Filed Pursuant to Rule 424(b)(3)
                                                     Registration No. 333-121673


                              PROSPECTUS SUPPLEMENT

                                    Number 1

                                       to

                       Prospectus, dated January 12, 2005,

                                       of

                              NEOPROBE CORPORATION

                        32,350,000 Shares of Common Stock

This Prospectus Supplement relates to the sale of up to 32,350,000 shares of
Neoprobe Corporation common stock (the "Shares"). The Shares are being
registered to permit public secondary trading of the shares that are being
offered by the selling shareholders named in the prospectus. We are not selling
any of the Shares in this offering and therefore will not receive any proceeds
from this offering.

This Prospectus Supplement No. 1 includes the attached Annual Report on Form
10-KSB (the "Form 10-KSB") of Neoprobe Corporation (the "Company"), for the year
ended December 31, 2004, filed by the Company with the Securities and Exchange
Commission on March 31, 2005. The exhibits to the Form 10-KSB are not included
with this Prospectus Supplement No. 1 and are not incorporated by reference
herein.

Our common stock is traded on the Over-the-Counter Bulletin Board under the
symbol "NEOP."

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.


         The date of this Prospectus Supplement No. 1 is April 21, 2005.




                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                           --------------------------

                                   FORM 10-KSB
 (Mark One)

|X|   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934

      For the fiscal year ended: December 31, 2004

                                       OR
|_|   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934

      For the transition period from _________________ to _______________.

                         Commission file number: 0-26520

                              NEOPROBE CORPORATION
--------------------------------------------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

             Delaware                                    31-1080091
--------------------------------------------------------------------------------
(State or Other Jurisdiction of                       (I.R.S. Employer
 Incorporation or Organization)                      Identification  No.)

   425 Metro Place North, Suite 300, Dublin, Ohio        43017-1367
--------------------------------------------------------------------------------
     (Address of Principal Executive Offices)            (Zip Code)

Issuer's telephone number, including area code: (614) 793-7500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.001 per share
--------------------------------------------------------------------------------
                                (Title of Class)

        Rights to Purchase Series A Junior Participating Preferred Stock
--------------------------------------------------------------------------------
                                (Title of Class)

Check whether the Registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

                                 Yes |X| No |_|

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained herein and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |_|

The issuer's revenues for the fiscal year ended December 31, 2004 were
$5,952,640.

The aggregate market value of shares of common stock held by non-affiliates of
the registrant on March 15, 2005 was $25,571,506.

The number of shares of common stock outstanding on March 15, 2005 was
58,586,008.

Transitional Small Business Disclosure Format (check one):  Yes  |_|   No   |X|


                       DOCUMENTS INCORPORATED BY REFERENCE

None.


PART I

Item 1.  Description of Business

Development of the Business

Neoprobe Corporation (Neoprobe, the company or we) is a biomedical company that
develops and commercializes innovative biomedical products that enhance patient
care and improve patient outcome by meeting the critical intraoperative
diagnostic information needs of physicians and therapeutic treatment needs of
patients. We were originally incorporated in Ohio in 1983 and reincorporated in
Delaware in 1988. Our executive offices are located at 425 Metro Place North,
Suite 300, Dublin, Ohio 43017. Our telephone number is (614) 793-7500.

From our inception through 1998, we devoted substantially all of our efforts and
resources to the research and clinical development of radiopharmaceutical and
medical device technologies related to the intraoperative diagnosis and
treatment of cancers including our proprietary radioimmunoguided surgery
(RIGS(R)) technology. At that point, an evaluation of the status of the
regulatory pathway for our RIGS products coupled with our limited financial
resources caused us to suspend development activities related to our
radiopharmaceutical business and to retrench our organization to focus on our
medical device business. After achieving profitability in 2000 following this
retrenchment, we set out on a strategy to expand our medical device portfolio
outside the cancer field. In December 2001, we took a major step in executing
this strategy with the acquisition of Biosonix Ltd., a private Israeli company
limited by shares, which we subsequently renamed Cardiosonix Ltd. (Cardiosonix).

Cardiosonix is developing and commercializing the Quantix(R) line of blood flow
measurement devices for a variety of diagnostic and surgical applications in the
cardiac and vascular management arena. The decision to expand beyond our product
focus on oncology was based on our belief that the Cardiosonix products would
diversify the markets we address. We believe the Cardiosonix product line has
great market potential and a path of market adoption similar to our gamma
detection devices, but one that also has significant operational synergies in
the development, regulation and manufacture to that of our existing gamma
devices. Our foray into blood flow measurement devices has not been without its
disappointments. The version of the Quantix/ORTM product that was originally
launched failed to meet initial user expectations. During 2004, we focused
significant effort on redesigning certain aspects of the device, primarily the
probe and software, and during 2005 have re-launched an enhanced system that we
believe will address the blood flow measurement needs of the user.

In addition, although our strategic focus expanded to include cardiac and
vascular blood flow management, we continued to look for other avenues to
reinvigorate our radiopharmaceutical development. During 2004, our efforts
resulted in a number of positive events that caused us to take steps to
re-activate development of our radiopharmaceutical and therapeutic initiatives.
As a result, we now have two of our radiopharmaceutical products, LymphoseekTM
and RIGScan(R) CR, on the verge of entering Phase III clinical trials and have
recently formed a new subsidiary, CIRA Biosciences, Inc. (CIRA Bio), to evaluate
the current market opportunities for our activated cellular therapy (ACT)
technology. Our unique virtual business model combines revenue generation from
medical devices with the capital infusions we received in 2004 to allow us to
fund Lymphoseek development while we look for a development partner to assist us
in the final clinical and commercial development for RIGScan CR and to evaluate
the commercial opportunities for ACT.

Our Technology

Gamma Detection Devices

Through 2004, substantially all of our revenue has been generated from the sale
of a line of gamma radiation detection devices and related products used by
surgeons in the diagnosis and treatment of cancer and related diseases. Our
currently-marketed line of gamma detection devices has been cleared by the U.S.
Food and Drug Administration (FDA) and other international regulatory agencies
for marketing and commercial distribution throughout most major global markets.

                                       2


Our patented gamma detection device systems consist of hand-held detector probes
and a control unit. The critical detection component is a highly radiosensitive
crystal contained in the tip of the probe that relays a signal through a
preamplifier to the control unit to produce both a digital readout and an
audible signal. The detector element fits into a housing approximately the size
of a pocket flashlight. The neo2000(R) Gamma Detection System, originally
released in 1998, is the third generation of our gamma detection systems. The
neo2000 is designed as a platform for future growth of our instrument business.
The neo2000 is software upgradeable and is designed to support future surgical
targeting probes without the necessity of costly remanufacture. Since 1998, we
have developed and released three major software upgrades for customer units
designed to improve the utility of the system and/or offer the users additional
features.

Surgeons are using our gamma detection devices in a surgical application
referred to as sentinel lymph node biopsy (SLNB) or intraoperative lymphatic
mapping (lymphatic mapping or ILM). ILM helps trace the lymphatic patterns in a
cancer patient to evaluate potential tumor drainage and cancer spread in
lymphatic tissue. The technique does not detect cancer; rather it helps surgeons
identify the lymph node(s) to which a tumor is likely to drain and spread. The
lymph node(s), sometimes referred to as the "sentinel" node(s), may provide
critical information about the stage of a patient's disease. ILM begins when a
patient is injected at the site of the main tumor with a commercially available
radioactive tracing agent. The agent is intended to follow the same lymphatic
flow as the cancer would if it had metastasized. The surgeon may then track the
agent's path with a hand-held gamma-radiation-detection probe, thus following
the potential avenues of metastases and identifying lymph nodes to be biopsied
for evaluation and determination of cancer spread.

Numerous clinical studies, involving a total of nearly two thousand patients and
published in peer-reviewed medical journals such as Oncology (January 1999) and
The Journal of The American College of Surgeons (December 2000), have indicated
ILM is approximately 97% accurate in predicting the presence or absence of
disease spread in melanoma and breast cancers. Consequently, it is estimated
that more than 80% of breast cancer patients who would otherwise have undergone
full axillary lymph node dissections (ALND), involving the removal of as many as
20 - 30 lymph nodes, might be spared this radical surgical procedure if the
sentinel node was found to be free of cancer. Surgeons practicing ILM have found
that our gamma-detection probes are well suited to the procedure.

Hundreds of articles have been published in recent years in peer-reviewed
journals on the topics of sentinel lymph node biopsy and ILM. Furthermore, a
number of thought leaders and cancer treatment institutions have recognized and
embraced the technology as standard of care for melanoma and, in some cases, for
breast cancer. Our marketing partner continues to see strong sales, especially
for use in breast cancer treatment. Lymphatic mapping in breast cancer is the
subject of national and international clinical trials, including studies
sponsored by the U.S. Department of Defense, the National Cancer Institute (NCI)
and the American College of Surgeons. Although we have been selling gamma
detection devices for use in surgical oncology for over seven years, we believe
many surgeons in the U.S. and the rest of the world have delayed adoption of
lymphatic mapping pending the outcome of these important trials. We believe that
once data from these trials are published; there will be an additional demand
for our devices. We continue to monitor these trials and to work with our
marketing partners and thought leaders in the surgical community to set up and
support training courses internationally for lymphatic mapping. We also believe,
based on an estimate of the total number of operating rooms in medical centers
that are capable of performing the types of procedures in which our gamma
devices are used, that roughly half of the potential global market for devices
such as ours remains untapped. Courses showcasing our instruments continue to be
held at many nationally and internationally renowned cancer-specializing and
teaching institutions. These courses appear to be positively impacting the
adoption of lymphatic mapping, albeit not as rapidly as we would like to see.

                                       3


In addition to lymphatic mapping, surgeons are investigating the use of our
device for other gamma guided surgery applications, such as evaluating the
thyroid function, in determining the state of disease in patients with vulvar
and penile cancers, and in SLNB in prostate, gastric and non-small cell lung
cancers. Expanding the application of ILM beyond the current primary uses in the
treatment of breast cancer and melanoma is the primary focus of our strategy
regarding our gamma guided surgery products. To support that expansion, we
continue to work with our marketing and distribution partners to develop
additional software-based enhancements to the neo2000 platform as well as new
probes such as the laparoscopic probe introduced in 2002 that supports the
minimally invasive emphasis in today's practice of surgery. To that end, our
goals for our gamma device business for 2005 center around introducing
additional improvements to our neo2000 system and working with our marketing
partners to further penetrate the breast care market and identify ways to expand
the application of ILM to other indications beyond breast cancer and melanoma.
We also believe that our development of Lymphoseek could be an integral step in
helping expand the application of ILM.

Blood Flow Measurement Devices

Accurate blood flow measurement is essential for a variety of clinical needs,
including:

    o    real-time monitoring;
    o    intra-operative quantification;
    o    non-invasive diagnostics; and
    o    evaluation of cardiac function.

Currently, the medical community has no simple, immediate, real-time means to
quantify the adequacy of organ perfusion, that is, the direct measurement of
blood flow into the organ. Devices do exist that visually show perfusion of a
target organ. We are unaware, however, of any device that provides an accurate,
real-time measurement of blood flow in as many applications without having to
isolate target vessels or conduct other invasive procedures.

In addition, blood flow velocity measurements are often confused with volume
blood flow. These two variables, however, are normally different parameters that
respond differently to pathological conditions and provide different data. Blood
flow velocity is used primarily for determining the existence of a stenosis
(narrowing or obstruction) in the vascular surgery setting, while the
applications of blood flow volume have potential impact across a much broader
range of medical disciplines.

Cardiosonix is developing and commercializing the Quantix line of products that
employ a unique and proprietary technology that allows for measurement of blood
flow volume, velocity and several other hemodynamic parameters that permit the
real-time assessment of conduit hemodynamic status.

The Quantix technology utilizes a special application of the Doppler method
through simultaneous projection of a combination of narrow beams with a known
angle between them. Thus, based on trigonometric and Doppler considerations, the
angle of insonation can be obtained, resulting in accurate, angle-independent
blood flow velocity measurements that do not require the use of complicated,
expensive imaging systems. In order to obtain high-resolution velocity profiles,
the Quantix devices use a multi-gated pulse wave Doppler beam. With this method,
specific sample volumes along the ultrasound beam can be separately evaluated,
and the application of a flow/no flow criterion can be made. The Cardiosonix
technology applies a special use of digital Doppler technology, which with the
digital signal processing power of the system allows hundreds of sample volumes
to be sampled and processed simultaneously, thus providing high resolution
velocity profiles for both angle and vascular diameter calculations, and
subsequently volume blood flow measurements. At present, Cardiosonix has two
products in the early stages of commercialization designed to provide blood flow
measurement and cardiac output information to physicians in cardiac/vascular
surgery and neurosurgery. The technology also has the potential to be applied in
other healthcare settings where measurement of blood flow may be beneficial.

                                       4


Quantix/NDTM is designed to allow neurosurgeons and neurologists, as well as
intensive care unit or emergency room physicians, to non-invasively measure
carotid artery blood flow in a simple, real-time manner. Quantix/ND consists of
a control unit and an ultrasound probe that obtains signals directly from the
carotid artery in a non-invasive manner. Quantix/ND is designed primarily for
use in monitoring head trauma patients in neuro-intensive care units and
emergency rooms. Periodic blood flow measurements minimize the risk of brain
impairment. We are unaware of any measurement system on the market today that
provides real-time, bedside, non-invasive, continuous, direct and accurate
measurements of a complete suite of hemodynamic parameters including blood flow.
Other modalities that do monitor capabilities of the brain are significantly
more invasive, expose the patient to incremental risk or are inherently
complicated, offering only indirect estimation of perfusion conditions. Some
medical devices use an estimated measurement of blood flow velocity to create an
index of blood flow but do not account for instantaneous changes in the vascular
cross-sectional area. In most competing devices, the angle of insonation of the
device to the vessel is also critical to the measurement and often may affect
the user's ability to consistently and accurately measure the patient's blood
flow. The Quantix/ND device, as well as its predecessor device, the FlowGuardTM,
has received CE mark regulatory clearance for marketing in the European Union
(EU) as well as FDA 510(k) clearance for marketing in the United States.

Quantix/OR is designed to permit cardiovascular surgeons and assisting
physicians to obtain intraoperative volume blood flow readings in various
targeted blood vessels within seconds. The system consists of an insonation
angle-independent ultrasound probe and digital numerical displays of blood flow
rate. Thus, the surgeon obtains immediate, real-time and quantitative readings
while focused on the target vessel. Quantifying blood flow can be very
beneficial during anastomostic or other bypass graft procedures to determine
adequate blood flow. While measurement is advisable whenever a blood vessel is
exposed and manipulated intra-operatively, generally this is not the current
practice.

Ultimately, in practice, the surgeon generally resorts to using his eyes and
fingers in a process called finger palpation to qualitatively assess vessel
flow. The Quantix/OR offers the surgeon immediate and simple quantitative
assessment of blood flow in multiple blood vessels and grafts. The primary
advantage of finger palpation is that it is fast and simple; the disadvantages
are that it requires a good deal of experience, it is difficult to perform in
vessels embedded in tissue, it can become difficult to interpret in large
vessels, and it permits only a very qualitative and subjective assessment. A
significant partial occlusion (or even a total occlusion) will result in
significant vessel "distention" and strong palpations that may mislead the
surgeon. Rather than rely on such a subjective clinical practice, which is
highly experience-dependent, the Quantix/OR is designed to allow the surgeon to
rely on more quantifiable and objective information. We believe that Quantix/OR
represents a significant improvement over existing technologies to directly
measure blood flow intraoperatively. Other technologies that attempt to measure
intraoperative blood flow directly are generally more invasive and are
impractical when multiple vessel measurements are required. As a result, the
majority of surgeons generally resort to finger palpation to qualitatively,
rather than quantitatively, measure vessel perfusion.

The initial physician and distributor evaluation of the flagship product, the
Quantix/OR, during 2004 indicated a number of design deficiencies that needed to
be corrected before further commercial distribution of the product was
advisable. The development activities for the Quantix/OR over the last year have
therefore involved modification of the user interface software functions and a
redesign of the Quantix/OR probe ergonomics to enhance system performance,
improve ease of measurement and expand physician acceptance of the system. With
completion of the initial development activities for Quantix/OR, we submitted a
special 510(k) application to FDA for clearance to market the revised Quantix/OR
system in the United States and we received this marketing clearance in early
February 2005. In addition, revisions to the technical file in Europe have been
completed to permit us to begin delivery of the improved Quantix/OR system in
Europe as new flexible probes are received from our contract manufacturer.

Our strategy related to Cardiosonix products for 2005 continues to emphasize the
three primary objectives we have established for the Quantix product line:

     o  to promote and expand the clinical evaluation of the Quantix/ND and
        Quantix/OR with thought leaders in the neurosurgical, cardiovascular and
        vascular surgery arenas;

     o  to secure and train additional marketing and distribution partners for
        key global markets for the Quantix/ND and Quantix/OR devices; and

                                       5


     o  to achieve commercial sales of Cardiosonix' Quantix products beyond
        demonstration unit sales that would demonstrate the initial market
        acceptance of the products.

We cannot assure you, however, that any of Cardiosonix' products will achieve
market acceptance. See also Risk Factors.

Lymphoseek

Our gamma detection devices are primarily capital in nature; as such, they
generate revenue only on the initial sale. To complement the one-time revenue
stream related to capital products, we are working on developing recurring
revenue or "procedural" products that would generate revenue based on each
procedure in which they were used. The product we are working on with the most
near-term potential in this area involves an exclusive worldwide license
agreement with the University of California, San Diego (UCSD) for a proprietary
compound we refer to as Lymphoseek. If proven effective and cleared for
commercial sale, Lymphoseek would be the first radiopharmaceutical specifically
designed and labeled for the targeting of lymphatic tissue.

Neoprobe and UCSD completed the initial pre-clinical evaluations of Lymphoseek
in 2001. Since that time, UCSD has initiated four Phase I clinical trials
involving Lymphoseek. The status of these trials is listed below:

                                                       Number of
    Indication                                          Patients        Status
    ----------                                                          ------
    Breast (peritumoral injection)                         24         Completed
    Melanoma                                               24         Completed
    Breast (intradermal injection, next day
      surgery)                                             60          Ongoing
    Prostate                                               60          Ongoing

These Phase I studies have been supported, including being substantially funded
through research grants, by a number of organizations such as the Susan G. Komen
Breast Cancer Research Foundation, the American Cancer Society (ACS) and the
NCI. Research data from these clinical evaluations of Lymphoseek have been
presented at recent meetings of the Society of Nuclear Medicine, the Society of
Surgical Oncology and the World Sentinel Node Congress.

In November 2003 we met with the Interagency Council on Biomedical Imaging in
Oncology (Interagency Council), an organization representing FDA, the NCI and
the Centers for Medicare and Medicaid Services to discuss the regulatory
approval process and to determine the objectives for the next clinical trial
involving Lymphoseek. During 2004, we prepared and submitted a draft clinical
protocol to FDA for a pivotal trial to support the marketing clearance of
Lymphoseek. FDA has accepted our investigational new drug (IND) submission for
Lymphoseek. With the establishment of the corporate IND, responsibility for the
clinical and commercial development of Lymphoseek has been officially
transferred from UCSD to Neoprobe. Neoprobe has therefore assumed clinical
responsibility for the development of Lymphoseek from UCSD. FDA has provided
guidance that they would prefer to have Lymphoseek evaluated in a multi-center
clinical study to confirm the clinical findings observed by the UCSD researchers
to be followed by a confirmation Phase III study that would be initiated with
the final cGMP material. Neoprobe intends to commence enrollment in this
multi-institutional study as soon as the appropriate regulatory and
institutional review board clearances are received. The study will be conducted
at some of the nation's leading cancer treatment institutions. FDA guidelines
also require Neoprobe to complete some additional preclinical activities prior
to the initiation of the multi-center trials. Neoprobe has initiated this
preclinical work in parallel to its other development activities and intends to
submit an IND amendment prior to the initiation of the multi-center studies. We
cannot assure you, however, that this product will achieve regulatory approval,
or if approved, that it will achieve market acceptance. See also Risk Factors.


                                       6


RIGS

From inception until 1998, Neoprobe devoted significant efforts and resources to
the development of its proprietary RIGS technology. The RIGS system combines a
patented hand-held gamma radiation detection probe, proprietary radiolabeled
cancer-specific targeting agents, and patented surgical methods to provide
surgeons with real-time information to locate tumor deposits not detectable by
conventional methods, and to assist in more thorough removal of the cancer. The
RIGS system is designed to assist the surgeon in the more thorough removal of
the cancer, thereby leading to improved surgical treatment of the patient. The
targeting agents used in the RIGS process are monoclonal antibodies, labeled
with a radioactive isotope that emits low energy gamma rays. The device used is
a very sensitive radiation detection instrument that is capable of detecting
small amounts of radiation bound to the targeting agent. Before surgery, a
cancer patient is injected with one of the targeting agents which circulates
throughout the patient's body and binds specifically to cancer cell antigens or
receptors. Concentrations of the targeting agent are then located during surgery
by Neoprobe's gamma-detection device, which emits an audible tone to direct the
surgeon to targeted tissue.

RIGScan CR is an intraoperative agent consisting of a radiolabeled murine
monoclonal antibody (MAb CC49). The radiolabel used is 125I, a 27 - 35 KeV
emitting isotope. The MAb used in RIGScan CR is the CC49 MAb developed by the
NCI and licensed to Neoprobe by the National Institutes of Health (NIH). The
CC49 MAb is produced from a murine cell line generated by the fusion of splenic
lymphocytes from mice immunized with tumor-associated glycoprotein-72 (TAG-72)
with non-immunoglobulin secreting P3-NS-1-Ag4 myeloma cells. The CC49 MAb
localizes or binds to TAG-72 and shows a strong reactivity with both LS-174T
colon cancer extract and to a breast cancer extract.

RIGScan CR is the biologic component for the RIGS system to be used in patients
with colon or rectal cancer. The RIGS system was conceived to be a diagnostic
aid in the intraoperative detection of clinically occult disease. RIGScan CR is
intended to be used in conjunction with other diagnostic methods, for the
detection of the extent and location of tumor in patients with colorectal
cancer. The detection of clinically occult tumor provides the surgeon with a
more accurate assessment of the extent of disease, and therefore may impact the
surgical and therapeutic management of the patient. Clinical trials suggest that
RIGScan CR provides additional information outside that provided by standard
diagnostic modalities (including surgical exploration) that may aid in patient
management. Specifically, RIGScan CR used as a component of the RIGS system
confirms the location of surgically suspicious metastases, evaluates the margins
of surgical resection, and detects occult tumor in perihepatic (portal and
celiac axis) lymph nodes.

Neoprobe conducted two Phase III studies, NEO2-13 and NEO2-14, of RIGScan CR in
patients with primary and metastatic colorectal cancer, respectively. Both
studies were multi-institutional involving cancer treatment institutions in the
United States, Israel, and Europe. The primary endpoint of both studies was to
demonstrate that RIGScan CR detected pathology-confirmed disease that had been
undetected by traditional preoperative (i.e., CT Scans) or intraoperative (i.e.,
surgeon's visual observations and palpation) means. That is, the trials were
intended to show that the use of RIGScan CR assisted the surgeon in the
detection of occult tumor. In 1996, Neoprobe submitted applications to the
European Agency for the Evaluation of Medicinal Products (EMEA) and FDA for
marketing approval of RIGScan CR for the detection of metastatic colorectal
cancer.

Clinical study NEO2-14, which was submitted to FDA in the RIGScan CR Biologic
License Application (BLA), enrolled 151 colorectal cancer patients with either
suspected metastatic primary colorectal disease or recurrent colorectal disease.
During FDA's review of the BLA, 109 of the enrolled patients were determined to
be evaluable patients. Clinical study NEO2-13 was conducted in 287 enrolled
patients with primary colorectal disease. The primary end-point for clinical
study NEO2-13 was the identification of occult tumor.

NEO2-14 was the pivotal study submitted with Neoprobe's referenced BLA. Two
additional studies evaluating patients with either primary or metastatic
colorectal disease, NEO2-11 (a multi-center study) and NEO2-18 (a single
institution study), were included in the BLA and provided supportive proof of
concept (i.e., localization and occult tumor detection) and safety data. A study
summary report for NEO2-13 was submitted under the BLA; however, FDA undertook
no formal review of the study.

                                       7


Following review of our applications, we received requests for further
information from FDA and from the European Committee for Proprietary Medicinal
Products on behalf of the EMEA. Both FDA and EMEA acknowledged that our studies
met the diagnostic endpoint of the Phase III clinical study, which was to
provide incremental information to the surgeon regarding the location of hidden
tumor. However, both agencies wanted to know how the finding of additional tumor
provided clinical benefit that altered patient management or outcome for
patients with metastatic colorectal cancer. In a series of conversations with
FDA the product claims were narrowed to the intraoperative detection of hepatic
and perihepatic disease in patients with advanced colorectal cancer and patients
with recurrent colorectal cancer.

FDA determined during its review of the BLA that the clinical studies of RIGScan
CR needed to demonstrate clinical utility in addition to identifying additional
pathology confirmed disease. In discussions between Neoprobe and the agency, an
FDA driven post hoc analysis plan was developed to limit the evaluation of
RIGScan CR to patients with hepatic and perihepatic disease with known
metastasis to the liver. Findings of "occult" disease and subsequent changes in
patient management (i.e., abandoning otherwise risky hepatic resections) in this
limited population would serve as a measure of patient benefit. FDA's analysis
of the patients enrolled in NEO2-14 matching the limited criteria was evaluated
with a determination to confirm the surgical resection abandonment outcome. The
number of evaluable patients in this redefined patient population was deemed too
small by the agency and the lack of pre-stated protocol guidance precluded
consistent sets of management changes given similar occult findings. The number
of evaluable patients for any measure of clinical utility, therefore, was too
small to meet relevant licensing requirements and FDA ultimately issued a not
approvable letter for the BLA on December 22, 1997, describing certain clinical
and manufacturing deficiencies. Neoprobe also withdrew its application to the
EMEA in November 1997.

We developed a clinical response plan for both agencies during the first half of
1998. However, following our analysis of the regulatory pathways for approval
that existed at that time, we determined that we did not have sufficient
financial resources to conduct the additional studies requested and sought to
identify others with an interest in continuing the development process.

In recent years, we have obtained access to survival analyses of patients
treated with RIGScan CR which have been prepared by third parties, indicating
that RIGScan CR may be predictive of, or actually contribute to, a positive
outcome when measuring survival of the patients that participated in our
original BLA studies. The data or its possible significance was unknown at the
time of the BLA review given the limited maturity of the follow-up experience.
The data includes publication by some of the primary investigators involved in
the Phase III RIGS trials who have independently conducted survival follow-up
analyses to their own institution's RIGS trial patients with apparently
favorable results relating to the long-term survival prognosis of patients who
were treated with RIGS. In addition, we have recently learned that FDA has held
the BLA originally filed with FDA in 1996 open. Based primarily on these pieces
of information, we requested a meeting with FDA to discuss the possible next
steps for evaluating the survival related to our previous Phase III clinical
trials as well as the possible submission of this data, if acceptable, as a
prospective analysis in response to questions originally asked by FDA in
response to our original BLA. This meeting with FDA took place in April 2004.

The April 2004 meeting with FDA was an important event in the re-activation of
the RIGS program. The meeting was very helpful from a number of aspects: we
confirmed that the RIGS BLA remains active and open. We believe this will
improve both the cost effectiveness and timeliness of future regulatory
submissions for RIGScan CR. Additionally, FDA preliminarily confirmed that the
BLA may be applicable to the general colorectal population; and not just the
recurrent colorectal market as applied for in 1996. Applicability to a general
colorectal population could result in a greater market potential for the product
than if applicable to just the recurrent population. During the meeting, FDA
indicated that it would consider possible diagnostic and prognostic indications
for RIGScan CR and that survival data from one of our earlier Phase III studies
could be supportive of a prognostic indication. Our initial submission included
a proposed clinical trial design with objectives to demonstrate both diagnostic
and prognostic/therapeutic endpoints.

                                       8


In October 2004, Neoprobe received a response from FDA that the
prognostic/therapeutic trial design appeared to meet their guidelines, but they
requested additional information concerning the diagnostic clinical objective.
FDA's response to our clinical submission included an invitation for Neoprobe to
seek a special protocol assessment (SPA) of its proposed Phase III study.
Neoprobe intends to seek a SPA review of the complete Phase III package
including the clinical protocol, training materials and data collection forms
later this year. In concert with our meetings with FDA, we met with
representatives of the European regulatory body, the EMEA, to seek guidance for
the RIGScan CR program in Europe. The guidance from the EMEA was consistent with
the input from FDA with the additional recommendation that any future clinical
studies be conducted with the humanized version of the RIGScan CR antibody. It
is possible that the regulatory pathway may continue to evolve as we seek to
reach a consensus with the regulatory agencies on the reactivation of the BLA
for RIGScan CR.

In addition, the RIGScan CR biologic drug has not been produced for several
years and we believe it is likely we would have to perform some additional work
related to ensuring the drug cell line is still viable and submit this data to
FDA for their evaluation before approval could be considered. We have initiated
discussions with established biologic manufacturing organizations to determine
the costs and timelines associated with the production of commercial quantities
of the CC49 antibody. In addition, we will need to establish radiolabeling
capabilities for the CC49 antibody in order to meet the regulatory needs for the
RIGScan CR product.

In parallel with our discussions with the regulatory authorities, we have
discussed the clinical and regulatory strategy for RIGScan CR with reimbursement
consultants who provided us with valuable input regarding the potential target
pricing for a RIGScan product. Our consultants have advised us that if we
proceed with our original plans to seek an earlier conditional clearance for the
potential diagnostic indications for RIGScan CR, followed by clearance for the
prognostic/therapeutic indication we might significantly limit the ultimate
potential price for the prognostic/therapeutic product. However, since we have
announced that it is our intention to develop RIGScan CR in cooperation with a
development partner, we intend to make the decision on which indications to seek
clearance for jointly.

We are encouraged by the recent developments regarding RIGS. We believe we would
need to obtain additional funding and/or secure a development partner in order
to carry out all the activities necessary for commercialization. We do not have
any agreements in place or pending with third parties that would ensure the
continued development of the RIGS process and the completion of the survival
analysis proposed to FDA at the April 2004 meeting. In addition, even if we are
able to make such arrangements on satisfactory terms, we believe that the time
required for continued development, regulatory approval and commercialization of
a RIGS product would likely be a minimum of five years before we receive any
significant product-related royalties or revenues. However, we cannot assure you
that we will be able to complete definitive agreements with a development
partner for the RIGS technology and do not know if a partner will be obtained on
a timely basis on terms acceptable to us, or at all. We also cannot assure you
that FDA or the EMEA will clear our RIGS products for marketing or that any such
products will be successfully introduced or achieve market acceptance. See also
Risk Factors.

Activated Cellular Therapy

During the late 1990's, through various research collaborations, we performed
early stage research on another technology platform, ACT, based on work
originally done in conjunction with the RIGS technology. ACT is intended to
boost the patient's own immune system by removing lymph nodes identified during
surgery and then, in a cell processing technique, activating and expanding
"helper" T-cells found in the nodes. Within 10 to 14 days, the patient's own
immune cells, activated and numbering more than 20 billion, are infused into the
patient in an attempt to trigger a more effective immune response to the cancer.

                                       9


In the course of our research into ACT performed with RIGS, we learned that
these lymph node lymphocytes containing helper T-cells could be activated and
expanded to treat viral and autoimmune disease afflicted patients as well as
oncology patients. We have seen promising efficacy of this technology
demonstrated from six Phase I clinical trials covering the oncology, viral and
autoimmune applications.

In early 2005, we formed a new subsidiary, CIRA Bio, to explore the development
of ACT. Neoprobe owns approximately 90% of the outstanding shares of CIRA Bio
with the remaining shares being held by the principals of a private holding
company, CIRA LLC. In conjunction with the formation of CIRA Bio, an amended
technology license agreement also was executed with The Ohio State University
Research Foundation (OSURF) from whom both Neoprobe and CIRA LLC had originally
licensed or optioned the various cellular therapy technologies. As a result of
the cross-license agreements, CIRA Bio has the development and commercialization
rights to three issued U.S. patents that cover the oncology and autoimmune
applications of its technology. In addition, CIRA Bio has licenses to several
pending patent applications.

CIRA Bio has engaged the Battelle Memorial Institute to complete a technology
and manufacturing process assessment of the cellular therapy approach. In
addition, a scientific advisory group is being formed to develop a clinical and
regulatory approach for the CIRA Bio technology. Following the completion of
these assessments and the formation of a commercialization strategy, CIRA Bio
intends to raise the necessary capital to move this technology platform forward.
The means by which this funding is obtained will likely dilute Neoprobe's
ownership interest in CIRA Bio; however, we believe that moving forward such a
promising technology will only yield positive results for the Neoprobe
shareholders and the patients who could benefit from these treatments. However,
we do not know if we will be successful in obtaining additional funding, on
terms acceptable to us, or at all.

In addition, although the prospects for ACT may be improved depending on the
outcome of a decision to renew development efforts for RIGS, we currently do not
intend to fund any significant ACT-related research and development beyond the
evaluation work to be performed in 2005. We cannot assure you that any ACT
products will be successfully developed, tested or licensed, or that any such
products will gain market acceptance. See also Risk Factors.

Market Overviews

The medical device marketplace is a fast growing market. Medical Device &
Diagnostic Industry magazine reports an annual medical device and diagnostic
market of $75 billion in the U.S. and $169 billion internationally.

Cancer Market Overview

Cancer is the second leading cause of death in the U.S. and Western Europe and
is responsible for over half a million deaths annually in the U.S. alone. The
NIH estimates the overall annual costs for cancer (the primary focus of our
products) for the U.S. in the year 2004 at $189.8 billion: $69.4 billion for
direct medical costs, $16.9 billion for indirect morbidity, and $103.5 billion
for indirect mortality. Our line of gamma detection systems is currently used
primarily in the application of ILM in breast cancer and melanoma which,
according the ACS, are expected to account for 16% and 4%, respectively, of new
cancer cases in the U.S. in 2004.

The NIH has estimated that breast cancer will annually affect approximately
500,000 women in North America, Western Europe, and other major economic
markets. Breast cancer is the second leading cause of death from cancer among
all women in the U.S. According to the ACS, over 211,000 new cases of invasive
breast cancer are expected to be diagnosed and approximately 41,000 women are
expected to die from the disease during 2005 in the U.S. alone. The incidence of
breast cancer increases with age, rising from about 100 cases per 100,000 women
at age 40 to about 400 cases per 100,000 women at age 65. Thus, we believe that
the significant aging of the population, combined with improved education and
awareness of breast cancer and diagnostic methods, will lead to an increased
number of breast cancer surgical diagnostic procedures.

                                       10


Approximately 80% of the patients diagnosed with breast cancer undergo a lymph
node dissection (either ALND or SLNB) to determine if the disease has spread.
While many breast cancer patients are treated in large cancer centers or
university hospitals, regional and/or community hospitals currently treat the
majority of breast cancer patients. Over 10,000 hospitals are located in the
markets targeted for our gamma detection ILM products. While we are aware of no
published statistics on the number of institutions that are currently using
gamma detection devices in ILM, we believe that approximately fifty percent of
the total potential global market for gamma detecting devices remains to be
penetrated at this time. However, if the potential of Lymphoseek as a
radioactive tracing agent is ultimately realized, it has the potential to
address not only the current breast and melanoma markets on a procedural basis,
but also to assist in the clinical evaluation and staging of solid tumor cancers
and expanding ILM to additional indications, such as gastric, non-small cell
lung and other solid tumor cancers.

We estimate the total market potential for Lymphoseek, if ultimately approved
for all of these indications, could exceed $200 million. However, we cannot
assure you that Lymphoseek will be cleared to market, or if cleared to market,
that it will achieve the prices or sales we have estimated.

The ACS estimates that over 145,000 new incidences of colon and rectum cancers
will occur in the U.S. in 2005. Based on an assumed recurrence rate of 40%, this
would translate into total potential surgical procedures of over 200,000
annually in the U.S. alone. We believe the number of procedures in other markets
of the world to be approximately two times the estimated U.S. market. As a
result, we believe the total potential global market for RIGScan CR could,
depending on the reimbursement allowed for RIGScan CR, be in excess of $2
billion annually. However, we cannot assure you that RIGScan CR will be cleared
to market, or if cleared to market, that it will receive the reimbursement or
achieve the level of sales we have currently estimated.

Blood Flow Measurement Market Overview

Cardiovascular disease is the number one killer of men and women in the U.S. and
in a majority of countries in the rest of the world that track such statistics.
In the U.S. alone, the Centers for Disease Control (CDC) estimated that there
were over 80 million physician office visits and over 6.8 million outpatient
department visits in 2002 with a primary diagnosis of cardiovascular disease.
The CDC registered over 6.8 million inpatient cardiovascular procedures in the
U.S. during 2002 that directly involve cardiovascular circulation. We, as well
as our competitors and other industry analysts, generally estimate the rest of
the world's incidence of such modalities at roughly twice U.S. estimates.

The American Heart Association estimates the total cost of cardiovascular
diseases and stroke in the United States will exceed $393.5 billion in 2005. A
substantial portion of these expenditures is expected to be for non-invasive
image and intravascular examination. We are focused on two distinct markets
within the hospital setting for Cardiosonix' products:

    o    non-invasive diagnostics (Quantix/ND); and,
    o    intraoperative assessment (Quantix/OR).

It is estimated that there are approximately 1 million vascular and
cardiovascular procedures performed in the U.S. that could benefit from
qualitative blood flow measurement. Based on these estimates, information
obtained from industry sources and data published by our competitors and other
medical device companies, we estimate the worldwide total of target procedures
to be approximately two times the U.S. totals.

                                       11


Based on the above number of procedures, assuming we are able to achieve market
prices that are comparable to what our competitors are achieving (estimated at
averaging $20,000 per system or $130 per procedural use), we believe the
worldwide market potential for blood flow measurement products in the niches
which our products address to be more than $1.5 billion. We believe that gaining
even a modest share of this market would result in significant annual revenues
for our company. We cannot assure you, however, that Cardiosonix products will
achieve market acceptance and generate the level of sales or prices anticipated.

Marketing and Distribution

Gamma Detection Devices

We began marketing the current generation of our gamma detection systems, the
neo2000, in October 1998. Since October of 1999, our gamma detection systems
have been marketed and distributed throughout most of the world through Ethicon
Endo-Surgery, Inc. (EES), a Johnson and Johnson company. In Japan, however, we
market our products through a pre-existing relationship with Century Medical,
Inc. (CMI).

The heart of the neo2000 system is a control unit that is software-upgradeable,
permitting product enhancements without costly remanufacturing. Since the
original launch of the neo2000 system, we have introduced an enhanced version of
our 14mm reusable probe optimized for lymphatic mapping procedures and a
laparoscopic probe intended for certain minimally invasive procedures. We have
also developed three major software version upgrades for the system that have
been made available for sale to customers. We intend to continue developing
additional ILM-related probes and instrument products in cooperation with EES to
maintain our leadership position in the ILM field.

Physician training is critical to the use and adoption of ILM products by
surgeons and other medical professionals. Our company and our marketing partners
have established relationships with leaders in the ILM surgical community and
have established and supported training courses internationally for lymphatic
mapping. We intend to continue to work with our partners to expand the number of
ILM training courses available to surgeons.

We entered into our current distribution agreement with EES effective October 1,
1999 for an initial five-year term with options to extend for two successive
two-year terms. In March 2004 EES exercised their option for the first of the
two-year term extensions, thus extending the term of our current agreement
through December 31, 2006. Under this agreement, we manufacture and sell our ILM
products almost exclusively to EES, who distributes the products globally
(except for Japan). EES agreed to purchase minimum quantities of our products
over the first three years of the five-year original term of the agreement and
to reimburse us for certain research and development costs during the first
three years and a portion of our warranty costs. EES' minimum purchase and
reimbursement commitments were satisfied during 2002. EES has no ongoing
purchase or reimbursement commitments to us other than the rolling four-month
binding purchase commitment for gamma detection devices as outlined in the
distribution agreement. Our agreement with EES also contains certain termination
provisions and licenses to our intellectual property that take effect only in
the event we fail to supply product, or for other reasons such as a change of
control. See also Risk Factors.

Gamma Detection Radiopharmaceuticals

We have not established a marketing or distribution channel for either RIGScan
CR or Lymphoseek. We anticipate initiating such discussions as we move forward
with the clinical development. We have had initial discussions with parties who
may be interested in marketing and distribution of these products; however, such
discussions to date have been preliminary in nature and have not resulted in any
definitive arrangements at this time. We have engaged a third party business
development firm to assist us in identifying a potential development and
commercialization partner for our RIGS technology; however, at this time, we
have not extended the scope of this firm's engagement to include identifying a
partner for Lymphoseek as we intend to manage development and at least the
initial stages of commercialization internally. We cannot assure you that we
will be able to secure marketing and distribution partners for RIGS or
Lymphoseek, or if secured, that such arrangements will result in significant
sales of either product.

                                       12


Blood Flow Measurement Devices

Both of our blood flow measurement devices, the Quantix/ND and Quantix/OR have
received marketing clearance in the in the U.S. and the EU and certain other
global markets. Our goal is to ensure sales and distribution coverage through
third parties of substantially all of the U.S. and EU and selective markets in
the rest of the world. To that end, we have put in place a master distributor
arrangement covering the major markets in the EU and are working with a number
of independent sales organizations to ensure coverage of major markets within
the U.S. In addition, we have distribution arrangements in place covering major
portions of the Pacific Rim and Central and South America.

The initial negative response to the original Quantix/OR system strained many of
our distributor relationships; however, we are heartened by the distributor
response to the changes and improvements we have made to the Quantix/OR system.
Despite the difficulties we have encountered, our underlying belief in the
market need for a reliable system to measure blood flow has not been dampened.
We continue to believe strongly in the blood flow market and believe the
recently completed changes to our Quantix/OR system will lead to the successful
launch of a competitive product in early 2005.

We reintroduced the Quantix/OR to the European surgical community at the
Germanic Surgical Congress in Hamburg in February 2005 and we expect to
introduce the product to the North American surgical community at the American
Association of the Thoracic Surgeons (AATS) meeting in San Francisco in early
April.

In addition to the development activities on the Quantix/OR, the first
multi-center data from the correlation of CBF measurement with accepted clinical
events was presented at the International Conference on Xenon CT-CBF and Related
CBF Techniques in Bordeaux, France in June 2004. The presentation of the
clinical evaluations of the Quantix/ND has set the stage for the broader
adoption of the technology in the monitoring of patients with neuro-trauma and
other neurology situations

We anticipate spending a significant amount of time and effort through during
2005 to penetrate the end-user market. We will need to complete the training of
our distributors and independent sales agents and work through them with thought
leaders in the cardiac and neurosurgical fields to gain penetration at the
end-user level. We anticipate placing some additional blood flow systems with
industry thought leaders to obtain critical pre-commercialization feedback;
however, we plan to continue working with the thought leaders already identified
to promote publication in support of more widespread market launch. To date, we
have placed a small number of devices with thought leaders in the U.S. and EU to
support clinical investigations by their institutions. We are also investigating
different sales models that include both capital sales and per-use or lease-type
transactions. We expect the sales model will evolve over the initial months of
sales. The market education process we envision will likely take some time to
develop in the manner we desire. In addition, the sales cycle for capital
medical devices such as our blood flow products is typically a four to six month
cycle. As such, significant end customer sales, if they occur, will likely lag
the signing of distribution arrangements.

Manufacturing

Gamma Detection Devices

We rely on independent contract manufacturers, some of which are single-source
suppliers, for the manufacture of the principal components of our current line
of gamma detection system products. See also Risk Factors. We have devoted
significant resources to develop production capability for our gamma detection
systems at qualified contract manufacturers. Production of the neo2000 control
unit, the 14mm probe and the 11mm laparoscopic probe involve the manufacture of
components by a combination of subcontractors, including but not limited to eV
Products, a division of II-VI Corporation (eV), and TriVirix International, Inc.
(TriVirix). Currently, we have manufacturing and supply agreements with eV for
the production of crystal modules used in the detector probes and for the
manufacture of the 14mm probe, 11mm laparoscopic probe and the neo2000 control
unit at TriVirix. We also purchase certain accessories for our line of gamma
detection systems from other qualified manufacturers.

                                       13


In December 1997, we entered into a supply agreement with eV for the supply of
certain crystals and associated electronics to be used in the manufacture of our
proprietary line of hand-held gamma detection probes. The original term of the
agreement expired on December 31, 2002, but was automatically extended through
December 31, 2005; however, the agreement is no longer exclusive for the last
three years. eV supplies 100% of the crystals used in our products. While eV is
not the only potential supplier of such crystals, any prolonged interruption of
this source could restrict the availability of our probe products, which would
adversely affect our operating results.

In February 2004, we executed a Product Supply Agreement with TriVirix for the
manufacture of the neo2000, 14mm probe and 11mm laparoscopic probe. We have
completed the transfer of the manufacturing for the neo2000 and 14mm probes to
TriVirix. TriVirix began providing 14mm probes during February and the neo2000
control unit during March 2004 for shipment to EES.

We cannot assure you that we will be able to maintain agreements with our
subcontractors on terms acceptable to us, or that our subcontractors will be
able to meet our production requirements on a timely basis, at the required
levels of performance and quality. In the event that any of our subcontractors
is unable or unwilling to meet our production requirements, we cannot assure you
that an alternate source of supply could be established without significant
interruption in product supply or without significant adverse impact to product
availability or cost. Any significant supply interruption or yield problems that
we or our subcontractors experience would have a material adverse effect on our
ability to manufacture our products and, therefore, a material adverse effect on
our business, financial condition, and results of operations until a new source
of supply is qualified. See also Risk Factors.

Gamma Detection Radiopharmaceuticals

In preparation for the commencement of multi-center clinical evaluation of
Lymphoseek, Neoprobe evaluated potential drug manufacturing organizations and
initiated the transfer of manufacturing protocols developed at UCSD to the
selected contract manufacturing organization. Neoprobe has selected Reliable
Biopharmaceuticals (Reliable) to produce the chemical compound that is then
labeled at hospital or regional commercial radiopharmacies with Tc99m to become
Lymphoseek. Reliable has completed an initial production lot of the unlabeled
compound that compares favorably to the material produced by UCSD. Reliable has
also been recently favorably inspected by FDA and they will be responsible for
the manufacturing section development of our NDA for Lymphoseek. At this point,
our agreement with Reliable covers only product to be used in the Phase III
clinical trial for Lymphoseek. Further commercial supply and distribution
agreements have yet to be negotiated with Reliable. We cannot assure you that we
will be successful in reaching an agreement with Reliable on terms satisfactory
to us or at all.

In preparation for the initiation of the next phase of clinical evaluation of
RIGScan CR, we have initiated discussions with potential biologic manufacturers
and radiolabeling organizations. We have held discussions with parties who may
assist in the manufacturing validation and radiolabeling of the RIGScan product;
however, we have not yet finalized agreements with these entities. We anticipate
finalizing these discussions in the near future to accommodate the planned
commencement of RIGScan CR clinical trials. We cannot assure you that we will be
successful in securing and/or maintaining the necessary biologic, product and/or
radiolabeling capabilities. See also Risk Factors.

Blood Flow Measurement Devices

The Quantix blood flow measurement devices distributed to date have been
manufactured by our subsidiary, Cardiosonix Ltd., located in Ra'anana Israel. We
intend to transfer the manufacture of Cardiosonix' Quantix product line to
contract manufacturers in 2005; however, we are currently in the process of
finalizing negotiations on this matter with the Office of the Chief Scientist in
Israel. See also Risk Factors. In February 2004, we executed a Product Supply
Agreement for the assembly of the blood flow control units with TriVirix;
however, we are working with TriVirix to maintain some level of component
sourcing from Israel that will satisfy our royalty requirements to the Israeli
government. We expect assembly of the Quantix control units at TriVirix to start
during the first half of 2005. We currently purchase ultrasound transducer
modules and probe subassemblies from Vermon S.A. (Vermon) of France under
purchase orders. The ultrasound probe assemblies are then completed by Technical
Services for Electronics, Inc. (TSE), also under purchase orders. We are in the
process of evaluating subcontractors to manufacture the other accessories
associated with the Quantix product line.

                                       14


We cannot assure you that we will be able to finalize supply and service
agreements with Vermon, TSE or other subcontractors for the Quantix products,
that we will be able to maintain our agreement with TriVirix, or that our
subcontractors will be able to meet our production requirements on a timely
basis, at the required levels of performance and quality. In the event that any
of our subcontractors is unable or unwilling to meet our production
requirements, we cannot assure you that an alternate source of supply could be
established without significant interruption in product supply or without
significant adverse impact to product availability or cost. Any significant
supply interruption or yield problems that we or our subcontractors experience
would have a material adverse effect on our ability to manufacture our products
and, therefore, a material adverse effect on our business, financial condition,
and results of operations until a new source of supply is qualified. See also
Risk Factors.

In addition, we determined that development of the Quantix line had progressed
to the point where we did not need the number of development staff we had in
order to support the final development phases and to support our
commercialization efforts. As such, we reduced employment at our Cardiosonix
subsidiary during the fourth quarter of 2003. We have entered into new
employment arrangements with certain key personnel in Israel in order to
continue to provide limited developmental and commercial support for the Quantix
products.

Competition

We face competition from medical product and biotechnology companies, as well as
from universities and other non-profit research organizations in the field of
cancer diagnostics and treatment. Many emerging medical product companies have
corporate partnership arrangements with large, established companies to support
the research, development, and commercialization of products that may be
competitive with our products. In addition, a number of large established
companies are developing proprietary technologies or have enhanced their
capabilities by entering into arrangements with or acquiring companies with
technologies applicable to the detection or treatment of cancer and the
measurement of blood flow. Many of our existing or potential competitors have
substantially greater financial, research and development, regulatory,
marketing, and production resources than we have. Other companies may develop
and introduce products and processes competitive with or superior to those of
ours. See also Risk Factors.

For our products, an important factor in competition is the timing of market
introduction of our products or those of our competitors' products. Accordingly,
the relative speed with which we can develop products, complete the regulatory
clearance processes and supply commercial quantities of the products to the
market is an important competitive factor. We expect that competition among
products cleared for marketing will be based on, among other things, product
efficacy, safety, reliability, availability, price, and patent position.

Gamma Detection Devices

With the emergence of ILM, a number of companies have begun to market gamma
radiation detection instruments. Most of the competitive products have been
designed from an industrial or nuclear medicine perspective rather than being
developed initially for surgical use. We compete with products produced by Care
Wise Medical Products Corporation, Pol.Hi.Tech. Srl, Silicon Instruments GmbH
and other companies. GE Healthcare has recently entered the gamma detection
market through an arrangement with Intra-Medical Imaging LLC. The effects of
their entry into the market cannot be predicted at this time.

It is often difficult to glean accurate competitive information within the
lymphatic mapping field, primarily because most of our competitors are either
subsidiaries or divisions of a large corporation (i.e., Tyco Healthcare) or
privately held corporations, whose sales revenue or volume data is, therefore,
not readily available or determinable. In addition, lymphatic mapping does not
currently have a separate reimbursement code in most healthcare systems. As
such, determining trends in the actual number of procedures being performed is
difficult. We believe, based on our understanding of EES' success rate in
competitive bid situations, that our market share has remained relatively
constant or increased slightly in light of changes in the competitive landscape
over the past few years. As we have discussed, we believe that current sales
levels indicate that some prospective customers may be waiting on the results of
important international clinical trials prior to adoption the ILM procedure and
purchasing a gamma detection device. We expect the results from these trials,
when announced, will likely have a positive impact on sales volumes. We believe
our intellectual property portfolio will be a barrier to competitive products;
however, we cannot assure you that competitive products will not be developed,
be successful in eroding our market share or affect the prices we receive for
our gamma detection devices. See also Risk Factors.

                                       15


Gamma Detection Radiopharmaceuticals

We do not believe there are any directly competitive intraoperative diagnostic
radiopharmaceuticals with RIGScan CR that would be used intraoperatively in the
colorectal cancer application that RIGScan CR is initially targeted for. There
are other radiopharmaceuticals that are used as preoperative imaging agents;
however, we are unaware of any that could be used as a real-time diagnostic aid
during surgery such as RIGScan CR.

Surgeons who practice the lymphatic mapping procedure that Lymphoseek is
intended for currently use other radiopharmaceuticals such as sulphur-colloid
compound in the U.S. and other colloid compounds in other markets. However,
these drugs are being used "off-label" (i.e., they are not specifically
indicated for use as a lymphatic targeting agent). As such, we believe that
Lymphoseek, if ultimately approved, would be the first drug specifically labeled
for use as a lymphatic tissue targeting agent.

Blood Flow Measurement Devices

There are several technologies on the market that measure or claim to measure
indices of blood flow. These products can be categorized as devices that measure
blood flow directly and devices that only obtain an estimation of flow
conditions.

Direct Blood Flow Measurement Devices

o   Transit Time Ultrasound (TT) Flowmetry is the leading modality in the
    operating room today. TT systems monitor blood flow invasively, and are
    restricted to isolated vessels. They require probe adaptation to the
    vessel size, and do not provide additional vascular parameters. The
    technology requires the operator to encircle the blood vessel with a probe
    that includes two ultrasound transmitters/receivers on one side, and a
    mirror reflector on the opposite side of the vessel. By measuring the
    transit time of the ultrasound beam in the upstream and downstream
    directions, volume blood flow estimates can be evaluated.

o   Electromagnetic Flowmeters (EMF) are probably the oldest modality to
    quantify blood flow (other than timed collection). These devices monitor
    blood flow invasively, are impractical for multiple readings on different
    vessels, require precise sizing of probes to blood vessels, and do not
    provide additional hemodynamic parameters. The technology requires the
    operator to encircle the blood vessel with an electromagnetic probe. The
    probe generates an electromagnetic field, and the voltage measured due to
    the blood flow is translated into volume flow estimates. In practice,
    however, this technology is generally considered outdated.

o   Doppler technology has been around for several decades, and is being
    widely used in non-invasive vascular diagnostics. Duplex ultrasound
    systems have the potential to measure blood flow non-invasively. Duplex
    systems are designed for imaging the anatomical severity of pathology.
    This method is technician-dependent, cumbersome, inaccurate and does not
    offer monitoring capabilities. However, plain Doppler systems provide only
    blood flow velocity rather than volume flow.

                                       16


Indirect Blood Flow Measurement Devices

o   Cardiac Output (CO) Monitors include various means to monitor CO such as
    Thermal Dilution, Bio Impedance, and the Fick Method. These methods are
    either invasive or indirect in their measurement. Thermal Dilution,
    primarily through pulmonary artery catheterization, is the standard of care
    today for cardiac output measurements. This technology is not applicable to
    other intraoperative blood flow applications. The patient is injected with
    cold saline at a fixed temperature, and a temperature-sensitive transducer
    that is placed at the site of interest (usually the pulmonary artery)
    measures the time to return to baseline temperature, which is proportional
    to the blood flow rate. There are many limitations to this technology,
    including the relatively large inaccuracies of cardiac output measurements,
    the fact that it is not truly real-time, and the fact that this method is
    highly invasive, and is being linked to increased morbidity and mortality
    (JAMA, Connors et al., 1996).

o   Computed Tomography, Magnetic Resonance Imaging and Single Photon Emission
    Computed Tomography techniques show target organ perfusion, but lack the
    ability to monitor or to provide real-time information. They are
    technician-dependent, impractical for bedside usage and very expensive.

o   Laser Doppler Flowmeters monitor skin blood flow non-invasively. They are
    applicable only to superficial and tiny vessels and do not provide
    additional hemodynamic parameters.

o   Transcranial Doppler (TCD) monitors cerebral blood velocity rather than
    direct blood flow. TCD is non-invasive and provides continuous measurement
    of blood flow velocity in the vessels of the brain. TCD is
    technician-dependent and cannot be used on every patient.

o   Plethysmography indirectly measures an index of blood flow and is limited
    primarily to limb assessment. Measurement depends upon many factors and
    output is accordingly inaccurate.

o   Jugular Bulb Saturation measures the efficiency of oxygen use by the brain.
    It is invasive, and provides global results.

o   NIRS is a non-invasive method utilizing near infrared spectroscopy to
    provide regional perfusion in the brain.

Potentially Competitive Blood Flow Measurement Devices

Cardiosonix products are designed to address blood flow measurement across a
variety of clinical and surgical settings, and there are a number of companies
already in the marketplace that offer products related to blood flow
measurement. However, most of these products do not directly compete with
Cardiosonix products. The companies that do offer potentially competitive
products are, for the most part, smaller, privately held companies, with which
we believe we can effectively compete. Indeed, due to our belief in the
technical superiority of our products, we believe the existence of competitors
will help to educate the marketplace regarding the importance of blood flow
measurement. As we have discussed, adoption of blood flow monitoring devices for
the measurement of hemodynamic status will likely take an involved education
process as it often involves a change in clinical or surgical management. While
there is not a clear leader in these markets, the following companies compete
most directly with Cardiosonix:

o   Intraoperative applications: Transonic Systems, Inc., Medi-Stim AS (TT), and
    Carolina Medical, Inc. (EMF).

o   Neurosurgery applications: HADECO, Hayashi Denki Co., Ltd. (Doppler based),
    DWL Elektronische Systeme GmbH and Nicolet Biomedical (TCD).

                                       17


Patents and Proprietary Rights

We regard the establishment of a strong intellectual property position in our
technology as an integral part of the development process. We attempt to protect
our proprietary technologies through patents and intellectual property
positions, in the United States as well as major foreign markets. Specifically,
twenty instrument patents have been issued in the United Sates as well as major
foreign markets protect our ILM technology.

Cardiosonix has also applied for patent coverage for the key elements of its
Doppler blood flow technology in the EU and the U.S. The first of the two
patents covering Cardiosonix technology was issued in the U.S. in January 2003
and claims for the second patent have been allowed. Two patents have been filed
in the EU and the claims of one patent have been allowed and the claims of the
second patent are in the late stage of review by the relevant governing bodies.

Lymphoseek is also the subject of patent applications in the United States and
certain major foreign markets. The patent applications are held by UCSD and
licensed exclusively to Neoprobe for lymphatic tissue imaging and detection. The
first composition of matter patent covering Lymphoseek was issued in the U.S. in
June 2002. The claims of the composition of matter patent covering Lymphoseek
have been allowed in the EU and the composition of matter patent is being
prosecuted in Japan.

We continue to maintain proprietary protection for the products related to RIGS
and ACT in major global markets such as the U.S. and the EU, which although not
currently integral to our near-term business plans, may be important to a
potential RIGS or ACT development partner. The original methodology aspects of
our RIGS technology are claimed in the United States in U.S. Patent No.
4,782,840, which expires in August 2005. However, Neoprobe has recently gained
access to additional methodology applications related to our RIGS technology
that are covered by patents that provide additional patent coverage through
2018, unless extended. In addition to the RIGS methodology patents, composition
of matter patents have been issued in the U.S. and EU that cover the antibodies
used in clinical studies. The most recent of these patents issued in 2004.

The activated cellular therapy technology of CIRA Bio is the subject of issued
patents in the United States to which Neoprobe has license rights. European
patent statutes do not permit patent coverage for treatment technologies such as
CIRA Bio's. The oncology applications of CIRA Bio's treatment approach are
covered by patents with expiration dates of 2018 and 2020, unless extended. The
autoimmune applications are covered by an issued patent with an expiration date
of 2018, unless extended. The viral applications are the subject of patent
applications and other aspects of the CIRA Bio technology that are in the
process of being reviewed by the United States patent office.

The patent position of biotechnology and medical device firms, including our
company, generally is highly uncertain and may involve complex legal and factual
questions. Potential competitors may have filed applications for, or may have
been issued patents, or may obtain additional patents and proprietary rights
relating to products or processes in the same area of technology as that used by
our company. The scope and validity of these patents and applications, the
extent to which we may be required to obtain licenses thereunder or under other
proprietary rights, and the cost and availability of licenses are uncertain. We
cannot assure you that our patent applications will result in additional patents
being issued or that any of our patents will afford protection against
competitors with similar technology; nor can we assure you that any of our
patents will not be designed around by others or that others will not obtain
patents that we would need to license or design around. See also Risk Factors.

We also rely upon unpatented trade secrets. We cannot assure you that others
will not independently develop substantially equivalent proprietary information
and techniques, or otherwise gain access to our trade secrets, or disclose such
technology, or that we can meaningfully protect our rights to our unpatented
trade secrets.

We require our employees, consultants, advisers, and suppliers to execute a
confidentiality agreement upon the commencement of an employment, consulting or
manufacturing relationship with us. The agreement provides that all confidential
information developed by or made known to the individual during the course of
the relationship will be kept confidential and not disclosed to third parties
except in specified circumstances. In the case of employees, the agreements
provide that all inventions conceived by the individual will be the exclusive
property of our company. We cannot assure you, however, that these agreements
will provide meaningful protection for our trade secrets in the event of an
unauthorized use or disclosure of such information.

                                       18

Government Regulation

Most aspects of our business are subject to some degree of government regulation
in the countries in which we conduct our operations. As a developer,
manufacturer and marketer of medical products, we are subject to extensive
regulation by, among other governmental entities, FDA and the corresponding
state, local and foreign regulatory bodies in jurisdictions in which our
products are sold. These regulations govern the introduction of new products,
the observance of certain standards with respect to the manufacture, safety,
efficacy and labeling of such products, the maintenance of certain records, the
tracking of such products and other matters.

Failure to comply with applicable federal, state, local or foreign laws or
regulations could subject us to enforcement action, including product seizures,
recalls, withdrawal of marketing clearances, and civil and criminal penalties,
any one or more of which could have a material adverse effect on our business.
We believe that we are in substantial compliance with such governmental
regulations. However, federal, state, local and foreign laws and regulations
regarding the manufacture and sale of medical devices are subject to future
changes. We cannot assure you that such changes will not have a material adverse
effect on our company.

For some products, and in some countries, government regulation is significant
and, in general, there is a trend toward more stringent regulation. In recent
years, FDA and certain foreign regulatory bodies have pursued a more rigorous
enforcement program to ensure that regulated businesses, like ours, comply with
applicable laws and regulations. We devote significant time, effort and expense
addressing the extensive governmental regulatory requirements applicable to our
business. To date, we have not received any notifications or warning letters
from FDA or any other regulatory bodies of alleged deficiencies in our
compliance with the relevant requirements, nor have we recalled or issued safety
alerts on any of our products. However, we cannot assure you that a warning
letter, recall or safety alert, if it occurred, would not have a material
adverse effect on our company.

In the early to mid 1990s, the review time by FDA to clear medical products for
commercial release lengthened and the number of marketing clearances decreased.
In response to public and congressional concern, FDA Modernization Act of 1997
(the 1997 Act) was adopted with the intent of bringing better definition to the
clearance process for new medical products. While FDA review times have improved
since passage of the 1997 Act, we cannot assure you that FDA review process will
not continue to delay our company's introduction of new products in the U.S. in
the future. In addition, many foreign countries have adopted more stringent
regulatory requirements that also have added to the delays and uncertainties
associated with the release of new products, as well as the clinical and
regulatory costs of supporting such releases. It is possible that delays in
receipt of, or failure to receive, any necessary clearance for our new product
offerings could have a material adverse effect on our business, financial
condition or results of operations.

While we are unable to predict the extent to which our business may be affected
by future regulatory developments, we believe that our substantial experience
dealing with governmental regulatory requirements and restrictions on our
operations throughout the world, and our development of new and improved
products, should enable us to compete effectively within this environment.

Gamma Detection and Blood Flow Measurement Devices

As a manufacturer of medical devices sold in various global markets, we are
required to manufacture the devices under quality system regulations (QSR) and
maintain appropriate technical files and quality records. Our medical devices
are regulated in the United States by FDA. Our medical devices are regulated in
the EU according to the Medical Device Directive (93/42/EEC). Under this
regulation, we must obtain CE Mark status for all products exported to the EU.

Our initial generation gamma detection instruments received 510(k) marketing
clearance from FDA in December 1986 with modified versions receiving similar
clearances in 1992 through 1997. In 1998, FDA reclassified "nuclear uptake
detectors" as being exempt from the 510(k) process. We believe the neo2000
device is exempt from the 510(k) process because it is substantially equivalent
to previously cleared predecessor devices. We obtained the CE Mark for the
neo2000 device in January 1999, and therefore, must continue to manufacture the
devices under a quality system compliant to the requirements of ISO 9001/EN
46001 and maintain appropriate technical files. We maintain a license to import
our gamma devices into Canada, and therefore must continue to manufacture the
devices under a quality system compliant to the requirements of ISO 13485 and
CMDCAS.

                                       19


Cardiosonix has received 510(k) and CE mark clearance to market the Quantix/ND
device in the U.S. and EU for non-invasive applications. The Quantix/OR has also
received CE Mark clearance to market in the EU and 510(k) clearance in the U.S.
Our distribution partners in certain foreign markets other than the EU are
seeking marketing clearances, as required, for both the Quantix/ND and
Quantix/OR.

Gamma Detection Radiopharmaceuticals (Lymphoseek and RIGScan)

Our radiolabeled targeting agents and biologic products, if developed, would
require a regulatory license to market by FDA and by comparable agencies in
foreign countries. The process of obtaining regulatory licenses and approvals is
costly and time consuming, and we have encountered significant impediments and
delays related to our previously proposed biologic products.

The process of completing pre-clinical and clinical testing, manufacturing
validation and submission of a marketing application to the appropriate
regulatory bodies usually takes a number of years and requires the expenditure
of substantial resources, and we cannot assure you that any approval will be
granted on a timely basis, if at all. Additionally, the length of time it takes
for the various regulatory bodies to evaluate an application for marketing
approval varies considerably, as does the amount of preclinical and clinical
data required to demonstrate the safety and efficacy of a specific product. The
regulatory bodies may require additional clinical studies that may take several
years to perform. The length of the review period may vary widely depending upon
the nature and indications of the proposed product and whether the regulatory
body has any further questions or requests any additional data. Also, the
regulatory bodies will likely require post-marketing reporting and surveillance
programs to monitor the side effects of the products. We cannot assure you that
any of our potential drug or biologic products will be approved by the
regulatory bodies or approved on a timely or accelerated basis, or that any
approvals received will not subsequently be revoked or modified.

In addition to regulations enforced by FDA, the manufacture, distribution, and
use of radioactive targeting agents, if developed, are also subject to
regulation by the Nuclear Regulatory Commission (NRC), the Department of
Transportation and other federal, state, and local government authorities. We,
or our manufacturer of the radiolabeled antibodies, must obtain a specific
license from the NRC to manufacture and distribute radiolabeled antibodies, as
well as comply with all applicable regulations. We must also comply with
Department of Transportation regulations on the labeling and packaging
requirements for shipment of radiolabeled antibodies to licensed clinics, and
must comply with federal, state, and local governmental laws regarding the
disposal of radioactive waste. We cannot assure you that we will be able to
obtain all necessary licenses and permits and be able to comply with all
applicable laws. The failure to obtain such licenses and permits or to comply
with applicable laws would have a materially adverse effect on our business,
financial condition, and results of operations.

Employees

As of March 15, 2005, we had 21 full-time employees, including those of our
subsidiary, Cardiosonix. We consider our relations with our employees to be
good.

                                       20


Risk Factors

An investment in our common stock is highly speculative, involves a high degree
of risk, and should be made only by investors who can afford a complete loss.
You should carefully consider the following risk factors, together with the
other information in this prospectus, including our financial statements and the
related notes, before you decide to buy our common stock. Our most significant
risks and uncertainties are described below; however, they are not the only
risks we face. If any of the following risks actually occur, our business,
financial condition, or results of operations could be materially adversely
affected, the trading of our common stock could decline, and you may lose all or
part of your investment therein.

We have suffered significant operating losses for several years in our history
and we may not be able to again achieve profitability.

We had an accumulated deficit of approximately $126 million as of December 31,
2004. Although we were profitable in 2000 and in 2001, we incurred substantial
losses in the years prior to that, and in 2002 through 2004. The deficit
resulted because we expended more money in the course of researching, developing
and enhancing our technology and products and establishing our marketing and
administrative organizations than we generated in revenues. We expect to
continue to incur significant operating expenses in the foreseeable future,
primarily related to the completion of development and commercialization of the
Cardiosonix product line but also potentially related to RIGS and Lymphoseek. As
a result, we are sustaining substantial operating and net losses, and it is
possible that we will never be able to sustain or develop the revenue levels
necessary to again attain profitability.

Our products and product candidates may not achieve the broad market acceptance
they need in order to be a commercial success.

Widespread use of our gamma detection devices is currently limited to a surgical
procedure (ILM) used in the treatment and diagnosis of two primary types of
cancer: melanoma and breast cancer. The success of our gamma detection devices
greatly depends on the medical community's ongoing adoption of ILM, and on our
devices for use in ILM as a reliable, safe and cost effective alternative to
current treatments and procedures. The adoption rate for ILM appears to be
leveling off and may not meet our growth expectations. Although we continue to
believe that ILM has significant advantages over other currently competing
procedures, broad-based clinical adoption of ILM will likely not occur until
after the completion of ongoing international trials related to breast cancer.
Even if the results of these trials are positive, we cannot assure you that ILM
will attain rapid and widespread acceptance. Our efforts and those of our
marketing and distribution partners may not result in significant demand for our
products, and the current demand for our products may decline.

Our future success now also greatly depends on the success of the Cardiosonix
product line. Cardiosonix' products are just beginning to be marketed
commercially. The market for these products is in an early stage of development
and may never fully develop as we expect. The long-term commercial success of
the Cardiosonix product line will require widespread acceptance of our products
as safe, efficient and cost-effective. Widespread acceptance would represent a
significant change in medical practice patterns. Other cardiac monitoring
procedures, such as pulmonary artery catheterization, are generally accepted in
the medical community and have a long standard of use. It is possible that the
Cardiosonix product line will never achieve the broad market acceptance
necessary to become a commercial success.

Our radiopharmaceutical product candidates are still in the process of
development, and even if we are successful in commercializing them, we cannot
assure you that they will obtain significant market acceptance.

                                       21


Clinical trials for our radiopharmaceutical product candidates will be lengthy
and expensive and their outcome is uncertain.

Before obtaining regulatory approval for the commercial sale of any product
candidates, we must demonstrate through preclinical testing and clinical trials
that our product candidates are safe and effective for use in humans. Conducting
clinical trials is a time consuming, expensive and uncertain process and may
take years to complete. Our most advanced product candidates, Lymphoseek and
RIGScan CR are preparing to enter the Phase III stage of clinical trials.
Historically, the results from preclinical testing and early clinical trials
have often not been predictive of results obtained in later clinical trials.
Frequently, drugs that have shown promising results in preclinical or early
clinical trials subsequently fail to establish sufficient safety and efficacy
data necessary to obtain regulatory approval. At any time during the clinical
trials, we, our collaborative partners or FDA might delay or halt any clinical
trials for our product candidates for various reasons, including:

    o    ineffectiveness of the product candidate;
    o    discovery of unacceptable toxicities or side effects;
    o    development of disease resistance or other physiological factors;
    o    delays in patient enrollment; or
    o    other reasons that are internal to the businesses of our potential
         collaborative partners, which reasons they may not share with us.

The results of the clinical trials may fail to demonstrate the safety or
effectiveness of our product candidates to the extent necessary to obtain
regulatory approval or such that commercialization of our product candidates is
worthwhile. Any failure or substantial delay in successfully completing clinical
trials and obtaining regulatory approval for our product candidates could
severely harm our business.

If we fail to obtain collaborative partners, or those we obtain fail to perform
their obligations or discontinue clinical trials for particular product
candidates, our ability to develop and market potential products could be
severely limited.

Our strategy for the development and commercialization of our product candidates
depends, in large part, upon the formation of collaborative arrangements.
Collaborations may allow us to:

    o    generate cash flow and revenue;
    o    offset some of the costs associated with our internal research and
         development, preclinical testing, clinical trials and manufacturing;
    o    seek and obtain regulatory approvals faster than we could on our own;
         and,
    o    successfully commercialize existing and future product candidates.

We do not currently have collaborative agreements covering Lymphoseek or RIGScan
CR. We cannot assure you that we will be successful in securing collaborative
partners, or that we will be able to negotiate acceptable terms for such
arrangements. The development, regulatory approval and commercialization of our
product candidates will depend substantially on the efforts of collaborative
partners, and if we fail to secure or maintain successful collaborative
arrangements, or if our partners fail to perform their obligations, our
development, regulatory, manufacturing and marketing activities may be delayed,
scaled back or suspended.

We rely on third parties for the worldwide marketing and distribution of our
gamma detection and blood flow measurement devices, who may not be successful in
selling our products.

We currently distribute our gamma detection devices in most global markets
through two partners who are solely responsible for marketing and distributing
these products. The partners assume direct responsibility for business risks
related to credit, currency exchange, foreign tax laws or tariff and trade
regulation. Our blood flow products are marketed and sold in the U.S. and a
number of foreign markets through other distribution partners specific to those
markets. Further, our Quantix line of blood flow products has only recently been
introduced, and we have only limited experience in marketing or selling these
devices. While we believe that our distribution partners intend to continue to
aggressively market our products, we cannot assure you that the distribution
partners will succeed in marketing our products on a global basis. We may not be
able to maintain satisfactory arrangements with our marketing and distribution
partners, who may not devote adequate resources to selling our products. If this
happens, we may not be able to successfully market our products, which would
decrease our revenues.

                                       22


Our radiopharmaceutical product candidates are subject to extensive government
regulations and we may not be able to obtain necessary regulatory approvals.

We may not receive the regulatory approvals necessary to commercialize our
Lymphoseek and RIGScan product candidates, which could cause our business to be
severely harmed. Our product candidates are subject to extensive and rigorous
government regulation. FDA regulates, among other things, the development,
testing, manufacture, safety, record-keeping, labeling, storage, approval,
advertising, promotion, sale and distribution of pharmaceutical products. If our
potential products are marketed abroad, they will also be subject to extensive
regulation by foreign governments. None of our product candidates has been
approved for sale in the United States or any foreign market. The regulatory
review and approval process, which includes preclinical studies and clinical
trials of each product candidate, is lengthy, complex, expensive and uncertain.
Securing FDA approval requires the submission of extensive preclinical and
clinical data and supporting information to FDA for each indication to establish
the product candidate's safety and efficacy. Data obtained from preclinical and
clinical trials are susceptible to varying interpretation, which may delay,
limit or prevent regulatory approval. The approval process may take many years
to complete and may involve ongoing requirements for post-marketing studies. In
light of the limited regulatory history of monoclonal antibody-based
therapeutics, regulatory approvals for our products may not be obtained without
lengthy delays, if at all. Any FDA or other regulatory approvals of our product
candidates, once obtained, may be withdrawn. The effect of government regulation
may be to:

    o    delay marketing of potential products for a considerable period of
         time;
    o    limit the indicated uses for which potential products may be marketed;
    o    impose costly requirements on our activities; and
    o    provide competitive advantage to other pharmaceutical and biotechnology
         companies.

We may encounter delays or rejections in the regulatory approval process because
of additional government regulation from future legislation or administrative
action or changes in FDA policy during the period of product development,
clinical trials and FDA regulatory review. Failure to comply with applicable FDA
or other applicable regulatory requirements may result in criminal prosecution,
civil penalties, recall or seizure of products, total or partial suspension of
production or injunction, as well as other regulatory action against our product
candidates or us. Outside the United States, our ability to market a product is
contingent upon receiving clearances from the appropriate regulatory
authorities. This foreign regulatory approval process includes similar risks to
those associated with FDA approval process.

Our radiopharmaceutical product candidates will remain subject to ongoing
regulatory review even if they receive marketing approval. If we fail to comply
with continuing regulations, we could lose these approvals and the sale of our
products could be suspended.

Even if we receive regulatory approval to market a particular product candidate,
the approval could be conditioned on us conducting additional costly
post-approval studies or could limit the indicated uses included in our
labeling. Moreover, the product may later cause adverse effects that limit or
prevent its widespread use, force us to withdraw it from the market or impede or
delay our ability to obtain regulatory approvals in additional countries. In
addition, the manufacturer of the product and its facilities will continue to be
subject to FDA review and periodic inspections to ensure adherence to applicable
regulations. After receiving marketing approval, the manufacturing, labeling,
packaging, adverse event reporting, storage, advertising, promotion and record
keeping related to the product will remain subject to extensive regulatory
requirements. We may be slow to adapt, or we may never adapt, to changes in
existing regulatory requirements or adoption of new regulatory requirements.

                                       23


If we fail to comply with the regulatory requirements of FDA and other
applicable U.S. and foreign regulatory authorities or previously unknown
problems with our products, manufacturers or manufacturing processes are
discovered, we could be subject to administrative or judicially imposed
sanctions, including:

    o    restrictions on the products, manufacturers or manufacturing processes;
    o    warning letters;
    o    civil or criminal penalties;
    o    fines;
    o    injunctions;
    o    product seizures or detentions;
    o    import bans;
    o    voluntary or mandatory product recalls and publicity requirements;
    o    suspension or withdrawal of regulatory approvals;
    o    total or partial suspension of production; and
    o    refusal to approve pending applications for marketing approval of new
         drugs or supplements to approved applications.

Our existing products are highly regulated and we could face severe problems if
we do not comply with all regulatory requirements in the global markets in which
these products are sold.

FDA regulates our gamma detection and blood flow products in the United States.
Foreign countries also subject these products to varying government regulations.
In addition, these regulatory authorities may impose limitations on the use of
our products. FDA enforcement policy strictly prohibits the marketing of FDA
cleared medical devices for unapproved uses. Within the European Union, our
products are required to display the CE Mark in order to be sold. We have
obtained FDA clearance to market and European certification to display the CE
Mark on our current line of gamma detection systems and on two blood flow
products, the Quantix/ND and Quantix/OR. We may not be able to obtain clearance
to market for any new products in a timely manner, or at all. Failure to comply
with these and other current and emerging regulatory requirements in the global
markets in which our products are sold could result in, among other things,
warning letters, fines, injunctions, civil penalties, recall or seizure of
products, total or partial suspension of production, refusal of the government
to grant pre-market clearance for devices, withdrawal of clearances, and
criminal prosecution.

We rely on third parties to manufacture our products and our business will
suffer if they do not perform.

We rely on independent contract manufacturers for the manufacture of our current
line of gamma detection systems and for our Quantix line of blood flow
monitoring products. Our business will suffer if our contract manufacturers have
production delays or quality problems. Furthermore, medical device manufacturers
are subject to the QSR regulations of FDA, international quality standards, and
other regulatory requirements. If our contractors do not operate in accordance
with regulatory requirements and quality standards, our business will suffer. We
use or rely on components and services used in our devices that are provided by
sole source suppliers. The qualification of additional or replacement vendors is
time consuming and costly. If a sole source supplier has significant problems
supplying our products, our sales and revenues will be hurt until we find a new
source of supply. In addition, our distribution agreement with EES for gamma
devices contains failure to supply provisions, which, if triggered, could have a
significant negative impact on our business.

We may be unable to establish the pharmaceutical manufacturing capabilities
necessary to develop and commercialize our potential products.

We do not have our own manufacturing facility for the manufacture of the
radiopharmaceutical compounds necessary for clinical testing or commercial sale.
We intend to rely in part on third-party contract manufacturers to produce
sufficiently large quantities of drug materials that are and will be needed for
clinical trials and commercialization of our potential products. Third-party
manufacturers may not be able to meet our needs with respect to timing, quantity
or quality of materials. If we are unable to contract for a sufficient supply of
needed materials on acceptable terms, or if we should encounter delays or
difficulties in our relationships with manufacturers, our clinical trials may be
delayed, thereby delaying the submission of product candidates for regulatory
approval and the market introduction and subsequent commercialization of our
potential products. Any such delays may lower our revenues and potential
profitability.

                                       24


We may develop our manufacturing capacity in part by expanding our current
facilities or building new facilities. Either of these activities would require
substantial additional funds and we would need to hire and train significant
numbers of employees to staff these facilities. We may not be able to develop
manufacturing facilities that are sufficient to produce drug materials for
clinical trials or commercial use. We and any third-party manufacturers that we
may use must continually adhere to current Good Manufacturing Practices
regulations enforced by FDA through its facilities inspection program. If our
facilities or the facilities of third-party manufacturers cannot pass a
pre-approval plant inspection, FDA will not grant approval to our product
candidates. In complying with these regulations and foreign regulatory
requirements, we and any of our third-party manufacturers will be obligated to
expend time, money and effort on production, record-keeping and quality control
to assure that our potential products meet applicable specifications and other
requirements. If we or any third-party manufacturer with whom we may contract
fail to maintain regulatory compliance, we or the third party may be subject to
fines and/or manufacturing operations may be suspended.

Unfavorable pricing regulations, third-party reimbursement practices or
healthcare reform initiatives applicable to our products and product candidates
could limit our potential product revenue.

The regulations governing drug pricing and reimbursement vary widely from
country to country. Some countries require approval of the sale price of a drug
before it can be marketed and, in many of these countries, the pricing review
period begins only after approval is granted. In some countries, prescription
pharmaceutical pricing remains subject to continuing governmental control even
after initial approval is granted. Although we monitor these regulations, our
product candidates are currently in the development stage and we will not be
able to assess the impact of price regulations for at least several years. As a
result, we may obtain regulatory approval for a product in a particular country,
but then be subject to price regulations that may delay the commercial launch of
the product and may negatively impact the revenues we are able to derive from
sales in that country.

The healthcare industry is undergoing fundamental changes resulting from
political, economic and regulatory influences. In the United States,
comprehensive programs have been proposed that seek to increase access to
healthcare for the uninsured, control the escalation of healthcare expenditures
within the economy and use healthcare reimbursement policies to balance the
federal budget.

We expect that Congress and state legislatures will continue to review and
assess healthcare proposals, and public debate of these issues will likely
continue. We cannot predict which, if any, of such reform proposals will be
adopted and when they might be adopted. Other countries also are considering
healthcare reform. Significant changes in healthcare systems could have a
substantial impact on the manner in which we conduct our business and could
require us to revise our strategies.

We may have difficulty raising additional capital, which could deprive us of
necessary resources.

We expect to continue to devote significant capital resources to fund research
and development and to maintain existing and secure new manufacturing capacity.
In order to support the initiatives envisioned in our business plan, we may need
to raise additional funds through the sale of assets, public or private debt or
equity financing, collaborative relationships or other arrangements. Our ability
to raise additional financing depends on many factors beyond our control,
including the state of capital markets, the market price of our common stock and
the development or prospects for development of competitive technology by
others. Because our common stock is not listed on a major stock market, many
investors may not be willing or allowed to purchase it or may demand steep
discounts. Sufficient additional financing may not be available to us or may be
available only on terms that would result in further dilution to the current
owners of our common stock. At current market prices, the limited number of
shares we have available to sell severely limits our ability to use equity as a
method of raising capital. If we are unable to raise additional funds when we
need them, we may have to severely curtail our operations.

                                       25


The sale of the shares of common stock acquired in private placements could
cause the price of our common stock to decline.

During 2003 and 2004, we completed several financings in which we issued common
stock, convertible notes, warrants and other securities convertible into common
stock to certain private investors and as required under the terms of those
transactions, we filed registration statements with the United States Securities
and Exchange Commission (SEC) under which the investors may resell common stock
acquired in these transactions, as well as common stock acquired on the exercise
of the warrants and convertible securities held by them, to the public. We have
also filed a registration statement covering the resale of common stock issued
to former stockholders of Cardiosonix in connection with our acquisition of that
business.

The selling stockholders under these registration statements may sell none, some
or all of the shares of common stock acquired from us, as well as common stock
acquired on the exercise of the warrants and convertible securities held by
them. We have no way of knowing whether the selling stockholders will sell the
shares covered by these registration statements. Depending upon market liquidity
at the time, a sale of shares covered by these registration statements at any
given time could cause the trading price of our common stock to decline. The
sale of a substantial number of shares of our common stock under this
prospectus, or anticipation of such sales, could make it more difficult for us
to sell equity or equity-related securities in the future at a time and at a
price that we might otherwise wish to effect sales.

We may lose out to larger and better-established competitors.

The medical device and biotechnology industries are intensely competitive. Some
of our competitors have significantly greater financial, technical,
manufacturing, marketing and distribution resources as well as greater
experience in the medical device industry than we have. The particular medical
conditions our product lines address can also be addressed by other medical
devices, procedures or drugs. Many of these alternatives are widely accepted by
physicians and have a long history of use. Physicians may use our competitors'
products and/or our products may not be competitive with other technologies. If
these things happen, our sales and revenues will decline. In addition, our
current and potential competitors may establish cooperative relationships with
large medical equipment companies to gain access to greater research and
development or marketing resources. Competition may result in price reductions,
reduced gross margins and loss of market share.

Our products may be displaced by newer technology.

The medical device and biotechnology industries are undergoing rapid and
significant technological change. Third parties may succeed in developing or
marketing technologies and products that are more effective than those developed
or marketed by us, or that would make our technology and products obsolete or
non-competitive. Additionally, researchers could develop new surgical procedures
and medications that replace or reduce the importance of the procedures that use
our products. Accordingly, our success will depend, in part, on our ability to
respond quickly to medical and technological changes through the development and
introduction of new products. We may not have the resources to do this. If our
products become obsolete and our efforts to develop new products do not result
in any commercially successful products, our sales and revenues will decline.

Our intellectual property may not have or provide sufficient legal protections
against infringement or loss of trade secrets.

Our success depends, in part, on our ability to secure and maintain patent
protection, to preserve our trade secrets, and to operate without infringing on
the patents of third parties. While we seek to protect our proprietary positions
by filing United States and foreign patent applications for our important
inventions and improvements, domestic and foreign patent offices may not issue
these patents. Third parties may challenge, invalidate, or circumvent our
patents or patent applications in the future. Competitors, many of which have
significantly more resources than we have and have made substantial investments
in competing technologies, may apply for and obtain patents that will prevent,
limit, or interfere with our ability to make, use, or sell our products either
in the United States or abroad.

                                       26


In the United States, patent applications are secret until patents issue, and in
foreign countries, patent applications are secret for a time after filing.
Publications of discoveries tend to significantly lag the actual discoveries and
the filing of related patent applications. Third parties may have already filed
applications for patents for products or processes that will make our products
obsolete or will limit our patents or invalidate our patent applications.

We typically require our employees, consultants, advisers and suppliers to
execute confidentiality and assignment of invention agreements in connection
with their employment, consulting, advisory, or supply relationships with us.
They may breach these agreements and we may not obtain an adequate remedy for
breach. Further, third parties may gain access to our trade secrets or
independently develop or acquire the same or equivalent information.

Agencies of the United States government conducted some of the research
activities that led to the development of antibody technology that some of our
proposed antibody-based surgical cancer detection products use. When the United
States government participates in research activities, it retains rights that
include the right to use the technology for governmental purposes under a
royalty-free license, as well as rights to use and disclose technical data that
could preclude us from asserting trade secret rights in that data and software.

The government grants Cardiosonix has received for research and development
expenditures restrict our ability to manufacture blood flow monitoring products
and transfer technologies outside of Israel and require us to satisfy specified
conditions. If we fail to satisfy these conditions, we may be required to refund
grants previously received together with interest and penalties, and may be
subject to criminal charges.

Cardiosonix received grants from the government of Israel through the Office of
the Chief Scientist (OCS) of the Ministry of Industry and Trade for the
financing of a portion of its research and development expenditures associated
with our blood flow monitoring products. From 1998 to 2001, Cardiosonix received
grants totaling $775,000 from the OCS. The terms of the OCS grants may affect
our efforts to transfer manufacturing of products developed using these grants
outside of Israel without special approvals. The OCS issued a letter to Neoprobe
in December 2001, prior to the acquisition of Cardiosonix, consenting to the
transfer of manufacturing as long as Neoprobe consented to the terms of the OCS
statutes under Israeli law. As a result of our efforts to transfer a significant
portion of the manufacture of our blood flow products out of Israel, we will
likely be required to pay an increased amount of royalties, which may be up to
300% of the grant amount, depending on the manufacturing volume that is
performed outside of Israel. This may impair our ability to effectively
outsource manufacturing or engage in similar arrangements for those products or
technologies. In addition, if we fail to comply with any of the conditions
imposed by the OCS, we may be required to refund any grants previously received
together with interest and penalties, and may be subject to criminal charges. In
recent years, the government of Israel has accelerated the rate of repayment of
OCS grants related to other grantees and may further accelerate them in the
future.

We could be damaged by product liability claims.

Our products are used or intended to be used in various clinical or surgical
procedures. If one of our products malfunctions or a physician misuses it and
injury results to a patient or operator, the injured party could assert a
product liability claim against our company. We currently have product liability
insurance with a $10 million per occurrence limit, which we believe is adequate
for our current activities. However, we may not be able to continue to obtain
insurance at a reasonable cost. Furthermore, insurance may not be sufficient to
cover all of the liabilities resulting from a product liability claim, and we
might not have sufficient funds available to pay any claims over the limits of
our insurance. Because personal injury claims based on product liability in a
medical setting may be very large, an underinsured or an uninsured claim could
financially damage our company.

                                       27


We may have trouble attracting and retaining qualified personnel and our
business may suffer if we do not.

Our business has experienced developments the past two years that have resulted
in several significant changes in our strategy and business plan, including the
shifting of resources to support our current product initiatives and downsizings
to what we consider to be the minimal support structure necessary to operate a
publicly traded company. Our management will need to remain flexible to support
our business model over the next few years. However, losing members of the
Neoprobe management team could have an adverse effect on our operations. Our
success depends on our ability to attract and retain technical and management
personnel with expertise and experience in the medical device business. The
competition for qualified personnel in the medical device industry is intense
and we may not be successful in hiring or retaining the requisite personnel. If
we are unable to attract and retain qualified technical and management
personnel, we will suffer diminished chances of future success.

Our secured indebtedness imposes significant restrictions on us, and a default
could cause us to cease operations.

All of our material assets, except the intellectual property associated with our
Lymphoseek and RIGS products under development, have been pledged as collateral
for the $8.1 million in principal amount of our 8% Series A Convertible Notes
due December 12, 2008 (the Notes). In addition to the security interest in our
assets, the Notes carry substantial covenants that impose significant
requirements on us, including, among others, requirements that:

    o    we pay all principal, interest and other charges on the Notes when due;
    o    we use the proceeds from the sale of the Notes only for permitted
         purposes, such as Lymphoseek development and general corporate
         purposes;
    o    we nominate and recommend for election as a director a person
         designated by the holders of the Notes;
    o    we keep reserved out of our authorized shares of common stock
         sufficient shares to satisfy our obligation to issue shares on
         conversion of the Notes and the exercise of the warrants issued in
         connection with the sale of the Notes;
    o    we achieve annual revenues on a consolidated basis of at least $5.4
         million in 2005, $6.5 million in 2006, and $9.0 million in each year
         thereafter;
    o    we maintain minimum cash balances of $4.5 million at the end of the
         first six months of 2005, $4.0 million at the end of the second six
         months of 2005, and $3.5 million at the end of each six-month period
         thereafter; and
    o    we indemnify the purchasers of the Notes against certain liabilities.

Additionally, with certain exceptions, the Notes prohibit us from:

    o    amending our organizational or governing agreements and documents,
         entering into any merger or consolidation, dissolving the company or
         liquidating its assets, or acquiring all or any substantial part of the
         business or assets of any other person;
    o    engaging in transactions with any affiliate;
    o    entering into any agreement inconsistent with our obligations under the
         Notes and related agreements;
    o    incurring any indebtedness, capital leases, or contingent obligations
         outside the ordinary course of business;
    o    granting or permitting liens against or security interests in our
         assets;
    o    making any material dispositions of our assets outside the ordinary
         course of business;
    o    declaring or paying any dividends or making any other restricted
         payments; or
    o    making any loans to or investments in other persons outside of the
         ordinary course of business.

                                       28


Our ability to comply with these provisions may be affected by changes in our
business condition or results of our operations, or other events beyond our
control. The breach of any of these covenants would result in a default under
the Notes, permitting the holders of the Notes to accelerate their maturity and
to sell the assets securing them. Such actions by the holders of the Notes could
cause us to cease operations or seek bankruptcy protection.

Our common stock is traded over the counter, which may deprive stockholders of
the full value of their shares.

Our common stock is quoted via the National Association of Securities Dealers'
Over The Counter Bulletin Board (OTCBB). As such, our common stock may have
fewer market makers, lower trading volumes and larger spreads between bid and
asked prices than securities listed on an exchange such as the New York Stock
Exchange or the NASDAQ Stock Market. These factors may result in higher price
volatility and less market liquidity for the common stock.

A low market price may severely limit the potential market for our common stock.

Our common stock is currently trading at a price substantially below $5.00 per
share, subjecting trading in the stock to certain SEC rules requiring additional
disclosures by broker-dealers. These rules generally apply to any non-NASDAQ
equity security that has a market price share of less than $5.00 per share,
subject to certain exceptions (a "penny stock"). Such rules require the
delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and institutional or wealthy investors.
For these types of transactions, the broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to the sale. The broker-dealer also
must disclose the commissions payable to the broker-dealer, current bid and
offer quotations for the penny stock and, if the broker-dealer is the sole
market maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Such information must be provided to the
customer orally or in writing before or with the written confirmation of trade
sent to the customer. Monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. The additional burdens imposed upon
broker-dealers by such requirements could discourage broker-dealers from
effecting transactions in our common stock.

The price of our common stock has been highly volatile due to several factors
that will continue to affect the price of our stock.

Our common stock has traded as low as $0.25 per share and as high as $1.11 per
share in the last twelve months. Some of the factors leading to the volatility
include:

    o    price and volume fluctuations in the stock market at large which do not
         relate to our operating performance;
    o    fluctuations in our operating results;
    o    financing arrangements we may enter that require the issuance of a
         significant number of shares in relation to the number of shares
         currently outstanding;
    o    announcements of technological innovations or new products which we or
         our competitors make;
    o    FDA and/or international regulatory actions;
    o    developments with respect to patents or proprietary rights;
    o    public concern as to the safety of products that we or others develop;
         and
    o    fluctuations in market demand for and supply of our products.

                                       29


An investor's ability to trade our common stock may be limited by trading
volume.

Until recently, the trading volume for our common stock has been relatively
limited. A consistently active trading market for our common stock may not occur
on the OTCBB. The average daily trading volume for our common stock on the OTCBB
for the twelve-month period ended December 20, 2004 was approximately 508,000
shares.

Our stockholder rights plan, some provisions of our organizational and governing
documents and an agreement with selling stockholders, may have the effect of
deterring third parties from making takeover bids for control of our company or
may be used to hinder or delay a takeover bid.

Our certificate of incorporation authorizes the creation and issuance of "blank
check" preferred stock. Our Board of Directors may divide this stock into one or
more series and set their rights. The Board of Directors may, without prior
stockholder approval, issue any of the shares of "blank check" preferred stock
with dividend, liquidation, conversion, voting or other rights, which could
adversely affect the relative voting power or other rights of the common stock.
Preferred stock could be used as a method of discouraging, delaying, or
preventing a take-over of our company. If we issue "blank check" preferred
stock, it could have a dilutive effect upon our common stock. This would
decrease the chance that our stockholders would realize a premium over market
price for their shares of common stock as a result of a takeover bid. Unless
extended by the consent of a majority of our stockholders, the stockholder
rights plan will expire under its own terms on August 28, 2005.

Because we will not pay dividends, stockholders will only benefit from owning
common stock if it appreciates.

We have never paid dividends on our common stock and we do not intend to do so
in the foreseeable future. We intend to retain any future earnings to finance
our growth. Accordingly, any potential investor who anticipates the need for
current dividends from his investment should not purchase our common stock.

                                       30



              CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. We have based
these forward-looking statements largely on our current expectations and
projections about future events and financial trends affecting the financial
condition of our business. These forward-looking statements are subject to a
number of risks, uncertainties and assumptions, including, among other things:

    o    general economic and business conditions, both nationally and in our
         markets,
    o    our history of losses,
    o    our expectations and estimates concerning future financial performance,
         financing plans and the impact of competition,
    o    our ability to implement our growth strategy,
    o    anticipated trends in our business,
    o    advances in technologies, and
    o    other risk factors set forth under "Risk Factors" in this prospectus.

In addition, in this report, we use words such as "anticipate," "believe,"
"plan," "expect," "future," "intend," and similar expressions to identify
forward-looking statements.

We undertake no obligation to update publicly or revise any forward-looking
statements, whether as a result of new information, future events or otherwise
after the date of this report. In light of these risks and uncertainties, the
forward-looking events and circumstances discussed in this prospectus may not
occur and actual results could differ materially from those anticipated or
implied in the forward-looking statements.


Item 2.  Description of Property

We currently lease approximately 11,300 square feet of office space at 425 Metro
Place North, Dublin, Ohio, as our principal offices. The current lease term is
from February 1, 2005 and ending on February 1, 2008, at a monthly base rent of
approximately $8,300 during 2005. We must also pay a pro-rata portion of the
operating expenses and real estate taxes of the building. We believe these
facilities are in good condition, but that we may need to expand our space lease
somewhat related to our radiopharmaceutical activities depending on the level of
activities performed internally versus by third parties.

Our subsidiary, Cardiosonix Ltd., currently leases its office in the Kital
Building at 8 Hasadna Street, Ra'anana, Israel. The lease covers approximately
350 square meters of space and expires in June 2005. The lease provides for a
monthly base rent of $2,400 through the expiration of the lease.


Item 3.  Legal Proceedings

None.


Item 4.  Submission of Matters to a Vote of Security Holders

None.

                                       31


PART II

Item 5.  Market for Common Equity, Related Stockholder Matters and Small
Business Issuer Purchases of Equity Securities

Our common stock trades on the OTCBB under the trading symbol NEOP. The prices
set forth below reflect the quarterly high, low and closing sales prices for
shares of our common stock during the last two fiscal years as reported by
Reuters Limited. These quotations reflect inter-dealer prices, without retail
markup, markdown or commission, and may not represent actual transactions.

                                    High            Low           Close
         Fiscal Year 2004:
         First Quarter             $ 1.10         $ 0.28         $ 0.90
         Second Quarter              1.11           0.41           0.60
         Third Quarter               0.60           0.35           0.53
         Fourth Quarter              0.61           0.37           0.59

         Fiscal Year 2003:
         First Quarter             $ 0.17         $ 0.10         $ 0.11
         Second Quarter              0.26           0.10           0.17
         Third Quarter               0.50           0.14           0.29
         Fourth Quarter              0.43           0.24           0.31

As of March 15, 2005, we had approximately 826 holders of common stock of
record.

We have not paid any dividends on our common stock and do not anticipate paying
cash dividends in the foreseeable future. We intend to retain any earnings to
finance the growth of our business. We cannot assure you that we will ever pay
cash dividends. Whether we pay cash dividends in the future will be at the
discretion of our Board of Directors and will depend upon our financial
condition, results of operations, capital requirements and any other factors
that the Board of Directors decides are relevant. See Management's Discussion
and Analysis of Financial Condition and Results of Operations, below.

Recent Sales of Unregistered Securities

The following sets forth certain information regarding the sale of equity
securities of our company during the period covered by this report that were not
registered under the Securities Act of 1933 (the Securities Act).

In July 2004, our Board of Directors authorized the issuance of 91,086 shares of
common stock to the trustees of our 401(k) employee benefit plan (the Plan)
without registration. Such issuance is exempt from registration under the
Securities Act under Section 3(a)(2). The Plan is a pension, profit sharing or
stock bonus plan that is qualified under Section 401 of the Internal Revenue
Code. The assets of the Plan are held in a single trust fund for the benefit of
our employees, which does not hold assets for the benefit of the employees of
any other employer. All of the contributions to the Plan from our employees have
been invested in assets other than our common stock. We have contributed all of
the Neoprobe common stock held by the Plan as a matching contribution that has
been less in value at the time it was contributed to the Plan than the employee
contributions that it matches.

On November 19, 2001, we entered into a common stock purchase agreement with an
investment fund, Fusion Capital Fund II, LLC (Fusion) for the issuance and
purchase of our common stock. Under the stock purchase agreement, Fusion
committed to purchase up to $10 million of our common stock over a forty-month
period that commenced in May 2002. A registration statement registering for
resale up to 5 million shares of our common stock was declared effective on
April 15, 2002. Under the terms of the agreement, we can request daily
drawdowns, subject to a daily base amount currently set at $12,500. The number
of shares we are to issue to Fusion in return for that money is based on the
lower of (a) the closing sale price for our common stock on the day of the draw
request or (b) the average of the three lowest closing sales prices for our
common stock during a twelve-day period prior to the draw request. However, no
shares may be sold to Fusion at lower than a floor price currently set at $0.30,
which may be reduced by us, but in no case below $0.20 without Fusion's prior
consent. Upon execution of the common stock purchase agreement in 2001, we
issued 449,438 shares of our common stock to Fusion as a partial payment of the
commitment fee. During 2004 and 2003, we sold Fusion a total of 2,350,000 and
473,869 shares of common stock and realized net proceeds of $1,468,874 and
$143,693, respectively. We also issued Fusion 66,129 and 6,462 shares of common
stock, respectively, for commitment fees related to the sales of our common
stock to them during 2004 and 2003. The issuances of the shares of common stock
to Fusion pursuant to the common stock purchase agreement were exempt from
registration under Sections 4(2) and 4(6) of the Securities Act and Regulation
D.

                                       32


On December 31, 2001, we acquired 100 percent of the outstanding common shares
of Cardiosonix Ltd. (Cardiosonix), formerly Biosonix Ltd., an Israeli company
limited by shares, from the Cardiosonix selling stockholders pursuant to the
terms of a stock purchase agreement dated November 29, 2001 (the Stock Purchase
Agreement). Under the terms of the Stock Purchase Agreement, at closing we
issued to the selling stockholders 9,714,737 shares of shares of our common
stock, $.001 par value. On December 30, 2002, we issued an additional 2,085,826
shares of common stock to the selling stockholders due to the achievement of a
milestone involving Cardiosonix product development activity. The issuance of
the shares of common stock to the selling stockholders was exempt from
registration under Section 4(2) of the Securities Act and Regulation D. As
required under the terms of the Stock Purchase Agreement, in June 2003 we filed
a registration statement under which the Cardiosonix selling shareholders may
resell their common stock to the public.

During April 2003, we completed a bridge loan agreement with our President and
CEO, David Bupp. Under the terms of the agreement, Mr. Bupp advanced us
$250,000. In consideration for the loan, we issued a note to Mr. Bupp in the
principal amount of $250,000. The note was secured by general assets of the
company, excluding accounts receivable. In addition, we issued Mr. Bupp 375,000
warrants to purchase our common stock at an exercise price of $0.13 per share,
expiring in April 2008. The note bore interest at 8.5% per annum, payable
monthly, and the note was originally due on June 30, 2004. On March 8, 2004, at
the request of the Board of Directors, Mr. Bupp agreed to extend the due date of
the note from June 30, 2004 to June 30, 2005. In exchange for extending the due
date of the note, we issued Mr. Bupp an additional 375,000 warrants to purchase
our common stock at an exercise price of $0.50 per share, expiring in March
2009. On December 13, 2004, we paid the balance of the note to Mr. Bupp. Mr.
Bupp's 750,000 warrants related to this transaction remain outstanding. The
issuances of the note and warrants to Mr. Bupp were exempt from registration
under Sections 4(2) and 4(6) of the Securities Act and Regulation D.

During April 2003, we also completed a convertible bridge loan agreement with an
outside investor for an additional $250,000. In consideration for the loan, we
issued a note to the investor in the principal amount of $250,000. The note was
secured by general assets of the company, excluding accounts receivable. In
addition, we issued the investor 500,000 warrants to purchase our common stock
at an exercise price of $0.13 per share, expiring in April 2008. Under the terms
of the agreement, the note bore interest at 9.5% per annum, payable monthly, and
was due on June 30, 2004. During January 2004, the investor converted the entire
balance of the note into 1.1 million shares of common stock according to the
conversion terms of the agreement. The investor's 500,000 warrants remain
outstanding. The issuances of the note and warrants to the investor were exempt
from registration under Sections 4(2) and 4(6) of the Securities Act and
Regulation D. As further consideration for the loans, we agreed to file a
registration statement under which Mr. Bupp and the investor could resell to the
public shares of common stock issuable on exercise of the warrants and
conversion of the outside investor's note. The shares were included in a
registration statement filed in December 2003.

During 2003, we engaged the services of two investment banking firms to assist
us in raising capital, Alberdale Capital, LLC (Alberdale) and Trautman Wasserman
& Company, Inc. (Trautman Wasserman). In exchange for Alberdale's services, we
paid them a monthly retainer of $10,000, half in cash and half in common stock,
and we agreed to pay them additional compensation upon the successful completion
of a private placement of our securities. We terminated the agreement with
Alberdale in September 2003, but issued them a total of 150,943 shares of common
stock in payment for one half of their retainer. In addition, warrants to
purchase 78,261 shares of our common stock were issued in exchange for their
assistance in arranging an accounts receivable financing transaction. The
warrants had an exercise price of $0.28 per share, and were exercised on a
cashless basis in exchange for 53,500 shares of our common stock in 2004. In
exchange for the services of Trautman Wasserman, we agreed to pay a retainer of
$10,000, payable in cash and common stock, and to pay further compensation upon
successful completion of a private placement. We issued Trautman Wasserman a
total of 27,199 shares of common stock in payment for one half of their
retainer. The services of Trautman Wasserman were terminated in September 2003.
The issuances of the shares and warrants to Alberdale and Trautman Wasserman
were exempt from registration under Sections 4(2) and 4(6) of the Securities Act
and Regulation D.

                                       33


In November 2003, we executed common stock purchase agreements with third
parties introduced to us by a third investment banking firm, Rockwood, Inc., for
the purchase of 12,173,914 shares of our common stock at a price of $0.23 per
share for net proceeds of $2.4 million. In addition, we issued the purchasers
warrants to purchase 6,086,959 shares of common stock at an exercise price of
$0.28 per share, expiring in October 2008, and issued the placement agents
warrants to purchase 1,354,348 shares of our common stock on similar terms.
During 2004, the warrant holders exercised a total of 3,230,066 warrants in
exchange for 3,197,854 shares of our common stock. Of the warrants exercised in
2004, 3,134,783 were exercised in exchange for 3,134,783 shares of our common
stock resulting in net proceeds of $871,398. The remaining 95,283 warrants
exercised in 2004 were exercised on a cashless basis in exchange for 63,071
shares of our common stock. During the first quarter of 2005 to date, certain
investors and placement agents exercised a total of 206,865 warrants and we
realized proceeds of $57,922. The issuances of the shares and warrants to the
purchasers and the placement agents were exempt from registration under Sections
4(2) and 4(6) of the Securities Act and Regulation D. As required under the
terms of the stock purchase agreements, in December 2003 we filed a registration
statement under which the investors and placement agents may resell the shares
of common stock to the public.

In December, 2004, we completed a private placement of Convertible Promissory
Notes in an aggregate principal amount of $8.1 million with Biomedical Value
Fund, L.P., Biomedical Offshore Value Fund, Ltd. and David C. Bupp (our
President and CEO). Biomedical Value Fund, L.P. and Biomedical Offshore Value
Fund, Ltd. are funds managed by Great Point Partners, LLC. The notes bear
interest at 8% per annum and are freely convertible into shares of our common
stock at a price of $0.40 per share. Neoprobe may force conversion of the notes
prior to their stated maturity under certain circumstances. The conversion price
represents the ten-day volume weighted average trading price of our common stock
through December 10, 2004. As part of this transaction, we issued the investors
10,125,000 warrants to purchase our common stock at an exercise price of $0.46,
expiring in December 2009. In connection with this financing, we also issued
1,600,000 warrants to purchase our common stock to placement agents, containing
substantially identical terms to the warrants issued to the investors. The
issuances of the shares and warrants to the purchasers and the placement agents
were exempt from registration under Sections 4(2) and 4(6) of the Securities Act
and Regulation D. As required under the terms of the stock purchase agreements,
in December 2004 we filed a registration statement under which the investors and
placement agents may resell the shares of common stock to the public.

                                       34


Item 6.  Management's Discussion and Analysis of Financial Condition and Results
of Operations

The following discussion should be read together with our Consolidated Financial
Statements and the Notes related to those statements, as well as the other
financial information included in this Form 10-KSB. Some of our discussion is
forward-looking and involves risks and uncertainties. For information regarding
risk factors that could have a material adverse effect on our business, refer to
Item 1 of this Form 10-KSB, Description of Business - Risk Factors.

The Company

Neoprobe Corporation is a biomedical technology company that provides innovative
surgical and diagnostic products that enhance patient care by meeting the
critical decision-making needs of physicians. We currently have two lines of
medical devices that we are actively marketing, our neo2000(R) gamma detection
systems and the Quantix line of blood flow measurement devices of our
subsidiary, Cardiosonix. In addition to our medical device products, we have two
radiopharmaceutical products, RIGScan(R) CR and LymphoseekTM, in the advanced
phases of clinical development.

Overview and Outlook

This Overview and Outlook section contains a number of forward-looking
statements, all of which are based on current expectations. Actual results may
differ materially. Our financial performance is highly dependent on our ability
to continue to generate income and cash flow from our gamma device product line
and on our ability to successfully commercialize the blood flow products of our
subsidiary, Cardiosonix. We cannot assure you, however, that we will achieve the
volume of sales anticipated, or if achieved, that the margin on such sales will
be adequate to produce positive operating cash flow. We continue to be
optimistic about the longer-term potential for our other proprietary,
procedural-based technologies such as Lymphoseek and RIGS(R) (radioimmunoguided
surgery); however, these technologies are not anticipated to generate any
significant revenue for us during 2005. In addition, we cannot assure you that
these products will ever obtain marketing clearance from the appropriate
regulatory bodies.

We believe that the commercial prospects for Neoprobe have improved
significantly over the prior year due to progress we have made in a number of
areas. We expect revenue from our gamma device line for 2005 to be consistent
with 2004, and we expect revenue from our Quantix(R) blood flow measurement
products to increase substantially over the prior years due to the product
refinements recently introduced related to our Quantix/ORTM system, although the
ultimate amount of revenue achieved will be greatly dependent upon physician
response to these refinements.

We expect 2005 to be a year of promising developments for Neoprobe; however, we
expect that we will need to make investments in certain aspects of our
technologies in order to position us for the success we believe is possible. To
that end, we anticipate spending approximately $5 million on the development of
Lymphoseek over the next eighteen months in order to prepare for the submission
of a new drug application to the U.S. Food and Drug Administration (FDA) in
mid-2006. We also anticipate the marketing and commercialization support
development expenses necessary to support our Quantix blood flow measurement
commercialization efforts in 2005, excluding general and administrative costs,
will exceed $1.5 million. We anticipate some development expenses in 2005
related to the innovations we plan for our gamma device products as well,
although we do not currently expect our investment in our gamma device line to
differ significantly from 2004. We also expect to incur some development
expenses in 2005 related to our RIGS radiopharmaceutical product development
although we intend to defer any major expenses until we identify a partner to
assist us in the development and commercialization of RIGScan CR. As a result,
although we expect to see positive movement in all our lines of business in
2005, we will likely yet show a loss for the year due to our market and product
development efforts.

                                       35


As of December 31, 2004, our cash on hand was $9.8 million. During 2004, we used
$825,000 in cash to fund our operations. We believe our currently available
capital resources will be adequate to sustain our device operations at current
levels through 2006. If we decide to seek additional funding to support the
development of radiopharmaceutical products and additional financing is not
available when required or is not available on acceptable terms, or we are
unable to arrange a suitable strategic opportunity, we may need to modify our
business plan. We cannot assure you that the additional capital we require will
be available on acceptable terms, if at all. We cannot assure you that we will
be able to successfully commercialize products or that we will achieve
significant product revenues from our current or potential new products. In
addition, we cannot assure you that we will achieve or sustain profitability in
the future.

Our Outlook for our Gamma Detection Device Products

Hundreds of articles have been published in recent years in peer-reviewed
journals on the topics of sentinel lymph node biopsy and intraoperative
lymphatic mapping (ILM). Furthermore, a number of thought leaders and cancer
treatment institutions have recognized and embraced the technology as standard
of care for melanoma and, in some cases, for breast cancer. However, as the
melanoma market represents less than 10% of the breast care market, standard of
care recognition related to breast care is much more important to us. Standard
of care designation for breast cancer is most likely dependent on completion of
several large multi-center clinical trials in the U.S. and abroad. Final data
from these studies likely will not be presented for two to three years, at the
earliest. However, we believe that the surgical community will continue to adopt
the ILM application while the standard of care determination is still pending.
We also believe that Lymphoseek, the lymphatic targeting agent being developed
for us by the University of California, San Diego (UCSD), if it should become
commercially available, could improve the adoption of ILM in future years.

We continue to be encouraged by the attention focused on ILM by the medical
community at surgical conferences, especially related to investigations into
other applications beyond melanoma and breast cancer. We believe our development
efforts related to Lymphoseek may be instrumental in expanding ILM into other
indications. We also believe the results from ongoing multinational clinical
trials regarding the use of ILM in breast cancer, when announced, will have a
positive impact on helping us to penetrate the remaining market for breast
cancer and melanoma. We believe the market focus in all major global markets for
hand-held gamma detection devices will continue to be among local/community
hospitals, which typically lag behind leading research centers and major
hospitals in adapting to new technologies. A decline in the adoption rate of ILM
or the development of alternative technologies by competitors may negatively
impact our sales volumes, and therefore, revenues and net income in 2005.

During 2004, our primary gamma device marketing partner, Ethicon Endo-Surgery,
Inc. (EES), a Johnson and Johnson company, exercised the first of its two
options to extend the termination date of our distribution agreement with them
through the end of 2006. As of December 31, 2004, we had approximately $1.5
million in committed orders from EES that extend through late April 2005. We
believe that total 2005 purchases of base neo2000 systems by EES should be
consistent with their 2004 purchase levels. We cannot assure you, however, that
EES' product purchases beyond those firmly committed through mid-2005 will
indeed occur or that the prices we realize will not be affected by increased
competition.

Under the terms of our distribution agreement with EES, the transfer prices we
receive on product sales to EES are based on a percentage of their end-customer
sales price, subject to a floor transfer price. To date, our products have
commanded a price premium in most of the markets in which they are sold, which
we believe is due to their superior performance and ease of use. While we
continue to believe in the technical and user-friendly superiority of our
products, the competitive landscape continues to evolve and we may lose market
share as a result. A loss of market share would likely have a direct negative
impact on net income. Although the end-customer average sales price (ASP) may
decline due to external market pressures and competition, we do not expect the
percentage of ASP shared to change again under the terms of the current
distribution agreement. Prices for our gamma detection devices, helped by
international exchange rates, remained relatively steady during 2004 as compared
to 2003. The price that we received during 2004 was 20% above the floor pricing
for base systems. As a result, there is some level of downside pricing risk
associated with future sales of our gamma detection devices to EES that we will
need to continue to monitor. We believe the anticipated steady volumes coupled
with the reductions in our manufacturing cost that we attained in 2004 will
result in continued profitability for our gamma device business line for 2005.

                                       36


Our Outlook for our Gamma Detection Radiopharmaceuticals

Our outlook for the two potential products in our radiopharmaceutical portfolio
has evolved significantly over the last several months. During 2004, researchers
from UCSD continued to work with us in the development of Lymphoseek. Lymphoseek
would be the first radiopharmaceutical specifically designed to target lymphatic
tissue. Favorable research data from the clinical evaluation of Lymphoseek in
breast cancer patients was published in The Annals of Surgical Oncology in June
2003. Evaluation of Lymphoseek in other cancers including gastric and prostate
are currently underway. The success of the clinical evaluations of Lymphoseek
encouraged Neoprobe to seek regulatory guidance on whether the product was ready
to begin pivotal clinical evaluation.

During 2004, we prepared and submitted an investigational new drug (IND)
application and a draft clinical protocol to FDA for a pivotal trial to support
the marketing clearance of Lymphoseek. FDA has accepted our IND submission for
Lymphoseek. With the establishment of the corporate IND, responsibility for the
clinical and commercial development of Lymphoseek has been officially
transferred from UCSD to Neoprobe. Neoprobe has therefore assumed clinical
responsibility for the development of Lymphoseek from UCSD. FDA has provided
guidance that they would prefer to have Lymphoseek evaluated in a multi-center
clinical study to confirm the clinical findings observed by the UCSD researchers
to be followed by a confirmation Phase III study that would be initiated with
the final cGMP material. Neoprobe intends to commence enrollment in this
multi-institutional study as soon as the appropriate regulatory and
institutional review board clearances are received. We believe enrollment in the
multi-center study may begin by the end of the second quarter of 2005. The study
will be conducted at some of the nation's leading cancer treatment institutions.
FDA guidelines also require Neoprobe to complete some additional preclinical
activities prior to the initiation of the multi-center trials. Neoprobe has
initiated this preclinical work in parallel to its other development activities
and recently submitted an IND amendment containing a complete draft of the
proposed multi-center evaluation for Lymphaseek. We cannot assure you, however,
that this product will achieve regulatory approval, or if approved, that it will
achieve market acceptance.

Our RIGS technology, which had been essentially inactive since the failure to
gain approval following our original license application in 1997, has sparked
renewed interest due primarily to the analysis of survival data related to
patients who participated in the original Phase III clinical studies that were
completed in 1996. The information seems to suggest a potential for a survival
differential for patients whose colorectal cancer was evaluated with RIGScan
CR49. While this renewed interest is by no means an assurance that full-scale
development will be invigorated, we had a meeting in April 2004 to review some
of this information with FDA, to determine the appropriate next steps for the
development of the product and to outline a possible development timeline. The
April 2004 meeting with FDA was an important event in the re-activation of the
RIGS program. The meeting was very helpful from a number of aspects: we
confirmed that the RIGS biologic license application (BLA) remains active and
open. We believe this will improve both the cost effectiveness and timeliness of
future regulatory submissions for RIGSscan CR. Additionally, FDA preliminarily
confirmed that the BLA may be applicable to the general colorectal population;
and not just the recurrent colorectal market as applied for in 1996.
Applicability to a general colorectal population could result in a greater
market potential for the product than if applicable to just the recurrent
population. During the meeting, FDA indicated that it would consider possible
diagnostic and prognostic indications for RIGScan CR and that survival data from
one of our earlier Phase III studies could be supportive of a prognostic
indication. Our initial submission included a proposed clinical trial design
with objectives to demonstrate both diagnostic and prognostic/therapeutic
endpoints.

In October 2004, Neoprobe received a response from FDA that the
prognostic/therapeutic trial design appeared to meet their guidelines, but they
requested additional information concerning the diagnostic clinical objective.
FDA's response to our clinical submission included an invitation for Neoprobe to
seek a special protocol assessment (SPA) of its proposed Phase III study.
Neoprobe intends to seek a SPA review of the complete Phase III package
including the clinical protocol, training materials and data collection forms
later this year. In concert with its meetings with FDA, we met with
representatives of the European regulatory body, the EMEA, to seek guidance for
the RIGScan CR program in Europe. The guidance from the EMEA was consistent with
the input from FDA with the additional recommendation that any future clinical
studies be conducted with the humanized version of the RIGScan CR antibody. It
is possible that the regulatory pathway may continue to evolve as we seek to
reach a consensus with the regulatory agencies on the reactivation of the BLA
for RIGScan CR.

                                       37


In addition, the RIGScan CR biologic drug has not been produced for several
years and we believe it is likely we would have to perform some additional work
related to ensuring the drug cell line is still viable and submit this data to
FDA for their evaluation before approval could be considered. We have initiated
discussions with established biologic manufacturing organizations to determine
the costs and timelines associated with the production of commercial quantities
of the CC49 antibody. In addition, we will need to establish radiolabeling
capabilities for the CC49 antibody in order to meet the regulatory needs for the
RIGScan CR product.

In parallel with our discussions with the regulatory authorities, we have
discussed the clinical and regulatory strategy for RIGScan CR with reimbursement
consultants who provided us with valuable input regarding the potential target
pricing for a RIGScan product. Our consultants have advised us that if we
proceed with our original plans to seek an earlier conditional clearance for the
potential diagnostic indications for RIGScan CR then followed by clearance for
the prognostic/therapeutic indication we might significantly limit the ultimate
potential price for the prognostic/therapeutic product. However, since we have
announced that it is our intention to develop RIGScan CR in cooperation with a
development partner, we intend to make the decision on which indications to seek
clearance for jointly with a partner.

We are encouraged by the recent developments regarding RIGS. We believe we would
need to obtain additional funding and/or identify a development partner in order
to carry out all the activities necessary for commercialization. We do not have
any agreements in place or pending with third parties that would ensure the
continued development of the RIGS process and the completion of the survival
analysis proposed to FDA at the April 2004 meeting. In addition, even if we are
able to make such arrangements on satisfactory terms, we believe that the time
required for continued development, regulatory approval and commercialization of
a RIGS product would likely be a minimum of five years before we receive any
significant product-related royalties or revenues. However, we cannot assure you
that we will be able to complete definitive agreements with a development
partner for the RIGS technology and do not know if a partner will be obtained on
a timely basis on terms acceptable to us, or at all. We cannot assure you that
FDA or the EMEA will clear our RIGS products for marketing or that any such
products will be successfully introduced or achieve market acceptance.

Our Outlook for our Blood Flow Measurement Products

Our efforts concerning the Quantix products in 2005 will include some product
transition efforts developmental refinements to the Quantix/NDTM and Quantix/OR
systems; however the primary effort will be focused on in the marketing and
sales-related activities. Both the Quantix/ND and the Quantix/OR have regulatory
clearance to market in the U.S. and EU as well as certain other foreign markets.
Currently, we have five (5) distributors covering seventeen (17) countries for
the Quantix/ND and nine (9) distributors covering over fifteen (15) countries
for the Quantix/OR. In addition, we have agreements completed or pending with
independent cardiovascular sales organizations for many states in the U.S.
market for the Quantix/OR. Our primary focus is to secure marketing and
distribution partners who possess appropriate expertise in marketing medical
devices, preferably ultrasound or cardiac care devices, into our primary target
markets, the cardiovascular, vascular surgery and neurosurgical markets.

We anticipate spending a significant amount of time and effort in 2005 to market
the Cardiosonix blood flow products to a wider market. We will need to continue
the management of relationships with thought leaders in the cardiac surgery and
neurosurgical fields to gain broader exposure to the advantages of our
technology. We anticipate placing blood flow systems with industry thought
leaders to obtain critical commercial feedback during the widespread market
launch. The market education process we envision will likely take some time to
develop in the manner we desire. In addition, the sales cycle for medical
devices such as our blood flow products is typically a four to six month cycle.
As such, significant end customer sales, if they occur, will likely lag the
signing of distribution arrangements.

                                       38


We expect sales of blood flow products for 2005 to be higher than 2004 although
such sales are difficult to gauge in situations where the use of the product is
dependent on changes in surgical practice as well as subject to the sales
cycles, etc. outlined above. We are also investigating alternative pricing
strategies such as per use fees or leasing that may affect the adoption rates
for our blood flow measurement devices. As a result, we anticipate that the
product development and market support costs we will incur in 2005 will be
greater than the revenue we generate from the sales of blood flow devices. We
expect to continue to incur losses from our blood flow operations for 2005.

Summary

The strengthening of our gamma product (device and drug) portfolio coupled with
the introduction of the Cardiosonix blood flow products should position us to
achieve long-term profitable operating performance. However, overall profitable
operational results will be significantly affected by our decision to fund
Lymphoseek development activities internally.

We anticipate generating a net profit from the sale of our gamma detection
devices in 2005; however, we expect to show a loss for our blood flow device
product line for 2005 due to continued research and development and increased
marketing and administrative support costs that are still required to
commercialize the product line. Currently, we expect the loss on blood flow
products for 2005 to be less than the loss incurred in 2004. However, this
expectation is based to a large degree on our anticipation that we will achieve
the necessary developmental milestones required to achieve significant
commercial sales of our Quantix/OR product in a timely manner. The overall
operating results for 2005 will be affected by the amount of development for
radiopharmaceutical products. If we are unsuccessful in achieving significant
commercial sales of the Quantix/OR product in 2005, or if we modify our business
plan and decide to carry out RIGS development internally, our estimates and our
business plan will likely need to be modified.

As a result of our decision to fund Lymphoseek development internally, we do not
expect to achieve operating profit during 2005. In addition, our net loss and
earnings per share will likely be significantly impacted by the non-cash
interest expense we expect to record related to the accounting treatment for the
beneficial conversion feature of the convertible debt and for the warrants
issued in connection with the private placement we completed in December 2004.
Also, we cannot assure you that our current or potential new products will be
successfully commercialized or that we will achieve significant product revenues
or that we will achieve or be able to sustain profitability in the future.

Results of Operations

We reported revenues for 2004 of $6.0 million compared to $6.5 million in the
prior year. The decrease in revenue in 2004 versus 2003 is the combined result
of non-cash EES license revenue recognition that ended in September 2004,
$146,000 in reimbursed research and development in 2003, and a $194,000 decline
in sales of our blood flow measurement products. Sales revenue from our gamma
detection product line remained steady from 2003 to 2004.

Our overall gross profit for fiscal year 2004 increased to 61% of total revenues
compared to 52% of total revenues in 2003. Gross margins on net product sales
were 56% of net sales in 2004, as compared to 44% of net product sales in 2003.
The increase in gross margins was due primarily to a 28% decrease in
manufacturing cost per gamma detection system for the year.

                                       39


Results for 2004 also reflect the efforts made in the development of our gamma
detection radiopharmaceutical products, RIGScan CR and Lymphoseek. Accordingly,
our research and development costs for 2004 increased to $2.5 million compared
to $1.9 million in 2003. Consolidated general and administrative expenses
remained constant at $3.2 million in 2004 compared to $3.1 million in 2003.
Major expense categories as a percentage of net sales increased from 2003 to
2004 due to the decrease in sales of our blood flow monitoring devices. Research
and development expenses, as a percentage of sales, increased to 46% in 2004
from 34% in 2003 due to decreased net sales coupled with increased expenses
related to the development of our gamma detection drug products. Selling,
general and administrative expenses, as a percentage of sales, increased to 59%
in 2004 from 56% in 2003 due largely to the decrease in net sales revenue. Due
to the ongoing development activities of the company, research and development
expenses are expected to be higher as a percentage of sales for 2005 than they
were in 2004. In addition, as we move forward with commercialization activities
related to the Quantix product line, selling, general and administrative
expenses as a percentage of sales are expected to increase in 2005 over 2004.

Years Ended December 31, 2004 and 2003

Net Sales and Margins. Net sales decreased $212,000, or 4%, to $5.4 million in
2004 from $5.6 million in 2003. Gross margins on net sales increased to 56% of
net sales for 2004 compared to 44% of net sales for 2003, due primarily to a 28%
decrease in the manufacturing costs of our gamma detection devices.

The decrease in net sales was primarily the result of decreased revenue from our
blood flow monitoring devices. Sales revenue from our gamma detection product
line remained steady from 2003 to 2004. The price at which we sell our gamma
detection products to EES is based on a percentage of the global ASP received by
EES on sales of Neoprobe products to end customers, subject to a minimum floor
price. The base system price at which we sell neo2000 systems to EES changed
less than 1% from 2003 to 2004.

The increase in gross margins was primarily due to the lower manufacturing costs
as a result of transferring to a new gamma device manufacturer coupled with
gamma device design changes that were implemented during the first quarter of
2004. In addition, we recorded a $107,000 impairment charge during 2004 related
to Quantix inventory that we determined to be obsolete. This impairment charge
had a 2% negative impact on our gross margins for 2004.

License and Other Revenue. License and other revenue for 2004 and 2003 included
$600,000 and $800,000, respectively, from the pro-rata recognition of license
fees related to the distribution agreement with EES. These license fees were
fully amortized into income as of the end of the third quarter of 2004. License
and other revenue in 2003 also included $146,000 from the reimbursement by EES
of certain product development costs.

Research and Development Expenses. Research and development expenses increased
$560,000, or 30%, to $2.5 million during 2004 from $1.9 million in 2003.
Research and development expenses in 2004 included approximately $489,000 in
gamma detection drug development costs, $404,000 related to our gamma detection
devices and $1.6 million related to the Quantix products. This compares to
expenses of $56,000, $454,000 and $1.4 million in these relative segment
categories in 2003. The changes in each segment were primarily due to (i)
efforts to support the re-initiation of our RIGScan CR research effort and to
move our development of Lymphoseek forward, (ii) development activities related
to updated versions of our neo2000 control unit and detector probes, and (iii)
the costs of product refinement activities related to the Quantix/OR offsetting
cost savings from headcount reductions at our facility in Israel, respectively.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses remained relatively steady at $3.2 million during 2004
compared to $3.1 million during 2003. Increases in compensation costs and
certain overhead costs such as professional services and taxes were offset by
decreases in other overhead costs such as depreciation and amortization,
facilities expenses and bad debts. Selling, general and administrative expenses
in 2004 and 2003 included $7,000 and $30,000, respectively, in impairment
expense related to intellectual property that we did not believe had ongoing
value to our business.

Other Income (Expenses). Other expenses increased $1.4 million to $1.5 million
during 2004 from $188,000 during 2003. The primary reason for the increase was a
$1.2 million increase in warrant liability resulting from the accounting
treatment for the warrants we issued in connection with the private placement of
convertible debt we completed in December 2004. In addition, we recorded an
increase of $194,000 in interest expense on debt financings entered into during
2004 and 2003. Of this interest expense, $268,000 and $93,000 in 2004 and 2003,
respectively, was non-cash in nature related to the amortization of debt
discounts resulting from the warrants and beneficial conversion features of the
convertible debt. Other expenses during 2003 included $50,000 in interest
expense related to the factoring of our accounts receivable.

                                       40


Liquidity and Capital Resources

Operating Activities. Cash used in operations decreased $989,000 to $825,000
during 2004 from $1.8 million during 2003. Working capital increased $7.9
million to $10.4 million at December 31, 2004 as compared to $2.5 million at
December 31, 2003. The current ratio increased to 11.3:1 at December 31, 2004
from 2.6:1 at December 31, 2003. The increase in working capital was primarily
related to cash received from debt financing arrangements and sales of common
stock.

Cash balances increased to $9.8 million at December 31, 2004 from $1.6 million
at December 31, 2003, primarily due to the cash generated from debt financing
arrangements and sales of common stock, offset by decreased sales and the
development effort related to our gamma detection drugs in 2004.

Accounts receivable decreased to $412,000 at December 31, 2004 from $1.1 million
at December 31, 2003 due primarily to lower sales in December 2004 than December
2003 coupled with the timing of purchases and payments by EES. During the third
quarter of 2003, we entered into an accounts receivable financing facility under
which certain of our U.S. accounts receivable were factored at an advance rate
of 80% and with recourse to a third party financing company. The factoring
arrangement was wound down during the fourth quarter of 2003. Accounts
receivable at December 31, 2004 and 2003 also included approximately $24,000 and
$350,000, respectively, related to our annual transfer price reconciliation with
EES. We expect overall receivable levels will continue to fluctuate in 2005
depending on the timing of purchases and payments by EES. However, on average,
we expect accounts receivable balances will start to increase commensurate with
anticipated increases in sales of blood flow products to our distributors, many
of whom are foreign-domiciled entities who typically pay at a slower rate than
domestic companies. Such increases, if any, will require the increased use of
our cash resources over time.

Inventory levels decreased to $855,000 at December 31, 2004 from $1.0 million at
December 31, 2003. Raw materials decreased compared to the prior period due to
obsolescence related to design changes and production of our blood flow
measurement devices. This decrease was offset by increases in our stock of gamma
detection and blood flow device finished goods due to decreased sales in
December 2004 as compared to December 2003. In addition, our inventory of gamma
device finished goods at the end of 2003 was lower than normal because we were
in the process of changing contract manufacturers of our gamma detection devices
to a new contract manufacturer. We expect inventory levels to increase during
2005 as we complete finished blood flow devices from our inventory of raw
materials.

Investing Activities. Cash used in investing activities remained steady at
$111,000 during 2004 compared to $109,000 during 2003. Capital expenditures
during 2004 were primarily purchases of technology infrastructure. Capital
expenditures during 2003 were primarily purchases of production tools and
equipment related to the manufacture of our Quantix line of blood flow
measurement equipment. Capital needs for 2005 are expected to increase over 2004
as we start up blood flow product production at our contract manufacturer.

Financing Activities. Financing activities provided $9.2 million in cash in 2004
versus $2.8 million during 2003. Proceeds from the issuance of common stock were
$2.3 million and $2.9 million in 2004 and 2003, respectively. Proceeds from
notes payable were $7.4 million and $458,000 during 2004 and 2003, respectively.
Proceeds from sales of accounts receivable and subsequent repayments totaled
$914,000 during 2003. Payments of notes payable were $271,000 higher during 2004
as compared to the same period in 2003, primarily due to the repayment of a note
to our CEO.

                                       41


On November 19, 2001, we entered into a common stock purchase agreement with an
investment fund, Fusion Capital Fund II, LLC (Fusion) for the issuance and
purchase of our common stock. Under the stock purchase agreement, Fusion
committed to purchase up to $10 million of our common stock over a forty-month
period that commenced in May 2002. A registration statement registering for
resale up to 5 million shares of our common stock became effective on April 15,
2002. Under the terms of the agreement, we can request daily drawdowns, subject
to a daily base amount currently set at $12,500. The number of shares we are to
issue to Fusion in return for that money is based on the lower of (a) the
closing sale price for our common stock on the day of the draw request or (b)
the average of the three lowest closing sales prices for our common stock during
a twelve-day period prior to the draw request. However, no shares may be sold to
Fusion at lower than a floor price currently set at $0.30, which may be reduced
by us, but in no case below $0.20 without Fusion's prior consent. Upon execution
of the common stock purchase agreement, we issued 449,438 shares of our common
stock to Fusion as a partial payment of the commitment fee. During 2004 and
2003, we sold Fusion a total of 2,350,000 and 473,869 shares of common stock and
realized net proceeds of $1,468,874 and $143,693, respectively. We also issued
Fusion 66,129 and 6,462 shares of common stock, respectively, for commitment
fees related to the sales of our common stock to them during 2004 and 2003.

During April 2003, we completed a bridge loan agreement with our President and
CEO, David Bupp. Under the terms of the agreement, Mr. Bupp advanced us
$250,000. In consideration for the loan, we issued a note to Mr. Bupp in the
principal amount of $250,000. The note was secured by general assets of the
company, excluding accounts receivable. In addition, we issued Mr. Bupp 375,000
warrants to purchase our common stock at an exercise price of $0.13 per share,
expiring in April 2008. The per share value of these warrants was $0.10 on the
date of issuance using the Black-Scholes option pricing model with the following
assumptions: an average risk-free interest rate of 2.9%, volatility of 139% and
no expected dividend rate. The note bore interest at 8.5% per annum, payable
monthly, and was originally due on June 30, 2004. On March 8, 2004, at the
request of the Board of Directors, Mr. Bupp agreed to extend the due date of the
note from June 30, 2004 to June 30, 2005. In exchange for extending the due date
of the note, we issued Mr. Bupp an additional 375,000 warrants to purchase our
common stock at an exercise price of $0.50 per share, expiring in March 2009.
The per share value of these warrants was $0.46 on the date of issuance using
the Black-Scholes option pricing model with the following assumptions: an
average risk-free interest rate of 2.7%, volatility of 152% and no expected
dividend rate. On December 13, 2004, we paid the balance of the note to Mr.
Bupp.

During April 2003, we also completed a convertible bridge loan agreement with an
outside investor for an additional $250,000. In consideration for the loan, we
issued a note to the investor in the principal amount of $250,000. The note was
secured by general assets of the company, excluding accounts receivable. In
addition, we issued the investor 500,000 warrants to purchase our common stock
at an exercise price of $0.13 per share, expiring in April 2008. The per share
value of these warrants was $0.10 on the date of issuance using the
Black-Scholes option pricing model with the following assumptions: an average
risk-free interest rate of 2.9%, volatility of 139% and no expected dividend
rate. Under the terms of the agreement, the note bore interest at 9.5% per
annum, payable monthly, and was due on June 30, 2004. During January 2004, the
investor converted the entire balance of the note into 1.1 million shares of
common stock according to the conversion terms of the agreement.

During 2003, we engaged the services of two investment banking firms to assist
us in raising capital, Alberdale Capital, LLC (Alberdale) and Trautman Wasserman
& Company, Inc. (Trautman Wasserman). In exchange for Alberdale's services, we
paid them a monthly retainer of $10,000, half payable in cash and half payable
in common stock, and we agreed to pay them additional compensation upon the
successful completion of a private placement of our securities. We terminated
the agreement with Alberdale in September 2003, but issued them a total of
150,943 shares of common stock in payment for one half of their retainer. In
addition, warrants to purchase 78,261 shares of common stock were issued in
exchange for their assistance in arranging an accounts receivable financing
transaction. The warrants had an exercise price of $0.28, and were exercised in
exchange for 53,500 shares of our common stock in 2004. The per share value of
these warrants was $0.33 on the date of issuance using the Black-Scholes option
pricing model with the following assumptions: an average risk-free interest rate
of 3.1%, volatility of 150% and no expected dividend rate.

                                       42


In exchange for the services of Trautman Wasserman, we agreed to pay a retainer
of $10,000, payable in cash and common stock, and to pay further compensation on
successful completion of a private placement. We issued Trautman Wasserman a
total of 27,199 shares of common stock in payment for one half of their
retainer. The services of Trautman Wasserman were terminated in September 2003.

In November 2003, we executed common stock purchase agreements with third
parties introduced to us by another investment banking firm, Rockwood, Inc., for
the purchase of 12,173,914 shares of our common stock at a price of $0.23 per
share for net proceeds of $2.4 million. In addition, we issued the purchasers
warrants to purchase 6,086,959 shares of common stock at an exercise price of
$0.28 per share, expiring in October 2008, and issued the placement agents
warrants to purchase 1,354,348 shares of our common stock on similar terms. The
per share value of these warrants was $0.31 on the date of issuance using the
Black-Scholes option pricing model with the following assumptions: an average
risk-free interest rate of 3.2%, volatility of 151% and no expected dividend
rate. During 2004, certain investors and placement agents exercised a total of
3,230,066 warrants related to this placement resulting in the issuance of
3,197,854 shares of our common stock and we realized net proceeds of $871,398.
During the first quarter of 2005 to date, certain investors and placement agents
exercised a total of 206,865 warrants and we realized proceeds of $57,922.

In December 2004, we completed a private placement of Convertible Promissory
Notes in an aggregate principal amount of $8.1 million with Biomedical Value
Fund, L.P., Biomedical Offshore Value Fund, Ltd. and David C. Bupp (our
President and CEO). Biomedical Value Fund, L.P. and Biomedical Offshore Value
Fund, Ltd. are funds managed by Great Point Partners, LLC. The notes bear
interest at 8% per annum and are freely convertible into shares of our common
stock at a price of $0.40 per share. Neoprobe may force conversion of the notes
prior to their stated maturity under certain circumstances. The conversion price
represents the ten-day volume weighted average trading price of our common stock
through December 10, 2004. As part of this transaction, we issued the investors
10,125,000 warrants to purchase our common stock at an exercise price of $0.46,
expiring in December 2009. The fair value of the warrants issued to the
investors was $1,315,000 on the date of issuance and was determined by a
third-party valuation expert using the Black-Scholes option pricing model with
the following assumptions: an average risk-free interest rate of 3.4%,
volatility of 50% and no expected dividend rate. In connection with this
financing, we also issued 1,600,000 warrants to purchase our common stock to the
placement agents, containing substantially identical terms to the warrants
issued to the investors. The fair value of the warrants issued to the placement
agents was $208,014 using the Black-Scholes option pricing model with the same
assumptions used to determine the fair value of the warrants issued to the
investors. The intrinsic value of the conversion feature of the notes was
estimated at $1,315,000 based on the effective conversion price at the date of
issuance.

Our future liquidity and capital requirements will depend on a number of
factors, including our ability to raise additional capital in a timely manner
through additional investment, expanded market acceptance of our current
products, our ability to complete the commercialization of new products, our
ability to monetize our investment in non-core technologies, our ability to
obtain milestone or development funds from potential development and
distribution partners, regulatory actions by FDA and other international
regulatory bodies, and intellectual property protection. We believe we now have
adequate capital to assure that we can properly support our current business
goals and objectives for 2005 and into 2006. Our near-term priorities to
commence multi-center trials for our Lymphoseek product, support the launch the
reengineered version of the Quantix/OR products, identify a development and
commercialization partner for our RIGS technology, complete a technology
assessment of our ACT technology and continue to innovate our gamma detection
product line. We cannot assure you that we will be able to achieve significant
product revenues from our current or potential new products. We also cannot
assure you that we will achieve profitability again.

                                       43


Contractual Obligations and Commercial Commitments

The following table presents our contractual obligations and commercial
commitments as of December 31, 2004.



                                                                Payments Due By Period
                                 --------------------------------------------------------------------------------------
      Contractual Cash                                Less than          1 - 3             4 - 5             After
        Obligations                  Total             1 Year            Years             Years            5 Years
-----------------------------    ---------------    --------------    -------------    --------------    --------------
                                                                                               
Capital Leases(1)                   $    53,418         $  18,308         $ 27,810             7,300          $     --

Operating Leases(2)                     377,116           145,562          223,241             8,313                --

Unconditional
   Purchase Obligations(3)            2,129,045         1,391,746          737,299                --                --

Long-Term Debt                       10,674,254           662,211        1,296,000         8,716,043                --
                                 ---------------    --------------    -------------    --------------    --------------
Total Contractual
   Cash Obligations                 $13,233,833       $ 2,217,827      $ 2,284,350       $ 8,731,656           $    --
                                 ===============    ==============    =============    ==============    ==============


(1)  In February 2005, we entered into a four-year capital lease agreement for
     office equipment. The lease includes new equipment and refinanced equipment
     that had been under another capital lease. The net additional lease
     payments total approximately $5,000 per year.
(2)  In February 2005, we entered into a three-year operating lease agreement
     for additional office space. The additional lease payments total
     approximately $22,000 per year.
(3)  This amount represents purchases under binding purchase orders for which we
     are required to take delivery of the product under the terms of the
     underlying supply agreements going out approximately two years.

Recent Accounting Developments

In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4. This statement
amends the guidance in ARB No. 43 Chapter 4, Inventory Pricing, to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). Paragraph 5 of ARB No. 43, Chapter 4,
previously stated that " . . . under some circumstances, items such as idle
facility expense, excessive spoilage, double freight, and rehandling costs may
be so abnormal to require treatment as a current period charge..." This
statement requires that those items be recognized as current-period charges
regardless of whether they meet the criterion of "so abnormal." In addition,
this statement requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. The provisions of this statement will be effective for inventory
costs during fiscal years beginning after June 15, 2005. Neoprobe does not
believe that the adoption of this statement will have a material impact on its
financial condition or results of operations.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based
Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123R). SFAS No. 123R supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of
Cash Flows. Generally, the approach in SFAS No. 123R is similar to the approach
described in SFAS No. 123. However, SFAS No. 123R requires all share-based
payments to employees, including grants of employee stock options, to be
recognized in the income statement based on their fair values. Pro forma
disclosure is no longer an alternative. We must adopt SFAS No. 123R for interim
or annual reporting periods beginning after December 15, 2005. Early adoption
will be permitted in periods in which financial statements have not yet been
issued. We expect to adopt SFAS No. 123R on January 1, 2006.

                                       44


As permitted by SFAS No. 123, Neoprobe currently accounts for share-based
payments to employees using APB Opinion No. 25's intrinsic value method and, as
such, generally recognizes no compensation cost for employee stock options.
Accordingly, the adoption of SFAS No. 123R's fair value method will have a
significant impact on our result of operations, although it will have no impact
on our overall cash position. The impact of adoption of SFAS No. 123R cannot be
predicted at this time because it will depend on levels of share-based payments
granted in the future and the assumptions for the variables which impact the
computation. However, had we adopted SFAS No. 123R in prior periods, the impact
of that standard would have approximated the impact of SFAS No. 123 as described
in the disclosure of pro forma net loss and loss per share in Note 1(k) to our
consolidated financial statements. SFAS No. 123R also requires the benefits of
tax deductions in excess of recognized compensation cost to be reported as a
financing cash flow, rather than as an operating cash flow as required under
current literature.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary
Assets--An Amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions (SFAS No. 153). SFAS No. 153 eliminates the exception from fair
value measurement for nonmonetary exchanges of similar productive assets in
paragraph 21(b) of APB Opinion No. 29, Accounting for Nonmonetary Transactions,
and replaces it with an exception for exchanges that do not have commercial
substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. SFAS No. 153 is effective for fiscal
periods beginning after June 15, 2005 and is required to be adopted by Neoprobe
beginning January 1, 2006. Neoprobe is currently evaluating the effect that the
adoption of SFAS No. 153 will have on its consolidated results of operations and
financial condition but does not expect it to have a material impact.

Critical Accounting Policies

The following accounting policies are considered by us to be critical to our
results of operations and financial condition.

Revenue Recognition Related to Net Sales. We currently generate revenue
primarily from sales of our gamma detection products; however, sales of blood
flow products constituted approximately 1% of total revenues for 2004 and are
expected to increase in the future. We generally recognize sales revenue related
to sales of our products when the products are shipped and the earnings process
has been completed. Our customers have no right to return products purchased in
the ordinary course of business. However, in cases where product is shipped but
the earnings process is not yet completed, revenue is deferred until it has been
determined that the earnings process has been completed. We also generate
revenue from the service and repair of out-of-warranty products. Fees charged
for service and repair on products not covered by an extended service agreement
are recognized on completion of the service process when the serviced or
repaired product has been returned to the customer. Fees charged for service or
repair of products covered by an extended warranty agreement are deferred and
recognized as revenue ratably over the life of the extended service agreement.
The prices we charge our primary customer, EES, related to sales of products are
subject to retroactive annual adjustment based on a fixed percentage of the
actual sales prices achieved by EES on sales to end customers made during each
fiscal year. To the extent that we can reasonably estimate the end-customer
prices received by EES, we record sales to EES based upon these estimates. If we
are unable to reasonably estimate end customer sales prices related to certain
products sold to EES, we record revenue related to these product sales at the
minimum (i.e., floor) price provided for under our distribution agreement with
EES.

Use of Estimates. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. We base these estimates and assumptions
upon historical experience and existing, known circumstances. Actual results
could differ from those estimates. Specifically, management may make significant
estimates in the following areas:

                                       45


    o   Allowance for Doubtful Accounts. We maintain an allowance for doubtful
        accounts receivable to cover estimated losses resulting from the
        inability of our customers to make required payments. We determine the
        adequacy of this allowance by regularly reviewing our accounts
        receivable aging and evaluating individual customer receivables,
        considering customers' credit and financial condition, payment history
        and relevant economic conditions. If the financial condition of our
        customers were to deteriorate, resulting in an impairment of their
        ability to make payments, additional allowances for doubtful accounts
        may be required.


    o   Inventory Valuation. We value our inventory at the lower of cost
        (first-in, first-out method) or market. Our valuation reflects our
        estimates of excess, slow moving and obsolete inventory as well as
        inventory with a carrying value in excess of its net realizable value.
        Write-offs are recorded when product is removed from saleable inventory.
        We review inventory on hand at least quarterly and record provisions for
        excess and obsolete inventory based on several factors, including
        current assessment of future product demand, anticipated release of new
        products into the market, historical experience and product expiration.
        Our industry is characterized by rapid product development and frequent
        new product introductions. Uncertain timing of product approvals,
        variability in product launch strategies, product recalls and variation
        in product utilization all impact the estimates related to excess and
        obsolete inventory.

    o   Impairment or Disposal of Long-Lived Assets. We account for long-lived
        assets in accordance with the provisions of SFAS No. 144. This Statement
        requires that long-lived assets and certain identifiable intangibles be
        reviewed for impairment whenever events or changes in circumstances
        indicate that the carrying amount of an asset may not be recoverable.
        The recoverability of assets to be held and used is measured by a
        comparison of the carrying amount of an asset to future net undiscounted
        cash flows expected to be generated by the asset. If such assets are
        considered to be impaired, the impairment to be recognized is measured
        by the amount by which the carrying amount of the assets exceeds the
        fair value of the assets. Assets to be disposed of are reported at the
        lower of the carrying amount or fair value less costs to sell. As of
        December 31, 2004, the most significant long-lived assets on our balance
        sheet relate to assets recorded in connection with the acquisition of
        Cardiosonix and gamma detection device patents related to ILM. The
        recoverability of these assets is based on the financial projections and
        models related to the future sales success of Cardiosonix' products and
        the continuing success of our gamma detection product line. As such,
        these assets could be subject to significant adjustment should the
        Cardiosonix technology not be successfully commercialized or the sales
        amounts in our current projections not be realized.

    o   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. Our accrual for warranty expenses is
        adjusted periodically to reflect actual experience. EES also reimburses
        us for a portion of warranty expense incurred based on end customer
        sales they make during a given fiscal year.

    o   Fair Value of Warrant Liability. Current generally accepted accounting
        principles require that the warrants issued in connection with our
        December 2004 placement of convertible promissory notes be classified as
        a liability due to provisions contained in the underlying securities
        purchase agreement. As a liability, the warrants are considered a
        derivative instrument that must be periodically "marked to market" on
        our balance sheet. We estimate the fair value of the warrants as of each
        balance sheet date based on the Black-Scholes option pricing model.
        Because the outcome of the Black-Scholes calculation is highly dependent
        on the price of our common stock as well as the estimated future
        volatility of the underlying common stock, and our stock is very
        volatile, the effect of marking the warrant liability to "market" may
        result in significant variations in other income (expenses) we record on
        a periodic basis and therefore on the net income (loss) we report.


                                       46


Other Items Affecting Financial Condition

At December 31, 2004, we had U.S. net operating tax loss carryforwards and tax
credit carryforwards of approximately $91.4 million and $4.2 million,
respectively, available to offset or reduce future income tax liability, if any,
through 2024. However, under Sections 382 and 383 of the Internal Revenue Code
of 1986, as amended, use of prior tax loss and credit carryforwards may be
limited after an ownership change. As a result of ownership changes as defined
by Sections 382 and 383, which have occurred at various points in our history,
we believe utilization of our tax loss carryforwards and tax credit
carryforwards may be significantly limited.

Additional Information

For additional information about our operations, cash flows, liquidity and
capital resources, please refer to the information on pages 39 through 43 of
this report.


Item 7.  Financial Statements

Our consolidated financial statements, and the related notes, together with the
report of KPMG LLP dated March 31, 2005, are set forth at pages F-1 through F-25
attached hereto.


Item 8.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.


Item 8A.  Controls and Procedures.

Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934 (the Exchange Act)). Based on that evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that, as of the end of the period
covered by this report, our disclosure controls and procedures are adequately
designed to ensure that the information required to be disclosed by us in the
reports we file or submit under the Exchange Act is recorded, possessed,
summarized and reported, within the time periods specified in the applicable
rules and forms. During the fourth quarter covered by this Annual Report on Form
10-KSB, there was no change in our internal control over financial reporting (as
defined in Rule 13a-15(f) under the Exchange Act) that materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.


Item 8B.  Other Information.

None.

                                       47


PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act

Directors

The following directors' terms continue until the 2005 Annual Meeting:

Carl J. Aschinger, Jr., age 66, has served as a director of our Company since
June 2004. Mr. Aschinger is the Chairman and Chief Executive Officer of Columbus
Show Case Co., a privately-held company that manufactures showcases for the
retail industry. Mr. Aschinger also serves on the Board of Directors and as
Chairman of the Audit Committee of Pinnacle Data Systems, a publicly-traded
company that provides software and hardware solutions to original equipment
manufacturers. Mr. Aschinger also serves on the Board of Directors and as
Chairman of the Audit Committee of Wilson-Bohannon, a privately-held company
that manufactures padlocks. Mr. Aschinger is a former director of Liqui-Box
Corporation and Huntington National Bank as well as other privately-held
ventures and has served on boards or advisory committees of several
not-for-profit organizations.

Nancy E. Katz, age 45, has served as a director of our Company since January
2001. Ms. Katz currently is an independent health care business consultant. Ms.
Katz served as President, Chief Executive Officer and director of Calypte
Biomedical Corporation (Calypte) until June 2003. Ms. Katz joined Calypte in
October 1999 as President, Chief Operating Officer and Chief Financial Officer.
Prior to joining Calypte, Ms. Katz served as President of Zila Pharm Inc. From
1997 to 1998, Ms. Katz served as Vice President of Sales & Marketing of LifeScan
(the diabetes testing division of Johnson & Johnson) and Vice President of U.S.
Marketing, directing LifeScan's marketing and customer call center departments
from 1995 to 1997. During her seven-year career at Schering-Plough Healthcare
Products from 1987 to 1994, she held numerous positions including Senior
Director & General Manager, Marketing Director for Footcare New Products, and
Product Director of OTC New Products. Ms. Katz also held various product
management positions at American Home Products from 1981 to 1987. Ms. Katz
received her B.A. in Business Administration from the University of South
Florida.

Fred B. Miller, age 65, has served as a director of our Company since January
2002. Mr. Miller serves as Chairman of the Audit Committee. Mr. Miller is the
President and Chief Operating Officer of Seicon, Limited, a privately held
company that specializes in developing, applying and licensing technology to
reduce seismic and mechanically induced vibration. Mr. Miller also serves on the
board of one other privately-held company. Until his retirement in 1995, Mr.
Miller had been with Price Waterhouse LLP since 1962. Mr. Miller is a Certified
Public Accountant, a member of the American Institute of Certified Public
Accountants (AICPA), a past member of the Council of the AICPA and a member and
past president of the Ohio Society of Certified Public Accountants. He also has
served on the boards or advisory committees of several universities and
not-for-profit organizations. Mr. Miller has a B.S. degree in Accounting from
the Ohio State University.

The following directors' terms continue until the 2006 Annual Meeting:

Kirby I. Bland, M.D., age 63, has served as a director of our Company since May
2004. Dr. Bland currently serves as Professor and Chairman and Fay Fletcher
Kerner Professor and Chairman, Department of Surgery of the University of
Alabama at Birmingham (UAB) School of Medicine since 1999 and 2002,
respectively, Deputy Director of the UAB Comprehensive Cancer Center since 2000
and Senior Scientist, Division of Human Gene Therapy, UAB School of Medicine
since 2001. Prior to his appointments at UAB, Dr. Bland was J. Murry Breadsley
Professor and Chairman, Professor of Medical Science, Department of Surgery and
Director, Brown University Integrated Program in Surgery at Brown University
School of Medicine from 1993 to 1999. Prior to his appointments at Brown
University, Dr. Bland was Professor and Associate Chairman, Department of
Surgery, University of Florida College of Medicine from 1983 to 1993 and
Associate Director of Clinical Research at the University of Florida Cancer
Center from 1991 to 1993. Dr. Bland held a number of medical staff positions at
the University of Louisville, School of Medicine from 1977 to 1983 and at M. D.
Anderson Hospital and Tumor Institute from 1976 to 1977. Dr. Bland is a member
of the Board of Governors of the American College of Surgeons (ACS), a member of
the ACS' Advisory Committee, Oncology Group (ACOSOG), a member of the ACS'
American Joint Committee on Cancer Task Force and serves as Chairman of the ACS'
Breast Disease Site Committee, COC. Dr. Bland is a past President of the Society
of Surgical Oncology. Dr. Bland received his B.S. in Chemistry/Biology from
Auburn University and a M.D. degree from the University of Alabama, Medical
College of Alabama.

                                       48


J. Frank Whitley, Jr., age 62, has served as a director of our Company since May
1994. Mr. Whitley was Director of Mergers, Acquisitions and Licensing at The Dow
Chemical Company (Dow), a multinational chemical company, from June 1993 until
his retirement in June 1997. After joining Dow in 1965, Mr. Whitley served in a
variety of marketing, financial, and business management functions. Mr. Whitley
has a B.S. degree in Mathematics from Lamar State College of Technology.

The following directors' terms continue until the 2007 Annual Meeting:

Reuven Avital, age 53, has served as a director of our Company since January
2002. Mr. Avital is a partner and general manager of Ma'Aragim Enterprises Ltd.,
an investment company in Israel, and he is a member of the board of Neoprobe as
well as a number of privately-held Israeli companies, three of them in the
medical device field. Mr. Avital was a board member of Cardiosonix, Ltd. from
April 2001 through December 31, 2001, when we acquired the company. Previously,
Mr. Avital served in the Israeli government in a variety of middle and senior
management positions. He is also chairman or board member in several
not-for-profit organizations, mainly involved in education for the
under-privileged and international peace-building. Mr. Avital has B.A. degrees
in The History of the Middle East and International Relations from the Hebrew
University of Jerusalem, and a M.P.A. from the Kennedy School of Government at
Harvard University.

David C. Bupp, age 55, has served as President and a director of our Company
since August 1992 and as Chief Executive Officer since February 1998. From
August 1992 to May 1993, Mr. Bupp served as our Treasurer. In addition to the
foregoing positions, from December 1991 to August 1992, he was Acting President,
Executive Vice President, Chief Operating Officer and Treasurer, and from
December 1989 to December 1991, he was Vice President, Finance and Chief
Financial Officer. From 1982 to December 1989, Mr. Bupp was Senior Vice
President, Regional Manager for AmeriTrust Company National Association, a
nationally chartered bank holding company, where he was in charge of commercial
banking operations throughout Central Ohio. Mr. Bupp has a B.A. degree in
Economics from Ohio Wesleyan University. Mr. Bupp completed a course of study at
Stonier Graduate School of Banking at Rutgers University.

Julius R. Krevans, M.D., age 80, has served as a director of our Company since
May 1994 and as Chairman of the Board of Directors of our Company since February
1999. Dr. Krevans served as Chancellor of the University of California, San
Francisco from July 1982 until May 1993. Prior to his appointment as Chancellor,
Dr. Krevans served as a Professor of Medicine and Dean of the School of Medicine
at the University of California, San Francisco from 1971 to 1982. Dr. Krevans is
a member of the Institute of Medicine, National Academy of Sciences, and led its
committee for the National Research Agenda on Aging until 1991. Dr. Krevans also
serves on the Board of Directors and the compensation committee of the Board of
Directors of Calypte Biomedical Corporation (Calypte), a publicly held
corporation. Dr. Krevans has a B.S. degree and a M.D. degree, both from New York
University.

                                       49


Executive Officers

In addition to Mr. Bupp, the following individuals are executive officers of our
Company and serve in the position(s) indicated below:

               Name           Age                  Position
               ----           ---                  --------
         Anthony K. Blair      44     Vice President, Manufacturing Operations
         Carl M. Bosch         48     Vice President, Research and Development
         Rodger A. Brown       53     Vice President, Regulatory Affairs and
                                        Quality Assurance
         Brent L. Larson       41     Vice President, Finance; Chief Financial
                                        Officer;
                                        Treasurer and Secretary
         Douglas L. Rash       61     Vice President, Marketing

Anthony K. Blair has served as Vice President, Manufacturing Operations of our
Company since July 2004. Mr. Blair has 16 years of experience in the medical
device industry. Prior to joining our Company, he served as Vice President,
Manufacturing Operations of Enpath Medical, Lead Technologies Division, formerly
known as Biomec Cardiovascular, Inc. from 2002 to June 2004. From 1998 through
2001, Mr. Blair led the manufacturing efforts at Astro Instrumentation, a
medical device contract manufacturer. From 1989 to 1998 at Ciba Corning
Diagnostics (now Bayer), Mr. Blair held managerial positions including
Operations Manager, Materials Manager, Purchasing Manager and Production
Supervisor. From 1985 to 1989, Mr. Blair was employed by Bailey Controls and
held various positions in purchasing and industrial engineering. Mr. Blair
started his career at Fisher Body, a division of General Motors, in production
supervision. Mr. Blair has a B.B.A. degree in management and labor relations
from Cleveland State University.

Carl M. Bosch has served as Vice President, Research and Development of our
Company since March 2000. Prior to that, Mr. Bosch served as our Director,
Instrument Development from May 1998 to March 2000. Before joining our Company,
Mr. Bosch was employed by GE Medical Systems from 1994 to 1998 where he served
as Manager, Nuclear Programs. From 1977 to 1994, Mr. Bosch was employed by GE
Aerospace in several engineering and management functions. Mr. Bosch has a B.S.
degree in Electrical Engineering from Lehigh University and a M.S. degree in
Systems Engineering from the University of Pennsylvania.

Rodger A. Brown has served as Vice President, Regulatory Affairs and Quality
Assurance of our Company since November 2000. From July 1998 through November
2000, Mr. Brown served as our Director, Regulatory Affairs and Quality
Assurance. Prior to joining our Company, Mr. Brown served as Director of
Operations for Biocore Medical Technologies, Inc. from April 1997 to April 1998.
From 1981 through 1996, Mr. Brown served as Director, Regulatory Affairs/Quality
Assurance for E for M Corporation, a subsidiary of Marquette Electronics, Inc.

Brent L. Larson has served as Vice President, Finance and Chief Financial
Officer of our Company since February 1999. Prior to that, he served as our Vice
President, Finance from July 1998 to January 1999 and as Controller from July
1996 to June 1998. Before joining our Company, Mr. Larson was employed by Price
Waterhouse LLP. Mr. Larson has a B.B.A. degree in accounting from Iowa State
University of Science and Technology and is a Certified Public Accountant.

Douglas L. Rash has served as Vice President, Marketing of our Company since
January 2005. Prior to that, Mr. Rash was Neoprobe's Director, Marketing and
Product Management from March to December 2004. Before joining our Company, Mr.
Rash served as Vice President and General Manager of MTRE North America, Inc.
from 2000 to 2003. From 1994 to 2000, Mr. Rash served as Vice President and
General Manager (Medical Division) of Cincinnati Sub-Zero, Inc. From 1993 to
1994, Mr. Rash was Executive Vice President of Everest & Jennings International,
Ltd. During his nine-year career at Gaymar Industries, Inc. from 1984 to 1993,
Mr. Rash held positions as Vice President and General Manager (Clinicare
Division) and Vice President, Marketing and Sales (Acute Care Division). From
1976 to 1984, Mr. Rash held management positions at various divisions of British
Oxygen Corp. Mr. Rash has a B.S. degree in Business Administration with a minor
in Chemistry from Wisconsin State University.

                                       50


Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Act of 1934 requires our officers and directors,
and greater than 10% stockholders, to file reports of ownership and changes in
ownership of our securities with the Securities and Exchange Commission. Copies
of the reports are required by SEC regulation to be furnished to us. Based on
our review of these reports and written representations from reporting persons,
we believe that all reporting persons complied with all filing requirements
during the fiscal year ended December 31, 2004, except for Carl Aschinger, who
had two late Form 4 filings, and Anthony Blair, who had one late Form 3 and one
late Form 4 filing.

Code of Conduct and Ethics

We have adopted a code of conduct and ethics that applies to our directors,
officers and all employees. The code of conduct and ethics is posted on our
website at www.neoprobe.com. The code of business conduct and ethics may be also
obtained free of charge by writing to Neoprobe Corporation, Attn: Chief
Financial Officer, 425 Metro Place North, Suite 300, Dublin, Ohio 43017.

Audit Committee Financial Expert

The Board of Directors of Neoprobe has determined that Fred B. Miller, a member
of the Audit Committee, qualifies as Neoprobe's audit committee financial expert
under Item 401 of Regulation S-B under the Securities Act of 1933, and that he
is independent, as that term is defined in Item 7(d)(3) of Schedule 14A under
the Securities Exchange Act of 1934.


                                       51


Item 10.  Executive Compensation

Summary Compensation Table

The following table sets forth certain information concerning the annual and
long-term compensation of our Chief Executive Officer and our other three
highest paid executive officers having annual compensation in excess of $100,000
during the last fiscal year (the Named Executives) for the last three fiscal
years.



                                                                                                 Long Term
                                                                                            Compensation Awards
                                                                                         ------------ -------------
                                                                                          Restricted    Securities
                                                       Annual Compensation               Stock Awards   Underlying
                                            -------------------------------------------                  Options

Name and Principal Position                 Year      Salary      Bonus        Other         ($)           (#)
---------------------------                 ----      ------      -----        -----         ---           ---
                                                                                        
Carl M. Bosch                               2004     $ 138,375    $  6,000  $  2,887(a)       --          170,000
   Vice President,                          2003       135,125          --     6,573(a)       --           70,000
   Research and Development                 2002       129,375          --     3,093(a)       --           50,000

Rodger A. Brown                             2004     $ 117,300    $  2,500     $     --       --          160,000
   Vice President, Regulatory Affairs/      2003       125,316          --           --       --           70,000
   Quality Assurance                        2002       105,417          --           --       --           50,000

David C. Bupp                               2004     $ 271,250   $  15,000  $  4,100(b)       --          500,000
   President and                            2003       222,167      32,500    31,090(b)       --          170,000
   Chief Executive Officer                  2002       297,083          --     5,738(b)       --          180,000

Brent L. Larson                             2004     $ 137,700    $  6,000  $  2,874(c)       --          170,000
   Vice President, Finance and              2003       135,125          --    11,733(c)       --           70,000
   Chief Financial Officer                  2002       129,375          --     2,993(c)       --           50,000




(a)  Amounts represent solely matching contribution under the Neoprobe
     Corporation 401(k) Plan (the Plan), except for 2003, which includes $3,870
     related to the vesting of restricted stock. Eligible employees may make
     voluntary contributions and we may, but are not obligated to, make matching
     contributions based on 40 percent of the employee's contribution, up to
     five percent of the employee's salary. Employee contributions are invested
     in mutual funds administered by an independent plan administrator. Company
     contributions, if any, are made in the form of shares of common stock. The
     Plan is intended to qualify under section 401 of the Internal Revenue Code,
     which provides that employee and company contributions and income earned on
     contributions are not taxable to the employee until withdrawn from the
     Plan, and that we may deduct our contributions when made.
(b)  Amounts represent matching contribution under the Plan, except for 2003,
     which includes $27,090 related to the vesting of restricted stock and
     social luncheon club dues.
(c)  Amounts represent solely matching contribution under the Plan, except for
     2003, which includes $9,030 related to the vesting of restricted stock.

                                       52


Option Grants in Last Fiscal Year

The following table presents certain information concerning stock options
granted to the Named Executives under the 2002 Stock Incentive Plan during the
2004 fiscal year.



                                         Individual Gramts
-------------------------------------------------------------------------------------------------
                                                       Percent of
                                     Number of         Total Options
                                    Securities           Granted         Exercise
                                    Underlying         to Employees        Price
                                     Options               in               Per      Expiration
Name                             Granted (shares)      Fiscal Year         Share       Date(e)
----                             ---------------       -----------       ---------     -------
                                                                           
Carl M. Bosch                         70,000(a)             4%           $ 0.30(b)       1/7/14

                                      50,000(a)             3%           $ 0.49(c)      7/28/14

                                      50,000(a)             3%           $ 0.39(d)     12/10/14

Rodger A. Brown                       70,000(a)             4%           $ 0.30(b)       1/7/14

                                      50,000(a)             3%           $ 0.49(c)      7/28/14

                                      40,000(a)             2%           $ 0.39(d)     12/10/14

David C. Bupp                        150,000(a)             9%           $ 0.30(b)       1/7/14

                                     150,000(a)             9%           $ 0.49(c)      7/28/14

                                     200,000(a)            12%           $ 0.39(d)     12/10/14

Brent L. Larson                       70,000(a)             4%           $ 0.30(b)       1/7/14

                                      50,000(a)             3%           $ 0.49(c)      7/28/14

                                      50,000(a)             3%           $ 0.39(d)     12/10/14


(a) Vests as to one-third of these shares on each of the first three
    anniversaries of the date of grant.
(b) The per share weighted average fair value of these stock options during 2004
    was $0.29 on the date of grant using the Black-Scholes option pricing model
    with the following assumptions: an expected life of 4 years, an average
    risk-free interest rate of 2.8%, volatility of 146% and no expected dividend
    rate.
(c) The per share weighted average fair value of these stock options during 2004
    was $0.49 on the date of grant using the Black-Scholes option pricing model
    with the following assumptions: an expected life of 4 years, an average
    risk-free interest rate of 3.3%, volatility of 139% and no expected dividend
    rate.
(d) The per share weighted average fair value of these stock options during 2004
    was $0.32 on the date of grant using the Black-Scholes option pricing model
    with the following assumptions: an expected life of 4 years, an average
    risk-free interest rate of 3.3%, volatility of 80% and no expected dividend
    rate.
(e) The options terminate on the earlier of the expiration date, nine months
    after death or disability, 90 days after termination of employment without
    cause or by resignation, or immediately upon termination of employment for
    cause.

                                       53


Fiscal Year-End Option Numbers and Values

The following table sets forth certain information concerning the number and
value of unexercised options held by the Named Executives at the end of the last
fiscal year (December 31, 2004). There were no stock options exercised by the
Named Executives during the fiscal year ended December 31, 2004.



                                    Number of Securities               Value of Unexercised
                                   Underlying Unexercised            In-the-Money Options at
                                Options at Fiscal Year-End:              Fiscal Year-End:
 Name                            Exercisable/Unexercisable          Exercisable/Unexercisable(1)
 ----                            -------------------------          ----------------------------
                                                                 
 Carl M. Bosch                    176,668     /      233,332            $86,534 / $137,666

 Rodger A. Brown                  171,168     /      223,332            $80,634 / $131,766

 David C. Bupp                    586,668     /      773,332           $316,634 / $397,266

 Brent L. Larson                  233,868     /      233,332           $104,234 / $137,666


(1)  Represents the total gain which would be realized if all in-the-money
     options held at year end were exercised, determined by multiplying the
     number of shares underlying the options by the difference between the per
     share option exercise price and the per share fair market value at year end
     of $0.59. An option is in-the-money if the fair market value of the
     underlying shares exceeds the exercise price of the option.

Compensation of Non-Employee Directors

     We paid non-employee directors a quarterly retainer of $1,500 for
     participation in board or committee meetings during 2004. We also
     reimbursed non-employee directors for travel expenses for meetings attended
     during 2004. In addition, each non-employee director received 40,000
     options to purchase common stock as a part of our annual stock incentive
     grants, and the Chairman of the Board and the Chairman of the Audit
     Committee each received an additional 40,000 options for their services in
     those capacities. Options granted to purchase common stock vest on the
     first anniversary of the date of grant and have an exercise price equal to
     not less than the closing market price of common stock at the date of
     grant.

Directors who are also officers or employees of our Company do not receive any
compensation for their services as directors.

Compensation of Mr. Bupp

Employment Agreement. David C. Bupp is employed under a thirty-six month
employment agreement effective January 1, 2004. The employment agreement
provides for an annual base salary of $271,250. Effective January 1, 2005, Mr.
Bupp's annual base salary was increased to $290,000. The Board of Directors
will, on an annual basis, review the performance of our company and of Mr. Bupp
and will pay a bonus to Mr. Bupp as it deems appropriate, in its discretion.
Such review and bonus will be consistent with any bonus plan adopted by the
Compensation Committee that covers the executive officers of our company
generally. Mr. Bupp was paid a bonus of $15,000 relating to fiscal year 2004.

If a change in control occurs with respect to our company and the employment of
Mr. Bupp is concurrently or subsequently terminated:

    o   by our company without cause (cause is defined as any willful breach of
        a material duty by Mr. Bupp in the course of his employment or willful
        and continued neglect of his duty as an employee);

    o   the term of Mr. Bupp's employment agreement expires; or

                                       54


    o   Mr. Bupp resigns because his authority, responsibilities or compensation
        have materially diminished, a material change occurs in his working
        conditions or we breach the agreement;

then, Mr. Bupp will be paid a severance payment of $650,000 (less amounts paid
as Mr. Bupp's salary and benefits that continue for the remaining term of the
agreement if his employment is terminated without cause). If any such
termination occurs after the substantial completion of the liquidation of our
assets, the severance payment shall be increased by $81,250.

     For purposes of Mr. Bupp's employment agreement, a change in control
includes:

    o   the acquisition, directly or indirectly, by a person (other than our
        company or an employee benefit plan established by the Board of
        Directors) of beneficial ownership of 15 percent or more of our
        securities with voting power in the next meeting of holders of voting
        securities to elect the directors;

    o   a majority of the directors elected at any meeting of the holders of our
        voting securities are persons who were not nominated by our then current
        Board of Directors or an authorized committee thereof;

    o   our stockholders approve a merger or consolidation of our company with
        another person, other than a merger or consolidation in which the
        holders of our voting securities outstanding immediately before such
        merger or consolidation continue to hold voting securities in the
        surviving or resulting corporation (in the same relative proportions to
        each other as existed before such event) comprising eighty percent (80%)
        or more of the voting power for all purposes of the surviving or
        resulting corporation; or

    o   our stockholders approve a transfer of substantially all of our assets
        to another person other than a transfer to a transferee, eighty percent
        (80%) or more of the voting power of which is owned or controlled by us
        or by the holders of our voting securities outstanding immediately
        before such transfer in the same relative proportions to each other as
        existed before such event.

Mr. Bupp will be paid a severance amount of $406,250 if his employment is
terminated at the end of his employment agreement or without cause and his
benefits will continue for the longer of twenty-four months or the full term of
the agreement.

Compensation Agreements With Other Named Executives

Carl M. Bosch

Employment Agreement. Carl Bosch is employed under a twenty-four month
employment agreement effective January 1, 2005. The employment agreement
provides for an annual base salary of $149,000.

The Compensation Committee will, on an annual basis, review the performance of
our company and of Mr. Bosch and we will pay a bonus to Mr. Bosch as we deem
appropriate, in our discretion. Such review and bonus will be consistent with
any bonus plan adopted by the Compensation Committee that covers the executive
officers of our company generally. Mr. Bosch was paid a bonus of $6,000 relating
to fiscal year 2004.

If a change in control occurs with respect to our company and the employment of
Mr. Bosch is concurrently or subsequently terminated:

    o   without cause (cause is defined as any willful breach of a material duty
        by Bosch in the course of his employment or willful and continued
        neglect of his duty as an employee);

    o   the term of Mr. Bosch's employment agreement expires; or

                                       55


    o   Mr. Bosch resigns because his authority, responsibilities or
        compensation have materially diminished, a material change occurs in his
        working conditions or we breach the agreement;

then, Mr. Bosch will be paid a severance payment of $298,000 and will continue
his benefits for the longer of twelve months or the remaining term of his
employment agreement.

For purposes of Mr. Bosch's employment agreement, a change in control includes:

    o   the acquisition, directly or indirectly, by a person (other than our
        company or an employee benefit plan established by the Board of
        Directors) of beneficial ownership of 30 percent or more of our
        securities with voting power in the next meeting of holders of voting
        securities to elect the directors;

    o   a majority of the directors elected at any meeting of the holders of our
        voting securities are persons who were not nominated by our then current
        Board of Directors or an authorized committee thereof;

    o   our stockholders approve a merger or consolidation of our company with
        another person, other than a merger or consolidation in which the
        holders of our voting securities outstanding immediately before such
        merger or consolidation continue to hold voting securities in the
        surviving or resulting corporation (in the same relative proportions to
        each other as existed before such event) comprising eighty percent (80%)
        or more of the voting power for all purposes of the surviving or
        resulting corporation; or

    o   our stockholders approve a transfer of substantially all of the assets
        of our company to another person other than a transfer to a transferee,
        eighty percent (80%) or more of the voting power of which is owned or
        controlled by us or by the holders of our voting securities outstanding
        immediately before such transfer in the same relative proportions to
        each other as existed before such event.

Mr. Bosch will be paid a severance amount of $149,000 if his employment is
terminated at the end of his employment agreement or without cause, and his
benefits will be continued for up to twelve months.

Rodger A. Brown

Employment Agreement. Rodger Brown is employed under a twenty-four month
employment agreement effective January 1, 2005. The employment agreement
provides for an annual base salary of $124,000.

The terms of Mr. Brown's employment agreement are substantially identical to
Mr. Bosch's employment agreement except that Mr. Brown would be paid $248,000 if
terminated due to a change of control and $124,000 if terminated at the end of
his employment or without cause.

The Compensation Committee will, on an annual basis, review the performance of
our company and of Mr. Brown and we will pay a bonus to Mr. Brown as we deem
appropriate, in our discretion. Such review and bonus will be consistent with
any bonus plan adopted by the Compensation Committee that covers the executive
officers of our company generally. Mr. Brown was paid a bonus of $2,500 relating
to fiscal year 2004.

Brent L. Larson

Employment Agreement. Brent Larson is employed under a twenty-four month
employment agreement effective January 1, 2005. The employment agreement
provides for an annual base salary of $149,000.

The terms of Mr. Larson's employment agreement are substantially identical to
Mr. Bosch's employment agreement.

                                       56


The Compensation Committee will, on an annual basis, review the performance of
our company and of Mr. Larson and we will pay a bonus to Mr. Larson as we deem
appropriate, in our discretion. Such review and bonus will be consistent with
any bonus plan adopted by the Compensation Committee that covers the executive
officers of our company generally. Mr. Larson was paid a bonus of $6,000
relating to fiscal year 2004.


Item 11.  Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters

Equity Compensation Plan Information

The following table sets forth additional information as of December 31, 2004,
concerning shares of our common stock that may be issued upon the exercise of
options and other rights under our existing equity compensation plans and
arrangements, divided between plans approved by our stockholders and plans or
arrangements not submitted to our stockholders for approval. The information
includes the number of shares covered by, and the weighted average exercise
price of, outstanding options and other rights and the number of shares
remaining available for future grants excluding the shares to be issued upon
exercise of outstanding options, warrants, and other rights.



                                                                                              Number of Securities
                                                                                               Remaining Available
                                         Number of Securities                                  for Issuance Under
                                           to be Issued Upon          Weighted-Average         Equity Compensation
                                              Exercise of            Exercise Price of          Plans (Excluding
                                         Outstanding Options,       Outstanding Options,      Securities Reflected
                                          Warrants and Rights       Warrants and Rights          in Column (a))
                                                  (a)                       (b)                        (c)
                                         ----------------------    -----------------------    ----------------------
                                                                                             
Equity compensation plans
  approved by security holders                 4,857,641                     $ 0.59                   359,465

Equity compensation plans
  not approved by security
  holders                                             --                         --                        --
                                         ----------------------    -----------------------    ----------------------

Total                                          4,857,641                     $ 0.59                   359,465
                                         ======================    =======================    ======================


                                       57


Security Ownership of Principal Stockholders, Directors, Nominees and Executive
Officers and Related Stockholder Matters

The following table sets forth, as of March 15, 2005, certain information with
respect to the beneficial ownership of shares of our common stock by: (i) each
person known to us to be the beneficial owner of more than 5 percent of our
outstanding shares of common stock, (ii) each director or nominee for director
of our Company, (iii) each of the Named Executives (see "Executive Compensation
- Summary Compensation Table"), and (iv) our directors and executive officers as
a group.



                                                         Number of
                                                    Shares Beneficially           Percent
        Beneficial Owner                                 Owned(*)               of Class(**)
       ----------------------------------------     -------------------        --------------
                                                                               
        Carl J. Aschinger, Jr.                              63,000(a)                  (q)
        Reuven Avital                                      224,256(b)                  (q)
        Anthony K. Blair                                    50,000(c)                  (q)
        Kirby I. Bland                                      60,000(d)                  (q)
        Carl M. Bosch                                      324,291(e)                  (q)
        Rodger A. Brown                                    234,501(f)                  (q)
        David C. Bupp                                    2,294,646(g)                 3.8%
        Nancy E. Katz                                      117,400(h)                  (q)
        Julius R. Krevans                                  302,000(i)                  (q)
        Brent L. Larson                                    417,305(j)                  (q)
        Fred B. Miller                                     136,000(k)                  (q)
        Douglas L. Rash                                     16,667(l)                  (q)
        J. Frank Whitley, Jr.                              176,000(m)                  (q)
        All directors and officers as a group            4,416,066(n)                 7.1%
        (11 persons)

        Dan Purjes, et al.
        830 Third Avenue, 14th Floor
        New York, NY 10022                               3,913,044(o)                 6.6%

        Great Point Partners, L.P.
        2 Pickwick Plaza, Suite 450
        Greenwich, CT 06830                             30,000,000(p)                33.9%


(*)  Beneficial ownership is determined in accordance with the rules of the
     Securities and Exchange Commission which generally attribute beneficial
     ownership of securities to persons who possess sole or shared voting power
     and/or investment power with respect to those securities. Unless otherwise
     indicated, voting and investment power are exercised solely by the person
     named above or shared with members of such person's household.
(**) Percent of class is calculated on the basis of the number of shares
     outstanding on December 20, 2004, plus the number of shares the person has
     the right to acquire within 60 days of December 20, 2004.
(a)  This amount includes 40,000 shares issuable upon exercise of options which
     are exercisable within 60 days, but does not include 40,000 shares issuable
     upon exercise of options which are not exercisable within 60 days.
(b)  This amount consists of 139,526 shares of our common stock owned by Mittai
     Investments Ltd. (Mittai), an investment fund under the management and
     control of Mr. Avital, and 85,000 shares issuable upon exercise of options
     which are exercisable within 60 days but does not include 40,000 shares
     issuable upon exercise of options which are not exercisable within 60 days.
     The shares held by Mittai were obtained through a distribution of 2,785,123
     shares previously held by Ma'Aragim Enterprise Ltd. (Ma'Aragim) another
     investment fund under the management and control of Mr. Avital. On February
     28, 2005, Ma'Aragim distributed its shares to the partners in the fund. Mr.
     Avital is not an affiliate of the other fund to which the remaining
     2,645,867 shares were distributed. Of the 2,785,123 shares previously held
     by Ma'Aragim, 2,286,712 were acquired in exchange for surrendering its
     shares in Cardiosonix Ltd. on December 31, 2001, in connection with our
     acquisition of Cardiosonix, and 498,411 were acquired by Ma'Aragim based on
     the satisfaction of certain developmental milestones on December 30, 2002,
     associated with our acquisition of Cardiosonix.
(c)  This amount does not include 90,000 shares issuable upon exercise of
     options which are not exercisable within 60 days.

                                       58


(d)  This amount includes 60,000 shares issuable upon exercise of options which
     are exercisable within 60 days but does not include 50,000 shares issuable
     upon exercise of options which are not exercisable within 60 days.
(e)  This amount includes 240,001 shares issuable upon exercise of options which
     are exercisable within 60 days and 44,290 shares in Mr. Bosch's account in
     the 401(k) Plan, but does not include 169,999 shares issuable upon exercise
     of options which are not exercisable within 60 days.
(f)  This amount includes 234,501 shares issuable upon exercise of options which
     are exercisable within 60 days, but does not include 159,999 shares
     issuable upon exercise of options which are not exercisable within 60 days.
(g)  This amount includes 703,334 shares issuable upon exercise of options which
     are exercisable within 60 days, 875,000 warrants which are exercisable
     within 60 days, a promissory note convertible into 250,000 shares of our
     common stock, 50,875 shares that are held by Mr. Bupp's wife for which he
     disclaims beneficial ownership and 64,937 shares in Mr. Bupp's account in
     the 401(k) Plan, but it does not include 506,666 shares issuable upon
     exercise of options which are not exercisable within 60 days.
(h)  This amount includes 117,400 shares issuable upon exercise of options which
     are exercisable within 60 days, but does not include 40,000 shares issuable
     upon the exercise of options which are not exercisable within 60 days.
(i)  This amount includes 302,000 shares issuable upon exercise of options which
     are exercisable within 60 days, but does not include 60,000 shares issuable
     upon exercise of options which are not exercisable within 60 days.
(j)  This amount includes 297,201 shares issuable upon exercise of options which
     are exercisable within 60 days and 44,604 shares in Mr. Larson's account in
     the 401(k) Plan, but it does not include 169,999 shares issuable upon
     exercise of options which are not exercisable within 60 days.
(k)  This amount includes 125,000 shares issuable upon exercise of options which
     are exercisable within 60 days and 11,000 shares held by Mr. Miller's wife
     for which he disclaims beneficial ownership, but does not include 60,000
     shares issuable upon the exercise of options which are not exercisable
     within 60 days.
(l)  This amount includes 16,667 shares issuable upon exercise of options which
     are exercisable within 60 days, but does not include 73,333 shares issuable
     upon exercise of options which are not exercisable within 60 days.
(m)  This amount includes 175,000 shares issuable upon exercise of options which
     are exercisable within 60 days, but does not include 40,000 shares issuable
     upon exercise of options which are not exercisable within 60 days.
(n)  This amount includes 2,391,704 shares issuable upon exercise of options
     which are exercisable within 60 days and 153,831 shares held in the 401(k)
     Plan on behalf of certain officers, but it does not include 1,499,996
     shares issuable upon the exercise of options which are not exercisable
     within 60 days. The Company itself is the trustees of the Neoprobe 401(k)
     Plan and may, as such, share investment power over common stock held in
     such plan. The trustee disclaims any beneficial ownership of shares held by
     the 401(k) Plan. The 401(k) Plan holds an aggregate total of 310,333 shares
     of common stock.
(o)  This amount consists of 434,783 shares owned by MFW Associates, 217,391
     warrants held by MFW associates which are exercisable within 60 days,
     869,565 shares owned collectively by Dan & Edna Purjes, 434,783 warrants
     held collectively by Dan & Edna Purjes which are exercisable within 60
     days, 217,391 shares owned by Y Securities Management, Ltd., 108,696
     warrants held by Y Securities Management, Ltd. which are exercisable within
     60 days, 217,391 shares owned by the Purjes Foundation, 108,696 warrants
     held by the Purjes Foundation which are exercisable within 60 days, 869,565
     shares owned by Dan Purjes IRA and 434,783 warrants held by Dan Purjes IRA
     which are exercisable within 60 days (collectively, Dan Purjes, et al.).
     This amount is based on information provided to us in connection with the
     purchase of these securities in a private placement and subsequent filing
     of a registration statement and represents the best information available
     to us at the time of this filing.
 (p) This amount includes 11,000,000 shares issuable upon conversion of
     promissory notes in the original principal amount of $4,400,000 held by
     Biomedical Value Fund, L.P. (BVF) that are convertible within 60 days,
     9,000,000 shares issuable upon conversion of promissory notes in the
     original principal amount of $3,600,000 held by Biomedical Offshore Value
     Fund, LTD. (BOVF) that are convertible within 60 days, 5,500,000 warrants
     held by BVF that are exercisable within 60 days and 4,500,000 warrants held
     by BOVF that are exercisable within 60 days. BVF and BOVF are investment
     funds managed by Great Point Partners, LLP.
 (q) Less than one percent.


Item 12.  Certain Relationships and Related Transactions

 See Liquidity and Capital Resources in Part II, Item 6 of this Form 10-KSB for
information about our related party transactions.

                                       59



Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

    Exhibit
    Number                       Exhibit Description
    -------                      --------------------
     2.1     Stock Purchase Agreement, dated as of November 29, 2001, by and
             among Neoprobe Corporation, Biosonix, Ltd., and the shareholders
             of Biosonix, Ltd. Named therein (filed as Exhibit 99(b) to the
             Company's Current Report on Form 8-K dated November 29, 2001, and
             incorporated herein by reference).

     3.1     Amended and Restated Certificate of Incorporation of Neoprobe
             Corporation (incorporated by reference to Exhibit 3.1 to the
             Company's September 30, 2001 Form 10-QSB).

     3.2     Amended and Restated By-Laws dated July 21, 1993, as amended July
             18, 1995 and May 30, 1996 (filed as Exhibit 99.4 to the Company's
             Current Report on Form 8-K dated June 20, 1996, and incorporated
             herein by reference).

    10.1     Rights Agreement between the Company and Continental Stock
             Transfer & Trust Company dated as of July 18, 1995 (incorporated
             by reference to Exhibit 1 to the Registration Statement of Form
             8-A, Commission file No. 0-26520).

    10.2     Amendment Number 1 to the Rights Agreement between the Company and
             Continental Stock Transfer & Trust Company dated February 16, 1999
             (incorporated by reference to Exhibit 4.4 to the Company's December
             31, 1998 Form 10-K).

    10.3     Amendment Number 2 to the Rights Agreement between the Company and
             Continental Stock Transfer & Trust Company dated December 31,
             2004.*

    10.4     Common Stock Purchase Agreement between the Company and Fusion
             Capital Fund II, LLC dated November 19, 2001 (incorporated by
             reference to Exhibit 99(b) of the Company's December 3, 2001 Form
             8-K).

    10.5     Shareholder Agreement, dated as of December 31, 2001, by and among
             Neoprobe Corporation and the shareholders of Biosonix, Ltd. named
             therein (incorporated by reference to Exhibit 99(c) to the
             Company's Current Report on Form 8-K dated November 29, 2001).

    10.6     Amended and Restated Stock Option and Restricted Stock Purchase
             Plan dated March 3, 1994 (incorporated by reference to Exhibit
             10.2.26 to the Company's December 31, 1993 Form 10-K).

    10.7     1996 Stock Incentive Plan dated January 18, 1996 as amended March
             13, 1997 (incorporated by reference to Exhibit 10.2.37 to the
             Company's December 31, 1997 Form 10-K).

    10.8     Employment Agreement between the Company and David C. Bupp, dated
             January 1, 2004 (incorporated by reference to Exhibit 10.12 to the
             Company's December 31, 2003 Form 10-KSB).

    10.9     Employment Agreement between the Company and Carl M. Bosch, dated
             January 1, 2005 (Incorporated by reference to Exhibit 10.1 to the
             Company's Current Report on Form 8-K filed January 5, 2005. This
             is one of five substantially identical employment agreements. A
             schedule identifying the other agreements and setting forth the
             material details in which such agreements differ from the one that
             is filed herewith is attached as Exhibit 10.2 to the Company's
             Current Report on Form 8-K filed January 5, 2005).

    10.10    Technology Transfer Agreement dated July 29, 1992 between the
             Company and The Dow Chemical Corporation (portions of this Exhibit
             have been omitted pursuant to a request for confidential treatment
             and have been filed separately with the Commission), (incorporated
             by reference to Exhibit 10.10 to the Company's Form S-1 filed
             October 15, 1992).

                                       60


    10.11    Cooperative Research and Development Agreement between the Company
             and the National Cancer Institute (incorporated by reference to
             Exhibit 10.3.31 to the Company's September 30, 1995 Form 10-QSB).

    10.12    License dated May 1, 1996 between the Company and The Dow Chemical
             Company (incorporated by reference to Exhibit 10.3.45 to the
             Company's June 30, 1996 Form 10-QSB).

    10.13    License Agreement dated May 1, 1996 between the Company and The
             Dow Chemical Company (portions of this Exhibit have been omitted
             pursuant to a request for confidential treatment and have been
             filed separately with the Commission), (incorporated by reference
             to Exhibit 10.3.46 to the Company's June 30, 1996 Form 10-QSB).

    10.14    Supply Agreement between the Company and eV Products dated
             December 8, 1997 (portions of this Exhibit have been omitted
             pursuant to a request for confidential treatment and have been
             filed separately with the Commission), (incorporated by reference
             to Exhibit 10.4.32 to Amendment 2 to the Company's December 31,
             1997 Form 10-K).

    10.15    Distribution Agreement between the Company and Ethicon
             Endo-Surgery, Inc. dated October 1, 1999 (portions of this Exhibit
             have been omitted pursuant to a request for confidential treatment
             and have been filed separately with the Commission), (incorporated
             by reference to Exhibit 10.4.39 to the Company's September 30,
             1999 Form 10-Q).

    10.16    Product Supply Agreement between the Company and UMM Electronics,
             Inc., dated October 25, 2001 (portions of this Exhibit have been
             omitted pursuant to a request for confidential treatment and have
             been filed separately with the Commission), (incorporated by
             reference to Exhibit 10.4.49 to the Company's December 31, 2001
             Form 10-KSB).

    10.17    Product Supply Agreement between the Company and TriVirix
             International, Inc., dated February 5, 2004 (portions of this
             Exhibit have been omitted pursuant to a request for confidential
             treatment and have been filed separately with the Commission).*

    10.18    Senior Secured Note Purchase Agreement dated March 26, 2003
             between the Company and David C. Bupp. (Incorporated by reference
             to Exhibit 99(b) to the Company's Current Report on Form 8-K filed
             April 2, 2003).

    10.19    8.5% Senior Note dated April 2, 2003 between the Company and David
             C. Bupp, as amended March 8, 2004 (incorporated by reference to
             Exhibit 10.24 to the Company's December 31, 2003 Form 10-KSB).

    10.20    Convertible Preferred Note Purchase Agreement dated March 26, 2003
             between the Company and Donald E. Garlikov (Incorporated by
             reference to Exhibit 99(d) to the Company's Current Report on Form
             8-K filed April 2, 2003).

    10.21    9.5% Convertible Secured Note dated April 2, 2003 between the
             Company and Donald E. Garlikov (Incorporated by reference to
             Exhibit 99(e) to the Company's Current Report on Form 8-K filed
             April 2, 2003).

    10.22    Security Agreement dated April 2, 2003 between the Company, David
             C. Bupp and Donald E. Garlikov (Incorporated by reference to
             Exhibit 99(f) to the Company's Current Report on Form 8-K filed
             April 2, 2003).

    10.23    Warrant to Purchase Common Stock of Neoprobe Corporation dated
             March 8, 2004 between the Company and David C. Bupp (incorporated
             by reference to Exhibit 10.28 to the Company's December 31, 2003
             Form 10-KSB).


                                       61


    10.24    Warrant to Purchase Common Stock of Neoprobe Corporation dated
             April 2, 2003 between the Company and Donald E. Garlikov
             (Incorporated by reference to Exhibit 99(g) to the Company's
             Current Report on Form 8-K filed April 2, 2003).

    10.25    Warrant to Purchase Common Stock of Neoprobe Corporation dated
             April 2, 2003 between the Company and David C. Bupp (Incorporated
             by reference to Exhibit 99(h) to the Company's Current Report on
             Form 8-K filed April 2, 2003).

    10.26    Registration Rights Agreement dated April 2, 2003 between the
             Company, David C. Bupp and Donald E. Garlikov (Incorporated by
             reference to Exhibit 99(i) to the Company's Current Report on Form
             8-K filed April 2, 2003).

    10.27    Stock Purchase Agreement dated October 22, 2003 between the
             Company and Bridges & Pipes, LLC. (Incorporated by reference to
             Exhibit 10.32 to the Company's registration statement on Form SB-2
             filed December 2, 2003).

    10.28    Registration Rights Agreement dated October 22, 2003 between the
             Company and Bridges & Pipes, LLC (Incorporated by reference to
             Exhibit 10.33 to the Company's registration statement on Form SB-2
             filed December 2, 2003).

    10.29    Series R Warrant Agreement dated October 22, 2003 between the
             Company and Bridges & Pipes, LLC (Incorporated by reference to
             Exhibit 10.34 to the Company's registration statement on Form SB-2
             filed December 2, 2003).

    10.30    Series S Warrant Agreement dated November 21, 2003 between the
             Company and Alberdale Capital, LLC (Incorporated by reference to
             Exhibit 10.35 to the Company's registration statement on Form SB-2
             filed December 2, 2003).

    10.31    Securities Purchase Agreement, dated as of December 13, 2004, among
             Neoprobe Corporation, Biomedical Value Fund, L.P., Biomedical
             Offshore Value Fund , Ltd. and David C. Bupp. (Incorporated by
             reference to Exhibit 10.1 to the Company's Current Report on Form
             8-K filed December 16, 2004).

    10.32    Form of Neoprobe Corporation 8% Series A Convertible Promissory
             Note. (Incorporated by reference to Exhibit 10.2 to the Company's
             Current Report on Form 8-K filed December 16, 2004. This is the
             form of three substantially identical agreements. A schedule
             identifying the other agreements and setting forth the material
             details in which such agreements differ from the one filed
             as Exhibit 10.4 to the Company's Current Report on Form 8-K filed
             December 16, 2004).

    10.33    Form of Series T Neoprobe Corporation Common Stock Purchase Warrant
             (Incorporated by reference to Exhibit 10.3 to the Company's
             Current Report on Form 8-K filed December 16, 2004.. This is the
             form of three substantially identical agreements. A schedule
             identifying the other agreements and setting forth the material
             details in which such agreements differ from the one that is filed
             herewith is attached as Exhibit 10.4 to the Company's Current
             Report on Form 8-K filed December 16, 2004).

    10.34    Security Agreement, dated as of December 13, 2004, made by
             Neoprobe Corporation in favor of Biomedical Value Fund, L.P.,
             Biomedical Offshore Value Fund, Ltd. and David C. Bupp.
             (Incorporated by reference to Exhibit 10.1 to the Company's
             Current Report on Form 8-K filed December 16, 2004).

    10.35    Form of Series U Warrant Agreement dated December 13, 2004 between
             the Company and the placement agents for the Series A Convertible
             Promissory Notes and Series T Warrants. (This is the form of six
             substantially identical agreements. A schedule identifying the
             other agreements and setting forth the material details in which
             such agreements differ from the one filed herewith is attached as
             Exhibit 10.36.)*

    10.36    Schedule identifying omitted documents.*

    23.1     Consent of KPMG LLP.*

    24.1     Powers of Attorney.*

    31.1     Certification of Chief Executive Officer pursuant to Section 302 of
             the Sarbanes-Oxley Act of 2002.*

                                       62


    31.2     Certification of Chief Financial Officer pursuant to Section 302 of
             the Sarbanes-Oxley Act of 2002.*

    32.1     Certification of Chief Executive Officer of Periodic Financial
             Reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
             18 U.S.C. Section 1350.*

    32.2     Certification of Chief Financial Officer of Periodic Financial
             Reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
             18 U.S.C. Section 1350.*

    *    Filed herewith.


Item 14.  Principal Accountant Fees and Services

Audit Fees. The aggregate fees billed for professional services rendered by KPMG
LLP, for the audits of the company's annual consolidated financial statements
for the 2004 fiscal year and the reviews of the financial statements included in
the company's Quarterly Reports on Form 10-QSB for the fiscal year were $149,500
(including direct engagement expenses). The aggregate fees billed for
professional services rendered by KPMG LLP for the audits of the company's
annual consolidated financial statements for the 2003 fiscal year and the
reviews of the financial statements included in the company's Quarterly Reports
on Form 10-QSB for the fiscal year were $128,900 (including direct engagement
expenses).

Audit-Related Fees. The aggregate fees billed by KPMG LLP for audit-related
services rendered for the company for the 2004 fiscal year were $22,840. The
aggregate fees billed KPMG LLP for audit-related services rendered for the
company and its subsidiaries for the 2003 fiscal year were $11,500.
Audit-related fees generally include fees in support of the company's filing of
registration statements with the SEC and similar matters.

Tax Fees. The aggregate fees billed by KPMG LLP for tax-related services
rendered for the company for the 2004 fiscal year were $6,500. The aggregate
fees billed by KPMG LLP for tax-related services rendered for the company and
its subsidiaries for the 2003 fiscal year were $6,525. The tax-related services
were all in the nature of tax compliance and tax planning.

All Other Fees. The aggregate fees billed for services rendered to the company
by KPMG LLP, other than the audit services, audit-related services, and tax
services, were $0 for the 2004 fiscal year and $0 for the 2003 fiscal year.

Pre-Approval Policy. The Audit Committee is required to pre-approve all auditing
services and permitted non-audit services (including the fees and terms thereof)
to be performed for the company by its independent auditor or other registered
public accounting firm, subject to the de minimis exceptions for non-audit
services described in Section 10A(i)(1)(B) of the Securities Exchange Act of
1934 that are approved by the Audit Committee prior to completion of the audit.

                                       63



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

Dated: March 31, 2005
                                            NEOPROBE CORPORATION
                                            (the Company)

                                            By:  /s/ David C. Bupp
                                               ------------------------------
                                                 David C. Bupp, President and
                                                 Chief Executive Officer



            Signature                         Title                         Date
            ---------                         -----                         ----
                                                                   
/s/David C. Bupp                    Director, President and              March 23, 2005
-------------------------------     Chief Executive Officer
David C. Bupp                       (principal executive officer)


/s/ Brent L. Larson*                Vice President, Finance and          March 15, 2005
-------------------------------     Chief Financial Officer
Brent L. Larson                     (principal financial officer)


/s/ Carl J. Aschinger, Jr.*         Director                             March 24, 2005
-------------------------------
Carl J. Aschinger, Jr.


/s/ Reuven Avital*                  Director                             March 17, 2005
-------------------------------
Reuven Avital


/s/ Kirby I. Bland*                 Director                             March 23, 2005
-------------------------------
Kirby I. Bland


/s/ Nancy E. Katz*                  Director                             March 28, 2005
-------------------------------
Nancy E. Katz


/s/ Julius R. Krevans*              Chairman, Director                   March 24, 2005
-------------------------------
Julius R. Krevans


/s/ Fred B. Miller*                 Director                             March 17, 2005
-------------------------------
Fred B. Miller


/s/ J. Frank Whitley, Jr.*          Director                             March 24, 2005
-------------------------------
J. Frank Whitley, Jr.



*By:     /s/ David C. Bupp
         -------------------------------
         David C. Bupp, Attorney-in-fact



                                       64

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




                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549


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


                              NEOPROBE CORPORATION

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



                            FORM 10-KSB ANNUAL REPORT

                           FOR THE FISCAL YEARS ENDED:

                           DECEMBER 31, 2004 AND 2003






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


                              FINANCIAL STATEMENTS

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





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


                       NEOPROBE CORPORATION and SUBSIDIARY

                          Index to Financial Statements



Consolidated Financial Statements of Neoprobe Corporation

    Report of Independent Registered Public Accounting Firm                  F-2

    Consolidated Balance Sheets as of
        December 31, 2004 and     December 31, 2003                          F-3

    Consolidated Statements of Operations for the years ended
        December 31, 2004 and December 31, 2003                              F-5

    Consolidated Statements of Stockholders' Equity for the years ended
        December 31, 2004 and December 31, 2003                              F-6

    Consolidated Statements of Cash Flows for the years ended
        December 31, 2004 and December 31, 2003                              F-7

    Notes to the Consolidated Financial Statements                           F-8



                                      F-1


Report of Independent Registered Public Accounting Firm



The Board of Directors and Stockholders
Neoprobe Corporation:

We have audited the accompanying consolidated balance sheets of Neoprobe
Corporation and subsidiary as of December 31, 2004 and 2003, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the two-year period ended December 31, 2004. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Neoprobe Corporation
and subsidiary as of December 31, 2004 and 2003, and the results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 2004, in conformity with U.S. generally accepted accounting
principles.

/s/ KPMG LLP

Columbus, Ohio
March 31, 2005

                                      F-2


Neoprobe Corporation and Subsidiary
Consolidated Balance Sheets

December 31, 2004 and 2003



              ASSETS                                                            2004                   2003

                                                                          -----------------      ------------------
                                                                                                
              Current assets:
                  Cash and cash equivalents                                   $  9,842,658            $  1,588,760
                  Accounts receivable, net                                         411,856               1,107,800
                  Inventory                                                        855,022               1,008,326
                  Prepaid expenses and other                                       327,408                 346,449
                                                                          -----------------      ------------------

                       Total current assets                                     11,436,944               4,051,335
                                                                          -----------------      ------------------

              Property and equipment                                             2,341,785               2,237,741
                  Less accumulated depreciation and amortization                 2,003,942               1,875,028
                                                                          -----------------      ------------------

                                                                                   337,843                 362,713
                                                                          -----------------      ------------------

              Patents and trademarks                                             3,155,334               3,156,101
              Non-compete agreements                                               584,516                 584,516
              Acquired technology                                                  237,271                 237,271
                                                                          -----------------      ------------------
                                                                                 3,977,121               3,977,888
                  Less accumulated amortization                                  1,458,012               1,042,373
                                                                          -----------------      ------------------

                                                                                 2,519,109               2,935,515
                                                                          -----------------      ------------------

               Other assets                                                      1,071,999                  35,479
                                                                          -----------------      ------------------

                       Total assets                                          $  15,365,895            $  7,385,042
                                                                          =================      ==================



Continued

                                      F-3


Neoprobe Corporation and Subsidiary
Consolidated Balance Sheets, continued




       LIABILITIES AND STOCKHOLDERS' EQUITY                                            2004                   2003

                                                                                -------------------    -------------------
                                                                                                       
       Current liabilities:
          Notes payable to finance companies                                          $    242,722           $    192,272
          Accounts payable                                                                 198,912                225,032
          Accrued liabilities and other                                                    378,247                227,306
          Capital lease obligations, current                                                13,863                  9,731
          Deferred revenue, current                                                        176,192                886,657
                                                                                -------------------    -------------------

                 Total current liabilities                                               1,009,936              1,540,998
                                                                                -------------------    -------------------

       Capital lease obligations                                                            30,297                 24,009
       Deferred revenue                                                                     57,591                 68,930
       Notes payable to CEO, net of discounts of $32,204 and $12,702                        67,796                237,298
       Notes payable to investor, net of discounts of $2,576,302 and $32,496             5,423,698                217,504
       Liability related to warrants to purchase common stock                            2,560,307                     --
       Other liabilities                                                                    52,440                 37,358
                                                                                -------------------    -------------------

                  Total liabilities                                                      9,202,065              2,126,097
                                                                                -------------------    -------------------
       Commitments and contingencies

       Stockholders' equity:
          Preferred stock; $.001 par value; 5,000,000 shares authorized at
            December 31, 2004 and 2003; none issued and outstanding (500,000
            shares designated as Series A, $.001 par
            value, at December 31, 2004 and 2003; none outstanding)                             --                     --
          Common stock; $.001 par value; 100,000,000 shares
            authorized, 58,378,143 shares issued and outstanding
            at December 31, 2004; 75,000,000 authorized, 51,520,723
            shares issued and outstanding at December 31, 2003                              58,378                 51,521
          Additional paid-in capital                                                   132,123,605            127,684,555
          Accumulated deficit                                                         (126,018,153)          (122,477,131)
                                                                                -------------------    -------------------

                 Total stockholders' equity                                              6,163,830              5,258,945
                                                                                -------------------    -------------------

                     Total liabilities and stockholders' equity                      $  15,365,895          $   7,385,042
                                                                                ===================    ===================



          See accompanying notes to consolidated financial statements.

                                      F-4


Neoprobe Corporation and Subsidiary
Consolidated Statements of Operations



                                                    Years Ended December 31,
                                               --------------------------------
                                                   2004                2003
                                               ------------        ------------
                                                             
Revenues:
   Net sales                                   $  5,352,640        $  5,564,275
   License and other revenue                        600,000             945,633
                                               ------------        ------------
       Total revenues                             5,952,640           6,509,908
                                               ------------        ------------

Cost of goods sold                                2,344,925           3,124,978
                                               ------------        ------------

Gross profit                                      3,607,715           3,384,930
                                               ------------        ------------

Operating expenses:
   Research and development                       2,453,755           1,893,520
   Selling, general and administrative            3,153,059           3,102,535
                                               ------------        ------------
       Total operating expenses                   5,606,814           4,996,055
                                               ------------        ------------

Loss from operations                             (1,999,099)         (1,611,125)
                                               ------------        ------------

Other income (expense):
   Interest income                                   28,869               9,423
   Interest expense                                (334,196)           (186,912)
   Increase in warrant liability                 (1,245,307)                 --
   Other                                              8,711             (10,381)
                                               ------------        ------------
       Total other expenses                      (1,541,923)           (187,870)
                                               ------------        ------------

Net loss                                       $ (3,541,022)       $ (1,798,995)
                                               ============        ============

Net loss per common share:
  Basic                                        $      (0.06)       $      (0.04)
  Diluted                                      $      (0.06)       $      (0.04)

Weighted average shares outstanding:
  Basic                                          56,763,710          40,337,679
  Diluted                                        56,763,710          40,337,679


          See accompanying notes to consolidated financial statements.

                                      F-5


Neoprobe Corporation and Subsidiary
Consolidated Statements of Stockholders' Equity



                                                    Common Stock               Additional
                                            ------------------------------       Paid-in           Accumulated
                                               Shares           Amount           Capital             Deficit            Total
                                            -------------    -------------    ---------------    ----------------    -------------
                                                                                                       
Balance, December 31, 2002                    36,502,183        $  36,502      $ 124,601,770     $  (120,678,136)     $ 3,960,136

Issued contingent stock related to
   2001 acquisition of subsidiary              2,085,826            2,086            285,967                  --          288,053
Removed restrictions on stock
   issued to executives                               --               --             39,990                  --           39,990
Issued warrants in connection with
   issuance of notes payable to CEO
   and investor                                       --               --             72,374                  --           72,374
Effect of beneficial conversion feature of
   note payable to investor                           --               --             40,620                  --           40,620
Issued stock to 401(k) plan at $0.26             100,327              100             25,852                  --           25,952
Issued stock in connection with
   stock purchase agreement                      480,331              481            143,317                  --          143,798
Issued stock and warrants in connection
   with private placement                     12,173,914           12,174          2,497,026                  --        2,509,200
Issued stock and warrants as fees
   to investment banking firms                   178,142              178             56,895                  --           57,073
Paid offering costs related to issuance
   of stock and warrants                              --               --            (79,256)                 --          (79,256)
Net loss                                              --               --                 --          (1,798,995)      (1,798,995)
                                            -------------    -------------    ---------------    ----------------    -------------

Balance, December 31, 2003                    51,520,723           51,521        127,684,555        (122,477,131)       5,258,945

Issued stock upon conversion of
   note payable to investor                    1,098,851            1,099            250,748                  --          251,847
Issued warrants in exchange for
   extension of note payable to CEO                   --               --            171,801                  --          171,801
Issued stock upon exercise of warrants         3,251,354            3,251            874,488                  --          877,739
Issued stock in connection with
   stock purchase agreement                    2,416,129            2,416          1,468,918                  --        1,471,334
Issued stock options to consultants                   --               --            172,736                  --          172,736
Effect of beneficial conversion feature of
   convertible promissory notes                       --               --          1,315,000                  --        1,315,000
Issued warrants as fees to
   investment banking firms                           --               --            208,014                  --          208,014
Issued stock to 401(k) plan at $0.16              91,086               91             14,402                  --           14,493
Paid offering costs related to issuance
   of stock and warrants                              --               --            (37,057)                 --          (37,057)
Net loss                                              --               --                 --          (3,541,022)      (3,541,022)
                                            -------------    -------------    ---------------    ----------------    -------------

Balance, December 31, 2004                    58,378,143        $  58,378      $ 132,123,605     $  (126,018,153)     $ 6,163,830
                                            =============    =============    ===============    ================    =============


          See accompanying notes to consolidated financial statements.

                                      F-6


Neoprobe Corporation and Subsidiary
Consolidated Statements of Cash Flows



                                                                            Years Ended December 31,
                                                                         ------------------------------
                                                                            2004                2003
                                                                         -----------        -----------
                                                                                      
Cash flows from operating activities:
   Net loss                                                              $(3,541,022)       $(1,798,995)

   Adjustments to reconcile net loss to net cash used in operating
   activities:
      Depreciation of property and equipment                                 154,703            246,975
      Amortization of intangible assets                                      434,728            429,360
      Provision for bad debts                                                 79,718             49,582
      Net loss on disposal and abandonment of assets                          11,467             55,235
      Amortization of debt discount and offering costs                       266,580             81,449
      Increase in warrant liability                                        1,245,307                 --
      Stock options granted for research and development                     172,736                 --
      Other                                                                   15,551            134,332
      Change in operating assets and liabilities:
         Accounts receivable                                                 616,226           (411,275)
         Inventory                                                           131,532            169,135
         Prepaid expenses and other assets                                   169,001            471,958
         Accounts payable                                                    (26,120)          (207,108)
         Accrued liabilities and other liabilities                           166,026           (353,186)
         Deferred revenue                                                   (721,804)          (681,897)
                                                                         -----------        -----------

   Net cash used in operating activities                                    (825,371)        (1,814,435)
                                                                         -----------        -----------

Cash flows from investing activities:
   Purchases of property and equipment                                       (87,923)           (75,456)
   Proceeds from sales of property and equipment                               2,960                250
   Patent and trademark costs                                                (25,779)           (34,270)
                                                                         -----------        -----------

   Net cash used in investing activities                                    (110,742)          (109,476)
                                                                         -----------        -----------

Cash flows from financing activities:
   Proceeds from issuance of common stock                                  2,349,073          2,943,797
   Payment of offering costs                                                 (37,057)          (370,056)
   Proceeds from notes payable                                             8,100,000            500,000
   Payment of debt issuance costs                                           (729,978)           (41,666)
   Payment of notes payable                                                 (476,125)          (204,983)
   Payments under capital leases                                             (15,902)           (14,946)
                                                                         -----------        -----------

   Net cash provided by financing activities                               9,190,011          2,812,146
                                                                         -----------        -----------

   Net increase in cash and cash equivalents                               8,253,898            888,235

   Cash and cash equivalents, beginning of year                            1,588,760            700,525
                                                                         -----------        -----------

   Cash and cash equivalents, end of year                                $ 9,842,658        $ 1,588,760
                                                                         ===========        ===========



          See accompanying notes to consolidated financial statements.

                                      F-7


                 Notes to the Consolidated Financial Statements


1.  Organization and Summary of Significant Accounting Policies:

    a.   Organization and Nature of Operations: Neoprobe Corporation (Neoprobe,
         the company, or we), a Delaware corporation, is engaged in the
         development and commercialization of innovative surgical and diagnostic
         products that enhance patient care by meeting the critical decision
         making needs of physicians. We currently manufacture two lines of
         medical devices: the first is a line of gamma radiation detection
         equipment used in the application of intraoperative lymphatic mapping
         (ILM), and the second is a line of blood flow monitoring devices for a
         variety of diagnostic and surgical applications.

         Our gamma detection device products are marketed throughout most of the
         world through a distribution arrangement with Ethicon Endo-Surgery,
         Inc. (EES), a Johnson and Johnson company. For the years ended December
         31, 2004 and 2003, 91% of net sales were made to EES. The loss of this
         customer would have a significant adverse effect on our operating
         results.

         Our blood flow measurement device product line is in the early stages
         of commercialization. Our activity with this product line was initiated
         with our acquisition of Cardiosonix Ltd. (Cardiosonix, formerly
         Biosonix Ltd.), located in Ra'anana, Israel, on December 31, 2001.

         We also have developmental and/or intellectual property rights related
         to two drugs that might be used in connection with gamma detection
         devices in cancer surgeries. The first, RIGScan(R) CR, is intended to
         be used to help surgeons locate cancerous tissue during colorectal
         cancer surgeries. The second, LymphoseekTM, is intended to be used in
         tracing the spread of certain solid tumor cancers. Both of these drug
         products are still in development and must be cleared for marketing by
         the appropriate regulatory bodies before they can be sold in any
         markets.

    b.   Principles of Consolidation: Our consolidated financial statements
         include the accounts of our company and our wholly-owned subsidiary.
         All significant inter-company accounts were eliminated in
         consolidation.

    c.   Fair Value of Financial Instruments: The following methods and
         assumptions were used to estimate the fair value of each class of
         financial instruments:

         (1) Cash and cash equivalents, accounts receivable, accounts payable,
             and accrued liabilities: The carrying amounts approximate fair
             value because of the short maturity of these instruments.

         (2) Notes payable to finance companies: The fair value of our debt is
             estimated by discounting the future cash flows at rates currently
             offered to us for similar debt instruments of comparable
             maturities by banks or finance companies. At December 31, 2004 and
             2003, the carrying values of these instruments approximate fair
             value.

         (3) Notes payable to CEO: The fair value of our debt is presented as
             the face amount of the notes less the unamortized discounts
             related to the value of the beneficial conversion features and the
             estimated fair value of the warrants to purchase common stock
             issued in connection with the notes. At December 31, 2004, the
             fair value of the note payable to our CEO is approximately
             $75,000, as determined by a third-party valuation expert. At
             December 31, 2003, the carrying value of the note payable to our
             CEO approximates fair value.

         (4) Notes payable to outside investors: The fair value of our debt is
             presented as the face amount of the notes less the unamortized
             discounts related to the value of the beneficial conversion
             features and the estimated fair value of the warrants to purchase
             common stock issued in connection with the notes. At December 31,
             2004, the fair value of the note payable to outside investors is
             approximately $6.0 million, as determined by a third-party
             valuation expert. At December 31, 2003, the carrying value of the
             note payable to an outside investor approximates fair value.

                                      F-8


                 Notes to the Consolidated Financial Statements


    d.   Cash and Cash Equivalents: There were no cash equivalents at December
         31, 2004 or 2003. As of December 31, 2004 and 2003, $19,000 and $8,000,
         respectively, was restricted to secure to secure a bank guarantee
         related to a sub-lease agreement for Cardiosonix' office space.

    e.   Inventory: All components of inventory are valued at the lower of cost
         (first-in, first-out) or market. We adjust inventory to market value
         when the net realizable value is lower than the carrying cost of the
         inventory. Market value is determined based on recent sales activity
         and margins achieved. The components of net inventory at December 31,
         2004 and 2003 are as follows:

                                                   2004              2003
                                              --------------    --------------
           Materials and component parts         $  486,323        $  747,788
           Finished goods                           368,699           260,538
                                              --------------    --------------
                                                 $  855,022       $ 1,008,326
                                              ==============    ==============

         During 2004 and 2003, we wrote off $107,000 and $70,000, respectively,
         of excess and obsolete materials, primarily due to design changes of
         our Quantix(R) product line.

    f.   Property and Equipment: Property and equipment are stated at cost.
         Property and equipment under capital leases are stated at the present
         value of minimum lease payments. Depreciation is computed using the
         straight-line method over the estimated useful lives of the depreciable
         assets ranging from 2 to 7 years, and includes amortization related to
         equipment under capital leases. Maintenance and repairs are charged to
         expense as incurred, while renewals and improvements are capitalized.
         Property and equipment includes $56,000 and $80,000 of equipment under
         capital leases with accumulated amortization of $14,000 and $48,000 at
         December 31, 2004 and 2003, respectively. During 2004 and 2003, we
         recorded losses of $4,000 and $20,000, respectively, on the disposal of
         property and equipment.

         The major classes of property and equipment are as follows:



                                                         Useful Life           2004                2003
                                                       ----------------   ----------------   -----------------
                                                                                         
         Production machinery and equipment                5 years            $ 1,060,610         $ 1,050,806
         Other machinery and equipment, primarily
            computers and research equipment             2 - 5 years              663,772             599,193
         Furniture and fixtures                            7 years                360,663             358,760
         Leasehold improvements                         Life of Lease             134,856             117,547
         Software                                          3 years                121,884             111,435
                                                                          ----------------   -----------------
                                                                              $ 2,341,785         $ 2,237,741
                                                                          ================   =================


    g.   Intangible Assets: Intangible assets consist primarily of patents
         and other acquired intangible assets. Intangible assets are stated at
         cost, less accumulated amortization. Patent costs are amortized using
         the straight-line method over the estimated useful lives of the patents
         of 5 to 15 years. Patent application costs are deferred pending the
         outcome of patent applications. Costs associated with unsuccessful
         patent applications and abandoned intellectual property are expensed
         when determined to have no recoverable value. Non-compete agreements
         and acquired technology are amortized using the straight-line method
         over their estimated useful lives of four years and seven years,
         respectively. We evaluate the potential alternative uses of all
         intangible assets, as well as the recoverability of the carrying values
         of intangible assets on a recurring basis.

                                      F-9


                 Notes to the Consolidated Financial Statements


         The major classes of intangible assets are as follows:



                                                    December 31, 2004                         December 31, 2003
                                          ---------------------------------------    -------------------------------------
                                           Gross Carrying         Accumulated         Gross Carrying       Accumulated
                                               Amount             Amortization            Amount           Amortization
                                          -----------------     -----------------    ----------------    -----------------
                                                                                                  
        Patents and trademarks                 $ 3,155,334           $   915,571         $ 3,156,101          $   678,160
        Non-compete agreements                     584,516               440,005             584,516              295,486
        Acquired technology                        237,271               102,436             237,271               68,727
                                          -----------------     -----------------    ----------------    -----------------

        Total                                  $ 3,977,121           $ 1,458,012         $ 3,977,888          $ 1,042,373
                                          =================     =================    ================    =================


         During 2004 and 2003, we recorded general and administrative expenses
         of $442,000 and $459,000, respectively, of intangible asset
         amortization expense. Of those amounts, $7,000 and $30,000,
         respectively, related to the abandonment of gamma detection patents and
         patent applications that were deemed no longer recoverable or part of
         our ongoing business.

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

                                                              Estimated
                                                            Amortization
                                                               Expense
                                                          ----------------

         For the year ended 12/31/2005                    $     423,524
         For the year ended 12/31/2006                          267,576
         For the year ended 12/31/2007                          235,237
         For the year ended 12/31/2008                          205,170
         For the year ended 12/31/2009                          170,940


             h.   Other Assets

         Other assets consist primarily of deferred debt issuance costs. We
         defer costs associated with the issuance of notes payable and amortize
         those costs over the period of the notes using the effective interest
         method. In 2004 and 2003, we incurred $938,000 and $42,000,
         respectively, of debt issuance costs related to notes payable. Of the
         debt issuance costs incurred in 2004, $208,000 was non-cash in nature.
         See Note 6.

    i.   Revenue Recognition

         (1)  Product Sales: We derive revenues primarily from sales of our
              medical devices. We generally recognize sales revenue when the
              products are shipped and the earnings process has been completed.
              Our customers have no right to return products purchased in the
              ordinary course of business.

              Sales prices on gamma detection products sold to EES are subject
              to retroactive annual adjustment based on a fixed percentage of
              the actual sales prices achieved by EES 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 EES, we record sales to EES 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 EES, we record revenue related to these product sales at
              the floor price provided for under our distribution agreement with
              EES.

              We recognize revenue related to the sales of products to be used
              for demonstration units when products are shipped and the earnings
              process has been completed. Our distribution agreements do not
              permit return of 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. To
              the extent we enter into multiple-element arrangements, we
              allocate revenue based on the relative fair value of the elements.

                                      F-10


                 Notes to the Consolidated Financial Statements


         (2)  Extended Warranty Revenue: We derive revenues from the sale of
              extended warranties covering our medical devices over periods of
              one to four years. We recognize revenue from extended warranty
              sales on a pro-rata basis over the period covered by the extended
              warranty. Expenses related to the extended warranty are recorded
              when incurred.

         (3)  Service Revenue: We derive revenues from the repair and service of
              our medical devices that are in use beyond the term of the
              original warranty and that are not covered by an extended
              warranty. We recognize revenue from repair and service activities
              once the activities are complete and the repaired or serviced
              device has been returned to the customer.

         (4)  License Revenue: We recognize license revenue in connection with
              our distribution agreement with EES on a straight-line basis over
              the five-year initial term of the agreement based on our
              obligations to provide ongoing support for the intellectual
              property being licensed such as patent maintenance and regulatory
              filings. As the license relates to intellectual property held or
              licensed to us, we incur no significant cost associated with the
              recognition of this revenue. The license revenue was fully
              recognized as of September 30, 2004.

    j.   Research and Development Costs: All costs related to research and
         development are expensed as incurred.

    k.   Income Taxes: Income taxes are accounted for under the asset and
         liability method. Deferred tax assets and liabilities are recognized
         for the future tax consequences attributable to differences between the
         financial statement carrying amounts of existing assets and
         liabilities, and their respective tax bases and operating loss and tax
         credit carryforwards. Deferred tax assets and liabilities are measured
         using enacted tax rates expected to apply to taxable income in the
         years in which those temporary differences are expected to be recovered
         or settled. The effect on deferred tax assets and liabilities of a
         change in tax rates is recognized in income in the period that includes
         the enactment date.

     l.  Stock Option Plans: At December 31, 2004, we have three stock-based
         employee compensation plans. (See Note 8(a).) We apply the intrinsic
         value-based method of accounting prescribed by Accounting Principles
         Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees,
         and related interpretations, in accounting for our stock options. As
         such, compensation expense is recorded on the date of grant and
         amortized over the period of service only if the current market price
         of the underlying stock exceeds the exercise price. No stock-based
         employee compensation cost related to options is reflected in net
         income (loss), as all options granted under those plans had an exercise
         price equal to the market value of the underlying common stock on the
         date of grant. However, we did incur $39,990 of compensation expense
         related to the vesting of restricted stock during the first quarter of
         2003.

         The fair value of each option grant was estimated on the date of the
         grant using the Black-Scholes option-pricing model with the following
         assumptions for 2004 and 2003, respectively: average risk-free interest
         rates of 3.0% and 2.6%; volatility of 127% for 2004 and 146% for 2003;
         and no dividend rate for any year. The weighted average fair value of
         options granted in 2004 and 2003 was $0.39 and $0.16, respectively.

                                      F-11


                 Notes to the Consolidated Financial Statements


         The following table illustrates the effect on net income (loss) and
         earnings (loss) per share if compensation cost for our stock-based
         compensation plans had been determined based on the fair value at the
         grant dates for awards under those plans consistent with Statement of
         Financial Accounting Standards (SFAS) No. 123, Accounting for
         Stock-Based Compensation:



                                                                                Years Ended December 31,
                                                                          -------------------------------------
                                                                               2004                 2003
                                                                          ----------------     ----------------
                                                                                           
               Net loss, as reported                                        $ (3,541,022)        $ (1,798,995)
               Add:  Total stock-based employee
                  compensation expense included in
                  reported net loss                                                   --               39,990
               Deduct:  Total stock-based employee
                  compensation expense determined under
                  fair value based method for all awards                        (304,266)            (222,210)
                                                                          ----------------     ----------------

               Pro forma net loss                                           $ (3,845,288)        $ (1,981,215)
                                                                          ================     ================

               Loss per common share:
                  As reported (basic and diluted)                           $      (0.06)        $      (0.04)
                  Pro forma (basic and diluted)                             $      (0.07)        $      (0.05)


    m.   Equity Issued to Non-Employees: We account for equity instruments
         granted to non-employees in accordance with the provisions of SFAS No.
         123 and Emerging Issues Task Force Issue No. 96-18, Accounting for
         Equity Instruments that are Issued to Other Than Employees for
         Acquiring, or in Conjunction with Selling, Goods or Services. All
         transactions in which goods or services are the consideration received
         for the issuance of equity instruments are accounted for based on the
         fair value of the consideration received or the equity instrument
         issued, whichever is more reliably measurable. The measurement date of
         the fair value of the equity instrument issued is the earlier of the
         date on which the counterpart's performance is complete or the date on
         which it is probable that performance will occur. During 2004 and 2003,
         we issued 250,000 and 80,000 options, respectively, to non-employee
         consultants. During 2004, we recognized $173,000 of research and
         development expense related to options granted to consultants.

    n.   Use of Estimates: The preparation of financial statements in conformity
         with accounting principles generally accepted in the United States of
         America requires management to make estimates and assumptions that
         affect the reported amounts of assets and liabilities and disclosure of
         contingent assets and liabilities at the date of the financial
         statements and the reported amounts of revenues and expenses during the
         reporting period. Actual results could differ from those estimates.

    o.   Comprehensive Income (Loss): We had no accumulated other comprehensive
         income (loss) activity during the years ended December 31, 2004 and
         2003.

    p.   Impairment or Disposal of Long-Lived Assets: We account for long-lived
         assets in accordance with the provisions of SFAS No. 144, Accounting
         for the Impairment or Disposal of Long-Lived Assets. This Statement
         requires that long-lived assets and certain identifiable intangibles be
         reviewed for impairment whenever events or changes in circumstances
         indicate that the carrying amount of an asset may not be recoverable.
         Recoverability of assets to be held and used is measured by a
         comparison of the carrying amount of an asset to future net
         undiscounted cash flows expected to be generated by the asset. If such
         assets are considered to be impaired, the impairment recognized is
         measured by the amount by which the carrying amount of the assets
         exceeds the fair value of the assets. Assets to be disposed of are
         reported at the lower of the carrying amount or fair value less costs
         to sell.


                                      F-12


                 Notes to the Consolidated Financial Statements


2.   Earnings Per Share:

     Basic earnings (loss) per share are calculated using the weighted average
     number of common shares outstanding during the periods. Diluted earnings
     (loss) per share is calculated using the weighted average number of common
     shares outstanding during the periods, adjusted for the effects of
     convertible securities, options and warrants, if dilutive.



                                                      Year Ended                             Year Ended
                                                  December 31, 2004                       December 31, 2003
                                          -----------------------------------    ------------------------------------
                                              Basic              Diluted              Basic              Diluted
                                             Earnings            Earnings           Earnings            Earnings
                                            Per Share           Per Share           Per Share           Per Share
                                          ---------------     ---------------    ----------------    ----------------
                                                                                            
     Outstanding shares                       58,378,143          58,378,143          51,520,723          51,520,723
     Effect of weighting changes
       in outstanding shares                  (1,484,433)         (1,484,433)        (11,053,044)        (11,053,044)
     Contingently issuable shares               (130,000)           (130,000)           (130,000)           (130,000)
                                          ---------------     ---------------    ----------------    ----------------

     Adjusted shares                          56,763,710          56,763,710          40,337,679          40,337,679
                                          ===============     ===============    ================    ================


    There is no difference in basic and diluted loss per share related to 2004
    or 2003. The net loss per common share for 2004 and 2003 excludes the
    number of common shares issuable upon exercise of outstanding stock
    options, warrants, and convertible debt into our common stock since such
    inclusion would be anti-dilutive.

3.  Accounts Receivable and Concentrations of Credit Risk:

    Accounts receivable at December 31, 2004 and 2003, net of allowance for
    doubtful accounts of $2,000 and $46,000, respectively, consist of the
    following:



                                                                                2004                2003
                                                                           ---------------     ---------------
                                                                                           
          Trade                                                               $   403,674        $  1,063,614
          Other                                                                     8,182              44,186
                                                                           ---------------     ---------------
                                                                              $   411,856        $  1,107,800
                                                                           ===============     ===============


     At December 31, 2004 and 2003, approximately 88% and 85%, respectively, of
     net accounts receivable are due from EES. We do not believe we are exposed
     to significant credit risk related to EES based on the overall financial
     strength and credit worthiness of the customer and its parent company. We
     believe that we have adequately addressed other credit risks in estimating
     the allowance for doubtful accounts.

     We estimate an allowance for doubtful accounts based on a review and
     assessment of specific accounts receivable and write off accounts when
     deemed uncollectible. The activity in the allowance for doubtful accounts
     for the years ended December 31, 2004 and 2003 is as follows:



                                                                                2004                2003
                                                                           ---------------     ---------------
                                                                                           
          Allowance for doubtful accounts at beginning of year                $    46,000        $     29,095
          Provision for bad debts                                                   8,718              49,582
          Write-offs charged against the allowance                                (53,024)            (32,677)
                                                                           ---------------     ---------------
          Allowance for doubtful accounts at end of year                      $     1,694        $     46,000
                                                                           ===============     ===============


                                      F-13


                 Notes to the Consolidated Financial Statements


4.   Accrued Liabilities and Accounts Payable:

     Accrued liabilities at December 31, 2004 and 2003 consist of the following:



                                                                                2004                2003
                                                                           ---------------     ---------------
                                                                                           
          Contracted services and other                                       $   241,608        $    107,843
          Warranty reserve                                                         66,000              53,000
          Compensation                                                             56,547              66,463
          Inventory purchases                                                      14,092                  --
                                                                           ---------------     ---------------
                                                                              $   378,247        $    227,306
                                                                           ===============     ===============


5.   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. Our accrual for warranty expenses is adjusted periodically to
     reflect actual experience. EES 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 EES'
     reimbursement.

     The activity in the warranty reserve account for the years ended December
     31, 2004 and 2003 is as follows:



                                                                                2004                2003
                                                                           ---------------     ---------------
                                                                                           
          Warranty reserve, at beginning of year                              $    53,000        $     35,000
          Provision for warranty claims and
             changes in reserve for warranties                                     20,849              18,464
          Payments charged against the reserve                                     (7,849)               (464)
                                                                           ---------------     ---------------
          Warranty reserve, at end of year                                    $    66,000        $     53,000
                                                                           ===============     ===============


6.   Notes Payable:

     During April 2003, we completed a bridge loan agreement with our President
     and CEO, David Bupp. Under the terms of the agreement, Mr. Bupp advanced us
     $250,000. In consideration for the loan, we issued a note to Mr. Bupp in
     the principal amount of $250,000. The note was secured by general assets of
     the company, excluding accounts receivable. In addition, we issued Mr. Bupp
     375,000 warrants to purchase our common stock at an exercise price of $0.13
     per share, expiring in April 2008. The per share value of these warrants
     was $0.10 on the date of issuance using the Black-Scholes option pricing
     model with the following assumptions: an average risk-free interest rate of
     2.9%, volatility of 139% and no expected dividend rate. The note bore
     interest at 8.5% per annum, payable monthly, and the note was originally
     due on June 30, 2004. On March 8, 2004, at the request of the Board of
     Directors, Mr. Bupp agreed to extend the due date of the note from June 30,
     2004 to June 30, 2005. In exchange for extending the due date of the note,
     we issued Mr. Bupp an additional 375,000 warrants to purchase our common
     stock at an exercise price of $0.50 per share, expiring in March 2009. The
     per share value of these warrants was $0.46 on the date of issuance using
     the Black-Scholes option pricing model with the following assumptions: an
     average risk-free interest rate of 2.7%, volatility of 152% and no expected
     dividend rate. The total estimated fair values for the warrants issued to
     Mr. Bupp in April 2003 and March 2004 were $31,755 and $171,801,
     respectively. These amounts were recorded as discounts on the note and were
     amortized over the period of the note. On December 13, 2004, we paid the
     balance of the note to Mr. Bupp. The discount remaining at the date of
     payment totaling $74,230 was recorded as interest expense.

                                      F-14


                 Notes to the Consolidated Financial Statements


     During April 2003, we also completed a bridge loan agreement with an
     outside investor for an additional $250,000. In consideration for the loan,
     we issued a note to the investor in the principal amount of $250,000. The
     note was secured by general assets of the company, excluding accounts
     receivable. In addition, we issued the investor 500,000 warrants to
     purchase our common stock at an exercise price of $0.13 per share, expiring
     in April 2008. The per share value of these warrants was $0.10 on the date
     of issuance using the Black-Scholes option pricing model with the following
     assumptions: an average risk-free interest rate of 2.9%, volatility of 139%
     and no expected dividend rate. The total estimated fair value for the
     warrants issued to the outside investor was $40,620. Under the terms of the
     agreement, the note bore interest at 9.5% per annum, payable monthly, was
     convertible into common stock and was due on June 30, 2004. Fifty percent
     of the principal and accrued interest of the note was convertible into
     common stock at a 15% discount to the closing market price on the date of
     conversion, subject to a floor conversion price of $0.10. The remaining 50%
     of the principal and accrued interest was convertible into common stock
     based on a 15% discount to the closing market price on the date of
     conversion, subject to a floor conversion price of $0.10 and a ceiling
     conversion price of $0.20. The intrinsic value of the conversion feature of
     the note to the outside investor was estimated at $40,620 based on the
     effective conversion price at the date of issuance and was recorded as an
     additional discount on the note. The estimated fair value of the warrants
     and the intrinsic value of the conversion feature were recorded as
     discounts on the note and were amortized over the term of the note. During
     January 2004, the outside investor converted the entire balance of the note
     into 1.1 million shares of common stock according to the conversion terms
     of the agreement. The total value of the shares issued in conversion of the
     note was $378,955 based on the closing market prices for our common stock
     on the dates of conversion. The discount remaining at conversion totaling
     $27,604 was recorded as interest expense.

     In December 2004, we completed a private placement of convertible
     promissory notes in an aggregate principal amount of $8.1 million with
     Biomedical Value Fund, L.P., Biomedical Offshore Value Fund, Ltd. and David
     C. Bupp (our President and CEO). Biomedical Value Fund, L.P. and Biomedical
     Offshore Value Fund, Ltd. are funds managed by Great Point Partners, LLC.
     The notes bear interest at 8% per annum, payable quarterly on each March
     31, June 30, September 30 and December 31 of each year, and are freely
     convertible into shares of our common stock at a price of $0.40 per share.
     Neoprobe may force conversion of the notes prior to their stated maturity
     under certain circumstances. All of our material assets, except the
     intellectual property associated with our Lymphoseek and RIGS products
     under development, have been pledged as collateral for these notes.

     In addition to the security interest in our assets, the notes carry
     substantial covenants that impose significant requirements on us,
     including, among others, requirements that: we pay all principal, interest
     and other charges on the notes when due; we use the proceeds from the sale
     of the notes only for permitted purposes such as Lymphoseek development and
     general corporate purposes; we nominate and recommend for election as a
     director a person designated by the holders of the notes; we keep reserved
     out of our authorized shares of common stock sufficient shares to satisfy
     our obligation to issue shares on conversion of the notes and the exercise
     of the warrants issued in connection with the sale of the notes; we achieve
     annual revenues on a consolidated basis of at least $5.4 million in 2005,
     $6.5 million in 2006, and $9.0 million in each year thereafter; we maintain
     minimum cash balances of $4.5 million at the end of the first six months of
     2005, $4.0 million at the end of the second six months of 2005, and $3.5
     million at the end of each six-month period thereafter; and we indemnify
     the purchasers of the notes against certain liabilities. Additionally, with
     certain exceptions, the notes prohibit us from: amending our organizational
     or governing agreements and documents, entering into any merger or
     consolidation, dissolving the company or liquidating its assets, or
     acquiring all or any substantial part of the business or assets of any
     other person; engaging in transactions with any affiliate; entering into
     any agreement inconsistent with our obligations under the Notes and related
     agreements; incurring any indebtedness, capital leases, or contingent
     obligations outside the ordinary course of business; granting or permitting
     liens against or security interests in our assets; making any material
     dispositions of our assets outside the ordinary course of business;
     declaring or paying any dividends or making any other restricted payments;
     or making any loans to or investments in other persons outside of the
     ordinary course of business.

                                      F-15


                 Notes to the Consolidated Financial Statements


     As part of this transaction, we issued the investors 10,125,000 Series T
     warrants to purchase our common stock at an exercise price of $0.46,
     expiring in December 2009. The fair value of the warrants issued to the
     investors was $1,315,000 on the date of issuance and was determined by a
     third-party valuation expert using the Black-Scholes option pricing model
     with the following assumptions: an average risk-free interest rate of 3.4%,
     volatility of 50% and no expected dividend rate. In connection with this
     financing, we also issued 1,600,000 warrants to purchase our common stock
     to the placement agents, containing substantially the same terms as the
     warrants issued to the investors. The fair value of the warrants issued to
     the placement agents was $208,014 using the Black-Scholes option pricing
     model with the same assumptions used to determine the fair value of the
     warrants issued to the investors. The intrinsic value of the conversion
     feature of the notes was estimated at $1,315,000 based on the effective
     conversion price at the date of issuance. The fair value of the warrants
     issued to the investors and the intrinsic value of the conversion feature
     were recorded as discounts on the note and will be amortized over the term
     of the note using an effective interest rate of 19.8%. The fair value of
     the warrants issued to the placement agents was recorded as a deferred debt
     issuance cost and will be amortized over the term of the note. See Note
     1(h). If we issue equity at prices below the conversion rate for the
     promissory notes (and for the warrants below the exercise price), then we
     would be required to reset the exercise and conversion prices for these
     securities. This provision results in a contingent beneficial conversion
     feature that may require us to estimate an additional debt discount if a
     reset occurs.

     Current generally accepted accounting principles also require that the
     warrants issued in connection with the placement be classified as a
     liability due to penalty provisions contained in the securities purchase
     agreement. We would be required to pay a penalty of 0.0667% of the total
     debt amount if we fail to meet certain registration deadlines, or if we are
     suspended for more than 30 days. As a liability, the warrants are
     considered a derivative instrument that must be periodically "marked to
     market" on our balance sheet. We estimated the fair value of the warrants
     at December 31, 2004 using the Black-Scholes option pricing model with the
     following assumptions: an average risk-free interest rate of 3.4%,
     volatility of 50% and no expected dividend rate. Because the value of our
     stock increased $0.19 per share from $0.40 per share at the closing date of
     the financing on December 14, 2004 to $0.59 per share at December 31, 2004,
     our year end, the effect of marking the warrant liability to "market"
     resulted in an increase in the estimated fair value of the warrant
     liability of $1.2 million which was recorded as non-cash expense during the
     fourth quarter of 2004. See Note 16(b).

7.   Income Taxes:

     As of December 31, 2004, our net deferred tax assets in the U.S. were
     approximately $37.9 million. Approximately $33.4 million of the deferred
     tax assets relate principally to net operating loss carryforwards of
     approximately $91.4 million available to offset future federal taxable
     income, and net operating loss carryforwards of approximately $41.2 million
     available to offset future state taxable income, if any, through 2024. An
     additional $4.2 million relates to tax credit carryforwards (principally
     research and development) available to reduce future income tax liability
     after utilization of tax loss carryforwards, if any, through 2024. The
     remaining $310,000 relates to temporary differences between the carrying
     amount of assets and liabilities and their tax bases. Due to the
     uncertainty surrounding the realization of these favorable tax attributes
     in future tax returns, all of the net deferred tax assets have been fully
     offset by a valuation allowance at December 31, 2004.

     As of December 31, 2004, Cardiosonix had net deferred tax assets in Israel
     of approximately $2.2 million, primarily related to net operating loss
     carryforwards of approximately $6.1 million available to offset future
     taxable income, if any. Under current Israeli tax law, net operating loss
     carryforwards do not expire. Due to the uncertainty surrounding the
     realization of these favorable tax attributes in future tax returns, all of
     the net deferred tax assets have been fully offset by a valuation allowance
     at December 31, 2004. Since a valuation allowance was recognized for the
     deferred tax asset for Cardiosonix' deductible temporary differences and
     operating loss carryforwards at the acquisition date, the tax benefits for
     those items that are first recognized (that is, by elimination of the
     valuation allowance) in financial statements after the acquisition date
     shall be applied (a) first to reduce to zero other noncurrent intangible
     assets related to the acquisition and (b) second to reduce income tax
     expense.

     Under Sections 382 and 383 of the Internal Revenue Code (IRC) of 1986, as
     amended, the utilization of U.S. net operating loss and tax credit
     carryforwards may be limited under the change in stock ownership rules of
     the IRC. As a result of ownership changes as defined by Sections 382 and
     383, which have occurred at various points in our history, we believe
     utilization of our net operating loss carryfowards and tax credit
     carryforwards may be limited under certain circumstances.

                                      F-16


                 Notes to the Consolidated Financial Statements


8.  Equity:

    a.   Stock Options: At December 31, 2004, we have three stock-based
         compensation plans. Under the Amended and Restated Stock Option and
         Restricted Stock Purchase Plan (the Amended Plan), the 1996 Stock
         Incentive Plan (the 1996 Plan), and the 2002 Stock Incentive Plan (the
         2002 Plan), we may grant incentive stock options, nonqualified stock
         options, and restricted stock awards to full-time employees, and
         nonqualified stock options and restricted awards may be granted to our
         consultants and agents. Total shares authorized under each plan are 2
         million shares, 1.5 million shares and 3 million shares, respectively.
         The Amended Plan was approved by the stockholders in 1994, and although
         options are still outstanding under this plan, the Amended Plan is
         considered expired and no new grants may be made from it. Under all
         three plans, the exercise price of each option is greater than or equal
         to the closing market price of our common stock on the day prior to the
         date of the grant.

         Options granted under the Amended Plan, the 1996 Plan and the 2002 Plan
         generally vest on an annual basis over three years. Outstanding 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 us.

         A summary of the status of stock options under our stock option plans
         as of December 31, 2004 and 2003, and changes during the years ended on
         those dates is presented below:



                                                     2004                                   2003
                                       ----------------------------------     ----------------------------------
                                                             Weighted                              Weighted
                                                             Average                                Average
                                                             Exercise                              Exercise
                                          Options             Price              Options             Price
                                       ---------------    ---------------     --------------    ----------------
                                                                                             
            Outstanding at
               beginning of year            2,931,308             $ 0.56          2,317,725              $ 0.70
            Granted                         2,278,000             $ 0.41          1,030,000              $ 0.18
            Forfeited                        (351,667)            $ 0.30           (416,417)             $ 0.41
            Exercised                              --                 --                 --                  --
                                       ---------------                        --------------

            Outstanding at
               end of year                  4,857,641             $ 0.51          2,931,308              $ 0.56
                                       ===============                        ==============


         Of the options granted during 2004 and 2003, 250,000 and 80,000,
         respectively, were granted to non-employee consultants. All of these
         consultant options remain outstanding as of December 31, 2004. During
         2004, we recognized $173,000 of research and development expense
         related to options granted to consultants.

         Included in outstanding options as of December 31, 2004, are 100,000
         options exercisable at an exercise price of $2.50 per share that vest
         on the meeting of certain company achievements.

         The following table summarizes information about our stock options
         outstanding at December 31, 2004:



                                                Options Outstanding                           Options Exercisable
                                ----------------------------------------------------    ---------------------------------
                                     Number            Weighted                              Number
                                 Outstanding as         Average          Weighted        Exercisable as       Weighted
         Range of Exercise             of              Remaining          Average              of              Average
               Prices             December 31,        Contractual        Exercise         December 31,        Exercise
                                      2004               Life              Price              2004              Price
         -------------------    -----------------    --------------     ------------    -----------------    ------------
                                                                                             
          $ 0.13 - $ 0.30              1,361,668        9 years              $ 0.23              286,674          $ 0.15
          $ 0.31 - $ 0.41              1,237,500        8 years              $ 0.39              520,000          $ 0.40
          $ 0.42 - $ 0.50              1,503,000        7 years              $ 0.47              808,340          $ 0.46
          $ 0.60 - $ 5.63                755,473        5 years              $ 1.29              431,307          $ 1.33
                                -----------------                                       -----------------
                                       4,857,641        8 years              $ 0.51            2,046,321          $ 0.59
                                =================                                       =================


                                      F-17


                 Notes to the Consolidated Financial Statements


    b.   Restricted Stock: During the first quarter of 2003, we vested
         310,000 shares of previously restricted stock related to new or amended
         employment agreements of three of our officers. We recognized $39,990
         of compensation expense related to this transaction in the first
         quarter of 2003. At December 31, 2004, we have 130,000 restricted
         shares outstanding, all of which are pending cancellation due to
         failure to vest under the terms of issuance of these shares. Restricted
         shares, if any, generally vest on a change of control of our company as
         defined in the specific grant agreements. As a result, we have not
         recorded any deferred compensation related to past grants of restricted
         stock due to the inability to assess the probability of the vesting
         event.

    c.   Stock Warrants: At December 31, 2004, there are 17.3 million warrants
         outstanding to purchase our common stock. The warrants are exercisable
         at prices ranging from $0.13 to $0.75 per share with a weighted average
         exercise price per share of $0.40.

         The following table summarizes information about our outstanding
warrants at December 31, 2004:



                              Exercise            Number of
                                Price              Warrants            Expiration Date
                             ----------         --------------        -------------------
                                                              
             Series O           $ 0.75                 25,000            October 2005
             Series O           $ 0.75                 25,000            October 2006
             Series P           $ 0.30                 50,000             June 2005
             Series Q           $ 0.13                875,000             April 2008
             Series Q           $ 0.50                375,000             March 2009
             Series R           $ 0.28              2,952,176            October 2008
             Series S           $ 0.28              1,259,065            October 2008
             Series T           $ 0.46             10,125,000           December 2009
             Series U           $ 0.46              1,600,000           December 2009
                                                --------------
                                $ 0.40             17,286,241
                                                ==============


    d.   Common Stock Reserved: Shares of authorized common stock have been
         reserved for the exercise of all options, warrants, and convertible
         debt outstanding.

    e.   Common Stock Purchase Agreement: On November 19, 2001, we entered
         into a common stock purchase agreement with an investment fund, Fusion
         Capital Fund II, LLC (Fusion) for the issuance and purchase of our
         common stock. Under the stock purchase agreement, Fusion committed to
         purchase up to $10 million of our common stock over a forty-month
         period that commenced in May 2002. A registration statement registering
         for resale up to 5 million shares of our common stock became effective
         on April 15, 2002. Under the terms of the agreement, we can request
         daily drawdowns, subject to a daily base amount currently set at
         $12,500. The number of shares we are to issue to Fusion in return for
         that money will be based on the lower of (a) the closing sale price for
         our common stock on the day of the draw request or (b) the average of
         the three lowest closing sales prices for our common stock during a
         twelve day period prior to the draw request. However, no shares may be
         sold to Fusion at lower than a floor price currently set at $0.30,
         which may be reduced by us, but in no case below $0.20 without Fusion's
         prior consent. Upon execution of the common stock purchase agreement in
         2001, we issued 449,438 shares of our common stock to Fusion as a
         partial payment of the commitment fee. During 2004 and 2003, we sold
         Fusion a total of 2,350,000 and 473,869 shares of common stock and
         realized net proceeds of $1,468,874 and $143,693, respectively. We also
         issued Fusion 66,129 and 6,462 shares of common stock, respectively,
         for commitment fees related to the sales of our common stock to them
         during 2004 and 2003.

    f.   Private Placement: In November 2003, we completed a $2.8 million
         placement of common stock and warrants for net proceeds of $2.4
         million. In the placement, 12,173,914 shares of common stock were
         issued at $0.23 per share, and Series R warrants were issued to
         purchase an additional 6,086,959 shares of common stock at $0.28 per
         share. In addition, we paid $291,000 in cash and issued 1,354,348
         Series S warrants to purchase common stock at $0.28 per share as fees
         to the placement agents. All warrants issued in connection with the
         placement expire in October 2008. The per share value of these warrants
         was $0.31 on the date of issuance using the Black-Scholes option
         pricing model with the following assumptions: an average risk-free
         interest rate of 3.2%, volatility of 151% and no expected dividend
         rate. A registration statement registering for resale the common stock
         and warrants issued in the private placement was declared effective on
         December 17, 2003. During 2004, 3,308,327 of these warrants were
         exercised and we realized net proceeds of $871,398.

                                      F-18


                 Notes to the Consolidated Financial Statements


         During 2003, we engaged the services of two investment banking firms to
         assist us in raising capital, Alberdale Capital, LLC (Alberdale) and
         Trautman Wasserman & Company, Inc. (Trautman Wasserman). In exchange
         for Alberdale's services, we agreed to pay them a monthly retainer of
         $10,000, half payable in cash and half payable in common stock, and we
         agreed to pay them additional compensation upon the successful
         completion of a private placement of our securities. We terminated the
         agreement with Alberdale in September 2003, but agreed to issue them a
         total of 150,943 shares of common stock in payment for one half of
         their retainer. The fair market value of $26,000 related to the shares
         issued to Alberdale was recorded as general and administrative expense
         in 2003. In addition, Series S warrants to purchase 78,261 shares of
         common stock were issued in exchange for their assistance in arranging
         an accounts receivable financing transaction. The warrants have an
         exercise price of $0.28 per share. The per share value of these
         warrants was $0.33 on the date of issuance using the Black-Scholes
         option pricing model with the following assumptions: an average
         risk-free interest rate of 3.1%, volatility of 150% and no expected
         dividend rate. We recorded the estimated fair market value of the
         warrants issued as additional interest expense. In exchange for the
         services of Trautman Wasserman, we agreed to pay a retainer of $10,000,
         payable in cash and common stock, and to pay further compensation upon
         successful completion of a private placement. We issued Trautman
         Wasserman a total of 27,199 shares of common stock in payment for one
         half of their retainer. The fair market value of $5,000 related to the
         shares issued to Trautman Wasserman was recorded as general and
         administrative expense in 2003. The services of Trautman Wasserman were
         terminated in September 2003.

9.   Shareholder Rights Plan:

     During July 1995, our Board of Directors adopted a shareholder rights plan.
     Under the plan, one "Right" is to be distributed for each share of common
     stock held by shareholders on the close of business on August 28, 1995. The
     Rights are exercisable only if a person and its affiliate commences a
     tender offer or exchange offer for 15% or more of our common stock, or if
     there is a public announcement that a person and its affiliate has acquired
     beneficial ownership of 15% or more of the common stock, and if we do not
     redeem the Rights during the specified redemption period. Initially, each
     Right, upon becoming exercisable, would entitle the holder to purchase from
     us one unit consisting of 1/100th of a share of Series A Junior
     Participating preferred stock at an exercise price of $35 (which is subject
     to adjustment). Once the Rights become exercisable, if any person,
     including its affiliate, acquires 15% or more of our common stock, each
     Right other than the Rights held by the acquiring person and its affiliate
     becomes a right to acquire common stock having a value equal to two times
     the exercise price of the Right. We are entitled to redeem the Rights for
     $0.01 per Right at any time prior to the expiration of the redemption
     period. The shareholder rights plan and the Rights will expire on August
     28, 2005. The Board of Directors may amend the shareholder rights plan,
     from time to time, as considered necessary.

10.  Segments and Subsidiary Information:

     a.  Segments: We own or have rights to intellectual property related to two
         gamma detection drugs. We also own or have rights to intellectual
         property involving two primary types of medical device products,
         including gamma detection instruments currently used primarily in the
         application of ILM, and blood flow measurement devices. Prior to 2004,
         gamma detection drugs and devices were reported as one segment. Certain
         2003 amounts have been reclassified to conform to the 2004
         presentation.

                                      F-19



                 Notes to the Consolidated Financial Statements


         The information in the following table is derived directly from each
         segments' internal financial reporting used for corporate management
         purposes. Selling, general and administrative costs and other income
         (expenses), including amortization, interest and other costs that
         relate primarily to corporate activity, are not currently allocated to
         the operating segments for financial reporting purposes.



                                                        Gamma         Gamma
         ($ amounts in thousands)                     Detection     Detection        Blood
         2004                                           Drugs        Devices      Flow Devices   Unallocated      Total
         ----------------------------------------     ---------    -----------   -------------   -----------    ---------
                                                                                                 
         Net sales:
            United States(1)                            $    --      $  5,173        $    --        $    --     $  5,173
            International                                    --            91             89             --          180
         License and other revenue                           --           600             --             --          600
         Research and development expenses                  489           404          1,561             --        2,454
         Selling, general and administrative
            expenses                                         --            --             --          3,153        3,153
         Income (loss) from operations(2)                  (489)         3,342        (1,699)        (3,153)      (1,999)
         Other expenses                                      --            --             --         (1,542)      (1,542)
         Total assets, net of depreciation and
            amortization:
               United States                                  3         1,138             64         11,262       12,467
               Cardiosonix Ltd.                              --            --          2,899             --        2,899
         Capital expenditures                                --            12             22             54           88

         2003
         ----------------------------------------
         Net sales
            United States(1)                            $    --      $  5,284        $    --        $    --     $  5,284
            International                                    --            35            245             --          280
         License and other revenue                           --           946             --             --          946
         Research and development expenses                   56           454          1,384             --        1,894
         Selling, general and administrative
            expenses                                         --            --             --          3,103        3,103
         Income (loss) from operations(2)                   (56)        2,871         (1,323)        (3,103)      (1,611)
         Other expenses                                      --            --             --           (188)        (188)
         Total assets, net of depreciation and
            amortization:
               United States                                 --         1,728            146          1,965        3,839
               Cardiosonix Ltd.                              --            --          3,546             --        3,546
         Capital expenditures                                --            13             50             12           75


xxx

         (1) All sales to EES are made in the United States. EES distributes the
         product globally through its international affiliates.
         (2) Income (loss) from operations does not reflect the allocation of
         selling, general and administrative costs to the operating segments.

     b.  Subsidiary: On December 31, 2001, we acquired 100 percent of the
         outstanding common shares of Cardiosonix, an Israeli company. The
         aggregate purchase price included common stock valued at $4,271,095;
         payment of vested options of Cardiosonix employees in the amount of
         $17,966; and acquisition costs of $167,348. We accounted for the
         acquisition under SFAS No. 141, Business Combinations, and certain
         provisions of SFAS No. 142, Goodwill and Other Intangible Assets. The
         results of Cardiosonix' operations have been included in our
         consolidated results from the date of acquisition.

         As a part of the acquisition, we also entered into a royalty agreement
         with the three founders of Cardiosonix. Under the terms of the royalty
         agreement, which expires December 31, 2006, we are obligated to pay the
         founders an aggregate one percent royalty on up to $120 million in net
         revenue generated by the sale of Cardiosonix blood flow products
         through 2006. As of December 31, 2004, less than $1,000 of royalties
         were accrued under the royalty agreement.

                                      F-20


                 Notes to the Consolidated Financial Statements


11.  Agreements:

     a.  Supply Agreements: In December 1997, we entered into an exclusive
         supply agreement with eV Products (eV), a division of II-VI
         Incorporated, for the supply of certain crystals and associated
         electronics to be used in the manufacture of our proprietary line of
         hand-held gamma detection instruments. The original term of the
         agreement expired on December 31, 2002 and was automatically extended
         during 2002 through December 31, 2005; however, the agreement is no
         longer exclusive. Total purchases under the supply agreement were
         $555,000 and $138,000 for the years ended December 31, 2004 and 2003,
         respectively. We have issued purchase orders for $227,000 of crystal
         modules for delivery of product through July 2005.

         In October 2001, we entered into a manufacturing and supply agreement
         with UMM Electronics, Inc. (UMM), a Leach Technology Group company, for
         the exclusive manufacture of the neo2000(R) control unit and 14mm
         probe. During 2003, we terminated our agreement with UMM for the
         manufacture of the neo2000 control unit and 14mm probe. As a part of
         the termination, we were required to purchase $97,000 in residual
         materials that were not used by UMM, a portion of which will be used in
         production at a new contract manufacturer. Total purchases under the
         manufacturing and supply agreement were $1.5 million for the year ended
         December 31, 2003.

         In February 2004, we entered into a product supply agreement with
         TriVirix International (TriVirix) for the manufacture of the neo2000
         control unit, 14mm probe, 11mm laparoscopic probe, Quantix/ORTM control
         unit and Quantix/NDTM control unit. The initial term of the agreement
         expires in January 2007, but may be automatically extended for
         successive one-year periods. Either party has the right to terminate
         the agreement at any time upon one hundred eighty (180) days prior
         written notice, or may terminate the agreement upon a material breach
         or repeated non-material breaches by the other. Total purchases under
         the product supply agreement were $1.2 million for the year ended
         December 31, 2004. We have issued purchase orders for $1.9 million of
         our products for delivery through December 2006.

     b.  Marketing and Distribution Agreement: During 1999, we entered into a
         distribution agreement with EES covering our gamma detection devices
         used in ILM. The initial five-year term expired December 31, 2004, with
         options to extend for two successive two-year terms. In March 2004, we
         were notified by EES that they were exercising their option to renew
         their distribution agreement with us covering our gamma detection
         devices through the end of 2006. Under the agreement, we manufacture
         and sell our current line of ILM products exclusively to EES, who
         distributes the products globally, except in Japan. EES agreed to
         purchase minimum quantities of our products over the first three years
         of the term of the agreement and to reimburse us for certain research
         and development costs and a portion of our warranty costs. We are
         obligated to continue certain product maintenance activities and to
         provide ongoing regulatory support for the products.

         EES 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 EES, or become insolvent. If
         termination were due to failure to supply or a material breach by us,
         EES 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, EES 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.

         Under the agreement, EES received a non-exclusive worldwide license to
         our ILM intellectual property to make and sell other products that may
         be developed using our ILM intellectual property. The term of the
         license is the same as that of the agreement. EES paid us a
         non-refundable license fee of $4 million. We recognized the license fee
         as revenue on a straight-line basis over the five-year initial term of
         the agreement, and the license fee was fully amortized into income as
         of the end of September 2004. If we terminate the agreement as a result
         of a material breach by EES, they would be required to pay us a royalty
         on all products developed and sold by EES using our ILM intellectual
         property. In addition, we are entitled to a royalty on any ILM product
         commercialized by EES that does not infringe any of our existing
         intellectual property.

                                      F-21


                 Notes to the Consolidated Financial Statements


    c.   Research and Development Agreements: Cardiosonix' research and
         development efforts have been partially financed through grants from
         the Office of the Chief Scientist of the Israeli Ministry of Industry
         and Trade (the OCS). Through the end of 2004, Cardiosonix received a
         total $775,000 in grants from the OCS. In return for the OCS's
         participation, Cardiosonix is committed to pay royalties to the Israeli
         Government at a rate of 3% to 5% of the sales if its products, up to
         300% of the total grants received, depending on the portion of
         manufacturing activity that takes place in Israel. There are no future
         performance obligations related to the grants received from the OCS.
         However, under certain limited circumstances, the OCS may withdraw its
         approval of a research program or amend the terms of its approval. Upon
         withdrawal of approval, Cardiosonix may be required to refund the
         grant, in whole or in part, with or without interest, as the OCS
         determines. As we have notified the OCS of our intent to move parts of
         the manufacturing process outside of Israel, the total amount we will
         have to repay may be 150% to 300% of the amounts of the original
         grants. Through December 2004, we have paid the OCS a total of $18,000
         in royalties related to sales of products developed under this program.
         As of December 31, 2004, our obligation for royalties totaled $2,000.

         During January 2002, we completed a license agreement with the
         University of California, San Diego (UCSD) for a proprietary compound
         that we believe could be used as a lymph node locating agent in ILM
         procedures. The license agreement is effective until the later of the
         expiration date of the longest-lived underlying patent or January 30,
         2023. Under the terms of the license agreement, UCSD has granted us the
         exclusive rights to make, use, sell, offer for sale and import licensed
         products as defined in the agreement and to practice the defined
         licensed methods during the term of the agreement. We may also
         sublicense the patent rights, subject to the approval of certain
         sublicense terms by UCSD. In consideration for the license rights, we
         agreed to pay UCSD a license issue fee of $25,000 and license
         maintenance fees of $25,000 per year. We also agreed to pay UCSD
         milestone payments related to successful regulatory clearance for
         marketing of the licensed products, a royalty on net sales of licensed
         products subject to a $25,000 minimum annual royalty, fifty percent of
         all sublicense fees and fifty percent of sublicense royalties. We also
         agreed to reimburse UCSD for all patent-related costs. Total costs
         related to the UCSD license agreement were $87,000 and $29,000 in 2004
         and 2003, respectively, and were recorded in research and development
         expenses.

         UCSD has the right to terminate the agreement or change the nature of
         the agreement to a non-exclusive agreement if it is determined that we
         have not been diligent in developing and commercializing the covered
         products, marketing the products within six months of receiving
         regulatory approval, reasonably filling market demand or obtaining all
         the necessary government approvals.

    d.   Employment Agreements: We maintain employment agreements with four
         of our officers. The employment agreements contain change in control
         provisions that would entitle each of the officers to two times their
         current annual salaries, vest outstanding restricted stock and options
         to purchase common stock, and continue certain benefits if there is a
         change in control of our company (as defined) and their employment
         terminates. Our maximum contingent liability under these agreements in
         such an event is approximately $1.6 million. The employment agreements
         also provide for severance, disability and death benefits. See Note
         16(c).

         Cardiosonix also maintains employment agreements with two key
         employees. The employment agreements contain provisions that would
         entitle the employees to the greater of one year's salary or the amount
         due under Israeli law if the employee were terminated without cause.
         The agreements also provide for royalty payments to the employees. The
         maximum contingent liability under the agreements, excluding the
         potential royalty, is approximately $55,000. See Note 10(b).



                                      F-22


                 Notes to the Consolidated Financial Statements

12. Leases:

    We lease certain office equipment under capital leases which expire from
    2007 to 2008. In December 1996, we entered into an operating lease
    agreement for office space, which expired in August 2003. In August 2003,
    we entered into a new operating lease agreement for office space, which
    expires in September 2006. See Note 16 (e). In April 2002, Cardiosonix
    entered into an operating sublease agreement for office and parking space
    that expired in April 2004. In June 2004, Cardiosonix entered into a new
    operating sublease agreement for office space that expires in June 2005,
    with an option to extend the sublease through June 2006. In July 2004,
    Cardiosonix entered into a sublease agreement for parking space that
    expires in June 2005, and automatically renews until either party
    terminates the agreement. In addition, Cardiosonix leases two automobiles
    under three-year operating leases.

    The future minimum lease payments for the years ending December 31 are as
    follows:

                                                 Capital            Operating
                                                  Leases              Leases
                                                --------------    ------------

         2005                                      $   18,308      $  145,562
         2006                                          18,308         123,484
         2007                                           9,502          99,757
         2008                                           7,300           8,313
         2009                                              --              --
                                                --------------    ------------
                                                       53,418      $  377,116
                                                                  ============
         Less amount representing interest              9,258
                                                --------------
         Present value of net minimum
            lease payments                             44,160
         Less current portion                          13,863
                                                --------------
         Capital lease obligations,
            excluding current portion              $   30,297
                                                ==============

    Total rental expense, net of sublease rental income of $82,000 in 2003, was
    $218,000 and $238,000 for the years ended December 31, 2004 and 2003,
    respectively.

13. 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
    $19,000 and $14,000 during 2004 and 2003, respectively, related to common
    stock to be subsequently contributed to the plan.

14. Supplemental Disclosure for Statements of Cash Flows:

    We paid interest aggregating $52,000 and $94,000 for the years ended
    December 31, 2004 and 2003, respectively. During 2004 and 2003, we
    purchased equipment under capital leases totaling $27,000 and $29,000,
    respectively. During 2004 and 2003, we transferred $22,000 and $14,000,
    respectively, in inventory to fixed assets related to the creation and
    maintenance of a pool of service loaner equipment. Also during 2004 and
    2003, we prepaid $277,000 and $225,000, respectively, in insurance through
    the issuance of notes payable to finance companies with weighted average
    interest rates of 5% and 6%, respectively. The notes payable to finance
    companies issued in 2004 mature in August and October, 2005.

15. 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.

                                      F-23


                 Notes to the Consolidated Financial Statements

16.  Subsequent Events:

     a.  CIRA Biosciences, Inc.: In January 2005, we formed a new corporation,
         CIRA Biosciences, Inc. (CIRA Bio), to explore the development of
         patient-specific cellular therapies that have shown positive patient
         responses in a variety of clinical settings. CIRA Bio will combine our
         Activated Cellular Therapy technology for patient-specific oncology
         treatment with similar technology licensed from CIRA LLC, a privately
         held company, for treating viral and autoimmune diseases. Following the
         formation of CIRA Bio, Neoprobe owns approximately 90% of the
         outstanding shares of CIRA Bio with the remaining shares being held by
         the principals of CIRA LLC.

     b.  Warrant Liability: Subsequent to December 31, 2004, Neoprobe and the
         investors have confirmed in writing their intention that the penalty
         provisions which led to this accounting treatment were intended to
         apply only to the $8.1 million principal balance of the promissory
         notes and underlying conversion shares and not to the warrant shares.
         As such, we intend to reclassify the estimated fair value of the
         warrant liability to additional paid-in capital during the first
         quarter of 2005. See Note 6.

     c.  Warrant Exercises: During the first quarter of 2005, certain
         investors exercised a total of 206,865 warrants to purchase our common
         stock and we realized proceeds of $57,922. See Note 8(c).

     d.  Employment Agreements: Effective January 1, 2005, we entered into
         new employment agreements with five executive officers. The new
         agreements have substantially similar terms to the previous agreements,
         except that two of the officers would only be entitled to their current
         annual salaries in the event of termination of their employment
         resulting from a change in control of the company. The maximum
         contingent liability under these agreements in the event of termination
         is $1.9 million. See Note 11(d).

     e.  Operating Lease: In February 2005, we entered into a three-year
         operating lease agreement for additional office space. The additional
         lease payments total approximately $22,000 per year. See Note 12.

                                      F-24


                 Notes to the Consolidated Financial Statements


17.  Supplemental Information (Unaudited):

     The following summary financial data are derived from our consolidated
     financial statements that have been audited by our independent registered
     public accounting firm. These data are qualified in their entirety by, and
     should be read in conjunction with, our Consolidated Financial Statements
     and Notes thereto included herein.



     (Amounts in thousands, except per share                          Years Ended December 31,
     data)
                                               ----------------------------------------------------------------

                                                  2004          2003          2002          2001          2000
                                                  ----          ----          ----          ----          ----
                                                                                      
Statement of Operations Data:
Net sales                                      $  5,353      $  5,564      $  3,383      $  6,764      $  8,835
License and other revenue                           600           946         1,538         1,428         1,395
Gross profit                                      3,608         3,385         2,570         3,802         5,240
Research and development expenses                 2,454         1,894         2,324           948           993
Selling, general and administrative
  expenses                                        3,153         3,103         3,267         2,321         2,911
Acquired in-process research and
  development                                        --            --           (28)          885            --
                                               --------      --------      --------      --------      --------
(Loss) income from operations                    (1,999)       (1,611)       (2,993)         (352)        1,336

Other (expenses) income                          (1,542)         (188)           29           370           504
                                               --------      --------      --------      --------      --------

Net (loss) income                              $ (3,541)     $ (1,799)     $ (2,964)     $     15      $  1,840
                                               --------      --------      --------      --------      --------
(Loss) income attributable to common
   stockholders                                $ (3,541)     $ (1,799)     $ (2,964)     $     15      $  1,075
                                               ========      ========      ========      ========      ========

(Loss) Income per common share:
   Basic                                       $  (0.06)     $  (0.04)     $  (0.08)     $   0.00      $   0.04
   Diluted                                     $  (0.06)     $  (0.04)     $  (0.08)     $   0.00      $   0.04

Shares used in computing (loss) income per
   common share: (1)
   Basic                                         56,764        40,338        36,045        25,899        25,710
   Diluted                                       56,764        40,338        36,045        26,047        26,440

                                                                           As of December 31,
                                               -----------------------------------------------------------------

                                                  2004          2003          2002          2001          2000
                                                  ----          ----          ----          ----          ----
Balance Sheet Data:
Total assets                                   $ 15,366      $  7,385     $   7,080      $ 11,329      $  7,573
Long-term obligations                             8,192           585         1,169         1,981         2,233
Accumulated deficit                            (126,018)     (122,477)     (120,678)     (117,714)     (117,729)


    (1) Basic earnings (loss) per share are calculated using the weighted
        average number of common shares outstanding during the periods. Diluted
        earnings (loss) per share is calculated using the weighted average
        number of common shares outstanding during the periods, adjusted for the
        effects of convertible securities, options and warrants, if dilutive.

                                      F-25

                                                                    Exhibit 31.1

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
            PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David C. Bupp, certify that:

     1. I have reviewed this annual report on Form 10-KSB of Neoprobe
Corporation;

     2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

     4. The small business issuer's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small
business issuer and have:

         (a) Designed such disclosure controls and procedures, or caused such
     disclosure controls and procedures to be designed under our supervision, to
     ensure that material information relating to the registrant, including its
     consolidated subsidiaries, is made known to us by others within those
     entities, particularly during the period in which this report is being
     prepared;

         (b) Evaluated the effectiveness of the small business issuer's
     disclosure controls and procedures and presented in this report our
     conclusions about the effectiveness of the disclosure controls and
     procedures, as of the end of the period covered by this report based on
     such evaluation; and

         (c) Disclosed in this report any change in the small business issuer's
     internal control over financial reporting that occurred during the small
     business issuer's most recent fiscal quarter (the small business issuer's
     fourth fiscal quarter in the case of an annual report) that has materially
     affected, or is reasonably likely to materially affect, the small business
     issuer's internal control over financial reporting; and

     5. The small business issuer's other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of small business issuer's board of directors (or persons performing
the equivalent functions):

         (a) All significant deficiencies and material weaknesses in the design
     or operation of internal control over financial reporting which are
     reasonably likely to adversely affect the registrant's ability to record,
     process, summarize and report financial information; and

         (b) Any fraud, whether or not material, that involves management or
     other employees who have a significant role in the small business issuer's
     internal control over financial reporting.


March 31, 2005                         /s/ David C. Bupp
                                       -----------------------------------
                                       David C. Bupp
                                       President and Chief Executive Officer




                                                                    Exhibit 31.2

                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
            PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Brent L. Larson, certify that:

     1. I have reviewed this annual report on Form 10-KSB of Neoprobe
Corporation;

     2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

     4. The small business issuer's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small
business issuer and have:

         (a) Designed such disclosure controls and procedures, or caused such
     disclosure controls and procedures to be designed under our supervision, to
     ensure that material information relating to the small business issuer,
     including its consolidated subsidiaries, is made known to us by others
     within those entities, particularly during the period in which this report
     is being prepared;

         (b) Evaluated the effectiveness of the small business issuer's
     disclosure controls and procedures and presented in this report our
     conclusions about the effectiveness of the disclosure controls and
     procedures, as of the end of the period covered by this report based on
     such evaluation; and

         (c) Disclosed in this report any change in the small business issuer's
     internal control over financial reporting that occurred during the small
     business issuer's most recent fiscal quarter (the small business issuer's
     fourth fiscal quarter in the case of an annual report) that has materially
     affected, or is reasonably likely to materially affect, the small business
     issuer's internal control over financial reporting; and

     5. The small business issuer's other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):

         (a) All significant deficiencies and material weaknesses in the design
     or operation of internal control over financial reporting which are
     reasonably likely to adversely affect the small business issuer's ability
     to record, process, summarize and report financial information; and

         (b) Any fraud, whether or not material, that involves management or
     other employees who have a significant role in the small business issuer's
     internal control over financial reporting.


March 31, 2005                                   /s/ Brent L. Larson
                                                 -----------------------------
                                                 Brent L. Larson
                                                 Vice President, Finance and
                                                 Chief Financial Officer




                                                                    Exhibit 32.1


             CERTIFICATION OF PERIODIC FINANCIAL REPORT PURSUANT TO
      SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002,18 U.S.C. SECTION 1350


         The undersigned hereby certifies that he is the duly appointed and
acting Chief Executive Officer of Neoprobe Corporation (the "Company") and
hereby further certifies as follows:

         (1) The periodic report containing financial statements to which this
certificate is an exhibit fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and

         (2) The information contained in the periodic report to which this
certificate is an exhibit fairly presents, in all material respects, the
financial condition and results of operations of the Company.

         In witness whereof, the undersigned has executed and delivered this
certificate as of the date set forth opposite his signature below.



March 31, 2005                         /s/ David C. Bupp
                                       -----------------------------------
                                       David C. Bupp
                                       President and Chief Executive Officer




                                                                    Exhibit 32.2

             CERTIFICATION OF PERIODIC FINANCIAL REPORT PURSUANT TO
      SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, 18 U.S.C. SECTION 1350


         The undersigned hereby certifies that he is the duly appointed and
acting Chief Financial Officer of Neoprobe Corporation (the "Company") and
hereby further certifies as follows:

         (1) The periodic report containing financial statements to which this
certificate is an exhibit fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and

         (2) The information contained in the periodic report to which this
certificate is an exhibit fairly presents, in all material respects, the
financial condition and results of operations of the Company.

         In witness whereof, the undersigned has executed and delivered this
certificate as of the date set forth opposite his signature below.



March 31, 2005                                   /s/ Brent L. Larson
                                                 -----------------------------
                                                 Brent L. Larson
                                                 Vice President, Finance and
                                                 Chief Financial Officer