting firm, BDO USA, LLP, nor any other independent accountants have compiled, examined or performed any procedures with respect to the Projections, nor have they expressed any opinion or given any form of assurance on the projections or their achievability. The Projections are the sole responsibility of our management. Furthermore, the Projections:

The Projections are not a guarantee of performance. They involve significant risks, uncertainties and assumptions. The future financial results of the GDS Business may materially differ from those expressed in the Projections due to factors that are beyond our ability to control or predict. We cannot assure you that the Projections will be realized or that the future financial results of the GDS Business will not materially vary from the Projections. We do not intend to update or revise the Projections.

The Projections are forward-looking statements. For information on factors which may cause our future financial results to materially vary, see “Cautionary Statement Concerning Forward-Looking Information” on page 1, “Risk Factors Related to the Asset Sale” on page 25, and the “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, and our subsequent SEC filings.

The Projections estimate profitability at the operating income level related to the GDS Business only. They include operating expenses directly attributable to the GDS Business in the form of research and development costs and manufacturing-support related expenses but include only a small allocation for general and administrative expenses which management believes could be readily attributed to, and fairly reflect the requirements of, the support of manufacturing, shipping and invoicing activities for GDS-related products that a company such as Devicor or another third party with similar marketing and distribution infrastructure and

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expertise might reasonably expect to incrementally incur related to operating the GDS Business. Expenses related to the Remaining Businesses as well as general and administrative expenses which support the Company’s overall corporate infrastructure have been excluded as well interest income, other income and expenses, and all income taxes which have also been excluded. The Projections have been prepared on a non-GAAP basis, which excludes general corporate overhead, stock-based compensation expenses, and amortization of intangible assets. In 2010, these expenses totaled $75,000, $77,000 and $8,000, respectively.

Non-GAAP Projections (in thousands)

Conservative Case
		2011				2012				2013				2014				2015				2016				2017				2018				2019				2020				2021				2022
Net Operating Income		$	5,878			$	5,836			$	5,704			$	5,348			$	5,218			$	4,626			$	4,098			$	3,582			$	3,079			$	2,554			$	2,340			$	2,173

Middle Case
		2011				2012				2013				2014				2015				2016				2017				2018				2019				2020				2021				2022
Net Operating Income		$	5,561			$	5,976			$	6,403			$	6,779			$	7,303			$	7,346			$	7,392			$	7,439			$	7,489			$	7,542			$	7,597			$	7,655

Optimistic Case
		2011				2012				2013				2014				2015				2016				2017				2018				2019				2020				2021				2022
Net Operating Income		$	6,078			$	6,975			$	8,206			$	9,573			$	11,320			$	11,371			$	11,425			$	11,481			$	11,540			$	11,602			$	11,667			$	11,736

In preparing the Projections, we made a number of assumptions, including assumptions regarding the following:

Non-GAAP Financial Measures

As noted above, the Projections have been prepared on a non-GAAP basis, which, as stated above, excludes general corporate overhead, stock-based compensation expenses, and amortization of intangible assets. We believe that the non-GAAP measures, when viewed in addition to and not in lieu of our reported GAAP results, assist in the understanding of our results of operations, and in the case of this transaction, provide potential buyers such as Devicor with a more thorough understanding of the resources that would need to be expended by their organization following the acquisition of the GDS Business.

Neoprobe uses non-GAAP financial measures internally to evaluate its performance from period to period and against our operating budgets. We also believe that investors benefit from seeing “through the eyes of management” as our operating budgets and compensation programs are based on the non-GAAP financial measures. The economic substance behind our decision to use such non-GAAP measures is that such measures approximate our controllable operating performance more closely than the most directly comparable GAAP financial measures.

The material limitation associated with the use of the non-GAAP financial measures is that the non-GAAP measures do not reflect the full economic impact of our activities and reliance solely on non-GAAP measures may lead management to make business decisions with unanticipated economic consequences on our GAAP financial results. We compensate for this limitation by not relying exclusively on non-GAAP financial measures to make business decisions. We also continuously reevaluate which non-GAAP measures are appropriate.

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RISK FACTORS RELATING TO THE ASSET SALE

You should consider carefully the risk factors described below and those risk factors generally associated with our business contained in our Annual Report on Form 10-K for the year ended December 31, 2010, and our subsequent SEC filings, along with other information provided to you in this proxy statement, in deciding how to vote on the proposal to approve the sale of the GDS Business to Devicor pursuant to the terms of the Asset Purchase Agreement. See “Where You Can Find More Information; Incorporation by Reference.”

The risk factors described below are not the only ones facing Neoprobe. Additional considerations not presently known to us or that we currently believe are immaterial may also impair our business operations. If any of the following risk factors actually occur, our business, financial condition or results of operations could be materially adversely affected, the market price of our Common Stock may decline, and you may lose all or part of your investment.

The Asset Sale may not be completed or may be delayed if the conditions to closing are not satisfied or waived.

The sale of the GDS Business to Devicor may not be completed or may be delayed because the conditions to closing, including approval of the transaction by our stockholders and the absence of a material adverse effect before the closing, may not be satisfied or waived. If the Asset Sale is not completed, we may have difficulty recouping the costs incurred in connection with negotiating the Asset Sale, our relationships with our customers, suppliers and employees may be damaged, and our business may be harmed.

If we fail to complete the Asset Sale, our business may be harmed.

As a result of our announcement of the Asset Sale, third parties may be unwilling to enter into material agreements with respect to our GDS Business. New or existing customers and business partners may prefer to enter into agreements with our competitors who have not expressed an intention to sell their business because customers and business partners may perceive that such new relationships are likely to be more stable. Employees working in our GDS Business may become concerned about the future of the business and lose focus or seek other employment. If we fail to complete the Asset Sale, the failure to maintain existing business relationships or enter into new ones could adversely affect our business, results of operations, and financial condition. If we fail to complete the Asset Sale, we will also retain and continue to operate our GDS Business. The resultant potential for loss or disaffection of employees or customers of our GDS Business could have a material, negative impact on the value of the GDS Business.

In addition, if the Asset Sale is not consummated, our directors, executive officers and other employees will have expended extensive time and effort and will have experienced significant distractions from their work during the pendency of the transaction, and we will have incurred significant third party transaction costs, in each case, without any commensurate benefit, which may have a material and adverse effect on our stock price and results of operations.

Failure to complete the Asset Sale may cause the market price for our Common Stock to decline.

If our stockholders fail to approve the sale of the GDS Business to Devicor, or if the Asset Sale is not completed for any other reason, the market price of our Common Stock may decline due to various potential consequences, including:

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If the Asset Sale is not completed, we may explore other potential transactions, but the alternatives may be less favorable to us, and there can be no assurance that we will be able to complete an alternative transaction.

If the sale of our GDS Business to Devicor is not completed, we may explore other potential transactions, including a sale of the GDS Business to another party on such terms as the Board of Directors may approve. The terms of an alternative transaction may be less favorable to us than the terms of the Asset Sale and there can be no assurance that we will be able to reach agreement with or complete an alternative transaction with another party.

The amount of net proceeds that we will receive from the Asset Sale is subject to uncertainties.

Pursuant to the Asset Purchase Agreement, the amount that we receive from the Buyer is subject to the possibility of reduction by virtue of a purchase price adjustment described below under “The Asset Purchase Agreement — General.” The amount of net proceeds is subject to further reduction after the closing if the Buyer successfully asserts claims for indemnification pursuant to the indemnification provisions of the Asset Purchase Agreement. See “The Asset Purchase Agreement — Indemnification.” Furthermore, we may have unforeseen liabilities and expenses that must be satisfied from the after-tax net proceeds of the Asset Sale, leaving less to fund our remaining operations.

In addition, the royalty payments contemplated by the Asset Purchase Agreement are subject to uncertainties, many of which are beyond our control. It is possible that these payments may be materially less than we expect or may not be owed to us at all.

You are not guaranteed any of the proceeds from the Asset Sale.

The purchase price for the Asset Sale will be paid directly to our Company. You should not vote in favor of the Asset Sale based upon the assumption that you will receive any portion of the net proceeds from the Asset Sale.

Management could allocate, spend or invest the net proceeds from the Asset Sale in ways with which our stockholders may not agree.

Our management could allocate, spend or invest the proceeds from the sale of the GDS Business to Devicor in ways with which our stockholders may not agree, including allocation to growth of our product pipeline. The investment of these proceeds may not yield a favorable return.

By completing the Asset Sale, we will no longer be engaged in the GDS Business.

Our GDS Business accounted for 94% of our revenue in 2010. By selling all of our assets primarily relating to the GDS Business to Devicor, we will be exiting the business associated with our GDS line of gamma detection device systems. If the Asset Sale is consummated, our lead radiopharmaceutical pipeline products and drug development portfolio will be our only operating businesses and, accordingly, our profitability will be entirely dependent upon these lines of businesses. These businesses have generated no appreciable revenue and have caused us to incur significant operating expenses and resulted in the incurrence of substantial losses. We expect to continue to incur operating expenses and anticipate our expenses and losses will increase in the foreseeable future as we continue our efforts to develop our research pipeline until at least such time as we are able to get one of our radiopharmaceutical products cleared for marketing, which may happen in 2012 at the earliest. Even in the event that all royalty payments are received by us pursuant to the Asset Purchase Agreement, these funds may not collectively be sufficient to fund our anticipated losses and expenses. Accordingly, we may need to seek additional funding. We would likely seek such funding through public or private financing or some combination thereof. Additional funding may not be available to us on acceptable terms, or at all.

If the Asset Sale is completed, our remaining business and assets will be less diversified.

After selling our GDS Business, we will focus our efforts on developing our lead radiopharmaceutical pipeline products and drug development portfolio. We may encounter unanticipated difficulties or challenges as we transition into a specialty pharmaceutical company. If we are unable to address and overcome these difficulties or challenges, we may not be successful with our new business focus.

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Our Pharmaceutical Business is generating losses.

We are currently experiencing losses in our Pharmaceutical Business and we expect to continue to use significant cash and incur increased operating expenses to support this initiative, including costs associated with the development of our radiopharmaceutical pipeline products, Lymphoseek (tilmanocept) and RIGScan, costs to develop and acquire technology and infrastructure to support our Pharmaceutical Business, promotional costs associated with reaching consumers, and costs of obtaining personnel with the necessary expertise. These investments, which typically are made in advance of revenue, may not yield increased revenue to offset these expenses. As a result of these factors, the future revenue and income potential of our Pharmaceutical Business is uncertain. Any evaluation of our Pharmaceutical Business and our prospects must be considered in light of these factors and the risks and uncertainties often encountered by companies in our early stage of development. Some of these risks and uncertainties relate to our ability to do the following:

If we are unable to address these risks, our business, results of operations and prospects could suffer.

If the Asset Sale is completed, we will be a small public company with an enhanced cash balance.

Once the Asset Sale is completed, we will remain a publicly traded company and will continue to be subject to SEC and NYSE Amex rules and regulations, including the Sarbanes-Oxley Act of 2002. While all public companies face the costs and burdens associated with being publicly traded, given the size of our company, the costs and burden of being a public company will be a significant portion of our annual revenues. In addition, given our size and the fact that the sole focus of our business will be our Pharmaceutical Business, our management will have an even greater expectation from stockholders and industry analysts to produce improved quarterly financial results for our Pharmaceutical Business as compared to the periods prior to the Asset Sale when the diversity of our revenue streams could enable one of our businesses to offset weakness in the other businesses. After giving effect to the Asset Sale, our cash balance will increase.

We will be unable to compete with Devicor for a period of five years after the date of the closing of the Asset Sale.

The Asset Purchase Agreement provides that for a period of five years after the date of the closing of the Asset Sale, we will be prohibited from activities that involve the marketing, distribution or sale of devices primarily used for the diagnosis or identification of cancer in human beings. These restrictions may prevent us from pursuing business opportunities that would be attractive to us or our stockholders.

The Asset Purchase Agreement will expose us to contingent liabilities that could have a material adverse effect on our financial condition.

We have agreed to indemnify the Buyer for breaches of any representation, warranty, or covenant made by us in the Asset Purchase Agreement, for losses arising out of or in connection with excluded assets or excluded liabilities, and for certain other matters. Significant indemnification claims by the Buyer could have a material adverse effect on our financial condition. We will not be obligated to indemnify the Buyer for any breach of the representations, warranties or covenants made by us under the Asset Purchase Agreement until the aggregate amount of claims for indemnification exceed $100,000. In the event that claims for

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indemnification for breach of most of the representations and warranties made by us under the Asset Purchase Agreement exceed this threshold, we will be obligated to indemnify the Buyer for any damages or loss resulting from such breach up to approximately $5 million. Claims for indemnification for breaches of covenants made by us under the Asset Purchase Agreement and for breaches of representations and warranties classified as fundamental representations will not be subject to the deductible or aggregate liability cap described above.

Neoprobe’s directors and executive officers have interests in the Asset Sale that may be different from, or in addition to, the interests of our stockholders.

Neoprobe’s directors and executive officers have interests in the Asset Sale that are different from, or in addition to, the interests of Neoprobe stockholders. These interests include the potential acceleration of the vesting of restricted stock, restricted stock units and stock options held by such persons upon consummation of the Asset Sale. As a result of these interests, Neoprobe’s directors and executive officers could be more likely to recommend a vote in favor of the Asset Sale than if they did not hold these interests, and may have reasons for doing so that are not the same as the interests of our other stockholders. See “The Asset Sale — Interests of Our Directors and Executive Officers in the Asset Sale.”

The Asset Purchase Agreement limits our ability to pursue alternatives to the Asset Sale.

The Asset Purchase Agreement contains provisions that make it more difficult for us to sell our business to any party other than the Buyer. These provisions include the prohibition on our ability to solicit competing proposals and the requirement that we pay a termination fee of $1 million if the Asset Purchase Agreement is terminated in specified circumstances. See “The Asset Purchase Agreement — Termination” and “The Asset Purchase Agreement — No Negotiation or Solicitation of Competing Transaction.” These provisions could discourage a third party that might have an interest in acquiring all of or a significant part of Neoprobe or the GDS Business from considering or proposing an alternative transaction, even if that party were prepared to pay consideration with a higher value than the consideration to be paid by the Buyer.

We may make acquisitions, or invest in new products for our development pipeline, in the Pharmaceutical Business that may not prove successful.

We may not be able to identify suitable acquisition candidates, or products to add to our development pipeline, at prices we consider appropriate. If we do identify an appropriate acquisition candidate or products for the development pipeline, our management may not be able to effectively implement our acquisition and development programs and internal growth strategy simultaneously. The integration of acquisitions involves a number of risks and presents financial, managerial and operational challenges. We may have difficulty, and may incur unanticipated expenses related to, integrating management and personnel from these acquired entities with our management and personnel. Our failure to identify, consummate or integrate suitable acquisitions or product candidates could adversely affect our Pharmaceutical Business. We cannot readily predict the timing, size or success of our future acquisitions. Failure to successfully integrate future acquisitions or product candidates could have a material adverse effect on our business, prospects, financial condition and results of operations.

Economic or market factors could cause a decline in spending for pharmaceuticals, adversely affecting our financial results.

Our revenue and profitability will depend on the overall demand for our specialty pharmaceutical products. Delays or reductions in demand for our products could materially adversely affect our financial results. If the markets for specialty pharmaceutical products decline, our business, results of operations or financial condition could be materially adversely affected.

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ASSET PURCHASE AGREEMENT

The following summary of the Asset Purchase Agreement is not complete and is qualified in its entirety by reference to the copy of the Asset Purchase Agreement attached to this proxy statement as Appendix A and incorporated by reference herein. We urge you to read the Asset Purchase Agreement carefully and in its entirety because it, and not the summary set forth in this proxy statement, is the legal document that governs the Asset Sale.

The terms of the Asset Purchase Agreement (such as the representations and warranties) are intended to govern the contractual rights and relationships, and allocate risks, between the parties in relation to the Asset Sale. The Asset Purchase Agreement contains representations and warranties that Neoprobe, on the one hand, and Devicor, on the other hand, made to each other as of specific dates. The representations and warranties were negotiated between the parties with the principal purpose of setting forth their respective rights with respect to their obligations to consummate the Asset Sale and may be subject to important limitations and qualifications as set forth therein, including a contractual standard of materiality different from that generally applicable under federal securities laws. In addition, certain representations and warranties relate to information that is not known currently by either party and have been negotiated such that the risk that such representations or warranties are ultimately shown to not be true is allocated between the parties.

In addition, such representations and warranties are qualified by information in confidential disclosure schedules that Neoprobe and Devicor have exchanged in connection with signing the Asset Purchase Agreement. While Neoprobe does not believe that the disclosure schedules contain information that the securities laws require to be publicly disclosed, the disclosure schedules do contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the attached Asset Purchase Agreement. Accordingly, you should not rely on the representations and warranties as characterizations of the actual state of facts, since they are modified by the underlying disclosure schedules. These disclosure schedules contain certain information that has been included in our prior public disclosures, as well as additional non-public information. Moreover, information concerning the subject matter of the representations and warranties may have changed since the date of the Asset Purchase Agreement, which subsequent information may or may not be fully reflected in our public disclosures.

General

Under the terms of the Asset Purchase Agreement, Devicor has agreed to purchase the assets of the GDS Business. Pursuant to the terms of the Asset Purchase Agreement, upon the closing of the Asset Sale, Devicor will: (i) make a cash payment to us of $30,000,000; (ii) assume certain liabilities of the Company associated with the GDS Business as specified in the Asset Purchase Agreement; and (iii) make royalty payments of up to an aggregate maximum amount of $20,000,000 based on the net revenue attributable to the GDS Business over the course of the six fiscal years ended December 31, 2012, 2013, 2014, 2015, 2016 and 2017 (the foregoing consideration hereinafter referred to collectively as the “Aggregate Consideration”).

The Aggregate Consideration is subject to adjustments based upon changes in the net working capital attributable to the GDS Business, as determined by subtracting the current liabilities of Neoprobe assumed by Devicor pursuant to the Asset Purchase Agreement from the current assets of Neoprobe acquired by Devicor, as determined in accordance with the principles set forth in the Asset Purchase Agreement. The adjustment amount, if any, will be deducted from Aggregate Consideration.

Closing

Closing of the Asset Sale under the Asset Purchase Agreement will occur within three business days following the satisfaction or waiver of all conditions to the obligations of the parties to consummate the transactions contemplated thereby, including the adoption and approval of the Asset Sale and the Asset Purchase Agreement by the holders of a majority of our Common Stock outstanding on the Record Date, or at such other time as we and Devicor may agree upon in writing.

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Representations and Warranties

The Asset Purchase Agreement contains a number of customary representations and warranties applicable to us, subject in some cases to customary qualifications, relating to, among other things, the following:

Certain representations and warranties in the Asset Purchase Agreement provide exceptions for items that are not reasonably likely to have a “Material Adverse Effect.” For purposes of the Asset Purchase Agreement, a “Material Adverse Effect” means a material adverse effect on the assets of the GDS Business, the liabilities of the GDS Business to be assumed by Devicor or the financial condition or results of operations of the GDS Business; provided, however, that none of the following by themselves shall be deemed to be a Material Adverse Effect: (i) general changes in the U.S. economy but only to the extent not disproportionately affecting the GDS Business, the assets of the GDS Business, or the liabilities of the GDS Business to be assumed by Devicor; (b) general changes in the industry in which the GDS Business operates but only to the extent not disproportionately affecting the GDS Business, the assets of the GDS Business, or the liabilities of the GDS Business to be assumed by Devicor; (c) changes resulting from any announcement by Neoprobe of its intention to sell the GDS Business; and (d) any change resulting from compliance by Neoprobe with the terms of, or the taking of any action contemplated by, the Asset Purchase Agreement or the Transition Services Agreement.

The Asset Purchase Agreement also contains a number of customary representations and warranties applicable to Devicor, subject in some cases to customary qualifications, relating to, among other things, the following:

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Indemnification; Survival of Indemnification Obligations

After the closing of the Asset Sale, we have agreed to indemnify and hold Devicor and its affiliates harmless from any loss arising out of (i) any breach of representations and warranties by us, (ii) breaches by us of any covenants or agreements made or to be performed by us under the Asset Purchase Agreement, (iii) any excluded assets or liabilities under the Asset Purchase Agreement, and (iv) our fraud or intentional misrepresentation or criminal acts. In general, we are required to indemnify Devicor for any indemnifiable losses arising out of a breach of our representations or warranties, subject to certain exceptions, for a period of 18 months following the closing date of the Asset Sale. In general, we are not obligated to make Devicor whole for any losses suffered as a result of breaches of our representations and warranties until Devicor suffers losses in excess of $100,000, at which point we are obligated to indemnify Devicor for all losses in, including those less than $100,000, subject to limitations set forth below. In addition, our liability for any claim for indemnification brought by Devicor based upon a breach of a representation or warranty is, subject to certain exceptions described below, limited to $5,000,000. Claims for (i) fraud or intentional misrepresentation, (ii) breaches of agreements and covenants (iii) liabilities and assets retained by us under the Asset Purchase Agreement; and (iv) breaches of representations and warranties regarding our corporate existence, validity of the Asset Purchase Agreement, the authorization of the Asset Sale and non-contravention of existing agreements by the Asset Sale, title to assets of the GDS Business subject to the Asset Sale, intellectual property, taxes and employee benefit matters, are not subject to the limitations on indemnification set forth above, and Devicor may proceed directly against us for any such claims.

After closing of the Asset Sale, Devicor has agreed to indemnify and hold us and our affiliates harmless from any loss arising out of (i) any breach of representations and warranties by Devicor, (ii) breaches by Devicor of any covenants or agreements made or to be performed by it under the Asset Purchase Agreement, (iii) any liability assumed by Devicor under the Asset Purchase Agreement, or (iv) any liabilities of Devicor with respect to, or arising out of, the operation (including the payment of taxes attributable to periods after the closing) of the GDS Business flowing the effective time of the Asset Sale. In general, Devicor is not obligated to make us whole for any losses arising out of breaches of Devicor’s representations and warranties until we suffers losses in excess of $100,000, at which point Devicor is obligated to indemnify us for all losses, including those less than $100,000. In addition, Devicor’s liability for any claim for indemnification brought by us is, subject to certain exceptions, limited to $5,000,000.

Covenants and Agreements

Under the Asset Purchase Agreement, we have agreed to abide by certain customary covenants prior to the closing of the Asset Sale or the earlier termination of the Asset Purchase Agreement. Among others, these covenants include an agreement to not take any of the following actions without the written consent of Devicor:

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No Negotiation or Solicitation of Competing Transaction

The Asset Purchase Agreement provides that, except as specifically provided for in the Asset Purchase Agreement, we will not (and we will cause our employees, officers, directors and agents not to), directly or indirectly, solicit, initiate or encourage any inquiries or the making of any proposal with respect to any merger, consolidation or other business combination involving the GDS Business or the Company or the acquisition of all or substantially all of the assets or capital stock of the GDS Business or the Company, or negotiate, explore or otherwise engage in discussions with any person, or enter into any agreement, with respect to any such a transaction or enter into any agreement, arrangement or understanding requiring us to abandon, terminate or fail to consummate any of the transactions contemplated by the Asset Purchase Agreement.

Employee Matters

Upon the consummation of the Asset Sale we will terminate the employment of employees specifically associated with the GDS Business and identified in the schedules to the Asset Purchase Agreement included in Appendix A attached to this proxy (the “Business Employees”), and will, effective upon their employment with Devicor, release each Business Employee from any non-competition obligations owed to Neoprobe to the extent such obligations relate to the GDS Business.

Devicor shall offer employment, effective as of the Effective Time and subject to Devicor’s normal employment practices, to each of the Business Employees. We shall retain responsibility for all costs arising on account of periods ending with the effective time of the Asset Sale with respect to all of the Business Employees.

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During the five year period from and after the closing date of the Asset Sale, neither Devicor nor its affiliates shall solicit or hire any person employed by Neoprobe on the date of the Asset Purchase Agreement other than the Business Employees or any person hired by Neoprobe prior to the termination or expiration of the Transition Services Agreement.

In addition, directly or indirectly, during the five year period from and after the closing of the Asset Sale (the “Restrictive Period”), we may not solicit, encourage to leave employment, or hire any person employed by Devicor on the date the Asset Purchase Agreement was executed, any person hired by Devicor prior to termination or expiration of the Transition Services Agreement or any Business Employee, or induce or attempt to induce, or assist anyone else to induce or attempt to induce, any customer of Devicor to reduce or discontinue its business with Devicor or disclose to anyone else the name and/or requirements of any such customer.

Recommendation

Our Board of Directors shall not (i) withdraw or modify, or propose publicly to withdraw or modify, in a manner adverse to Devicor, its recommendation that the Company’s stockholders approve the Asset Sale or (ii) approve or recommend or propose publicly to approve or recommend to any of our stockholders, or otherwise permit or cause Neoprobe to accept or enter into, a transaction which frustrates the purpose of the Asset Sale (a “Contrary Transaction”). Neither the Company nor any of its subsidiaries shall approve, recommend, publicly propose or enter into any agreement with respect to a Contrary Transaction, and neither the Company nor any of its subsidiaries shall release any third party from, or waive any provisions of, any confidentiality and standstill agreement to which the Company is a party.

Covenant Not to Compete or Disclose

Pursuant to the Asset Purchase Agreement, the Company has agreed that it shall not, and shall cause its affiliates not to:

Use of Neoprobe Trade Marks and Trade Names

As soon as practicable following the consummation of the Asset Sale, and in any event within six months following the closing date of the Asset Sale, we have agreed to cease to make any use of any of the Neoprobe trade marks and trade names, including any name or mark confusingly similar thereto both in the United States and outside of the United States. As promptly as practicable but in no event later than six months following the closing date of the Asset Sale, we must remove, strike over or otherwise obliterate all such trademarks and trade names from all materials used in the United States or outside the United States, including any vehicles, business cards, schedules, stationery, packaging materials, displays, signs, promotional materials, manuals, forms, computer software and other materials.

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Distribution Rights

In the event that, following the consummation of the Asset Sale we (or any of our affiliates) desire to engage a third party to distribute any medical device used in surgical oncology primarily having a diagnostic purpose, including, without limitation, medical devices used for the detection of fluorescence labeled compounds or antibodies (“Other Products”), then (i) for a period of five (5) years following the closing date of the Asset Sale Devicor shall have a right of first refusal to distribute such Other Products on commercially reasonable terms no less favorable to Devicor than the terms offered by an unaffiliated third party, but in no event less favorable to Devicor than the terms set forth in the existing Distribution Agreement, dated and effective as of September 28, 1999, between Devicor (as assignee of Ethicon Endo-Surgery, Inc.) and Neoprobe, as amended from time to time; and thereafter (ii) for a period of an additional seven (7) years Devicor shall have a right of first refusal to distribute such Other Products on commercially reasonable terms no less favorable to Devicor than the terms offered by an unaffiliated third party. Notwithstanding the foregoing, in the event that Neoprobe is acquired by a third party prior to the expiration of the 12-year period, these covenants shall not apply to such acquirer and its affiliates other than Neoprobe and its affiliates existing immediately prior to such acquisition.

Conditions to Completion of the Asset Sale

The obligations of us and Devicor to complete the Asset Sale are subject to the satisfaction or waiver of certain customary conditions, including, the absence of any order, statute, rule, regulation, executive order, stay, decree, judgment or injunction which prohibits or prevents the consummation of the transactions contemplated by this Agreement or the closing of the Asset Sale.

In addition, the obligations of Devicor to complete the Asset Sale are subject to the satisfaction by us or waiver by Devicor of conditions, including the following:

Our obligation to complete the Asset Sale is subject to the satisfaction by Devicor or waiver by us of conditions, including the following:

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Termination

We and Devicor may by mutual written consent terminate the Asset Purchase Agreement at any time prior to the completion of the Asset Sale.

Devicor may terminate the Asset Purchase Agreement at any time following the Annual Meeting of the Stockholders if the Company does not receive stockholder approval for the Asset Sale at the meeting.

In addition, either we or Devicor may, in writing, terminate the Asset Purchase Agreement at any time prior to the effective time of the Asset Sale:

If the Asset Sale is not approved pursuant to the terms of the Asset Purchase Agreement, we will be required to pay Devicor a fee equal to the amount of the reasonable out-of-pocket expenses, actually documented and incurred or payable by or on behalf of Devicor in connection with or in anticipation of the Asset Sale and the agreements related thereto, including all attorney’s fees, financial advisor’s fees, accountants’ fees and filing fees (the “Termination Expenses”) (provided, however, that in no event will the “Termination Expenses” exceed $500,000, in the aggregate). We may also be required to pay a $1,000,000 termination fee plus the amount of the Termination Expenses if the Asset Purchase Agreement is terminated by Devicor as a result of our breach of any of certain covenants set forth in the Asset Purchase Agreement which require, among other things that the Company’s Board of Directors use its reasonable best efforts to obtain the approval of the Company’s stockholders for the Asset Sale, and not withdraw or modify, or propose publicly to withdraw or modify, in a manner adverse to Devicor, its recommendation that the stockholders approve the Asset Sale or approve or recommend, or propose publicly to approve or recommend, or otherwise permit or cause the Company to accept, any other transaction which effects an acquisition, merger, consolidation or other business combination involving the GDS Business or the Company.

Expenses

The Asset Purchase Agreement provides that, except as otherwise set forth in the Asset Purchase Agreement, each party shall pay all costs and expenses incurred on its behalf in connection with the negotiation, preparation and execution of this Agreement and the consummation of the transactions contemplated by the Asset Purchase Agreement, including, without limitation, the fees and expenses of their attorneys, accountants, advisors and other representatives.

Amendment

The Asset Purchase Agreement shall be amended, modified or supplemented only by a written agreement between Devicor and Neoprobe.

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NEOPROBE CORPORATION AND SUBSIDIARIES
  
SELECTED CONSOLIDATED FINANCIAL DATA

Set forth below is our selected financial data as of the dates and for the periods indicated. The selected consolidated balance sheet data as of March 31, 2011 and the consolidated statement of operations data for the three months ended March 31, 2011 and 2010 were derived from our unaudited consolidated financial statements included in our filings on Form 10-Q for the quarters ended March 31, 2011 and 2010. The consolidated balance sheet data as of December 31, 2010 and the consolidated statement of operations data for the years ended December 31, 2010, 2009 and 2008 were derived from the audited consolidated financial statements included in our filings on Form 10-K for each of the respective periods. The data should be read in conjunction with our financial statements and notes thereto, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our filings on Forms 10-Q and 10-K. Data are in thousands, except per-share data.

		Pro Forma(a)				Historical
		March 31,								December 31,
		2011				2011				2010				2009				2008				2007				2006
Consolidated Balance Sheet Data:
Total assets		$	38,701			$	13,874			$	10,863			$	9,018			$	9,619			$	7,063			$	8,034
Long-term obligations			175				958				2,787				13,485				7,323				8,836				4,922
Total stockholders’ equity (deficit)			35,103				8,486				4,132				(9,870	)			(3,026	)			(3,944	)			(298	)

		Pro Forma(a)								Historical
		Three Months Ended March 31, 2011				Year Ended December 31, 2010				Three Months Ended March 31,								Years Ended December 31,
										2011				2010				2010				2009				2008				2007				2006
Consolidated Statement of Operations Data:
Net sales		$	—			$	—			$	2,478			$	2,658			$	9,983			$	9,418			$	7,418			$	6,773			$	5,445
License and grant revenue			336				617				361				25				717				100				172				—				—
Gross profit			336				617				2,083				1,794				7,494				6,383				4,744				3,872				3,291
Research and development expenses			2,395				8,803				2,590				2,402				9,221				4,968				4,286				2,506				3,095
Selling, general and Administrative expenses			2,857				4,156				2,969				1,128				4,584				3,240				2,966				2,381				2,466
Loss from operations			(4,916	)			(12,342	)			(3,476	)			(1,736	)			(6,311	)			(1,825	)			(2,508	)			(1,015	)			(2,270	)
Other expenses, net			(953	)			(43,567	)			(953	)			(712	)			(43,567	)			(35,891	)			(2,124	)			(3,325	)			(1,283	)
Loss from continuing operations		$	(5,869	)		$	(55,909	)			(4,429	)			(2,448	)			(49,878	)			(37,716	)			(4,632	)			(4,340	)			(3,553	)
Discontinued operations											7				(12	)			(87	)			(1,890	)			(534	)			(748	)			(1,188	)
Net loss											(4,422	)			(2,460	)			(49,965	)			(39,606	)			(5,166	)			(5,088	)			(4,741	)
Preferred stock dividends											(25	)			(60	)			(8,207	)			(240	)			—				—				—
Loss attributable to common stockholders										$	(4,447	)		$	(2,520	)		$	(58,172	)		$	(39,846	)		$	(5,166	)		$	(5,088	)		$	(4,741	)
Loss per common share (basic and diluted):
Continuing operations		$	(0.07	)		$	(0.79	)		$	(0.05	)		$	(0.03	)		$	(0.72	)		$	(0.51	)		$	(0.07	)		$	(0.07	)		$	(0.06	)
Discontinued operations										$	(0.00	)		$	(0.00	)		$	(0.00	)		$	(0.03	)		$	(0.01	)		$	(0.01	)		$	(0.02	)
Loss attributable to common stockholders										$	(0.05	)		$	(0.03	)		$	(0.72	)		$	(0.54	)		$	(0.08	)		$	(0.08	)		$	(0.08	)
Shares used in computing loss per common share:
Basic and diluted			85,416				80,726				85,416				79,571				80,726				73,772				68,594				62,921				58,587

TABLE OF CONTENTS

NEOPROBE CORPORATION AND SUBSIDIARIES
GDS BUSINESS
  
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Neoprobe has prepared the following unaudited financial statements to show the balance sheets, statements of operations and statements of cash flows of the GDS Business on a stand-alone basis. The unaudited financial statements represent the results of operations and financial position of the GDS Business, reflecting the assets to be acquired and liabilities to be assumed by Devicor pursuant to the Asset Purchase Agreement.

The following unaudited financial statements of the GDS Business are presented:

Interim Data

Full-year Data

The unaudited financial statements of the GDS Business, including the notes thereto, are qualified in their entirety by reference to, and should be read in conjunction with, the historical audited consolidated financial statements and the notes thereto included in Neoprobe’s Annual Report on Form 10-K for the years ended December 31, 2010 and 2009 and Quarterly Report on Form 10-Q for the three months ended March 31, 2011, as filed with the SEC, which are incorporated herein by reference.

The unaudited financial statements of the GDS Business do not purport to represent, and are not necessarily indicative of, what the actual financial results would have been had Neoprobe operated the GDS Business as a separate entity.

TABLE OF CONTENTS

NEOPROBE CORPORATION AND SUBSIDIARIES
GDS BUSINESS
  
UNAUDITED CONSOLIDATED BALANCE SHEETS

		March 31, 2011				December 31, 2010
ASSETS
Current assets:
Accounts receivable, net		$	1,586,897			$	1,910,153
Inventory, net			648,052				826,588
Prepaid expenses and other			45,928				40,839
Total current assets			2,280,877				2,777,580
Property and equipment			1,029,784				1,004,136
Less accumulated depreciation and amortization			910,977				889,888
			118,807				114,248
Patents and trademarks			502,014				509,886
Less accumulated amortization			429,069				428,613
			72,945				81,273
Total assets		$	2,472,629			$	2,973,101
LIABILITIES AND NET INVESTMENT
Current liabilities:
Accounts payable		$	183,742			$	165,581
Accrued liabilities and other			119,933				271,443
Deferred revenue, current portion			702,388				654,430
Total current liabilities			1,006,063				1,091,454
Deferred revenue			783,181				672,924
Total liabilities			1,789,244				1,764,378
Neoprobe Corporation net investment in the GDS Business			683,385				1,208,723
Total liabilities and net investment in the GDS Business		$	2,472,629			$	2,973,101

 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

TABLE OF CONTENTS

NEOPROBE CORPORATION AND SUBSIDIARIES
GDS BUSINESS
  
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

		Three Months Ended March 31,
		2011				2010
Revenues:
Net sales		$	2,478,274			$	2,657,872
License and grant revenue			25,000				25,000
Total revenues			2,503,274				2,682,872
Cost of goods sold			755,987				888,867
Gross profit			1,747,287				1,794,005
Operating expenses:
Research and development			194,138				133,410
Selling, general and administrative			112,907				118,772
Total operating expenses			307,045				252,182
Income from operations before income tax			1,440,242				1,541,823
Provision for income tax			576,097				616,729
Net income		$	864,145			$	925,094

 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

TABLE OF CONTENTS

NEOPROBE CORPORATION AND SUBSIDIARIES
GDS BUSINESS
  
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

		Three Months Ended March 31,
		2011				2010
Cash flows from operating activities:
Net income		$	864,145			$	925,094
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			21,693				34,184
Loss on disposal and abandonment of assets			14,145				353
Stock compensation expense			25,946				25,755
Issuance of common stock to 401(k) plan			10,064				13,257
Changes in operating assets and liabilities:
Accounts receivable			323,256				196,298
Inventory			155,518				(232,007	)
Prepaid expenses and other assets			(5,089	)			25,716
Accounts payable			18,161				620,105
Accrued liabilities and other liabilities			(151,510	)			38,858
Deferred revenue			158,215				(69,293	)
Net cash provided by operating activities			1,434,544				1,578,320
Cash flows from investing activities:
Purchases of equipment			(4,501	)			—
Patent and trademark costs			(4,660	)			(5,026	)
Net cash used in investing activities			(9,161	)			(5,026	)
Cash flows from financing activities:
Payment to parent company			(1,425,383	)			(1,573,294	)
Net cash used in financing activities			(1,425,383	)			(1,573,294	)
Net change in cash			—				—
Cash, beginning of period			—				—
Cash, end of period		$	—			$	—

 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

TABLE OF CONTENTS

NEOPROBE CORPORATION AND SUBSIDIARIES
GDS BUSINESS
  
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1. Basis of Presentation

Neoprobe (Neoprobe, the Company, or we) is a biomedical company focused on enhancing oncology patient care and improving patient benefit through radiopharmaceutical product development. Neoprobe is actively developing two radiopharmaceutical agent platforms — Lymphoseek® and RIGScan^TM — to help surgeons better identify and treat certain types of cancer. Neoprobe’s subsidiary, Cira Biosciences, Inc., is also advancing a patient-specific cellular therapy technology platform called ACT. Neoprobe’s strategy is to deliver superior growth and shareholder return by bringing to market novel radiopharmaceutical agents and advancing the Company’s pipeline program through continued investment and selective acquisitions.

In May 2011, Neoprobe entered into an agreement (the Asset Purchase Agreement) to sell our gamma detection device line of business (the GDS Business) to Devicor Medical, Inc. (Devicor) for $30 million, plus an additional amount of up to $20 million based on the net revenue attributable to the GDS Business through 2017. Substantially all of the GDS Business sales for all periods presented were made to Devicor (or Ethicon Endo-Surgery, Inc., prior to Devicor’s acquisition of their breast biopsy business in July 2010).

Assets and liabilities being sold to Devicor include:

Assets and liabilities excluded from the sale to Devicor include:

Neoprobe has prepared these unaudited financial statements to present the assets and liabilities of the GDS Business as of March 31, 2011 and December 31, 2010, as well as the operating results and cash flows of the GDS Business for the three-month periods ended March 31, 2011 and 2010. The information presented is unaudited, but includes all adjustments (which consist only of normal recurring adjustments) that the management of Neoprobe believes to be necessary for the fair presentation of results for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission for interim financial statements. The balances as of March 31, 2011 and the results for the interim periods are not necessarily indicative of results to be expected for the year. Certain overhead and other costs have not been allocated from Neoprobe’s corporate records. These consolidated financial statements should be read in conjunction with Neoprobe’s audited consolidated financial statements for the year ended December 31, 2010, which were included as part of our Annual Report on Form 10-K, and with the unaudited annual financial statements of the GDS Business for the years ended December 31, 2010, 2009 and 2008 included herein.

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NEOPROBE CORPORATION AND SUBSIDIARIES
GDS BUSINESS
  
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

2. Stock-Based Compensation

Stock options granted under Neoprobe stock incentive plans generally vest on an annual basis over one to four years. Outstanding stock options under the plans, if not exercised, generally expire ten years from their date of grant or 90 days from the date of an optionee’s separation from employment with the Company. We issue new shares of our common stock upon exercise of stock options.

Stock-based payments to employees and directors, including grants of stock options and restricted stock, are recognized in the consolidated statement of operations based on their estimated fair values. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. Expected volatilities are based on the Company’s historical volatility, which management believes represents the most accurate basis for estimating expected volatility under the current circumstances. Neoprobe uses historical data to estimate forfeiture rates. The expected term of stock options granted is based on the vesting period and the contractual life of the options. The risk-free rate is based on the U.S. Treasury yield in effect at the time of the grant.

Compensation cost arising from stock-based awards is recognized as expense using the straight-line method over the vesting period. Restricted shares generally vest upon occurrence of a specific event or achievement of goals as defined in the grant agreements. As a result, we record compensation expense related to grants of restricted stock based on management’s estimates of the probable dates of the vesting events.

For the three-month periods ended March 31, 2011 and 2010, our total stock-based compensation expense related to employees of the GDS Business was approximately $26,000 for both periods. The costs associated with these plans have been included in the corresponding statements of operations of the GDS Business and as a component of Neoprobe Corporation’s net investment in the GDS Business. Upon closing of the sale to Devicor, these costs will no longer be incurred by Neoprobe and any related assets or liabilities associated with the stock compensation plans will remain with Neoprobe.

3. Accounts Receivable, net

Accounts receivable as of March 31, 2011 and December 31, 2010, net of allowance for doubtful accounts of $1,000 and $1,200, respectively, consist of the following:

		March 31, 2011				December 31, 2010
Trade		$	1,586,897			$	1,872,215
Other			—				37,938
		$	1,586,897			$	1,910,153

We estimate an allowance for doubtful accounts based on a review and assessment of specific accounts receivable and write off accounts when deemed uncollectible. We believe that we have adequately addressed our credit risks in estimating the allowance for doubtful accounts.

4. Inventory, net

The components of inventory as of March 31, 2011 and December 31, 2010, net of reserves of $82,000 and $81,000, respectively, are as follows:

		March 31, 2011				December 31, 2010
Gamma detection device materials		$	181,917			$	302,323
Gamma detection device finished goods			466,135				524,265
Total		$	648,052			$	826,588

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NEOPROBE CORPORATION AND SUBSIDIARIES
GDS BUSINESS
  
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

4. Inventory, net  – (continued)

We estimate a reserve for obsolete inventory based on management’s judgment of probable future commercial use, which is based on an analysis of current inventory levels, historical and estimated future sales and production rates, and estimated shelf lives.

5. Property and Equipment

The major classes of property and equipment are as follows:

		Useful Life				March 31, 2011				December 31, 2010
Production machinery and equipment			5 years			$	612,120			$	607,619
Loaner units			2 years				338,741				317,594
Other machinery and equipment, primarily research equipment			5 years				78,923				78,923
						$	1,029,784			$	1,004,136

During the three-month periods ended March 31, 2011 and 2010, we recorded $21,000 and $32,000, respectively, of depreciation and amortization related to property and equipment of the GDS Business. During the three-month period ended March 31, 2011, we recorded losses of $2,000 on the disposal of property and equipment of the GDS Business.

6. Intangible Assets

The major classes of intangible assets are as follows:

		March 31, 2011												December 31, 2010
		Weighted Average Remaining Life(1)				Gross Carrying Amount				Accumulated Amortization				Gross Carrying Amount				Accumulated Amortization
Patents and trademarks			3.2 yrs			$	502,014			$	429,069			$	509,886			$	428,613

The estimated amortization expenses, related to those patents and trademarks currently being amortized, for the next five fiscal years are as follows:

		Estimated Amortization Expense
For the year ended 12/31/2011		$	1,372
For the year ended 12/31/2012			1,002
For the year ended 12/31/2013			284
For the year ended 12/31/2014			265
For the year ended 12/31/2015			236

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NEOPROBE CORPORATION AND SUBSIDIARIES
GDS BUSINESS
  
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

7. Product Warranty

We warrant our products against defects in design, materials, and workmanship generally for a period of one year from the date of sale to the end customer, except in cases where the product has a limited use as designed. Our accrual for warranty expenses is adjusted periodically to reflect actual experience and is included in accrued liabilities and other on the consolidated balance sheets. Our primary marketing partner, Devicor, also reimburses us for a portion of warranty expense incurred based on end customer sales they make during a given fiscal year. Payments charged against the reserve are disclosed net of Devicor’s estimated reimbursement.

The activity in the warranty reserve for the three-month periods ended March 31, 2011 and 2010 is as follows:

		Three Months Ended March 31,
		2011				2010
Warranty reserve at beginning of period		$	56,110			$	61,400
Provision for warranty claims and changes in reserve for warranties			(8,460	)			38,097
Payments charged against the reserve			—				(21,873	)
Warranty reserve at end of period		$	47,650			$	77,624

8. Income Taxes

For purposes of the stand-alone GDS Business financial statements, income tax was calculated at statutory rates as if it were a separate taxpayer. All related balance sheet amounts are included as components of Neoprobe Corporation Net Investment in the GDS Business.

9. Supplemental Disclosure for Statements of Cash Flows

During the three-month periods ended March 31, 2011 and 2010, we issued 6,469 and 12,548 shares of our common stock, respectively, as matching contributions to our 401(k) plan for benefit of the GDS Business employees. During the three-month periods ended March 31, 2011 and 2010, we transferred $23,000 and $14,000, respectively, of inventory to fixed assets related to the creation and maintenance of a pool of service loaner equipment.

TABLE OF CONTENTS

NEOPROBE CORPORATION AND SUBSIDIARIES
GDS BUSINESS
  
UNAUDITED CONSOLIDATED BALANCE SHEETS

		December 31, 2010				December 31, 2009
ASSETS
Current assets:
Accounts receivable, net		$	1,910,153			$	1,331,495
Inventory, net			826,588				618,697
Prepaid expenses and other			40,839				83,950
Total current assets			2,777,580				2,034,142
Property and equipment			1,004,136				981,388
Less accumulated depreciation and amortization			889,888				790,992
			114,248				190,396
Patents and trademarks			509,886				486,457
Less accumulated amortization			428,613				424,479
			81,273				61,978
Total assets		$	2,973,101			$	2,286,516
LIABILITIES AND NET INVESTMENT
Current liabilities:
Accounts payable		$	165,581			$	307,394
Accrued liabilities and other			271,443				191,146
Deferred revenue, current portion			654,430				560,369
Total current liabilities			1,091,454				1,058,909
Deferred revenue			672,924				534,119
Total liabilities			1,764,378				1,593,028
Neoprobe Corporation net investment in the GDS Business			1,208,723				693,488
Total liabilities and net investment in the GDS Business		$	2,973,101			$	2,286,516

 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

TABLE OF CONTENTS

NEOPROBE CORPORATION AND SUBSIDIARIES
GDS BUSINESS
  
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

		Years Ended December 31,
		2010				2009				2008
Revenues:
Net sales		$	9,983,174			$	9,418,032			$	7,417,751
License and grant revenue			100,000				100,000				171,750
Total revenues			10,083,174				9,518,032				7,589,501
Cost of goods sold			3,206,709				3,134,740				2,845,498
Gross profit			6,876,465				6,383,292				4,744,003
Operating expenses:
Research and development			417,999				736,064				648,515
Selling, general and administrative			427,815				391,449				243,734
Total operating expenses			845,814				1,127,513				892,249
Income from operations before income tax			6,030,651				5,255,779				3,851,754
Provision for income tax			2,412,260				2,102,312				1,540,702
Net income		$	3,618,391			$	3,153,467			$	2,311,052

 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

TABLE OF CONTENTS

NEOPROBE CORPORATION AND SUBSIDIARIES
GDS BUSINESS
  
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

		Years Ended December 31,
		2010				2009				2008
Cash flows from operating activities:
Net income		$	3,618,391			$	3,153,467			$	2,311,052
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation of equipment			113,131				130,545				135,421
Amortization of intangible assets			7,998				18,143				22,074
Loss on disposal and abandonment of assets			6,919				18,706				29,919
Stock compensation expense			76,636				41,865				23,216
Issuance of common stock to 401(k) plan			13,257				14,077				12,711
Changes in operating assets and liabilities:
Accounts receivable			(578,658	)			294,570				(65,479	)
Inventory			(286,508	)			(117,975	)			(35,844	)
Prepaid expenses and other assets			43,111				(9,345	)			1,144
Accounts payable			(141,813	)			(11,684	)			(183,404	)
Accrued liabilities and other liabilities			80,297				(20,195	)			(35,028	)
Deferred revenue			232,866				77,704				(58,368	)
Net cash provided by operating activities			3,185,627				3,589,878				2,157,414
Cash flows from investing activities:
Purchases of equipment			—				(27,928	)			(22,092	)
Patent and trademark costs			(10,297	)			(52,758	)			(16,739	)
Net cash used in investing activities			(10,297	)			(80,686	)			(38,831	)
Cash flows from financing activities:
Payment to parent company			(3,175,330	)			(3,509,192	)			(2,118,583	)
Net cash used in financing activities			(3,175,330	)			(3,509,192	)			(2,118,583	)
Net change in cash			—				—				—
Cash, beginning of year			—				—				—
Cash, end of year		$	—			$	—			$	—

 
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.

TABLE OF CONTENTS

NEOPROBE CORPORATION AND SUBSIDIARIES
GDS BUSINESS
  
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

In May 2011, Neoprobe entered into an agreement (the Asset Purchase Agreement) to sell our gamma detection device line of business (the GDS Business) to Devicor Medical, Inc. (Devicor) for $30 million, plus an additional amount of up to $20 million based on the net revenue attributable to the GDS Business through 2017. Substantially all of the GDS Business sales for all periods presented were made to Devicor (or Ethicon Endo-Surgery, Inc., prior to Devicor’s acquisition of their breast biopsy business in July 2010).

Assets and liabilities being sold to Devicor include:

Assets and liabilities excluded from the sale to Devicor include:

Neoprobe has prepared these unaudited financial statements to present the assets and liabilities of the GDS Business as of December 31, 2010 and 2009, as well as the operating results and cash flows of the GDS Business for the years ended December 31, 2010, 2009 and 2008. These unaudited financial statements of the GDS Business have been prepared from the books and records of Neoprobe Corporation in accordance with accounting principles generally accepted in the United States of America. Certain overhead and other costs have not been allocated from Neoprobe’s corporate records. The unaudited consolidated financial statements of the GDS Business should be read in conjunction with Neoprobe’s audited consolidated financial statements for the years ended December 31, 2010 and 2009, which were included as part of our Annual Reports on Form 10-K.

TABLE OF CONTENTS

NEOPROBE CORPORATION AND SUBSIDIARIES
GDS BUSINESS
  
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies  – (continued)

Stock-based payments to employees and directors, including grants of stock options and restricted stock, are recognized in the statement of operations based on their estimated fair values. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model to value share-based payments. Expected volatilities are based on the Company’s historical volatility, which management believes represents the most accurate basis for estimating expected volatility under the current circumstances. Neoprobe uses historical data to estimate forfeiture rates. The expected term of stock options granted is based on the vesting period and the contractual life of the options. The risk-free rate is based on the U.S. Treasury yield in effect at the time of the grant. The assumptions used to calculate fair value for the years ended December 31, 2010, 2009 and 2008 are noted in the following table:

2010

2009

2008

Expected volatility

61% – 68%

73% – 91%

93% – 104%

Weighted-average volatility

66%

81%

101%

Expected dividends

—

—

—

Expected term (in years)

6.0 – 6.3

5.5 – 6.0

5.5 – 6.0

Risk-free rate

1.7% – 2.4%

1.8% – 2.7%

3.3% – 3.6%

Compensation cost arising from stock-based awards is recognized as expense using the straight-line method over the vesting period. Restricted shares generally vest upon occurrence of a specific event or achievement of goals as defined in the grant agreements. As a result, we record compensation expense related to grants of restricted stock based on management’s estimates of the probable dates of the vesting events.

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NEOPROBE CORPORATION AND SUBSIDIARIES
GDS BUSINESS
  
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies  – (continued)

Sales prices on gamma detection products sold to Devicor are subject to retroactive annual adjustment based on a fixed percentage of the actual sales prices achieved by Devicor on sales to end customers made during each fiscal year, subject to a minimum (i.e., floor) price. To the extent that we can reasonably estimate the end customer prices received by Devicor, we record sales to Devicor based upon these estimates. To the extent that we are not able to reasonably estimate end customer sales prices related to certain products sold to Devicor, we record revenue related to these product sales at the floor price provided for under our distribution agreement with Devicor.

We recognize revenue related to the sales of products to be used for demonstration units when products are shipped. Our distribution agreements do not permit return of purchased demonstration units in the ordinary course of business nor do we have any performance obligations other than normal product warranty obligations. To the extent that the earnings process has not been completed, revenue is deferred.

TABLE OF CONTENTS

NEOPROBE CORPORATION AND SUBSIDIARIES
GDS BUSINESS
  
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies  – (continued)

Current accounting standards include guidance on the accounting for uncertainty in income taxes recognized in the financial statements. Such standards also prescribe a recognition threshold and measurement model for the financial statement recognition of a tax position taken, or expected to be taken, and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. For the GDS Business, the ultimate deductibility of all tax positions is highly certain, although there is uncertainty about the timing of such deductibility. As a result, no liability for uncertain tax positions was recorded as of December 31, 2010 or 2009 and we do not expect any significant changes in the next twelve months. Should we need to accrue interest or penalties on uncertain tax positions, we would recognize the interest as interest expense and the penalties as a selling, general and administrative expense. As of December 31, 2010, Neoprobe’s tax years 2007 – 2010 remained subject to examination by federal and state tax authorities.

For purposes of the stand-alone GDS Business financial statements, income tax was calculated at statutory rates as if it was a separate taxpayer. All related balance sheet amounts are included as components of Neoprobe Corporation Net Investment in the GDS Business.

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NEOPROBE CORPORATION AND SUBSIDIARIES
GDS BUSINESS
  
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies  – (continued)

2. Stock-Based Compensation

For the years ended December 31, 2010, 2009 and 2008, our total stock-based compensation expense related to employees of the GDS Business was approximately $77,000, $42,000 and $23,000, respectively. The costs associated with these plans have been included in the corresponding statements of operations of the GDS Business and as a component of Neoprobe Corporation’s net investment in the GDS Business. Upon closing on the sale to Devicor, these costs will no longer be incurred by Neoprobe and any related assets or liabilities associated with the stock compensation plans will remain with Neoprobe.

3. Accounts Receivable, net

Accounts receivable at December 31, 2010 and 2009, net of allowance for doubtful accounts of $1,200 and $1,000, respectively, consist of the following:

		2010				2009
Trade		$	1,872,215			$	1,321,687
Other			37,938				9,808
		$	1,910,153			$	1,331,495

We estimate an allowance for doubtful accounts based on a review and assessment of specific accounts receivable and write off accounts when deemed uncollectible. We believe that we have adequately addressed our credit risks in estimating the allowance for doubtful accounts.

4. Inventory, net

The components of net inventory at December 31, 2010 and 2009 are as follows:

		2010				2009
Gamma detection device materials		$	302,323			$	137,695
Gamma detection device finished goods			524,265				481,002
		$	826,588			$	618,697

During 2010 and 2009, we wrote off $65,000 and $2,000, respectively, of excess and obsolete gamma detection device materials.

5. Property and Equipment

The major classes of property and equipment are as follows:

		Useful Life				2010				2009
Production machinery and equipment			5 years			$	607,619			$	613,659
Loaner units			2 years				317,594				294,847
Other machinery and equipment, primarily research equipment			5 years				78,923				72,882
						$	1,004,136			$	981,388

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NEOPROBE CORPORATION AND SUBSIDIARIES
GDS BUSINESS
  
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

5. Property and Equipment  – (continued)

During 2010, 2009 and 2008, we recorded $113,000, $131,000 and $135,000, respectively, of depreciation and amortization related to property and equipment of the GDS Business. During 2010, 2009 and 2008, we recorded losses of $7,000, $18,000 and $30,000, respectively, on the disposal of property and equipment of the GDS Business.

6. Intangible Assets

The major classes of intangible assets are as follows:

		December 31, 2010												December 31, 2009
		Weighted Average Remaining Life(1)				Gross Carrying Amount				Accumulated Amortization				Gross Carrying Amount				Accumulated Amortization
Patents and trademarks			3.2 yrs			$	509,886			$	428,613			$	486,457			$	424,479

During 2010, 2009 and 2008, we recorded $8,000, $1,000 and $22,000, respectively, of intangible asset amortization in general and administrative expenses. During 2009, we wrote off $1,000 of intangible assets related to patents and trademarks that were determined to have no recoverable value.

The estimated future amortization expenses for the next five fiscal years are as follows:

		Estimated Amortization Expense
For the year ending 12/31/2011		$	1,372
For the year ending 12/31/2012			1,002
For the year ending 12/31/2013			284
For the year ending 12/31/2014			265
For the year ending 12/31/2015			236

7. Accrued Liabilities and Other

Accrued liabilities and other at December 31, 2010 and 2009 consist of the following:

		2010				2009
Contracted services and other		$	148,268			$	88,463
Compensation			67,065				32,411
Warranty reserve			56,110				61,400
Inventory purchases			—				8,872
		$	271,443			$	191,146

8. Product Warranty

We warrant our products against defects in design, materials, and workmanship generally for a period of one year from the date of sale to the end customer, except in cases where the product has a limited use as designed. Our accrual for warranty expenses is adjusted periodically to reflect actual experience and is included in accrued liabilities and other on the consolidated balance sheets. Devicor reimburses us for a portion of warranty expense incurred based on end customer sales they make during a given fiscal year. Payments charged against the reserve are disclosed net of Devicor’s estimated reimbursement.

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NEOPROBE CORPORATION AND SUBSIDIARIES
GDS BUSINESS
  
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

8. Product Warranty  – (continued)

The activity in the warranty reserve account for the years ended December 31, 2010 and 2009 is as follows:

		2010				2009
Warranty reserve at beginning of year		$	61,400			$	62,261
Provision for warranty claims and changes in reserve for warranties			53,726				98,894
Payments charged against the reserve			(59,016	)			(99,755	)
Warranty reserve at end of year		$	56,110			$	61,400

9. Deferred Revenue

Deferred revenue at December 31, 2010 and 2009 consists of the following:

		2010				2009
Non-refundable license fees		$	300,000			$	400,000
Extended warranty revenue			1,027,354				694,488
			1,327,354				1,094,488
Less current portion			654,430				560,369
Deferred revenue, long-term portion		$	672,924			$	534,119

During 2010 and 2009, we recognized license revenue of $100,000 in each year.

10. Income Taxes

The GDS Business tax provision includes federal and state current tax expense and deferred tax expense (benefit). The difference between the effective federal rate of 34% and the effective tax rate for each year is primarily due to state income taxes net of federal benefit. Deferred income taxes are primarily due to basis differences related to inventory and receivable reserves, property and equipment, intangible assets and certain accrued liabilities.

11. Agreements

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NEOPROBE CORPORATION AND SUBSIDIARIES
GDS BUSINESS
  
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

11. Agreements  – (continued)

In December 2007, Neoprobe and EES executed an amendment to the distribution agreement which extended the agreement through the end of 2013. As consideration for extending the distribution agreement through the end of 2013, EES paid us $500,000 in December 2007, representing a non-refundable license fee and reimbursement of past research and development expenses. We recognized $100,000 of this payment as license revenue during both 2010 and 2009. In July 2010, Devicor acquired EES’ breast biopsy business, including an assignment of the distribution agreement with Neoprobe. The agreement continued under the same terms with Devicor.

Devicor may terminate the agreement if we fail to supply products for specified periods, commit a material breach of the agreement, suffer a change of control to a competitor of Devicor, or become insolvent. If termination were due to failure to supply or a material breach by us, Devicor would have the right to use our intellectual property and regulatory information to manufacture and sell the products exclusively on a global basis for the remaining term of the agreement with no additional financial obligation to us. If termination is due to insolvency or a change of control that does not affect supply of the products, Devicor has the right to continue to sell the products on an exclusive global basis for a period of six months or require us to repurchase any unsold products in its inventory.

If we terminate the agreement as a result of a material breach by Devicor, they would be required to pay us a royalty on all products developed and sold by Devicor using our SLNB intellectual property. In addition, we are entitled to a royalty on any SLNB product commercialized by Devicor that does not infringe any of our existing intellectual property. The agreement with Devicor will terminate upon closing of the sale of the GDS Business.

12. Employee Benefit Plan

We maintain an employee benefit plan under Section 401(k) of the Internal Revenue Code. The plan allows employees to make contributions and we may, but are not obligated to, match a portion of the employee’s contribution with our common stock, up to a defined maximum. We accrued expenses of $10,000 and $13,000 during 2010 and 2009, respectively, related to common stock to be contributed to the plan for the benefit of employees of the GDS Business in 2011 and 2010, respectively.

13. Supplemental Disclosure for Statements of Cash Flows

During the years ended December 31, 2010, 2009 and 2008, we transferred $79,000, $43,000 and $182,000, respectively, of inventory to fixed assets related to the creation and maintenance of a pool of service loaner equipment.

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NEOPROBE CORPORATION AND SUBSIDIARIES
GDS BUSINESS
  
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

14. Contingencies

We are subject to legal proceedings and claims that arise in the ordinary course of business. In our opinion, the amount of ultimate liability, if any, with respect to these actions will not materially affect our financial position.

15. Neoprobe Corporation Net Investment in the GDS Business

Net investment at December 31, 2007		$	756,588
Net income			2,311,052
Payment to parent company			(2,118,583	)
Other non-cash adjustments			80,314
Net investment at December 31, 2008			1,029,371
Net income			3,153,467
Payment to parent company			(3,509,192	)
Other non-cash adjustments			19,842
Net investment at December 31, 2009			693,488
Net income			3,618,391
Payment to parent company			(3,175,330	)
Other non-cash adjustments			72,174
Net investment at December 31, 2010		$	1,208,723

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NEOPROBE CORPORATION AND SUBSIDIARIES
  
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma consolidated balance sheet and the unaudited pro forma consolidated statements of operations are derived from the historical consolidated financial statements of Neoprobe and give effect to the sale of the GDS Business to Devicor, the receipt of the net proceeds from the Asset Sale and the assumptions and adjustments described in the accompanying notes to the unaudited pro forma consolidated financial statements.

Pro forma financial information is intended to provide investors with information about the continuing impact of a transaction by showing how a specific transaction might have affected historical financial statements, illustrating the scope of the change in the historical financial position and results of operations. The adjustments made to historical information give effect to events that are directly attributable to the Asset Sale, factually supportable, and expected to have a continuing impact.

The unaudited pro forma consolidated financial statements consist of:

The unaudited pro forma consolidated financial statements have been prepared giving effect to the Asset Sale as if it had occurred as of March 31, 2011 for the unaudited pro forma consolidated balance sheet and as of January 1, 2008 for the unaudited pro forma consolidated statements of operations.

These unaudited pro forma consolidated financial statements should be read in conjunction with the historical audited consolidated financial statements and the notes thereto included in Neoprobe’s Annual Report on Form 10-K for the year ended December 31, 2010 and Quarterly Report on Form 10-Q for the three months ended March 31, 2011, as filed with the SEC, which are incorporated herein by reference, and with the unaudited annual financial statements of the GDS Business for the years ended December 31, 2010, 2009 and 2008 included herein.

The unaudited pro forma consolidated financial statements are prepared in accordance with Article 11 of Regulation S-X. The pro forma adjustments are described in the accompanying notes and are based upon information and assumptions available at the time of the filing of this proxy statement.

We did not account for the GDS Business as, and it was not operated as, a separate, stand-alone entity, subsidiary or division of Neoprobe for the periods presented. The unaudited pro forma consolidated financial statements do not purport to represent, and are not necessarily indicative of, what our actual financial position and results of operations would have been had the Asset Sale occurred on the dates indicated. In addition, the unaudited pro forma consolidated financial statements should not be considered to be fully indicative of our future financial performance.

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NEOPROBE CORPORATION AND SUBSIDIARIES
  
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

						Pro Forma Adjustments								March 31, 2011 Pro Forma
		March 31, 2011 Actual
		Neoprobe				GDS Business				Asset Sale
ASSETS
Current assets:
Cash		$	9,704,428			$	—			$	27,300,000	(a)		$	37,004,428
Accounts receivable, net			1,824,173				1,586,897				—				237,276
Inventory, net			1,492,587				648,052				—				844,535
Prepaid expenses and other			212,039				45,928				—				166,111
Total current assets			13,233,227				2,280,877								38,252,350
Property and equipment			2,448,124				1,029,784				—				1,418,340
Less accumulated depreciation and amortization			1,909,607				910,977				—				998,630
			538,517				118,807								419,710
Patents and trademarks			544,599				502,014				—				42,585
Less accumulated amortization			450,240				429,069				—				21,171
			94,359				75,945								21,414
Other assets			7,421				—				—				7,421
Total assets		$	13,873,524			$	2,475,629							$	38,700,895
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	859,135			$	183,742			$	—			$	675,393
Accrued liabilities and other			2,832,182				119,933				—				2,712,249
Notes payable to finance companies			35,974				—				—				35,974
Deferred revenue, current portion			702,388				702,388				—				—
Total current liabilities			4,429,679				1,006,063								3,423,616
Deferred revenue			783,181				783,181				—				—
Derivative liabilities			145,679				—				—				145,679
Other liabilities			29,025				—				—				29,025
Total liabilities			5,387,564				1,789,244								3,598,320
Stockholders’ equity:
Preferred stock			11								—				11
Common stock			89,138								—				89,138
Additional paid-in capital			263,714,239								—				263,714,239
Accumulated deficit			(255,317,428	)							26,616,615	(b)			(228,700,813	)
Total stockholders’ equity			8,485,960												35,102,575
Total liabilities and stockholders’ equity		$	13,873,524											$	38,700,895

 
 
The accompanying notes are an integral part of these unaudited pro forma consolidated financial statements.

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NEOPROBE CORPORATION AND SUBSIDIARIES
  
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

						Pro Forma Adjustments								Three Months Ended March 31, 2011 Pro Forma
		Three Months Ended March 31, 2011 Actual
		Neoprobe				GDS Business				Asset Sale
Revenues:
Net sales		$	2,478,274			$	2,478,274			$	—			$	—
License and other revenue			360,962				25,000				—				335,962
Total revenues			2,839,236				2,503,274				—				335,962
Cost of goods sold			755,987				755,987				—				—
Gross profit			2,083,249				1,747,287				—				335,962
Operating expenses:
Research and development			2,589,552				194,138				—				2,395,414
Selling, general and administrative			2,970,262				112,907				—				2,857,355
Total operating expenses			5,559,814				307,045				—				5,252,769
(Loss) income from operations			(3,476,565	)			1,440,242				—				(4,916,807	)
Other expense, net			(952,590	)			—				—				(952,590	)
(Loss) income from continuing operations before income tax			(4,429,155	)			1,440,242				—				(5,869,397	)
Provision for income tax			—				576,097				576,097	(c)			—
Net (loss) income from continuing operations			(4,429,155	)			864,145				567,097				(5,869,397	)
Preferred stock dividends			(25,000	)			—				—				(25,000	)
Net (loss) income from continuing operations attributable to common stockholders		$	(4,454,155	)		$	864,145			$	567,097			$	(5,894,397	)
Loss per share from continuing operations:
Basic and diluted		$	(0.05	)										$	(0.07	)
Weighted average shares outstanding:
Basic and diluted			85,416,015												85,416,015