UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K



(Mark One)

| | x | ANNUAL
                                                                                                      REPORT PURSUANT TO SECTION
                                                                                                      13 OR 15(d) OF THE SECURITIES
                                                                                                      EXCHANGE ACT OF 1934
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For the fiscal year ended December
31, 2012



or



| |  ̈ | TRANSITION
                                                                                                          REPORT PURSUANT TO SECTION
                                                                                                          13 OR 15(d) OF THE EXCHANGE
                                                                                                          ACT
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For the transition period from to to



Commission file number 001-35076



|NAVIDEA
    BIOPHARMACEUTICALS, INC.                      
|----------------------------------------------------------
|(Exact name of registrant
    as specified in its charter)



|Delaware                                                               |  | 31-1080091                          
|---------------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of
        incorporation or organization) |  | (I.R.S. Employer Identification No.)
|425
    Metro Place North, Suite 450, Dublin, Ohio                     |  | 43017-1367                          
|(Address of principal executive offices)                               |  | (Zip Code)                          



Registrant's telephone number, including area code (614)
793-7500



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



|Common
    Stock, par value $.001 per share |  | NYSE
    MKT                               
|------------------------------------------- |  | -------------------------------------------
|(Title of Class)                            |  | (Name of Each Exchange on Which Registered)



Securities registered pursuant to Section 12(g) of the Act:
None



Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.

Yes ̈Nox



Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ̈Nox



Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.

YesxNo ̈



Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files).

YesxNo ̈



Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.

 ̈



Indicate by check mark whether the registrant is a large accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.



| | Large accelerated filer ̈ | Accelerated filerx        
| | ------------------------ | --------------------------
| | Non-accelerated filer ̈   | Smaller reporting company ̈



Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12-b-2 of the Act.)

Yes ̈Nox



The aggregate market value of shares of common stock held by
non-affiliates of the registrant on June 30, 2012 was $355,918,124.



The number of shares of common stock outstanding on March 1,
2013 was 117,610,966.



DOCUMENTS INCORPORATED BY REFERENCE



None.











References
in this report to Navidea Biopharmaceuticals, Navidea, the Company, we, our and us refer to Navidea Biopharmaceuticals, Inc. and
its subsidiaries on a consolidated basis. In January 2012, we changed our name to Navidea Biopharmaceuticals, Inc. from Neoprobe
Corporation. Navidea was chosen as the new name to reflect the Company’s dedication to “NAVigating IDEAs” that
translate cutting edge innovation and precision diagnostics technology into novel products to advance patient care. Historical
references within this Annual Report on Form 10-K to Neoprobe Corporation have therefore generally been revised to refer to our
new name.



The Private Securities Litigation Reform Act of 1995 (the
Act) provides a safe harbor for forward-looking statements made by or on behalf of the Company. Statements in this document which
relate to other than strictly historical facts, such as statements about the Company’s plans and strategies, expectations
for future financial performance, new and existing products and technologies, anticipated clinical and regulatory pathways, the
ability to obtain, and timing of, regulatory approvals of the Company’s products, the timing and anticipated results of
commercialization efforts, and anticipated markets for the Company’s products, are forward-looking statements within the
meaning of the Act.  The words “believe,” “expect,” “anticipate,” “estimate,”
“project,” and similar expressions identify forward-looking statements that speak only as of the date hereof. 
Investors are cautioned that such statements involve risks and uncertainties that could cause actual results to differ materially
from historical or anticipated results due to many factors including, but not limited to, the Company’s continuing operating
losses, uncertainty of regulatory approvals for and market acceptance of its products, reliance on third party manufacturers,
accumulated deficit, future capital needs, uncertainty of capital funding, dependence on limited product line and distribution
channels, competition, limited marketing and manufacturing experience, risks of development of new products, and other risks set
forth below under Item 1A, “Risk Factors”.  The Company undertakes no obligation to publicly update or revise
any forward-looking statements.



PART I



Item 1. Business



Development of the Business



Navidea Biopharmaceuticals, Inc., a Delaware corporation, is
a biopharmaceutical company focused on the development and commercialization of precision diagnostics and radiopharmaceutical
agents. Our Company’s core mission is to bring the next generation of precision radiopharmaceutical agents to market so
doctors and patients can readily access, and benefit from, cutting-edge diagnostic science.



For patients and physicians, we aspire to provide innovative
diagnostic imaging agents to improve patient care for serious diseases. For our shareholders, we aim to deliver superior growth
through our focus on our innovative diagnostics platforms and products and efficient business processes. For our employees, we
provide a culture focused on the direct impact our efforts can have on patients and an innovative development environment enabling
new breakthrough products.



Navidea’s current radiopharmaceutical development programs
include:



| | · | Lymphoseek®(technetium
                                                                                                               Tc 99m tilmanocept)
                                                                                                               Injection is a
                                                                                                               novel, receptor-targeted,
                                                                                                               small-molecule,
                                                                                                               radiopharmaceutical
                                                                                                               designed for use
                                                                                                               in lymphatic mapping
                                                                                                               procedures that
                                                                                                               are performed to
                                                                                                               help stage certain
                                                                                                               solid tumors. Lymphoseek
                                                                                                               is intended to
                                                                                                               help identify the
                                                                                                               lymph nodes that
                                                                                                               drain from a primary
                                                                                                               tumor, which have
                                                                                                               the highest probability
                                                                                                               of harboring cancer.
                                                                                                               Lymphoseek was
                                                                                                               approved for use
                                                                                                               in lymphatic mapping
                                                                                                               for breast cancer
                                                                                                               and melanoma by
                                                                                                               the U.S. Food and
                                                                                                               Drug Administration
                                                                                                               (FDA) on March
                                                                                                               13, 2013. Additional
                                                                                                               trials, two of
                                                                                                               which are already
                                                                                                               ongoing in head
                                                                                                               and neck cancer
                                                                                                               and colorectal
                                                                                                               cancer, are anticipated
                                                                                                               to provide support
                                                                                                               for expanding the
                                                                                                               utilization of
                                                                                                               Lymphoseek into
                                                                                                               multiple other
                                                                                                               cancer types.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | NAV4694 is
                                                                                                               an F-18 radiolabeled
                                                                                                               positron emission
                                                                                                               tomography (PET)
                                                                                                               imaging agent being
                                                                                                               developed as an
                                                                                                               aid in the diagnosis
                                                                                                               of patients with
                                                                                                               signs or symptoms
                                                                                                               of cognitive impairment
                                                                                                               such as Alzheimer’s
                                                                                                               disease (AD).
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2







| | · | NAV5001 is
                                                                                                               an Iodine-123 radiolabeled
                                                                                                               single photon emission
                                                                                                               computed tomography
                                                                                                               (SPECT) imaging
                                                                                                               agent being developed
                                                                                                               as an aid in the
                                                                                                               diagnosis of Parkinson’s
                                                                                                               disease (PD) and
                                                                                                               other movement
                                                                                                               disorders, with
                                                                                                               potential additional
                                                                                                               use as a diagnostic
                                                                                                               aid in dementia.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | RIGScanTM
                                                                                                               is a radiolabeled
                                                                                                               monoclonal antibody
                                                                                                               being developed
                                                                                                               as a diagnostic
                                                                                                               aid for use during
                                                                                                               surgery to help
                                                                                                               surgeons locate
                                                                                                               occult or metastatic
                                                                                                               cancer, with a
                                                                                                               primary focus on
                                                                                                               colorectal cancer.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



A Brief Look at Our History



We were originally incorporated in Ohio in 1983 and reincorporated
in Delaware in 1988. From inception until January 2012, we operated under the name Neoprobe Corporation. In January 2012, we changed
our name to Navidea Biopharmaceuticals, Inc. in connection with both the sale of our medical device business and our strategic
repositioning as a precision diagnostics company focused on “NAVigating IDEAS” that result in the development and
commercialization of precision diagnostic pharmaceuticals.



Since our inception, the majority of our efforts and resources
have been devoted to the research and clinical development of radiopharmaceutical technologies primarily related to the intraoperative
diagnosis and treatment of cancers. From the late 1990’s through 2011, we devoted substantial effort towards the development
and commercialization of medical devices, including a line of handheld gamma detection devices which was sold in 2011 and a line
of blood flow measurement devices which we operated from 2001 through 2009.



From our
inception through August 2011, we manufactured a line of gamma radiation detection medical devices called the neoprobe®GDS system (the GDS Business). From October 1999 through July 2010, the GDS products were marketed throughout most of the
world through a distribution arrangement with Ethicon Endo-Surgery, Inc. (EES), a Johnson & Johnson company. From July 2010
through August 2011, the neoprobe GDS system products were marketed through a distribution arrangement with Devicor Medical Products,
Inc. (Devicor), a successor to EES. During the fiscal years ended December 31, 2011 and 2010, we derived revenue from the sale
of our GDS system products of $7.6 million and $10.0 million, respectively. Of those amounts, $7.4 million and $9.8 million, respectively,
were derived from the sale of our GDS system products in the United States, and $166,000 and $182,000, respectively, were derived
from the sale of our GDS system products in foreign countries.



In July
2010, Devicor acquired EES’s breast biopsy business, including an assignment of the distribution agreement with Navidea.
Shortly after this acquisition, Devicor approached us regarding its interest in acquiring the GDS Business. After careful consideration
of Devicor’s proposal and in-depth discussion regarding the changes this transaction would have on our strategy and focus,
the Company’s Board of Directors authorized the sale of the GDS Business to Devicor (the Asset Sale) and we executed an
Asset Purchase Agreement (APA) with Devicor in May 2011. Our stockholders approved the Asset Sale at our Annual Meeting of Stockholders
on August 15, 2011, and the Asset Sale closed on August 17, 2011, consistent with the terms of the APA. Under the terms of the
APA, we sold the assets and assigned certain liabilities that were primarily related to the GDS Business. In exchange for the
assets of the GDS Business, Devicor made net cash payments to us totaling $30.3 million, assumed certain liabilities of the Company
associated with the GDS Business, and agreed to make royalty payments to us of up to an aggregate maximum amount of $20 million
based on the net revenue attributable to the GDS Business over the course of the next six fiscal years.



The cornerstone of our current business was established in
2001 when we restarted our pharmaceutical development by entering into a worldwide license agreement for Lymphoseek with the Regents
of the University of California through their San Diego affiliate (UCSD). In 2004, we initiated our first corporate-sponsored
clinical trial of Lymphoseek. Our business strategy is focused on advancing Navidea as a leader in the area of precision diagnostics,
a field aimed at helping physicians deliver the right treatment to the right patient at the right time.



3







Our Technology and Product Candidates



We have a deep understanding of and experience in translating
precision diagnostics technology, particularly in the area of radiopharmaceuticals, into novel products to advance patient care.
Innovative precision diagnostic agents hold the potential to improve diagnostic accuracy, clinical decision-making and patient
care. Navidea’s pipeline includes clinical-stage radiopharmaceutical agents used to identify the presence and status of
disease to achieve these objectives.



Lymphoseek – The First and Only FDA-Approved Receptor-Targeted
Radiopharmaceutical Lymphatic Mapping Agent



Lymphoseek is a lymph node
targeting radiopharmaceutical agent intended for use in intraoperative lymphatic mapping (ILM) procedures and lymphoscintigraphy
employed in the overall diagnostic assessment of certain solid tumor cancers. Lymphoseek has the potential to provide oncology
surgeons with information to identify key predictive lymph nodes that may harbor cancer and to help avoid the unnecessary removal
of non-cancerous lymph nodes and the surrounding tissue in patients with a variety of solid tumor cancers.Lymphoseek was
approved and indicated for use in lymphatic mapping for breast cancer and melanoma by the FDA on March 13, 2013. Additional trials,
two of which are already ongoing in head and neck cancer and colorectal cancer, are anticipated to provide support for expanding
the utilization of Lymphoseek into multiple other cancer types.



The Lymph System: Infection Fighter and Cancer Conduit



The lymph system is a critical component of the body’s
immune system. Comprised of a complex network of organs, nodes, ducts and vessels, the lymph system transports lymph – a
fluid rich in white blood cells, known as lymphocytes – from tissues into the bloodstream. The key components of the lymph
system are lymph nodes – small anatomic structures that contain disease-fighting lymphocytes, filter lymph of bacteria and
cancer cells, and signal infection in response to heightened levels of pathogens.



The lymph system is also a common pathway for cancer to spread,
or metastasize. In fact, malignant cells will often infiltrate lymph nodes as an initial step of the metastatic process. An assessment
of the degree of lymph node involvement is instrumental to staging cancer, enabling suitable treatment regimens and offering more
accurate prognosis. Studies in a broad range of malignancies demonstrate that the greater the extent of lymph node involvement,
the poorer the likely outcome.



ILM: Targeting High-Risk Nodes



Until the 1990s, cancer patients would often undergo extensive
surgeries involving the removal and biopsy of large numbers of lymph nodes to assess disease progress. Studies subsequently showed
that as many as 80 percent of node dissections ultimately revealed no sign of cancer, exposing patients to significant pain, morbidity,
debilitating adverse effects and long recovery times for little benefit.



Over the last two decades, ILM, using injected dyes or radiopharmaceutical
agents, has become a widely accepted, less invasive technique to identify potentially cancerous lymph nodes. Upon injection, these
tracing agents follow the natural drainage path from the primary tumor into the first tier of surrounding lymph nodes. The initial
nodes in this pathway – key predictive nodes called sentinel nodes that are most likely to harbor cancer – are of
critical importance in gauging the degree of infiltration. If this initial node or nodes show no sign of cancer cells, there is
a high likelihood that lymph nodes further along the continuum are cancer-free. If the sentinel node is positive for disease,
a more comprehensive resection of nodes may be warranted. Regardless, a patient can be more accurately staged in light of knowledge
that cancer has moved from the primary tumor site into the lymphatic system.



4







Lymphoseek: Tracing the Path to an ILM Advance



ILM has become the cancer-staging procedure of choice for oncology
surgeons because it helps them focus on key predictive lymph nodes and reduce patient exposure to unnecessary surgical complications.
Lymphoseek is a radiolabeled diagnostic for detection of the key predictive lymph nodes draining the tumor region. Lymphoseek
is purposely-designed to accumulate in lymphatic tissue by specifically binding to mannose binding receptor (MBR; CD206) proteins
present on the surface of immune cells. Lymphoseek is a macromolecule consisting of multiple units of diethylene
triamine pentaacetic acid (DTPA) and mannose, each synthetically attached to a 10 kDa dextran backbone.  The mannose
acts as a ligand for the receptor, and the DTPA serves as a chelating agent for labeling with the radio-isotope Technetium Tc
99m.



In clinical studies, Lymphoseek has demonstrated significant
benefits over an approved comparator agent, vital blue dye (VBD). In Navidea’s Phase 3 clinical studies of Lymphoseek, it
detected over 97 percent of positive nodes identified by VBD. Conversely, VBD missed 31 percent of the overall nodes identified
by Lymphoseek. More importantly, VBD missed 21 percent of nodes identified by Lymphoseek that were subsequently confirmed as containing
cancer, whereas Lymphoseek missed less than 1 percent of these cancer-positive nodes, representing a greater than twenty-fold
reduction in the rate at which cancer-positive lymph nodes were missed. Importantly, this resulted in 9.2% of subjects in our
Phase 3 clinical studies being up-staged by the use of Lymphoseek in cases that would have been under-staged using VBD alone.



In the U.S., ILM employs a non-standard, Technetium 99mTc-labeled
radiopharmaceutical agent known as sulfur-colloid (TcSC) which was recently approved by the FDA based on a literature review for
use in ILM for breast cancer and melanoma. In contrast, Lymphoseek was studied in two well-controlled, prospective Phase 3 trials
which compared Lymphoseek to VBD, the same color agent utilized in the literature-based FDA assessment of TcSC.



An abstract reviewing a meta-analysis of Phase 3 clinical trials
for ILM of lymph nodes in breast cancer, compared to standard of care techniques including colloid agents, was published in conjunction
with the 2012 Annual Meeting of the American Society of Clinical Oncology (ASCO). The abstract entitled, “The novel receptor
targeted (CD206) 99mTc-labeled tilmanocept versus the currently employed Tc99m-sulfur colloid in intraoperative lymphatic mapping
(ILM) on key performance metrics in breast cancer” was published in the Journal of Clinical Oncology Online 2012;
e21066.



Assessment by meta-analysis and pooled analysis methods have
been completed comparing Lymphoseek alone to TcSC plus VBD used together in subjects with breast cancer, employing the data provided
in the FDA’s approval of TcSC. Two endpoints were evaluated; the Localization Rate, which is the percentage of subjects
with one or more radio-detected (Lymphoseek) or radio-detected and/or blue dye-positive (TcSC/VBD) nodes and the Degree of
Localization, which is the number of nodes detected per subject. Both of these metrics help define the potential for an imaging
agent’s performance in ILM and the potential identification of metastasis to lymph nodes. The Localization Rate for TcSC/VBD
was 94%. The Localization Rate for Lymphoseek was statistically significantly greater at 99.91% by meta-analysis and 98.65% by
pooled analysis (p<0.0001 and p<0.008, respectively). The Degree of Localization derived from the publication database for
TcSC/VBD was 1.6 nodes per subject and for Lymphoseek it was 2.08 per subject by meta-analysis and 2.16 per subject by pooled
analysis (p<0.0001 and p<0.0001, respectively). The analysis concluded that, in breast cancer, Lymphoseek provided significantly
greater performance over the current ILM standard of care techniques in the key metrics of lymph node localization and identification
of the number of lymph nodes found per subject.



5







In June 2012, we published data developed from Phase 3 trials
of Lymphoseek demonstrating important performance characteristics of Lymphoseek compared to a commercially available radiolabeled
colloid used in intra-operative lymphatic mapping. The analysis evaluated the performance of Lymphoseek to a meta-analysis of
published data for 99m-Tc-labeled nanocolloid human serum albumin (Nanocoll®), commercially available and considered
a standard of care in Europe. Data for Nanocoll were derived from a meta-analysis of published literature that reported on the
outcomes of localization rate (the proportion of subjects with at least one localized lymph node), and degree of localization
(the average number of localized nodes relative to the subject population). Data for Lymphoseek were derived from a meta-analysis
of two completed Lymphoseek Phase 3 clinical trials. Lymphoseek demonstrated a localization rate of 99.9% whereas Nanocoll showed
a 95.9% localization rate. The degree of Lymphoseek localization was 2.16 (CI 1.99-2.36), whereas the colloid standard of care
showed 1.67 (CI 0.94-0.98). The differences between Lymphoseek and Nanocoll in both of these parameters were statistically significant
(p < 0.0001). The study, “The efficacy of Tilmanocept in sentinel lymph node mapping and identification in breast
cancer patients: a comparative review and meta-analysis of the 99m-Tc-labeled nanocolloid human serum albumin standard of care,”can be found in the online edition of the peer-reviewed journal Clinical and Experimental Metastasis [DOI 10.1007/s10585-012-9497-x].
In September 2012, we announced the presentation of related data at the European Society of Surgical Oncology annual meeting.



We believe Lymphoseek’s unique properties in ILM and
lymphoscintigraphy may offer several potential advantages over agents currently used in ILM, including:



| | · | Improved
                                                                                                                                  presence
                                                                                                                                  in
                                                                                                                                  key
                                                                                                                                  predictive
                                                                                                                                  lymph
                                                                                                                                  nodes
                                                                                                                                  (distinct
                                                                                                                                  mechanism
                                                                                                                                  of
                                                                                                                                  action
                                                                                                                                  allows
                                                                                                                                  for
                                                                                                                                  effective
                                                                                                                                  identification
                                                                                                                                  of
                                                                                                                                  key
                                                                                                                                  tumor-draining
                                                                                                                                  lymph
                                                                                                                                  nodes)
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | More rapid
                                                                                                               clearance of the
                                                                                                               injection site
                                                                                                               (detectable in
                                                                                                               lymph nodes within
                                                                                                               10 minutes and
                                                                                                               up to 30 hours)
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Reduced patient
                                                                                                               trauma, morbidity
                                                                                                               and injection pain
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Faster nuclear
                                                                                                               medicine imaging
                                                                                                               – reduced
                                                                                                               nuclear medicine
                                                                                                               downtime (detectable
                                                                                                               in lymph nodes
                                                                                                               within 10 minutes
                                                                                                               and up to 30 hours)
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Enhanced operating
                                                                                                               room efficiency;
                                                                                                               reduced operating
                                                                                                               room idle time
                                                                                                               (ILM can be performed
                                                                                                               from 15 minutes
                                                                                                               up to 15 hours
                                                                                                               post-injection)
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Enhanced hospital
                                                                                                               and healthcare
                                                                                                               plan reimbursement
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Expansion of ILM for staging of colon, prostate, gastric,
lung and other cancers



The application
of ILM to solid tumor cancer management has been most widely developed in the breast cancer and melanoma indications. Numerous
clinical studies, involving thousands of patients, published in peer-reviewed medical journals as far back as Oncology
(January 1999) and The Journal of The American College of Surgeons (December 2000), have indicated sentinel lymph node
biopsy (SLNB) is approximately 95% 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
and concomitant morbidity if the sentinel node was found to be free of cancer.



Although
ILM has found its greatest acceptance in breast cancer and melanoma, we believe that Lymphoseek may be instrumental in extending
ILM into other solid tumor cancers such as prostate, gastric, colon, head and neck, and non-small cell lung. Investigations in
these other cancer types have thus far met with mixed levels of success due in part, we believe, to limitations associated with
currently available radioactive tracing agents. We believe our development of Lymphoseek may positively impact the effectiveness
of ILM in such expanded applications.



Lymphoseek
Clinical Development



The initial pre-clinical evaluations of Lymphoseek were completed
by UCSD in 2001. Since that time, Navidea, in cooperation with UCSD, has completed or initiated five Phase 1 clinical trials,
one multi-center Phase 2 trial and three multi-center Phase 3 trials involving Lymphoseek. Two comprehensive Phase 3 studies have
been completed in subjects with breast cancer and melanoma. These pivotal Phase 3 results have been presented at scientific conferences
of a number of the world’s leading oncology associations and nuclear medicine societies, including the American Society
of Clinical Oncology and the Society for Nuclear Medicine. Earlier-phase studies conducted at UCSD through grants from the Susan
B. Komen Breast Cancer Research Foundation have been published in leading medical journals including Journal of Nuclear Medicine
and Annals of Surgical Oncology. Clinical research continues with a Phase 3 trial involving subjects with head and neck squamous
cell carcinoma.



6







Lymphoseek
development has involved feedback from the FDA at a number of stages along the development pathway. In early 2005, the UCSD physician
Investigational New Drug (IND) application was transferred to Navidea and we assumed full clinical and commercial responsibility
for the development of Lymphoseek. Additional non-clinical testing was successfully completed in late 2005. None of the non-clinical
studies revealed any toxicity issues associated with the drug. To provide commercially-produced Lymphoseek needed for clinical
study, Navidea engaged Reliable Biopharmaceutical Corporation (Reliable) to manufacture the drug substance and OSO BioPharmaceuticals
Manufacturing LLC (OsoBio, formerly Cardinal Health PTS) for commercial manufacturing of the final drug product.



We completed
a successful Phase 2 clinical study of Lymphoseek in 80 subjects in June 2007 and announced positive results later that year.
Localization of Lymphoseek to lymphoid tissue was confirmed by pathology in over 99% of the lymph node tissue samples removed
during the Phase 2 trial. We held an end of Phase 2 meeting with the FDA during late October 2007. Results of the study were published
in the February 2011 online edition of the Annals of Surgical Oncology.



From 2008 to March 2009, we undertook and completed a Phase
3 clinical study in subjects with either breast cancer or melanoma (NEO3-05), an open label trial of node-negative subjects designed
to evaluate the safety and the accuracy of Lymphoseek in identifying the lymph nodes draining from the subject’s primary
tumor site. The primary efficacy objective of the study was a statistically acceptable concordance rate between the identification
of lymph nodes with VBD and Lymphoseek. In addition, a secondary endpoint of the study was to pathologically examine lymph nodes
identified by either VBD or Lymphoseek to determine if cancer was present in the lymph nodes.



In June 2009, we initiated a Phase 3 trial in subjects with
head and neck squamous cell carcinoma on the head or in the mouth (NEO3-06). The NEO3-06 study was designed to expand the potential
labeling for Lymphoseek to other cancer types and include a sentinel lymph node targeting claim.



In March 2010, Navidea met with the FDA to review the clinical
outcomes of the NEO3-05 Phase 3 trial. The meeting included a review of the efficacy and safety results of the study and Navidea’s
plans for the submission of a New Drug Application (NDA) for Lymphoseek based on the results of NEO3-05 and other previously completed
clinical studies. In July 2010, Navidea initiated enrollment in another Phase 3 clinical evaluation of Lymphoseek in subjects
with either breast cancer or melanoma (NEO3-09) accruing subjects primarily for purposes of augmenting the safety population and
supporting expanded product labeling claims. Based on guidance received in the March 2010 meeting, we planned to file data related
to the NEO3-09 trial as part of a planned major amendment to the primary NDA.



In October 2010, Navidea met with the FDA for a pre-NDA assessment
for Lymphoseek. As a result of the pre-NDA assessment, the FDA requested that data from both the completed NEO3-05 study and the
NEO3-09 study then in progress be included in the Company’s primary NDA for Lymphoseek rather than submitting the NEO3-09
study safety data as a planned major amendment to the ongoing NDA review, as initially intended. The pre-NDA assessment resulted
in no modification to the NEO3-09 trial design or endpoints or to any of the other previously agreed-to clinical or regulatory
components of the Lymphoseek NDA.



Upon completion of the NEO3-09 study in early 2011, Navidea
submitted the NDA for Lymphoseek in August 2011, and was notified of acceptance of the NDA by the FDA in October 2011. The Lymphoseek
NDA submission was based on the clinical results of the NEO3-05 and NEO3-09 Phase 3 clinical studies and other completed clinical
and non-clinical evaluations. The safety database submitted with the NDA included data from over five hundred subjects and identified
no significant drug-related adverse events.



7







In October 2012, we announced peer-reviewed publication of
results of Lymphoseek from Phase 3 Clinical Trials in Melanoma in the Annals of Surgical Oncology. In the trials, a total
of 154 subjects with melanoma from 15 centers received Lymphoseek followed by VBD and then underwent sentinel lymph node mapping.
Lymph nodes that demonstrated Lymphoseek uptake and/or the presence of blue dye were removed and examined for the presence of
tumor. Of the 235 blue-dyed lymph nodes removed from the 154 subjects, 232 (98.7%) demonstrated Lymphoseek uptake (p<0.001).
The performance of Lymphoseek in intraoperative lymph node identification was also assessed. Of the 154 subjects injected with
both Lymphoseek and VBD who underwent surgical removal of the lymph nodes, 150 subjects (97.4%) had at least one radioactive node
due to Lymphoseek uptake, and 138 subjects (89.6%) had at least one blue node. This difference was statistically significant (p<0.002).
Melanoma-containing lymph nodes were detected in 34 (22.1%) subjects; Lymphoseek identified all 45 melanoma-positive lymph nodes
found in the 34 subjects. Four of these 34 node-positive subjects were detected exclusively by Lymphoseek. Blue dye detected 36
of the 45 melanoma-positive lymph nodes, but no melanoma-positive lymph nodes were detected exclusively by blue dye.



Clinical research continues with an ongoing Phase 3 trial involving
subjects with head and neck squamous cell carcinoma (NEO3-06). The NEO3-06 clinical study was designed to provide evidence of
Lymphoseek performance in a third cancer type and to potentially expand the product label for Lymphoseek. In January 2013, we
announced that we had accrued sufficient subjects in our NEO3-06 study in subjects with head and neck cancer to enable us to conduct
a pre-planned interim analysis. This Phase 3 trial of Lymphoseek is designed to demonstrate the performance of Lymphoseek in identifying
sentinel lymph nodes in subjects with squamous cell carcinoma on the head or in the mouth. The interim analysis will compare the
pathological analysis of the sentinel lymph nodes localized using Lymphoseek with that of all the lymph nodes removed during a
full nodal dissection surgery of the head and neck. This full dissection surgery is considered the gold standard for determining
the presence and extent of cancer and staging of the disease in such subjects. A total of 83 subjects who underwent pre-planned,
full dissection surgery were enrolled to the interim analysis point. Results from three investigators participating in the NEO3-06
trial representing approximately half of the enrolled subjects were presented at major scientific conferences during 2012, all
of which noted a 0% false negative rate in the subjects. Results from the full interim statistical analysis and reporting of the
findings will be available upon completion of full site and data audits planned for later in 2013.



Following the FDA’s acceptance of our Lymphoseek NDA
filing in October 2011, the FDA established a Prescription Drug User Fee Act (PDUFA) date for Lymphoseek of June 10, 2012. In
April 2012, the FDA notified us that the Agency had elected to modify the PDUFA date for Lymphoseek by 90 days to September 10,
2012 from the initial PDUFA date of June 10, 2012. On September 10, 2012, we received a complete response letter (CRL) from the
FDA. The decision was focused on deficiencies in current Good Manufacturing Practices (cGMP) identified by the FDA during their
pre-approval site inspections of third-party contract manufacturing facilities, and was not related to the efficacy or safety
data filed within the Lymphoseek NDA. On October 30, 2012, we resubmitted our NDA in response to the CRL. Following the FDA’s
acceptance of our Lymphoseek NDA resubmission, the FDA established a new PDUFA date for Lymphoseek of April 30, 2013. Lymphoseek
was subsequently approved and indicated for use in lymphatic mapping procedures in breast cancer and melanoma by the FDA on March
13, 2013.



Navidea was advised in February 2012 by the European Medicines
Agency (EMA) Committee for Medicinal Products for Human Use (CHMP) that the Committee had adopted the advice of the Scientific
Advice Working Party (SAWP) regarding the Lymphoseek development program and determined that Lymphoseek is eligible for a Marketing
Authorization Application (MAA) submission based on clinical data accumulated from completed pivotal studies and supporting clinical
literature. We submitted our MAA for Lymphoseek to the EMA in December 2012.



We cannot assure you that Lymphoseek will achieve regulatory
approval in the EU or any market outside the U.S. or if approved, that it will achieve market acceptance in any market. See Risk
Factors.



8







NAV4694 – Precision Imaging Agent to Aid in Diagnosis
of Alzheimer’s Disease



In December 2011, we executed a license agreement with AstraZeneca
AB for NAV694, a proprietary compound that is primarily intended for use in diagnosing AD and other central nervous system disorders.
The license agreement is effective until the later of the tenth anniversary of the first commercial sale of NAV4694 or the expiration
of the underlying patents. Under the terms of the license agreement, AstraZeneca granted us an exclusive worldwide royalty-bearing
license for NAV4694 with the right to grant sublicenses. In consideration for the license rights, we paid AstraZeneca a license
issue fee of $5.0 million upon execution of the agreement. We also agreed to pay AstraZeneca up to $6.5 million in contingent
milestone payments based on the achievement of certain clinical development and regulatory filing milestones, and up to $11.0
million in contingent milestone payments due following receipt of certain regulatory approvals and the initiation of commercial
sales of the licensed product. In addition, we agreed to pay AstraZeneca a royalty on net sales of licensed and sublicensed products.



NAV4694 is a Fluorine-18 labeled precision radiopharmaceutical
candidate for use in the imaging and evaluation of patients with signs or symptoms of cognitive impairment such as AD. NAV4694
binds to beta-amyloid deposits in the brain that can then be imaged in PET scans. Amyloid plaque pathology is a required feature
of AD and the presence of amyloid pathology is a supportive feature for diagnosis of probable AD. Patients who are negative for
amyloid pathology do not have AD.



Based on the data accumulated to date, NAV4694 appears to have
better sensitivity and specificity in detecting beta-amyloid than other agents in development. Due to its high affinity for amyloid,
improved contrast, and enhanced uptake in the amyloid-target regions of interest in the brain compared with low uptake in white
matter background, better signal-to-noise ratios have been observed. Greater contrast may enable the ability to detect smaller
amounts of amyloid and earlier identification of disease, as well as the opportunity to detect smaller changes in amyloid levels
and monitor disease progression over time.



Beta-Amyloid Imaging for Alzheimer’s Disease



Alzheimer’s disease is a progressive and fatal neurodegenerative
disease which affects a person’s memory and ability to learn, reason, communicate and carry out daily activities. Increasing
age is the greatest risk factor for AD and there is no prevention or cure. The World Health Organization estimates that AD affects
over 24 million people worldwide. Currently in the U.S. alone, there are over 5 million Alzheimer’s patients and according
to Alzheimer’s Association (AA) estimates, as many as 16 million Americans could have the disease by 2050. Among the brain
changes evident in the development of AD is the accumulation of the protein beta-amyloid outside nerve cells (neurons) in the
brain. Somewhere around 100 experimental therapies aimed at slowing or stopping the progression of AD are now undergoing clinical
evaluation. Regardless of causative associations, beta-amyloid levels continue to be viewed as a reliable marker of AD.



There is a need for improvements in testing and diagnosis for
AD. While there is an accepted diagnostic process for assessing dementia, the only currently definitive diagnosis for AD is a
post-mortem analysis of brain tissue. A positive finding of plaques and tangles in the brain upon autopsy leads to this definitive
diagnosis, which is too late to benefit the patient. For this reason, the AD and imaging communities have been interested in an
effective biomarker of AD which could facilitate earlier definitive diagnosis.



Alzheimer’s disease imaging agents are potentially powerful
tools aiding in the diagnosis of AD as well as the evaluation of new drugs aiming to modify amyloid plaque levels and alter disease
progression. The prototype agent in this diagnostic quest was identified almost a decade ago at the University of Pittsburgh.
This imaging agent targets the deposits of amyloid plaque which are a hallmark of AD pathology. This agent, frequently referred
to as Pittsburgh B, or PIB, is a radiolabeled small molecule utilized with PET imaging. As such, the PIB tracer provided strong
image resolution and was able to distinguish significant amyloid burdens in the brains of AD patients as opposed to the relative
absence of amyloid in subjects without AD. Unfortunately, PIB uses C-11, a very short-lived radio-isotope, and thus cannot be
readily commercialized.



Other PET amyloid tracers are currently moving through the
drug development process. Like PIB, these compounds are also high-resolution PET tracers, but utilize an F-18 isotope, which permits
broader effective distribution.



9







These agents constitute a major step forward, but each has
potential limitations. Navidea’s NAV4694 appears to have several important advantages including clean images with less white
matter uptake for identification of lower levels of amyloid and earlier detection; images that are easier to read and interpret;
and images that can be acquired more quickly.



NAV4694
Clinical Development



NAV4694 has been studied in rigorous pre-clinical studies and
several clinical trials in humans. Clinical studies through Phase 2 have included 140 subjects to date, both suspected AD patients
and healthy volunteers. Results suggest that NAV4694 has the potential ability to image patients quickly and safely with high
sensitivity and specificity. We are currently supporting a Phase 2 trial that we initiated in September 2012, primarily to expand
the safety database for the compound. We also expect to initiate a Phase 2b trial in subjects with mild cognitive impairment in
early 2013, as well as a Phase 3 autopsy-based trial in the first half of 2013, to support registration in the U.S. and the EU.
We cannot assure you, however, that further clinical trials for this product will be successful, that it will achieve regulatory
approval, or if approved, that it will achieve market acceptance. See Risk Factors.



NAV5001



In January 2012, we executed an option agreement with Alseres
Pharmaceuticals, Inc. (Alseres) to sublicense NAV5001. Under the terms of the option agreement, Navidea paid Alseres an option
fee of $500,000 for the exclusive right to negotiate a definitive sublicense agreement by June 30, 2012. In order to perform thorough
due diligence, Navidea extended the option period from June 30, 2012, to July 31, 2012. On July 31, 2012, we entered into an agreement
to sublicense NAV5001 from Alseres. Under the terms of the sublicense agreement, Alseres granted Navidea an exclusive, worldwide
sublicense to research, develop and commercialize NAV5001. The final terms of the agreement required Navidea to make a one-time
sublicense execution payment to Alseres equal to (i) $175,000 in cash and (ii) 300,000 shares of our common stock. The sublicense
agreement also provides for contingent milestone payments of up to $2.9 million, $2.5 million of which will principally occur
at the time of product registration or upon commercial sales, and the issuance of up to an additional 1.15 million shares of Navidea
common stock, 950,000 shares of which are issuable at the time of product registration or upon commercial sales. In addition,
the sublicense terms anticipate royalties on annual net sales of the approved product which are consistent with industry-standard
terms and certain sublicense extension fees, payable in cash and shares of common stock, in the event certain diligence milestones
are not met.



NAV5001 is a patented, novel, Iodine-123 labeled small molecule
radiopharmaceutical used with SPECT imaging to identify the status of specific regions in the brains of patients suspected of
having PD. The agent binds to the dopamine transporter (DAT) on the cell surface of dopaminergic neurons in the striatum and substantia
nigra regions of the brain. Loss of these neurons is a hallmark of PD.



NAV5001 has been administered to over 600 subjects to date.
Results from clinical trials have demonstrated that NAV5001 has high affinity for DAT and rapid kinetics which enable the generation
of clean images quickly, beginning within about 20 minutes after injection, while other agents typically have waiting periods
from 4 to 24 hours before imaging can occur. In addition to its potential use as an aid in the differential diagnosis of PD and
movement disorders, NAV5001 may also be useful in the diagnosis of Dementia with Lewy Bodies (DLB), one of the most common forms
of dementia after AD. We expect to initiate a Phase 2b trial in subjects with DLB in the first half of 2013, as well as a Phase
3 trial in subjects with PD in the second half of 2013. We cannot assure you, however, that further clinical trials for this product
will be successful, that it will achieve regulatory approval, or if approved, that it will achieve market acceptance. See Risk
Factors.



10







RIGScan



RadioImmunoGuided Surgery (RIGS®) is a technique
to provide diagnostic information during cancer surgery. RIGS is intended to enable a surgeon to identify and delineate occult
or metastatic cancerous tissue “targeted” through the use of RIGScan, a radiolabeled, cancer-specific targeting antibody.
RIGScan is administered prior to surgery and is identified by pre-operative imaging or during surgery with a gamma detection probe,
thereby assisting a surgeon in identifying the location of cancerous tissues. Before surgery, a cancer patient is injected with
the antibody which circulates throughout the patient’s body and binds specifically to cancer cell antigens or receptors.
Concentrations of the antibody within affected tissue are then detected using imaging methods prior to surgery or a gamma probe
during surgery to direct the surgeon to targeted tissue for removal.



Our RIGScan technology is a radiolabeled murine monoclonal
antibody that serves as the biologic targeting agent for intraoperative detection of occult or metastatic cancer. The antibody
localizes or binds to tumor antigen called TAG-72 expressed on solid tumor cancers. RIGScan is intended to be used in conjunction
with other diagnostic methods for the detection of the extent and location of occult tumor and tumor metastases in patients with
such cancers, potentially including colorectal cancer, ovarian cancer, prostate cancer and other cancers of epithelial origin.
The detection of clinically occult tumor is intended to provide the surgeon with a more accurate assessment of the extent of disease,
and therefore may impact the surgical and therapeutic management of the patient.



RIGScan Clinical Development



The RIGScan approach has been studied in several clinical trials,
including Phase 3 studies. Results from certain of these studies have been published in leading cancer journals including Clinical
Cancer Research, Annals of Surgical OncologyandDiseases of the Colon and Rectum. In 1996, Navidea submitted applications
to the EMA and the FDA for marketing approval of RIGScan for the detection of metastatic colorectal cancer based primarily on
results of a single Phase 3 clinical trial, NEO2-14, but the FDA declined approval, indicating that, in addition to identifying
additional pathology-confirmed disease, the clinical studies of RIGScan needed to demonstrate clinical utility in enhancing patient
outcomes, an endpoint which the completed studies were not designed to address. Navidea withdrew its application to the EMA in
November 1997.



To resume RIGScan development, we filed a new investigational
new drug (IND) request with the FDA in late 2010. We held a pre-IND meeting with the FDA in February
2011 todefine the basic chemistry, manufacturing and control (CMC) requirements needed to resume clinical development
efforts on RIGScan. The FDA provided guidance regarding enhancing our manufacturing platform, including process improvements to
increase manufacturing efficiency and the quality of the underlying biologic antibody and potentially transitioning from a murine-based
antibody to a human-based antibody. In August 2011, we also held a meeting with the SAWP of the EMA and received similar guidance.
With this collective guidance, we have transitioned from a murine antibody to a humanized antibody. In September 2012, we were
awarded a grant from the National Institutes of Health (NIH) to further the development of RIGScan. The first phase of the grant,
which has been awarded, is for $315,000; the second phase of the grant, which requires that we meet certain conditions, primarily
investigational review board approval, will be for an additional $1.2 million. We have focused on manufacturing the humanized
antibody with the aim of completing the necessary manufacturing steps to support the start of clinical development; however, as
the scope and required resources for the RIGScan program, particularly in light of other development opportunities such as Lymphoseek,
NAV4694, NAV5001, or other agents continues to be assessed, the timing and scope of our plans for RIGScan may be further affected.



RIGScan is a biologic drug that has not been produced for several
years. We have completed the initial steps in assessing the materials required for future clinical testing. We will need to establish
robust manufacturing and radiolabeling capabilities for the antibody in order to meet the regulatory needs for the RIGScan product.
We cannot assure you that further clinical development will be successful, that the FDA or the EMA will clear RIGScan for marketing,
or that it will be successfully introduced or achieve market acceptance. See Risk Factors.



11







Market Overviews



Cancer
Market Overview



Cancer
is the second leading cause of death in the U.S. and Western Europe. The American Cancer Society (ACS) estimates that cancer will
cause over 580,000 deaths in 2013 in the U.S. alone. The NIH has estimated the overall annual costs for cancer for the U.S. for
2007 at $226.8 billion: $103.8 billion for direct medical costs and $123.0 billion for indirect mortality. For the types of cancer
to which our oncology agents may be applicable (breast, melanoma, head and neck, prostate, lung, colorectal, gastrointestinal
and gynecologic), the ACS has estimated that nearly 1.3 million new cases will occur in the U.S. in 2013. An analysis of Globocan
2008 estimates for these same cancer types indicates an annual incidence rate for these cancer types in excess of 7.2 million
cases outside the U.S.



Currently,
the application of ILM is most established in breast cancer. Breast cancer is the second leading cause of death from cancer among
all women in the U.S. The probability of developing breast cancer generally increases with age, rising from about 0.5% in women
under age 40 to 6.7% in women age 70 or older. While the incidence rate for breast cancer appears to be decreasing, the overall
number of new cases of breast cancer is still increasing. According to the ACS, over 232,000 new cases of invasive breast cancer
are expected to be diagnosed during 2013 in the U.S. alone. Thus, we believe that the aging of the population, combined with improved
education and awareness of breast cancer and diagnostic methods, will continue to lead to an increased number of breast cancer
surgical diagnostic procedures. While many breast cancer patients are treated in large cancer centers or university hospitals,
regional and/or community hospitals continue to treat the majority of breast cancer patients.



The use
of ILM is also common in melanoma. The ACS estimates that approximately 77,000 new cases of melanoma will be diagnosed in the
U.S. during 2013. In addition to breast cancer and melanoma, we believe that our oncology products may have utility in other cancer
types with another 1 million new cases expected during 2013 in the U.S.



If the
potential of Lymphoseek as a radioactive tracing agent is ultimately realized, it may address not only the current breast and
melanoma markets on a procedural basis, but also assist in the clinical evaluation and staging of solid tumor cancers and expanding
lymph node mapping to other solid tumor cancers such as prostate, gastric, colon, head and neck, and non-small cell lung.. However,
we cannot assure you that Lymphoseek will be cleared to market for cancers other than breast or melanoma, or if cleared to market
for other cancer types, that it will achieve significant revenue. See Risk Factors.



Alzheimer’s
Disease Market Overview



The AA
estimates that more than 5.4 million Americans had AD in 2012. On a global basis, Alzheimer’s Disease International estimated
in 2010 that there were 36 million people living with dementia. AA estimates that total costs for AD care will be approximately
$200 billion in 2012. AA also estimates that there are over 15 million AD and dementia caregivers providing 17.4 billion hours
of unpaid care valued at over $210 billion. AD is the sixth-leading cause of death in the country and the only cause of death
among the top 10 in the U.S. that cannot be prevented, cured or even slowed. Based on mortality data from 2000-2008, death rates
have declined for most major diseases while deaths from AD have risen 66 percent during the same period. In February 2013, the
American Academy of Neurology reported in the online issue of Neurology that the number of people with AD may triple by
2050.



While there
are several approved therapies for the treatment of AD, there is significant interest in the development of disease-modifying
therapeutics that could slow or reverse progression of the disease. In fact, studies with cholinesterase inhibitors and experimental
AD therapies suggest therapeutic intervention is likely to have a bigger impact on disease progression when dosed in patients
with early-stage disease than in patients with advanced disease.



12







For many
patients, simply slowing the progression from mild cognitive impairment associated with early-stage disease to advanced AD could
have a material impact on quality of life and medical burden for the healthcare system. Delaying the onset of AD by five years
could reduce the disease prevalence by 50% during the next few decades and, according to estimates from AA, reduce annual healthcare
expenditures by more than $50 billion.



While early
detection is the goal of AD staging, there are no validated biomarkers for the onset of symptomatic disease. All AD patients have
beta-amyloid plaque deposits in the brain. Currently, detection of the early-stages of AD is based largely on assessing the patient's
history of increasing cognitive impairment with some patients also receiving testing by an experimental PET scan to confirm the
presence of amyloid plaque. The interest in accurate imaging agent biomarkers for the detection of beta-amyloid has grown significantly
in recent years as physicians are attempting to identify methods for detecting amyloid earlier.



Parkinson’s
Disease Market Overview



Parkinson’s disease, following
AD, is the second-most common neurodegenerative disorder in the United States.The Parkinson’s Disease Foundation
(PDF) estimates that up to 10 million people worldwide are living with PD, including 1 million people in the U.S.  Approximately
60,000 new cases of PD are diagnosed in the U.S. each year.  The Centers for Disease Control rated complications from PD
as the 14th leading cause of death in the U.S. and as with AD, there is no cure.



A recent article conservatively estimates that the combined
direct and indirect cost of PD exceeds $14.4 billion per year.There are approved therapies
for the treatment of PD symptoms but these treatments often become ineffectual as the disease progresses and none have been approved
to modify, slow or reverse the disease progression. The burden of this chronic condition is projected
to grow substantially over the next few decades as the size of the elderly population grows.  Such projections are driving the
need for innovative new treatments to prevent, delay onset, or alleviate symptoms of PD.Slowing Parkinson's progression
by 50% would reduce health care costs for PD patients by 35%, representing a dramatic reduction in cost of care even when spread
over a longer expected survival and positively impacting the patient quality of life.



PD is commonly misdiagnosed or completely missed in clinical
evaluations as symptoms are often attributed to the normal aging process. Essential tremor and other similar conditions including
DLB, AD, multiple system atrophy, progressive supranuclear palsy, and normal pressure hydrocephalus are also common sources
of confusion in PD diagnosis. Collectively, there are over 25 million people in the U.S. and Europe with some type of movement
disorder, comprising a large differential diagnosis population. Current diagnostic guidelines are limited since they characterize
PD by the presence of motor symptoms. Error rates using clinical diagnostic methods have been reported to be high. Research has
shown the importance of who is undertaking a potential PD diagnosis by showing data that nearly half (47%) of PD diagnoses are
incorrect when performed in the primary care setting, and specialists whose expertise is not specific movement disorders have
an error rate of approximately 25%, while movement disorder specialists are mistaken in only 6% to 8% of cases.



The interest by the medical community in using imaging as an
aid in diagnosing neurological conditions is growing.  In PD, people lose dopamine-producing cells in a part of the brain
associated with movement.  Loss of these cells is the hallmark of PD.  Current neuroimaging agents in combination with
SPECT imaging are able to aid physicians in their diagnosis by visualizing this area of the brain to show the degree of loss of
these motor neurons.



Marketing and Distribution



We believe
the most preferable and likely distribution partners for Lymphoseek would be entities with established radiopharmaceutical distribution
channels, although it is possible that other entities with more traditional oncology or neurological pharmaceutical portfolios
may also have interest. Examples of entities with established regional and/or global radiopharmaceutical distribution networks
include Cardinal Health, Covidien/Mallinckrodt GE Healthcare, IBA Molecular, Advanced Accelerator Applications, Eckert & Zeigler
AG, Lantheus Medical Imaging and Bracco Imaging.



13







During
the fourth quarter of 2007, we executed an agreement with Cardinal Health’s Nuclear Pharmacy Services division for the exclusive
distribution of Lymphoseek in the U.S. The agreement is for a term of five years from the date of FDA marketing clearance, March
13, 2013. Under the terms of this agreement, Navidea will receive a significant share of the revenue from each patient dose of
Lymphoseek sold. In addition, Navidea will receive up to $3 million in payments upon the achievement of certain sales milestones
by Cardinal Health. We cannot assure you that we will be able to maintain a successful relationship with Cardinal Health, on terms
acceptable to the Company, or at all.



We are
in various stages of discussion with potential marketing and distribution partners in the EU and other world markets; however,
we do not currently have distribution agreements covering Lymphoseek in any areas of the world other than the U.S. We currently
have no distribution agreements for NAV4694, NAV5001 or RIGScan. In addition, it should be noted that the distribution model we
have established with Cardinal Health in the U.S. for Lymphoseek may not necessarily be applicable to other markets or even our
other potential radiopharmaceutical candidates due to differences in regional distribution infrastructure, regulation and medical
practice patterns. We cannot assure you that we will be successful in securing collaborative partners for other global markets
or radiopharmaceutical products, or that we will be able to negotiate acceptable terms for such arrangements.



Manufacturing



We currently
use and expect to continue to be dependent upon contract manufacturers to manufacture each of our product candidates. We have
established a quality control and quality assurance program, including a set of standard operating procedures and specifications
with the goal that our products and product candidates are manufactured in accordance with cGMP and other applicable domestic
and international regulations. We will need to invest in additional manufacturing and supply chain resources, and may seek to
enter into additional collaborative arrangements with other parties that have established manufacturing capabilities. It is likely
that we will continue to rely on third-party manufacturers for our development and commercial products on a contract basis.



Lymphoseek
Manufacturing



In preparation
for the commencement of a multi-center clinical evaluation of Lymphoseek, Navidea engaged manufacturing organizations to produce
drug used in Phase 2 and Phase 3 trials, and they are expected to be used in the ongoing Phase 3 clinical work. Reliable has produced
the drug substance and OsoBio has performed final product manufacturing including final drug formulation, lyophilization (freeze-drying)
and packaging processes. Once packaged, the vialed drug can then be shipped to a hospital or regional commercial radiopharmacy
where it will be made radioactive (radiolabeled) with technetium-99m (99mTc) to become the final form of Lymphoseek
to be administered to a patient. The commercial manufacturing processes at Reliable and OsoBio are being concurrently validated
in parallel with the approval and commercial launch of Lymphoseek. Both organizations have assisted Navidea in the preparation
of the CMC sections of our submissions to the FDA and the EMA. Both Reliable and OsoBio are registered manufacturers with the
FDA and/or the EMA.



In November
2009, we completed a Manufacture and Supply Agreement with Reliable for the manufacture of the bulk drug substance with an initial
term of 10 years. At this point, drug product produced by OsoBio has been manufactured under clinical development agreements.
A commercial supply agreement with OsoBio is in process. We cannot assure you that we will be successful in reaching a commercial
supply agreement with OsoBio on terms satisfactory to us, or at all.



NAV4694
Manufacturing



Supplies
of NAV4694 used in clinical development through Phase 2b were manufactured by AstraZeneca through various arrangements. As a part
of the technology transfer process related to our license of NAV4694, we are in the process of identifying and contracting with
third party manufacturers and radiolabeling contractors necessary to build an integrated supply chain to produce the drug product
for use in further clinical studies as well as for subsequent commercial use. We are producing drug substance, and are developing
a commercial drug product kit, along with a commercial radiolabeling process and building a network of partners for the manufacture
and distribution of NAV4694. We cannot assure you that we will be successful in executing agreements for the supply of NAV4694
on terms acceptable to the Company, or at all.



14







NAV5001
Manufacturing



Supplies
of NAV5001 used in clinical development through Phase 3 were manufactured by Alseres under an agreement they had in place with
Nordion, Inc. (Nordion), a Canadian corporation and well-recognized manufacturer of 123I and nuclear medicine labeled
imaging agents. As a part of the technology transfer process related to our sublicense of NAV5001, we have begun the process of
identifying potential manufacturers and have initiated preliminary negotiations to produce the drug product for use in further
clinical studies as well as for subsequent commercial use. We cannot assure you that we will be successful in completing a supply
agreement on terms acceptable to the Company, or at all.



RIGScan
Manufacturing



During
the third quarter of 2009, we announced that we had executed a Biopharmaceutical Development and Supply Agreement for RIGScan
with Laureate Biopharmaceutical Services, Inc. We will need to re-establish radiolabeling capabilities for the antibody in order
to meet the regulatory needs for the RIGScan product. We cannot assure you that we will be successful in completing the necessary
development or supply agreements to support RIGScan development or commercialization on terms acceptable to the Company, or at
all.



Summary



We cannot
assure you that we will be successful in securing and/or maintaining the necessary manufacturing, supply and/or radiolabeling
capabilities for our product candidates in clinical development. If and when established, we also cannot assure you that we will
be able to maintain agreements or other purchasing arrangements 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,
including compliance with FDA cGMP requirements. In the event that any of our subcontractors are 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 Risk Factors.



Competition



Competition in the pharmaceutical and biotechnology
industries is intense. We face competition from a variety of companies focused on developing oncology and neurology diagnostic
drugs. We compete with large pharmaceutical and other specialized biotechnology companies. We also face competition from universities
and other non-profit research organizations. 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 other diseases targeted by our product candidates. Smaller companies may also prove to be significant competitors,
particularly through collaborative arrangements with large pharmaceutical and established biotechnology companies. Many of these
competitors have products that have been approved or are in development and operate large, well-funded research and development
programs. 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 ours. See Risk Factors.



15







We expect to encounter significant competition
for the principal pharmaceutical products we plan to develop. Companies that complete clinical trials, obtain required regulatory
approvals and commence commercial sales of their products before us may achieve a significant competitive advantage if their products
work through a similar mechanism as our products and if the approved indications are similar. A number of biotechnology and pharmaceutical
companies are developing new products for the treatment of the same diseases being targeted by us. In some instances, such products
have already entered late-stage clinical trials or received FDA approval and may be marketed for some period prior to the approval
of our products.



We believe that our ability to compete successfully
will be based on our ability to create and maintain scientifically advanced “best-in-class” technology, develop proprietary
products, attract and retain scientific personnel, obtain patent or other protection for our products, obtain required regulatory
approvals and manufacture and successfully market our products, either alone or through third parties. We will continue to seek
licenses for technologies related to our field of interest and may face competition with respect to such efforts. 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.



Lymphoseek
Competition



Surgeons
who practice the lymphatic mapping procedure for which Lymphoseek is intended currently use other radiopharmaceuticals such as
a sulfur colloid compound in the U.S., and other colloidal compounds in other markets. In addition, many surgeons use vital blue
dyes to assist in the visual identification of the draining lymphatic tissue around a primary tumor. In the U.S., sulfur colloid
is manufactured by Pharmalucence. Sulfur colloid had been used “off-label” in the U.S. for ILM until July 2011, when
it was approved by the FDA for use in lymphatic mapping in breast cancer patients based on a statistical meta-analysis of published
literature that compared the use of sulfur colloid with that of the vital blue dyes. The product label for sulfur colloid was
expanded to cover lymphatic mapping in melanoma in August 2012, again on the basis of a meta-analysis of published literature.
In the EU and certain Pacific Rim markets, there are other colloidal-based compounds with various levels of approved labeling
for use in lymphatic mapping, although a number of countries still employ the use of products used “off-label”.



NAV4694
Competition



Several
potential competitive 18F products have been approved or are in development for use as biomarkers to aid in detection
of AD. Developed through Eli Lilly’s wholly-owned Avid Radiopharmaceuticals (Avid), florbetapir was reviewed in January
2011 by the FDA Peripheral and Central Nervous System Drugs Advisory Committee, which voted 16-0 in favor of recommending that
this drug be approved for use. However, the recommendation was contingent on a training program as there was significant variability
in interpretation among readers of images generated by this agent. In March 2011, Avid received an FDA complete response letter
primarily focused on the need to establish a reader training program to ensure reader accuracy and consistency of interpretations
of existing florbetapir scans. In April 2012, Avid received FDA approval to market florbetapir. Florbetapir also received marketing
authorization in the EU in January 2013.



In addition
to fluorbetipir, there are two other beta-amyloid imaging agents in late stage development: florbetaben from Piramal Enterprises,
Imaging Division, who acquired a molecular imaging research and development portfolio from Bayer Pharma AG in April 2012, and
flutemetamol from GE Healthcare. Both have completed Phase 3 trials. Data from the Phase 3 study of florbetaben was presented
in April 2012. The study was designed to evaluate the power of florbetaben to identify whether a suspected AD patient has cerebral
beta-amyloid deposits. The data were verified by histological verification in a postmortem autopsy. GE Healthcare is developing
another PIB derivative, flutemetamol, for similar application. NDA and MAA submissions for flutemetamol have been accepted by
the FDA and EMA, respectively. The NDA and MAA submissions were based on data from a series of clinical trials, including Phase
3 brain autopsy and biopsy studies which showed high sensitivity and specificity for visual image reads as well as strong concordance
between [18F]flutemetamol PET images and beta amyloid brain pathology. Data from these studies were presented at the
Alzheimer's Association International Conference 2012 in Vancouver and the American Academy of Neurology's 64th Annual Meeting
in New Orleans. The filing also includes data from a recently completed [18F]flutemetamol PET image reader training
validation study, results of which will be presented at a scientific forum in coming months.



16







NAV5001
Competition



In July
2000,GE Healthcare received EMA approval to market DaTscanTM(Ioflupane 123I Injection), a radiopharmaceutical agent intended for use with SPECT imaging for the detection
of dopamine transporters in the brains of adult patients with suspected Parkinsonian syndromes, in the EU. DaTscan was developed
to help physicians evaluate neurodegenerative movement disorders, such as idiopathic (of unknown cause) PD. In July 2006, GE Healthcare
received expanded approval for DaTscan for use in DLB. For patients with dementia, DaTscan has been successfully used in
Europe to separate Alzheimer’s disease from DLB. This has important implications in determining which medications can be
safely used to treat the dementia. GE Healthcare received FDA approval
to market DaTscan in the U.S. in January 2011.



RIGScan
Competition



We do not
believe there are any intraoperative diagnostic radiopharmaceuticals directly competitive with RIGScan that would be used in the
colorectal cancer application at which RIGScan is initially targeted. 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.



Patents and Proprietary Rights



The patent
position of biotechnology, including our company, generally is highly uncertain and may involve complex legal and factual questions.
Potential competitors may have filed applications, 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 or those licensed
to us will result in additional patents being issued or that any of our patents or those licensed to us will afford protection
against competitors with similar technology; nor can we assure you that any of these patents will not be designed around by others
or that others will not obtain patents that we would need to license or design around.



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. We also employ a variety of security
measures to preserve the confidentiality of our trade secrets and to limit access by unauthorized persons. We cannot assure you,
however, that these measures will be adequate to protect our trade secrets from unauthorized access or disclosure.



17







Lymphoseek Intellectual Property



Lymphoseek is being developed under exclusive worldwide license
from the Regents of the University of California through their UCSD affiliate. The UCSD license grants Navidea the commercialization
rights to Lymphoseek for diagnostic imaging and intraoperative detection applications.



Lymphoseek
is also the subject of patents and patent applications in the United States and certain major foreign markets. The patents and
patent applications are held by The Regents of the University of California and have been licensed exclusively to Navidea for
lymphatic tissue imaging and intraoperative detection worldwide. The first composition of matter patent covering Lymphoseek was
issued in the United States in June 2002. The claims of the composition of matter patent covering Lymphoseek have been allowed
in the EU and issued in the majority of EU countries in 2005. The composition of matter patent has also been issued in Japan.
We have filed additional patent applications in the U.S. related to manufacturing processes for Lymphoseek. We will also rely
on trademark protection for products that we expect to commercialize and have registered the mark Lymphoseek® in
the U.S. and other markets.



NAV4694
Intellectual Property



NAV4694 is being developed under exclusive worldwide license
from AstraZeneca. The NAV4694 license grants Navidea commercialization rights to the F-18 labeled biomarker for use as an aid
in the diagnosis of AD. NAV4694 is the subject of 2 issued patents and 1 patent pending in the U.S. and 9 issued patents and 57
patents pending in 31 foreign jurisdictions. In addition, the [18F]NAV4694 drug substance and NAV4694 Precursor 214
are the subjects of 2 issued patents and 1 patent pending in the U.S. and 9 issued patents and 57 patents pending in 31 foreign
jurisdictions.



NAV5001 Intellectual Property



NAV5001 is being developed under an exclusive sublicense from
Alseres. The NAV5001 sublicense grants Navidea commercialization rights to the Iodine-123 labeled biomarker for use as an aid
in the diagnosis of PD and other movement disorders, with potential use as a diagnostic aid in dementia. NAV5001 is the subject
of 3 issued patents and 1 patent pending in the U.S., 1 issued patent in Europe, and 9 patents pending in 3 foreign jurisdictions.



RIGScan
Intellectual Property



We continue
to support proprietary protection for the products related to RIGS 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 development partner. 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 was issued in 2004 and additional patent applications are pending. We have a license to these patents through the NIH;
however, our license is subject to ongoing diligence requirements and we could lose these license rights if we don’t diligently
pursue commercialization of the patented technology. Additionally, statutory exclusivity exists for biologics upon approval in
the U.S. for 12 years. In the EU, data exclusivity extends for 10 years following marketing authorization.



Government Regulation



The research, development, testing, manufacture, labeling,
promotion, advertising, distribution and marketing, among other things, of our products are extensively regulated by governmental
authorities in the United States and other countries. In the United States, the FDA regulates drugs under the Federal Food, Drug,
and Cosmetic Act (FDCA), Public Health Service Act (PHSA), and their implementing regulations. Failure to comply with applicable
U.S. requirements may subject us to administrative or judicial sanctions, such as FDA refusal to approve pending new drug applications
or supplemental applications, warning letters, product recalls, product seizures, total or partial suspension of production or
distribution, injunctions and/or criminal prosecution. We also may be subject to regulation under the Occupational Safety and
Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Export Control Act and other present and future
laws of general application as well as those specifically related to radiopharmaceuticals.



18







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, the FDA and the corresponding state, local and foreign regulatory bodies in jurisdictions in which our products are
intended to be sold. These regulations govern the introduction of new products, the observance of certain standards with respect
to the manufacture, quality, safety, efficacy and labeling of such products, the maintenance of certain records, the tracking
of such products, performance surveillance 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 radiopharmaceuticals 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, the 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
a noncompliance notification or warning letter from the 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. See
Risk Factors.



In the
early- to mid-1990s, the review time by the FDA to clear medical products for commercial release lengthened and the number of
marketing clearances decreased. In response to public and congressional concern, the 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 the FDA review
times have improved since passage of the 1997 Act, we cannot assure you that the FDA review processes will not 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 development and 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. See Risk Factors.



The Drug Approval Process



None of our drugs may be marketed in the U.S. until such drug
has received FDA approval. The steps required before a drug may be marketed in the U.S. include:



| | · | preclinical
                                                                                                               laboratory tests,
                                                                                                               animal studies
                                                                                                               and formulation
                                                                                                               studies;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | submission
                                                                                                               to the FDA of an
                                                                                                               IND for human clinical
                                                                                                               testing, which
                                                                                                               must become effective
                                                                                                               before human clinical
                                                                                                               trials may begin;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | adequate
                                                                                                               and well-controlled
                                                                                                               human clinical
                                                                                                               trials to establish
                                                                                                               the safety and
                                                                                                               efficacy of the
                                                                                                               investigational
                                                                                                               product for each
                                                                                                               indication;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | submission
                                                                                                               to the FDA of an
                                                                                                               NDA;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | satisfactory
                                                                                                               completion of FDA
                                                                                                               inspections of
                                                                                                               the manufacturing
                                                                                                               and clinical facilities
                                                                                                               at which the drug
                                                                                                               is produced, tested,
                                                                                                               and/or distributed
                                                                                                               to assess compliance
                                                                                                               with cGMPs and
                                                                                                               cGCP standards;
                                                                                                               and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | FDA
                                                                                                               review and approval
                                                                                                               of the NDA.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



19







Preclinical tests include laboratory evaluation of product
chemistry, toxicity and formulation, as well as animal studies. The conduct of the preclinical tests and formulation of the compounds
for testing must comply with federal regulations and requirements. The results of the preclinical tests, together with manufacturing
information and analytical data, are submitted to the FDA as part of an IND, which must become effective before human clinical
trials may begin. An IND will automatically become effective 30 days after receipt by the FDA unless, before that time, the FDA
raises concerns or questions about issues such as the conduct of the trials as outlined in the IND. In such a case, the IND sponsor
and the FDA must resolve any outstanding FDA concerns or questions before clinical trials can proceed. We cannot be sure that
submission of an IND will result in the FDA allowing clinical trials to begin.



Clinical trials involve the administration of the investigational
product to human subjects under the supervision of qualified investigators. Clinical trials are conducted under protocols detailing
the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each
protocol must be submitted to the FDA as part of the IND.



Clinical trials typically are conducted in three sequential
phases, but the phases may overlap or be combined. The study protocol and informed consent information for study subjects in clinical
trials must also be approved by an Institutional Review Board at each institution where the trials will be conducted. Study subjects
must sign an informed consent form before participating in a clinical trial. Phase 1 usually involves the initial introduction
of the investigational product into people to evaluate its short-term safety, dosage tolerance, metabolism, pharmacokinetics and
pharmacologic actions, and, if possible, to gain an early indication of its effectiveness. Phase 2 usually involves trials in
a limited subject population to (i) evaluate dosage tolerance and appropriate dosage, (ii) identify possible adverse
effects and safety risks, and (iii) evaluate preliminarily the efficacy of the product candidate for specific indications.
Phase 3 trials usually further evaluate clinical efficacy and further test its safety by using the product candidate in its final
form in an expanded subject population. There can be no assurance that Phase 1, Phase 2 or Phase 3 testing will be completed successfully
within any specified period of time, if at all. Furthermore, we or the FDA may suspend clinical trials at any time on various
grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.



The FDA and the IND sponsor may agree in writing on the design
and size of clinical studies intended to form the primary basis of an effectiveness claim in an NDA application. This process
is known as a special protocol assessment (SPA). These agreements may not be changed after the clinical studies begin, except
in limited circumstances. The existence of a SPA, however, does not assure approval of a product candidate.



Assuming successful completion of the required clinical testing,
the results of the preclinical studies and of the clinical studies, together with other detailed information, including information
on the manufacturing quality and composition of the investigational product, are submitted to the FDA in the form of an NDA requesting
approval to market the product for one or more indications. The testing and approval process requires substantial time, effort
and financial resources. Submission of an NDA requires payment of a substantial review user fee to the FDA. Before approving a
NDA, the FDA usually will inspect the facility or the facilities where the product is manufactured, tested and distributed and
will not approve the product unless cGMP compliance is satisfactory. If the FDA evaluates the NDA and the manufacturing facilities
as acceptable, the FDA may issue an approval letter or a complete response letter. A complete response letter outlines conditions
that must be met in order to secure final approval of the NDA. When and if those conditions have been met to the FDA’s satisfaction,
the FDA will issue an approval letter. The approval letter authorizes commercial marketing of the drug for specific indications.
As a condition of approval, the FDA may require post-marketing testing and surveillance to monitor the product’s safety
or efficacy, or impose other post-approval commitment conditions.



20







The NDA for Lymphoseek was submitted with the intention for
use in intraoperative lymphatic mapping across a broad range of cancers. As a part of their review, the FDA examined the pre-clinical,
clinical and CMC data supporting our application, and, as is also typical of such reviews, conducted site audits of our facilities
and those of the sites where the referenced clinical trials were performed, as well as of contract suppliers and third party vendors
being used in the manufacturing and quality assessment processes for Lymphoseek. On September 10, 2012, we received a CRL from
the FDA, denying our initial application for approval of Lymphoseek. The decision was focused on deficiencies in cGMP identified
by the FDA during their pre-approval site inspections of third-party contract manufacturing facilities, and was not related to
the efficacy or safety data filed within the Lymphoseek NDA. We worked diligently with our advisors, contract manufacturers and
the FDA to address the third party cGMP manufacturing deficiencies noted in the FDA’s September CRL. On October 30, 2012,
we resubmitted our NDA in response to the CRL. The FDA accepted the resubmission and established a new PDUFA date of April 30,
2013. Lymphoseek was approved and indicated for use in lymphatic mapping for breast cancer and melanoma by the FDA on March 13,
2013. Additional trials, two of which are already ongoing in head and neck cancer and colorectal cancer, are anticipated to provide
support for expanding the utilization of Lymphoseek into multiple other cancer types. We cannot assure you that Lymphoseek will
achieve regulatory approval in the EU or any market outside the U.S., or if approved, that it will achieve market acceptance in
any market. See Risk Factors.



The FDA has various programs, including fast track, priority
review and accelerated approval, which are intended to expedite or simplify the process of reviewing drugs and/or provide for
approval on the basis of surrogate endpoints. Generally, drugs that may be eligible for one or more of these programs are those
for serious or life threatening conditions, those with the potential to address unmet medical needs and those that provide meaningful
benefit over existing treatments. We cannot assure you that any of our drugs will qualify for any of these programs, or that,
if a drug does qualify, the review time will be reduced or the product will be approved.



After approval, certain changes to the approved product, such
as adding new indications, making certain manufacturing changes or making certain additional labeling claims, are subject to further
FDA review and approval. Obtaining approval for a new indication generally requires that additional clinical studies be conducted.



Post-Approval Requirements



Holders of an approved NDA are required to: (i) conduct
pharmacovigilance and report certain adverse reactions to the FDA, (ii) comply with certain requirements concerning advertising
and promotional labeling for their products, and (iii) continue to have quality control and manufacturing procedures conform
to cGMP. The FDA periodically inspects the sponsor’s records related to safety reporting and/or manufacturing and distribution
facilities; this latter effort includes assessment of compliance with cGMP. Accordingly, manufacturers must continue to expend
time, money and effort in the area of production, quality control and distribution to maintain cGMP compliance. We use and will
continue to use third-party manufacturers to produce our products in clinical and commercial quantities, and future FDA inspections
may identify compliance issues at our facilities or at the facilities of our contract manufacturers that may disrupt production
or distribution, or require substantial resources to correct. In addition, discovery of problems with a product after approval
may result in restrictions on a product, manufacturer or holder of an approved NDA, including withdrawal of the product from the
market.



Marketing of prescription drugs is also subject to significant
regulation through federal and state agencies tasked with consumer protection and prevention of medical fraud, waste and abuse.
We must comply with restrictions on off-label use promotion, anti-kickback, ongoing clinical trial registration, and limitations
on gifts and payments to physicians.



Non-U.S. Regulation



Before our products can be marketed outside of the United States,
they are subject to regulatory approval similar to that required in the U.S., although the requirements governing the conduct
of clinical trials, including additional clinical trials that may be required, product licensing, pricing and reimbursement vary
widely from country to country. No action can be taken to market any product in a country until an appropriate application has
been approved by the regulatory authorities in that country. The current approval process varies from country to country, and
the time spent in gaining approval varies from that required for FDA approval. In certain countries, the sales price of a product
must also be approved. The pricing review period often begins after market approval is granted. Even if a product is approved
by a regulatory authority, satisfactory prices may not be approved for such product.



21







In Europe, marketing authorizations may be submitted at a centralized,
a decentralized or national level. The centralized procedure is mandatory for the approval of biotechnology products and provides
for the grant of a single marketing authorization that is valid in all EU member states. As of January 1995, a mutual recognition
procedure is available at the request of the applicant for all medicinal products that are not subject to the centralized procedure.
We cannot assure you that the chosen regulatory strategy will secure regulatory approvals on a timely basis or at all.



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.



Regulation
Specific to Radiopharmaceuticals



Our radiolabeled
targeting agents and biologic products, if developed, would require a regulatory license to market from the FDA and from 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 require post-marketing reporting and surveillance programs (pharmacovigilance) 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.



The Nuclear
Regulatory Commission (NRC) oversees medical uses of nuclear material through licensing, inspection, and enforcement programs.
The NRC issues medical use licenses to medical facilities and authorized physician users, develops guidance and regulations for
use by licensees, and maintains a committee of medical experts to obtain advice about the use of byproduct materials in medicine.
The NRC (or the responsible Agreement State) also regulates the manufacture and distribution of these products. The FDA oversees
the good practices in the manufacturing of radiopharmaceuticals, medical devices, and radiation-producing x-ray machines and accelerators.
The states regulate the practices of medicine and pharmacy and administer programs associated with radiation-producing x-ray machines
and accelerators. We, or our manufacturer of the radiolabeled antibodies, must obtain a specific license from the NRC (or the
responsible Agreement State) 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.



22







Corporate Information



Our executive offices are located at 425
Metro Place North, Suite 450, Dublin, Ohio 43017. Our telephone number is (614) 793-7500. “Navidea”, the Navidea logo,
“Lymphoseek”, “RIGS” and “RIGScan” are trademarks of Navidea Biopharmaceuticals, Inc. or its
subsidiaries in the U.S. and/or other countries. Other trademarks or service marks appearing in this report may be trademarks
or service marks of other owners.



The address for our website is http://www.navidea.com.
We make available free of charge on our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K and other filings pursuant to Section 13(a) or 15(d) of the Exchange Act, and amendments to such filings, as soon
as reasonably practicable after each is electronically filed with, or furnished to, the SEC.



Financial Statements



Our consolidated financial statements and the related notes,
including revenues, income (loss), total assets and other financial measures are set forth at pages F-1 through F-26 of this Form
10-K.



Research and Development



We spent approximately $16.9 million, $15.2 million and $8.9
million on research and development activities in the years ended December 31, 2012, 2011 and 2010, respectively.



Employees



As of March
1, 2013, we had 47 full-time and 9 part-time employees. We consider our relations with our employees to be good.



Item 1A. 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 report, 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.



If we do not achieve commercial success
with our approved product or if we do not successfully develop our product candidates into marketable products, we may be unable
to generate significant revenue or become profitable.



We divested the neoprobe GDS line of gamma detection medical
devices in August 2011. Through that time, sales of gamma detection devices represented our primary source of revenue. As a result,
our near-term financial success depends in large part on Lymphoseek achieving commercial success in the U.S. and,
pending approval in other markets, on achievement of commercial success in those markets as well. Lymphoseek was approved and
indicated for use in lymphatic mapping for breast cancer and melanoma by the FDA on March 13, 2013. Additional trials, two of
which are already ongoing in head and neck cancer and colorectal cancer, are anticipated to provide support for expanding the
utilization of Lymphoseek into multiple other cancer types. We expect to begin generating revenues from product sales of Lymphoseek
in the second quarter of 2013. As we generate revenues from Lymphoseek, it is possible we will ultimately receive payments
related to the achievement of certain sales milestones by our marketing partner in the U.S. However, we cannot assure you that
Lymphoseek will achieve commercial success in the U.S. or any other global market, that we will realize sales at levels necessary
for us to achieve sales milestone payments, or that revenue from Lymphoseek will lead to us becoming profitable.



23







In addition, NAV4694, NAV5001 and RIGScan are in various
stages of clinical development. Regulatory approval for additional indications for Lymphoseek may not be successful, or if
successful, may not result in increased sales. Additional clinical trials for NAV4694, NAV5001, RIGScan, or other product
candidates, may not be successful and, even if they are, we may not be successful in developing any of them into a commercial
product which will provide sufficient revenue  to make us profitable.



Many companies in the pharmaceutical industry suffer significant
setbacks in advanced clinical trials even after reporting promising results in earlier trials. Even if our trials are viewed as
successful, we may not get regulatory approval. Our product candidates will be successful only if:



| | · | they are developed
                                                                                                              to a stage that
                                                                                                              will enable us to
                                                                                                              commercialize them
                                                                                                              or sell related
                                                                                                              marketing rights
                                                                                                              to pharmaceutical
                                                                                                              companies;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | we are able
                                                                                                              to commercialize
                                                                                                              them in clinical
                                                                                                              development or sell
                                                                                                              the marketing rights
                                                                                                              to third parties;
                                                                                                              and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | upon being developed,
                                                                                                              they are approved
                                                                                                              by the regulatory
                                                                                                              authorities.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We are dependent on the achievement of these goals in order
to generate future revenues. The failure to generate such revenues may preclude us from continuing our research and development
of these and other product candidates.



We cannot guarantee that we will obtain regulatory approval
to manufacture or market our unapproved drug candidates and our approval to market our products or anticipated commercial launch
may be delayed as a result of the regulatory review process.



Obtaining regulatory approval to market drugs to diagnose or
treat cancer is expensive, difficult and risky. Preclinical and clinical data as well as information related to the CMC processes
of drug production can be interpreted in different ways which could delay, limit or preclude regulatory approval. Negative or
inconclusive results, adverse medical events during a clinical trial, or issues related to CMC processes could also delay, limit
or prevent regulatory approval. Even if we receive regulatory clearance 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.



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



Approved products may later cause adverse effects that limit
or prevent their 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, any contract manufacturer we use in the process of producing a product and its facilities
will continue to be subject to FDA review and periodic inspections to ensure adherence to applicable regulations. After receiving
marketing clearance, 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.



24







If we fail to comply with the regulatory requirements of the
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:



| | · | restrictions
                                                                                                               on the products,
                                                                                                               manufacturers or
                                                                                                               manufacturing processes;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | warning letters;
| | - | ----------------

| | · | civil or criminal
                                                                                                               penalties;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------

| | · | fines;
| | - | ------

| | · | injunctions;
| | - | ------------

| | · | product seizures
                                                                                                               or detentions;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------

| | · | import bans;
| | - | ------------

| | · | voluntary or
                                                                                                               mandatory product
                                                                                                               recalls and publicity
                                                                                                               requirements;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | suspension
                                                                                                               or withdrawal of
                                                                                                               regulatory approvals;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | total or partial
                                                                                                               suspension of production;
                                                                                                               and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | refusal to
                                                                                                               approve pending
                                                                                                               applications for
                                                                                                               marketing approval
                                                                                                               of new drugs or
                                                                                                               supplements to
                                                                                                               approved applications.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Even if our drug candidates are successful in clinical trials,
we may not be able to successfully commercialize them.



With the historical exception of our discontinued
medical device businesses, we have dedicated and will continue to dedicate substantially all of our resources to the research
and development of our radiopharmaceutical technologies and related compounds. With the exception of Lymphoseek, now approved
for use in lymphatic mapping in breast cancer and melanoma in the U.S., all of our compounds currently are in research or development
or regulatory review and have not received marketing approval.



Prior to commercialization, each product
candidate requires significant research, development and preclinical testing and extensive clinical investigation before submission
of any regulatory application for marketing approval. The development of radiopharmaceutical technologies and compounds, including
those we are currently developing, is unpredictable and subject to numerous risks. Potential products that appear to be promising
at early stages of development may not reach the market for a number of reasons including that they may:



| | · | be found ineffective
                                                                                                               or cause harmful
                                                                                                               side effects during
                                                                                                               preclinical testing
                                                                                                               or clinical trials;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | fail to receive
                                                                                                               necessary regulatory
                                                                                                               approvals;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | be difficult
                                                                                                               to manufacture
                                                                                                               on a scale necessary
                                                                                                               for commercialization;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | be uneconomical
                                                                                                               to produce;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------

| | · | fail to achieve
                                                                                                               market acceptance;
                                                                                                               or
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | be precluded
                                                                                                               from commercialization
                                                                                                               by proprietary
                                                                                                               rights of third
                                                                                                               parties.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The occurrence of any of these events could
adversely affect the commercialization of our product candidates. Products, if introduced, may not be successfully marketed and/or
may not achieve customer acceptance. If we fail to commercialize products or if our future products do not achieve significant
market acceptance, we will not likely generate significant revenues or become profitable.



If we are not successful in licensing or acquiring additional
drug candidates or technologies to expand our product pipeline, our future product portfolio and potential profitability could
be harmed.



One component of our business strategy is to in-license drug
compounds developed by other pharmaceutical and biotechnology companies or academic research laboratories. All of our product
candidates in clinical development are in-licensed from third parties, consisting of Lymphoseek, NAV4694, NAV5001 and RIGScan.
We may not successfully acquire additional drug candidates or technologies to expand our product pipeline. The number of such
candidates and technologies is limited. Competition among large pharmaceutical companies and biopharmaceutical companies for promising
drug candidates and technologies is intense because such companies generally desire to expand their product pipelines through
purchase or in-licensing. If we fail to expand our product pipeline, our potential future revenues may be adversely affected.



25







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. During 2011, we successfully completed a second Phase 3 clinical trial in subjects with breast cancer
or melanoma for our most advanced radiopharmaceutical product candidate, Lymphoseek. These Phase 3 clinical trials served as the
basis for the approval of Lymphoseek in March 2013.



Clinical research of Lymphoseek continues with an ongoing third
Phase 3 trial involving subjects with head and neck squamous cell carcinoma (NEO3-06). The NEO3-06 clinical study was designed
to provide evidence of Lymphoseek performance in a third cancer type and to potentially expand the product label for Lymphoseek.
In January 2013, we announced that we had accrued sufficient subjects in our NEO3-06 study in patients with head and neck cancer
to enable us to conduct a pre-planned interim analysis. This Phase 3 trial of Lymphoseek was designed to demonstrate the performance
of Lymphoseek in identifying sentinel lymph nodes in subjects with squamous cell carcinoma on the head or in the mouth. The interim
analysis will compare the pathological analysis of the sentinel lymph nodes localized using Lymphoseek with that of all the lymph
nodes removed during a full nodal dissection surgery of the head and neck. This full dissection surgery is considered the gold
standard for determining the presence and extent of cancer and staging of the disease in such patients. A total of 83 subjects
who underwent pre-planned, full dissection surgery were enrolled and represent the interim analysis cohort. Results from the interim
statistical analysis and reporting of the findings are expected to be available upon completion of full site and data audits planned
for later in 2013.



With respect to NAV4694, AstraZeneca has completed clinical
development through a Phase 2a level. During the third quarter of 2012, we commenced our clinical development through some additional
Phase 2 testing, mainly intended to expand the safety population, and we intend to commence Phase 2b testing in patients with
mild cognitive impairment and autopsy-based Phase 3 testing of NAV4694 in 2013, but these plans could also experience complications
and delays.



With respect to NAV5001, Alseres had previously completed five
clinical trials in over 600 subjects. Alseres received a Phase 3 SPA from the FDA for NAV5001 in 2009. We have held preliminary
discussions with the FDA regarding the SPA and expect to update the SPA over the coming months.



In August 2011, we held a meeting regarding RIGScan with the
SAWP of the EMA and received similar guidance as we received from the FDA, as well as the suggestion that we consider use of a
humanized version of the RIGS antibody. With this collective guidance, we have changed our development plans from a murine-based
antibody to a humanized antibody on our development and regulatory timelines. As the scope and required resources for other development
opportunities such as for NAV4694 and/or NAV5001 continues to be assessed, the timing and scope of our development and commercialization
plan for RIGScan may be continue to be affected.



26







Historically, the results from preclinical testing and early
clinical trials often do not predict the 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, the participating institutions, the FDA or the EMA might
delay or halt any clinical trials for our product candidates for various reasons, including:



| | · | ineffectiveness
                                                                                                             of the product candidate;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | discovery of
                                                                                                             unacceptable toxicities
                                                                                                             or side effects;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | development of
                                                                                                             disease resistance
                                                                                                             or other physiological
                                                                                                             factors;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | delays in patient
                                                                                                             enrollment; or
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------

| | · | other reasons
                                                                                                             that are internal
                                                                                                             to the businesses
                                                                                                             of our potential
                                                                                                             collaborative partners,
                                                                                                             which reasons they
                                                                                                             may not share with
                                                                                                             us.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



While we have achieved some level of success in our clinical
trials for Lymphoseek as indicated by the recent FDA approval, and our licensing partners have also achieved successful outcomes
from earlier trials of NAV4694 and NAV5001, the results of some of these clinical trials that have not been yet reviewed by the
FDA or other regulatory bodies, as well as pending and future trials for these and other product candidates that we may develop
or acquire, are subject to review and interpretation by various regulatory bodies during the regulatory review process and may
ultimately fail to demonstrate the safety or effectiveness of our product candidates to the extent necessary to obtain regulatory
approval, or 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 materially harm our business.



We extensively outsource our clinical trial activities and
usually perform only a small portion of the start-up activities in-house. We rely on independent third-party contract research
organizations (CROs) to perform most of our clinical studies, including document preparation, site identification, screening and
preparation, pre-study visits, training, post-study audits and statistical analysis. Many important aspects of the services performed
for us by the CROs are out of our direct control. If there is any dispute or disruption in our relationship with our CROs, our
clinical trials may be delayed. Moreover, in our regulatory submissions, we rely on the quality and validity of the clinical work
performed by third-party CROs. If any of our CROs’ processes, methodologies or results were determined to be invalid or
inadequate, our own clinical data and results and related regulatory approvals could be adversely impacted.



If we fail to establish and maintain collaborations
or if our partners do not perform, we may be unable to develop and commercialize our product candidates.



We expect to enter into
collaborative arrangements with third-parties to develop and/or commercialize product candidates and are currently seeking additional
collaborations. Such collaborations might be necessary in order for us to fund our research and development activities and third-party
manufacturing arrangements, seek and obtain regulatory approvals and successfully commercialize our existing and future product
candidates. If we fail to enter into collaborative arrangements or fail to maintain our existing collaborative arrangements, the
number of product candidates from which we could receive future revenues would decline.



27







Our dependence on collaborative
arrangements with third parties will subject us to a number of risks that could harm our ability to develop and commercialize
products including that:



| | · | collaborative
                                                                                                               arrangements may
                                                                                                               not be on terms
                                                                                                               favorable to us;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | disagreements
                                                                                                               with partners or
                                                                                                               regulatory compliance
                                                                                                               issues may result
                                                                                                               in delays in the
                                                                                                               development and
                                                                                                               marketing of products,
                                                                                                               termination of
                                                                                                               our collaboration
                                                                                                               agreements or time
                                                                                                               consuming and expensive
                                                                                                               legal action;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | we cannot control
                                                                                                               the amount and
                                                                                                               timing of resources
                                                                                                               partners devote
                                                                                                               to product candidates
                                                                                                               or their prioritization
                                                                                                               of product candidates
                                                                                                               and partners may
                                                                                                               not allocate sufficient
                                                                                                               funds or resources
                                                                                                               to the development,
                                                                                                               promotion or marketing
                                                                                                               of our products,
                                                                                                               or may not perform
                                                                                                               their obligations
                                                                                                               as expected;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | partners may
                                                                                                               choose to develop,
                                                                                                               independently or
                                                                                                               with other companies,
                                                                                                               alternative products
                                                                                                               or treatments.
                                                                                                               including products
                                                                                                               or treatments which
                                                                                                               compete with ours;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | agreements
                                                                                                               with partners may
                                                                                                               expire or be terminated
                                                                                                               without renewal,
                                                                                                               or partners may
                                                                                                               breach collaboration
                                                                                                               agreements with
                                                                                                               us;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | business combinations
                                                                                                               or significant
                                                                                                               changes in a partner's
                                                                                                               business strategy
                                                                                                               might adversely
                                                                                                               affect that partner's
                                                                                                               willingness or
                                                                                                               ability to complete
                                                                                                               its obligations
                                                                                                               to us; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | the terms and
                                                                                                               conditions of the
                                                                                                               relevant agreements
                                                                                                               may no longer be
                                                                                                               suitable.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The occurrence of any of
these events could adversely affect the development or commercialization of our products.



If users of our products are unable to
obtain adequate reimbursement from third-party payers, or if new restrictive legislation is adopted, market acceptance of our
products may be limited and we may not achieve anticipated revenues.



Our ability to commercialize our products
will depend in part on the extent to which appropriate reimbursement levels for the cost of our products and related treatment
are obtained by governmental authorities, private health insurers and other organizations such as health maintenance organizations
(HMOs). Third-party payers are increasingly challenging the prices charged for medical care. Also, the trend toward managed health
care in the United States and the concurrent growth of organizations such as HMOs which could control or significantly influence
the purchase of health care services and products, as well as legislative proposals to further reform health care or reduce government
insurance programs, may all result in lower prices for our products if approved for commercialization. The cost containment measures
that health care payers and providers are instituting and the effect of any health care reform could materially harm our ability
to sell our products at a profit.



While we expect a “pass-through” reimbursement
code related to Lymphoseek’s designation as a new chemical entity to be established by the U.S. Center for Medicaid and
Medicare Services (CMS) in the months following FDA approval on March 13, 2013, there can be no assurance that such pass-through
code will be received from CMS, and if not received, that the cost of Lymphoseek will be absorbed by healthcare providers. In
addition, there can be no assurance that, even if a pass-through code is obtained, following the expiration of such code (generally
two to three years following approval), we will be successful in establishing a separate permanent code for reimbursement of Lymphoseek
and therefore the cost of Lymphoseek may be need to be absorbed by the institution as a part of the bundled procedural code for
the surgical procedure in which Lymphoseek is used. If this is the case, our expectations of the pricing we expect to achieve
for Lymphoseek and the related potential revenue may be significantly diminished.



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



We are in the process of establishing commercial manufacturing
capabilities on a third-party contract basis for our Lymphoseek product and clinical manufacturing capabilities for our other
radiopharmaceutical compounds. We intend to rely 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.



28







We have a supply agreement with Reliable to manufacture the
drug substance for our Lymphoseek product and we currently use OsoBio for the finishing and vialing of our Lymphoseek product.
However, 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,
and for approved products, any such delays, interruptions or other difficulties may render us unable to supply sufficient quantities
to meet demand. Any such delays or interruptions may lower our revenues and potential profitability.



We and any third-party manufacturers that we may use must continually
adhere to cGMPs and regulations enforced by the FDA through its facilities inspection program and/or foreign regulatory authorities
where our products will be tested and/or marketed. If our facilities or the facilities of third-party manufacturers cannot pass
a pre-approval plant inspection, the FDA and/or foreign regulatory authorities will not grant approval to market 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. The FDA and other regulatory authorities may take action against a contract
manufacturer who violates cGMPs.



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



The biotechnology industry is intensely competitive. Some of
our competitors have significantly greater financial, technical, manufacturing, marketing and distribution resources as well as
greater experience in the pharmaceutical industry than we have. The particular medical conditions our product lines address can
also be addressed by other medical 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. Lymphoseek is expected to compete against sulfur colloid in the U.S. and other colloidal agents in other global
markets. NAV4694 is expected to compete against florbetapir, a first-generation beta-amyloid imaging agent which Eli Lilly received
approval for in 2012. We are also aware of two additional first-generation beta-amyloid imaging agents in late stages of development
by two other large pharmaceutical companies. In addition, NAV5001 if approved, is expected to compete against a product marketed
by GE Healthcare. If our competitors are successful in establishing and maintaining market share for their products, our sales
and revenues may not occur at the rate we anticipate. In addition, our current and potential competitors may establish cooperative
relationships with larger 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.



We may be exposed to product liability claims for our product
candidates and products that we are able to commercialize.



The testing, manufacturing, marketing and use of our commercial
products, as well as product candidates in development, involve substantial risk of product liability claims. These claims may
be made directly by consumers, healthcare providers, pharmaceutical companies or others. In recent years, coverage and availability
of cost-effective product liability insurance has decreased, so we may be unable to maintain sufficient coverage for product liabilities
that may arise. In addition, the cost to defend lawsuits or pay damages for product liability claims may exceed our coverage.
If we are unable to maintain adequate coverage or if claims exceed our coverage, our financial condition and our ability to clinically
test our product candidates and market our products will be adversely impacted. In addition, negative publicity associated with
any claims, regardless of their merit, may decrease the future demand for our products and impair our financial condition.



29







The administration of drugs in humans, whether in clinical
studies or commercially, carries the inherent risk of product liability claims whether or not the drugs are actually the cause
of an injury. Our products or product candidates may cause, or may appear to have caused, injury or dangerous drug interactions,
and we may not learn about or understand those effects until the product or product candidate has been administered to patients
for a prolonged period of time. We may be subject from time to time to lawsuits based on product liability and related claims,
and we cannot predict the eventual outcome of any future litigation. We may not be successful in defending ourselves in the litigation
and, as a result, our business could be materially harmed. These lawsuits may result in large judgments or settlements against
us, any of which could have a negative effect on our financial condition and business if in excess of our insurance coverage.
Additionally, lawsuits can be expensive to defend, whether or not they have merit, and the defense of these actions may divert
the attention of our management and other resources that would otherwise be engaged in managing our business.



As a result of a number of factors, product liability insurance
has become less available while the cost has increased significantly. We currently carry product liability insurance that our
management believes is appropriate given the risks that we face. We will continually assess the cost and availability of insurance;
however, there can be no guarantee that insurance coverage will be obtained or, if obtained, will be sufficient to fully cover
product liabilities that may arise.



If any of our license agreements for
intellectual property underlying Lymphoseek, NAV4694, NAV5001 or RIGScan, or any other products or potential products are terminated,
we may lose the right to develop or market that product.



We have licensed intellectual property, including patents and
patent applications relating to intellectual property for Lymphoseek, NAV4694, NAV5001 and RIGScan. We may also enter into other
license agreements or acquire other product candidates. The potential success of our product development programs depend on our
ability to maintain rights under these licenses, including our ability to achieve development or commercialization milestones
contained in the licenses. Under certain circumstances, the licensors have the power to terminate their agreements with us if
we fail to meet our obligations under these licenses. We may not be able to meet our obligations under these licenses. If we default
under any license agreement, we may lose our right to market and sell any products based on the licensed technology.



We may not have sufficient legal protection against infringement
or loss of our intellectual property, and we may lose rights to our licensed intellectual property if diligence requirements are
not met.



Our success depends, in part, on our ability to secure and
maintain patent protection for our products and product candidates, to preserve our trade secrets, and to operate without infringing
on the proprietary rights 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.



Numerous U.S. and foreign issued patents and pending patent
applications, which are owned by third parties, exist in the fields in which we are or may be developing products. As the biotechnology
and pharmaceutical industry expands and more patents are issued, the risk increases that we will be subject to claims that our
products or product candidates, or their use, infringe the rights of others. In the United States, most patent applications are
secret for a period of 18 months after filing, and in foreign countries, patent applications are secret for varying periods of
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, limit our patents, invalidate our patent applications or create a risk of infringement claims.



Under recent changes to U.S. patent law, the U.S. has moved
to a “first to file” system of patent approval, as opposed to the former “first to invent” system. As
a consequence, delays in filing patent applications for new product candidates or discoveries could result in the loss of patentability
if there is an intervening patent application with similar claims filed by a third party, even if we or our collaborators were
the first to invent.



30







We or our suppliers may be exposed to, or threatened with,
future litigation by third parties having patent or other intellectual property rights alleging that our products, product candidates
and/or technologies infringe their intellectual property rights or that the process of manufacturing our products or any of their
respective component materials, or the component materials themselves, or the use of our products, product candidates or technologies,
infringe their intellectual property rights. If one of these patents was found to cover our products, product candidates, technologies
or their uses, or any of the underlying manufacturing processes or components, we could be required to pay damages and could be
unable to commercialize our products or use our technologies or methods unless we are able to obtain a license to the patent or
intellectual property right. A license may not be available to us in a timely manner or on acceptable terms, if at all. In addition,
during litigation, a patent holder could obtain a preliminary injunction or other equitable remedy that could prohibit us from
making, using or selling our products, technologies or methods.



In addition, it may be necessary for us to enforce patents
under which we have rights, or to determine the scope, validity and unenforceability of other parties’ proprietary rights,
which may affect our rights. There can be no assurance that our patents would be held valid by a court or administrative body
or that an alleged infringer would be found to be infringing. The uncertainty resulting from the mere institution and continuation
of any patent related litigation or interference proceeding could have a material and adverse effect on us.



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 unauthorized 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.



We and our collaborators, including AstraZeneca and Alseres,
may not be able to protect our intellectual property rights throughout the world.



Filing, prosecuting and defending patents on all of our product
candidates and products, when and if we have any, in every jurisdiction would be prohibitively expensive. Competitors may use
our technologies in jurisdictions where we or our licensors have not obtained patent protection to develop their own products.
These products may compete with our products, when and if we have any, and may not be covered by any of our or our licensors'
patent claims or other intellectual property rights.



The laws of some foreign countries do not protect intellectual
property rights to the same extent as the laws of the United States, and many companies have encountered significant problems
in protecting and defending such rights in foreign jurisdictions. The legal systems of certain countries, particularly certain
developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating
to biotechnology and/or pharmaceuticals, which could make it difficult for us to stop the infringement of our patents. Proceedings
to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from
other aspects of our business.



31







The intellectual property protection for our product candidates
depends on third parties.



With respect to Lymphoseek, NAV4694, NAV5001 and RIGScan, we
have exclusively licensed certain issued patents and pending patent applications covering the respective technologies underlying
these product candidates and their commercialization and use and we have licensed certain issued patents and pending patent applications
directed to product compositions and chemical modifications used in product candidates for commercialization, and the use and
the manufacturing thereof.



The patents and pending patent applications underlying our
licenses do not cover all potential product candidates, modifications and uses. In the case of patents and patent applications
licensed from AstraZeneca, we have limited control over the filing, prosecution or enforcement of these patents or patent applications.
In the case of patents and patent applications licensed from UCSD, we did not have any control over the filing of the patents
and patent applications before the effective date of the Lymphoseek license, and have had limited control over the filing and
prosecution of these patents and patent applications after the effective date of the Lymphoseek license. We also have limited
rights to enforce patents and patent applications licensed from AstraZeneca and Alseres. We cannot be certain that such prosecution
efforts have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable
patents. We also cannot be assured that our licensors or their respective licensing partners will agree to enforce any such patent
rights at our request or devote sufficient efforts to attain a desirable result. Any failure by our licensors or any of their
respective licensing partners to properly protect the intellectual property rights relating to our product candidates could have
a material adverse effect on our financial condition and results of operation.



We may become involved in disputes with AstraZeneca, UCSD,
Alseres, the NIH or potential future collaborators over intellectual property ownership, and publications by our research collaborators
and scientific advisors could impair our ability to obtain patent protection or protect our proprietary information, which, in
either case, could have a significant effect on our business.



Inventions discovered under research, material transfer or
other such collaborative agreements may become jointly owned by us and the other party to such agreements in some cases and the
exclusive property of either party in other cases. Under some circumstances, it may be difficult to determine who owns a particular
invention, or whether it is jointly owned, and disputes could arise regarding ownership of those inventions. These disputes could
be costly and time consuming and an unfavorable outcome could have a significant adverse effect on our business if we were not
able to protect our license rights to these inventions. In addition, our research collaborators and scientific advisors generally
have contractual rights to publish our data and other proprietary information, subject to our prior review. Publications by our
research collaborators and scientific advisors containing such information, either with our permission or in contravention of
the terms of their agreements with us, may impair our ability to obtain patent protection or protect our proprietary information,
which could significantly harm our business.



Security breaches and other disruptions could compromise
our information and expose us to liability, which would cause our business and reputation to suffer.



In the ordinary course of our business, we collect and store
sensitive data, including intellectual property, our proprietary business information and that of our suppliers and business partners,
and personally identifiable information of employees and clinical trial subjects, in our data centers and on our networks. The
secure maintenance and transmission of this information is critical to our operations and business strategy. Despite our security
measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error,
malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed,
publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings,
liability under laws that protect the privacy of personal information, and regulatory penalties, disrupt our operations, and damage
our reputation, which could adversely affect our business, revenues and competitive position.



32







Failure to comply with domestic and international privacy and
security laws can result in the imposition of significant civil and criminal penalties. The costs of compliance with these laws,
including protecting electronically stored information from cyber attacks, and potential liability associated with failure to
do so could adversely affect our business, financial condition and results of operations. We are subject to various domestic and
international privacy and security regulations, including but not limited to The Health Insurance Portability and Accountability
Act of 1996 (HIPAA). HIPAA mandates, among other things, the adoption of uniform standards for the electronic exchange of information
in common healthcare transactions, as well as standards relating to the privacy and security of individually identifiable health
information, which require the adoption of administrative, physical and technical safeguards to protect such information. In addition,
many states have enacted comparable laws addressing the privacy and security of health information, some of which are more stringent
than HIPAA.



We may have difficulty raising additional capital, which
could deprive us of necessary resources to pursue our business plans.



We expect to devote significant capital resources to fund research
and development, to maintain existing and secure new manufacturing resources, and to acquire new product candidates. In order
to support the initiatives envisioned in our business plan, we will 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. 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.



Our future expenditures on our programs are subject to many
uncertainties, including whether our product candidates will be developed or commercialized with a partner or independently. Our
future capital requirements will depend on, and could increase significantly as a result of, many factors, including:



| | · | the costs of
                                                                                                               seeking regulatory
                                                                                                               approval for our
                                                                                                               product candidates,
                                                                                                               including any nonclinical
                                                                                                               testing or bioequivalence
                                                                                                               or clinical studies,
                                                                                                               process development,
                                                                                                               scale-up and other
                                                                                                               manufacturing and
                                                                                                               stability activities,
                                                                                                               or other work required
                                                                                                               to achieve such
                                                                                                               approval, as well
                                                                                                               as the timing of
                                                                                                               such activities
                                                                                                               and approval;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | the extent
                                                                                                               to which we invest
                                                                                                               in or acquire new
                                                                                                               technologies, product
                                                                                                               candidates, products
                                                                                                               or businesses and
                                                                                                               the development
                                                                                                               requirements with
                                                                                                               respect to any
                                                                                                               acquired programs;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | the scope,
                                                                                                               prioritization
                                                                                                               and number of development
                                                                                                               and/or commercialization
                                                                                                               programs we pursue
                                                                                                               and the rate of
                                                                                                               progress and costs
                                                                                                               with respect to
                                                                                                               such programs;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | the costs related
                                                                                                               to developing,
                                                                                                               acquiring and/or
                                                                                                               contracting for
                                                                                                               sales, marketing
                                                                                                               and distribution
                                                                                                               capabilities and
                                                                                                               regulatory compliance
                                                                                                               capabilities, if
                                                                                                               we commercialize
                                                                                                               any of our product
                                                                                                               candidates for
                                                                                                               which we obtain
                                                                                                               regulatory approval
                                                                                                               without a partner;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | the timing
                                                                                                               and terms of any
                                                                                                               collaborative,
                                                                                                               licensing and other
                                                                                                               strategic arrangements
                                                                                                               that we may establish;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | the extent
                                                                                                               to which we will
                                                                                                               need to expand
                                                                                                               our workforce to
                                                                                                               pursue our business
                                                                                                               plan, and the costs
                                                                                                               involved in recruiting,
                                                                                                               training and incentivizing
                                                                                                               new employees;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | the effect
                                                                                                               of competing technological
                                                                                                               and market developments;
                                                                                                               and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | the cost involved
                                                                                                               in establishing,
                                                                                                               enforcing or defending
                                                                                                               patent claims and
                                                                                                               other intellectual
                                                                                                               property rights.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We believe that we have access to sufficient financial resources
with which to fund our operations and those of our subsidiaries for the foreseeable future. However, certain events or actions
may shorten the period through which our current operating funds will sustain us, including, without limitation, if we decide
to grow our organization in pursuit of development or commercialization activities for our current or newly acquired or developed
product candidates, if we incur unexpected expenses, or if Lymphoseek does not generate our expected levels of sales and cash
flow. We may also acquire new technologies, product candidates and/or products and the cost to acquire, develop and/or commercialize
such new technologies, product candidates and/or products may shorten the period through which our current operating funds will
sustain us. If our current funds become inadequate, we may not be able to obtain sufficient additional funding for such activities,
on satisfactory terms, if at all. If we are unsuccessful in raising additional capital, or the terms of raising such capital are
unacceptable, we may have to modify our business plan and/or significantly curtail our planned development activities, acquisition
of new product candidates and other operations.



33







Our ability to raise capital may be limited by applicable
laws and regulations.



Our ability to raise additional capital through the sale and
issuance of our equity securities may be limited by, among other things, current Securities and Exchange Commission (Commission)
and NYSE MKT rules and regulations. Our capital raising plans include primary offerings of equity securities using a “shelf”
registration on Form S-3, which typically enables an issuer to raise additional capital on a more timely and cost effective basis
than through other means, such as registration of a securities offering under a Form S-1 registration statement. Under current
Commission rules and regulations, to be eligible to use a Form S-3 registration statement for primary offerings without restriction
as to the amount of securities to be sold and issued, an issuer must, among other requirements, have outstanding common equity
with a market value of at least $75 million held by non-affiliates. Although we currently have outstanding common equity with
a market value of significantly more than $75 million held by non-affiliates, if we file a “shelf” Form S-3 registration
statement at a time when the aggregate market value of our common stock held by non-affiliates, or public float, is less than
$75 million (calculated as set forth in Form S-3 and Commission rules and regulations), the amount we could raise through primary
offerings of our securities in any 12-month period using the Form S-3 registration statement may be limited to an aggregate of
one-third of our public float. Moreover, the market value of all securities sold by us under a Form S-3 registration statement
during the prior 12 months may be subtracted from that amount to determine the amount we can then raise under the Form S-3 registration
statement. The Commission’s rules and regulations require that we periodically re-evaluate the value of our public float.
If, at a re-evaluation date, our public float is less than $75 million, the amount we could raise through primary offerings of
our securities in any 12-month period using a Form S-3 registration statement would be subject to the one-third of public float
limitation described above.



In addition, under current Commission rules and regulations,
if our public float is less than $75 million or if we seek to register a resale offering (i.e., an offering of our securities
by persons other than us), we must, among other requirements, maintain our listing with the NYSE MKT or have our common stock
listed and registered on another national securities exchange in order to be eligible to use a Form S-3 registration statement
for any primary or resale offering. Alternative means of raising capital through sales of our securities, including through the
use of a Form S-1 registration statement, may be more costly and time-consuming.



Currently, our common stock is listed on the NYSE MKT. The
NYSE MKT will review the appropriateness of continued listing of any issuer that falls below the exchange’s continued listing
standards. For additional information regarding this risk, see the risk factor below titled “Our failure to maintain continued
compliance with the listing requirements of the NYSE MKT exchange could result in the delisting of our common stock.” If
our common stock were delisted from the NYSE MKT, our ability to raise capital on terms and conditions we deem acceptable, if
at all, may be materially impaired.



Our ability to timely raise sufficient additional capital also
may be limited by the NYSE MKT’s requirements relating to stockholder approval for transactions involving the issuance of
our common stock or securities convertible into our common stock. For instance, the NYSE MKT requires that we obtain stockholder
approval of any transaction involving the sale, issuance or potential issuance by us of our common stock (or securities convertible
into our common stock) at a price less than the greater of book or market value, which (together with sales by our officers, directors
and principal stockholders) equals 20% or more of our presently outstanding common stock, unless the transaction is considered
a “public offering” by the NYSE MKT staff. Based on our outstanding common stock as of February 28, 2013 and the average
closing price of $3.11 over the thirty trading days preceding February 28, 2013, we could not raise more than approximately $70
million without stockholder approval, unless the transaction is deemed a public offering or does not involve the sale, issuance
or potential issuance by us of our common stock (or securities convertible into our common stock) at a price less than the greater
of book or market value. However, certain prior sales by us may be aggregated with any offering we may propose in the near-term,
further limiting the amount we could raise in any future offering that is not considered a public offering by the NYSE MKT staff
and would involve the sale, issuance or potential issuance by us of our common stock (or securities convertible into our common
stock) at a price less than the greater of book or market value. The NYSE MKT will also require stockholder approval if the issuance
or potential issuance of additional shares will be considered by the exchange staff to result in a change of control of Navidea.



34







Obtaining stockholder approval is a costly and time-consuming
process. If we are required to obtain stockholder approval, we would expect to spend substantial additional money and resources.
In addition, seeking stockholder approval would delay our receipt of otherwise available capital, which may materially and adversely
affect our ability to execute our current business strategy, and there is no guarantee our stockholders ultimately would approve
a proposed transaction. A public offering under the NYSE MKT rules typically involves broadly announcing the proposed transaction,
which often has the effect of depressing the issuer’s stock price. Accordingly, the price at which we could sell our securities
in a public offering may be less and the dilution existing stockholders experience may in turn be greater than if we were able
to raise capital through other means.



There may be future sales or other dilution
of our equity, which may adversely affect the market price of shares of our common stock.



Our existing and future preferred stock,
warrants or other securities convertible into or exchangeable for our common stock may contain adjustment provisions that could
increase the number of shares issuable upon exercise, conversion or exchange, as the case may be, and decrease the exercise, conversion
or exchange price. The market price of our shares of common stock or preferred stock could decline as a result of sales of a large
number of shares of our common stock or preferred stock or similar securities in the market, the triggering of any such adjustment
provisions or the perception that such sales could occur in the future.



Our indebtedness imposes significant restrictions on us,
and a default could materially adversely affect our operations and financial condition.



All of our material assets, except our intellectual property,
have been pledged as collateral for our borrowings under the Loan and Security Agreement with Hercules Technology II, LP (Hercules).



In addition to the security interest in our assets, the Loan
and Security Agreement carries substantial covenants that impose significant requirements on us, including, among others, requirements
that:



| | · | we pay all
                                                                                                               principal, interest
                                                                                                               and other charges
                                                                                                               on the outstanding
                                                                                                               balance of the
                                                                                                               borrowed funds
                                                                                                               when due;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | we keep reserved
                                                                                                               out of our authorized
                                                                                                               shares of common
                                                                                                               stock sufficient
                                                                                                               shares to satisfy
                                                                                                               our obligation
                                                                                                               to issue shares
                                                                                                               on conversion of
                                                                                                               the debt and the
                                                                                                               exercise of the
                                                                                                               warrants issued
                                                                                                               in connection with
                                                                                                               the Loan and Security
                                                                                                               Agreement;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | we provide
                                                                                                               certain financial
                                                                                                               information and
                                                                                                               reports to Hercules
                                                                                                               in a timely manner;
                                                                                                               and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | we indemnify
                                                                                                               Hercules against
                                                                                                               certain liabilities.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



35







Additionally, with certain exceptions, the Loan and Security
Agreement prohibits 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;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | incurring any
                                                                                                               indebtedness, capital
                                                                                                               leases, or contingent
                                                                                                               obligations outside
                                                                                                               the ordinary course
                                                                                                               of business or
                                                                                                               without prior written
                                                                                                               approval;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | granting or
                                                                                                               permitting liens
                                                                                                               against or security
                                                                                                               interests in our
                                                                                                               assets;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | acquiring or
                                                                                                               making investments
                                                                                                               in any other person
                                                                                                               other than permitted
                                                                                                               investments;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | making any
                                                                                                               material dispositions
                                                                                                               of our assets outside
                                                                                                               the ordinary course
                                                                                                               of business; or
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | declaring or
                                                                                                               paying any dividends
                                                                                                               or making any other
                                                                                                               distributions.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 Loan and Security Agreement, permitting Hercules to accelerate the maturity of the
debt and to sell the assets securing it. Such actions by Hercules could materially adversely affect our operations, results of
operations and financial condition, including causing us to substantially curtail our product development activities.



Due to the extension of the PDUFA date for Lymphoseek to September
10, 2012, we did not receive FDA approval of Lymphoseek by the June 30, 2012 deadline established in the Loan and Security Agreement
with Hercules, and therefore expect that additional loan proceeds of up to $3 million thereunder will not be available to us under
the current terms.



In addition, our Loan Agreement with Platinum-Montaur Life
Sciences, LLC (Montaur) carries covenants typical for commercial loan agreements, and similar to those contained in the Hercules
Loan and Security Agreement, that impose significant requirements on us. 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 Loan Agreement, permitting Montaur to terminate our ability to obtain additional
draws under the Loan Agreement and accelerate the maturity of the debt. Such actions by Montaur could materially adversely affect
our operations, results of operations and financial condition, including causing us to substantially curtail our product development
activities.



Shares of common stock are equity securities
and are subordinate to our existing and future indebtedness and preferred stock.



Shares of our common stock are common equity interests. This
means that our common stock ranks junior to our outstanding shares of Series B Preferred Stock and any preferred stock that we
may issue in the future, to our indebtedness and to all creditor claims and other non-equity claims against us and our assets
available to satisfy claims on us, including claims in a bankruptcy or similar proceeding. Our existing indebtedness and preferred
stock restrict payment of dividends on our common stock, and future indebtedness and preferred stock may restrict payments of
dividends on our common stock.



Additionally, unlike indebtedness, where principal and interest
customarily are payable on specified due dates, in the case of our common stock, (i) dividends are payable only when and if declared
by our board of directors or a duly authorized committee of our board of directors, and (ii) as a corporation, we are restricted
to making dividend payments and redemption payments out of legally available assets. We have never paid a dividend on our common
stock and have no current intention to pay dividends in the future. Furthermore, our common stock places no restrictions on our
business or operations or on our ability to incur indebtedness or engage in any transactions, subject only to the voting rights
available to shareholders generally.



36







The global financial crisis and continuing federal budget
deadlock may have an impact on our business and financial condition in ways that we currently cannot predict, and may further
limit our ability to raise additional funds.



The ongoing credit crisis and related turmoil
in the global financial system has had and may continue to have an impact on our business and our financial condition. We may
face significant challenges if conditions in the financial markets do not improve or continue to worsen. In particular, our ability
to access the capital markets and raise funds required for our operations may be severely restricted at a time when we would like,
or need, to do so which could have an adverse effect on our ability to meet our current and future funding requirements and on
our flexibility to react to changing economic and business conditions. The continuing federal budget deadlock not only may adversely
affect financial markets, but could also delay or reduce research grant funding and adversely affect operations of government
agencies that regulate us, including the FDA, potentially causing delays in obtaining key regulatory approvals.



Our failure to maintain continued compliance with the listing
requirements of the NYSE MKT exchange could result in the delisting of our common stock.



Our common stock has been listed on the NYSE MKT since February
2011. The rules of NYSE MKT provide that shares be delisted from trading in the event the financial condition and/or operating
results of the Company appear to be unsatisfactory, the extent of public distribution or the aggregate market value of the common
stock has become so reduced as to make further dealings on the NYSE MKT inadvisable, the Company has sold or otherwise disposed
of its principal operating assets, or has ceased to be an operating company, or the Company has failed to comply with its listing
agreements with the Exchange. For example, the NYSE MKT may consider suspending trading in, or removing the listing of, securities
of an issuer that has stockholders’ equity of less than $6.0 million if such issuer has sustained losses from continuing
operations and/or net losses in its five most recent fiscal years. As of December 31, 2012, the Company had a stockholders’
deficit of approximately $1.4 million. However, the NYSE MKT will not normally consider removing from the list securities of an
issuer that fails to meet these requirements if the issuer has (1) total value of market capitalization of at least $50,000,000;
or total assets and revenue of $50,000,000 each in its last fiscal year, or in two of its last three fiscal years; and (2) the
issuer has at least 1,100,000 shares publicly held, a market value of publicly held shares of at least $15,000,000 and 400 round
lot shareholders.  Based on the number of outstanding shares of our common stock, recent trading price of that stock, and
number of round lot holders, we believe that we meet these exception criteria and that  our common stock will not be delisted
as a result of our failure to meet the minimum stockholders' equity requirement for continued listing. We cannot assure you that
the Company will continue to meet these and other requirements necessary to maintain the listing of our common stock on the NYSE
MKT. For example, we may determine to grow our organization or product pipeline or pursue development or other activities at levels
or on timelines that reduces our stockholders’ equity below the level required to maintain compliance with NYSE MKT continued
listing standards.



The delisting of our common stock from the NYSE MKT likely
would reduce the trading volume and liquidity in our common stock and may lead to decreases in the trading price of our common
stock. The delisting of our common stock may also materially impair our stockholders’ ability to buy and sell shares of
our common stock. In addition, the delisting of our common stock could significantly impair our ability to raise capital, which
is critical to the execution of our current business strategy.



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 traded as low as $2.14 per share and as high
as $4.77 per share during the 12-month period ended February 28, 2013. The market price of our common stock has been and is expected
to continue to be highly volatile. Factors, including announcements of technological innovations by us or other companies, regulatory
matters, new or existing products or procedures, concerns about our financial position, operating results, litigation, government
regulation, developments or disputes relating to agreements, patents or proprietary rights, may have a significant impact on the
market price of our stock. In addition, potential dilutive effects of future sales of shares of common stock by the Company and
by stockholders, and subsequent sale of common stock by the holders of warrants and options could have an adverse effect on the
market price of our shares.



37







Some additional factors which could lead to the volatility
of our common stock include:



| | · | price and volume
                                                                                                             fluctuations in the
                                                                                                             stock market at large
                                                                                                             or of companies in
                                                                                                             our industry which
                                                                                                             do not relate to
                                                                                                             our operating performance;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | changes in securities
                                                                                                             analysts’ estimates
                                                                                                             of our financial
                                                                                                             performance or deviations
                                                                                                             in our business and
                                                                                                             the trading price
                                                                                                             of our common stock
                                                                                                             from the estimates
                                                                                                             of securities analysts;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | FDA or international
                                                                                                             regulatory actions
                                                                                                             and regulatory developments
                                                                                                             in the U.S. and foreign
                                                                                                             countries;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | financing arrangements
                                                                                                             we may enter that
                                                                                                             require the issuance
                                                                                                             of a significant
                                                                                                             number of shares
                                                                                                             in relation to the
                                                                                                             number of shares
                                                                                                             currently outstanding;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | public concern
                                                                                                             as to the safety
                                                                                                             of products that
                                                                                                             we or others develop;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | activities of
                                                                                                             short sellers in
                                                                                                             our stock; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | fluctuations
                                                                                                             in market demand
                                                                                                             for and supply of
                                                                                                             our products.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The realization of any of the foregoing could have a dramatic
and adverse impact on the market price of our common stock. In addition, class action litigation has often been instituted against
companies whose securities have experienced substantial decline in market price. Moreover, regulatory entities often undertake
investigations of investor transactions in securities that experience volatility following an announcement of a significant event
or condition. Any such litigation brought against us or any such investigation involving our investors could result in substantial
costs and a diversion of management’s attention and resources, which could hurt our business, operating results and financial
condition.



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



Historically, the trading volume for our common stock has been
relatively limited. The average daily trading volume for our common stock on the OTC Bulletin Board for the 12-month period ended
January 31, 2011 was approximately 194,000 shares. Following the listing of our common stock on the NYSE MKT on February 10, 2011,
trading in our common stock has been more active. During the 12-month period beginning on March 1, 2012 and ending on February
28, 2013, the average daily trading volume for our common stock on the NYSE MKT was approximately 850,000 shares. We cannot, however,
assure you that this trading volume will be consistently maintained in the future.



The market price of our common stock may
be adversely affected by market conditions affecting the stock markets in general, including price and trading fluctuations on
the NYSE MKT exchange.



The market price of our common stock may
be adversely affected by market conditions affecting the stock markets in general, including price and trading fluctuations on
the NYSE MKT. These conditions may result in (i) volatility in the level of, and fluctuations in, the market prices of stocks
generally and, in turn, our shares of common stock, and (ii) sales of substantial amounts of our common stock in the market, in
each case that could be unrelated or disproportionate to changes in our operating performance.



Because we do not expect to pay dividends on our common
stock in the foreseeable future, stockholders will only benefit from owning common stock if it appreciates.



We have paid no cash dividends on any of our common stock to
date, and we currently intend to retain our future earnings, if any, to fund the development and growth of our business. As a
result, with respect to our common stock, we do not expect to pay any cash dividends in the foreseeable future, and payment of
cash dividends, if any, will also depend on our financial condition, results of operations, capital requirements and other factors
and will be at the discretion of our board of directors. Furthermore, we are subject to various laws and regulations that may
restrict our ability to pay dividends and we may in the future become subject to contractual restrictions on, or prohibitions
against, the payment of dividends. Due to our intent to retain any future earnings rather than pay cash dividends on our common
stock and applicable laws, regulations and contractual obligations that may restrict our ability to pay dividends on our common
stock, the success of your investment in our common stock will likely depend entirely upon any future appreciation and there is
no guarantee that our common stock will appreciate in value.



38







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



Our business has experienced a number of successes and faced
several challenges in recent years that have resulted in several significant changes in our strategy and business plan, including
the shifting of resources to support our current development initiatives. Our management will need to remain flexible to support
our business model over the next few years. However, losing members of the Navidea 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 pharmaceutical industry, and the acquisition of additional product candidates may require us to acquire
additional highly qualified personnel. The competition for qualified personnel in the biotechnology 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.



If we make any acquisitions, we will incur a variety of
costs and may never realize the anticipated benefits.



If appropriate opportunities become available, we may attempt
to acquire businesses and assets that we believe are a strategic fit with our business. While we periodically are engaged in discussions
regarding potential business or product acquisitions, we currently have no binding agreements to consummate any material acquisitions.
If we pursue any such transaction, the process of negotiating the acquisition and integrating an acquired business and assets
may result in operating difficulties and expenditures and may require significant management attention that would otherwise be
available for ongoing development of our business whether or not any such transaction is ever consummated. Moreover, we may never
realize the anticipated benefits of any acquisition. Future acquisitions could result in potentially dilutive issuances of equity
securities, the incurrence of debt, contingent liabilities and/or amortization expenses related to goodwill and other intangible
assets which could harm our business, financial condition, operating results and prospects and the trading price of our securities.



We may be adversely
affected if our controls over external financial reporting fail or are circumvented.



We regularly review and update our internal controls, disclosure
controls and procedures, and corporate governance policies. In addition, we are required under the Sarbanes Oxley Act of 2002
to report annually on our internal control over financial reporting. If it were to be determined that our internal control over
financial reporting is not effective, such shortcoming could have an adverse effect on our business and financial results and
the price of our common stock could be negatively affected. This reporting requirement could also make it more difficult or more
costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to
accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. Any system
of internal controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable,
not absolute, assurances that the objectives of the system are met. Any failure or circumvention of the controls and procedures
or failure to comply with regulation concerning control and procedures could have a material effect on our business, results of
operation and financial condition. Any of these events could result in an adverse reaction in the financial marketplace due to
a loss of investor confidence in the reliability of our financial statements, which ultimately could negatively affect the market
price of our shares, increase the volatility of our stock price and adversely affect our ability to raise additional funding.
The effect of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board
of directors and our board committees and as executive officers.



Item 1B. Unresolved Staff Comments



None.



39







Item 2. Properties



We currently
lease approximately 15,000 square feet of office space at 425 Metro Place North, Dublin, Ohio, as our principal offices. The current
lease term expires October 31, 2013, at a monthly base rent of approximately $12,000 during 2013. We must also pay a pro-rata
portion of the operating expenses and real estate taxes of the building. We also lease approximately 4,000 square feet of office
space at 10 New England Business Center Drive, Andover, Massachusetts, primarily for our business development and commercialization
departments. The current lease term expires March 2014, at a monthly base rent of approximately $6,400 during 2013. We must also
pay a pro-rata portion of the electricity cost of the building. We believe both facilities are in good condition, but that we
may need to expand our leased space related to our radiopharmaceutical development activities depending on the level of activities
performed internally versus by third parties.



Item 3. Legal Proceedings



None.



Item 4. Mine Safety Disclosure



Not applicable.



40







PART II



Item 5. Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities



Our common stock trades on the NYSE MKT exchange under the trading
symbol NAVB. Prior to our name change from Neoprobe Corporation to Navidea Biopharmaceuticals, Inc. on January 5, 2012, our common
stock was traded on the NYSE MKT under the trading symbol NEOP. Prior to being listed on the NYSE MKT beginning February 10, 2011,
our common stock was traded on the OTC Bulletin Board under the trading symbol NEOP.OB. 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 |  
|----------------- |  | ---- | ---- |  | --- | -
|Fiscal Year 2012: |  |      |      |  |     |  
|First Quarter     |  | $    | 3.55 |  |     | $
|Second Quarter    |  |      | 3.79 |  |     |  
|Third Quarter     |  |      | 4.77 |  |     |  
|Fourth Quarter    |  |      | 2.98 |  |     |  
|                  |  |      |      |  |     |  
|Fiscal Year 2011: |  |      |      |  |     |  
|First Quarter     |  | $    | 4.71 |  |     | $
|Second Quarter    |  |      | 5.48 |  |     |  
|Third Quarter     |  |      | 3.60 |  |     |  
|Fourth Quarter    |  |      | 3.18 |  |     |  



As of March 1, 2013, we had approximately
701 holders of common stock of record.



We have not paid any dividends on our common stock and do not
anticipate paying cash dividends on our common stock 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.



During the three-month period ended December 31, 2012, Platinum
Montaur Life Sciences, LLC (Montaur) exercised 6,000,000 Series W warrants in exchange for issuance of 6,000,000 shares of our
common stock, resulting in gross proceeds of $1,920,000. The issuance of the shares was exempt from registration under Sections
4(2) of the Securities Act and Regulation D promulgated thereunder.



Also during the three-month period ended December 31, 2012,
1,000 shares of the Series C Convertible Preferred Stock automatically converted into 3,226,000 shares of our common stock. The
issuance of the shares was exempt from registration under Sections 4(2)  of the Securities Act and Regulation D promulgated thereunder.



42







Stock Performance Graph



The following graph compares the cumulative total return on
a $100 investment in each of the common stock of the Company, the Russell 3000, and the NASDAQ Biotechnology Index for the period
from December 31, 2007 through December 31, 2012. This graph assumes an investment in the Company’s common stock and the
indices of $100 on December 31, 2007 and that all dividends were reinvested.







|                           |  | Cumulative Total Return as of December 31, |       
|-------------------------- |  | ------------------------------------------ | ------
|                           |  | 2007                                       |       
|Navidea Biopharmaceuticals |  | $                                          | 100.00
|Russell 3000               |  |                                            | 100.00
|NASDAQ Biotechnology       |  |                                            | 100.00



43







Item 6. Selected Financial Data



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 elsewhere
in this Form 10-K as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations. Summary
financial data for 2012 and prior periods reflect the disposition of our gamma detection device business in August 2011 and the
reclassification of certain related items to discontinued operations.



|(Amounts in thousands, except per share data)                |  | Years Ended December 31, |        
|------------------------------------------------------------ |  | ------------------------ | -------
|                                                             |  | 2012                     |        
|Statement of Operations Data:                                |  |                          |        
|Revenue                                                      |  | $                        | 79     
|Research and development expenses                            |  |                          | 16,890 
|Selling, general and administrative expenses                 |  |                          | 11,178 
|Loss from operations                                         |  |                          | (27,989
|                                                             |  |                          |        
|Other expenses, net                                          |  |                          | (1,168 
|                                                             |  |                          |        
|Benefit from income taxes                                    |  |                          | —      
|                                                             |  |                          |        
|Loss from continuing operations                              |  |                          | (29,157
|Discontinued operations, net of tax effect                   |  |                          | —      
|                                                             |  |                          |        
|Net (loss) income                                            |  |                          | (29,157
|Preferred stock dividends                                    |  |                          | (43    
|                                                             |  |                          |        
|(Loss) income attributable to common stockholders            |  | $                        | (29,200
|                                                             |  |                          |        
|(Loss) income per common share (basic and diluted):          |  |                          |        
|Continuing operations                                        |  | $                        | (0.29  
|Discontinued operations                                      |  | $                        | —      
|(Loss) income attributable to common stockholders            |  | $                        | (0.29  
|                                                             |  |                          |        
|Shares used in computing (loss) income per common share: (1) |  |                          |        
|Basic and diluted                                            |  |                          | 99,060 



|                      |  | As of December 31, |         
|--------------------- |  | ------------------ | --------
|                      |  | 2012               |         
|Balance Sheet Data:   |  |                    |         
|Total assets          |  | $                  | 11,972  
|Long-term obligations |  |                    | 7,187   
|Accumulated deficit   |  |                    | (274,558



(1)     Basic
earnings (loss) per share is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average
number of common shares and, except for periods with a loss from operations, participating securities outstanding during the period.
Diluted earnings (loss) per share reflects additional common shares that would have been outstanding if dilutive potential common
shares had been issued. Potential common shares that may be issued by the Company include convertible securities, options and warrants.



44







Item 7. 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-K. 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 1A of this Form 10-K, Risk Factors.



The Company



Navidea Biopharmaceuticals, Inc.
(Navidea, the Company, or we), a Delaware corporation, is a biopharmaceutical company focused on the development and commercialization
of precision diagnostics and radiopharmaceutical agents. We have one approved product in the U.S., Lymphoseek® (technetium
Tc 99m tilmanocept) Injection, a novel, receptor-targeted, small-molecule radiopharmaceutical, indicated for use in lymphatic
mapping for breast cancer and melanoma. Lymphoseek is designed to identify the lymph nodes that drain
from a primary tumor, which have the highest probability of harboring cancer.Additional investigational trials in other
solid tumor cancers are anticipated to provide support for expanding the utilization of Lymphoseek into multiple other cancer types.
We are currently developing three other radiopharmaceutical agent platforms. NAV4694, is an F-18 radiolabeledpositron emission tomography (PET) imaging agent being developed as an aid in the diagnosis of
patients with signs or symptoms of cognitive impairment such as Alzheimer’s disease
(AD). NAV5001, is an Iodine-123 radiolabeled single photon emission computed tomography
(SPECT) imaging agent being developed as an aid in the diagnosis of Parkinson’s disease (PD) and other movement disorders,
with potential additional use as a diagnostic aid in dementia. RIGScanTM, is a radiolabeled monoclonal antibody being
developed as a diagnostic aid for use during surgery to help surgeons locate occult or metastatic cancer, with a primary focus
on colorectal cancer. All of these investigational drug products are still in development and must be cleared for marketing by
the appropriate regulatory authorities before they can be sold in any markets.



Executive Summary



We believe that the future prospects for Navidea continue to
improve as we make progress in executing our strategic vision to become a leader in precision diagnostics. Our
primary development efforts over the last few years have been focused on the development of our now-approved Lymphoseek
product candidate, as well as more recently on our other pipeline programs, including NAV4694, NAV5001 and RIGScan. We expect our
overall research and development expenditures to continue to be significantly higher during 2013 as compared to 2012 due to the
expansion of our clinical, regulatory, and business development staff and efforts that support the commercialization of Lymphoseek,
further development of Lymphoseek, NAV4694, NAV5001 and RIGScan, and the potential sourcing and development of additional pipeline
product candidates. The level to which the expenditures rise will depend on how successful we are in commercializing Lymphoseek
and on the extent to which we are able to execute on our strategic development initiatives.



Our efforts in 2012 and to date in 2013 have resulted in the
following milestone achievements:



Corporate/Financial



| | · | Neoprobe Corporation became Navidea Biopharmaceuticals, Inc. (NYSE MKT: NAVB) reflecting the Company’s biopharmaceutical
focus on precision diagnostics development and commercialization.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Implemented a $50 million credit facility with Platinum-Montaur Life Sciences LLC (Montaur) in July 2012, of which $15 million
is currently available, to provide flexible financial resources to fund short- and long-term development and growth plans. In December
2012, the Company drew a total of $4 million under the Montaur credit facility. Montaur also exercised certain warrants in December
2012 and March 2013, providing $1.9 million and $1.4 million in proceeds, respectively.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



45







| | · | Completed an underwritten public offering of 1.5 million shares of common stock in February 2013, resulting in net proceeds
to the Company of approximately $4.4 million after deducting expenses associated with the offering.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Appointed pharma industry veteran Cornelia Reininger, MD, PhD, as Chief Medical Officer to lead ongoing development of our
pipeline agents, playing a key role in medical strategy, protocol design, product positioning and regulatory direction. Formerly,
Dr. Reininger spearheaded development and registration of the neuroimaging agents, florbetaben for Alzheimer’s disease and
DaTScanTM for Parkinson’s disease.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Augmented management with the addition of key strategic positions to strengthen the Company’s global regulatory, commercial
and manufacturing functions including William Regan, Senior Vice President, Global Regulatory Strategy; David Pendleton, Vice President,
Marketing and New Product Planning; Stephen Haber, Vice President, Development; and David Casebier, Vice President, Chemistry,
Manufacturing and Control.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Pipeline



| | · | Lymphoseek
| | - | ----------

| | o | Lymphoseek was approved and indicated for use in lymphatic mapping for breast cancer and melanoma by the FDA on March 13, 2013.
| | - | -------------------------------------------------------------------------------------------------------------------------------

| | o | Submitted the Lymphoseek Marketing Authorization Application to the European Medicines Agency in December 2012.
| | - | ---------------------------------------------------------------------------------------------------------------

| | o | Reached the interim analysis point of the NEO3-06 Phase 3 head and neck cancer study of Lymphoseek with results from the interim
statistical analysis and reporting of the findings expected later in 2013.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Initiated a collaboration with Maimonides Medical Center on an investigator-initiated clinical trial utilizing Lymphoseek for
lymphatic mapping in colorectal cancer.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Presented data from Lymphoseek clinical trials at more than 15 major medical meetings, including: Society of Surgical Oncology,
European Society of Surgical Oncology, American Society of Clinical Oncology, Society of Nuclear Medicine, International Conference
on Head and Neck Cancer, European Association of Nuclear Medicine, American Society for Radiation Oncology and Radiology Society
of North America.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Published data from the Lymphoseek Phase 3 Clinical Trial for Intraoperative Lymphatic Mapping of Lymph Nodes in Breast Cancer
Compared to Sulfur Colloid and Vital Blue Dye in the Journal of Clinical Oncology Online (2012; e21066).
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Published results from the Lymphoseek Phase 3 Clinical Trials in Melanoma in the Annals of Surgical Oncology (DOI 10.1245/s10434-012-2612-z).
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------

| | · | NAV4694
| | - | -------

| | o | Initiated a Phase 2 clinical trial of NAV4694 as an aid in diagnosing AD with the goal to compare images from subjects with
probable AD with similarly aged and young healthy volunteers.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | o | Presented data from the NAV4694 studies six major neurological medical meetings including: Human Amyloid Imaging meeting, Alzheimer’s
Disease Neuroimaging Initiative, Society of Nuclear Medicine and the Alzheimer’s Association International Conference on
Alzheimer’s Disease.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | NAV5001
| | - | -------

| | o | Licensed NAV5001, an Iodine-123 radiolabeled imaging agent being developed as a potential aid in the diagnosis of PD, dementia
with Lewy Bodies and other movement disorders, thus expanding the Company’s neuroimaging pipeline.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | RIGScan
| | - | -------

| | o | Awarded a Small Business Innovation Research grant from the National Institutes of Health for development of a radioimmunoguided
surgery agent aimed at detecting metastatic cancer, with potential for grant money up to a total of $1.5 million over three years
if fully funded.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



46







Our Outlook



With the U.S. approval of Lymphoseek on March 13, 2013, the
Company is moving forward with preparations for commercial launch in the U.S. with our marketing partner, Cardinal Health, expected
in the second quarter of 2013. As such, we expect to report revenue from Lymphoseek in the second quarter of 2013. However, as
we do not yet have experience and insight into the level of potential sales success we may achieve with Lymphoseek, we do not currently
expect to provide revenue guidance for 2013.



Excluding the results of our discontinued operations, as discussed
below, our operating expenses over the last three years have been focused primarily on support of Lymphoseek and NAV4694 product
development, and to a lesser extent, on efforts to restart active development of RIGScan. In addition, during 2012 we paid $1.8
million in option and sublicense fees ($1.1 million of which was non-cash in nature) related to a sublicense agreement with Alseres
for the exclusive worldwide license of NAV5001.



We spent approximately $16.9 million, $15.2 million and $8.9
million in total on research and development activities in the years ended December 31, 2012, 2011 and 2010, respectively. Following
the sale of the GDS Business, our entire organization is focused on the development of radiopharmaceutical agents that fulfill
our vision of becoming a leader in precision diagnostics. Of the total amounts we have spent on research and development over the
last three years, excluding costs related to our internal research and development headcount and our general and administrative
staff which we do not currently allocate among the various development programs that we have underway, we incurred out-of-pocket
charges by program as follows:



|Development Program |  | 2012 |           |  | 2011 |   |           | 2010 | 
|------------------- |  | ---- | --------- |  | ---- | - | --------- | ---- | 
|Lymphoseek          |  | $    | 5,632,183 |  |      | $ | 5,286,395 |      | 
|NAV4694             |  |      | 3,339,592 |  |      |   | 5,018,490 |      | 
|NAV5001             |  |      | 2,159,483 |  |      |   | —         |      | 
|RIGScan             |  |      | 253,325   |  |      |   | 1,302,851 |      | 



Due to the advancement of our efforts with Lymphoseek, NAV4694,
NAV5001, RIGScan, and potentially other programs, we expect our total drug-related development and commercialization expenses for
2013 to increase significantly over 2012. The specific levels to which each program’s expenditures may rise will depend in
part on how successful we are in commercializing Lymphoseek and on the extent to which we draw on the other financial resources
we have at our disposal. In general, development expenses in 2013 for Lymphoseek are expected to decrease as compared to 2012 while
expenses related to NAV4694, NAV5001 and RIGScan are all currently expected to increase in 2013 over 2012.



During 2013, we expect to incur additional development expenses
related to supporting the Marketing Authorization Application (MAA) review of Lymphoseek in the EU, our NEO3-06 clinical trial
and studies to support Lymphoseek in a potential post-commercialization setting, and support the other product activities related
to the potential marketing registration of Lymphoseek in other markets. In addition, we expect to incur significant costs during
2013 to support our business development and commercialization activities surrounding Lymphoseek. We cannot assure you that Lymphoseek
will achieve regulatory approval in the EU or any other market outside the U.S., or if approved, that it will achieve market acceptance.



We also expect to incur significant expenses for NAV4694 during
2013 related to ongoing additional Phase 2 clinical trials and the initiation of a Phase 2 clinical study in subjects with mild
cognitive impairment and a pivotal Phase 3 clinical trial in subjects with AD, as well as costs for manufacturing-related activities
required prior to filing for regulatory clearance to market. NAV4694 is currently not expected to contribute revenue to the Company
until 2016 at the earliest. We cannot assure you that further clinical trials for this product will be successful, that the agent
will ultimately achieve regulatory approval, or if approved, the extent to which it will achieve market acceptance.



47







We expect to incur significant expenses for NAV5001 during 2013
related to initiation of Phase 2 and Phase 3 clinical trials, as well as for manufacturing-related activities required to support
clinical activities and to prepare to file for regulatory clearance to market. NAV5001 is not expected to generate revenue for
the Company until 2016 at the earliest. We cannot assure you that clinical trials for this product will be successful, that the
agent will ultimate achieve regulatory approval, or if approved, the extent to which it will achieve market acceptance.



We are in the process of evaluating the business, manufacturing,
development and regulatory pathways forward with respect to RIGScan. We believe that the time required for continued development,
regulatory approval and commercialization of a RIGScan product would likely be a minimum of five years before we receive any significant
product-related royalties or revenues. We cannot assure you that we will be able to complete satisfactory development arrangements
or obtain incremental financing to fund development of the RIGS technology and cannot guarantee that such arrangements could be
obtained on a timely basis on terms acceptable to us, or at all. We also cannot assure you that further clinical development will
be successful, that the FDA or the European Medicines Agency (EMA) will clear RIGScan for marketing, or that it will be successfully
introduced or achieve market acceptance.



Finally, if we are successful in identifying and securing additional
product candidates to augment our product development pipeline, we will likely incur significant additional expenses related to
furthering the development of such products.



Discontinued Operations



From our inception through August
2011, we developed and marketed a line of medical devices, the neoprobe® GDS gamma detection systems (the GDS Business).
However, following an analysis of our strategic goals and objectives, our Board of Directors authorized, and our stockholders approved,
the sale of the GDS Business to Devicor Medical Products, Inc. (Devicor) in August 2011 (the Asset Sale). Under the terms
of the Asset Purchase Agreement (APA) with Devicor, we sold the assets and assigned certain liabilities that were primarily related
to the GDS Business. In exchange for the assets of the GDS Business, Devicor made cash payments to us of $30.3 million, assumed
certain liabilities of the Company associated with the GDS Business, and agreed to make royalty payments to us of up to an aggregate
maximum amount of $20 million based on the net revenue attributable to the GDS Business over the course of fiscal years 2012 through
2017. We did not record any royalty revenue in 2012 as Devicor did not achieve the minimum sales of gamma detection devices required
to trigger such payment. In December 2011, we entered an agreement to transfer potential liability related to extended warranty
contracts related to the GDS Business, which were outstanding as of the date of the sale of the GDS Business but which were not
included in the August 2011 transaction. In exchange for transferring the liability related to the extended warranty contracts
to Devicor, we made a cash payment to Devicor of $178,000.



Our consolidated statements of operations have been reclassified
to discontinued operations, as required. Cash flows associated with discontinued operations have been combined within operating,
investing and financing cash flows, as appropriate, in our consolidated statements of cash flows.



Results of Operations



This discussion of our Results of Operations focuses on describing
results of our operations as if we had not operated the discontinued operations discussed above during the periods being disclosed.
In addition, since our radiopharmaceuticals are not yet generating commercial revenue, the discussion of our revenue focuses on
the grant and other revenue we have received and our operating variances focus on our radiopharmaceutical development programs
and the supporting general and administrative expenses.



48







Years Ended December 31,
2012 and 2011



Revenue. Revenue of $60,000 during 2012 was related to
reimbursement of certain Lymphoseek commercialization activities by our distribution partner, Cardinal Health. Revenue of $592,000
during 2011 was related to an Ohio Third Frontier grant to support Lymphoseek development. Additional revenue of $19,000 and $6,000
during 2012 and 2011, respectively, was related to additional Ohio Third Frontier grants to support student internships.



Research and Development Expenses. Research and development
expenses increased $1.7 million, or 11%, to $16.9 million during 2012 from $15.2 million during the same period in 2011. The increase
was primarily due to net increases in drug project expenses related primarily to (i) increased NAV5001 development costs of $2.2
million, including option and sublicense fees of $1.8 million ($1.1 million of which was non-cash in nature) coupled with due diligence,
consulting and manufacturing-related costs, (ii) a net increase in Lymphoseek development costs of $346,000 resulting from increased
manufacturing-related costs, regulatory consulting costs and filing fees related to preparation and filing of a MAA with the EMA,
and consulting costs related to preparation for a potential FDA Advisory Committee meeting, offset by the $1.5 million FDA filing
fee and UCSD license milestone payment related to filing the Lymphoseek NDA in 2011 coupled with decreased clinical activities,
and (iii) increased license fees and consulting costs related to potential pipeline products of $192,000; offset by (iv) a net
decrease in NAV4694 development costs of $1.7 million, resulting from the $5.0 million initial license fee incurred in 2011, offset
by increased clinical activities, technology transfer and manufacturing-related costs, project management and consulting fees in
2012, and (v) decreased RIGScan development costs of $1.0 million, primarily related to manufacturing. The net increase in research
and development expenses also included an increase in headcount and related expenses required for expanded development efforts
of $1.0 million, as well as increased costs related to travel, pharmacovigilance activities, consulting, training, recruiting,
general office and other expenses of $737,000.



Selling, General and Administrative Expenses. Selling,
general and administrative expenses increased $1.7 million, or 17%, to $11.2 million during 2012 from $9.5 million in 2011. The
net increase was primarily due to our formation of a marketing and business development team during the second half of 2011 to
prepare for the commercial launch of Lymphoseek. Increased marketing costs primarily related to the pending commercial launch of
Lymphoseek of $2.5 million, increased compensation costs of $1.2 million related to increased headcount and incentive-based compensation,
and increased travel, insurance, taxes and general office expenses to support the increased headcount of $538,000 were offset by
a decrease in separation costs of $2.7 million related to our former President and CEO which were recorded in 2011.



Other Income (Expense). Other expense, net, was $1.2
million during 2012 as compared to $943,000 in 2011. Interest expense increased to $1.2 million during 2012 from $13,000 in 2011,
due to the notes payable we entered into in December 2011 and December 2012. Of the interest expense in 2012, $545,000 was non-cash
in nature related to the amortization of debt issuance costs and debt discounts resulting from the warrants issued and conversion
features embedded in the December 2011 note. During 2012 and 2011, we recorded income of $32,000 and charges of $952,000, respectively,
related to the changes in derivative liabilities resulting from the requirement to mark our derivative liabilities to market.



Income Taxes. An estimated tax provision of $6.7 million
related to the gain on the sale of discontinued operations and $1.2 million related to income from discontinued operations was
offset by an estimated tax benefit of $7.9 million related to the loss from continuing operations during 2011.



Gain on Sale of Discontinued Operations. Gain on sale
of discontinued operations related to the sale of our GDS Business to Devicor was $19.5 million during 2011. The sales price of
$30.3 million included a cash payment of $30.0 million and an accrued net working capital adjustment of an additional $254,000.
The proceeds were offset by $2.8 million in investment banking, legal and other fees related to the sale, $1.2 million in net balance
sheet dispositions and write-offs, and $6.7 million of estimated taxes, as noted above.



49







Income from Discontinued Operations. The income from
discontinued operations was $3.3 million, net of $1.0 million in estimated taxes, during 2011 and was primarily related to the
operation of our GDS Business, which was sold to Devicor in August 2011.



Years Ended December 31,
2011 and 2010



Revenue. Revenue of $592,000 during 2011 was related
to the Ohio Third Frontier grant to support Lymphoseek development. Revenue of $602,000 during 2010 was related to Ohio Third Frontier
and Qualifying Therapeutic Discovery Project grants. Additional revenue of $6,000 and $15,000 during 2011 and 2010, respectively,
was related to additional Ohio Third Frontier grants to support student internships.



Research and Development Expenses. Research and development
expenses increased $6.3 million, or 70%, to $15.2 million during 2011 from $8.9 million in 2010. The increase was primarily due
to net increases in drug project expenses related primarily to (i) the $5.0 million initial license fee for NAV4694, (ii) increased
Lymphoseek development costs including the $1.5 million filing fee for the Lymphoseek NDA, regulatory consulting costs of $452,000,
and license fees of $70,000, (iii) increased manufacturing, and regulatory project costs of $457,000 related to RIGScan, and (iv)
project costs of $355,000 related to various potential new product candidates; offset by (v) decreased process development costs
of $1.7 million and decreased clinical activity costs of $956,000 related to Lymphoseek, and (vi) decreased process development
costs of $76,000 related to RIGScan. The net increase in research and development expenses was also due to increased compensation
of $914,000 due to increased headcount required for expanded development efforts and increased related expenses such as incentive-based
compensation, travel and supplies.



Selling, General and Administrative Expenses. Selling,
general and administrative expenses increased $5.1 million, or 119%, to $9.5 million during 2011 from $4.4 million in 2010. The
net increase was primarily due to separation costs of $2.3 million related to the separation of our former President and CEO, David
Bupp; increased compensation costs of $1.4 million related to net increased headcount and incentive-based compensation; increased
professional services and consulting costs of $850,000 that supported preparation for Lymphoseek commercialization, listing on
the NYSE MKT, and various corporate governance and investor relations issues; and increased Board of Directors costs of $217,000
due to increased meeting fees related to the number of transactions considered during 2011 and stock-based incentive compensation.
The net increase in selling, general and administrative expenses was also due to increased headcount-related costs such as travel,
recruiting and space costs.



Other Income (Expense). Other expense, net decreased
$42.6 million to $943,000 in 2011 from $43.6 million in 2010. During 2010, we recorded a non-cash loss on the extinguishment of
debt of $41.7 million related to the exchange of our outstanding convertible debt for convertible preferred stock. During 2011
and 2010, we recorded charges of $952,000 and $1.3 million, respectively, related to the increases in derivative liabilities resulting
from the requirement to mark our derivative liabilities to market. Interest expense decreased $542,000 to $13,000 during 2011 from
$555,000 in 2010, primarily due to the June 2010 exchange of our then-outstanding convertible debt agreements for convertible preferred
stock. Of this interest expense, $403,000 in 2010 was non-cash in nature due to the payment or accrued payment of interest on our
convertible debt with shares of our common stock. In addition, $4,000 and $16,000 of interest expense during 2011 and 2010, respectively,
was non-cash in nature related to the amortization of debt discounts and issuance costs resulting from warrants and conversion
features related to our convertible debt. Interest income increased $17,000 to $26,000 during 2011 from $9,000 in 2010, primarily
due to increased cash balances.



Income Taxes. Estimated tax liabilities of $6.7 million
related to the gain on the sale of discontinued operations and $1.2 million related to income from discontinued operations were
fully offset by an estimated tax benefit of $7.9 million related to the loss from continuing operations during 2011. Estimated
tax liabilities of $2.1 million related to income from discontinued operations were fully offset by an estimated tax benefit of
$2.1 million related to the loss from continuing operations during 2010.



50







Gain on Sale of Discontinued Operations. We recognized
a gain on sale of discontinued operations related to the sale of our GDS Business to Devicor and subsequent disposition of our
extended warranty contracts of $19.5 million during 2011. The sales price of $30.3 million was offset by a cash payment to Devicor
of $178,000 in exchange for transferring the liability related to the extended warranty contracts, $2.8 million in investment banking,
legal and other fees related to the sale, $1.2 million in net balance sheet dispositions and write-offs, and $6.7 million in estimated
taxes which were allocated to discontinued operations, but were fully offset by the tax benefit from our net operating loss for
2011.



Income from Discontinued Operations. Income from discontinued
operations decreased $815,000, or 20%, to $3.3 million during 2011 from $4.1 million in 2010, primarily due to the sale of our
GDS Business to Devicor in August 2011. Total revenues from discontinued operations were $7.7 million and $10.1 million in 2011
and 2010, respectively.



Liquidity and Capital Resources



Cash balances decreased to $9.1 million at December 31, 2012
from $28.6 million at December 31, 2011. The net decrease was primarily due to cash used to fund our operations, mainly for research
and development activities, coupled with $1.3 million of principal payments on our notes payable, offset by $4.0 million of cash
received as proceeds from our credit facility and $2.7 million received for the exercise of warrants and stock options. The current
ratio decreased to 1.7:1 at December 31, 2012 from 9.0:1 at December 31, 2011.



Operating Activities. Cash used in operations increased
$7.9 million to $23.9 million during 2012 compared to $16.0 million during 2011. Cash used in operations increased $10.8 million
to $16.0 million during 2011 compared to $5.2 million during 2010.



Inventory levels decreased to $298,000 at December 31, 2012
from $822,000 at December 31, 2011. Inventory decreased primarily due to the reserve or write-off of Lymphoseek inventory as a
result of changes in our projections of the probability of future commercial use and the consumption of materials for previously
unanticipated product development activities. Offsetting these decreases was an increase in pharmaceutical materials related to
the completion of a new lot of the Lymphoseek drug substance. Inventory levels increased to $822,000 at December 31, 2011 from
$632,000 at December 31, 2010 related to the finishing and vialing of a new lot of Lymphoseek, offset by some usage for research
and development. We expect inventory levels to increase during 2013 as we produce additional drug inventory in preparation for
commercial launch and establish normal stock levels for Lymphoseek.



Prepaid expenses and other current assets increased to $1.2
million at December 31, 2012 from $555,000 at December 31, 2011, primarily due to prepayments to our third party manufacturers
of Lymphoseek inventory and increased insurance premiums paid during the fourth quarter of 2012. Prepaid expenses and other current
assets increased to $555,000 at December 31, 2011 from $258,000 at December 31, 2010, primarily due to income tax receivable related
to the overpayment of estimated 2011 taxes due to the estimated gain on the Asset Sale and increased insurance premiums paid during
the fourth quarter of 2011.



Accounts payable increased to $1.4 million at December 31, 2012
from $682,000 at December 31, 2011, primarily due to increases in NAV4694 development and Lymphoseek manufacturing activities,
offset by decreases in Lymphoseek regulatory activities, coupled with normal fluctuations in timing of receipt and payment of invoices.
Accrued liabilities and other decreased to $2.0 million at December 31, 2012 from $2.1 million at December 31, 2011, primarily
due to payment of costs related to the separation of our former President and CEO and payment of debt issuance costs related to
our convertible debt, offset by increases in NAV4694 and Lymphoseek development costs. Accounts payable decreased to $682,000 at
December 31, 2011 from $1.4 million at December 31, 2010 primarily due to decreases in Lymphoseek development activities as well
as normal fluctuations in timing of receipt and payment of invoices. Accrued liabilities and other increased to $2.1 million at
December 31, 2011 from $1.0 million at December 31, 2010, primarily due to increased compensation, research and development, and
professional services fees incurred during 2011 as well as costs related to the separation of Mr. Bupp. Our payable and accrual
balances will continue to fluctuate but will likely increase overall as we increase our level of commercial and development activity
related to Lymphoseek, and development activity related to NAV4694, NAV5001, RIGScan, and other potential product candidates.



51







Investing Activities. Investing activities used $672,000
of cash during 2012 compared to $27.2 million of cash provided during 2011 and $399,000 of cash used during 2010. The sale of the
GDS Business to Devicor in August 2011 and the disposition of the related extended warranty contracts in December 2011 provided
a total of $27.4 million, net of related expenses. Capital expenditures of $663,000 during 2012 were primarily for production and
laboratory equipment, software, computers, and office furniture. Capital expenditures of $184,000 during 2011 were primarily for
software, computers, and office furniture. Capital expenditures of $367,000 during 2010 were primarily for production equipment,
office furniture, software, and computers. We expect our overall capital expenditures for 2013 will increase over 2012 as we purchase
equipment required for NAV4694 production and potentially expand our offices to accommodate anticipated headcount additions. Payments
for patent and trademark costs were $8,000, $53,000 and $32,000 during 2012, 2011 and 2010, respectively.



Financing Activities. Financing activities provided $5.1
million of cash during 2012 compared to $11.1 million provided during 2011 and $6.3 million provided during 2010. The net $5.1
million provided by financing activities during 2012 consisted primarily of $4.0 million of proceeds from notes payable and $2.7
million of proceeds from the exercise of warrants and stock options, offset by $1.3 million of principal payments on our convertible
debt, $154,000 paid for related debt issuance costs, $101,000 paid for common stock repurchased from executives, and payments of
preferred stock dividends of $100,000. The net $11.1 million provided by financing activities during 2011 consisted primarily of
$7.2 million of proceeds from the exercise of warrants and stock options, offset by $2.8 million paid for related tax withholdings
primarily related to the separation of our former President and CEO, David Bupp, $7.0 million of cash received upon completion
of a partially convertible debt agreement, offset by $189,000 paid for related debt issuance costs, and payments of preferred stock
dividends of $100,000. The net $6.3 million provided by financing activities in 2010 consisted primarily of proceeds from the issuance
of common stock of $7.1 million, offset by payments of stock offering costs of $478,000, payments of tax withholdings related to
stock options exercised of $133,000, and payments of preferred stock dividends of $111,000.



Fusion Capital



In March 2010, we sold to Fusion Capital Fund II,
LLC (Fusion Capital), an Illinois limited liability company, 540,541 shares of our common stock for proceeds of $1.0 million
under a common stock purchase agreement. In connection with this sale, we issued 120,000 shares of our common
stock to Fusion Capital as a commitment fee. The agreement with Fusion Capital expired on March 1, 2011, and as
a result, Fusion Capital may liquidate any commitment fee shares issued to it during the term of the agreement.



Montaur and the Bupp Investors



In June 2010, we entered into a Securities Exchange Agreement
with Montaur, pursuant to which Montaur exchanged its 10% Series A Convertible Senior Secured Promissory Note with an outstanding
principal amount of $7,000,000, its 10% Series B Convertible Senior Secured Promissory Note with an outstanding principal amount
of $3,000,000, and its 3,000 shares of Series A Cumulative Convertible Preferred Stock, for 10,000 shares of Series B Convertible
Preferred Stock (the Series B Preferred Stock), convertible into 32,700,000 shares of common stock. The Series B Preferred Stock
is convertible at the option of Montaur and carries no dividend requirement. In the event of the liquidation of the Company, the
holders of shares of the Series B Preferred Stock have preference over the common stock.  After payment of the full liquidation
preference amount to which each holder is entitled, such holders of shares of Series B Preferred Stock will not be entitled to
any further participation as such in any distribution of the assets of the Company. As consideration for the exchange, the Company
issued additional Series B Preferred Stock which is convertible into 1.3 million shares of common stock.



52







Also in June 2010, we entered into a Securities Exchange Agreement
with David C. Bupp, then our President and CEO, and certain members of his family (the Bupp Investors), pursuant to which the Bupp
Investors exchanged their 10% Convertible Secured Promissory Note with an outstanding principal amount of $1,000,000 (the Bupp
Note) for 1,000 shares of Series C Convertible Preferred Stock (the Series C Preferred Stock), convertible into 3,226,000 shares
of common stock. The Series C Preferred Stock had a 10% dividend rate and participated equally with our common stock in liquidation
proceeds based upon the number of common shares into which the Series C Preferred Stock was convertible. The exchange of the Montaur
Notes, the Series A Preferred Stock and the Bupp Note were treated as extinguishments for accounting purposes. As a result of these
exchange transactions, all security interests in the Company’s assets held by Montaur and the Bupp Investors were extinguished.



In May 2011, Montaur converted 917 shares of their Series B
Preferred Stock into 2,998,590 shares of our common stock under the terms of the Series B Preferred Stock. In July 2012, Montaur
converted 3,063 shares of their Series B Preferred Stock into 10,016,010 shares of our common stock under the terms of the Series
B Preferred Stock. In November 2012, we entered into a Securities Exchange Agreement with Platinum Partners Value Arbitrage Fund,
L.P. (Platinum), an affiliate of Montaur, pursuant to which Platinum exchanged 3,001,860 shares of our common stock owned by Platinum
for 918 shares of our Series B Preferred Stock. As of December 31, 2012, there are 6,938 shares of Series B Preferred Stock outstanding
which are convertible into 22,687,260 shares of our common stock.



During 2011, Mr. Bupp and certain members of his family exercised
810,000 Series V warrants in exchange for issuance of 810,000 shares of our common stock, resulting in gross proceeds of $255,600.
During 2012, the holder of 20,000 Series V warrants exercised them in exchange for issuance of 20,000 shares of our common stock,
resulting in gross proceeds of $6,200. Also during 2012, Montaur exercised 6,000,000 Series W warrants in exchange for issuance
of 6,000,000 shares of our common stock, resulting in gross proceeds of $1,920,000. In March 2013, Montaur exercised 3,000,000
Series X warrants in exchange for issuance of 3,000,000 shares of our common stock, resulting in gross proceeds of $1,380,000.



In December 2012, we entered into a Waiver Agreement (the Waiver)
pursuant to which Montaur and Platinum, as the sole holders of the Series B Preferred Stock, agreed to irrevocably waive the provisions
set forth in the certificate of designations for the Series B Preferred Stock (the Certificate) which provided that all outstanding
shares of Series B Preferred Stock would automatically convert into shares of common stock on December 31, 2012. The Waiver will
remain in effect until December 31, 2013, upon which date all outstanding shares of Series B Preferred Stock will automatically
convert into common stock pursuant to the terms of the Certificate. In addition, we amended the terms of Montaur’s Series
X warrant to extend the expiration date from April 16, 2013 to December 31, 2013. Also in December 2012, the Series C Preferred
Stock held by the Bupp Investors automatically converted into 3,226,000 shares of our common stock under the terms of the Series
C Preferred Stock.



2010 Public Offering



In November 2010, we entered into
a Securities Purchase Agreement with institutional investors for a registereddirect
public offering of 3,157,896 shares of our common stock at a price of $1.90 per share for total gross proceeds of $6.0 million.
In addition to the common stock, we issued one-year Series CC warrants to purchase 1,578,948 shares of our common stock at an exercise
price of $2.11 per share, and two-year Series DD warrants to purchase 1,578,948 shares of our common stock at an exercise price
of $2.11 per share. As compensation for the services of the placement agent in connection with the offering, we paid the placement
agent $420,000 (7% of the gross proceeds) and issued five-year Series EE warrants to purchase 157,895 shares of our common stock
at an exercise price of $2.375 per share. The common stock, warrants, and shares of common stock underlying the warrants were issued
pursuant to a shelf registration statement on Form S-3 that was declared effective by the Securities and Exchange Commission on
August 3, 2010.



During 2011, the holders of Series CC warrants exercised them
in exchange for issuance of 1,578,948 shares of our common stock, resulting in gross proceeds of $3,331,580. Also during 2011,
the holders of Series DD warrants exercised them in exchange for issuance of 1,578,948 shares of our common stock, resulting in
gross proceeds of $3,331,580.



53







Sale
of the GDS Business



In May 2011, the Company’s Board of Directors approved
the sale of the GDS Business to Devicor. Our stockholders approved the Asset Sale at our Annual Meeting
of Stockholders on August 15, 2011, and the Asset Sale closed on August 17, 2011. Under the terms of the APA with Devicor,
we sold the assets and assigned certain liabilities that were primarily related to the GDS Business. In exchange for the assets
of the GDS Business, Devicor made cash payments to us of $30.3 million, assumed certain liabilities of the Company associated with
the GDS Business, and agreed to make royalty payments to us of up to an aggregate maximum amount of $20 million based on the net
revenue attributable to the GDS Business over the course of the next six fiscal years starting with 2012. In December 2011, we
entered an agreement to transfer potential liability related to extended warranty contracts related to the GDS Business, which
were outstanding as of the date of the sale of the GDS Business but which were not included in the August 2011 transaction. In
exchange for transferring the liability related to the extended warranty contracts to Devicor, we made a cash payment to Devicor
of $178,000. The Asset Sale has allowed us to focus our resources and efforts on the continued development
of our radiopharmaceutical products, and to pursue efforts to expand our drug development portfolio. However, the sale of the GDS
Business eliminated cash flows from the sale of medical devices. In addition, we did not record any royalty revenue in 2012
as Devicor did not achieve the minimum sales of gamma detection devices required to trigger such payment.



Hercules Debt



In December 2011, we executed a Loan and Security Agreement
(the Loan Agreement) with Hercules Technology II, L.P. (Hercules), providing for a maximum borrowing of $10 million by the Company
in two advances. Pursuant to the Loan Agreement, we issued Hercules: (1) a Secured Term Promissory Note in the principal amount
of $7,000,000 (the First Advance), bearing interest at the greater of either (a) the U.S. Prime Rate as reported in The Wall Street
Journal plus 6.75%, or (b) 10.0% (effective interest rate at December 31, 2012 was 10.0%), and (2) a Series GG warrant to purchase
333,333 shares of our common stock at an exercise price of $2.10 per share, expiring in December 2016 (the Series GG Warrant).
Additionally, the Loan Agreement provided Navidea with the option to draw a second advance in the principal amount of $3,000,000
if certain conditions were met by June 30, 2012. Such conditions were not met and Hercules no longer has an obligation to provide
the additional $3,000,000. The Loan Agreement provided for an interest-only period beginning on December 29, 2011 and expiring
on July 1, 2012. The principal and interest is to be repaid in 30 equal monthly installments, payable on the first of each month
following the expiration of the interest-only period. As such, a portion of the principal, net of related discounts, has been classified
as a current liability as of December 31, 2012. The outstanding balance of the debt is due December 1, 2014. Navidea has the option
to pay up to $1.5 million of the principal amount of the debt in stock at a fixed conversion price of $2.77, subject to certain
conditions. In addition, Hercules has the option to elect payment for up to another $1.5 million of the principal amount of the
debt by conversion at a fixed conversion price of $2.77. The debt is collateralized by a security interest in substantially all
of the Company’s assets except for intellectual property, as to which the security interest is in rights to income or proceeds
from the sale or licensing thereof. The Loan Agreement also specifies certain covenants including the requirement that Navidea
provide certain information, such as financial statements and budgets, on a periodic basis. During 2012, we paid $1.3 million of
principal payments on the Hercules debt. As of December 31, 2012, the remaining outstanding principal balance of the debt was approximately
$5.7 million.



54







Montaur Credit Facility



In July 2012, we entered into an agreement with Montaur to provide
us with a credit facility of up to $50 million. With the recent approval of Lymphoseek, Montaur is currently committed under the
terms of the agreement to extend up to $35 million in debt financing to the Company at an interest rate equal to the greater of
(a) the U.S. Prime Rate as reported in the Wall Street Journal plus 6.75%; (b) 10.0%; or (c) the highest rate of interest then
payable pursuant to the Hercules Loan Agreement plus 0.125% (effective interest rate at December 31, 2012 was 10.125%). Through
March 15, 2013, we have drawn a total of $4 million under the facility. The agreement also provides for Montaur to extend an additional
$15 million on terms to be negotiated. Principal amounts are due the earlier of two years from the date of draw or June 30, 2016.
No conversion features or warrants are associated with the facility. During 2012, we drew a total of $4.0 million under the credit
facility and recorded interest expense of $15,000. As of December 31, 2012, the total principal amount due under the credit facility
was $4.0 million.



2013 Public Offering



We filed a shelf registration statement in 2011 to provide us
with future funding alternatives and flexibility as we execute on our plans to achieve our product development and commercialization
goals, as well as evaluating and acting on opportunities to expand our product pipeline. On January 29, 2013, Navidea entered into
an underwriting agreement (the Underwriting Agreement) with Ladenburg Thalmann & Co. Inc. (the Underwriter), related to a public
offering of 1,542,389 shares of the Company’s common stock at a price of $3.10 per share less underwriting discounts and
commissions (the Offering). The Offering closed on February 4, 2013, following the satisfaction of customary closing conditions.
The net proceeds to the Company were approximately $4.4 million after deducting expenses associated with the Offering. The Company
will use the net proceeds from the offering to fund the clinical development and launch of Lymphoseek, NAV4694, NAV5001, and RIGScan,
to fund other potential product pipeline opportunities, and for general corporate purposes. The Offering was made pursuant to the
Company’s existing effective shelf registration statement on Form S-3.



Outlook



Lymphoseek was approved and indicated for use in lymphatic mapping
for breast cancer and melanoma by the FDA on March 13, 2013. Our most significant near-term priority is to continue our pre-commercialization
activities related to Lymphoseek with a commercial launch anticipated in the second quarter of 2013. During 2013, we expect to
incur additional development expenses related to supporting the MAA review of Lymphoseek in the EU, our NEO3-06 clinical trial
and studies to support Lymphoseek in a potential post-commercialization setting, and support the other product activities related
to the potential marketing registration of Lymphoseek in other markets. In addition, we expect marketing expenses related to Lymphoseek
to increase in preparation for the commercial launch. We also continue to assess timelines and development costs for development
of NAV4694, NAV5001 and RIGScan, but expect our development costs to increase overall as we continue to grow our precision diagnostics
businesses. We are also actively evaluating a number of different product licensing and/or acquisition opportunities. Costs related
to in-licensing, acquiring and developing other late-stage radiopharmaceutical candidates that we are evaluating, coupled with
development costs related to our existing product candidates, may result in the use of a material portion of our available funds.



Our future liquidity and capital requirements will depend on
a number of factors, including our ability to complete the development and commercialization of new products, our ability to achieve
market acceptance of our 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 the FDA and international regulatory
bodies, the ability to procure additional pipeline development opportunities and required financial resources, and intellectual
property protection.



We have developed a plan which will allow the Company to have
adequate funding, and we believe that our credit facility with Montaur, anticipated revenue deriving from U.S. sales of Lymphoseek
following a second quarter 2013 commercial launch, and our access to capital markets through our shelf registration provide us
with access to adequate financial resources to continue to fund our business plan. However, we cannot assure you that Lymphoseek
will generate our expected levels of sales and cash flow.



55







We will continue to evaluate our timelines and strategic needs,
and although we have not decided whether, when or how much additional capital might be raised under the shelf registration statement
or the credit facility, we will continue our efforts to maintain a strong balance sheet. Even if we decide to attempt to raise
additional capital, we cannot assure you that we will be successful in doing so on terms acceptable to the Company, or at all.
We also cannot assure you that we will be able to gain access and/or be able to execute on securing new development opportunities,
successfully obtain regulatory approval for and commercialize new products, achieve significant product revenues from our products,
or achieve or sustain profitability in the future. See Risk Factors.



Recent Accounting Developments



In May 2011, the Financial Accounting Standards Board (FASB)
and International Accounting Standards Board (IASB) issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement
(Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04).  ASU
2011-04 created a uniform framework for applying fair value measurement principles for companies around the world and clarified
existing guidance in US GAAP.  ASU 2011-04 was effective for interim and annual reporting periods beginning after December
15, 2011 and was applied prospectively.   ASU 2011-04 did not have a material effect on our consolidated financial statements.



Critical Accounting
Policies



We base our management’s discussion and analysis
of financial condition and results of operations, as well as disclosures included elsewhere in this Annual Report on Form 10-K,
upon our consolidated financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles.
We describe our significant accounting policies in the notes to the audited consolidated financial statements contained elsewhere
in this Annual Report on Form 10-K. We include within these policies our “critical accounting policies.” Critical accounting
policies are those policies that are most important to the preparation of our consolidated financial statements and require management’s
most subjective and complex judgment due to the need to make estimates about matters that are inherently uncertain. Changes in
estimates and assumptions based upon actual results may have a material impact on our results of operations and/or financial condition.



Revenue Recognition. We currently generate revenue primarily
from grants to support various product development initiatives. We generally recognize grant revenue when expenses reimbursable
under the grants have been incurred and payments under the grants become contractually due. We also recognize revenue from the
reimbursement by our partners of certain expenditures for which the Company has principal responsibility.



Research and Development.Research and development (R&D)
expenses include both internal R&D activities and external contracted services. Internal R&D activity expenses include
salaries, benefits, and stock-based compensation, as well as travel, supplies, and other costs to support our R&D staff. External
contracted services include clinical trial activities, CMC-related activities, and regulatory costs. R&D expenses are charged
to operations as incurred. We review and accrue R&D expenses based on services performed and rely upon estimates of those costs
applicable to the stage of completion of each project.



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 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:



56







| | · | Stock-Based Compensation. Stock-based payments to employees and directors, including grants of stock options and restricted
stock, are recognized in the statements of operations based on their estimated fair values on the date of grant. The fair value
of each option award is estimated on the date of grant using the Black-Scholes option pricing model to value share-based payments
and the portion that is ultimately expected to vest is recognized as compensation expense over either (1) the requisite service
period or (2) the estimated performance period. The determination of fair value using the Black-Scholes option pricing model is
affected by our stock price as well as assumptions regarding a number of complex and subjective variables, including expected stock
price volatility, risk-free interest rate, expected dividends and projected employee stock option behaviors. We estimate the expected
term based on the contractual term of the awards and employees' exercise and expected post-vesting termination behavior. The restricted
stock awards are valued based on the closing stock price on the date of grant and amortized ratably over the estimated life of
the award.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Since stock-based compensation is recognized only
for those awards that are ultimately expected to vest, we have applied an estimated forfeiture rate to unvested awards for the
purpose of calculating compensation cost. These estimates will be revised, if necessary, in future periods if actual forfeitures
differ from estimates. Changes in forfeiture estimates impact compensation cost in the period in which the change in estimate occurs.



| | · | 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 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 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,
regulations regarding use and shelf life, product recalls and variation in product utilization all impact the estimates related
to excess and obsolete inventory.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Fair Value of Derivative Instruments. Derivative instruments embedded in contracts, to the extent not already a free-standing
contract, are bifurcated and accounted for separately. All derivatives are recorded on the consolidated balance sheets at fair
value in accordance with current accounting guidelines for such complex financial instruments. Unrealized gains and losses on the
derivatives are classified in other expenses as a change in derivative liabilities in the statements of operations. We do not use
derivative instruments for hedging of market risks or for trading or speculative purposes.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Contractual Obligations and Commercial Commitments



The following table presents our contractual obligations and
commercial commitments as of December 31, 2012.



|                                          |  | Payments Due By Period |           
|----------------------------------------- |  | ---------------------- | ----------
|Contractual Cash  Obligations             |  | Total                  |           
|Capital lease obligation                  |  | $                      | 17,399    
|Operating leases                          |  |                        | 215,173   
|Unconditional purchase obligations (a)    |  |                        | 119,375   
|Principal and interest on short-term debt |  |                        | 243,600   
|Principal and interest on long-term debt  |  |                        | 11,425,075
|Total contractual cash obligations        |  | $                      | 12,020,622



| | (a) | 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 agreement going out approximately 12 months.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | * | This table does not include obligations such as license agreements, contracted services, or employment agreements as such obligations
are dependent upon performance conditions.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



57







Item 7A. Quantitative and Qualitative Disclosures About Market
Risk



Interest Rate Risk. As of December 31, 2012, our $9.1
million in cash was primarily invested in interest-bearing money market accounts. Due to the low interest rates being realized
on these accounts, we believe that a hypothetical 10% increase or decrease in market interest rates would not have a material impact
on our consolidated financial position, results of operations or cash flows.



We also have exposure to changes in interest rates on our variable-rate
debt obligations. As of December 31, 2012, the interest rate on the majority of our debt obligations was based on the U.S. prime
rate. Based on the amount of our variable rate borrowings at December 31, 2012, which totaled approximately $9.7 million, an immediate
one percentage point increase in the U.S. prime rate would increase our annual interest expense by approximately $100,000. This
estimate assumes that the amount of variable rate borrowings remains constant for an annual period and that the interest rate change
occurs at the beginning of the period. Because our debt obligations are currently subject to the minimum interest rates defined
in the loan agreements, a decrease in the U.S. prime rate would not affect our annual interest expense.



Foreign Currency Exchange Rate Risk. We do not currently
have material foreign currency exposure related to our assets as the majority are denominated in U.S. currency and our foreign-currency
based transaction exchange risk is not material. For the years ended December 31, 2012, 2011 and 2010, we recorded approximately
$15,000, $3,000 and $3,000 of foreign currency transaction losses, respectively.



Equity Price Risk. We do not use derivative instruments
for hedging of market risks or for trading or speculative purposes. Derivative instruments embedded in contracts, to the extent
not already a free-standing contract, are bifurcated and accounted for separately. All derivatives are recorded on the consolidated
balance sheet at fair value in accordance with current accounting guidelines for such complex financial instruments. The fair value
of warrant liabilities is determined using various inputs and assumptions, one of which is the market price of Company stock. As
of December 31, 2012, we did not have any derivative liabilities recorded on our balance sheet. As such, we do not believe we are
exposed to any equity price risk related to derivative instruments.



Item 8. Financial Statements and Supplementary Data



Our consolidated financial statements, and the related notes,
together with the report of BDO USA, LLP dated March 18, 2013 are set forth at pages F-1 through F-26 attached hereto.



Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure



None.



58







Item 9A. Controls and Procedures



Disclosure Controls and Procedures



We maintain disclosure controls and procedures designed to ensure
that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized, and reported
within the specified time periods. As a part of these controls, our management is responsible for establishing
and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange
Act.



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 Exchange Act) as
of December 31, 2012.Disclosure controls and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated
and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow
timely decisions regarding required disclosure. Based on our 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 and are effective.



Our management, including our Chief Executive
Officer and Chief Financial Officer, understands that our disclosure controls and procedures do not guarantee that all errors and
all improper conduct will be prevented. A control system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met. Further, a design of a control system must reflect the
fact that there are resource constraints, and the benefit of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and
instances of improper conduct, if any, have been detected. These inherent limitations include the realities that judgments and
decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more persons, or by management override of the control.
Further, the design of any system of controls is also based in part upon assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over
time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures
may deteriorate. Because of the inherent limitations of a cost-effective control system, misstatements due to error or fraud may
occur and may not be detected.



59







Management’s Report on Internal Control
Over Financial Reporting



Our management is responsible for establishing
and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable
assurance to management and the Board of Directors regarding the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.



Our internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:



| | · | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance
with authorization of management and directors of the company; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
company's assets that could have a material effect on the financial statements.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our management assessed the effectiveness
of our internal control over financial reporting as of December 31, 2012. In making this assessment, it used the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework.
Based on our assessment we concluded that, as of December 31, 2012, our internal control over financial reporting was effective
based on those criteria. BDO USA, LLP, our independent registered public accounting firm, has issued an attestation report covering
our internal control over financial reporting, which begins on page 61.



Changes in Internal Control Over Financial Reporting



During the year ended December 31, 2012, there were no changes
in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.



60







Report of Independent Registered Public Accounting Firm

on Internal Control Over Financial Reporting



Board of Directors

Navidea Biopharmaceuticals, Inc.

Dublin, Ohio



We have audited Navidea Biopharmaceuticals, Inc.’s internal
control over financial reporting as of December 31, 2012, based on criteria established inInternal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Navidea Biopharmaceuticals,
Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Report
on Internal Control Over Financial Reporting” included in Item 9A. Our responsibility is to express an opinion on the company’s
internal control over financial reporting based on our audit.



We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.
Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.



A company’s internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.



Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.



In our opinion, Navidea Biopharmaceuticals, Inc. maintained,
in all material respects, effective internal control over financial reporting as of December 31, 2012, based on the COSO criteria.



We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Navidea Biopharmaceuticals, Inc.
as of December 31, 2012 and 2011, and the related consolidated statements of operations, stockholders’ equity (deficit),
and cash flows for each of the three years in the period ended December 31, 2012 and our report dated March 18, 2013 expressed an
unqualified opinion on those consolidated financial statements.



/s/ BDO USA, LLP



Chicago, Illinois

March 18, 2013



61







Item 9B. Other Information.



None.



62







PART III



Item 10. Directors, Executive
Officers and Corporate Governance



Directors



Set forth below are the names and committee assignments of the
persons who constitute our Board of Directors.



|Name                          |  | Age |  | Committee(s)                                             
|----------------------------- |  | --- |  | ---------------------------------------------------------
|                              |  |     |  |                                                          
|Peter F. Drake, Ph.D.         |  | 59  |  | Audit; Compensation, Nominating and Governance (Chairman)
|                              |  |     |  |                                                          
|Brendan A. Ford               |  | 54  |  | Audit (Chairman); Compensation, Nominating and Governance
|                              |  |     |  |                                                          
|Jess Emery Jones, M.D.        |  | 34  |  | Audit; Compensation, Nominating and Governance           
|                              |  |     |  |                                                          
|Mark J. Pykett, V.M.D., Ph.D. |  | 49  |  | —                                                        
|                              |  |     |  |                                                          
|Eric K. Rowinsky, M.D.        |  | 56  |  | —                                                        
|                              |  |     |  |                                                          
|Gordon A. Troup               |  | 59  |  | Audit                                                    



Director Qualifications



The Board of Directors believes that individuals who serve on
the Board should have demonstrated notable or significant achievements in their respective field; should possess the requisite
intelligence, education and experience to make a significant contribution to the Board and bring a range of skills, diverse perspectives
and backgrounds to its deliberations; and should have the highest ethical standards, a strong sense of professionalism and intense
dedication to serving the interests of our stockholders. The following are qualifications, experience and skills for Board members
which are important to our business and its future:



| | · | General Management.Directors who have served in senior leadership
positions are important to us as they bring experience and perspective in analyzing, shaping, and overseeing the execution of important
operational and policy issues at a senior level. These directors’ insights and guidance, and their ability to assess and
respond to situations encountered in serving on our Board of Directors, are enhanced by their leadership experience developed at
businesses or organizations that operated on a global scale, faced significant competition, or involved other evolving business
models.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Industry Knowledge.Because we are a pharmaceutical development
company, education or experience in our industry, including medicine, pharmaceutical development, marketing, distribution, or the
regulatory environment, is important because such experience assists our Directors in understanding and advising our Company.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Business Development/Strategic Planning.Directors who have
a background in strategic planning, business development, strategic alliances, mergers and acquisitions, and teamwork and process
improvement provide insight into developing and implementing strategies for growing our business.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Finance/Accounting/Control.Knowledge of capital markets, capital
structure, financial control, audit, reporting, financial planning, and forecasting are important qualities of our directors because
such qualities assist in understanding, advising, and overseeing our Company’s capital structure, financing and investing
activities, financial reporting, and internal control of such activities.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Board Experience/Governance.Directors who have served on other
public company boards can offer advice and insights with regard to the dynamics and operation of a board of directors, the relations
of a board to the chief executive officer and other management personnel, the importance of particular agenda and oversight matters,
and oversight of a changing mix of strategic, operational, and compliance-related matters.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



63







Biographical Information



Set forth below is current biographical information about our
directors, including the qualifications, experience and skills that make them suitable for service as a director. Each listed director’s
respective experience and qualifications described below led the Compensation, Nominating and Governance Committee (CNG Committee)
of our Board of Directors to conclude that such director is qualified to serve as a member of our Board of Directors.



Directors whose terms continue until the 2013 Annual Meeting:



Brendan A. Ford has served as a director of Navidea since
July 2010. Since 2007, Mr. Ford has been a partner in Talisman Capital Partners, a private investment partnership focusing on middle-market
companies. From 1991 through 2007, Mr. Ford served in various executive positions including Executive Vice President, Business
Development and Corporate Strategy with Cardinal Health, Inc., primarily in capacities related to mergers, acquisitions and related
strategic activities, and was involved in over $19 billion in acquisition and disposition transactions for Cardinal. Prior to his
service with Cardinal Health, Mr. Ford practiced law with Baker and Hostetler from 1986 to 1991. From 1980 to 1983, Mr. Ford was
employed by Touche Ross LLP as a certified public accountant. Mr. Ford has a B.S. in Business from Miami University, and a J.D.
from The Ohio State University. Mr. Ford serves as a director and board committee member for several privately held companies.



Eric K. Rowinsky, M.D. has served as a director of Navidea
since July 2010. In 2012, Dr. Rowinsky began serving as the Head of Research and Development, Chief Medical Officer, and Executive
Vice President of Stemline Therapeutics, Inc., a discovery- and development-stage biotechnology company. In 2010, Dr. Rowinsky
also co-founded Primrose Therapeutics, a start-up biotechnology company which was acquired in September 2011, and was a consultant
in the area of new cancer drug development. From 2005 to December 2009, he served as the Chief Medical Officer and Executive Vice
President of Clinical Development, Medical Affairs and Regulatory Affairs of ImClone Systems Incorporated, a life sciences company,
and was a principal consultant to the Lilly-ImClone Oncology Business Unit in 2010. Prior to that, Dr. Rowinsky held several positions
at the Cancer Therapy & Research Center’s Institute of Drug Development, including Director of the Institute, Director
of Clinical Research and SBC Endowed Chair for Early Drug Development, and concurrently served as Clinical Professor of Medicine
in the Division of Medical Oncology at the University of Texas Health Science Center at San Antonio. Dr. Rowinsky was an Associate
Professor of Oncology at the Johns Hopkins University School of Medicine and on active staff at the Johns Hopkins School of Medicine
from 1987 to 1996. Dr. Rowinsky is a member of the boards of directors of Biogen Idec, Inc. and of Coronado Biosciences, Inc.,
publicly-held life sciences companies. Dr. Rowinsky serves on the Science and Research and Compensation Committees at Biogen Idec.
During the past five years, Dr. Rowinsky has also served as a director of Tapestry Pharmaceuticals, Inc. and ADVENTRX Pharmaceuticals,
Inc., publicly-held life sciences companies. Dr. Rowinsky has extensive research and drug development experience, oncology expertise
and broad scientific and medical knowledge.



Directors whose terms continue until the 2014 Annual Meeting:



Jess Emery Jones, M.D. has served as a director of Navidea
since April 2011. He is currently the Chief Executive Officer of AngioLight, Inc. (formerly CorNova, Inc.). In addition to AngioLight,
Dr. Jones is the Chief Executive Officer of NewCardio, Inc. Dr. Jones is also on the boards of directors of AngioLight, NewCardio,
and NovaRay Inc. From October 2006 to January 2011, Dr. Jones worked with Vision
Capital Advisors, LLC in New York City as the Director of Healthcare Investing, analyzing investment opportunities in the
biotech, pharmaceutical, medical technology, and medical services fields, and assisted companies in the implementation of their
business plans. From 2001 to 2007, Dr. Jones attended Columbia College of Physicians & Surgeons in New York City, where he
received his medical degree in May 2007. In 2005, while attending Columbia Medical School in New York City, Dr. Jones was awarded
an American Heart Association - Medical Student Research Fellowship to study post-stroke inflammatory mediators in the Department
of Neurosurgery. Additionally, Dr. Jones earned a B.A. degree from the University of Utah in 2001 and an M.B.A. from Columbia Business
School in May 2007.



64







Mark J. Pykett, V.M.D, Ph.D.has served as President
and Chief Executive Officer of Navidea since April 2011 and as a director of Navidea since August 2011. He has more than 16 years
of pharmaceutical industry executive and operational management, strategic planning, and cross-functional drug development program
oversight. He has led multiple companies focusing on research through commercialization in numerous indication areas and has particular
expertise in guiding the development of biopharmaceutical product candidates. His leadership and industry knowledge have led to
numerous international speaking and panel presentations at investment, industry, scientific and medical conferences. Prior to joining
Navidea as Executive Vice President and Chief Development Officer in November 2010, Dr. Pykett served as Founding CEO of Talaris
Advisors LLC, a strategic drug-development company serving the biotech industry. Dr. Pykett was President and Chief Operating Officer
of Alseres Pharmaceuticals, a clinical stage biotech firm that focused on the development of radiopharmaceutical imaging agents
for diagnosis of neurodegenerative disorders, as well as therapeutics for central nervous system indications. Dr. Pykett also held
senior executive roles at several public and private biotechnology companies which have focused on therapeutics, diagnostics and
medical devices. Dr. Pykett has also served as a Director of several public, private and not-for-profit organizations. Dr. Pykett
graduated Phi Beta Kappa, Summa Cum Laude from Amherst College, holds a veterinary degree, Phi Zeta, Summa Cum Laude and a doctorate
in molecular biology from the University of Pennsylvania, and received an M.B.A., Beta Gamma Sigma, from Northeastern University.
He completed post-doctoral fellowships at the University of Pennsylvania and Harvard University. Dr. Pykett held an adjunct faculty
position at the Harvard School of Public Health from 1997 to 2004 and served on Northeastern University's Center for Enterprise
Growth Corporate Advisory Board.



Directors whose terms continue until the 2015 Annual Meeting:



Peter F. Drake, Ph.D. has served as a director of Navidea
since April 2011. Dr. Drake began his career as a biotechnology analyst at Kidder, Peabody and Co. where he was a partner and head
of the Healthcare Research Group. In 1988, Dr. Drake co-founded Vector Securities International, an investment banking firm specializing
in the life sciences industry, where he was Executive Vice President and Director of Research. In 1993, Dr. Drake co-founded Vector
Fund Management, a life sciences venture fund, and Deerfield Management, a healthcare hedge fund. In 1999, Vector Securities International
was purchased by Prudential Securities, where he was a Managing Director and Head of Healthcare Research. Dr. Drake is a board
member of Trustmark Insurance, a mutual insurance company; Enzymedica, Inc., a private nutraceutical company; and Sequoia Sciences,
Inc., a private biotechnology company. Dr. Drake received his undergraduate degree from Bowdoin College, and his Ph.D. in neurobiology
and biochemistry from Bryn Mawr College.



Gordon A. Troup has served as a director of Navidea since
July 2008. Mr. Troup served as President of the Nuclear Pharmacy Services business at Cardinal Health, Inc. (Cardinal Health),
a multinational medical products and services company, from January 2003 until his retirement in December 2007. Mr. Troup joined
Cardinal Health in 1990 and was appointed Group President of Pharmaceutical Distribution and Specialty Distribution Services in
1999. Prior to joining Cardinal Health, Mr. Troup was employed for 10 years by American Hospital Supply Corporation and for 3 years
by Zellerbach Paper, a Mead Company. Mr. Troup is currently a partner and Chairman of the Board of Scioto Properties, LLC, a provider
of group homes to the developmentally disabled nationwide and Chairman of the Advisory Board of Guild Associates, Inc., a chemical
engineering and research and development company serving the energy and military community. Mr. Troup has a B.S. degree in Business
Management from San Diego State University.



65







Executive Officers



In addition to Dr. Pykett, the following individuals are executive
officers of Navidea and serve in the position(s) indicated below:



|Name                               |  | Age |  | Position                                                               
|---------------------------------- |  | --- |  | -----------------------------------------------------------------------
|                                   |  |     |  |                                                                        
|Frederick O. Cope, Ph.D.           |  | 66  |  | Senior Vice President, Pharmaceutical Research and Clinical Development
|                                   |  |     |  |                                                                        
|Brent L. Larson                    |  | 49  |  | Senior Vice President; Chief Financial Officer; Treasurer and Secretary
|                                   |  |     |  |                                                                        
|William J. Regan                   |  | 61  |  | Senior Vice President, Global Regulatory Strategy                      
|                                   |  |     |  |                                                                        
|Cornelia B. Reininger, M.D., Ph.D. |  | 60  |  | Senior Vice President and Chief Medical Officer                        
|                                   |  |     |  |                                                                        
|Thomas H. Tulip, Ph.D.             |  | 60  |  | Executive Vice President and Chief Business Officer                    



Frederick O. Cope, Ph.D., F.A.C.N., C.N.S., has served
as Senior Vice President, Pharmaceutical Research and Clinical Development of Navidea since July 2010 and as Vice President, Pharmaceutical
Research and Clinical Development from February 2009 to July 2010. Prior to accepting his position with Navidea, Dr. Cope served
as the Assistant Director for Research and Head of Program Research Development for The Ohio State University Comprehensive Cancer
Center, The James Cancer Hospital and The Richard J. Solove Research Institute, from April 2001 to February 2009. Dr. Cope also
served as head of the Cancer and AIDS product development and commercialization program for the ROSS/Abbott Laboratories division
for 10 years, and head of human and veterinary vaccine production and improvement group for Wyeth Laboratories for seven years.
Dr. Cope served a fellowship in oncology at the McArdle Laboratory for Cancer Research at the University of Wisconsin and was the
honored scientist in residence at the National Cancer Center Research Institute in Tokyo; he is the recipient of the Ernst W. Volwiler
Research Award. Dr. Cope is also active in a number of professional and scientific organizations such as serving as an editorial
reviewer for several professional journals, and as an advisor/director to the research program of Roswell Park Memorial Cancer
Center. Dr. Cope received his B.Sc. from the Delaware Valley College of Science and Agriculture, his M.S. from Millersville University
of Pennsylvania and his Ph.D. from the University of Connecticut with full honors.



Brent L. Larson has served as Senior Vice President of
Navidea since July 2010, as Chief Financial Officer and Treasurer since February 1999 and as Secretary since 2003. Prior to that,
Mr. Larson served as our Vice President, Finance from July 1998 to July 2010 and as Controller from July 1996 to June 1998. Before
joining Navidea, 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.



William J. Regan has served as Senior Vice President,
Global Regulatory Strategy of Navidea since October 2012. Prior to accepting his position with Navidea, Mr. Regan served as a consultant
to Navidea from July 2011 to September 2012. As Principal of Regan Advisory Services (RAS) from September 2006 to September
2012, Mr. Regan consulted on all aspects of regulatory affairs within pharmaceutical, biotechnology and diagnostic imaging businesses,
including PET diagnostic agents (cardiovascular, neurology, and oncology), contrast agents, and radiopharmaceuticals.  Previous
to RAS, Mr. Regan held roles of increasing responsibility in radiopharmaceutical manufacturing, quality assurance, pharmaceutical
technology and regulatory affairs at Bristol-Myers Squibb (BMS). From September 2001 to August 2006, he served as global regulatory
head for BMS’ Medical Imaging business where he was responsible for all regulatory aspects of the company’s in-market
and pipeline products and led regulatory actions resulting in product approvals.  Mr. Regan has been an active member in the
Society of Nuclear Medicine, Council on Radionuclides and Radiopharmaceuticals (CORAR), and Medical Imaging and Technology
Alliance, and formerly served as the industry chair of the Regulatory and Clinical Practice committee on behalf of CORAR. 
Mr. Regan holds a B.A. in Chemistry from Rutgers University.



66







Cornelia B. Reininger, M.D., Ph.D., has served as Senior
Vice President and Chief Medical Officer of Navidea since November 2012. Prior to accepting her position with Navidea, Dr. Reininger
served as the Senior Director of Clinical Research and Global Clinical Leader of Bayer Healthcare Pharmaceuticals’ beta-amyloid
PET development programs from November 2007 to October 2012. Dr. Reininger also served in roles of increasing responsibility with
the global medical organizations of GE Healthcare and Amersham Health – Diagnostic Imaging from April 2001 to October 2007.
Dr. Reininger holds an Associate Professor of Surgery and External Lecturer position at Ludwig Maximillian University (LMU) in
Munich, Germany, where she completed her medical education and residency in general and vascular surgery. During her residency,
she was on staff at the LMU Downtown Surgical Hospital and Outpatient Clinic, rotating as Chief Resident in vascular surgery and
the intensive care unit. She later became the head of the hospital’s thrombosis research laboratory. Dr. Reininger is a member
of the Society of Nuclear Medicine and the European Association of Nuclear Medicine.



Thomas H. Tulip, Ph.D., has served as Executive Vice
President and Chief Business Officer of Navidea since June 2011. Dr. Tulip has held senior leadership positions at Alseres
Pharmaceuticals, Lantheus Medical Imaging, Bristol
Myers Squibb (BMS) and DuPont, where his roles spanned product discovery and development, business and technology planning,
brand and alliance management and international business management. Most recently, as President, Alseres Molecular Imaging, Dr.
Tulip led efforts to develop markets for a Phase III neuroimaging agent. While at DuPont and BMS prior to Alseres, he was instrumental
in the development, commercialization and international management of the highly successful nuclear cardiology franchise, successfully
built the BMS Medical Imaging international business, and led planning activities for innovative PET tracers at Lantheus/BMS. Dr.
Tulip earned a B.S. from University of Vermont, and an M.S. and Ph.D. from Northwestern University. He was a visiting scholar at
Osaka University and served as adjunct professor at Northeastern University. Dr. Tulip serves on the board of directors of the
Medical Imaging Technology Association (MITA) and leads its
PET Working Group in the Molecular Imaging Section. He was recently Chairperson of the Institute
for Molecular Technologies (IMT) and held numerous leadership positions there. He served on the Board of the Academy
of Molecular Imaging, including as its Treasurer. Dr. Tulip was Chairperson for the Society
of Nuclear Medicine (SNM) Corporate Advisory Board and has been active in a number of Council on Radionuclides and Radiopharmaceuticals
(CORAR) committees, now serving on its Board of Directors.



Section 16(a) Beneficial Ownership Reporting Compliance



Section 16(a) of the Securities Exchange 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, 2012, except for: (i) Mark J. Pykett, V.M.D., Ph.D., who
had one late Form 4 filing related to Company stock that he purchased on the open market in September 2012, and (ii) Gordon A.
Troup, who had one late Form 4 filing related to Company stock that he purchased on the open market in August 2012.



Code of Business Conduct and Ethics



We have adopted a code of business conduct and ethics that applies
to our directors, officers and all employees. The code of business 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 Navidea Biopharmaceuticals, Inc., Attn:
Chief Financial Officer, 425 Metro Place North, Suite 450, Dublin, Ohio 43017.



67







Corporate Governance



Our Board of Directors is responsible for establishing broad
corporate policies and reviewing our overall performance rather than day-to-day operations. The primary responsibility of our Board
is to oversee the management of Navidea and, in doing so, serve the best interests of the Company and our stockholders. Our Board
selects, evaluates and provides for the succession of executive officers and, subject to stockholder election, directors. It reviews
and approves corporate objectives and strategies, and evaluates significant policies and proposed major commitments of corporate
resources. Our Board also participates in decisions that have a potential major economic impact on the Company. Management keeps
our directors informed of Company activity through regular communication, including written reports and presentations at Board
and committee meetings.



Board of Directors Meetings



Our Board of Directors held a total of 16 meetings in the fiscal
year ended December 31, 2012, and each of the directors attended at least 75 percent of the aggregate number of meetings of the
Board of Directors and committees (if any) on which he served. It is our policy that all directors attend the Annual Meeting of
Stockholders. However, conflicts and unforeseen events may prevent the attendance of a director, or directors. All members of our
Board of Directors attended the 2012 Annual Meeting of Stockholders in person, except for Jess Jones, M.D., who participated telephonically
due to travel delays.



The Board of Directors maintains the following committees to
assist it in its oversight responsibilities. The current membership of each committee is indicated in the list of directors set
forth under “Board of Directors” above.



Audit Committee



The Audit Committee of the Board of Directors selects our independent
registered public accounting firm with whom the Audit Committee reviews the scope of audit and non-audit assignments and related
fees, the accounting principles that we use in financial reporting, and the adequacy of our internal control procedures. The members
of our Audit Committee are: Brendan A. Ford (Chairman), Peter F. Drake, Ph.D., Jess Emery Jones, M.D., and Gordon A. Troup, each
of whom is “independent” under Section 803A of the NYSE MKT Company Guide. The Board of Directors has determined that
Brendan A. Fordmeets the requirements of an “audit committee financial expert” as set forth in Section 407(d)(5)
of Regulation S-K promulgated by the SEC. The Audit Committee held five meetings in the fiscal year ended December 31, 2012. The
Board of Directors adopted a written Amended and Restated Audit Committee Charter on April 30, 2004. A copy of the Amended and
Restated Audit Committee Charter is posted on the Company’s website at www.navidea.com.



Compensation, Nominating and Governance Committee



The Compensation, Nominating and Governance (CNG) Committee
of the Board of Directors discharges the Board’s responsibilities relating to the compensation of the Company's directors,
executive officers and associates, identifies and recommends to the Board of Directors nominees for election to the Board, and
assists the Board in the implementation of sound corporate governance principles and practices. With respect to its compensation
functions, the CNG Committee evaluates and approves executive officer compensation and reviews and makes recommendations to the
Board with respect to director compensation, including incentive or equity-based compensation plans; reviews and evaluates any
discussion and analysis of executive officer and director compensation included in the Company’s annual report or proxy statement,
and prepares and approves any report on executive officer and director compensation for inclusion in the Company’s annual
report or proxy statement required by applicable rules and regulations; and monitors and evaluates, at the Committee’s discretion,
matters relating to the compensation and benefits structure of the Company and such other domestic and foreign subsidiaries or
affiliates, as it deems appropriate. The members of our CNG Committee are: Peter F. Drake, Ph.D. (Chairman), Brendan A. Ford, and
Jess Emery Jones, M.D. The CNG Committee held one meeting in the fiscal year ended December 31, 2012 to complement compensation-related
discussions held by the full Board. The Board of Directors adopted a written Compensation, Nominating and Governance Committee
Charter on February 26, 2009. A copy of the Compensation, Nominating and Governance Committee Charter is posted on the Company’s
website at www.navidea.com.



68







Board of Directors Leadership Structure



Our Board of Directors has determined that it is in the best
interests of the Company and its stockholders that the roles of Chairman of the Board and Chief Executive Officer be held by different
individuals within our organization. Our Chief Executive Officer is responsible for setting the strategic direction for the Company
and the day-to-day leadership and performance of the Company, while the Chairman of the Board provides strategic guidance and presides
over meetings of the full Board of Directors. The Board of Directors believes that this structure helps facilitate the role of
the independent directors in the oversight of the Company and the active participation of the independent directors in setting
agendas and establishing priorities and procedures that work for the Board of Directors. The Chairman of the Board also acts as
a key liaison between the Board of Directors and management. Moreover, in addition to feedback provided during the course of meetings
of the Board of Directors, our independent directors have executive sessions led by the Chairman of the Board. Our Chairman of
the Board acts as a liaison between the independent directors and the Chief Executive Officer regarding any specific feedback or
issues following an executive session of independent directors, provides the Chief Executive Officer with input regarding agenda
items for Board of Director and committee meetings, and coordinates with the Chief Executive Officer regarding information to be
provided to the independent directors in performing their duties.



Board of Directors Role in Risk Oversight



Our Chief Executive Officer and senior management are responsible
for the day-to-day management of the risks we face. Our Board of Directors, as a whole and through its committees, has responsibility
for the oversight of risk management, including general oversight of (i) the financial exposure of the Company, (ii) risk exposure
as related to overall company portfolio and impact on earnings, (iii), oversight for information technology security and risk,
and (iv) all systems, processes, and organizational structures and people responsible for finance and risk functions. Certain risks
are overseen by committees of the Board of Directors and these committees make reports to the full Board of Directors, including
reports on noteworthy risk management issues. Financial risks are overseen by the Audit Committee which meets with management to
review the Company’s major financial risk exposure and the steps management has taken to monitor and control such exposures.
Compensation risks are overseen by the CNG Committee.



Members of the Company’s senior management report to the
full Board of Directors about their areas of responsibility, including reports regarding risk within such area of responsibility
and the steps management has taken to monitor and control such exposures. Additional review or reporting of risks is conducted
as needed or as requested by the Board of Directors or committee.



Item 11. Executive Compensation



Compensation Discussion and Analysis



Overview of Compensation Program. The CNG Committee of
the Board of Directors is responsible for establishing and implementing our compensation policies applicable to senior executives
and monitoring our compensation practices. The CNG Committee seeks to ensure that our compensation plans are fair, reasonable and
competitive. The CNG Committee is responsible for reviewing and approving all senior executive compensation, all awards under our
cash bonus plan, and awards under our equity-based compensation plans.



69







Philosophy and Goals of Executive Compensation Plans.
The CNG Committee’s philosophy for executive compensation is to:



| | · | Pay for performance — The CNG Committee believes that our executives
should be compensated based upon their ability to achieve specific operational and strategic results. Therefore, our compensation
plans are designed to provide rewards for the individual’s contribution to our performance.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Pay commensurate with other companies categorized as value creators
— The CNG Committee has set a goal that the Company should move towards compensation levels for senior executives that are,
at a minimum, at the 40th to 50th percentile for similar executives in the workforce. This allows us to attract,
hire, reward and retain senior executives who continue to formulate and execute our strategic plans and drive exceptional results.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



To ensure our programs are competitive, the CNG Committee reviews
compensation information of peer companies, national data and trends in executive compensation to help determine the appropriateness
of our plans and compensation levels. These reviews, and the CNG Committee’s commitment to pay for performance, become the
basis for the CNG Committee’s decisions on compensation plans and individual executive compensation payments.



The CNG Committee has approved a variety of programs that work
together to provide a combination of basic compensation and strong incentives. While it is important for us to provide certain
base level salaries and benefits to remain competitive, the CNG Committee’s objective is to provide compensation plans with
incentive opportunities that motivate and reward executives for consistently achieving superior results. The CNG Committee designs
our compensation plans to:



| | · | Reward executives based upon overall company performance, their individual
contributions and creation of stockholder value;
| | - | ---------------------------------------------------------------------------------------------------------------------------

| | · | Encourage top performers to make a long-term commitment to our Company;
and
| | - | ---------------------------------------------------------------------------

| | · | Align executive incentive plans with the long-term interests of stockholders.
| | - | -----------------------------------------------------------------------------



The CNG Committee reviews competitive information and individual
compensation levels before each fiscal year. During the review process, the CNG Committee addresses the following questions:



| | · | Do any existing compensation plans need to be adjusted to reflect
changes in competitive practices, different market circumstances or changes to our strategic initiatives?
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Should any existing compensation plans be eliminated or new plans
be added to the executive compensation programs?
| | - | ------------------------------------------------------------------------------------------------------------------

| | · | What are the compensation-related objectives for our compensation
plans for the upcoming fiscal year?
| | - | -----------------------------------------------------------------------------------------------------

| | · | Based upon individual performance, what compensation modifications
should be made to provide incentives for senior executives to perform at superior levels?
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------



In addressing these questions, the CNG Committee considers input
from management, outside compensation experts and published surveys of compensation levels and practices.



The CNG Committee does not believe that our compensation policies
and practices for its employees give rise to risks that are reasonably likely to have a material adverse effect on the Company.
As noted below, our incentive-based compensation is generally tied to Company financial performance (i.e., revenue or gross margin)
or product development goals (i.e., clinical trial progress or regulatory milestones). The CNG Committee believes that the existence
of these financial performance incentives creates a strong motivation for company employees to contribute towards the achievement
of strong, sustainable financial and development performance, and believes that the Company has a strong set of internal controls
that minimize the risk that financial performance can be misstated in order to achieve incentive compensation payouts.



70







In addition to the aforementioned considerations, the CNG Committee
also takes into account the outcome of stockholder advisory (“say-on-pay”) votes, taken every three years, on the compensation
of our Chief Executive Officer, Chief Financial Officer, and our other three highest-paid executive officers (the Named Executive
Officers). At the Annual Meeting of Stockholders held on August 15, 2011, approximately 72% of our stockholders voted in favor
of the resolution relating to the compensation of our Named Executive Officers. The CNG Committee believes this affirmed stockholders’
support of the Company’s executive compensation program, and as such did not change its approach in 2012. The CNG Committee
will continue to consider the results of future say-on-pay votes when making future compensation decisions for the executive officers.



Scope of Authority of the CNG
Committee. The Board of Directors has authorized the CNG Committee to establish the compensation programs for all executive
officers and to provide oversight for compliance with our compensation philosophy. The CNG Committee delegates the day-to-day administration
of the compensation plans to management (except with respect to our executive officers), but retains responsibility for ensuring
that the plan administration is consistent with the Company’s policies. Annually, the CNG Committee sets the compensation
for our executive officers, including objectives and awards under incentive plans. Dr. Pykett provides input for the CNG Committee
regarding the performance and appropriate compensation of the other officers. The CNG Committee gives considerable weight to Dr.
Pykett’s evaluation of the other officers because of his direct knowledge of each officer’s performance and contributions.
The CNG Committee also makes recommendations to the Board of Directors on appropriate compensation for the non-employee directors.
In addition to overseeing the compensation of executive officers, the CNG Committee approves awards under short-term cash incentive
and long-term equity-based compensation plans for all other employees. For more information on the CNG Committee’s role,
see the CNG Committee’s charter, which can be found on our website atwww.navidea.com.



Independent Compensation Expertise. The CNG Committee
is authorized to retain independent experts to assist in evaluating executive compensation plans and in setting executive compensation
levels. These experts provide information on trends and best practices so the CNG Committee can formulate ongoing plans for executive
compensation. The CNG Committee retained Pearl Meyer & Partners as its independent expert to assist in the determination of
the reasonableness and competitiveness of the executive compensation plans and senior executives’ individual compensation
levels for fiscal 2011. Pearl Meyer’s study did not raise any concerns regarding conflicts of interest.



For fiscal 2011, Pearl Meyer performed a benchmark compensation
review of our key executive positions, including our Named Executive Officers. Pearl Meyer utilized both proprietary survey and
proxy reported data from compensation peers, with market data aged to January 1, 2011 by an annualized rate of 3.4%, the expected
pay increase in 2011 for executives in the life sciences industry.



In evaluating appropriate executive compensation, it is common
practice to set targets at a point within the competitive marketplace. The CNG Committee sets its competitive compensation levels
based upon its compensation philosophy. Following completion of the Pearl Meyer study for 2011, the CNG Committee noted that our
overall executive compensation was, on average, below the 25th percentile for an established peer group of companies.
Based upon the Pearl Meyer study, the CNG Committee has determined, over the course of the next few years, to move towards a total
compensation target for senior executive positions at the 40th to 50th percentile of total compensation for
the competitive market.



Peer Group Companies. In addition to the above survey
analysis, in 2012 the CNG Committee also reviewed the compensation levels at specific competitive benchmark companies. With input
from management, the CNG Committee chose the peer companies because they operate within the biotechnology industry, have market
capitalization between $100 million and $500 million, have similar business models to our Company or have comparable key executive
positions. While the specific plans for these companies may or may not be used, it is helpful to review their compensation data
to provide benchmarks for the overall compensation levels that will be used to attract, hire, retain and motivate our executives.



71







As competitors and similarly situated companies that compete
for the same executive talent, the CNG Committee determined that the following peer group companies most closely matched the responsibilities
and requirements of our executives:



Argule Inc.

Cell Therapeutics Inc.

Celldex Therapeutics Inc.

Curis Inc.

Exact Sciences Corp.

Immunomedics Inc.

Infinity Pharmaceuticals Inc.

Keryx Biopharmaceuticals Inc.



The CNG Committee used the publicly available compensation information
for these companies to analyze our competitive position in the industry. The CNG Committee reviewed the base salaries and short-term
and long term incentive plans of the executives of these companies to provide background and perspective in analyzing the compensation
levels for our executives.



Specific Elements of Executive Compensation.



Base Salary. Using information gathered by Pearl Meyer,
peer company data, national surveys, general compensation trend information and recommendations from management, the CNG Committee
approved the fiscal 2012 base salaries for our senior executives. Base salaries for senior executives are set using the CNG Committee’s
philosophy that compensation should be competitive and based upon performance. Executives should expect that their base salaries,
coupled with a cash bonus award, would provide them the opportunity to be compensated at or above the competitive market at the
40th to 50th percentile.



Based on competitive reviews of similar positions, industry
salary trends, overall company results and individual performance, salary increases may be approved from time-to-time. The CNG
Committee reviews and approves base salaries of all executive officers.



In setting specific base salaries for fiscal 2012, the CNG Committee
considered published proxy data for similar positions at peer group companies.



The following table shows the increases in base salaries for
the Named Executive Officers that were approved for fiscal 2012 compared to the approved salaries for fiscal 2011:



|Named Executive Officer       |  | Fiscal 2012 Base Salary |         |  | Fiscal 2011 Base Salary |  |         | Increase (a) | 
|----------------------------- |  | ----------------------- | ------- |  | ----------------------- |  | ------- | ------------ | 
|Mark J. Pykett, V.M.D., Ph.D. |  |                         | 425,000 |  |                         |  | 375,000 |              | 
|Rodger A. Brown               |  |                         | 191,000 |  |                         |  | 185,000 |              | 
|Frederick O. Cope, Ph.D.      |  |                         | 271,000 |  |                         |  | 265,000 |              | 
|Brent L. Larson               |  |                         | 265,000 |  |                         |  | 250,000 |              | 
|Thomas H. Tulip, Ph.D. (b)    |  |                         | 325,000 |  |                         |  | 300,000 |              | 



| | (a) | 2012 salary increases reflect both merit increases and market adjustments that the CNG Committee felt were necessary to remain
competitive in the life sciences industry.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Dr. Tulip’s salary was increased to $325,000 effective June 1, 2012. The amount shown for fiscal 2012 is the approved
annual salary of Dr. Tulip in effect at the end of 2012. The actual amount paid to Dr. Tulip during fiscal 2012 is shown under
“Salary” in the Summary Compensation table below.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The CNG Committee has approved the following base salaries for
fiscal 2013: Dr. Pykett, $425,000; Mr. Brown, $203,000; Dr. Cope, $271,000; Mr. Larson, $265,000; and Dr. Tulip, $325,000.



72







Short-Term Incentive Compensation. Our executive officers,
along with all of our employees, are eligible to participate in our annual cash bonus program, which has four primary objectives:



| | · | Attract, retain and motivate top-quality executives who can add significant
value to the Company;
| | - | -------------------------------------------------------------------------------------------------

| | · | Create an incentive compensation opportunity that is an integral part
of the employee’s total compensation program;
| | - | -------------------------------------------------------------------------------------------------------------------

| | · | Reward participants’ contributions to the achievement of our
business results; and
| | - | ----------------------------------------------------------------------------------

| | · | Provide an incentive for individuals to achieve corporate objectives
that are tied to our strategic goals.
| | - | ----------------------------------------------------------------------------------------------------------



The cash bonus compensation plan provides each participant with
an opportunity to receive an annual cash bonus based on our Company’s performance during the fiscal year. Cash bonus targets
for senior executives are determined as a percentage of base salary, based on published proxy data for similar positions at peer
group companies. The following are the key provisions of the cash bonus compensation plan:



| | · | The plan is administered by the CNG Committee, which has the power
and authority to establish, adjust, pay or decline to pay the cash bonus for each participant, including the power and authority
to increase or decrease the cash bonus otherwise payable to a participant. However, the Committee does not have the power to increase,
or make adjustments that would have the effect of increasing, the cash bonus otherwise payable to any executive officer. The Committee
has the right to delegate to the Chief Executive Officer its authority and responsibilities with respect to the cash bonuses payable
to employees other than executive officers.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | All Company employees are eligible to participate.
| | - | --------------------------------------------------

| | · | The CNG Committee is responsible for specifying the terms and conditions
for earning cash bonuses, including establishing specific performance objectives. Cash bonuses payable to executive officers are
intended to constitute “qualified performance-based compensation” for purposes of Section 162(m) of the Internal Revenue
Code. Consequently, each cash bonus awarded to an executive officer must be conditioned on one or more specified “Performance
Measures,” calculated on a consolidated basis. Possible Performance Measures include revenues; gross margin; operating income;
net income; clinical trial progress; regulatory milestones; or any other performance objective approved by the CNG Committee.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | As soon as reasonably practicable after the end of each fiscal year,
the CNG Committee determines whether and to what extent each specified business performance objective has been achieved and the
amount of the cash bonus to be paid to each participant.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In April 2012, the CNG Committee established the fiscal 2012
targets and performance measures for all Company employees. For fiscal 2012, the cash bonus for each executive officer was a function
of the designated target bonus amount (stated as a percentage of base salary and pro-rated based on time served at each salary
level during fiscal 2012) and certain business performance objectives, weighted as a percentage of the total target amount. The
business performance objectives established for fiscal 2012 were as follows:



| | · | Approval of the Company’s Lymphoseek product by the United States
Food and Drug Administration (FDA) and initiation of the commercial launch of Lymphoseek in the United States, subject to maximum
30% reduction of bonus if not achieved.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Commencement of a Phase 2 or Phase 3 clinical study for NAV4694, a
Fluorine-18 labeled precision radiopharmaceutical candidate for use in the imaging and evaluation of patients with signs or symptoms
of cognitive impairment such as Alzheimer's disease licensed by the Company from AstraZeneca AB, subject to maximum 15% reduction
of bonus if not achieved.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Submission to the European Medicines Agency (EMA) of an application
for marketing authorization for Lymphoseek in the European Union, subject to maximum 10% reduction of bonus if not achieved.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



73







| | · | Completion of an in-license or product acquisition transaction for
the addition of a candidate to the Company’s development pipeline, subject to maximum 10% reduction of bonus if not achieved.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Discretionary bonus, equal to 35% of the total bonus objective.
| | - | ---------------------------------------------------------------



For the Named Executive Officers, the CNG Committee established
the following cash bonus targets for fiscal 2012:



|Named Executive Officer       |  | Target Cash Bonus (% of Salary) |      |   | Target Cash Bonus ($ Amount) |  
|----------------------------- |  | ------------------------------- | ---- | - | ---------------------------- | -
|Mark J. Pykett, V.M.D., Ph.D. |  |                                 | 50.0 | % |                              | $
|Rodger A. Brown               |  |                                 | 20.0 | % |                              |  
|Frederick O. Cope, Ph.D.      |  |                                 | 25.0 | % |                              |  
|Brent L. Larson               |  |                                 | 27.5 | % |                              |  
|Thomas H. Tulip, Ph.D. (a)    |  |                                 | 35.0 | % |                              |  



| | (a) | Effective June 1, 2012, Dr. Tulip entered into a new employment agreement, authorized by the Board of Directors, which provides
for a maximum cash bonus amount of 35.0% of Dr. Tulip’s new annual salary. Dr. Tulip’s maximum cash bonus amount for
2012 was pro-rated based on time served at each salary level during the 2012 calendar year.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In February 2013,the CNG
Committee determined the extent to which the Company’s goals were achieved during 2012. With respect to the first objective,
the Company did not obtain FDA approval for Lymphoseek and the product was not commercially launched, therefore the Committee concluded
that the goal was not achieved, resulting in a 30% reduction in the target bonus amount. With regard to the second objective, the
Committee concluded that the commencement of a Phase 2 trial for NAV4694 in September 2012 evidenced the successful achievement
of that goal. With regard to the third objective, the Committee determined that the submission of a marketing authorization application
for Lymphoseek to the EMA in December 2012 evidenced the successful achievement of that goal. With regard to the fourth objective,
the Committee concluded that the in-licensing of NAV5001 from Alseres Pharmaceuticals, Inc. in July 2012 constituted the successful
achievement of that goal. With respect to the 35% discretionary portion, the Company’s overall performance and accomplishments
were evaluated in assessing the Company’s overall successes for the year. After reviewing the business performance objectives
and the related proposed payouts, the CNG Committee approved the total cash bonus payouts for each employee of the Company. The
approved cash bonus payouts to the Named Executive Officers, paid in February 2013, are shown under “Non-Equity Incentive
Plan Compensation” in the Summary Compensation table below.



Also in February 2013, the CNG Committee established the fiscal
2013 targets and performance measures for all Company employees. For fiscal 2013, the cash bonus for each executive officer will
be a function of the designated target bonus amount (stated as a percentage of base salary to be pro-rated based on time served
at each salary level during fiscal 2013) and certain business performance objectives, weighted as a percentage of the total target
amount. The business performance objectives established for fiscal 2013 are as follows:



| | · | Approval of the Company’s Lymphoseek product by the FDA, initiation
of the commercial launch of Lymphoseek in the United States, and achievement of a targeted amount of revenues from sales, subject
to maximum 35% reduction of bonus if not achieved.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Submission of supplemental New Drug Application for Lymphoseek to
the FDA, subject to maximum 15% reduction of bonus if not achieved.
| | - | -------------------------------------------------------------------------------------------------------------------------------------

| | · | Commencement of a Phase 3 pivotal study for NAV4694, a Fluorine-18
labeled precision radiopharmaceutical candidate for use in the imaging and evaluation of patients with signs or symptoms of cognitive
impairment such as Alzheimer's, subject to maximum 10% reduction of bonus if not achieved.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Commencement of a Phase 3 pivotal study for NAV5001, an Iodine-123
radiolabeled imaging agent being developed as an aid in the diagnosis of Parkinson’s disease and other movement disorders,
with a potential use as a diagnostic aid in dementia, subject to maximum 10% reduction of bonus if not achieved.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



74







| | · | Discretionary bonus, equal to 30% of the total bonus objective.
| | - | ---------------------------------------------------------------



The CNG Committee has approved the following target cash bonus
amounts (stated as a percentage of base salary to be pro-rated based on time served at each salary level during fiscal 2013) for
the Named Executive Officers for fiscal 2013: Dr. Pykett, 50.0%; Dr. Cope, 25.0%; Mr. Larson, 27.5%; Mr. Regan, 25.0%; Dr. Reininger,
30.0%; and Dr. Tulip, 35.0%.



Long-Term Incentive Compensation. All Company employees
are eligible to receive equity awards in the form of stock options or restricted stock. Equity instruments awarded under the Company’s
equity-based compensation plan are based on the following criteria:



| | · | Analysis of competitive information for comparable positions;
| | - | -------------------------------------------------------------

| | · | Evaluation of the value added to the Company by hiring or retaining
specific employees; and
| | - | -------------------------------------------------------------------------------------------

| | · | Each employee’s long-term potential contributions to our Company.
| | - | -----------------------------------------------------------------



Although equity awards may be made at any time as determined
by the CNG Committee, they are generally made to all employees once per year or on the recipient’s hire date in the case
of new-hire grants.



The CNG Committee’s philosophy on equity awards is that
equity-based compensation is an effective method to align the interests of stockholders and management and focus management’s
attention on long-term results. When awarding equity-based compensation the CNG Committee considers the impact the participant
can have on our overall performance, strategic direction, financial results and stockholder value. Therefore, equity awards are
primarily based upon the participant’s position in the organization, competitive necessity and individual performance. Equity
awards for senior executives are determined as a percentage of base salary, based on published proxy data for similar positions
at peer group companies. Stock option awards have vesting schedules over several years to promote long-term performance and retention
of the recipient, and restricted stock awards may include specific performance criteria for vesting or vest over a specified period
of time.



On February 17, 2012, the Company
granted 300,000 shares of restricted stock to Mark J. Pykett. Dr. Pykett’s restricted stock will vest as to one-third of
the shares on the first three anniversaries of the date of grant, or upon the occurrence of a
change in control as defined in the restricted stock agreement. If the employment of Dr. Pykett with the Company is terminated
for reasons other than a change in control before all of the restricted shares have vested, then pursuant to the terms of the restricted
stock agreement all restricted shares that have not vested at the effective date of Dr. Pykett’s termination shall immediately
be forfeited by Dr. Pykett.



Also on February 17, 2012, the Company
granted options to purchase shares of common stock of the Company to all Company employees, including the Named Executive Officers.
The stock options have an exercise price of $3.28 vest as to one-fourth of the shares on each of the first four anniversaries of
the date of grant, and expire on the tenth anniversary of the date of grant. If the employment of the Named Executives
with the Company is terminated due to a change in control or without cause before all of the stock options have vested, then pursuant
to the terms of the stock option award agreement all stock options that have not vested at the effective date of the Named Executive’s
termination shall immediately vest and become exercisable. The following number of optionswas granted
to each Named Executive Officer: Dr. Pykett, 250,000; Mr. Brown, 65,000; Dr. Cope, 127,000; Mr. Larson, 88,000; and Dr. Tulip,
163,000.



Other Benefits and Perquisites. The Named Executive Officers
participate in other benefit plans on the same terms as other employees. These plans include medical, dental, vision, disability
and life insurance benefits, and our 401(k) retirement savings plan (the 401(k) Plan).



75







Our vacation policy allows employees to carry up to 40 hours
of unused vacation time forward to the next fiscal year. Any unused vacation time in excess of the amount eligible for rollover
is generally forfeited. However, from time to time, due to high demands on our employees during a given fiscal year, we may elect
to pay out for unused vacation time in excess of the amount eligible for rollover. The amount paid is calculated based on the employee’s
salary in effect at the end of the fiscal year to which the unused vacation time relates.



Our Named Executive Officers are considered “key employees”
for purposes of IRC Section 125 Plan non-discrimination testing. Based on such non-discrimination testing, we determined that our
Section 125 Plan was “top-heavy”. As such, our key employees are ineligible to participate in the Section 125 Plan
and are unable to pay their portion of medical, dental, and vision premiums on a pre-tax basis. As a result, the Company reimburses
its key employees an amount equal to the lost tax benefit.



We pay group life insurance premiums on behalf of all employees,
including the Named Executive Officers. The benefit provides life insurance coverage at two times the employee’s annual salary
plus $10,000, up to a maximum of $630,000.



We also pay group long-term disability insurance premiums on
behalf of all employees, including the Named Executive Officers. The benefit provides long-term disability insurance coverage at
60% of the employee’s annual salary, up to a maximum of $10,000 per month, beginning 180 days after the date of disability
and continuing through age 65.



401(k) Retirement Plan. All employees are given an opportunity
to participate in our 401(k) retirement savings plan (the 401(k) Plan), following a new-hire waiting period. The 401(k) Plan allows
participants to have pre-tax amounts withheld from their pay and provides for a discretionary employer matching contribution (currently,
a 40% match in the form of our common stock up to 5% of salary). Participants may invest their contributions in various fund options,
but are prohibited from investing their contributions in our common stock. Participants are immediately vested in both their contributions
and company matching contributions. The 401(k) Plan qualifies 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.



Employment Agreements



Our executive officers are employed
under employment agreements which specify the terms of their employment such as base salary, benefits, paid time off, and post-employment
benefits as shown in the tables below.Our employment agreements also specify that if a change in control occurs with respect
to our Company and the employment of an executive officer is concurrently or subsequently terminated:



| | · | by the Company without cause (cause was defined
as any willful breach of a material duty by the executive officer in the course of his employment or willful and continued neglect
of his duty as an employee);
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | by the expiration of the term of the employment
agreement; or
| | - | -------------------------------------------------------------

| | · | by the resignation of the executive officer
because his title, authority, responsibilities, salary, bonus opportunities or benefits have materially diminished, a material
adverse change in his working conditions has occurred, his services are no longer required in light of the Company’s business
plan, or we breach the agreement;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



then, the executive officer would be paid a severance payment
as disclosed in the tables below. For purposes of such employment agreements, a change in control includes:



| | · | the acquisition, directly or indirectly,
by a person (other than our Company, an employee benefit plan established by the Board of Directors, or a participant in a transaction
approved by the Board of Directors for the principal purpose of raising additional capital) of beneficial ownership of 30% or more
of our securities with voting power in the next meeting of holders of voting securities to elect the Directors;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



76







| | · | 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;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | 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 80% or more of the voting power for all purposes
of the surviving or resulting corporation; or
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | our stockholders approve a transfer of substantially
all of our assets to another person other than a transfer to a transferee, 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.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Mark J. Pykett, V.M.D., Ph.D. Dr. Pykett is employed
under an 18-month employment agreement effective April 15, 2011. The employment agreement provides for an annual base salary of
$375,000. Effective January 1, 2012, Dr. Pykett’s annual base salary was increased to $425,000. For the calendar year ending
December 31, 2012, the CNG Committee determined that the maximum bonus payment to Dr. Pykett will be $212,500.



Frederick O. Cope, Ph.D. Dr. Cope
is employed under a 24-month employment agreement effective January 1, 2013. The employment agreement provides for an annual base
salary of $245,000. Effective August 23, 2011, Dr. Cope’s annual base salary was increased to $265,000. Effective January
1, 2012, Dr. Cope’s annual base salary was increased to $271,000. For the calendar year ending December 31, 2012, the CNG
Committee determined that the maximum bonus payment to Dr. Cope will be $67,750.



Brent L. Larson.Mr. Larson is employed
under a 24-month employment agreement effective January 1, 2013. The employment agreement provides for an annual base salary of
$207,000. Effective August 23, 2011, Mr. Larson’s annual base salary was increased to $250,000. Effective January 1, 2012,
Mr. Larson’s annual base salary was increased to $265,000. For the calendar year ending December 31, 2012, the CNG Committee
determined that the maximum bonus payment to Mr. Larson will be $72,875.



William J. Regan. Mr. Regan is employed
under a 12-month employment agreement effective October 1, 2012. The employment agreement provides for an annual base salary of
$250,000. For the calendar year ending December 31, 2012, the CNG Committee determined that the maximum bonus payment to Mr. Regan
will be $28,125.



Cornelia B. Reininger, M.D., Ph.D.
Dr. Reininger is employed under a 17-month employment agreement effective November 1, 2012. The employment agreement provides for
an annual base salary of $300,000. For the calendar year ending December 31, 2012, the CNG Committee determined that the maximum
bonus payment to Dr. Reininger will be $15,041.



Thomas H. Tulip, Ph.D. Dr. Tulip
is employed under a 24-month employment agreement effective June 1, 2012. The employment agreement provides for an annual base
salary of $325,000. For the calendar year ending December 31, 2012, the CNG Committee has determined that the maximum bonus payment
to Dr. Tulip will be $113,750, to be pro-rated based on time served at each salary level duringthe
2012 calendar year.



Post-Employment Compensation



The following tables set forth the expected
benefit to be received by each of our Named Executive Officers in the event of his termination resulting from various scenarios,
assuming a termination date of December 31, 2012 and a stock price of $2.83, our closing stock price on December 31, 2012.



77







Mark J. Pykett, V.M.D., Ph.D.



|                                          |  | For Cause |        |  | Resignation |   |        | Death |  |   | Disability |  |  | End of Term |         |  | Without Cause |   |         | Change in Control | 
|----------------------------------------- |  | --------- | ------ |  | ----------- | - | ------ | ----- |  | - | ---------- |  |  | ----------- | ------- |  | ------------- | - | ------- | ----------------- | 
|Cash payments:                            |  |           |        |  |             |   |        |       |  |   |            |  |  |             |         |  |               |   |         |                   | 
|Severance (a)                             |  | $         | —      |  |             | $ | —      |       |  | $ | —          |  |  | $           | —       |  |               | $ | 468,750 |                   | 
|Disability supplement (b)                 |  |           | —      |  |             |   | —      |       |  |   | —          |  |  |             | 210,100 |  |               |   | —       |                   | 
|Paid time off (c)                         |  |           | 8,173  |  |             |   | 8,173  |       |  |   | 8,173      |  |  |             | 8,173   |  |               |   | 8,173   |                   | 
|2012 401(k) match (d)                     |  |           | 5,000  |  |             |   | 5,000  |       |  |   | 5,000      |  |  |             | 5,000   |  |               |   | 5,000   |                   | 
|Continuation of benefits (e)              |  |           | —      |  |             |   | —      |       |  |   | 22,870     |  |  |             | 22,870  |  |               |   | —       |                   | 
|Stock option vesting acceleration (f)     |  |           | —      |  |             |   | —      |       |  |   | —          |  |  |             | —       |  |               |   | 150,666 |                   | 
|Restricted stock vesting acceleration (g) |  |           | —      |  |             |   | —      |       |  |   | —          |  |  |             | —       |  |               |   | —       |                   | 
|Total                                     |  | $         | 13,173 |  |             | $ | 13,173 |       |  | $ | 36,043     |  |  | $           | 246,143 |  |               | $ | 632,589 |                   | 



| | (a) | Severance amounts are pursuant to Dr. Pykett’s employment agreement.
| | --- | --------------------------------------------------------------------

| | (b) | During the first 6 months of disability, the Company will supplement disability insurance payments to Dr. Pykett to achieve
100% salary replacement. The Company’s short-term disability insurance policy currently pays $100 per week for a maximum
of 24 weeks.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | Amount represents the value of 40 hours of accrued but unused vacation time as of December 31, 2012.
| | --- | ----------------------------------------------------------------------------------------------------

| | (d) | Amount represents the value of 1,649 shares of Company stock which was accrued during 2012 as the Company’s 401(k) matching
contribution but was unissued as of December 31, 2012.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (e) | Amount represents 12 months of medical, dental and vision insurance premiums at rates in effect at December 31, 2012, except
in the case of termination without cause, when the amount represents 18 months of medical, dental and vision insurance premiums
at rates in effect at December 31, 2012.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (f) | Pursuant to Dr. Pykett’s stock option agreements, all unvested stock options outstanding will vest upon termination at
the end of the term of his employment agreement, termination without cause, or a change in control. Amount represents the value
of the stock at $2.83, the closing price of the Company’s stock on December 31, 2012, less the exercise price of the options.
Amount does not include stock options with an exercise price higher than $2.83, the closing price of the Company’s stock
on December 31, 2012.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (g) | Pursuant to Dr. Pykett’s restricted stock agreements, certain unvested restricted stock outstanding will vest upon termination
without cause or a change in control.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



Rodger A. Brown



|                                          |  | For Cause |       |  | Resignation |   |       | Death |  |   | Disability |  |  | End of Term |         |  | Without Cause |   |         | Change in Control | 
|----------------------------------------- |  | --------- | ----- |  | ----------- | - | ----- | ----- |  | - | ---------- |  |  | ----------- | ------- |  | ------------- | - | ------- | ----------------- | 
|Cash payments:                            |  |           |       |  |             |   |       |       |  |   |            |  |  |             |         |  |               |   |         |                   | 
|Severance (a)                             |  | $         | —     |  |             | $ | —     |       |  | $ | —          |  |  | $           | —       |  |               | $ | 165,000 |                   | 
|Disability supplement (b)                 |  |           | —     |  |             |   | —     |       |  |   | —          |  |  |             | 93,100  |  |               |   | —       |                   | 
|Paid time off (c)                         |  |           | 3,673 |  |             |   | 3,673 |       |  |   | 3,673      |  |  |             | 3,673   |  |               |   | 3,673   |                   | 
|2012 401(k) match (d)                     |  |           | —     |  |             |   | —     |       |  |   | —          |  |  |             | —       |  |               |   | —       |                   | 
|Continuation of benefits (e)              |  |           | —     |  |             |   | —     |       |  |   | 16,304     |  |  |             | 16,304  |  |               |   | —       |                   | 
|Stock option vesting acceleration (f)     |  |           | —     |  |             |   | —     |       |  |   | —          |  |  |             | —       |  |               |   | 27,900  |                   | 
|Restricted stock vesting acceleration (g) |  |           | —     |  |             |   | —     |       |  |   | —          |  |  |             | —       |  |               |   | —       |                   | 
|Total                                     |  | $         | 3,673 |  |             | $ | 3,673 |       |  | $ | 19,977     |  |  | $           | 113,077 |  |               | $ | 196,573 |                   | 



| | (a) | Severance amounts are pursuant to Mr. Brown’s employment agreement.
| | --- | -------------------------------------------------------------------

| | (b) | During the first 6 months of disability, the Company will supplement disability insurance payments to Mr. Brown to achieve
100% salary replacement. The Company’s short-term disability insurance policy currently pays $100 per week for a maximum
of 24 weeks.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | Amount represents the value of 40 hours of accrued but unused vacation time as of December 31, 2012.
| | --- | ----------------------------------------------------------------------------------------------------

| | (d) | Mr. Brown does not participate in the Company’s 401(k) Plan.
| | --- | ------------------------------------------------------------

| | (e) | Amount represents 12 months of medical, dental and vision insurance premiums at rates in effect at December 31, 2012.
| | --- | ---------------------------------------------------------------------------------------------------------------------

| | (f) | Pursuant to Mr. Brown’s stock option agreements, all unvested stock options outstanding will vest upon termination at
the end of the term of his employment agreement, termination without cause, or a change in control. Amount represents the value
of the stock at $2.83, the closing price of the Company’s stock on December 31, 2012, less the exercise price of the options.
Amount does not include stock options with an exercise price higher than $2.83, the closing price of the Company’s stock
on December 31, 2012.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (g) | Pursuant to Mr. Brown’s restricted stock agreements, certain unvested restricted stock outstanding will vest upon a change
in control.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------



78







Frederick O. Cope, Ph.D.



|                                          |  | For Cause |       |  | Resignation |   |       | Death |  |   | Disability |  |  | End of Term |         |  | Without Cause |   |         | Change in Control | 
|----------------------------------------- |  | --------- | ----- |  | ----------- | - | ----- | ----- |  | - | ---------- |  |  | ----------- | ------- |  | ------------- | - | ------- | ----------------- | 
|Cash payments:                            |  |           |       |  |             |   |       |       |  |   |            |  |  |             |         |  |               |   |         |                   | 
|Severance (a)                             |  | $         | —     |  |             | $ | —     |       |  | $ | —          |  |  | $           | —       |  |               | $ | 245,000 |                   | 
|Disability supplement (b)                 |  |           | —     |  |             |   | —     |       |  |   | —          |  |  |             | 133,100 |  |               |   | —       |                   | 
|Paid time off (c)                         |  |           | 2,085 |  |             |   | 2,085 |       |  |   | 2,085      |  |  |             | 2,085   |  |               |   | 2,085   |                   | 
|2012 401(k) match (d)                     |  |           | 5,000 |  |             |   | 5,000 |       |  |   | 5,000      |  |  |             | 5,000   |  |               |   | 5,000   |                   | 
|Continuation of benefits (e)              |  |           | —     |  |             |   | —     |       |  |   | 16,304     |  |  |             | 16,304  |  |               |   | —       |                   | 
|Stock option vesting acceleration (f)     |  |           | —     |  |             |   | —     |       |  |   | —          |  |  |             | —       |  |               |   | 55,800  |                   | 
|Restricted stock vesting acceleration (g) |  |           | —     |  |             |   | —     |       |  |   | —          |  |  |             | —       |  |               |   | —       |                   | 
|Total                                     |  | $         | 7,085 |  |             | $ | 7,085 |       |  | $ | 23,388     |  |  | $           | 156,488 |  |               | $ | 307,885 |                   | 



| | (a) | Severance amounts are pursuant to Dr. Cope’s employment agreement.
| | --- | ------------------------------------------------------------------

| | (b) | During the first 6 months of disability, the Company will supplement disability insurance payments to Dr. Cope to achieve 100%
salary replacement. The Company’s short-term disability insurance policy currently pays $100 per week for a maximum of 24
weeks.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | Amount represents the value of 16 hours of accrued but unused vacation time as of December 31, 2012.
| | --- | ----------------------------------------------------------------------------------------------------

| | (d) | Amount represents the value of 1,649 shares of Company stock which was accrued during 2012 as the Company’s 401(k) matching
contribution but was unissued as of December 31, 2012.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (e) | Amount represents 12 months of medical, dental and vision insurance premiums at rates in effect at December 31, 2012.
| | --- | ---------------------------------------------------------------------------------------------------------------------

| | (f) | Pursuant to Dr. Cope’s stock option agreements, all unvested stock options outstanding will vest upon termination at
the end of the term of his employment agreement, termination without cause, or a change in control. Amount represents the value
of the stock at $2.83, the closing price of the Company’s stock on December 31, 2012, less the exercise price of the options.
Amount does not include stock options with an exercise price higher than $2.83, the closing price of the Company’s stock
on December 31, 2012.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (g) | Pursuant to Dr. Cope’s restricted stock agreements, certain unvested restricted stock outstanding will vest upon a change
in control.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------



Brent L. Larson



|                                          |  | For Cause |        |  | Resignation |   |        | Death |  |   | Disability |  |  | End of Term |         |  | Without Cause |   |         | Change in Control | 
|----------------------------------------- |  | --------- | ------ |  | ----------- | - | ------ | ----- |  | - | ---------- |  |  | ----------- | ------- |  | ------------- | - | ------- | ----------------- | 
|Cash payments:                            |  |           |        |  |             |   |        |       |  |   |            |  |  |             |         |  |               |   |         |                   | 
|Severance (a)                             |  | $         | —      |  |             | $ | —      |       |  | $ | —          |  |  | $           | —       |  |               | $ | 207,000 |                   | 
|Disability supplement (b)                 |  |           | —      |  |             |   | —      |       |  |   | —          |  |  |             | 130,100 |  |               |   | —       |                   | 
|Paid time off (c)                         |  |           | 5,096  |  |             |   | 5,096  |       |  |   | 5,096      |  |  |             | 5,096   |  |               |   | 5,096   |                   | 
|2012 401(k) match (d)                     |  |           | 5,000  |  |             |   | 5,000  |       |  |   | 5,000      |  |  |             | 5,000   |  |               |   | 5,000   |                   | 
|Continuation of benefits (e)              |  |           | —      |  |             |   | —      |       |  |   | 22,870     |  |  |             | 22,870  |  |               |   | —       |                   | 
|Stock option vesting acceleration (f)     |  |           | —      |  |             |   | —      |       |  |   | —          |  |  |             | —       |  |               |   | 44,175  |                   | 
|Restricted stock vesting acceleration (g) |  |           | —      |  |             |   | —      |       |  |   | —          |  |  |             | —       |  |               |   | —       |                   | 
|Total                                     |  | $         | 10,096 |  |             | $ | 10,096 |       |  | $ | 32,966     |  |  | $           | 163,066 |  |               | $ | 261,271 |                   | 



| | (a) | Severance amounts are pursuant to Mr. Larson’s employment agreement.
| | --- | --------------------------------------------------------------------

| | (b) | During the first 6 months of disability, the Company will supplement disability insurance payments to Mr. Larson to achieve
100% salary replacement. The Company’s short-term disability insurance policy currently pays $100 per week for a maximum
of 24 weeks.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | Amount represents the value of 40 hours of accrued but unused vacation time as of December 31, 2012.
| | --- | ----------------------------------------------------------------------------------------------------

| | (d) | Amount represents the value of 1,649 shares of Company stock which was accrued during 2012 as the Company’s 401(k) matching
contribution but was unissued as of December 31, 2012.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (e) | Amount represents 12 months of medical, dental and vision insurance premiums at rates in effect at December 31, 2012.
| | --- | ---------------------------------------------------------------------------------------------------------------------

| | (f) | Pursuant to Mr. Larson’s stock option agreements, all unvested stock options outstanding will vest upon termination at
the end of the term of his employment agreement, termination without cause, or a change in control. Amount represents the value
of the stock at $2.83, the closing price of the Company’s stock on December 31, 2012, less the exercise price of the options.
Amount does not include stock options with an exercise price higher than $2.83, the closing price of the Company’s stock
on December 31, 2012.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (g) | Pursuant to Mr. Larson’s restricted stock agreements, certain unvested restricted stock outstanding will vest upon a
change in control.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------



79







Thomas H. Tulip, Ph.D.



|                                          |  | For Cause |        |  | Resignation |   |        | Death |  |   | Disability |  |  | End of Term |         |  | Without Cause |   |         | Change in Control | 
|----------------------------------------- |  | --------- | ------ |  | ----------- | - | ------ | ----- |  | - | ---------- |  |  | ----------- | ------- |  | ------------- | - | ------- | ----------------- | 
|Cash payments:                            |  |           |        |  |             |   |        |       |  |   |            |  |  |             |         |  |               |   |         |                   | 
|Severance (a)                             |  | $         | —      |  |             | $ | —      |       |  | $ | —          |  |  | $           | —       |  |               | $ | 325,000 |                   | 
|Disability supplement (b)                 |  |           | —      |  |             |   | —      |       |  |   | —          |  |  |             | 160,100 |  |               |   | —       |                   | 
|Paid time off (c)                         |  |           | 6,250  |  |             |   | 6,250  |       |  |   | 6,250      |  |  |             | 6,250   |  |               |   | 6,250   |                   | 
|2012 401(k) match (d)                     |  |           | 5,000  |  |             |   | 5,000  |       |  |   | 5,000      |  |  |             | 5,000   |  |               |   | 5,000   |                   | 
|Continuation of benefits (e)              |  |           | —      |  |             |   | —      |       |  |   | —          |  |  |             | —       |  |               |   | —       |                   | 
|Stock option vesting acceleration (f)     |  |           | —      |  |             |   | —      |       |  |   | —          |  |  |             | —       |  |               |   | —       |                   | 
|Restricted stock vesting acceleration (g) |  |           | —      |  |             |   | —      |       |  |   | —          |  |  |             | —       |  |               |   | —       |                   | 
|Total                                     |  | $         | 11,250 |  |             | $ | 11,250 |       |  | $ | 11,250     |  |  | $           | 171,350 |  |               | $ | 336,250 |                   | 



| | (a) | Severance amounts are pursuant to Dr. Tulip’s employment agreement.
| | --- | -------------------------------------------------------------------

| | (b) | During the first 6 months of disability, the Company will supplement disability insurance payments to Dr. Tulip to achieve
100% salary replacement. The Company’s short-term disability insurance policy currently pays $100 per week for a maximum
of 24 weeks.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | Amount represents the value of 40 hours of accrued but unused vacation time as of December 31, 2012.
| | --- | ----------------------------------------------------------------------------------------------------

| | (d) | Amount represents the value of 1,649 shares of Company stock which was accrued during 2012 as the Company’s 401(k) matching
contribution but was unissued as of December 31, 2012.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (e) | Dr. Tulip does not participate in the Company’s medical, dental or vision insurance plans.
| | --- | ------------------------------------------------------------------------------------------

| | (f) | Pursuant to Dr. Tulip’s stock option agreements, all unvested stock options outstanding will vest upon termination at
the end of the term of his employment agreement, termination without cause, or a change in control. Amount represents the value
of the stock at $2.83, the closing price of the Company’s stock on December 31, 2012, less the exercise price of the options.
Amount does not include stock options with an exercise price higher than $2.83, the closing price of the Company’s stock
on December 31, 2012.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (g) | Dr. Tulip’s restricted stock agreements do not include provisions for accelerated vesting.
| | --- | ------------------------------------------------------------------------------------------



Report of Compensation, Nominating and Governance Committee



The CNG Committee is responsible for establishing, reviewing
and approving the Company’s compensation philosophy and policies, reviewing and making recommendations to the Board regarding
forms of compensation provided to the Company’s directors and officers, reviewing and determining cash and equity awards
for the Company’s officers and other employees, and administering the Company’s equity incentive plans.



In this context, the CNG Committee has reviewed and discussed
with management the Compensation Discussion and Analysis included in this annual report on Form 10-K. In reliance on the review
and discussions referred to above, the CNG Committee recommended to the Board, and the Board has approved, that the Compensation
Discussion and Analysis be included in this annual report on Form 10-K for filing with the SEC.



| | The Compensation, Nominating    
| | --------------------------------
| | and Governance Committee        
| |                                 
| | Peter F. Drake, Ph.D. (Chairman)
| | Brendan A. Ford                 
| | Jess Emery Jones, M.D.          



80







Compensation, Nominating and Governance Committee Interlocks
and Insider Participation



The current members of our CNG Committee are: Peter F. Drake,
Ph.D. (Chairman), Brendan A. Ford, and Jess Emery Jones, M.D., and each served as a member of the CNG Committee during the last
completed fiscal year. None of these individuals were at any time during the fiscal year ended December 31, 2012, or at any other
time, an officer or employee of the Company.



No director who served on the CNG Committee during 2012 had
any relationships requiring disclosure by the Company under the SEC’s rules requiring disclosure of certain relationships
and related-party transactions. None of the Company’s executive officers served as a director or a member of a compensation
committee (or other committee serving and equivalent function) of any other entity, the executive officers of which served as a
director of the Company or member of the CNG Committee during 2012.



81







Summary Compensation Table



The following table sets forth certain information concerning
the annual and long-term compensation of our Named Executive Officers for the last three fiscal years.



Summary Compensation Table for Fiscal
2012



|                                  |  |      |      |  |        |   |         |        |  |   |         |  |  | (c)            |         |  |              |   |         |              | 
|--------------------------------- |  | ---- | ---- |  | ------ | - | ------- | ------ |  | - | ------- |  |  | -------------- | ------- |  | ------------ | - | ------- | ------------ | 
|                                  |  |      |      |  |        |   |         | (a)    |  |   | (b)     |  |  | Non-Equity     |         |  | (d)          |   |         |              | 
|                                  |  |      |      |  |        |   |         | Stock  |  |   | Option  |  |  | Incentive Plan |         |  | All Other    |   |         | Total        | 
|Named Executive Officer           |  | Year |      |  | Salary |   |         | Awards |  |   | Awards  |  |  | Compensation   |         |  | Compensation |   |         | Compensation | 
|                                  |  |      |      |  |        |   |         |        |  |   |         |  |  |                |         |  |              |   |         |              | 
|Mark J. Pykett, V.M.D., Ph.D. (e) |  |      | 2012 |  |        | $ | 425,000 |        |  | $ | 983,700 |  |  | $              | 481,827 |  |              | $ | 140,250 |              | 
|President and                     |  |      | 2011 |  |        |   | 363,249 |        |  |   | 201,450 |  |  |                | —       |  |              |   | 175,867 |              | 
|Chief Executive Officer           |  |      | 2010 |  |        |   | 41,875  |        |  |   | 530,700 |  |  |                | 193,783 |  |              |   | 6,278   |              | 
|                                  |  |      |      |  |        |   |         |        |  |   |         |  |  |                |         |  |              |   |         |              | 
|Rodger A. Brown                   |  |      | 2012 |  |        | $ | 191,000 |        |  | $ | —       |  |  | $              | 125,275 |  |              | $ | 25,296  |              | 
|Vice President, Global            |  |      | 2011 |  |        |   | 172,347 |        |  |   | —       |  |  |                | —       |  |              |   | 29,250  |              | 
|Regulatory Operations and         |  |      | 2010 |  |        |   | 155,000 |        |  |   | —       |  |  |                | 72,585  |  |              |   | 28,650  |              | 
|Quality Assurance                 |  |      |      |  |        |   |         |        |  |   |         |  |  |                |         |  |              |   |         |              | 
|                                  |  |      |      |  |        |   |         |        |  |   |         |  |  |                |         |  |              |   |         |              | 
|Frederick O. Cope, Ph.D.          |  |      | 2012 |  |        | $ | 271,000 |        |  | $ | —       |  |  | $              | 244,768 |  |              | $ | 55,043  |              | 
|Senior Vice President,            |  |      | 2011 |  |        |   | 252,342 |        |  |   | —       |  |  |                | —       |  |              |   | 63,375  |              | 
|Pharmaceutical Research           |  |      | 2010 |  |        |   | 211,000 |        |  |   | —       |  |  |                | 145,169 |  |              |   | 51,375  |              | 
|and Clinical Development          |  |      |      |  |        |   |         |        |  |   |         |  |  |                |         |  |              |   |         |              | 
|                                  |  |      |      |  |        |   |         |        |  |   |         |  |  |                |         |  |              |   |         |              | 
|Brent L. Larson                   |  |      | 2012 |  |        | $ | 265,000 |        |  | $ | —       |  |  | $              | 169,603 |  |              | $ | 49,555  |              | 
|Senior Vice President and         |  |      | 2011 |  |        |   | 222,637 |        |  |   | —       |  |  |                | —       |  |              |   | 43,875  |              | 
|Chief Financial Officer           |  |      | 2010 |  |        |   | 195,000 |        |  |   | —       |  |  |                | 114,926 |  |              |   | 37,500  |              | 
|                                  |  |      |      |  |        |   |         |        |  |   |         |  |  |                |         |  |              |   |         |              | 
|Thomas H. Tulip, Ph.D. (f)        |  |      | 2012 |  |        | $ | 314,583 |        |  | $ | —       |  |  | $              | 314,151 |  |              | $ | 75,075  |              | 
|Executive Vice President and      |  |      | 2011 |  |        |   | 175,000 |        |  |   | 394,320 |  |  |                | 346,842 |  |              |   | 60,023  |              | 
|Chief Business Officer            |  |      | 2010 |  |        |   | —       |        |  |   | —       |  |  |                | —       |  |              |   | —       |              | 



| | (a) | Amount represents the aggregate grant date fair value in accordance with FASB ASC Topic 718. Assumptions made in the valuation
of stock awards are disclosed in Note 1(e) of the Notes to the Consolidated Financial Statements in this Form 10-K.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Amount represents the aggregate grant date fair value in accordance with FASB ASC Topic 718. Assumptions made in the valuation
of option awards are disclosed in Note 1(e) of the Notes to the Consolidated Financial Statements in this Form 10-K.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | Amount represents the cash bonuses which have been approved by the CNG Committee and are disclosed for fiscal 2012, the year
in which they were earned (i.e., the year to which the service relates).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | Amount represents additional compensation as disclosed in the All Other Compensation table below.
| | --- | -------------------------------------------------------------------------------------------------

| | (e) | Dr. Pykett commenced employment with the Company effective November 15, 2010, and was promoted to President and Chief Executive
Officer effective April 15, 2011.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (f) | Dr. Tulip commenced employment with the Company effective June 1, 2011.
| | --- | -----------------------------------------------------------------------



82







All Other Compensation



The following table describes each component of the amounts
shown in the “All Other Compensation” column in the Summary Compensation table above.



All Other Compensation Table for Fiscal
2012



|                                  |  |      |      |  |          |   |       | (b)              |  |   |              |  |  |              |      
|--------------------------------- |  | ---- | ---- |  | -------- | - | ----- | ---------------- |  | - | ------------ |  |  | ------------ | -----
|                                  |  |      |      |  |          |   |       | Reimbursement    |  |   |              |  |  |              |      
|                                  |  |      |      |  | (a)      |   |       | of Additional    |  |   | (c)          |  |  |              |      
|                                  |  |      |      |  | Payment  |   |       | Tax Liability    |  |   | 401(k) Plan  |  |  |              |      
|                                  |  |      |      |  | for      |   |       | Related to       |  |   | Employer     |  |  | Total        |      
|                                  |  |      |      |  | Unused   |   |       | Health Insurance |  |   | Matching     |  |  | All Other    |      
|Named Executive Officer           |  | Year |      |  | Vacation |   |       | Premiums         |  |   | Contribution |  |  | Compensation |      
|                                  |  |      |      |  |          |   |       |                  |  |   |              |  |  |              |      
|Mark J. Pykett, V.M.D., Ph.D. (d) |  |      | 2012 |  |          | $ | 7,212 |                  |  | $ | 1,596        |  |  | $            | 5,000
|                                  |  |      | 2011 |  |          |   | —     |                  |  |   | 1,019        |  |  |              | 3,769
|                                  |  |      | 2010 |  |          |   | —     |                  |  |   | —            |  |  |              | —    
|                                  |  |      |      |  |          |   |       |                  |  |   |              |  |  |              |      
|Rodger A. Brown                   |  |      | 2012 |  |          | $ | 1,512 |                  |  | $ | 1,041        |  |  | $            | —    
|                                  |  |      | 2011 |  |          |   | 4,769 |                  |  |   | 694          |  |  |              | —    
|                                  |  |      | 2010 |  |          |   | —     |                  |  |   | —            |  |  |              | —    
|                                  |  |      |      |  |          |   |       |                  |  |   |              |  |  |              |      
|Frederick O. Cope, Ph.D.          |  |      | 2012 |  |          | $ | 5,096 |                  |  | $ | 1,018        |  |  | $            | 5,000
|                                  |  |      | 2011 |  |          |   | 4,818 |                  |  |   | 678          |  |  |              | 4,900
|                                  |  |      | 2010 |  |          |   | —     |                  |  |   | —            |  |  |              | 4,751
|                                  |  |      |      |  |          |   |       |                  |  |   |              |  |  |              |      
|Brent L. Larson                   |  |      | 2012 |  |          | $ | 4,808 |                  |  | $ | 1,596        |  |  | $            | 5,000
|                                  |  |      | 2011 |  |          |   | 2,531 |                  |  |   | 1,019        |  |  |              | 4,900
|                                  |  |      | 2010 |  |          |   | —     |                  |  |   | —            |  |  |              | 4,595
|                                  |  |      |      |  |          |   |       |                  |  |   |              |  |  |              |      
|Thomas H. Tulip, Ph.D. (e)        |  |      | 2012 |  |          | $ | 4,615 |                  |  | $ | —            |  |  | $            | 5,000
|                                  |  |      | 2011 |  |          |   | —     |                  |  |   | 2,807        |  |  |              | 2,901
|                                  |  |      | 2010 |  |          |   | —     |                  |  |   | —            |  |  |              | —    



| | (a) | Amount represents payment for unused vacation time in excess of the amount eligible for rollover
in fiscal 2012. The amount paid is calculated based on the employee’s salary in effect at the end of the fiscal year to which
the unused vacation time relates.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Amount represents reimbursement of the lost tax benefit due to the ineligibility of our Named Executive Officers to pay their
portion of medical, dental, and vision premiums on a pre-tax basis under our IRC Section 125 Plan.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | Amount represents the value of the common stock contributed to the Named Executive Officer’s account in our 401(k) Plan
as calculated on a quarterly basis.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | Dr. Pykett commenced employment with the Company effective November 15, 2010, and was promoted to President and Chief Executive
Officer effective April 15, 2011.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (e) | Dr. Tulip commenced employment with the Company effective June 1, 2011.
| | --- | -----------------------------------------------------------------------



83







Grants of Plan-Based Awards



The following table sets forth certain information
about plan-based awards that we made to the Named Executive Officers during fiscal 2012. For information about the plans under
which these awards were granted, see the discussion under “Short-Term Incentive Compensation” and “Long-Term
Incentive Compensation” in the “Compensation Discussion and Analysis” section above.



Grants of Plan-Based
Awards Table for Fiscal 2012



|                      |  |       |           |  |                          |   |   |                      |  |   |               |  |  | All Other  |   |  |              |  |   |                | 
|--------------------- |  | ----- | --------- |  | ------------------------ | - | - | -------------------- |  | - | ------------- |  |  | ---------- | - |  | ------------ |  | - | -------------- | 
|                      |  |       |           |  |                          |   |   |                      |  |   | All Other     |  |  | Option     |   |  |              |  |   |                | 
|                      |  |       |           |  | Estimated
    Future     |   |   | Estimated
    Future |  |   | Stock         |  |  | Awards:    |   |  |              |  |   | Grant Date     | 
|                      |  |       |           |  | Payouts
    Under        |   |   | Payouts
    Under    |  |   | Awards:       |  |  | Number of  |   |  | Exercise     |  |   | Fair Value     | 
|                      |  |       |           |  | Non-Equity
    Incentive |   |   | Equity Incentive     |  |   | Number        |  |  | Securities |   |  | Price of     |  |   | of Stock       | 
|Named                 |  | Grant |           |  | Plan
    Awards (a)      |   |   | Plan
    Awards (b)  |  |   | of
    Shares |  |  | Underlying |   |  | Option       |  |   | and
    Option | 
|Executive
    Officer |  | Date  |           |  | Threshold                |   |   | Maximum              |  |   | Threshold     |  |  | Maximum    |   |  | of
    Stock |  |   | Options        | 
|                      |  |       |           |  |                          |   |   |                      |  |   |               |  |  |            |   |  |              |  |   |                | 
|Mark J. Pykett,       |  |       | N/A       |  |                          | $ | — |                      |  | $ | 212,500       |  |  |            | — |  |              |  | — |                | 
|V.M.D., Ph.D.         |  |       | 2/17/2012 |  |                          | $ | — |                      |  | $ | —             |  |  |            | — |  |              |  | — |                | 
|                      |  |       | 2/17/2012 |  |                          | $ | — |                      |  | $ | —             |  |  |            | — |  |              |  | — |                | 
|                      |  |       |           |  |                          |   |   |                      |  |   |               |  |  |            |   |  |              |  |   |                | 
|Rodger A. Brown       |  |       | N/A       |  |                          | $ | — |                      |  | $ | 38,200        |  |  |            | — |  |              |  | — |                | 
|                      |  |       | 2/17/2012 |  |                          | $ | — |                      |  | $ | —             |  |  |            | — |  |              |  | — |                | 
|                      |  |       |           |  |                          |   |   |                      |  |   |               |  |  |            |   |  |              |  |   |                | 
|Frederick O. Cope,    |  |       | N/A       |  |                          | $ | — |                      |  | $ | 67,750        |  |  |            | — |  |              |  | — |                | 
|Ph.D.                 |  |       | 2/17/2012 |  |                          | $ | — |                      |  | $ | —             |  |  |            | — |  |              |  | — |                | 
|                      |  |       |           |  |                          |   |   |                      |  |   |               |  |  |            |   |  |              |  |   |                | 
|Brent L. Larson       |  |       | N/A       |  |                          | $ | — |                      |  | $ | 72,875        |  |  |            | — |  |              |  | — |                | 
|                      |  |       | 2/17/2012 |  |                          | $ | — |                      |  | $ | —             |  |  |            | — |  |              |  | — |                | 
|                      |  |       |           |  |                          |   |   |                      |  |   |               |  |  |            |   |  |              |  |   |                | 
|Thomas H. Tulip,      |  |       | N/A       |  |                          | $ | — |                      |  | $ | 110,130       |  |  |            | — |  |              |  | — |                | 
|Ph.D.                 |  |       | 2/17/2012 |  |                          | $ | — |                      |  | $ | —             |  |  |            | — |  |              |  | — |                | 



| | (a) | The threshold amount reflects the fact that no cash bonus awards would have been payable if none of the specified business
performance objectives were achieved. The maximum amount reflects the target cash bonus awards payable if all of the specified
business performance objectives are achieved, pro-rated based on time served at each salary level during the 2012 fiscal year.
For actual cash bonus award amounts, see the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation
table above.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | The threshold amount reflects the fact that no restricted stock awards will be payable if none of the vesting terms are achieved.
The maximum amount reflects the target restricted stock awards payable if all of the vesting terms are achieved.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | These shares of restricted stock will vestas to one-third on each of the first three anniversaries
of the date of grant or upon the occurrence of a change in control as defined in the restricted
stock agreement. If the employment of Dr. Pykett with the Company is terminated for reasons other than a change in control before
all of the restricted shares have vested, then pursuant to the terms of the restricted stock agreements all restricted shares that
have not vested at the effective date of Dr. Pykett’s termination shall immediately be forfeited by Dr. Pykett.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | These stock options vestas to one-fourth on each of the first four anniversaries of the
date of grant, and expire on the tenth anniversary of the date of grant. If the employment of the Named Executive Officer with
the Company is terminated due to a change in control or without cause before all of the stock options have vested, then pursuant
to the terms of the Stock Option Award Agreements all stock options that have not vested at the effective date of the Named Executive
Officer’s termination shall immediately vest and become exercisable.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



84







Outstanding Equity Awards



The following table presents certain information concerning
outstanding equity awards held by the Named Executive Officers as of December 31, 2012.



Outstanding Equity Awards Table at Fiscal
2012 Year-End



|                      |  | Option
    Awards                                                     |         |  | Stock
    Awards   
|--------------------- |  | --------------------------------------------------------------------- | ------- |  | -------------------
|                      |  |                                                                       |         |  |                    
|Named                 |  | Number
    of Securities 
    Underlying Unexercised 
    Options (#) |         |  | Option
    Exercise
|Executive
    Officer |  | Exercisable                                                           |         |  | Unexercisable      
|                      |  |                                                                       |         |  |                    
|Mark J. Pykett,       |  |                                                                       | 133,334 |  |                    
|V.M.D., Ph.D.         |  |                                                                       | —       |  |                    
|                      |  |                                                                       |         |  |                    
|                      |  |                                                                       |         |  |                    
|Rodger A. Brown       |  |                                                                       | 50,000  |  |                    
|                      |  |                                                                       | 40,000  |  |                    
|                      |  |                                                                       | 20,000  |  |                    
|                      |  |                                                                       | 20,000  |  |                    
|                      |  |                                                                       | 20,000  |  |                    
|                      |  |                                                                       | 25,000  |  |                    
|                      |  |                                                                       | 50,000  |  |                    
|                      |  |                                                                       | 30,000  |  |                    
|                      |  |                                                                       | —       |  |                    
|                      |  |                                                                       |         |  |                    
|Frederick O. Cope,    |  |                                                                       | 50,000  |  |                    
|Ph.D.                 |  |                                                                       | 75,000  |  |                    
|                      |  |                                                                       | 60,000  |  |                    
|                      |  |                                                                       | —       |  |                    
|                      |  |                                                                       |         |  |                    
|Brent L. Larson       |  |                                                                       | 70,000  |  |                    
|                      |  |                                                                       | 50,000  |  |                    
|                      |  |                                                                       | 50,000  |  |                    
|                      |  |                                                                       | 40,000  |  |                    
|                      |  |                                                                       | 50,000  |  |                    
|                      |  |                                                                       | 50,000  |  |                    
|                      |  |                                                                       | 25,000  |  |                    
|                      |  |                                                                       | 75,000  |  |                    
|                      |  |                                                                       | 47,500  |  |                    
|                      |  |                                                                       | —       |  |                    
|                      |  |                                                                       |         |  |                    
|Thomas H. Tulip,      |  |                                                                       | 27,500  |  |                    
|Ph.D.                 |  |                                                                       | —       |  |                    



| | (a) | Options were granted 1/7/2004 and vested as to one-third on each of the first three anniversaries of the date of grant.
| | --- | -----------------------------------------------------------------------------------------------------------------------

| | (b) | Options were granted 7/28/2004 and vested as to one-third on each of the first three anniversaries of the date of grant.
| | --- | ------------------------------------------------------------------------------------------------------------------------

| | (c) | Options were granted 12/10/2004 and vested as to one-third on each of the first three anniversaries of the date of grant.
| | --- | -------------------------------------------------------------------------------------------------------------------------

| | (d) | Options were granted 12/27/2005 and vested as to one-third immediately and on each of the first two anniversaries of the date
of grant.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------

| | (e) | Options were granted 12/15/2006 and vested as to one-third on each of the first three anniversaries of the date of grant.
| | --- | -------------------------------------------------------------------------------------------------------------------------

| | (f) | Options were granted 1/3/2008 and vested as to one-third on each of the first three anniversaries of the date of grant.
| | --- | -----------------------------------------------------------------------------------------------------------------------

| | (g) | Options were granted 1/5/2009 and vested as to one-third on each of the first three anniversaries of the date of grant.
| | --- | -----------------------------------------------------------------------------------------------------------------------

| | (h) | Options were granted 2/16/2009 and vested as to one-third on each of the first three anniversaries of the date of grant.
| | --- | ------------------------------------------------------------------------------------------------------------------------

| | (i) | Options were granted 10/30/2009 and vested as to one-third on each of the first three anniversaries of the date of grant.
| | --- | -------------------------------------------------------------------------------------------------------------------------

| | (j) | Options were granted 11/12/2010 and vest as to one-third on each of the first three anniversaries of the date of grant.
| | --- | -----------------------------------------------------------------------------------------------------------------------

| | (k) | Options were granted 12/21/2010 and vest as to one-fourth on each of the first four anniversaries of the date of grant.
| | --- | -----------------------------------------------------------------------------------------------------------------------

| | (l) | Options were granted 6/1/2011 and vest as to one-fourth on each of the first four anniversaries of the date of grant.
| | --- | ---------------------------------------------------------------------------------------------------------------------

| | (m) | Options were granted 2/17/2012 and vest as to one-fourth on each of the first four anniversaries of the date of grant.
| | --- | ----------------------------------------------------------------------------------------------------------------------



85







| | (n) | Restricted shares granted January 3, 2008. Pursuant to the terms of restricted stock agreements between the Company and each
grantee, the restricted shares will vest upon the approval of a NDA for Lymphoseek by the FDA. If the employment of a grantee with
the Company is terminated before all of the restricted shares have vested, then pursuant to the terms of the restricted stock agreements
all restricted shares that have not vested at the effective date of such grantee’s termination shall immediately be forfeited
by the grantee. Pursuant to its authority under Section 3.2 of the restricted stock agreements the CNG Committee eliminated the
forfeiture provision in Section 3.2(b) of the restricted stock agreements effective January 1, 2009, which provision effected the
forfeiture of the shares if the vesting event did not occur before June 30, 2010.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (o) | Restricted shares granted February 16, 2009. Pursuant to the terms of the restricted stock agreement between the Company and
Dr. Cope, 50% of the restricted shares will vest upon the approval of a NDA for Lymphoseek by the FDA or the approval of marketing
authorization for Lymphoseek by the EMA and 50% of the restricted shares will vest upon the commencement of patient enrollment
in a Phase 3 clinical trial in humans of RIGScan. All of the restricted shares vest upon the occurrence of a change in control
as defined in Dr. Cope’s employment agreement. If the employment of Dr. Cope with the Company is terminated for reasons other
than a change in control before all of the restricted shares have vested, then pursuant to the terms of the restricted stock agreement
all restricted shares that have not vested at the effective date of Dr. Cope’s termination shall immediately be forfeited
by Dr. Cope.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (p) | Restricted shares granted December 1, 2009. Pursuant to the terms of restricted stock agreements between the Company and each
grantee, the restricted shares will vest upon the approval of a NDA for Lymphoseek by the FDA or the approval of marketing authorization
for Lymphoseek by the EMA. All of the restricted shares vest upon the occurrence of a change in control as defined in the restricted
stock agreement. If the employment of a grantee with the Company is terminated for reasons other than a change in control before
all of the restricted shares have vested, then pursuant to the terms of the restricted stock agreements all restricted shares that
have not vested at the effective date of such grantee’s termination shall immediately be forfeited by the grantee.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (q) | Restricted shares granted November 15, 2010. Pursuant to the terms of the restricted stock agreement between the Company and
Dr. Pykett, 125,000 of the restricted shares will vest upon the approval of a NDA for Lymphoseek by the FDA or the approval of
marketing authorization for Lymphoseek by the EMA and 175,000 of the restricted shares will vest upon the approval of a NDA for
a RIGS technology product by the FDA or the approval of marketing authorization for a RIGS technology product by the EMA. All of
the restricted shares vest upon the occurrence of a change in control as defined in Dr. Pykett’s employment agreement, or
if Dr. Pykett is terminated without cause as defined in his employment agreement. If the employment of Dr. Pykett with the Company
is terminated for reasons other than a change in control or without cause before all of the restricted shares have vested, then
pursuant to the terms of the restricted stock agreement all restricted shares that have not vested at the effective date of Dr.
Pykett’s termination shall immediately be forfeited by Dr. Pykett.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (r) | Restricted shares granted April 15, 2011. Pursuant to the terms of the restricted stock agreement between the Company and Dr.
Pykett, the restricted shares will vest upon the first regulatory approval of a Lymphoseek product by either the FDA or the EMA.
All of the restricted shares vest upon the occurrence of a change in control as defined in the restricted stock agreement. If the
employment of Dr. Pykett with the Company is terminated for reasons other than a change in control before all of the restricted
shares have vested, then pursuant to the terms of the restricted stock agreements all restricted shares that have not vested at
the effective date of Dr. Pykett’s termination shall immediately be forfeited by Dr. Pykett.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (s) | Restricted shares granted June 1, 2011. Pursuant to the terms of the restricted stock agreement between the Company and Dr.
Tulip, 20,000 of the restricted shares will vest upon the partnering of Lymphoseek in Europe covering at least four countries,
20,000 will vest upon the partnering of Lymphoseek in Asia covering either Japan or at least two other countries, and 20,000 will
vest upon the achievement of annual revenue to the Company from Cardinal Health, Inc. related to Lymphoseek of over $2 million
per month for three consecutive months following the receipt of commercial marketing clearance in the U.S., if achieved before
the 24th month following such marketing clearance. Dr. Tulip’s restricted stock agreements do not include provisions
for accelerated vesting. If the employment of Dr. Tulip with the Company is terminated before all of the restricted shares have
vested, then pursuant to the terms of the restricted stock agreement all restricted shares that have not vested at the effective
date of Dr. Tulip’s termination shall immediately be forfeited by Dr. Tulip.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (t) | Restricted shares granted February 17, 2012. Pursuant to the terms of the restricted stock agreement between the Company and
Dr. Pykett, the restricted shares will vest as to one-third on each of the first three anniversaries of the date of grant. All
of the restricted shares vest upon the occurrence of a change in control as defined in the restricted stock agreement. If the employment
of Dr. Pykett with the Company is terminated for reasons other than a change in control before all of the restricted shares have
vested, then pursuant to the terms of the restricted stock agreements all restricted shares that have not vested at the effective
date of Dr. Pykett’s termination shall immediately be forfeited by Dr. Pykett.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (u) | Estimated by reference to the closing market price of the Company’s common stock on December 31, 2012, pursuant to Instruction
3 to Item 402(p)(2) of Regulation S-K. The closing price of the Company’s common stock on December 31, 2012, was $2.83.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



86







Options Exercised and Stock Vested



The following table presents, with respect to the Named Executive
Officers, certain information about option exercises and restricted stock vested during fiscal 2012.



Options Exercised and Stock Vested Table
for Fiscal 2012



|                              |  | Option Awards                          |   |  | Stock Awards                   | 
|----------------------------- |  | -------------------------------------- | - |  | ------------------------------ | 
|Named Executive Officer       |  | Number of Shares Acquired 
on Exercise |   |  | Value Realized on Exercise (a) | 
|Mark J. Pykett, V.M.D., Ph.D. |  |                                        | — |  |                                | 
|Rodger A. Brown               |  |                                        | — |  |                                | 
|Frederick O. Cope, Ph.D.      |  |                                        | — |  |                                | 
|Brent L. Larson               |  |                                        | — |  |                                | 
|Thomas H. Tulip, Ph.D.        |  |                                        | — |  |                                | 



| | (a) | Computed using the fair market value of the stock on the date prior to or the date of exercise or vesting, as appropriate,
in accordance with our normal practice.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



Compensation of Non-Employee Directors



Each non-employee director received an annual cash retainer
of $25,000 and earned an additional $2,500 per board meeting attended in person or $500 per telephonic board meeting during the
fiscal year ended December 31, 2012. The Chairman of the Company’s Board of Directors received an additional annual retainer
of $25,000, the Chairman of the Audit Committee received an additional annual retainer of $10,000, and the Chairman of the CNG
Committee received an additional annual retainer of $7,500 for their services in those capacities during 2012. Members of both
committees of the Company’s Board of Directors earned an additional $1,000 per committee meeting, whether attended in person
or telephonically. We also reimbursed non-employee directors for travel expenses for meetings attended during 2012.



Each non-employee director also received 17,000 shares of restricted
stock as a part of the Company’s annual stock incentive grants, in accordance with the provisions of the Navidea Biopharmaceuticals,
Inc. Third Amended and Restated 2002 Stock Incentive Plan. The restricted stock granted will vest on the first anniversary of the
date of grant. The aggregate number of equity awards outstanding at February 28, 2013 for each Director is set forth in the footnotes
to the beneficial ownership table provided in Part III, Item 12 of this Form 10-K. Directors who are also officers or employees
of Neoprobe do not receive any compensation for their services as directors.



87







The following table sets forth certain information concerning
the compensation of non-employee Directors for the fiscal year ended December 31, 2012.



|Name                       |  | (a) Fees Earned or Paid in Cash |        |  | (b),(c)  Option Awards |   |        | (d),(e) Stock Awards |  |   | All Other Compensation |  |  | Total Compensation |        
|-------------------------- |  | ------------------------------- | ------ |  | ---------------------- | - | ------ | -------------------- |  | - | ---------------------- |  |  | ------------------ | -------
|                           |  |                                 |        |  |                        |   |        |                      |  |   |                        |  |  |                    |        
|Peter F. Drake, Ph.D.      |  | $                               | 48,500 |  |                        | $ | —      |                      |  | $ | 46,733                 |  |  | $                  | —      
|Brendan A. Ford            |  |                                 | 52,000 |  |                        |   | —      |                      |  |   | 46,733                 |  |  |                    | —      
|Jess Emery Jones, M.D.     |  |                                 | 39,500 |  |                        |   |        |                      |  |   | 46,733                 |  |  |                    | —      
|Eric K. Rowinsky, M.D.     |  |                                 | 37,000 |  |                        |   | —      |                      |  |   | 46,733                 |  |  |                    | —      
|Eric K. Rowinsky, M.D. (f) |  |                                 | —      |  |                        |   | 21,311 |                      |  |   | —                      |  |  |                    | 105,000
|Gordon A. Troup            |  |                                 | 67,000 |  |                        |   | —      |                      |  |   | 46,733                 |  |  |                    | —      



| | (a) | Amount represents fees earned during the fiscal year ended December 31, 2012 (i.e., the year to which the service relates).
Quarterly retainers and meeting attendance fees are paid during the quarter following the quarter in which they are earned.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Amount represents the aggregate grant date fair value in accordance with FASB ASC Topic 718. Assumptions made in the valuation
of stock option awards are disclosed in Note 1(e) of the Notes to the Consolidated Financial Statements in this Form 10-K.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | At December 31, 2012, the non-employee directors held an aggregate of 93,764 options to purchase shares of common stock of
the Company. Dr. Rowinsky held 73,764 options and Mr. Troup held 20,000 options.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | Amount represents the aggregate grant date fair value in accordance with FASB ASC Topic 718. Assumptions made in the valuation
of restricted stock awards are disclosed in Note 1(e) of the Notes to the Consolidated Financial Statements in this Form 10-K.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (e) | During the year ended December 31, 2012, the non-employee directors were issued an aggregate of 85,000 shares of restricted
stock which vest as to 100% of the shares on the first anniversary of the date of grant. At December 31, 2012, the non-employee
directors held an aggregate of 260,000 shares of unvested restricted stock. Messrs. Ford and Troup and Dr. Rowinsky each held 64,000
shares of unvested restricted stock, and Drs. Drake and Jones each held 34,000 shares of unvested restricted stock.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (f) | In addition to his service as a Board member, Dr. Rowinsky provided services to the Company under a consulting agreement. During
the year ended December 31, 2012, Dr. Rowinsky earned a total of $105,000 in cash consulting fees, and was issued 13,764 options
to purchase shares of common stock of the Company.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



88







Item 12. 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, 2012, 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.



|                                                           |  | (a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights |           |  | (b) Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights |   |      | (c) Number of Securities Remaining Available for Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | 
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------- | --------- |  | ------------------------------------------------------------------------------- | - | ---- | ---------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                           |  |                                                                                                 |           |  |                                                                                 |   |      |                                                                                                                                          | 
|Equity compensation plans approved by security holders(1)  |  |                                                                                                 | 3,412,777 |  |                                                                                 | $ | 2.01 |                                                                                                                                          | 
|                                                           |  |                                                                                                 |           |  |                                                                                 |   |      |                                                                                                                                          | 
|Equity compensation plans not approved by security holders |  |                                                                                                 | —         |  |                                                                                 |   | —    |                                                                                                                                          | 
|                                                           |  |                                                                                                 |           |  |                                                                                 |   |      |                                                                                                                                          | 
|Total                                                      |  |                                                                                                 | 3,412,777 |  |                                                                                 | $ | 2.01 |                                                                                                                                          | 



| | (1) | Our stockholders ratified the Fourth Amended and Restated 2002 Stock Incentive Plan (the Plan) at the 2012 Annual Meeting of
Stockholders held on August 14, 2012, which increased the total number of shares available for grant under the Plan to 12,000,000
shares.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



89







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



The following table sets forth, as of February 28, 2013, 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% of our outstanding shares of common stock, (ii) each director or nominee for director of
our Company, (iii) each of the Named Executive Officers (see “Executive Compensation – Summary Compensation Table”),
and (iv) our directors and executive officers as a group.





|Beneficial Owner                                             |  | Number of Shares Beneficially Owned (*) |            |        | Percent of Class (**) | 
|------------------------------------------------------------ |  | --------------------------------------- | ---------- | ------ | --------------------- | 
|Rodger A. Brown                                              |  |                                         | 365,471    | (a)    |                       | 
|Frederick O. Cope, Ph.D.                                     |  |                                         | 228,811    | (b)    |                       | 
|Peter F. Drake, Ph.D.                                        |  |                                         | 27,000     | (c)    |                       | 
|Brendan A. Ford                                              |  |                                         | 72,000     | (d)    |                       | 
|Jess Emery Jones, M.D.                                       |  |                                         | 17,000     | (e)    |                       | 
|Brent L. Larson                                              |  |                                         | 777,250    | (f)    |                       | 
|Mark J. Pykett, V.M.D., Ph.D.                                |  |                                         | 270,432    | (g)    |                       | 
|Cornelia B. Reininger, M.D., Ph.D.                           |  |                                         | —          | (h)    |                       | 
|Eric K. Rowinsky, M.D.                                       |  |                                         | 165,764    | (i)    |                       | 
|Gordon A. Troup                                              |  |                                         | 97,000     | (j)    |                       | 
|Thomas H. Tulip, Ph.D.                                       |  |                                         | 96,690     | (k)    |                       | 
|All directors and executive officers as a group (12 persons) |  |                                         | 2,158,418  | (l)(o) |                       | 
|                                                             |  |                                         |            |        |                       | 
|Platinum Montaur Life Sciences, LLC                          |  |                                         | 10,728,324 | (m)    |                       | 



| | (*) | 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 February 17, 2012, plus the number of shares
the person has the right to acquire within 60 days of February 17, 2012.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | This amount includes 271,250 shares issuable upon exercise of options which are exercisable within 60 days, but it does not
include 45,000 shares of unvested restricted stock and 158,750 shares issuable upon exercise of options which are not exercisable
within 60 days. Mr. Brown was one of the Company’s three most highly compensated officers, other than the Company’s
Principal Executive Officer (PEO) and Principal Financial Officer (PFO), during the fiscal year ended December 31, 2012. However,
as a result of management additions which occurred during 2012, Mr. Brown is not an executive officer for the fiscal year ending
December 31, 2013.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | This amount includes 216,750 shares issuable upon exercise of options which are exercisable within 60 days and 7,061 shares
in Dr. Cope’s account in the 401(k) Plan, but it does not include 175,000 shares of unvested restricted stock and 300,250
shares issuable upon exercise of options which are not exercisable within 60 days.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | This amount does not include 29,250 shares of unvested restricted stock.
| | --- | ------------------------------------------------------------------------

| | (d) | This amount does not include 59,250 shares of unvested restricted stock.
| | --- | ------------------------------------------------------------------------

| | (e) | This amount does not include 29,250 shares of unvested restricted stock.
| | --- | ------------------------------------------------------------------------

| | (f) | This amount includes 479,500 shares issuable upon exercise of options which are exercisable within 60 days and 97,625 shares
in Mr. Larson’s account in the 401(k) Plan, but it does not include 125,000 shares of unvested restricted stock and 255,500
shares issuable upon exercise of options which are not exercisable within 60 days.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (g) | This amount includes 195,834 shares issuable upon exercise of options which are exercisable within 60 days, 1,100 shares held
in an IRA which is owned by Dr. Pykett, and 1,198 shares in Dr. Pykett’s account in the 401(k) Plan, but it does not include
550,000 shares of unvested restricted stock and 558,166 shares issuable upon exercise of options which are not exercisable within
60 days.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (h) | This amount does not include 208,000 shares issuable upon exercise of options which are not exercisable within 60 days. Dr.
Reininger was not a Named Executive Officer during the fiscal year ended December 31, 2012. However, Dr. Reininger is an executive
officer and the Company anticipates that Dr. Reininger will be a Named Executive Officer for 2013.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (i) | This amount includes 73,764 shares issuable upon exercise of options which are exercisable within 60 days, but it does not
include 59,250 shares of unvested restricted stock.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (j) | This amount includes 20,000 shares issuable upon exercise of options which are exercisable within 60 days, but it does not
include 59,250 shares of unvested restricted stock.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



90







| | (k) | This amount includes 68,250 shares issuable upon exercise of options which are exercisable within 60 days, but it does not
include 60,000 shares of unvested restricted stock and 378,750 shares issuable upon exercise of options which are not exercisable
within 60 days.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (l) | This amount includes 1,366,348 shares issuable upon exercise of options which are exercisable within 60 days, 1,100 shares
that are held in an IRA owned by Dr. Pykett, and 106,824 shares held in the 401(k) Plan on behalf of certain officers, but it does
not include 1,211,250 shares of unvested restricted stock and 2,022,416 shares issuable upon the exercise of options which are
not exercisable within 60 days. The Company itself is the trustee of the Navidea Biopharmaceuticals, Inc. 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 661,461 shares of common stock. The 12 persons referenced in this
disclosure include each director and named executive officer listed in the table.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (m) | Based on information filed on Schedule 13G with the Securities and Exchange Commission as of December 31, 2012. The number
of shares beneficially owned by Platinum-Montaur Life Sciences, LLC (Montaur), 152 W. 57th Street, 54th Floor, New York, NY 10019,
does not include 22,687,260 shares of common stock issuable upon conversion of 6,938 shares of Series B Convertible Preferred Stock,
8,333,333 shares of common stock issuable upon exercise of a Series X Warrant issued to Montaur on April 16, 2008 (the Series X
Warrant), and 2,400,000 shares of common stock issuable upon exercise of a Series AA Warrant issued to Montaur on July 24, 2009
(the Series AA Warrant). The Certificates of Designation of the Preferred Stock, the Series X Warrant and the Series AA Warrant
each provide that the holder of shares of the Preferred Stock, the Series X Warrant and the Series AA Warrant, respectively, may
not convert any of the preferred stock or exercise any of the warrants to the extent that such conversion or exercise would result
in the holder and its affiliates together beneficially owning more than 9.99% of the outstanding shares of common stock, except
on 61 days’ prior written notice to Navidea that the holder waives such limitation.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (n) | Less than one percent.
| | --- | ----------------------

| | (o) | The address of all directors and executive officers is c/o Navidea Biopharmaceuticals, Inc., 425 Metro Place North, Suite 450,
Dublin, Ohio 43017-1367.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------



Item 13. Certain Relationships and Related Transactions,
and Director Independence



Certain Relationships and Related
Transactions



We adhere to our Code of Business Conduct
and Ethics, which states that no director, officer or employee of Navidea should have any personal interest that is incompatible
with the loyalty and responsibility owed to our Company. We do not currently have a written policy regarding related party transactions.
When considering whether to enter into a related party transaction, the Board considers a variety of factors including, but not
limited to, the nature and type of the proposed transaction, the potential value of the proposed transaction, the impact on the
actual or perceived independence of the related party and the potential value to the Company of entering into such a transaction.
All proposed transactions with a potential value of greater than $120,000 are approved by the Board.



In August
2010, we entered into a Consulting Agreement with Eric K. Rowinsky, M.D. for services related to the development and regulatory
strategies regarding Lymphoseek and RIGS, as well as business development assessments and transactions. Dr. Rowinsky’s Consulting
Agreement was renewed in August 2011, and renewed again in August 2012. During 2012, we paid Dr. Rowinsky a total of $105,000 in
cash consulting fees, and issued 13,764 options to purchase shares of common stock of the Company. In September 2012, 30,000 shares
of restricted stock that were originally issued related to the August 2011 consulting agreement renewal vested as a result of the
Company’s commencement of the Phase 2 clinical study of its NAV4694 product candidate.



Director Independence



Our Board of Directors has adopted the definition
of “independence” as described under the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) Section 301, Rule 10A-3 under
the Securities Exchange Act of 1934 (the Exchange Act) and Section 803A of the NYSE MKT Company Guide. Our Board of Directors has
determined that Messrs. Ford and Troup, and Drs. Drake and Jones, meet the independence requirements.



91







Item 14. Principal Accountant Fees and
Services



Audit Fees. The aggregate fees billed and expected
to be billed for professional services rendered by BDO USA, LLP for the audit of the Company’s annual consolidated financial
statements for the 2012 fiscal year, the audit of the Company’s internal control over financial reporting as of December
31, 2012, the reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-Q for the 2012 fiscal
year, consents related to the Company’s registration statements filed during the 2012 fiscal year, and consulting services
related to certain debt and equity instruments during the 2012 fiscal year were $264,790 (including direct engagement expenses).
The aggregate fees billed and expected to be billed for professional services rendered by BDO USA, LLP for the audit of the Company’s
annual consolidated financial statements for the 2011 fiscal year, the audit of the Company’s internal control over financial
reporting as of December 31, 2011, the reviews of the financial statements included in the Company’s Quarterly Reports on
Form 10-Q for the 2011 fiscal year, consents related to the Company’s registration statements filed during the 2011 fiscal
year, and consulting services related to the Company’s sale of the GDS Business during the 2011 fiscal year were $256,617
(including direct engagement expenses).



Audit-Related Fees. No fees were billed by BDO
USA, LLP for audit-related services for the 2012 or 2011 fiscal years.



Tax Fees. The aggregate fees billed and expected
to be billed for tax-related services rendered by BDO USA, LLP for the IRC Section 382 study and the review of the Company’s
tax returns for the 2011 tax year during the 2012 fiscal year were $24,800 (including direct engagement expenses). The aggregate
fees billed and expected to be billed for tax-related services rendered by BDO USA, LLP for the IRC Section 382 study and the review
of the Company’s tax returns for the 2010 tax year during the 2011 fiscal year were $29,285 (including direct engagement
expenses).



All Other Fees. No fees were billed by BDO USA,
LLP for services other than the audit, audit-related and tax services for the 2012 or 2011 fiscal years.



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 permitted 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. The Audit Committee, through the function of the Chairman, has given general
pre-approval for 100% of specified audit, audit-related, tax and other services.



92







PART IV



Item 15. Exhibits, Financial Statement
Schedules



|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |  | Exhibit
    Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|3.1     |  | Amended and Restated Certificate of Incorporation of Navidea Biopharmaceuticals, Inc., as corrected February 18, 1994, and amended June 27, 1994, July 25, 1995, June 3, 1996, March 17, 1999, May 9, 2000, June 13, 2003, July 29, 2004, June 22, 2005, November 20, 2006, December 26, 2007, April 30, 2009, July 27, 2009, August 2, 2010, and January 5, 2012)(incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K filed March 7, 2012, and incorporated herein by reference).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|3.2     |  | Certificate of Ownership Merging Neoprobe Name Change, Inc. into Neoprobe Corporation, effective January 5, 2012, as filed with the Delaware Secretary of State (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed December 21, 2011, and incorporated herein by reference).                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|3.3     |  | Amended and Restated By-Laws dated July 21, 1993, as amended July 18, 1995, May 30, 1996 and July 26, 2007 (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K filed August 3, 2007, and incorporated herein by reference).                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.1     |  | Certificate of Designations, Voting Powers, Preferences, Limitations, Restrictions, and Relative Rights of Series B Cumulative Convertible Preferred Stock (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed June 28, 2010).                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.2     |  | Certificate of Designations, Voting Powers, Preferences, Limitations, Restrictions, and Relative Rights of Series C 10% Cumulative Convertible Preferred Stock (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed June 28, 2010).                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.1    |  | Navidea Biopharmaceuticals, Inc. Fourth Amended and Restated 2002 Stock Incentive Plan (incorporated by reference to Appendix A to the Definitive Proxy Statement for the Company’s 2012 Annual Meeting of Stockholders, filed July 10, 2012).                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.2    |  | Form of Stock Option Agreement under the Navidea Biopharmaceuticals, Inc. Fourth Amended and Restated 2002 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 21, 2006).                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.3    |  | Form of Restricted Stock Award and Agreement under the Fourth Amended and Restated 2002 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed January 9, 2008).                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.4    |  | Form of Employment Agreement between the Company and each of Dr. Frederick O. Cope and Mr. Brent L. Larson. This agreement is one of two substantially identical employment agreements and is accompanied by a schedule which identifies material details in which each individual agreement differs from the form filed herewith (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 7, 2013).                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.5    |  | Schedule identifying material differences between the employment agreements incorporated by reference as Exhibit 10.4 to this Annual Report on Form 10-K (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed January 7, 2013).                                                                                                                                                                                                                                            











|10.6  |  | Employment Agreement, effective April 15, 2011, by and between the Company and Mark J. Pykett (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed April 1, 2011).                                                                                                                                              
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  |                                                                                                                                                                                                                                                                                                                                                         
|10.7  |  | Relocation Agreement, dated March 30, 2011, by and between the Company and Mark J. Pykett (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed April 1, 2011).                                                                                                                                                  
|      |  |                                                                                                                                                                                                                                                                                                                                                         
|10.8  |  | Employment Agreement, dated June 1 2012, between the Company and Thomas H. Tulip, Ph.D (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 7, 2012).                                                                                                                                                      
|      |  |                                                                                                                                                                                                                                                                                                                                                         
|10.9  |  | Employment Agreement, effective November 1, 2012, between the Company and Cornelia Reininger, M.D. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 6, 2012).                                                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                                                                         
|10.10 |  | Separation Agreement and Release, dated March 30, 2011, between the Company and David C. Bupp (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 1, 2011).                                                                                                                                              
|      |  |                                                                                                                                                                                                                                                                                                                                                         
|10.11 |  | Consulting Agreement, dated March 30, 2011, between the Company and David C. Bupp (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed April 1, 2011).                                                                                                                                                          
|      |  |                                                                                                                                                                                                                                                                                                                                                         
|10.12 |  | Consulting Services Agreement, dated August 3, 2011, between the Company and Eric K. Rowinsky, M.D. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 4, 2011).                                                                                                                                       
|      |  |                                                                                                                                                                                                                                                                                                                                                         
|10.13 |  | Consulting Services Agreement, dated August 27, 2012, between the Company and Eric K. Rowinsky, M.D. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 30, 2012).                                                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                                                                         
|10.14 |  | Navidea Biopharmaceuticals, Inc. 2012 Cash Bonus Plan (incorporated by reference to the Company’s Current Report on Form 8-K filed April 13, 2012).                                                                                                                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                                                                         
|10.15 |  | Navidea Biopharmaceuticals, Inc. 2013 Cash Bonus Plan (incorporated by reference to the Company’s Current Report on Form 8-K filed February 27, 2013).                                                                                                                                                                                                  
|      |  |                                                                                                                                                                                                                                                                                                                                                         
|10.16 |  | 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).
|      |  |                                                                                                                                                                                                                                                                                                                                                         
|10.17 |  | 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).                                                                                                                                                   
|      |  |                                                                                                                                                                                                                                                                                                                                                         
|10.18 |  | 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).                                                                                                                                                                                
|      |  |                                                                                                                                                                                                                                                                                                                                                         
|10.19 |  | 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).                     











|10.20 |  | License Agreement, dated January 30, 2002, between the Company and the Regents of the University of California, San Diego, as amended on May 27, 2003 and February 1, 2006 (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 10.11 to the Company’s Annual Report on Form 10-KSB filed March 31, 2006).                            
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.21 |  | Evaluation License Agreement, dated March 31, 2005, between the Company and the Regents of the University of California, San Diego (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 10.12 to the Company’s Annual Report on Form 10-KSB filed March 31, 2006).                                                                    
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.22 |  | 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) (incorporated by reference to Exhibit 10.17 to the Company’s December 31, 2004 Form 10-KSB).                                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.23 |  | Supply and Distribution Agreement, dated November 15, 2007, between the Company and Cardinal Health 414, LLC (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 10.1 to the Company’s Current Report on Form 8-K filed November 21, 2007).                                                                                          
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.24 |  | Manufacture and Supply Agreement, dated November 30, 2009, between the Company and Reliable Biopharmaceutical 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 10.1 to the Company’s June 30, 2010 Form 10-Q).                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.25 |  | Sublicense Agreement, dated July 31, 2012, between Alseres Pharmaceuticals, Inc. and the Company (portions of this Exhibit have been omitted pursuant to a request for confidential treatment and have been filed separately with the United States Securities and Exchange Commission)(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 6, 2012).                                                                    
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.26 |  | Registration Rights Agreement, dated July 31, 2012, between the Company and Alseres Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed August 6, 2012).                                                                                                                                                                                                                                                 
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.27 |  | Securities Purchase Agreement, dated as of December 26, 2007, between the Company and Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 2, 2008).                                                                                                                                                                                                                                
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.28 |  | Amendment and Waiver for Securities Purchase Agreement, dated April 16, 2008, between the Company and Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 18, 2008).                                                                                                                                                                                                                 
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.29 |  | Agreement Modifying the Interest and Dividend Payment Dates of the Company’s Series A and B Promissory Notes and Series A Preferred Stock, and Exercise and Conversion Price Adjustment Provisions of the Company’s Series X and Y Warrants and Series A Preferred Stock, dated March 31, 2009, between the Company and Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 6, 2009).











|10.30 |  | Securities Amendment and Exchange Agreement, dated July 24, 2009, between the Company and Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 29, 2009).                                                                                       
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  |                                                                                                                                                                                                                                                                                                                                  
|10.31 |  | Amended and Restated Series X Warrant to Purchase Shares of Common Stock of the Company issued to Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed July 29, 2009).                                                                               
|      |  |                                                                                                                                                                                                                                                                                                                                  
|10.32 |  | Amendment to Series X Warrant, dated December 13, 2012, between the Company and Platinum Montaur Life Sciences, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 19, 2012).                                                                                             
|      |  |                                                                                                                                                                                                                                                                                                                                  
|10.33 |  | Wavier of Automatic Conversion of Series B Convertible Preferred Stock, dated December 13, 2012, by and among the Company, Platinum Montaur Life Sciences, LLC, and Platinum Partners Value Arbitrage Fund, L.P. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed December 19, 2012).
|      |  |                                                                                                                                                                                                                                                                                                                                  
|10.34 |  | Series AA Warrant to Purchase Shares of Common Stock of the Company issued to Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed July 29, 2009).                                                                                                   
|      |  |                                                                                                                                                                                                                                                                                                                                  
|10.35 |  | Registration Rights Agreement, dated December 26, 2007, between the Company and Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed January 2, 2008).                                                                                               
|      |  |                                                                                                                                                                                                                                                                                                                                  
|10.36 |  | Second Amendment to Registration Rights Agreement, dated April 16, 2008, between the Company and Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed April 18, 2008).                                                                               
|      |  |                                                                                                                                                                                                                                                                                                                                  
|10.37 |  | Third Amendment to Registration Rights Agreement, dated July 10, 2008, between the Company and Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit 10.55 to pre-effective amendment No. 2 to the Company’s Registration Statement on Form S-1, filed July 24, 2008, Registration file No. 333-150650).     
|      |  |                                                                                                                                                                                                                                                                                                                                  
|10.38 |  | Fourth Amendment to Registration Rights Agreement, dated December 5, 2008, between the Company and Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 9, 2008).                                                                           
|      |  |                                                                                                                                                                                                                                                                                                                                  
|10.39 |  | Fifth Amendment to Registration Rights Agreement, dated December 21, 2009, between the Company and Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 22, 2009).                                                                          
|      |  |                                                                                                                                                                                                                                                                                                                                  
|10.40 |  | Securities Exchange Agreement, dated June 22, 2010, by and between the Company and Platinum-Montaur Life Sciences, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 28, 2010).                                                                                              
|      |  |                                                                                                                                                                                                                                                                                                                                  
|10.41 |  | Settlement Agreement, dated April 18, 2011, by and among Platinum-Montaur Life Sciences, LLC, Platinum Partners Value Arbitrage Fund, L.P. and the Company (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 18, 2011).                                                         
|      |  |                                                                                                                                                                                                                                                                                                                                  
|10.42 |  | Loan Agreement, dated July 25, 2012, between the Company and Platinum-Montaur Life Sciences LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 31, 2012).                                                                                                                     











|10.43   |  | Promissory Note, dated July 25, 2012, made by Navidea Biopharmaceuticals, Inc. in favor of Platinum-Montaur Life Sciences LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed July 31, 2012).                                                                                                                                              
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |  |                                                                                                                                                                                                                                                                                                                                                                                         
|10.44   |  | Securities Exchange Agreement, dated November 27, 2012, between the Company and Platinum Partners Value Arbitrage Fund, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 3, 2012).                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                                         
|10.45   |  | Securities Purchase Agreement, dated November 7, 2010, by and among the Company and each purchaser identified on the signature pages thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 12, 2010).                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                         
|10.46   |  | Form of Series EE Common Stock Purchase Warrant (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed November 12, 2010).                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                         
|10.47   |  | Underwriting Agreement, dated January 29, 2013, between the Company and Ladenburg Thalmann & Co. Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 31, 2013).                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                         
|10.48   |  | Asset Purchase Agreement, dated May 24, 2011, between Devicor Medical Products, Inc. and the Company (portions of this Exhibit have been omitted pursuant to a request for confidential treatment and have been filed separately with the SEC) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A filed July 19, 2011).                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                         
|10.49   |  | License Agreement, dated December 9, 2011, between AstraZeneca AB and the Company (portions of this Exhibit have been omitted pursuant to a request for confidential treatment and have been filed separately with the United States Securities and Exchange Commission) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A filed April 11, 2012).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                         
|10.50   |  | Loan and Security Agreement, dated December 29, 2011, between the Company and Hercules Technology II, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 5, 2012).                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                         
|10.51   |  | Series GG Warrant to Purchase Common Stock of the Company issued to Hercules Technology II, L.P. on December 29, 2011 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed January 5, 2012).                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                         
|21.1    |  | Subsidiaries of the registrant.*                                                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                         
|23.1    |  | Consent of BDO USA, LLP.*                                                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                         
|24.1    |  | Power of Attorney.*                                                                                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                         
|31.1    |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                         
|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.*                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                         
|101.INS |  | XBRL Instance Document**                                                                                                                                                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                         
|101.SCH |  | XBRL Taxonomy Extension Schema Document**                                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                         
|101.CAL |  | XBRL Taxonomy Extension Calculation Linkbase Document**                                                                                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                         
|101.DEF |  | XBRL Taxonomy Extension Definition Linkbase Document**                                                                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                         
|101.LAB |  | XBRL Taxonomy Extension Label Linkbase Document**                                                                                                                                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                         
|101.PRE |  | XBRL Taxonomy Extension Presentation Linkbase Document**                                                                                                                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                         

| | *  | Filed herewith.                                                                                                                                                                                            
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ** | IN ACCORDANCE WITH THE TEMPORARY HARDSHIP EXEMPTION PROVIDED
BY RULE 201 OF REGULATION S-T, THE DATE BY WHICH THE INTERACTIVE DATA FILE IS REQUIRED TO BE SUBMITTED HAS BEEN EXTENDED BY SIX
BUSINESS DAYS.













SIGNATURES



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



|Dated: March 18, 2013 |                                 
|--------------------- | --------------------------------
|                      | NAVIDEA BIOPHARMACEUTICALS, INC.
|                      | (the Company)                   
|                      |                                 
|                      | By:                             
|                      |                                 
|                      |                                 



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



|Signature             |  | Title                                                                                           |  | Date          
|--------------------- |  | ----------------------------------------------------------------------------------------------- |  | --------------
|                      |  |                                                                                                 |  |               
|/s/ Mark J. Pykett    |  | Director, President and
        Chief Executive Officer
        (principal executive officer)   |  | March 18, 2013
|Mark J. Pykett        |  |                                                                                                
|                      |  |                                                                                                 |  |               
|/s/ Brent L. Larson*  |  | Senior Vice President and
        Chief Financial Officer
        (principal financial officer) |  | March 18, 2013
|Brent L. Larson       |  |                                                                                                
|                      |  |                                                                                                 |  |               
|/s/ Gordon A. Troup*  |  | Chairman, Director                                                                              |  | March 18, 2013
|Gordon A. Troup       |  |                                                                                                 |  |               
|                      |  |                                                                                                 |  |               
|/s/ Peter F. Drake*   |  | Director                                                                                        |  | March 18, 2013
|Peter F. Drake        |  |                                                                                                 |  |               
|                      |  |                                                                                                 |  |               
|/s/ Brendan A. Ford*  |  | Director                                                                                        |  | March 18, 2013
|Brendan A. Ford       |  |                                                                                                 |  |               
|                      |  |                                                                                                 |  |               
|/s/ Jess Emery Jones* |  | Director                                                                                        |  | March 18, 2013
|Jess Emery Jones      |  |                                                                                                 |  |               
|                      |  |                                                                                                 |  |               
|/s/ Eric K. Rowinsky* |  | Director                                                                                        |  | March 18, 2013
|Eric K. Rowinsky      |  |                                                                                                 |  |               



|*By: | /s/ Mark J. Pykett               | 
|---- | -------------------------------- | 
|     | Mark J. Pykett, Attorney-in-fact | 






















SECURITIES AND EXCHANGE COMMISSION



Washington, DC 20549

________________________



NAVIDEA BIOPHARMACEUTICALS, INC.

________________________



FORM 10-K ANNUAL REPORT



As of December 31, 2012 and 2011

and for Each of the

Three Years in the Period Ended

December 31, 2012



____________________________



FINANCIAL STATEMENTS



____________________________


















NAVIDEA BIOPHARMACEUTICALS, INC. and
SUBSIDIARIES



Index to Financial Statements





|Consolidated Financial Statements of Navidea Biopharmaceuticals,
Inc.         |    
|----------------------------------------------------------------------------- | ---
|                                                                              |    
|Report of Independent Registered Public Accounting Firm                       |    
|BDO USA, LLP                                                                  | F-2
|                                                                              |    
|Consolidated Balance Sheets as of                                             |    
|December 31, 2012 and  2011                                                   | F-3
|                                                                              |    
|Consolidated Statements of Operations for the years ended                     |    
|December 31, 2012, 2011 and 2010                                              | F-5
|                                                                              |    
|Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended |    
|December 31, 2012, 2011 and 2010                                              | F-6
|                                                                              |    
|Consolidated Statements of Cash Flows for the years ended                     |    
|December 31, 2012, 2011 and 2010                                              | F-7
|                                                                              |    
|Notes to the Consolidated Financial Statements                                | F-8



F-1







Report of Independent Registered Public Accounting Firm



Board of Directors

Navidea Biopharmaceuticals, Inc.

Dublin, Ohio



We have audited the accompanying consolidated balance sheets
of Navidea Biopharmaceuticals, Inc. as of December 31, 2012 and 2011 and the related consolidated statements of operations,
stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2012.  These
financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements based on our audits.



We conducted our audits in accordance with 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, assessing the accounting principles
used and the 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 Navidea Biopharmaceuticals, Inc. at December 31, 2012
and 2011, and the results of its operations and cash flows for each of the three years in the period ended December 31, 2012, in
conformity with accounting principles generally accepted in the United States of America.



We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), Navidea Biopharmaceuticals, Inc.’s internal control over financial
reporting as of December 31, 2012, based on criteria established inInternal Control−Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 18, 2013 expressed an unqualified
opinion thereon.



/s/ BDO USA, LLP



Chicago, Illinois

March 18, 2013



F-2







Navidea Biopharmaceuticals, Inc. and Subsidiaries

Consolidated Balance Sheets



|ASSETS                                         |  | December 31, 2012 |            |  | December 31, 2011 |  
|---------------------------------------------- |  | ----------------- | ---------- |  | ----------------- | -
|                                               |  |                   |            |  |                   |  
|Current assets:                                |  |                   |            |  |                   |  
|Cash                                           |  | $                 | 9,118,564  |  |                   | $
|Accounts receivable                            |  |                   | 17,605     |  |                   |  
|Inventory                                      |  |                   | 297,500    |  |                   |  
|Prepaid expenses and other                     |  |                   | 1,183,714  |  |                   |  
|                                               |  |                   |            |  |                   |  
|Total current assets                           |  |                   | 10,617,383 |  |                   |  
|                                               |  |                   |            |  |                   |  
|Property and equipment                         |  |                   | 2,026,895  |  |                   |  
|Less accumulated depreciation and amortization |  |                   | 1,092,317  |  |                   |  
|                                               |  |                   |            |  |                   |  
|                                               |  |                   | 934,578    |  |                   |  
|                                               |  |                   |            |  |                   |  
|Patents and trademarks                         |  |                   | 115,053    |  |                   |  
|Less accumulated amortization                  |  |                   | 22,571     |  |                   |  
|                                               |  |                   |            |  |                   |  
|                                               |  |                   | 92,482     |  |                   |  
|                                               |  |                   |            |  |                   |  
|Deferred debt issuance costs and other         |  |                   | 327,954    |  |                   |  
|                                               |  |                   |            |  |                   |  
|Total assets                                   |  | $                 | 11,972,397 |  |                   | $



Continued



F-3







Navidea Biopharmaceuticals, Inc. and Subsidiaries

Consolidated Balance Sheets, continued



|LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY                                                                                                                                                      |  | December 31, 2012 |              |   | December 31, 2011 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------------ | - | ----------------- | -
|                                                                                                                                                                                                    |  |                   |              |   |                   |  
|Current liabilities:                                                                                                                                                                                |  |                   |              |   |                   |  
|Accounts payable                                                                                                                                                                                    |  | $                 | 1,417,463    |   |                   | $
|Accrued liabilities and other                                                                                                                                                                       |  |                   | 2,016,358    |   |                   |  
|Notes payable, current, net of discount of $202,287                                                                                                                                                 |  |                   | 2,756,718    |   |                   |  
|Derivative liabilities                                                                                                                                                                              |  |                   | —            |   |                   |  
|                                                                                                                                                                                                    |  |                   |              |   |                   |  
|Total current liabilities                                                                                                                                                                           |  |                   | 6,190,539    |   |                   |  
|                                                                                                                                                                                                    |  |                   |              |   |                   |  
|Notes payable, net of discounts of $93,038 and $543,612, respectively                                                                                                                               |  |                   | 6,930,112    |   |                   |  
|Other liabilities                                                                                                                                                                                   |  |                   | 257,122      |   |                   |  
|                                                                                                                                                                                                    |  |                   |              |   |                   |  
|Total liabilities                                                                                                                                                                                   |  |                   | 13,377,773   |   |                   |  
|                                                                                                                                                                                                    |  |                   |              |   |                   |  
|Commitments and contingencies                                                                                                                                                                       |  |                   |              |   |                   |  
|                                                                                                                                                                                                    |  |                   |              |   |                   |  
|Stockholders’ (deficit) equity:                                                                                                                                                                     |  |                   |              |   |                   |  
|Preferred stock; $.001 par value; 5,000,000 shares authorized; 6,938 and 9,083 Series B shares, and 0 and 1,000 Series C shares, issued and outstanding at December 31, 2012 and 2011, respectively |  |                   | 7            |   |                   |  
|Common stock; $.001 par value; 200,000,000 shares authorized; 113,018,772 and 95,398,961 shares issued and outstanding at December 31, 2012 and 2011, respectively                                  |  |                   | 113,019      |   |                   |  
|Additional paid-in capital                                                                                                                                                                          |  |                   | 273,039,442  |   |                   |  
|Accumulated deficit                                                                                                                                                                                 |  |                   | (274,557,844 | ) |                   |  
|                                                                                                                                                                                                    |  |                   |              |   |                   |  
|Total stockholders’ (deficit) equity                                                                                                                                                                |  |                   | (1,405,376   | ) |                   |  
|                                                                                                                                                                                                    |  |                   |              |   |                   |  
|Total liabilities and stockholders’ (deficit) equity                                                                                                                                                |  | $                 | 11,972,397   |   |                   | $





See accompanying notes to consolidated financial
statements.

F-4







Navidea Biopharmaceuticals, Inc. and Subsidiaries

Consolidated Statements of Operations



|                                                      |  | Years Ended December 31, |            
|----------------------------------------------------- |  | ------------------------ | -----------
|                                                      |  | 2012                     |            
|                                                      |  |                          |            
|Revenue                                               |  | $                        | 78,738     
|                                                      |  |                          |            
|Operating expenses:                                   |  |                          |            
|Research and development                              |  |                          | 16,890,482 
|Selling, general and administrative                   |  |                          | 11,177,559 
|Total operating expenses                              |  |                          | 28,068,041 
|                                                      |  |                          |            
|Loss from operations                                  |  |                          | (27,989,303
|                                                      |  |                          |            
|Other income (expense):                               |  |                          |            
|Interest income                                       |  |                          | 25,044     
|Interest expense                                      |  |                          | (1,166,332 
|Change in derivative liabilities                      |  |                          | 32,110     
|Loss on extinguishment of debt                        |  |                          | —          
|Other                                                 |  |                          | (58,723    
|Total other expense, net                              |  |                          | (1,167,901 
|                                                      |  |                          |            
|Loss before income taxes                              |  |                          | (29,157,204
|                                                      |  |                          |            
|Benefit from income taxes                             |  |                          | —          
|                                                      |  |                          |            
|Loss from continuing operations                       |  |                          | (29,157,204
|                                                      |  |                          |            
|Discontinued operations, net of tax effect:           |  |                          |            
|Gain on sale – GDS Business                           |  |                          | —          
|Income from operations                                |  |                          | —          
|                                                      |  |                          |            
|Net (loss) income                                     |  |                          | (29,157,204
|                                                      |  |                          |            
|Preferred stock dividends                             |  |                          | (43,333    
|                                                      |  |                          |            
|Net (loss) income attributable to common stockholders |  | $                        | (29,200,537
|                                                      |  |                          |            
|(Loss) income per common share (basic and diluted):   |  |                          |            
|Continuing operations                                 |  | $                        | (0.29      
|Discontinued operations                               |  | $                        | —          
|Attributable to common stockholders                   |  | $                        | (0.29      
|                                                      |  |                          |            
|Weighted average shares outstanding:                  |  |                          |            
|Basic and diluted                                     |  |                          | 99,059,997 



See accompanying notes to consolidated financial
statements.



F-5







Navidea Biopharmaceuticals, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity (Deficit)



|                                                                                                     |  | Preferred Stock |        |   | Common Stock |   |    | Additional Paid-In |  |  | Accumulated |   |  |         |        
|---------------------------------------------------------------------------------------------------- |  | --------------- | ------ | - | ------------ | - | -- | ------------------ |  |  | ----------- | - |  | ------- | -------
|                                                                                                     |  | Shares          |        |   | Amount       |   |    | Shares             |  |  | Amount      |   |  | Capital |        
|                                                                                                     |  |                 |        |   |              |   |    |                    |  |  |             |   |  |         |        
|Balance, December 31, 2009                                                                           |  |                 | —      |   |              | $ | —  |                    |  |  | 80,936,711  |   |  | $       | 80,937 
|                                                                                                     |  |                 |        |   |              |   |    |                    |  |  |             |   |  |         |        
|Issued stock in payment of interest on convertible debt and dividends on convertible preferred stock |  |                 | —      |   |              |   | —  |                    |  |  | 347,832     |   |  |         | 348    
|Issued stock upon exercise of stock options, net                                                     |  |                 | —      |   |              |   | —  |                    |  |  | 350,156     |   |  |         | 350    
|Issued stock in connection with stock purchase agreement, net of costs                               |  |                 | —      |   |              |   | —  |                    |  |  | 660,541     |   |  |         | 661    
|Issued stock to 401(k) plan                                                                          |  |                 | —      |   |              |   | —  |                    |  |  | 53,499      |   |  |         | 53     
|Issued Series B and Series C convertible preferred stock, net of costs                               |  |                 | 11,000 |   |              |   | 11 |                    |  |  | —           |   |  |         | —      
|Cancelled restricted stock                                                                           |  |                 | —      |   |              |   | —  |                    |  |  | (4,500      | ) |  |         | (5     
|Issued restricted stock                                                                              |  |                 | —      |   |              |   | —  |                    |  |  | 660,000     |   |  |         | 660    
|Issued warrants in connection with consulting agreement                                              |  |                 | —      |   |              |   | —  |                    |  |  | —           |   |  |         | —      
|Issued stock upon exercise of warrants and other                                                     |  |                 | —      |   |              |   | —  |                    |  |  | 157,778     |   |  |         | 158    
|Issued common stock and warrants in connection with direct offering, net of costs                    |  |                 | —      |   |              |   | —  |                    |  |  | 3,157,896   |   |  |         | 3,158  
|Effect of change in terms of warrants                                                                |  |                 | —      |   |              |   | —  |                    |  |  | —           |   |  |         | —      
|Stock compensation expense                                                                           |  |                 | —      |   |              |   | —  |                    |  |  | —           |   |  |         | —      
|Preferred stock dividends, including deemed dividends                                                |  |                 | —      |   |              |   | —  |                    |  |  | —           |   |  |         | —      
|Net loss                                                                                             |  |                 | —      |   |              |   | —  |                    |  |  | —           |   |  |         | —      
|                                                                                                     |  |                 |        |   |              |   |    |                    |  |  |             |   |  |         |        
|Balance, December 31, 2010                                                                           |  |                 | 11,000 |   |              |   | 11 |                    |  |  | 86,319,913  |   |  |         | 86,320 
|                                                                                                     |  |                 |        |   |              |   |    |                    |  |  |             |   |  |         |        
|Issued restricted stock                                                                              |  |                 | —      |   |              |   | —  |                    |  |  | 872,000     |   |  |         | 872    
|Cancelled restricted stock                                                                           |  |                 | —      |   |              |   | —  |                    |  |  | (686,000    | ) |  |         | (686   
|Issued stock to 401(k) plan                                                                          |  |                 | —      |   |              |   | —  |                    |  |  | 35,233      |   |  |         | 35     
|Issued stock upon exercise of warrants, net                                                          |  |                 | —      |   |              |   | —  |                    |  |  | 4,026,552   |   |  |         | 4,027  
|Issued stock upon exercise of stock options, net                                                     |  |                 | —      |   |              |   | —  |                    |  |  | 1,832,673   |   |  |         | 1,832  
|Effect of change in terms of warrants                                                                |  |                 | —      |   |              |   | —  |                    |  |  | —           |   |  |         | —      
|Conversion of Series B preferred stock to common stock                                               |  |                 | (917   | ) |              |   | (1 | )                  |  |  | 2,998,590   |   |  |         | 2,999  
|Effect of beneficial conversion feature of promissory note                                           |  |                 | —      |   |              |   | —  |                    |  |  | —           |   |  |         | —      
|Stock compensation expense                                                                           |  |                 | —      |   |              |   | —  |                    |  |  | —           |   |  |         | —      
|Preferred stock dividends                                                                            |  |                 | —      |   |              |   | —  |                    |  |  | —           |   |  |         | —      
|Net income                                                                                           |  |                 | —      |   |              |   | —  |                    |  |  | —           |   |  |         | —      
|                                                                                                     |  |                 |        |   |              |   |    |                    |  |  |             |   |  |         |        
|Balance, December 31, 2011                                                                           |  |                 | 10,083 |   |              |   | 10 |                    |  |  | 95,398,961  |   |  |         | 95,399 
|                                                                                                     |  |                 |        |   |              |   |    |                    |  |  |             |   |  |         |        
|Issued restricted stock                                                                              |  |                 | —      |   |              |   | —  |                    |  |  | 455,000     |   |  |         | 455    
|Cancelled restricted stock                                                                           |  |                 | —      |   |              |   | —  |                    |  |  | (600,500    | ) |  |         | (601   
|Issued stock upon exercise of stock options, net                                                     |  |                 | —      |   |              |   | —  |                    |  |  | 1,225,271   |   |  |         | 1,226  
|Cancelled stock upon repurchase from executives                                                      |  |                 | —      |   |              |   | —  |                    |  |  | (37,500     | ) |  |         | (37    
|Issued stock to 401(k) plan                                                                          |  |                 | —      |   |              |   | —  |                    |  |  | 17,390      |   |  |         | 17     
|Issued stock upon exercise of warrants, net                                                          |  |                 | —      |   |              |   | —  |                    |  |  | 6,020,000   |   |  |         | 6,020  
|Conversion of Series B preferred stock to common stock, net                                          |  |                 | (2,145 | ) |              |   | (2 | )                  |  |  | 7,014,150   |   |  |         | 7,014  
|Conversion of Series C preferred stock to common stock                                               |  |                 | (1,000 | ) |              |   | (1 | )                  |  |  | 3,226,000   |   |  |         | 3,226  
|Issued stock for payment of sublicense fee                                                           |  |                 | —      |   |              |   | —  |                    |  |  | 300,000     |   |  |         | 300    
|Effect of change in terms of warrants                                                                |  |                 | —      |   |              |   | —  |                    |  |  | —           |   |  |         | —      
|Short-swing profit returned to the Company                                                           |  |                 | —      |   |              |   | —  |                    |  |  | —           |   |  |         | —      
|Stock compensation expense                                                                           |  |                 | —      |   |              |   | —  |                    |  |  | —           |   |  |         | —      
|Preferred stock dividends                                                                            |  |                 | —      |   |              |   | —  |                    |  |  | —           |   |  |         | —      
|Net loss                                                                                             |  |                 | —      |   |              |   | —  |                    |  |  | —           |   |  |         | —      
|                                                                                                     |  |                 |        |   |              |   |    |                    |  |  |             |   |  |         |        
|Balance, December 31, 2012                                                                           |  |                 | 6,938  |   |              | $ | 7  |                    |  |  | 113,018,772 |   |  | $       | 113,019



See accompanying notes to consolidated financial
statements.

F-6







Navidea Biopharmaceuticals, Inc. and Subsidiaries

Consolidated Statements of Cash Flows



|                                                                                     |  | Years Ended December 31, |            
|------------------------------------------------------------------------------------ |  | ------------------------ | -----------
|                                                                                     |  | 2012                     |            
|Cash flows from operating activities:                                                |  |                          |            
|Net (loss) income                                                                    |  | $                        | (29,157,204
|Adjustments to reconcile net (loss) income to net cash used in operating activities: |  |                          |            
|Depreciation and amortization of equipment                                           |  |                          | 198,822    
|Amortization of intangible assets                                                    |  |                          | 1,400      
|Loss on disposal and abandonment of assets                                           |  |                          | 2,534      
|Amortization of debt discount and debt offering costs                                |  |                          | 544,517    
|Issuance of common stock in payment of interest and dividends                        |  |                          | —          
|Stock compensation expense                                                           |  |                          | 2,304,118  
|Change in derivative liabilities                                                     |  |                          | (32,110    
|Loss on extinguishment of debt                                                       |  |                          | —          
|Issuance of warrants in connection with consulting agreement                         |  |                          | —          
|Gain on sale of GDS Business, before income tax                                      |  |                          | —          
|Issuance of common stock for payment of sublicense fee                               |  |                          | 1,146,000  
|Other                                                                                |  |                          | 61,928     
|Change in operating assets and liabilities:                                          |  |                          |            
|Accounts receivable                                                                  |  |                          | 6,499      
|Inventory                                                                            |  |                          | 524,049    
|Prepaid expenses and other assets                                                    |  |                          | (385,125   
|Accounts payable                                                                     |  |                          | 736,109    
|Accrued liabilities and other liabilities                                            |  |                          | 125,144    
|Deferred revenue                                                                     |  |                          | —          
|Net cash used in operating activities                                                |  |                          | (23,923,319
|                                                                                     |  |                          |            
|Cash flows from investing activities:                                                |  |                          |            
|Purchases of equipment                                                               |  |                          | (663,348   
|Proceeds from sales of equipment                                                     |  |                          | —          
|Proceeds from sale of GDS Business                                                   |  |                          | —          
|Payments of costs to sell GDS Business                                               |  |                          | —          
|Patent and trademark costs                                                           |  |                          | (8,460     
|Net cash (used in) provided by investing activities                                  |  |                          | (671,808   
|                                                                                     |  |                          |            
|Cash flows from financing activities:                                                |  |                          |            
|Proceeds from issuance of common stock, net                                          |  |                          | 2,724,189  
|Payment for common stock repurchased from executives                                 |  |                          | (100,875   
|Payment of tax withholdings related to stock-based compensation                      |  |                          | (8,765     
|Payment of stock issuance costs                                                      |  |                          | —          
|Payment of preferred stock dividends                                                 |  |                          | (100,000   
|Proceeds from notes payable                                                          |  |                          | 4,000,000  
|Payment of debt issuance costs                                                       |  |                          | (153,949   
|Principal payments on notes payable                                                  |  |                          | (1,285,046 
|Payments under capital leases                                                        |  |                          | (5,867     
|Net cash provided by financing activities                                            |  |                          | 5,069,687  
|                                                                                     |  |                          |            
|Net (decrease) increase in cash                                                      |  |                          | (19,525,440
|Cash, beginning of year                                                              |  |                          | 28,644,004 
|                                                                                     |  |                          |            
|Cash, end of year                                                                    |  | $                        | 9,118,564  



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:Navidea Biopharmaceuticals, Inc. (Navidea, the Company, or we), a Delaware corporation,
is a biopharmaceutical company focused on the development and commercialization of precision diagnostics and radiopharmaceutical
agents. Lymphoseek® (technetium Tc 99m tilmanocept) Injection, is a novel, receptor-targeted, small-molecule, investigational
radiopharmaceutical used in lymphatic mapping procedures that are performed to help stage breast cancer and melanoma. Lymphoseek
is designed to identify the lymph nodes that drain from a primary tumor, which have the highest probability of harboring cancer.
As discussed in Note 20(a), Subsequent Events, Lymphoseek was approved by the FDA on March 13, 2013. In addition, we are currently
developing three other radiopharmaceutical agent platforms. The first, NAV4694, is an F-18 radiolabeled positron emission tomography
(PET) imaging agent being developed as an aid in the diagnosis of patients with signs or symptoms of cognitive impairment such
as Alzheimer’s disease (AD). The second, NAV5001 (E-IACFT), is an Iodine-123 radiolabeled single photon emission computed
tomography (SPECT) imaging agent being developed as an aid in the diagnosis of Parkinson’s disease and other movement disorders,
with potential use as a diagnostic aid in dementia. The third, RIGScanTM, is a radiolabeled monoclonal antibody being
developed as a diagnostic aid for use during surgery to help surgeons locate occult or metastatic cancer, with a primary focus
on colorectal cancer. These drug products are still in development and must be cleared for marketing by the appropriate regulatory
authorities before they can be sold in any markets.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Prior to August 2011, we also manufactured a line
of gamma radiation detection equipment used in the application of sentinel lymph node biopsy (SLNB). From July 2010 through August
2011, our gamma detection device products were marketed throughout most of the world through a distribution arrangement with Devicor
Medical Products, Inc. (Devicor). Prior to July 2010, our gamma detection device products were marketed through a distribution
arrangement with Ethicon Endo-Surgery, Inc. (EES), a Johnson & Johnson company. In July 2010, Devicor acquired EES’ breast
biopsy business, including an assignment of the distribution agreement with the Company. As disclosed in Note 2, we sold our gamma
detection device line of business (the GDS Business) to Devicor in August 2011. Prior to the disposal of the GDS Business, 96%
of net sales were made to Devicor or EES for the years ended December 31, 2011 and 2010.



In 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 was
formed to combine our activated cellular therapy (ACT) technology for patient-specific oncology treatment with similar technology
licensed from Cira LLC, a privately held company, for treating viral and autoimmune diseases. Navidea owns approximately 90% of
the outstanding shares of Cira Bio with the remaining shares being held by the principals of Cira LLC. However, ACT is no longer
under active development by Navidea.



In July 2011, we established a European business unit,
Navidea Biopharmaceuticals Limited, to address international development and commercialization needs for our technologies, including
Lymphoseek. Navidea owns 100% of the outstanding shares of Navidea Biopharmaceuticals Limited.

| | b. | Principles of Consolidation: Our consolidated financial statements include the accounts of Navidea, our wholly-owned
subsidiary, Cardiosonix, and our majority-owned subsidiary, Cira Bio. All significant inter-company accounts were eliminated in
consolidation.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | 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.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-8







Notes to the Consolidated
Financial Statements



| | d. | Financial Instruments and Fair Value: The fair value hierarchy prioritizes the inputs to valuation techniques used to
measure fair value, giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value
hierarchy are described below:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Level 1 – Unadjusted quoted prices in
active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;



Level 2 – Quoted prices in markets that
are not active or financial instruments for which all significant inputs are observable, either directly or indirectly; and



Level 3 – Prices or valuations that
require inputs that are both significant to the fair value measurement and unobservable.



A financial instrument’s level within the fair
value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. In determining the
appropriate levels, we perform a detailed analysis of the assets and liabilities whose fair value is measured on a recurring basis.
At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable
inputs or instruments which trade infrequently and therefore have little or no price transparency are classified as Level 3. See
Note 3.



The following methods and assumptions were used to
estimate the fair value of each class of financial instruments:



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



| | (2) | Notes payable: The carrying value of our debt at December 31, 2012 is presented as the face amount of the notes less unamortized
discounts. The estimated fair value of our debt was calculated using a discounted cash flow analysis, which includes Level 3 inputs
such as the estimated current market interest rate for similar instruments with similar creditworthiness. At December 31, 2012,
the fair value of our notes payable is approximately $9.7 million, which approximates face value. See Note 11.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Derivative liabilities: Derivative liabilities are related to certain outstanding warrants which are recorded at fair value.
The assumptions used to calculate fair value as of December 31, 2011 include volatility, risk-free rate and expected dividends.
In addition, we considered non-performance risk and determined that such risk is minimal. Unrealized gains and losses on the derivatives
are classified in other expenses as a change in derivative liabilities in the statements of operations. See Note 12.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | e. | Stock-Based Compensation: At December 31, 2012, we have instruments outstanding under two stock-based compensation plans;
the 1996 Stock Incentive Plan (the 1996 Plan) and the Fourth Amended and Restated 2002 Stock Incentive Plan (the 2002 Plan). Currently,
under the 2002 Plan, we may grant incentive stock options, nonqualified stock options, and restricted stock awards to full-time
employees and directors, and nonqualified stock options and restricted stock awards may be granted to our consultants and agents.
Total shares authorized under each plan are 1.5 million shares and 12 million shares, respectively. Although instruments are still
outstanding under the 1996 Plan, the plan has expired and no new grants may be made from it. Under both 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.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Stock options granted under the 1996 Plan and the
2002 Plan generally vest on an annual basis over one to four years. Outstanding stock options under the plans, if not exercised,
generally expire ten years from their date of grant or 90 days from the date of an optionee’s separation from employment
with the Company. We issue new shares of our common stock upon exercise of stock options.



F-9







Notes to the Consolidated
Financial Statements



Stock-based payments to employees and directors, including
grants of stock options, are recognized in the consolidated statement of operations based on their estimated fair values. The fair
value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. Expected volatilities
are based on the Company’s historical volatility, which management believes represents the most accurate basis for estimating
expected future volatility under the current circumstances. Navidea uses historical data to estimate forfeiture rates. The expected
term of stock options granted is based on the vesting period and the contractual life of the options. The risk-free rate is based
on the U.S. Treasury yield in effect at the time of the grant. The assumptions used to calculate the fair value of stock option
awards for the years ended December 31, 2012, 2011 and 2010 are noted in the following table:



|                            |  | 2012      |  | 2011      |  | 2010     
|--------------------------- |  | --------- |  | --------- |  | ---------
|Expected volatility         |  | 63%-72%   |  | 64%-71%   |  | 61%-68%  
|Weighted-average volatility |  | 65%       |  | 69%       |  | 66%      
|Expected dividends          |  | —         |  | —         |  | —        
|Expected term (in years)    |  | 5.0-6.3   |  | 5.3-6.3   |  | 6.0-6.3  
|Risk-free rate              |  | 0.6%-1.2% |  | 1.3%-2.4% |  | 1.7%-2.4%



Compensation cost arising from stock-based awards
is recognized as expense over either (1) the requisite service period or (2) the estimated performance period. The restricted stock
awards are valued based on the closing stock price on the date of grant and amortized ratably over the estimated life of the award.
Restricted stock may vest based on the passage of time, or they may vest upon occurrence of a specific event or achievement of
goals as defined in the grant agreements. In such cases, we record compensation expense related to grants of restricted stock based
on management’s estimates of the probable dates of the vesting events. See Note 4.



| | f. | Cash and Cash Equivalents: Cash equivalents are highly liquid instruments such as U.S.
Treasury bills, bank certificates of deposit, corporate commercial paper and money market funds which have maturities of less than
3 months from the date of purchase. The Company held no cash equivalents at December 31, 2012 or 2011.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | g. | 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 estimated sales activity and margins.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

From time to time, we capitalize certain inventory
costs associated with our products prior to regulatory approval and product launch based on management’s judgment of probable
future commercial use and net realizable value of the inventory. We could be required to permanently write down previously capitalized
costs related to pre-approval or pre-launch inventory upon a change in such judgment, due to a denial or delay of approval by regulatory
bodies, a delay in commercialization, slower than expected sales, or other potential factors. Conversely, our gross margins may
be favorably impacted if some or all of the inventory previously expensed becomes available and is used for commercial sale. We
estimate a reserve for obsolete inventory based on management’s judgment of probable future commercial use, which is based
on an analysis of current inventory levels, historical and estimated future sales and production rates, and estimated shelf lives.
As discussed in Note 20(a), Subsequent Events, Lymphoseek was approved by the FDA on March 13, 2013. See Note 6.



| | h. | Property and Equipment: Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation
is computed using the straight-line method over the estimated useful lives of the depreciable assets ranging from 3 to 7 years,
and includes amortization related to equipment under capital leases, which is amortized over the shorter of the estimated useful
life of the leased asset or the term of the lease. Maintenance and repairs are charged to expense as incurred, while renewals and
improvements are capitalized. See Note 7.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-10







Notes to the Consolidated
Financial Statements



| | i. | Intangible Assets:Intangible assets consist primarily of patents and trademarks. 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 approximately 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. 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.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | j. | Impairment or Disposal of Long-Lived Assets: Long-lived assets and certain identifiable intangibles are 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 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. See Note 7.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | k. | 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 2011, we incurred $593,000 of debt issuance costs related
to notes payable. During 2012, 2011 and 2010, we recorded amortization of $296,000, $2,000 and $4,000, respectively, of deferred
debt issuance costs. Other assets at December 31, 2012 and 2011 include net deferred debt issuance costs of $295,000 and $591,000,
respectively. See Note 11.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | l. | Derivative Instruments: Derivative instruments embedded in contracts, to the extent not already a free-standing contract,
are bifurcated from the debt instrument and accounted for separately. All derivatives are recorded on the consolidated balance
sheet at fair value in accordance with current accounting guidelines for such complex financial instruments. Derivative liabilities
with expiration dates within one year are classified as current, while those with expiration dates in more than one year are classified
as long term. We do not use derivative instruments for hedging of market risks or for trading or speculative purposes. See Note
12.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | m. | Revenue Recognition: We currently generate revenue primarily from grants to support various product development initiatives.
We generally recognize grant revenue when expenses reimbursable under the grants have been incurred and payments under the grants
become contractually due. We also recognize revenue from the reimbursement by our partners of certain expenditures for which the
Company has principal responsibility.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | n. | Research and Development Costs: All costs related to research and development activities are expensed as incurred.
| | -- | ------------------------------------------------------------------------------------------------------------------



| | o. | 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. Due to the uncertainty surrounding the realization of the
deferred tax assets in future tax returns, all of the deferred tax assets have been fully offset by a valuation allowance at December
31, 2012 and 2011.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Estimated tax liabilities of $6.7 million related
to the gain on the sale of discontinued operations and $1.2 million related to income from discontinued operations were fully offset
by an estimated tax benefit of $7.9 million related to the loss from continuing operations during 2011.  Estimated tax liabilities
of $2.1 million related to income from discontinued operations were fully offset by an estimated tax benefit of $2.1 million related
to the loss from continuing operations during 2010.  See Note 14.

F-11







Notes to the Consolidated
Financial Statements



Current accounting standards include guidance on the
accounting for uncertainty in income taxes recognized in the financial statements. Such standards also prescribe a recognition
threshold and measurement model for the financial statement recognition of a tax position taken, or expected to be taken, and provides
guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The
Company believes that the ultimate deductibility of all tax positions is highly certain, although there is uncertainty about the
timing of such deductibility. As a result, no liability for uncertain tax positions was recorded as of December 31, 2012 or 2011
and we do not expect any significant changes in the next twelve months. Should we need to accrue interest or penalties on uncertain
tax positions, we would recognize the interest as interest expense and the penalties as a selling, general and administrative expense.
As of December 31, 2012, tax years 2009-2012 remained subject to examination by federal and state tax authorities.



| | p. | Recent Accounting Developments: In May 2011, the Financial Accounting Standards Board (FASB) and International Accounting
Standards Board (IASB) issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments
to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04).  ASU 2011-04
created a uniform framework for applying fair value measurement principles for companies around the world and clarified existing
guidance in US GAAP.  ASU 2011-04 was effective for interim and annual reporting periods beginning after December 15,
2011 and was applied prospectively.   ASU 2011-04 did not have a material effect on our consolidated financial statements.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | Discontinued Operations
| | -- | -----------------------



In August 2011, we completed the
sale of the GDS Business to Devicorunder the terms of the APA that was signed in May 2011. Devicor made an initial cash
payment to us of $30.0 million, assumed certain liabilities of the Company associated with the GDS Business as specified in the
APA, and agreed to make royalty payments to us of up to an aggregate maximum amount of $20.0 million based on the net revenue attributable
to the GDS Business over the course of the next six fiscal years beginning in 2012. The final sale price of $30.3 million includes
the initial cash payment of $30.0 million and an additional cash payment related to a net working capital adjustment of $338,000.
The proceeds were offset by $2.8 million in investment banking, legal and other fees related to the sale and $2.4 million in net
balance sheet dispositions and write-offs.



In December 2011, we disposed of
the extended warranty contracts related to the GDS Business, which were outstanding as of the date of the sale of the GDS Business
but were not included in the August 2011 transaction. In exchange for transferring the liability related to the extended warranty
contracts, which was previously recorded as deferred revenue, we made a cash payment to Devicor of $178,000. At the time of the
transfer, we had current and deferred revenue reflected in our financial statements which was being amortized into income on a
pro-rata basis over the life of the contracts. As a result of the transfer of obligations to Devicor, we recognized the unamortized
deferred revenue of $1.2 million of non-cash income.



We recorded a net gain on the sale
of the GDS business and disposal of the related extended warranty contracts of $26.2 million in 2011, which was reduced by estimated
tax expense of $6.7 million during 2011.



During 2011 and 2010, we wrote off $1,000 and $65,000,
respectively, of excess and obsolete gamma detection device materials.



Deferred revenue consists primarily of non-refundable
license fees and reimbursement of past research and development expenses which EES paid us as consideration for extending our distribution
agreement with them in prior years. During 2011 and 2010, we recognized license revenue of $63,000 and $100,000, respectively.
The unearned license revenue remaining at the date of the sale of the GDS Business was written off as part of the gain on the sale.
In addition, deferred revenue includes revenues from the sale of extended warranties covering our medical devices over periods
of one to five years. Prior to the disposal of the extended warranty contracts, we recognized revenue from extended warranty sales
on a pro-rata basis over the period covered by the extended warranty.



F-12







Notes to the Consolidated
Financial Statements



We reclassified revenues and expenses
related to discontinued operations for all periods presented. The following amounts, as well as the $26.2 million gain on the sale
of the GDS Business and disposal of the related extended warranty contracts, have been segregated from continuing operations and
included in discontinued operations in the consolidated statements of operations:



|                                    |  | Years Ended December 31, |           
|----------------------------------- |  | ------------------------ | ----------
|                                    |  | 2011                     |           
|                                    |  |                          |           
|Net sales                           |  | $                        | 7,684,689 
|Cost of goods sold                  |  |                          | 2,324,427 
|Gross profit                        |  |                          | 5,360,262 
|                                    |  |                          |           
|Operating expenses:                 |  |                          |           
|Research and development            |  |                          | 564,194   
|Selling, general and administrative |  |                          | 308,220   
|Total operating expenses            |  |                          | 872,414   
|                                    |  |                          |           
|Other expense, net                  |  |                          | (1,084    
|Income taxes                        |  |                          | (1,157,230
|                                    |  |                          |           
|Income from discontinued operations |  | $                        | 3,329,534 



Subsequent to the sale of the GDS Business, the Company
re-evaluated its segment disclosures and determined that our radiopharmaceutical products under development constitute our only
current line of business.



| | 3. | Fair Value Hierarchy
| | -- | --------------------



There were no financial assets or liabilities measured
at fair value on a recurring basis as of December 31, 2012. The following table sets forth, by level, financial liabilities measured
at fair value on a recurring basis as of December 31, 2011:



|Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2011
|-------------------------------------------------------------------------------
|                                                                               
|                                                                               
|Description                                                                    
|Liabilities:                                                                   
|Derivative liabilities related to warrants, current                            



There were no Level 1 liabilities outstanding at
any time during the years ended December 31, 2012 and 2011. A total of $484,419 and $1,978,818 of our Level 2 liabilities were
reclassified to equity related to modifying certain outstanding warrants to remove the language that had previously required them
to be classified as derivative liabilities during the years ended December 31, 2012 and 2011.



There were no Level 3 liabilities outstanding at
any time during the years ended December 31, 2012 or 2011.



F-13







Notes to the Consolidated
Financial Statements



| | 4. | Stock-Based Compensation
| | -- | ------------------------



For the years ended December
31, 2012, 2011 and 2010, our total stock-based compensation expense was approximately $2.3 million, $3.6 million and $598,000,
respectively. We have not recorded any income tax benefit related to stock-based compensation for the years ended December 31,
2012, 2011 and 2010.



A
summary of the status of our stock options as of December 31, 2012, and changes during the year then ended, is presented below:



|                                 |  | Year Ended December 31, 2012 |           
|-------------------------------- |  | ---------------------------- | ----------
|                                 |  | Number of Options            |           
|Outstanding at beginning of year |  |                              | 3,315,000 
|Granted                          |  |                              | 1,351,027 
|Exercised                        |  |                              | (1,232,001
|Forfeited                        |  |                              | (12,249   
|Expired                          |  |                              | (9,000    
|Outstanding at end of year       |  |                              | 3,412,777 
|                                 |  |                              |           
|Exercisable at end of year       |  |                              | 1,836,237 



The weighted average grant-date fair value of options
granted in 2012, 2011 and 2010 was $1.86, $2.22 and $1.13, respectively. During 2012, 1,232,001 stock options with an aggregate
intrinsic value of $3,360,686 were exercised in exchange for issuance of 1,225,270 shares of our common stock, resulting in gross
proceeds of $752,060. During 2011, 2,697,833 stock options with an aggregate intrinsic value of $9,620,085 were exercised in exchange
for issuance of 1,832,673 shares of our common stock, resulting in gross proceeds of $225,010. During 2010, 491,667 stock options
with an aggregate intrinsic value of $697,662 were exercised in exchange for issuance of 350,156 shares of our common stock, resulting
in gross proceeds of $32,550. During 2012, 2011 and 2010, we paid tax withholdings related to stock options exercised of $9,000,
$2.8 million and $133,000, respectively. During 2012, 2011 and 2010, the aggregate fair value of stock options vested was $460,000,
$998,000 and $379,000, respectively.



A summary of the status of our unvested restricted
stock as of December 31, 2012, and changes during the year then ended, is presented below:



|                              |  | Year Ended December 31, 2012 |          
|----------------------------- |  | ---------------------------- | ---------
|                              |  | Number of Shares             |          
|Unvested at beginning of year |  |                              | 1,556,000
|Granted                       |  |                              | 405,000  
|Vested                        |  |                              | (30,000  
|Forfeited                     |  |                              | —        
|Expired                       |  |                              | (596,000 
|Unvested at end of year       |  |                              | 1,335,000



During 2012 and 2011, 30,000 and 1,050,000 shares,
respectively, of restricted stock vested with aggregate fair values of $85,000 and $4.2 million, respectively. No restricted stock
vested during 2010.



F-14







Notes to the Consolidated
Financial Statements



As of December 31, 2012, there was approximately
$2.2 million of total unrecognized compensation cost related to stock option and restricted stock awards, which we expect to recognize
over remaining weighted average vesting terms of 2.0 years. See Note 1(e).



| | 5. | Earnings Per Share
| | -- | ------------------



Basic earnings (loss) per share is calculated by
dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares and, except for
periods with a loss from operations, participating securities outstanding during the period. Diluted earnings (loss) per share
reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential
common shares that may be issued by the Company include convertible securities, options and warrants.



The following table sets forth the calculation of
basic and diluted earnings (loss) per share for the years ended December 31, 2012, 2011 and 2010:



|                                                        |  | Years Ended December 31, |            
|------------------------------------------------------- |  | ------------------------ | -----------
|                                                        |  | 2012                     |            
|Net (loss) income                                       |  | $                        | (29,157,204
|Preferred stock dividends                               |  |                          | (43,333    
|Net (loss) income attributable to common stockholders   |  | $                        | (29,200,537
|                                                        |  |                          |            
|Weighted average shares outstanding (basic and diluted) |  |                          | 99,059,997 
|(Loss) income per common share (basic and diluted)      |  | $                        | (0.29      



Earnings (loss) per common share
for the years ended December 31, 2012, 2011 and 2010 excludes the effects of 38.4 million, 55.7 million and 64.1 million common
share equivalents, respectively, since such inclusion would be anti-dilutive. The excluded shares consist of common shares issuable
upon exercise of outstanding stock options and warrants, and upon the conversion of convertible debt and convertible preferred
stock.



The Company’s unvested stock awards contain
nonforfeitable rights to dividends or dividend equivalents, whether paid or unpaid (referred to as “participating securities”).
Therefore, the unvested stock awards are required to be included in the number of shares outstanding for both basic and diluted
earnings per share calculations. However, due to our loss from continuing operations, 1,335,000, 1,556,000 and 2,374,500 shares
of unvested restricted stock were excluded in determining basic and diluted loss per share for the years ended December 31, 2012,
2011 and 2010, respectively, because such inclusion would be anti-dilutive.



| | 6. | Inventory
| | -- | ---------



The components of net inventory at December 31, 2012
and 2011 are as follows:



|                               |  | 2012 |         |  | 2011 |  
|------------------------------ |  | ---- | ------- |  | ---- | -
|Pharmaceutical materials       |  | $    | 297,500 |  |      | $
|Pharmaceutical work-in-process |  |      | —       |  |      |  
|                               |  | $    | 297,500 |  |      | $



During 2012 and 2011, we capitalized $525,000 and
$213,000, respectively, of inventory costs associated with our Lymphoseek product. During 2012, we wrote off $741,000 of previously
capitalized Lymphoseek inventory due to changes in our projections of the probability of future commercial use for the specific
lots previously capitalized or the consumption of the Lymphoseek material in previously unanticipated product development activities.



F-15







Notes to the Consolidated
Financial Statements



We estimate a reserve for obsolete inventory based
on management’s judgment of probable future commercial use, which is based on an analysis of current inventory levels, historical
and estimated future sales and production rates, and estimated shelf lives. During 2012, we recorded an obsolescence reserve for
$308,000 of Lymphoseek inventory based on delays in U.S. regulatory approval impacting the timing of future commercial use of the
specific lots previously capitalized.



| | 7. | Property and Equipment
| | -- | ----------------------



The major classes of property and equipment are as
follows:



|                                                                          |  | Useful Life    |  | 2012 |           |  | 2011 |  
|------------------------------------------------------------------------- |  | -------------- |  | ---- | --------- |  | ---- | -
|Production machinery and equipment                                        |  | 5 years        |  | $    | 397,643   |  |      | $
|Other machinery and equipment, primarily computers and research equipment |  | 3 – 5 years    |  |      | 581,409   |  |      |  
|Furniture and fixtures                                                    |  | 7 years        |  |      | 439,716   |  |      |  
|Software                                                                  |  | 3 years        |  |      | 471,811   |  |      |  
|Leasehold improvements                                                    |  | Life of Lease1 |  |      | 136,316   |  |      |  
|                                                                          |  |                |  | $    | 2,026,895 |  |      | $



1We amortize leasehold improvements over
the life of the lease, which in all cases is shorter than the estimated useful life of the asset.



Property and equipment includes $30,000 and $20,000
of equipment under capital leases with accumulated amortization of $16,000 and $11,000 at December 31, 2012 and 2011, respectively.
During 2012, 2011 and 2010, we recorded $199,000, $117,000 and $102,000, respectively, of depreciation and amortization related
to property and equipment.



| | 8. | Accrued Liabilities and Other
| | -- | -----------------------------



Accrued liabilities and other at December 31, 2012
and 2011 consist of the following:



|                    |  | 2012 |           |  | 2011 |  
|------------------- |  | ---- | --------- |  | ---- | -
|Contracted services |  | $    | 1,183,805 |  |      | $
|Compensation        |  |      | 762,266   |  |      |  
|Other               |  |      | 70,287    |  |      |  
|                    |  | $    | 2,016,358 |  |      | $



| | 9. | Separation of Former CEO
| | -- | ------------------------



In March 2011, Navidea announced the departure of
our then-current President and CEO, David C. Bupp, effective April 15, 2011. The following table summarizes accrued expenses as
of December 31, 2012 and 2011, including employer payroll tax obligations, related to the provisions of Mr. Bupp’s separation
agreement:



|                                                 |  | As of December 31, |       
|------------------------------------------------ |  | ------------------ | ------
|                                                 |  | 2012               |       
|Separation                                       |  | $                  | —     
|Pro-rated 2011 bonus                             |  |                    | —     
|Estimated cost of continuing healthcare coverage |  |                    | 24,747
|                                                 |  | $                  | 24,747



F-16







Notes to the Consolidated
Financial Statements



| | 10. | Convertible Securities
| | --- | ----------------------



In June 2010, we entered
into a Securities Exchange Agreement with Platinum Montaur Life Sciences, LLC (Montaur), pursuant to which Montaur exchanged their
10% Series A Convertible Senior Secured Promissory Note with an outstanding principal amount of $7,000,000, their 10% Series B
Convertible Senior Secured Promissory Note with an outstanding principal amount of $3,000,000, and their 3,000 shares of 8% Series
A Cumulative Convertible Preferred Stock for 10,000 shares of Series B Convertible Preferred Stock (the Series B Preferred Stock),
convertible into 32,700,000 shares of common stock. The Series B Preferred Stock is convertible at the option of Montaur and carries
no dividend requirement. In the event of the liquidation of the Company, the holders of shares of the Series B Preferred Stock
have preference over the common stock. After payment of the full liquidation preference amount to which each holder is entitled,
such holders of shares of Series B Preferred Stock will not be entitled to any further participation as such in any distribution
of the assets of the Company. As consideration for the exchange, the Company issued additional Series B Preferred Stock which is
convertible into 1.3 million shares of common stock.



Also in June 2010, we
entered into a Securities Exchange Agreement with David C. Bupp, then our President and CEO, and certain members of his family
(the Bupp Investors), pursuant to which the Bupp Investors exchanged their 10% Convertible Secured Promissory Note with an outstanding
principal amount of $1,000,000 for 1,000 shares of Series C Convertible Preferred Stock (the Series C Preferred Stock), convertible
into 3,226,000 shares of common stock. The Series C Preferred Stock had a 10% dividend rate and participated equally with our common
stock in liquidation proceeds based upon the number of common shares into which the Series C Preferred Stock was convertible. The
exchange of the Montaur Notes, the Series A Preferred Stock and the Bupp Note were treated as extinguishments for accounting purposes.
As a result, the Company recognized a loss on extinguishment of debt of $41.7 million, including the write-off of $966,000 in put
option derivative liabilities, and recorded a deemed dividend of $8.0 million during the second quarter of 2010. As a result of
these exchange transactions, all security interests in the Company’s assets held by Montaur and the Bupp Investors were extinguished.



In May 2011, Montaur converted 917 shares of their
Series B Preferred Stock into 2,998,590 shares of our common stock under the terms of the Series B Preferred Stock. In July 2012,
Montaur converted 3,063 shares of their Series B Preferred Stock into 10,016,010 shares of our common stock under the terms of
the Series B Preferred Stock. In November 2012, we entered into a Securities Exchange Agreement with Platinum Partners Value Arbitrage
Fund, L.P. (Platinum), an affiliate of Montaur, pursuant to which Platinum exchanged 3,001,860 shares of our common stock owned
by Platinum for 918 shares of our Series B Preferred Stock. As of December 31, 2012, there are 6,938 shares of Series B Preferred
Stock outstanding which are convertible into 22,687,260 shares of our common stock.



In December 2012, we entered into a Waiver Agreement
(the Waiver) pursuant to which Montaur and Platinum, as the sole holders of the Series B Preferred Stock, agreed to irrevocably
waive the provisions set forth in the certificate of designations for the Series B Preferred Stock (the Certificate) which provided
that all outstanding shares of Series B Preferred Stock would automatically convert into shares of common stock on December 31,
2012. The Waiver will remain in effect until December 31, 2013, upon which date all outstanding shares of Series B Preferred Stock
will automatically convert into common stock pursuant to the terms of the Certificate. In addition, we amended the terms of Montaur’s
Series X warrant to extend the expiration date from April 16, 2013 to December 31, 2013. Also in December 2012, the Series C Preferred
Stock held by the Bupp Investors automatically converted into 3,226,000 shares of our common stock under the terms of the Series
C Preferred Stock.



During the year ended December 31, 2010, we recorded
interest expense of $16,000 related to amortization of the debt discounts and deferred financing costs related to our convertible
securities.



F-17







Notes to the Consolidated
Financial Statements



| | 11. | Notes Payable
| | --- | -------------



In December 2011, we executed a Loan and Security
Agreement (the Loan Agreement) with Hercules Technology II, L.P. (Hercules), providing for a maximum borrowing of $10 million by
the Company in two advances. Pursuant to the Loan Agreement, we issued Hercules: (1) a Secured Term Promissory Note in the
principal amount of $7,000,000 (the First Advance), bearing interest at the greater of either (a) the U.S. Prime Rate as reported
in The Wall Street Journal plus 6.75%, or (b) 10.0% (effective interest rate at December 31, 2012 was 10.0%), and (2) a Series
GG warrant to purchase 333,333 shares of our common stock at an exercise price of $2.10 per share, expiring in December 2016 (the
Series GG Warrant). Additionally, the Loan Agreement provided Navidea with the option to draw a second advance in the principal
amount of $3,000,000 if certain conditions were met by June 30, 2012. Such conditions were not met and Hercules no longer has an
obligation to provide the additional $3,000,000. The Loan Agreement provided for an interest-only period beginning on December
29, 2011 and expiring on July 1, 2012. The principal and interest is to be repaid in 30 equal monthly installments, payable on
the first of each month following the expiration of the interest-only period. As such, a portion of the principal, net of related
discounts, has been classified as a current liability as of December 31, 2012. The outstanding balance of the debt is due December
1, 2014. Navidea has the option to pay up to $1.5 million of the principal amount of the debt in stock at a fixed conversion price
of $2.77, subject to certain conditions. In addition, Hercules has the option to elect payment for up to another $1.5 million of
the principal amount of the debt by conversion at a fixed conversion price of $2.77. The debt is collateralized by a security interest
in substantially all of the Company’s assets except for intellectual property, as to which the security interest is in rights
to income or proceeds from the sale or licensing thereof. The Loan Agreement also specifies certain covenants including the requirement
that Navidea provide certain information, such as financial statements and budgets, on a periodic basis. As of December 31, 2012,
we were in compliance with all such covenants.



In accordance with current accounting standards,
Hercules’ option to convert up to $1.5 million of the debt into stock was evaluated and determined to be a beneficial conversion
feature. The beneficial conversion feature of $24,888 was recorded as a discount on the First Advance based on the market price
of the Company’s stock on the date of the Loan Agreement. In addition, the Series GG warrant was accounted for as a liability
at origination due to the existence of certain provisions in the instrument which remained in effect for the first 365 days the
warrant was outstanding. As a result, we recorded a current derivative liability with an estimated fair value of $520,478 on the
date of issuance of the Series GG warrant. The estimated fair value of the Series GG warrant was recorded as a discount on the
First Advance. Navidea paid total debt issuance costs of $593,339 including origination, legal, and other costs related to the
loan. The total aggregate discounts on the First Advance of $545,366 and the debt issuance costs of $593,339 are being amortized
as non-cash interest expense using the effective interest method over the term of the Loan Agreement.



During 2012, we paid $1.3 million of principal payments
on our note payable to Hercules. As of December 31, 2012, the remaining outstanding principal balance of the Hercules debt was
approximately $5.7 million. During the years ended December 31, 2012 and 2011, we recorded interest expense of $545,000 and $4,000,
respectively, related to amortization of the debt discounts and deferred financing costs related to our convertible notes.



In July 2012, we entered into an
agreement with Montaur to provide us with a credit facility of up to $50 million. Under the terms of the agreement, Montaur committed
to extend up to $15 million in debt, which is available immediately, to the Company at an interest rate equal to the greater of
(a) the U.S. Prime Rate as reported in the Wall Street Journal plus 6.75%; (b) 10.0%; or (c) the highest rate of interest then
payable pursuant to the Hercules Loan Agreement plus 0.125% (effective interest rate at December 31, 2012 was 10.125%). Montaur
has committed an additional $20 million upon FDA approval of Lymphoseek on consistent terms, with another $15 million potentially
available on terms to be negotiated. As discussed in Note 20(a), Subsequent Events, Lymphoseek was approved by the FDA on March
13, 2013. Principal amounts are due the earlier of two years from the date of draw or June 30, 2016. No conversion features or
warrants are associated with the facility.



During 2012, we drew a total of
$4.0 million under the credit facility and recorded interest expense of $15,000. As of December 31, 2012, the total principal amount
due under the credit facility was $4.0 million.



Annual principal maturities of
our notes payable are $2.7 million and $7.0 million in 2013 and 2014, respectively.

F-18







Notes to the Consolidated
Financial Statements



| | 12. | Derivative Instruments
| | --- | ----------------------



Certain embedded
features of our convertible securities and notes payable, as well as warrants to purchase our common stock, are treated as derivative
liabilities. We do not use derivative instruments for hedging of market risks or for trading or speculative purposes.



In June 2010, we entered into a Securities Exchange
Agreement with Montaur, pursuant to which Montaur exchanged the Montaur Notes and the Series A Preferred Stock for 10,000 shares
of Series B Convertible Preferred Stock. As a result of this exchange transaction, the Company wrote off $966,000 in put option
derivative liabilities during the second quarter of 2010.



In November 2010, we entered into agreements with
certain institutional investors, pursuant to which the investors purchased $6.0 million of our common stock at $1.90 per share.
In addition to the common stock, we issued two series of warrants to the investors: (1) one-year Series CC warrants to purchase
1,578,948 shares of our common stock at an exercise price of $2.11 per share, and (2) two-year Series DD warrants to purchase 1,578,948
shares of our common stock at an exercise price of $2.11 per share. The Series CC and Series DD warrants originally contained language
that required Navidea to classify the warrants as derivative liabilities, and we recorded them at their estimated fair values totaling
$1.2 million. In December 2010, a portion of the Series CC and Series DD warrants were modified to remove the language that had
previously required them to be classified as derivative liabilities. As a result of the modification of certain of the Series CC
and Series DD warrants, we reclassified $801,000 in derivative liabilities related to those warrants to additional paid-in capital
after marking the liabilities to market.



During 2010, 120,000 Series V warrants and 60,000
Series Z warrants were exercised. The Company reclassified $280,000 in derivative liabilities related to these warrants to additional
paid-in capital.



In January 2011, certain Series V warrants were modified
to remove the language that had previously required them to be classified as derivative liabilities. As a result of the modification
of the Series V warrants, we reclassified $1.4 million in derivative liabilities related to those warrants to additional paid-in
capital during the first quarter of 2011. Also in January 2011, certain Series CC and Series DD warrants were modified to remove
the language that had previously required them to be classified as derivative liabilities. As a result of the modification of the
Series CC and Series DD warrants, we reclassified $549,000 in derivative liabilities related to those warrants to additional paid-in
capital during the first quarter of 2011.



During 2011, Mr. Bupp and certain members of his
family exercised 810,000 Series V warrants in exchange for issuance of 810,000 shares of our common stock, resulting in gross proceeds
of $255,600. The net effect of marking the derivative liabilities related to the exercised Series V warrants to market resulted
in net increases in the estimated fair values of the derivative liabilities of $119,000, which were recorded as non-cash expense.
As a result of the Series V warrant exercises, we reclassified $96,000 in derivative liabilities related to those warrants to additional
paid-in capital.



Also during 2011, the holders of 60,000 Series Z
warrants exercised them on a cashless basis in exchange for issuance of 46,902 shares of our common stock. The net effect of marking
the derivative liabilities related to the exercised Series Z warrants to market resulted in net increases in the estimated fair
values of the derivative liabilities of $79,000, which were recorded as non-cash expense. As a result of the Series Z warrant exercises,
we reclassified $164,000 in derivative liabilities related to those warrants to additional paid-in capital.



In addition, the holders of Series CC warrants exercised
them during 2011 in exchange for issuance of 1,578,948 shares of our common stock, resulting in gross proceeds of $3,331,580. Further,
the holders of Series DD warrants exercised them during 2011 in exchange for issuance of 1,578,948 shares of our common stock,
resulting in gross proceeds of $3,331,580. The net effect of marking the derivative liabilities related to the exercised Series
CC and Series DD warrants to market resulted in net increases in the estimated fair values of the derivative liabilities of $752,000,
which were recorded as non-cash expense. As a result of the Series CC and Series DD warrant exercises, we reclassified $1.1 million
in derivative liabilities related to those warrants to additional paid-in capital.



F-19







Notes to the Consolidated
Financial Statements



In December 2011,
in connection with entering into the Loan Agreement with Hercules, we issued a Series GG warrant to purchase 333,333 shares of
our common stock at an exercise price of $2.10 per share, expiring in December 2016. The Series GG warrant was accounted for as
a liability at origination due to the existence of certain price reset provisions in the instrument which remained in effect for
the first 365 days the warrant was outstanding. As a result, we recorded a current derivative liability with an estimated fair
value of $520,478 on the date of issuance of the Series GG warrant. The net effect of marking the Series GG warrants to market
during 2012 resulted in net decreases in the estimated fair value of the derivative liability of $38,000, which were recorded as
non-cash income. In December 2012, the provisions of the Series GG warrant that resulted in treatment of the instrument as a derivative
liability expired. As a result of the expiration of such provisions of the Series GG warrant, we reclassified $484,000 in derivative
liabilities related to those warrants to additional paid-in capital. See Note 11.



During 2012,
the holder of 20,000 Series V warrants exercised them in exchange for issuance of 20,000 shares of our common stock, resulting
in gross proceeds of $6,200. As a result of the Series V warrant exercise, we reclassified $52,000 in derivative liabilities related
to those warrants to additional paid-in capital.



Changes in the
estimated fair values of our derivative liabilities are recorded in the consolidated statement of operations. The net effect of
marking our derivative liabilities to market during the years ended December 31, 2012, 2011 and 2010 resulted in net (decreases)
increases in non-cash (income) expense of ($32,000), $952,000 and $1.3 million. The total estimated fair value of our derivative
liabilities was $569,000 and $2.5 million as of December 31, 2011 and 2010, respectively. No derivative liabilities were outstanding
as of December 31, 2012.



| | 13. | Equity
| | --- | ------



| | a. | Common Stock Purchase Agreement: In March 2010, we sold to Fusion Capital Fund II, LLC (Fusion Capital), an Illinois
limited liability company, 540,541 shares for proceeds of $1.0 million under a common stock purchase agreement, as amended. In
connection with this sale, we issued 120,000 shares of our common stock to Fusion Capital as an additional commitment fee. The
agreement with Fusion Capital expired on March 1, 2011.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Stock Warrants: At December 31, 2012, there are 11.5 million warrants outstanding to purchase our common stock. The
warrants are exercisable at prices ranging from $0.46 to $2.375 per share with a weighted average exercise price per share of $0.68.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following table summarizes
information about our outstanding warrants at December 31, 2012:



|          |  | Exercise Price |       |  | Number of Warrants |  |            | Expiration Date
|--------- |  | -------------- | ----- |  | ------------------ |  | ---------- | ---------------
|Series X  |  | $              | 0.46  |  |                    |  | 8,333,333  |                
|Series AA |  |                | 0.97  |  |                    |  | 2,400,000  |                
|Series BB |  |                | 2.00  |  |                    |  | 300,000    |                
|Series EE |  |                | 2.375 |  |                    |  | 134,211    |                
|Series FF |  |                | 1.97  |  |                    |  | 30,000     |                
|Series GG |  |                | 2.10  |  |                    |  | 333,333    |                
|          |  | $              | 0.68  |  |                    |  | 11,530,877 |                



During
2010, a Bupp Investor exercised 120,000 Series V warrants in exchange for issuance of 120,000 shares of our common stock, resulting
in gross proceeds of $37,200. Also during 2010, certain outside investors exercised a total of 60,000 Series Z warrants on a cashless
basis in exchange for issuance of 37,778 shares of our common stock.



In
July 2010, we issued five-year Series BB Warrants to purchase 300,000 shares of our common stock at an exercise price of $2.00
per share to an investment advisory firm in connection with a consulting agreement.

F-20







Notes to the Consolidated
Financial Statements



During
2012, Montaur exercised 6,000,000 Series W warrants in exchange for issuance of 6,000,000 shares of our common stock, resulting
in gross proceeds of $1,920,000.



See
Note 12 for a discussion of Series V, Series Z, Series CC, and Series DD warrant transactions during 2012.



| | c. | Common Stock Reserved: As of December 31, 2012, we have reserved 38,713,946 shares of authorized common stock for the
exercise of all outstanding options, warrants, convertible preferred stock and convertible debt.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 14. | Income Taxes
| | --- | ------------



As of December 31, 2012 and 2011, our deferred tax
assets were approximately $33.7 million and $37.7 million, respectively. The components of our deferred tax assets are summarized
as follows:



|                                               |  | As of December 31, |            
|---------------------------------------------- |  | ------------------ | -----------
|                                               |  | 2012               |            
|Deferred tax assets:                           |  |                    |            
|Net operating loss carryforwards               |  | $                  | 24,767,569 
|R&D credit carryforwards                       |  |                    | 6,546,049  
|Temporary differences                          |  |                    | 2,408,108  
|Deferred tax assets before valuation allowance |  |                    | 33,721,726 
|Valuation allowance                            |  |                    | (33,721,726
|Net deferred tax assets                        |  | $                  | —          



Current accounting standards require a valuation
allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all
of the deferred tax assets may not be realized. Due to the uncertainty surrounding the realization of these deferred tax assets
in future tax returns, all of the deferred tax assets have been fully offset by a valuation allowance at December 31, 2012 and
2011.



In assessing the realizability
of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred
tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planning
strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income
over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company
will not realize the benefits of these deductible differences or tax carryforwards as of December 31, 2012.



As of December 31, 2012 and 2011, we had U.S. net
operating loss carryforwards of approximately $80.9 million and $74.1 million, respectively. Of that amount, $14.1 million and
$9.1 million relates to stock-based compensation tax deductions in excess of book compensation expense (APIC NOLs) as of December
31, 2012 and 2011, respectively, that will be credited to additional paid-in capital when such deductions reduce taxes payable
as determined on a "with-and-without" basis. Accordingly, these APIC NOLs will reduce federal taxes payable if realized
in future periods, but NOLs related to such benefits are not included in the table above.



At December 31, 2012 and 2011, we had U.S. R&D
credit carryforwards of approximately $6.5 million and $7.6 million, respectively.



F-21







Notes to the Consolidated
Financial Statements



U.S. net operating loss carryforwards of $20.8 million
and $16.6 million and R&D credit carryforwards of $1.1 million and $346,000 expired during 2012 and 2011, respectively. The
details of our U.S. net operating loss and R&D credit carryforward amounts and expiration dates are summarized as follows:



|                    |  |            |            | As of December 31, 2012               |           
|------------------- |  | ---------- | ---------- | ------------------------------------- | ----------
|Generated           |  | Expiration |            | U.S. Net Operating Loss Carryforwards |           
|1998                |  | 2013       |            | $                                     | 17,142,781
|1999                |  | 2014       |            |                                       | —         
|2000                |  | 2015       |            |                                       | —         
|2001                |  | 2016       |            |                                       | —         
|2002                |  | 2017       |            |                                       | 1,282,447 
|2003                |  | 2018       |            |                                       | 337,714   
|2004                |  | 2019       |            |                                       | 1,237,146 
|2005                |  | 2020       |            |                                       | 3,246,062 
|2006                |  | 2021       |            |                                       | 3,127,238 
|2007                |  | 2022       |            |                                       | 2,863,443 
|2008                |  | 2023       |            |                                       | 2,826,656 
|2009                |  | 2024       |            |                                       | 13,753,769
|2010                |  | 2025       |            |                                       | 5,425,105 
|2011                |  | 2026       |            |                                       | 1,904,744 
|2012                |  | 2027       |            |                                       | 27,744,687
|Total carryforwards |  | $          | 80,891,792 |                                       |           



The American Taxpayer Relief Act of 2012 (the Act)
cleared the House of Representatives and the Senate on January 2, 2013 and was signed into law by President Obama on January 2,
2013. The credit for certain research and experimentation expenses expired at the end of 2011. The act retroactively extends the
credit through the end of 2013. Under current accounting guidelines, the effects of new legislation are recognized upon enactment
and as such the Company has not included a 2012 R&D tax credit in the above table.



During the years ended December 31, 2012, 2011 and
2010, Cardiosonix recorded losses for financial reporting purposes of $14,000, $19,000 and $15,000, respectively. As of December
31, 2012 and 2011, Cardiosonix had tax loss carryforwards in Israel of approximately $7.6 million. Under current Israeli tax law,
net operating loss carryforwards do not expire. Due to the uncertainty surrounding the realization of the related deferred tax
assets in future tax returns, all of the deferred tax assets have been fully offset by a valuation allowance at December 31, 2012
and 2011.



Under Sections 382 and 383 of the IRC of 1986, as
amended, the utilization of U.S. net operating loss and R&D tax credit carryforwards may be limited under the change in stock
ownership rules of the IRC. During 2010, we completed a Section 382 study and concluded that a Section 382 ownership change has
not occurred. Based on changes in the Company’s ownership in 2011 and 2012, we do not believe a Section 382 ownership change
has occurred in such years that would impact utilization of the Company’s net operating loss and R&D tax credit carryforwards.



Reconciliations between the statutory federal income
tax rate and our effective tax rate for continuing operations are as follows:



|                                   |  | Years Ended December 31, |           
|---------------------------------- |  | ------------------------ | ----------
|                                   |  | 2012                     |           
|                                   |  | Amount                   |           
|Benefit at statutory rate          |  | $                        | (9,913,450
|Adjustments to valuation allowance |  |                          | 9,668,770 
|Loss on extinguishment of debt     |  |                          | —         
|Permanent items and other          |  |                          | 244,680   
|Benefit per financial statements   |  | $                        | —         



F-22







Notes to the Consolidated
Financial Statements



| | 15. | Agreements
| | --- | ----------



| | a. | Supply Agreements: In November 2009, we entered into a manufacture and supply agreement with
Reliable Biopharmaceutical Corporation (Reliable) for the manufacture and supply of the Lymphoseek drug substance. The initial
ten-year term of the agreement expires in November 2019, with options to extend the agreement for successive three-year terms.
Either party has the right to terminate the agreement upon mutual written agreement, or upon material breach by the other party
which is not cured within 60 days from the date of written notice of the breach. Total purchases under the manufacture and supply
agreement were $939,000, $544,000 and $1.0 million for the years ended December 31, 2012, 2011 and 2010. As of December 31, 2012,
we have issued purchase orders under the agreement with Reliable for $119,000 of our products for delivery through December 2013.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Research and Development Agreements: During January 2002, we completed a license agreement
with the University of California, San Diego (UCSD) for Lymphoseek, a proprietary compound that we believe can be used as a lymph
node locating agent in SLNB 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. 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 commencement of clinical
trials and successful regulatory clearance for marketing of the licensed products, a 5% 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 $33,000, $98,000
and $36,000 in 2012, 2011 and 2010, respectively, and were recorded in research and development expenses.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During April 2008, we completed a license agreement
with UCSD for an expanded field of use allowing Lymphoseek to be developed as an optical or ultrasound agent. The license agreement
is effective until the expiration date of the longest-lived underlying patent. 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
certain sublicense terms as defined in the agreement. 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
commencement of clinical trials and successful regulatory clearance for marketing of the licensed products, a 5% 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 $31,000, $28,000 and $27,000 in 2012, 2011 and 2010, respectively, and were recorded in research and development
expenses.



In December 2011, we executed a license agreement
with AstraZeneca AB for NAV694, a proprietary compound that is primarily intended for use in diagnosing Alzheimer’s disease
and other central nervous system disorders. The license agreement is effective until the later of the tenth anniversary of the
first commercial sale of NAV4694 or the expiration of the underlying patents. Under the terms of the license agreement, AstraZeneca
granted us an exclusive worldwide royalty-bearing license for NAV4694 with the right to grant sublicenses. In consideration for
the license rights, we paid AstraZeneca a license issue fee of $5.0 million upon execution of the agreement. We also agreed to
pay AstraZeneca up to $6.5 million in contingent milestone payments based on the achievement of certain clinical development and
regulatory filing milestones, and up to $11.0 million in contingent milestone payments due following receipt of certain regulatory
approvals and the initiation of commercial sales of the licensed product. In addition, we agreed to pay AstraZeneca a royalty on
net sales of licensed and sublicensed products. Total costs related to the AstraZeneca license agreement were $14,000 and $5.0
million in 2012 and 2011, respectively, and were recorded in research and development expenses.

F-23







Notes to the Consolidated
Financial Statements



In July 2012, we entered into an agreement with Alseres
Pharmaceuticals, Inc. (Alseres) to sublicense NAV5001, an Iodine-123 radiolabeled imaging agent being developed as an aid in the
diagnosis of Parkinson’s disease and other movement disorders, with a potential use as a diagnostic aid in dementia. Under
the terms of the sublicense agreement, Alseres granted Navidea an exclusive, worldwide sublicense to research, develop and commercialize
NAV5001. The terms of the agreement required Navidea to make a one-time sublicense execution payment to Alseres equal to (i) $175,000
in cash and (ii) 300,000 shares of our common stock. The sublicense agreement also provides for contingent milestone payments of
up to $2.9 million, $2.5 million of which will principally occur at the time of product registration or upon commercial sales,
and the issuance of up to an additional 1.15 million shares of Navidea common stock, 950,000 shares of which are issuable at the
time of product registration or upon commercial sales. In addition, the sublicense terms anticipate royalties on annual net sales
of the approved product which are consistent with industry-standard terms and certain sublicense extension fees, payable in cash
and shares of common stock, in the event certain diligence milestones are not met. Total costs related to the Alseres sublicense
agreement were $1.8 million in 2012, and were recorded in research and development expenses.



Cardiosonix’s 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 of $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 of its products,
if any, up to 300% of the total grants received, depending on the portion of manufacturing activity that takes place in Israel.
In January 2006, the OCS consented to the transfer of manufacturing as long as we comply with the terms of the OCS statutes under
Israeli law. We are not aware of any future performance obligations related to the grants received from the OCS. We do not believe
we will be obligated to pay the OCS any amounts greater than any royalties due on future sales in the event that future sales are
not sufficient to generate adequate revenue to completely cover the full amount of the grant. 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. Through December 2012,
we have paid the OCS a total of $82,000 in royalties related to sales of products developed under this program. As of December
31, 2012, we have accrued obligations for royalties totaling $1,000.



During January 2005, we completed a license agreement
with The Ohio State University (OSU), Cira LLC, and Cira Bio for certain technology relating to activated cellular therapy. The
license agreement is effective until the expiration date of the longest-lived underlying patent. Under the terms of the license
agreement, OSU has granted the licensees the exclusive rights to make, have made, use, lease, sell and import licensed products
as defined in the agreement and to utilize the defined licensed practices. We may also sublicense the patent rights. In consideration
for the license rights, we agreed to pay OSU a license fee of $5,000 on January 31, 2006. We also agreed to pay OSU additional
license fees related to initiation of Phase 2 and Phase 3 clinical trials, a royalty on net sales of licensed products subject
to a minimum annual royalty of $100,000 beginning in 2012, and a percentage of any non-royalty license income. Also during January
2005, we completed a business venture agreement with Cira LLC that defines each party’s responsibilities and commitments
with respect to Cira Bio and the license agreement with OSU. In connection with the execution of the option, Cira Ltd. also agreed
to assign all interests in the ACT technology in the event of the closing of such a financing transaction. The license agreement
with OSU was terminated effective December 31, 2012. Total costs related to the OSU license agreement were $100,000 in 2012, and
were recorded in research and development expenses.



F-24







Notes to the Consolidated
Financial Statements



| | c. | Employment Agreements:We maintain employment agreements with seven of our officers. The employment agreements contain
termination and/or change in control provisions that would entitle each of the officers to 1.5 to 2.5 times their annual salaries,
vest outstanding restricted stock and options to purchase common stock, and continue certain benefits if there is a termination
without cause or change in control of the Company (as defined) and their employment terminates. As of December 31, 2012, our maximum
contingent liability under these agreements in such an event is approximately $3.1 million. The employment agreements also provide
for severance, disability and death benefits.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 16. | Leases
| | --- | ------



We lease certain office equipment under capital leases
which expire in 2013 and 2016. We also lease office space in Ohio under an operating lease that expires in October 2013 and office
space in Massachusetts under an operating lease that expires in March 2014.



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



|                                                     |  | Capital Leases |        |  | Operating Leases |  
|---------------------------------------------------- |  | -------------- | ------ |  | ---------------- | -
|2013                                                 |  | $              | 8,789  |  |                  | $
|2014                                                 |  |                | 3,039  |  |                  |  
|2015                                                 |  |                | 3,039  |  |                  |  
|2016                                                 |  |                | 2,532  |  |                  |  
|                                                     |  |                | 17,399 |  |                  | $
|Less amount representing interest                    |  |                | 3,021  |  |                  |  
|Present value of net minimum lease payments          |  |                | 14,378 |  |                  |  
|Less current portion                                 |  |                | 7,276  |  |                  |  
|Capital lease obligations, excluding current portion |  | $              | 7,102  |  |                  |  



Total rental expense was $211,000, $154,000 and $125,000
for the years ended December 31, 2012, 2011 and 2010, respectively.



| | 17. | 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 also pay certain expenses related
to maintaining the plan. We recorded expenses related to our 401(k) plan of $71,000, $56,000 and $37,000 during 2012, 2011 and
2010, respectively.



| | 18. | Supplemental Disclosure for Statements of Cash Flows
| | --- | ----------------------------------------------------



During 2012, 2011 and 2010, we paid interest aggregating
$647,000, $4,000 and $136,000, respectively. During 2012, we issued 300,000 shares of our common stock as partial payment for the
execution of a sublicense agreement. During 2010, we issued 347,832 shares of our common stock as payment of interest on our convertible
debt and dividends on our convertible preferred stock. During 2012, 2011 and 2010, we issued 17,390, 35,233 and 53,499 shares of
our common stock, respectively, as matching contributions to our 401(k) Plan. During 2011 and 2010, we transferred $25,000 and
$79,000, respectively, of GDS Business inventory to fixed assets related to the creation and maintenance of a pool of service loaner
equipment. During 2012 and 2010, we prepaid $267,000 and $71,000, respectively, of insurance premiums through the issuance of notes
payable to finance companies with interest rates of 2.8% and 7.0%, respectively. During 2012, we purchased equipment under a capital
lease totaling $9,000. During 2010, we reclassified $223,000 of deferred stock offering costs to additional paid-in capital related
to the issuance of our common stock to Fusion Capital. See Note 13(a). Also during 2010, we recorded a deemed dividend of $8.0
million related to the exchange of the Series A Preferred Stock for Series B Preferred Stock. See Note 10.



F-25







Notes to the Consolidated
Financial Statements



| | 19. | 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.



| | 20. | Subsequent Events
| | --- | -----------------



| | a. | FDA Approval of Lymphoseek: On March 13, 2013, the Company received FDA approval to market Lymphoseek. As a result of
the Lymphoseek approval, 510,000 shares of restricted stock vested with an aggregate fair value of $1.6 million. The approval of
Lymphoseek also made an additional $20 million available to the Company under the credit facility with Montaur.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | Public Offering of Common Stock:In January 2013, Navidea entered into an underwriting agreement with Ladenburg Thalmann
& Co. Inc., related to a public offering of 1,542,389 shares of the Company’s common stock at a price of $3.10 per share
less underwriting discounts and commissions (the Offering). The Offering closed in February 2013, following the satisfaction of
customary closing conditions. The net proceeds to the Company were approximately $4.4 million after deducting expenses associated
with the Offering. The Company will use the net proceeds from the offering to fund the clinical development and launch of its current
drug products, to fund other potential product pipeline opportunities, and for general corporate purposes. The Offering was made
pursuant to the Company’s existing effective shelf registration statement on Form S-3.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | Warrant Exercise: In March 2013, Montaur exercised 3,000,000 of the Series X warrants in exchange for issuance of 3,000,000
shares of our common stock, resulting in gross proceeds of $1,380,000.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





F-26