NOTE A - BUSINESS

iBio, Inc. (“iBio” or the “Company”) is a biotechnology company focused on commercializing its proprietary technologies, the iBioLaunch™ platform for vaccines and therapeutic proteins and the iBioModulator™ platform for vaccine enhancement. A key component of our strategy is to facilitate adoption and use of our technology by entering into commercial product collaborations and license arrangements. We believe our technology offers our collaborators and licensees advantages that are not available with conventional manufacturing systems. These anticipated advantages include the ability to manufacture therapeutic proteins that are difficult or impossible to produce with conventional methods, reduced production time and lower capital and operating costs. Our near-term focus is to establish additional business arrangements pursuant to which commercial, governmental and not-for-profit licensees will utilize our technology in connection with the production and development of products for both therapeutic and vaccine uses. The Company operates in one business segment.

Liquidity and Basis of Presentation

The accompanying financial information as of December 31, 2012 and for the three and six months ended December 31, 2012 and 2011, is unaudited and includes all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to state fairly the condensed financial information set forth therein in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with US GAAP have been omitted as permitted by regulations of the Securities and Exchange Commission. The interim results are not necessarily indicative of results to be expected for the full fiscal year. The balance sheet amounts as of June 30, 2012 were derived from the audited financial statements. These unaudited condensed financial statements should be read in conjunction with the audited financial statements for the year ended June 30, 2012 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Since its spinoff from Integrated BioPharma Inc., in August 2008, the Company has incurred significant losses and negative cash flows from operations. As of December 31, 2012 the Company’s accumulated deficit was approximately $34,460,000 and it had cash used in operating activities of approximately $2,694,000 and $2,012,000 for the six months ended December 31, 2012 and 2011, respectively. The Company has historically financed its activities through the sale of common stock and warrants. Through December 31, 2012, the Company has dedicated most of its financial resources to investing in its iBioLaunch™ and iBioModulator™ platforms, advancing its intellectual property and general and administrative activities. Cash on hand as of December 31, 2012 was approximately $2,819,000 and is expected to support the Company’s activities through the end of the second calendar quarter of 2013.

The history of significant losses, the negative cash flow from operations, the limited cash resources currently on hand and the dependence by the Company on its ability (about which there can be no certainty) to obtain additional financing to fund its operations after the current cash resources are exhausted raises substantial doubt about the Company’s ability to continue as a going concern. These condensed financial statements were prepared under the assumption that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.

On January 31, 2013, iBio, entered into an At-The-Market (“ATM”) equity offering sales agreement pursuant to which iBio may, from time to time, offer and sell shares of its common stock at prevailing market prices having an aggregate offering price of up to $10 million. See Note F for further explanation of this transaction and certain limitations, which may reduce the aggregate offering proceeds that may be realized through sales of common stock pursuant to the ATM equity offering sales agreement.

The Company plans to fund its future business operations using cash on hand, through proceeds from the sale of common stock pursuant to the ATM equity offering, through proceeds from the sale of additional equity or other securities and through proceeds realized in connection with license and collaboration arrangements. The Company cannot be certain that such funding will be available on acceptable terms or available at all. To the extent that the Company raises additional funds by issuing equity securities, its stockholders may experience significant dilution. If the Company is unable to raise funds when required or on acceptable terms, it may have to: a) significantly delay, scale back, or discontinue the product application and/or commercialization of its proprietary technologies; b) seek collaborators for its technology and product candidates on terms that are less favorable than might otherwise be available; c) relinquish or otherwise dispose of rights to technologies, product candidates, or products that it would otherwise seek to develop or commercialize itself; or d) cease operations.

In addition to the normal risks associated with emerging business ventures, there can be no assurance that the Company’s product development will be successfully completed or that any product will be approved or commercially viable.

The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, dependence on collaborative arrangements, development by the Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, and compliance with Food and Drug Administration (“FDA”) and other governmental regulations and approval requirements.

Significant Accounting Policies

The Company’s significant accounting policies are described in Note B to its audited financial statements included in its June 30, 2012 Form 10-K. There have been no significant changes to these policies or changes in accounting pronouncements during the six months ended December 31, 2012.

Revenue Recognition

The Company recognizes revenue when all four of the following criteria are met: (i) persuasive evidence that an arrangement exists; (ii) delivery of the products and/or services has occurred; (iii) the fees earned can be readily determined; and (iv) collectability of the fees is reasonably assured.

Loss Per Share

Basic loss per share is computed by dividing the net loss allocated to common shares by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect the additional potential dilution that could occur if options or warrants were exercised or converted into common stock using the treasury stock method. Since the Company incurred a net loss in each of those periods, diluted loss per share for the three and six months ended December 31, 2012 and 2011, were the same as basic loss per share.

The following table summarizes the number of common shares excluded from the calculation of weighted average common shares outstanding for the three and six months ended December 31, 2012 and 2011 since they were anti-dilutive:

Fair Value of Financial Instruments

The Company’s financial instruments primarily include cash, accounts receivable, other current assets and accounts payable. Due to the short-term nature of cash, accounts receivable, other current assets and accounts payable, the carrying amounts of these assets and liabilities approximate their fair value.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company categorizes its derivative financial instrument liability in Level 2 of the hierarchy. The derivative financial liability relating to a warrant with an anti-dilution feature is valued using the Black-Scholes option pricing model. The fair value of the derivative financial liability is based principally on Level 2 inputs. For this liability, the Company developed its own assumptions based on observable inputs and available market data to support the fair value.

The following table sets forth the Company’s liabilities measured at fair value on a recurring basis, by input level, in the balance sheets at December 31, 2012 and June 30, 2012.

The valuations above were determined using Level 2 observable inputs, as described above.

The reconciliation of the derivative financial liability measured at fair value on a recurring basis using observable inputs (Level 2) is as follows:

The fair value of the derivative financial instrument liability is determined using the Black-Scholes option pricing model and is affected by changes in inputs to that model including the Company’s stock price, expected stock price, volatility, the contractual term, and the risk-free interest rate.

The assumptions made in calculating the fair value of these derivative instruments as of December 31, 2012, June 30, 2012 and December 31, 2011 were as follows: