SOURCE: Napo Pharmaceuticals Inc

September 15, 2006 02:01 ET

Napo Pharmaceuticals, Inc announces Maiden Interim Results for the Six Months Ended 30 June 2006

San Francisco, California -- (MARKET WIRE) -- September 15, 2006 --

For immediate release                            15 September 2006
                                                                  
                                                                  
                    Napo Pharmaceuticals, Inc                     
                    ("Napo" or "the Company")                     
                                                                  
Maiden Interim Results for the Six Months Ended 30 June 2006      
                                                                  
South San Francisco, California, 15 September, 2006 - Napo        
Pharmaceuticals, Inc., (LSE: NAPL), which focuses on bringing     
proprietary products to the global marketplace in collaboration   
with local partners, today announces its interim results for the  
six months ended 30 June 2006. The Company listed its shares on   
the Main Market of the London Stock Exchange in July 2006.        
                                                                  
Financial Highlights:                                             
                                                                  
                                                                  
-     Flotation on London Stock Exchange successfully completed on
      31 July, 2006 raising approximately USD 22 million (GBP11.9 
      million) in gross proceeds from the IPO                     
                                                                  
                                                                  
-     Cash position of approximately USD4.5 million at 30 June    
      2006 compared with USD1.2 million at December 2005          
      strengthened by IPO proceeds in July 2006 to approximately  
      USD23.7 million                                             
                                                                  
                                                                  
-     Net loss attributable to common shareholders of USD5.6      
      million                                                     
                                                                  
                                                                  
-     Approximately USD600,000 grant awarded from the US National 
      Institutes of Health National Institute of Allergy and      
      Infectious Diseases (NIH-NIAID) in July 2006 to be used for 
      the development of crofelemer for the treatment of cholera. 
                                                                  
Operational Highlights:                                           
                                                                  
                                                                  
-       Positive results observed with crofelemer (CRO-IBS) in a  
        US Phase 2a diarrhoea predominant irritable bowel syndrome
        (D-IBS) trial conducted by Napo's licensee, Trine         
        Pharmaceuticals                                           
                                                                  
                                                                  
-       Initiation of a Phase 2 cholera trial with crofelemer in  
        Bangladesh                                                
                                                                  
                                                                  
-       Expansion of personnel and manufacturing activities for an
        upcoming pivotal Phase 3 trial for chronic diarrhoea      
        associated with HIV/AIDS (CRO-HIV)                        
                                                                  
                                                                  
-       Entered into plant screening agreement with AsiaPharm     
        Group for the screening of Napo's library of plants for   
        therapeutic indications                                   
                                                                  
                                                                  
-       Approval received in August 2006 by Glenmark              
        Pharmaceuticals Ltd. (Napo licensee) from Indian          
        regulators to initiate a Phase 2 clinical trial of        
        crofelemer for acute infectious diarrhoea in adult        
        patients.                                                 
                                                                  
Commenting on Napo's maiden interim results, Ms Lisa Conte, Chief 
Executive Officer of Napo Pharmaceuticals Inc, said: "We are      
delighted to have successfully completed our flotation on the Main
Market of the London Stock Exchange this year. Napo's deep and    
late-stage pipeline of potentially life-saving products is        
advancing well and according to plan. We look forward to          
progressing our products, in collaboration with our global        
partners, through the clinic. In particular we look forward to    
initiating the Phase 3 CRO-HIV trial, continuing our Phase 2      
cholera trial, and the initiation of the Phase 2b study in        
diarrhoea predominant irritable bowel syndrome (D-IBS), for which 
we will receive a USD1.0 million milestone payment from our       
partner, Trine Pharmaceuticals. We look forward to strong newsflow
from our product pipeline and would like to take this opportunity 
to thank all of our employees, stake holders and shareholders for 
their support."                                                   
                                                                  
About Napo                                                        
                                                                  
                                                                  
Napo Pharmaceuticals Inc., focuses on the development and         
commercialisation of proprietary pharmaceuticals for the global   
marketplace in collaboration with local partners. Napo was founded
in November 2001, and is based in California, USA with a          
subsidiary in Mumbai, India.                                      
                                                                  
                                                                  
Napo's late-stage proprietary gastro-intestinal compound,         
crofelemer, is in various stages of clinical development for four 
distinct product indications, including a late-stage Phase 3      
program:        
                                                  
-   CRO-HIV for AIDS diarrhoea, Phase 3                           
                                                                  
                                                                  
-   CRO-IBS for diarrhoea irritable bowel syndrome ("D-IBS"),     
    Phase 2                                                       
                                                                  
                                                                  
-   CRO-ID for acute infectious diarrhoea (including cholera),    
    Phase 2                                                       
                                                                  
                                                                  
-   CRO-PED for paediatric diarrhoea, Phase 1                     
                                                                  
                                                                  
The FDA has granted fast-track status to CRO-IBS and CRO-HIV.     
                                                                  
                                                                  
Crofelemer, a proprietary patented agent, is extracted from Croton
lechleri, a medicinal plant which can be sustainably harvested    
from several countries in South America. Napo also plans to       
develop a pre-clinical product, NP-500, for the treatment of      
insulin resistant diseases of Type II diabetes and Syndrome X.    
Napo also has a plant library of approximately 2,300 medicinal    
plants from tropical regions and Napo has entered its first       
screening relationship associated with this collection. Currently,
products are based on the chemical and biological diversity       
derived from plants with medicinal properties, but future products
may be in-licensed from other sources.                            
                                                                  
                                                                  
Napo has partnerships with Trine Pharmaceuticals, Inc. of the     
United States of America; Glenmark Pharmaceuticals Limited of     
India; and AsiaPharm Group Ltd. of China. For more information    
please visit http://www.napopharma.com/                           
                                                                  
For more information please contact:                              

Napo Pharmaceuticals, Inc                                        
Lisa Conte, Chief                 On 15 September: 020 7466 5000
Executive Officer       After 15 September: (001) + 650 616 1902
Charles Thompson,                 On 15 September: 020 7466 5000
Chief Financial         After 15 September: (001) + 650 616 1903
Officer                 
                                                                
Buchanan                                           020 7466 5000
Communications                                                  
Tim Anderson,                                                   
Mary-Jane Johnson                                               
                                                                
Nomura Code Securities                             0207 776 1204
Limited                                                         
Juliet Thompson                                                 
                                                                
                                                                
Disclaimer The Shares referenced in this announcement are not   
for distribution, directly or indirectly, in or into the United 
States or to any US person as defined in Regulation S under the 
US Securities Act of 1933, as amended ("Regulation S"). This    
announcement is not an offer of securities for sale into the    
United States or elsewhere. The Shares described above have not 
been registered under the US Securities Act of 1933, as amended 
(the "Securities Act") and may not be offered or sold in the    
United States or to, or for the account or benefit of, US       
persons (as such term is defined in Regulation S) unless they   
are registered under the Securities Act or they are exempt from 
registration under the Securities Act. No offer or sale of      
Regulation S securities has been made or will be made in the    
United States. Hedging transactions involving these securities  
may not be conducted unless in compliance with the Securities   
Act.                                                            
                                                                
Chief Executive Officer's Report                                
                                                                
                                                                
I am very pleased to have this opportunity to introduce our     
initial interim report as a public company after our successful 
admission to the Main Market of the London Stock Exchange in    
July 2006.                                                      
                                                                
                                                                
Napo will use the proceeds of the offering primarily to conduct 
a Phase 3 clinical trial for CRO-HIV as well as to explore new  
product opportunities.                                          
                                                                
                                                                
We are dedicated to enhancing shareholder value through the     
partnerships we have established to discover and develop        
pharmaceuticals which can be utilised by both high margin, high 
value western markets and in the higher volume, lower margin    
emerging economies.                                             
                                                                
                                                                
Our lead compound, crofelemer, is sustainably harvested from a  
native species, Croton lechleri, which is found in the Amazon   
Basin in South America. Napo works with individuals and local   
communities to source the raw plant material from this species. 
Napo has also established a benefit sharing arrangement with the
Healing Forest Conservancy, a not-for-profit organisation which 
recognises the intellectual contribution of indigenous          
populations. This approach is not only appropriate socially, but
also ensures a steady supply of raw plant material that is      
sourced in accordance with procedures we have established to    
ensure uniformity in farming, harvesting and material handling  
practices. In addition to natural product based compounds such  
as crofelemer, we expect that future products may be sourced    
through medicinal chemistry.                                    
                                                                
                                                                
I would like to take this opportunity to recognise our Board of 
Directors (both current and former directors) and our employees 
for their dedication which has enabled Napo to move forward with
its goal of a public listing and whose help will be critical in 
our future success.                                             
                                                                
                                                                
Everyone at Napo is very excited about the opportunity that lies
ahead in driving Napo to greater levels of achievement through  
the successful introduction of new drugs which can benefit all  
of mankind.                                                     
                                                                
                                                                
Lisa A. Conte, Chief Executive Officer                          
15 September 2006                                               
                                                                
                                                                
Operational Review                                              
                                                                
Highlights from the first six months of 2006 include the        
following:                                                      
-     Positive results observed with crofelemer (CRO-IBS) in a
      US Phase 2a D-IBS trial conducted by our licensee, Trine  
      Pharmaceuticals, Inc.                                     
                                                                
                                                                
-     Initiation of a Phase 2 cholera trial with crofelemer in  
      Bangladesh                                                
                                                                
                                                                
-     Expansion of personnel and manufacturing activities for   
      our upcoming pivotal Phase 3 trial for chronic diarrhoea  
      associated with HIV/AIDS (CRO-HIV)                        
                                                                
                                                                
-     Entered into a plant screening agreement with AsiaPharm   
      Group for the screening of our library of plants for      
      therapeutic indications                                   
                                                                
                                                                
-     Approval received in August 2006 by Glenmark              
      Pharmaceuticals (Napo licensee) from Indian regulators to 
      initiate a Phase 2 clinical trial of crofelemer for acute 
      infectious diarrhoea in adult patients.                   
                                                                
CRO-IBS                                                         
                                                                
In February, 2006, the results of a proof-of-concept study of   
CRO-IBS indicated a significant effect for the treatment of     
abdominal pain, an important endpoint from a regulatory, patient
satisfaction, and large corporate partner interest perspective. 
                                                                
Cholera Trial                                                   
                                                                
In March 2006 we initiated a clinical study for cholera in      
Bangladesh at the International Centre for Diarrhoeal Disease   
Research. The Directors believe this study will assist Glenmark 
in achieving sales in its territory, on which Napo receives     
royalties.                                                      
                                                                
As of June 30, 2006, there were approximately 60 patients       
enrolled in the study.                                          
                                                                
On July 1, 2006, we were notified by the National Institutes of 
Health - National Institute of Allergy and Infectious Diseases  
that we had been awarded a grant of approximately USD USD600,000
to be used for the development of crofelemer for the treatment  
of cholera.                                                     
                                                                
Expansion of Personnel and CMC activities                       
                                                                
We added key personnel in chemistry, manufacturing and control  
activities (CMC) in the second quarter of 2006 to further our   
ongoing manufacturing activities with Glenmark Pharmaceuticals  
and other third party manufacturers to produce clinical trial   
supplies for the Phase 3 CRO-HIV trial and for the future       
commercial supply of crofelemer.                                
                                                                
Plant Screening Agreement                                       
                                                                
In January 2006, we signed an agreement with AsiaPharm Group for
the screening of our library of plants for therapeutic          
indications. As part of the agreement, AsiaPharm will utilise   
its high throughput screening platform to screen selected       
components from Napo's library of raw medicinal plant materials 
and medicinal plant extracts from tropical regions to identify  
active ingredients with anti-tumor, anti-inflammatory and       
anti-viral activities. AsiaPharm will also optimise the         
structure of the lead compounds and perform preclinical         
evaluation.                                                     
                                                                
Napo and AsiaPharm will jointly own all products that are       
developed under the agreement with AsiaPharm assuming           
responsibility for marketing and commercialisation in the       
People's Republic of China, while Napo will have this           
responsibility in other world markets.                          
                                                                
Approval from Indian regulator to initiate Phase 2 clinical     
trials for Crofelemer for Acute Infectious Diarrhoea in adult   
patients                                                        
                                                                
Napo announced in August 2006 that the Drug Controller General  
of India (DCGI) had granted approval for initiating a Phase 2   
trial using crofelemer, Napo's proprietary gastro-intestinal    
compound, for the treatment of acute infectious diarrhoea. The  
trial will be initiated by Glenmark Pharmaceuticals Ltd..       
Glenmark is Napo's product development and commercialisation    
partner for crofelemer in India and more than 110 emerging and  
developing country economies for the indications of AIDS related
diarrhoea, infectious diarrhoea and paediatric diarrhoea. Upon  
marketing Glenmark will pay royalties of 8% to 14% of its net   
sales to Napo.                                                  
                                                                
The trial is expected to commence in late 2006 and will involve 
sixty adult patients suffering from acute diarrhoea in a        
prospective, randomised, parallel group using a controlled      
double-blind placebo method. The trial will be concluded within 
three months from the start of dosing. Glenmark is also working 
on a development plan for the other indications of AIDS related 
diarrhoea and paediatric diarrhoea.                             
                                                                
Financial Review                                                
                                                                
Six months ended 30 June 2006 compared to 30 June 2005          
                                                                
In the first six months of the year Napo received revenue of    
approximately USD USD100,000 related to the sale of non core    
product.                                                        
                                                                
Research and development expenses were USD2.3 million in the six
month period ended 30 June 2006 compared to USD600,000 in the   
six months ended 30 June 2005. The significant increase in R&D  
expenses is attributable to increased headcount in manufacturing
and process chemistry functions as well as quality control and  
clinical and development activities including the initiation of 
a cholera trial in Bangladesh.                                  
                                                                
General and administrative expenses were USD2.1 million in the  
six month period ended 30 June 2006 compared to USD1.0 million  
in the six months ended 30 June 2005. The increase in general   
and administrative expenses is attributable to an increase in   
headcount and higher overall compensation and recruiting costs, 
in addition to expenses incurred in advance of Napo's initial   
public offering.                                                
                                                                
Interest income was USD13,000 in the six months ended 30 June   
2006 compared to USD5,000 in the six months ended 30 June 2005  
with the increase in net income attributable to higher cash     
balances in 2006.                                               
                                                                
Net loss was USD4.1 million in the six months ended 30 June 2006
compared to a net loss of USD1.5 million in the six months ended
30 June 2006. The net loss in the six months ended 30 June 2006 
was affected by non-cash compensation charges of USD425,000. In 
the six months ended 30 June 2006, Napo had a gain of USD172,000
related to the settlement of a lawsuit while in the six months  
ended 30 June 2005, Napo realised a gain of USD65,000 from an   
insurance settlement. Net loss attributable to common           
shareholders was USD5.6 million in the six months ended 30 June 
2006. The net loss attributable to common shareholders at 30    
June 2006 included a preferred stock deemed dividend of USD1.5  
million associated with the issuance of Series C Preferred Stock
and Optionally Convertible Redeemable Preference Shares in April
2006.                                                           
                                                                
Cash on hand at 30 June 2006 was USD4.5 million compared with   
USD1.2 million at December 2005. Our balance sheet was          
strengthened in July 2006 with the successful completion of our 
initial public offering which raised approximately USD22 million
in gross proceeds.                                              
                                                                
Outlook                                                         
                                                                
Napo is working toward initiating a final pivotal Phase 3 trial 
for crofelemer for the CRO-HIV indication later this year.      
Accordingly, costs will be increasing in relation to this       
activity in 2006 and 2007. Additionally, we are concurrently    
conducting our cholera trial and expect to incur costs related  
to this trial for the remainder of this year, with certain of   
these costs to be offset by the cholera grant Napo received from
the NIH-NIAID. Napo is currently looking at additional          
opportunities to exploit its plant library, for the in-licensing
of new indications and is seeking a partnership for the         
development of NP 500 for insulin resistance.                   
                                                                
Thank you for your support.                                     
                                                                
Charles Thompson                                                
Chief Financial Officer                                         
15 September 2006                                               
                                                                
                                                                
Condensed and Consolidated Balance Sheets, Statements of        
Operations and Cash Flows for the Periods Ended 30 June 2006, 30
June 2005 and 31 December 2005.                                 
                                                                
                                                                    
Condensed Consolidated Balance Sheets                               
                                     30 June     30 June 31 December
                                        2006        2005        2005
                                 (Unaudited) (Unaudited)            
                                         USD         USD         USD
Assets                                                              
Cash                               4,456,925      93,730   1,183,991
Deferred initial public            1,770,254         ---         ---
offering issuance costs                                             
Prepaid expenses and deposits         31,222      51,558      44,313
Other current assets                 111,800      17,730      67,572
Total current assets               6,370,201     163,018   1,295,876
Property and equipment, net           85,331      38,953      51,865
Patent, net                          125,000     152,778     138,889
Total Assets                       6,580,532     354,749   1,486,630
                                                                    
Liabilities                                                         
Accounts payable                   1,531,338     344,720     135,447
Deposit for warrant exercises      1,508,519         ---         ---
Short term notes                         ---   1,090,000         ---
Accrued compensation                 323,839     442,956     255,299
Other current liabilities            239,103      54,295       3,632
Total current liabilities          3,602,799   1,931,971     394,378
                                                                    
Convertible Redeemable                                              
Preference Shares                                                   
(Optionally convertible,                                            
redeemable preference shares, 1                                     
Indian Rupee par                                                    
value, 3,529,412 shares                                             
authorized, issued and                                              
outstanding, aggregate                                              
liquidation                                                         
preference of USD3,000,000)        3,086,296         ---         ---
                                                                    
Commitments and Contingencies                                       
(Note 4)                                                            
                                                                    
Stockholders' Equity (Deficit)                                      
Convertible preferred stock,                                        
USD0.0001 par value, 30,000,000                                     
shares authorized                                                   
Series A: 6,030,000 shares                                          
designated, 5,858,350 shares                                        
issued and                                                          
outstanding, aggregate             1,759,335   1,759,335   1,759,335
liquidation preference of                                           
USD1,756,333                                                        
Series B: 7,000,000 shares                                          
designated, 6,999,233 shares                                        
issued and                                                          
outstanding, aggregate             3,459,001   3,459,001   3,459,001
liquidation preference of
USD3,499,617
Series C: 15,000,000 shares                                         
designated, 8,383,548 shares                                        
issued and                                                          
outstanding as of 30 June 2006;                                     
5,248,254 shares issued and                                         
outstanding                                                         
as of 31 December 2005,            8,336,316         ---   4,451,029
aggregate liquidation                                               
preference of USD7,126,014                                          
Common stock: USD0.0001 par                                         
value, 60,000,000 shares                                            
authorized;                                                         
1,314,240 shares issued and                                         
outstanding at 30 June 2006;                                        
40,484 shares                                                       
issued and outstanding at 31             130           4           4
December 2005                                                       
Additional paid-in capital           796,991     302,127     325,249
Deficit accumulated during the  (14,460,336) (7,097,689) (8,902,366)
development stage                                                   
Total Stockholders' Equity         (108,563) (1,577,222)   1,092,252
(Deficit)                                                           
Total Liabilities, Convertible     6,580,532     354,749   1,486,630
Redeemable Preference Shares                                        
and Stockholders' Equity                                            
                                                                    
See summary of accounting policies and notes to financial statements

 

 

 
                                

 
                                                                    
Condensed Consolidated Statements of Operations                     
                                                                    
                                                         Period from
                                                           Inception
                                                        (15 November
                                                               2001)
                               Six months ended 30 June   Through 30
                                                                June
                                       2006        2005         2006
                                (unaudited) (unaudited)  (unaudited)
                                        USD         USD          USD
Revenue                             108,731     ---        1,432,125
Operating expenses:                                                 
Cost of revenue                         ---         ---      194,601
General and                       2,120,154   1,006,610    7,487,445
administrative(1)                                                   
Research and development          2,271,784     595,909    6,746,352
(2)                                                                 
Total operating expenses          4,391,938   1,602,519   14,428,398
Loss from operations            (4,283,207) (1,602,519) (12,996,273)
Gain from insurance                 172,051         ---      172,051
recovery                                                            
Interest (expense)                   12,638       5,389    (241,862)
income, net                                                         
Other income, net                       ---      65,200       65,200
Net loss                        (4,098,518) (1,531,930) (13,000,884)
                                                                    
Preferred stock deemed          (1,459,452)         ---  (1,459,452)
dividend                                                            
                                                                    
Net loss attributable to        (5,557,970) (1,531,930) (14,460,336)
common stockholders                                                 
                                                                    
Basic and diluted net                 16.12       37.84             
loss per common share                                               
                                                                    
Basic and diluted net                  8.88       20.84             
loss per common share                                               
(Pounds)                                                            
                                                                    
Shares used in basic and                                            
diluted                                                             
net loss per common share                                           
Calculation                         344,766      40,484             
                                                                    
Included in operating                                               
expenses is noncash                                                 
stock-based compensation                                            
as follows:                                                         
                                                                    
(1) General and                      59,005       7,753      281,349
administrative                                                      
(2) Research and                    365,868      16,836      471,163
development                                                         
                                                                    
See summary of accounting policies and notes to financial statements.
                                                                    

 

 

 

 
Condensed Consolidated Statements of Cash                            
Flows                                                                
                                                                     
                                                          Period from
                                Six months                  Inception
                                     Ended               (15 November
                                   30 June                      2001)
                                                           through 30
                                                                 June
                                      2006          2005         2006
                               (unaudited)   (unaudited)  (unaudited)
                                       USD           USD          USD
Operating Activities                                                 
Net loss                       (4,098,518)   (1,531,930) (13,000,884)
Adjustments to reconcile net                                         
loss to net cash                                                     
used in operating activities:                                        
Depreciation and amortization       24,339        17,585      179,424
Stock based compensation           424,873        24,589      752,512
expense                                                              
Issuance of preferred stock to                                       
pay                                                                  
predecessor expenses                   ---           ---      569,169
Changes in assets and                                                
liabilities:                                                         
Deferred initial public        (1,770,254)           ---  (1,770,254)
offering issuance costs                                              
Prepaid expenses and deposits       13,091         1,113     (31,222)
Other current assets              (44,228)        30,134    (111,800)
Accounts payable                 1,395,891       213,739    1,531,338
Accrued compensation                68,540           ---       68,540
Other current liabilities          235,471        52,761      390,015
Total Cash Used in Operating   (3,750,795)   (1,192,009) (11,423,162)
Activities                                                           
                                                                     
Investing Activities                                                 
Purchase of property and          (43,916)       (7,294)       39,073
equipment                                                            
Purchase of patent                     ---           ---    (250,600)
Total Cash Used in Investing      (43,916)       (7,294)    (211,527)
Activities                                                           
                                                                     
Financing Activities                                                 
Proceeds from issuance of              ---       920,000    2,456,000
short-term notes                                                     
Sale of preferred stock for      5,512,131           ---   12,079,485
cash, net of issuance costs of                                       
USD141,979                                                           
Common stock issuable for        1,508,519           ---    1,508,519
exercise of warrants                                                 
Proceeds from stock option          46,995           ---       46,995
exercises                                                            
Sale of common stock for cash          ---           ---          615
Total Cash Provided by           7,067,645       920,000   16,091,614
Financing Activities                                                 
                                                                     
Net increase (decrease) in       3,272,934     (279,303)    4,456,925
cash                                                                 
Cash, beginning of period        1,183,991       373,033          ---
Cash, end of period              4,456,925        93,730    4,456,925
                                                                     
Supplemental Schedule of                                             
Cash Flow Information:                                               
Cash paid for:                                                       
Interest                               ---           ---          ---
Income taxes                           ---           ---          ---
Supplemental Schedule of                                             
Non-Cash Investing and                                               
Financing Activities:                                                
Issuance of preferred stock as                                       
repayment of short-term notes          ---           ---    2,456,000
Accretion of convertible         1,459,452           ---    1,459,452
redeemable preference shares                                         
Accrued interest paid with             ---           ---       73,840
preferred stock                                                      
                                                                     
See summary of accounting                                            
policies and notes to                                                
financial statements                                                 
                                                                     

 

                                                                
     SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONDENSED      
               CONSOLIDATED FINANCIAL STATEMENTS                
                                                                
                                                                
Organisation, Business and Basis of Presentation                
                                                                
                                                                
Napo Pharmaceuticals, Inc. ("Napo", "the Company", "us", "we",  
or "our") was incorporated on 15 November 2001 in Delaware and  
is focused on licensing, developing and commercialising         
proprietary specialty pharmaceuticals for the global marketplace
in collaboration with partners. We are currently developing our 
proprietary product, crofelemer, for gastrointestinal           
indications such as diarrhoea-predominant Irritable Bowel       
Syndrome (D-IBS), chronic diarrhoea in people living with HIV/  
AIDS (AIDS diarrhoea), paediatric diarrhoea and acute infectious
diarrhoea. We operate in one segment. We prepare our financial  
statements in conformity with accounting principles generally   
accepted in the United States.                                  
                                                                
We are considered to be in the development stage as, since      
inception, our activities have consisted primarily of acquiring 
the rights to crofelemer, raising capital, attracting employees,
establishing facilities, performing research and development,   
entering into agreements with other entities for the development
and commercialisation rights to crofelemer and the analysis of  
our collection of plant samples for bioactive molecules which   
could result in potential new drug candidates. Revenue received 
from inception to date includes initial license payments as     
discussed below and miscellaneous sales of non-core product     
obtained through the purchase of certain Shaman Pharmaceutical, 
Inc. assets as discussed below.                                 
                                                                
                                                                
The accompanying financial statements have been prepared        
assuming that we will continue as a going concern. At 30 June   
2006, we had an accumulated deficit of USUSD14,460,336 and      
expect to incur substantial losses over the next several years  
while we continue in the development stage. Our operations are  
subject to certain risks and uncertainties frequently           
encountered by companies in the early stages of operations,     
particularly in the evolving market for small biotech and       
specialty pharmaceuticals companies. Such risks and             
uncertainties include, but are not limited to, timing and       
uncertainty of achieving milestones in clinical trials and in   
obtaining approvals by the Food and Drug Administration (the    
"FDA") and regulatory agencies in other countries, not only by  
us, but by our licensees as well. Our ability to generate       
revenues in the future will depend substantially on the timing  
and success of reaching development milestones and in obtaining 
regulatory approvals and market acceptance of our products,     
assuming the FDA and similar regulatory authorities in other
countries, approves our new drug applications.
                                                                
Use of Estimates                                                
                                                                
                                                                
The preparation of financial statements in conformity with      
accounting principles generally accepted in the United States   
requires our management to make judgments, assumptions and      
estimates that affect the amounts reported in our financial     
statements and the accompanying notes. Actual results could     
differ materially from those estimates. Significant estimates   
include, but are not limited to, valuation of stock based       
compensation, impairment of long lived assets, impairment of    
intangible assets and valuation of deferred tax assets.         
Concentration of Credit Risk and Cash                           
                                                                
                                                                
The financial instrument that potentially subjects the Company  
to a concentration of credit risk is cash. We consider all      
highly liquid instruments with a maturity of three months or    
less to be cash equivalents. We place our cash with a           
high-credit quality financial institution. Cash is generally in 
excess of FDIC insurance limits. We are exposed to credit risk  
in the event of default by the financial institution holding the
cash to the extent of the amount recorded on the balance sheets.
                                                                
Intangible Asset                                                
                                                                
                                                                
In accordance with the provisions of Statement of Financial     
Accounting Standards ("SFAS") No. 142, Goodwill and Intangible  
Assets, we perform an annual impairment test for the intangible 
asset. If the carrying amount is in excess of the fair value, an
impairment loss will be recorded. No impairment has been        
recorded through the date of these financial statements.        
                                                                
                                                                
The purchased intangible asset represents a composition of      
matter patent on crofelemer. A composition of matter patent     
affords patent protection on the novel chemical structure of    
crofelemer, previously underscribed in the scientific           
literature. The purchased intangible asset is carried at cost,  
net of accumulated amortization and is amortized over its       
remaining estimated useful life of nine years; the remaining    
legal patent life without extensions.                           
Property and Equipment                                          
                                                                
                                                                
Property and equipment are stated at cost, less accumulated     
depreciation. Depreciation is calculated using the straight-line
method over the estimated useful lives of the assets; generally 
three years.                                                    
Impairment of Long-Lived Assets                                 
                                                                
                                                                
In accordance with the provisions of Statement of Financial     
Accounting Standards ("SFAS") No. 144, Accounting for the       
Impairment or Disposal of Long-Lived Assets, we review          
long-lived assets, including property and equipment and patents,
for impairment whenever events or changes in business           
circumstances indicate that the carrying amount of the assets   
may not be fully recoverable. Under SFAS No. 144, an impairment 
loss would be recognized when estimated undiscounted future cash
flows expected to result from the use of the asset and its      
eventual disposition are less than its carrying amount.         
Impairment, if any, is assessed using discounted cash flows or  
other appropriate measures of fair value. Through 30 June 2006, 
there have been no such losses.                                 
                                                                
                                                                
Research and Development Expenses                               
                                                                
                                                                
Research and development expenses consist of expenses incurred  
in performing research and development activities including     
related salaries, clinical trial and related drug product costs,
contract services and other outside service expenses. Research  
and development expenses are charged to operating expense in the
period incurred.                                                
                                                                
                                                                
We have not completed any clinical trials since inception. We   
are currently conducting a trial for crofelemer for a cholera   
indication which began in March 2006, but prior thereto, our    
research and development activity has focused on the analysis of
the results of prior clinical trials conducted by Shaman        
Pharmaceuticals, Inc. as well as the development of improved    
manufacturing processes for crofelemer.                         
Income Taxes                                                    
                                                                
                                                                
Napo uses the liability method for income taxes as required by  
SFAS No. 109, Accounting for Income Taxes. Under this method,   
deferred tax assets and liabilities are determined based on     
differences between financial reporting and tax reporting bases 
of assets and liabilities and are measured using enacted tax    
rates and laws that are expected to be in effect when the       
differences are expected to reverse. Currently there is no      
provision for income taxes as we have incurred net losses since 
inception. To date, we have no history of earnings. Therefore,  
our net deferred tax assets are reduced by a valuation allowance
to the extent that realization of the related deferred tax asset
is not assured. We have recorded a valuation allowance for the  
full amount of our calculated deferred tax asset.               
                                                                
Basic and Diluted Net Loss Per Common Share                     
                                                                
                                                                
Basic net loss per common share is computed by dividing net loss
by the weighted-average number of common shares outstanding     
during the period. The computation of basic net loss per share  
for all periods presented is derived from the information on the
face of the statements of operations, and there are no          
reconciling items in either the numerator or denominator.       
                                                                
Diluted net loss per common share is computed as though all     
potential common shares that are dilutive were outstanding      
during the year, using the treasury stock method for the        
purposes of calculating the weighted-average number of dilutive 
common shares outstanding during the period. Potential dilutive 
common shares consist of shares issuable upon exercise of stock 
options and warrants. We have excluded 9,495,491 and 7,416,309  
shares for the six months ended 30 June 2006 and 2005,          
respectively, from the diluted net loss calculation because     
their inclusion would have been anti-dilutive.                  
Stock-Based Compensation                                        
                                                                
                                                                
Effective 1 January 2002, we adopted the preferable fair value  
recognition provisions of SFAS No. 123, Stock-Based Compensation
. In December 2004, the Financial Accounting Standards Board    
"FASB") issued SFAS No. 123(R), Share-Based Payment, which is a 
revision of SFAS No. 123. SFAS 123(R) supercedes Accounting     
Principles Board ("APB") Opinion No. 25, Accounting for Stock   
Issued to Employees, and amends SFAS No. 95, Statement of Cash  
Flows. SFAS 123(R) requires all share-based payments to         
employees, including grants of employee stock options, to be    
recognised in the financial statements based on their fair      
values at the date of grant and to record that cost as          
compensation expense over the period during which the employee  
is required to perform service in exchange for the award        
(generally over the vesting period of the award). Excess tax    
benefits, as defined by SFAS 123(R), will be recognized as an   
addition to additional paid-in capital.                         
                                                                
We have calculated stock-based compensation expense using the   
Black-Scholes option valuation model and included the portion of
share-based payment awards that is ultimately expected to vest  
during future periods. Historically, there have been no         
forfeitures. Additionally, at this time, we do not anticipate   
any forfeitures in the foreseeable future. However, in the event
that there are forfeitures, estimates will be revised to reflect
actual experience. Stock-based compensation expense is          
recognised on a straight-line basis.                            
Recent Accounting Pronouncements                                
                                                                
                                                                
In June 2006, the FASB issued FASB Interpretation No. 48 ("FIN  
48"), Accounting for Uncertainty in Income Taxes," an           
interpretation of SFAS No. 109, "Accounting for Income Taxes."  
The interpretation contains a two-step approach to recognizing  
and measuring uncertain tax positions accounted for in          
accordance with SFAS No. 109. The provisions are effective for  
the Company as of January 1, 2007. We are currently evaluating  
the impact this statement will have on our consolidated         
financial statements.                                           
                                                                
                                                                
Notes to the Financial Statements                               

1. Acquisition of Shaman Assets                                 
                                                                
                                                                
In December 2001, we acquired certain assets of Shaman          
Pharmaceuticals, Inc. ("Shaman") pursuant to a court ordered    
sale of such assets. Shaman Pharmaceuticals had previously filed
for bankruptcy protection under Chapter 11 of the United States 
Bankruptcy Code. The purchase price for the Shaman assets was   
USUSD250,000 in cash USUSD100,000 of which was loaned to us by  
an officer of Napo and subsequently repaid by issuing to that   
officer 333,555 shares of Series A preferred stock. We also     
incurred USUSD149,559 in costs to related and unrelated parties.
The assets purchased included data from clinical trials         
previously conducted by Shaman, in-process research and         
development activities and materials as well as intellectual    
property. We have assigned the USUSD250,000 purchase price to   
the "composition of matter" patent for crofelemer issued in the 
United States and acquired as part of the Shaman assets. We are 
amortizing the purchase price for the Shaman assets over the    
remaining 9 year life of the patent, from 1 January 2002. The   
patent expires in 2011.                                         
                                                                
                                                                
The remaining costs were expensed prior to 31 December 2003.    
                                                                
                                                                
In addition to the amounts expended in the acquisition of Shaman
assets, approximately USUSD159,393 of Napo Series A preferred   
stock was issued in exchange for then outstanding debts of      
Shaman held by individuals who become officers of Napo or to    
entities which became shareholders of Napo.                     

2. License and Other Agreements                                 
                                                                
                                                                
Revenue from the License or Assignment of Intellectual Property 
Rights                                                          
                                                                
                                                                
We recognise revenue from the license or assignment of          
intellectual property rights to third parties, including        
development milestone payments associated with such agreements  
if we have received the funds, we have delivered the rights to  
the property, and have no further obligations under the         
agreements in accordance with the date(s) when the payment has  
been received or collection is assured. In June 2004, we        
recognised USUSD950,000 of license revenue from the grant of a  
license to Trine Pharmaceuticals, Inc. for the worldwide        
development and commercialisation rights to Crofelemer for the  
indication of D-IBS.                                            
Royalty Revenue                                                 
                                                                
                                                                
We entered into licensing agreements with AsiaPharm Group Ltd,  
based in the Peoples Republic of China and Glenmark             
Pharmaceuticals Limited, based in Mumbai, India, for the license
of crofelemer for the indications of AIDS-related diarrhoea,    
acute infectious diarrhoea and paediatric diarrhoea in their    
respective territories. AsiaPharm Group, through its subsidiary,
AsiaPharm Investments Ltd., invested in our Series C preferred  
stock as did Glenmark Pharmaceuticals. We have recognised no    
royalty revenue from these licenses.                            

3. Property and Equipment                                       

Property and equipment consists of the following:               

 
                                  30 June  31 December     30 June
                                     2006         2005        2005
                                                                  
Lab equipment                   USD85,209    USD42,530   USD26,057
Office equipment                   44,775       39,160      24,966
Furniture and fixtures              1,299        1,299       1,299
                                  131,283       82,889      52,322
                                                                  
Less accumulated                 (45,952)     (31,124)    (13,369)
depreciation                                                      
Property and equipment, net     USD85,331    USD51,865   USD38,953

 

 
4. Commitments                                                  
                                                                
                                                                
We have at-will employment agreements with certain of our       
employees that provide severance payments, including healthcare 
benefits to be paid in the event of a change of control of Napo,
defined in the agreements as a transaction where more than 50   
per cent of the total combined voting power of our outstanding  
securities changes ownership, whereby pursuant to a change of   
control any of the following occur: (i) the employment of these 
employees is not maintained; (ii) their compensation is changed;
(iii) their job title is changed; or (iv) the geographic        
location of their workplace is changed.                         
                                                                
                                                                
The severance payments vary in length from 6 months to 12 months
of the employee's then current level of compensation, including 
healthcare benefits, as set by the board of directors. As of 30 
June 2006, the cost of such severance would equal approximately,
USUSD1,119,106.                                                 
                                                                
                                                                
Our licensing agreements with licensees contain provisions      
whereby Napo has agreed to indemnify and hold harmless its      
licensees from claims or damages arising from the licensing     
arrangements.                                                   
                                                                
                                                                
License Agreement with Michael Tempesta                         
                                                                
                                                                
The Company has entered into a license agreement dated 16       
October 2002 with Michael Tempesta. This agreement settled      
disputes with Dr. Tempesta relating to previous license         
arrangements between Shaman or the Company and Dr. Tempesta. The
agreement provides for the payment of a royalty to Dr. Tempesta 
of between 2 per cent and 4 per cent of net sales of products   
containing Crofelemer or any derivative thereof obtained from   
any species of the Croton plant. "Product" for the purposes of  
calculating royalties is defined as all products for the        
treatment, maintenance or improvement of human health which are 
prescription medicines, botanicals, dietary supplements sold for
the treatment of diarrhoea, Irritable Bowel Syndrome ("IBS") or 
herpes. This excludes cosmetic products, non-medicinal          
agricultural products and products for non-human animal health. 
Healing Forest Conservancy                                      
                                                                
                                                                
The Company has entered into an agreement with the Healing      
Forest Conservancy (HFC) pursuant to which the Company has      
agreed to: (i) issue to HFC 30,000 common shares in Napo at a   
purchase price of USD0.0001 each; (ii) pay 2 per cent of the net
profit derived from the sale of all of its products to HFC once 
Napo has achieved net profits after tax over a consecutive      
period of 6 months. The aim of Napo's arrangement with HFC is,  
amongst other things, (i) to promote the conservation of the    
biological diversity of tropical forests, particularly medicinal
plants (ii) to promote the survival of cultural diversity of    
tropical forest peoples, and in particular, their traditional   
knowledge of medicinal plants, (iii) to develop and implement a 
process to return financial benefits from net profits made on   
certain products to collaborating countries and cultural groups,
(iv) to promote initiatives addressing total community health   
for developing and emerging communities; and (v) to lead efforts
to encourage sustainable global communication and participation 
from other organisations, including corporate, non-governmental 
organizations, governmental agencies, and others.               
                                                                
                                                                
5. Stockholders' Equity (Deficit)                               
                                                                
                                                                
Common Stock                                                    
                                                                
                                                                
60,000,000 shares of Common Stock are authorised, with a par    
value of USUSD0.0001 per share. We have reserved shares of our  
common stock for future issuance as follows:                    

 

 
                                                         30 June
                                                            2006
Stock options outstanding                              7,146,664
Stock options available for future grant                 109,580
Warrants to purchase common stock                      2,778,162
                                                      10,034,406
                                                                
Preferred Stock                                                 

 
Series A                                                        
                                                                
                                                                
On 14 December 2001 we sold 2,682,341 shares of Series A        
Preferred Stock to a group of investors at USUSD.2998 per share 
for cash and to pay predecessor expenses.                       
                                                                
                                                                
During 2002 we sold an additional 3,176,009 shares of Series A  
Preferred Stock to a group of investors at USUSD.2998 per share 
for cash.                                                       
                                                                
                                                                
During 2002, we issued warrants to purchase 100,067 shares of   
Series A Preferred Stock at USUSD.2998, valued at USUSD3,002, to
our outside counsel for legal fees. These warrants are          
exercisable for 5 years from 2002.                              
                                                                
                                                                
The holders of Series A Preferred Stock, at their option, may at
any time convert their Series A holdings, on a one for one      
basis, to Napo Common Stock. The holders of Series A Preferred  
Stock have elected to subordinate their liquidation claims to   
the claims of Series B and Series C preferred stock. Series A   
Preferred, subject to the preferential rights of the Series B   
and Series C preferred stock, bears a dividend of USUSD.018 per 
share per year in preference to dividends paid on Common Stock  
payable only when and if declared by the Company. Holders of    
Series A Preferred Stock are entitled to vote on all matters    
brought before shareholders for vote. Each share is entitled to 
one vote, except when electing the Board of Directors. Series A 
Preferred shareholders may elect one director. Series A         
Preferred shares convert to Common Stock automatically upon     
closing of an underwritten initial public offering with net cash
proceeds to the Company in excess of USUSD20,000,000. 6,030,000 
shares of Series A Preferred Stock are authorized, at a par     
value of USUSD0.0001 per share.                                 
                                                                
                                                                
Series B                                                        
                                                                
                                                                
On 1 March 2004 we sold 4,659,233 shares of Series B Convertible
Preferred Stock to a group of investors, including 87,233 shares
issued in lieu of interest incurred of USUSD43,616. As part of  
their investment in the Notes (See "Short Term Notes"), we      
issued to the Note investors 5-year warrants to purchase, at    
USUSD0.50 per share, an amount of Napo common stock equal to 50 
per cent of the number of Series B shares owned by them as a    
result of the conversion of their Notes. In total, we issued    
fully vested and immediately exercisable warrants to purchase   
2,329,616 shares of common stock valued at USUSD107,508, and    
recorded as additional paid-in capital. All of the warrants     
issued in connection with the Series B financing expire in 2009.
These warrants are exercisable for 5 years from 2004. As of 30  
June 2006, none of these warrants have been exercised.          
                                                                
                                                                
Subsequently, an additional 2,340,000 shares of Series B        
Convertible Preferred Stock were sold as of 30 September 2004 at
USUSD0.50 per share. In addition, as per our agreement with a   
finder, we issued fully vested and immediately exercisable      
warrants to purchase 175,000 shares of common stock at USUSD.50 
per share, valued at USUSD8,077, and recorded as additional     
paid-in capital. These warrants are exercisable for 5 years from
2004. As of 30 June 2006, none of these warrants have been      
exercised.                                                      
                                                                
                                                                
The holders of Series B Preferred Stock, at their option, may at
any time convert their Series B holdings, on a one for one      
basis, to Napo Common Stock. The holders of Series B Preferred  
Stock have elected to subordinate their liquidation claims to   
the claims of the holders of Series C preferred stock. Series B 
Preferred, subject to the preferential rights of the holders of 
Series C preferred stock, bears a dividend of USUSD0.03 per     
share per year in preference to dividends paid on Common Stock  
and Series A Convertible Preferred Stock payable only when and  
if declared by the Company. Holders of Series B Preferred Stock 
are entitled to vote on all matters brought before shareholders 
for vote. Each share is entitled to one vote, except when       
electing the Board of Directors. Series B Preferred shareholders
may elect only one director. Series B Preferred shares convert  
to Common Stock automatically upon closing of an underwritten   
initial public offering with net cash proceeds to the Company in
excess of USUSD20,000,000.                                      
                                                                
                                                                
7,000,000 shares of Series B Preferred Stock are authorized.    
These shares have a par value of USD0.0001.                     
                                                                
                                                                
Series C                                                        
                                                                
                                                                
As discussed earlier, in a series of transactions beginning in  
December 2004 and ending in June 2005, we raised USUSD1,090,000 
through the issuance of Convertible Notes to a group of         
investors. The Convertible Notes bore interest at 5 per cent    
with interest payable in the form of Series C Convertible       
Preferred Stock.                                                
                                                                
                                                                
As of 30 September 2005, all of the Convertible Notes converted 
to 1,317,911 shares of Series C Convertible Preferred Stock at  
USUSD0.85 per share, including 35,558 shares of Series C        
Convertible Preferred Stock issued in lieu of cash interest.    
                                                                
                                                                
Additionally, we issued 2,961,794 shares of Series C Convertible
Preferred Stock at USUSD.85 per share as of 30 September 2005 to
a group of investors for cash. In addition, as per our agreement
with a finder, we issued fully vested and immediately           
exercisable warrants, valued at USUSD5,705, to purchase 90,000  
shares of common stock at USUSD0.85 per share. These warrants   
expire in 2010. As of 30 June 2006, none of these warrants have 
been exercised. Subsequently, by 31 December 2005, we sold an   
additional 968,549 shares of Series C Convertible Preferred     
Stock at USUSD0.85 per share.                                   
                                                                
Investors purchased an additional 1,241,174 shares of Series C  
Convertible Preferred Stock at USUSD0.85 per share in February  
2006 for aggregate consideration of USUSD1,055,000.             
                                                                
                                                                
In April 2006, we issued 1,894,117 shares of Series C Preferred 
Stock at USUSD0.85 per share to third-parties for consideration 
of USUSD1,550,000 in cash and services which the Company valued 
at USUSD60,000, total aggregate consisting of USUSD1,610,000. In
connection with this issuance, Napo recorded a deemed dividend
to those preferred shareholders that purchased Series C         
Preferred Stock in April 2006 of USD1,343,000.
                                                                
The holders of Series C Preferred Stock, at their option, may at
any time convert their Series C holdings, on a one for one      
basis, to Napo Common Stock. Series C Preferred bears a dividend
of USUSD.051 per share per year in preference to dividends paid 
on Common Stock, Series A, and Series B Preferred Stock, payable
only when and if declared by the Company. Holders of Series C   
Preferred Stock are entitled to vote on all matters brought     
before shareholders for vote. Each share is entitled to one     
vote, except when electing the Board of Directors. Series C     
Preferred shareholders may elect only one director. Series C    
Preferred shares convert to Common Stock automatically upon     
closing of an underwritten initial public offering with net cash
proceeds to the Company in excess of USUSD20,000,000.           
                                                                
                                                                
15,000,000 shares of Series C Preferred Stock are authorised.   
                                                                
                                                                
                                                                
Optionally Convertible, Redeemable, Non-Cumulative,             
Non-Participating Preference Shares                             
                                                                
On 19 April 2006, IL&FS Investment Managers Limited ("IL&FS"),  
invested USUSD3 million in Napo India Private Limited ("Napo    
India"), a company organized by us for the purpose of this      
investment and our ongoing activity in India, in exchange for   
100 shares of Napo India and 3,529,412 optionally convertible,  
redeemable, non-cumulative, non-participating preference shares 
of Napo India having a par value of Rupee One ("OCRPS"). Napo   
India subsequently invested the USUSD3 million invested by IL&FS
in our Series C Preferred Stock at USUSD0.85 per share pursuant 
to a subscription agreement dated 19 April 2006.                
                                                                
                                                                
Subsequent to Napo India's investment in our Series C Preferred 
stock, we bought 10,000 Shares of Napo India from the existing  
shareholders of Napo India, and Napo India became an            
approximately 99 per cent owned subsidiary of ours. These       
condensed consolidated financial statements include the accounts
of Napo India at 30 June 2006.                                  
                                                                
                                                                
The OCRPSs held by IL&FS have a term of four (4) years from the 
completion of the subscription as set forth in the Subscription 
Agreement or, the earliest to occur of (x) the due date of the  
OCRPSs (y) IL&FS receiving the Liquidity Amount (being the net  
proceeds received by Napo India from the sale of shares of our  
Common Stock) and (z) the occurrence of a change in Indian law  
permitting, under applicable law, IL&FS to own and hold shares  
of Series C Preferred Stock, and after which Napo India sells   
our Series C Preferred Stock to IL&FS.                          
                                                                
                                                                
The OCRPSs have a redemption premium that yields for IL&FS an   
internal rate of return of 20 per cent per annum on their       
USUSD3,000,000 investment, calculated from the date of the      
investment in Napo India until the date of actual receipt by IL&
FS of the redemption of the OCRPSs. This redemption premium     
resulted in deemed dividends of approximately USD116,000. In    
addition, it was determined that there was a beneficial         
conversion feature associated with the OCRPS. As such, we will  
record a deemed dividend of USD2,294,118 over the four year term
of the OCRPSs. During the six months ended 30 June 2006, we     
recorded USD111,563 of this deemed dividend. To the extent the  
OCRPSs are not exchanged for our Common Stock or Series C       
Preferred Stock and are guaranteed by us as to principal and the
redemption premium.                                             
                                                                
Stock Options                                                   
                                                                
                                                                
The Napo Pharmaceuticals, Inc. 2001 Equity Incentive Plan (the  
"Plan"), provides for grants of incentive and non-qualified     
stock options, restricted stock awards, and stock bonuses to our
employees directors and consultants. Under the Plan, the total  
number of shares originally reserved and available for grant was
2,600,000. As a result of a series of amendments which were     
approved by the stockholders, the number of shares reserved and 
either granted or available for grant as of 30 June 2006 is     
8,500,000. Under the Plan, incentive stock options may be       
granted at a price per share not less than the fair market value
at the date of grant, and nonqualified stock options may be     
granted at a price per share not less than 85 per cent of the   
fair market value at the date of grant. If, at the time we grant
an option, the optionee owns stock possessing more than 10 per  
cent of the total combined voting power of all classes of stock 
of the Company, the option price shall be 110 per cent of the   
fair market value of the shares of the date of grant. Options   
granted generally have a maximum term of ten years from the     
grant date and become exercisable over two to three years. As of
30 June 2006, there were options to purchase 7,146,664 shares   
outstanding under the Plan and 109,580 shares available for     
future grant.                                                   
                                                                
The application of the Black-Scholes option valuation model (see
Note 1) involves the use of assumptions that are judgmental and 
sensitive in the determination of stock-based compensation      
expense. The key assumptions used in determining the fair value 
of options granted during the six months ended 30 June 2006 and 
2005 are as follows:                                            
                                                                

 
                                           Six months           
                                                ended           
                                              30 June           
                                                 2006       2005
Expected price volatility                        200%       267%
Risk-free interest rate                         5.29%      4.42%
Weighted average expected life in                  10         10
years                                                           
Dividend yield                                      -          -
Forfeiture rate                                     -          -

 
A summary of activity under the                                       
Plan as of 30 June 2006 is as                                         
follows:                                                              
                                            Outstanding Options       
                                                             Weighted-
                                       Shares                  Average
                                Available for    Number of   Price Per
                                        Grant       Shares       Share
Balances at 31 December 2005          727,929    5,172,071    USD0.049
Additional shares authorised        2,600,000                         
Options granted                   (3,218,349)    3,218,349    USD0.295
Options exercised                              (1,243,756)    USD0.031
Balances at 30 June 2006              109,580    7,146,664    USD0.163
                                                                      
The following table summarises information about stock options        
outstanding at 30 June 2006:                                          
                                                                      
                                               Outstanding            
                                                   Options            
Exercise Prices                      Number      Weighted-     Options
                                Outstanding        Average   Vested at
                                         at                           
                                    30 June      Remaining     30 June
                                       2006  Contract Life        2006
USD0.030                          1,109,634           6.20   1,109,634
USD0.050                          2,244,545           7.55   1,880,305
USD0.085                            574,136           8.92     295,993
USD0.170                          1,154,504           9.52     202,934
USD0.300                             83,478           5.85      83,478
USD0.340                          1,880,367           9.82     134,739
USD0.850                            100,000           9.97       4,110
                                  7,146,664           8.42   3,711,193
                                                                      

 

 
The weighted-average fair value of options granted during the   
six months ended 30 June 2006 was USUSD1.0229. No options were  
granted during the six months ended 30 June 2005.               
                                                                
6. 401(k) Plan                                                  
                                                                
                                                                
In April 2005, we adopted a Tax Deferred Savings Plan under     
Section 401(k) of the Internal Revenue Code (the "Plan") for all
full-time employees. Under the Plan, our eligible employees can 
contribute amounts to the Plan via payroll withholding, subject 
to certain limitations. Our matching contributions to the Plan  
are discretionary and can only be made in cash. To date, we have
made no employer contributions to the plan.                     
                                                                
7. Statement of Changes In Stockholders' Equity (Deficit)       

 
                                                    
                                                    
                                  Common Stock      
                                   Amount    Paid-in
                                             Capital
                                      USD        USD
                                                    
Balances at 31 December 2004            4    277,538
                                                    
Stock-based compensation                      24,589
expense                                             
                                                    
Loss for the period                                 
                                                    
Balances at 30 June 2005                4    302,127
                                                    
Shares issued                                  5,705
                                                    
Stock-based compensation                      17,417
expense                                             
                                                    
Loss for the period                                 
                                                    
Balances at 31 December 2005            4    325,249
                                                    
Shares issued                         126     46,869
                                                    
Stock-based compensation                     424,873
expense                                             
                                                    
Preferred stock deemed                              
dividend                                            
                                                    
Loss for the period                                 
                                                    
Balances at 30 June 2006              130    796,991

 
                                                           
                                                           
                                  Preferred Stock          
                          Series A      Series B   Series C
                               USD           USD        USD
                                                           
Balances at 31 December  1,759,335     3,459,001        ---
2004                                                       
                                                           
Stock-based                                                
compensation expense                                       
                                                           
Loss for the period                                        
                                                           
Balances at 30 June      1,759,335     3,459,001        ---
2005                                                       
                                                           
Shares issued                                     4,451,029
                                                           
Stock-based                                                
compensation expense                                       
                                                           
Loss for the period                                        
                                                           
Balances at 31 December  1,759,335     3,459,001  4,451,029
2005                                                       
                                                           
Shares issued                                     2,537,398
                                                           
Stock-based                                                
compensation expense                                       
                                                           
Preferred stock deemed                            1,347,889
dividend                                                   
                                                           
Loss for the period                                        

Balances at 30 June      1,759,335     3,459,001  8,336,316
2006                                                       

 
                           Accumulated                   
                             Deficit                Total
                                      USD             USD
                                                         
Balances at 31 December       (5,565,759)        (69,881)
2004                                                     
                                                         
Stock-based compensation                           24,589
expense                                                  
                                                         
Loss for the period           (1,531,930)     (1,531,930)
                                                         
Balances at 30 June 2005      (7,097,689)     (1,577,222)
                                                         
Shares issued                                   4,456,734
                                                         
Stock-based compensation                           17,417
expense                                                  
                                                         
Loss for the period           (1,804,677)     (1,804,677)
                                                         
Balances at 31 December       (8,902,366)       1,092,252
2005                                                     
                                                         
Shares issued                                   2,584,393
                                                         
Stock-based compensation                          424,873
expense                                                  
                                                         
Preferred stock deemed        (1,347,889)                
dividend                                                 
                                                         
Loss for the period           (4,098,518)     (4,098,518)
                                                         
Balances at 30 June 2006     (14,348,773)           3,000

 

 
8. Subsequent Event                                             
                                                                
Initial Public Offering                                         
                                                                
                                                                
On 31 July 2006, upon the initial public offering of our common 
stock on the Main Market of the London Stock Exchange, we issued
14,299,055 shares of our common stock at an offering price of   
USUSD1.54 per share. At this time, all of our Series A, B and C 
Convertible Preferred Stock automatically converted into        
21,352,958 shares of common stock. Cash proceeds from the sale, 
net of underwriters' discount and offering expenses, totalled   
approximately USUSD18.9 million. Total shares of Napo common    
stock outstanding immediately subsequent to the IPO were        
39,635,289.                                                     

                      This information is provided by RNS
        The company news service from the London Stock Exchange