NOTE A - BUSINESS

iBio, Inc. (“iBio” or the “Company”) is a biotechnology company focused on commercializing its proprietary technology, the iBioLaunch™ platform, for biologics including vaccines and therapeutic proteins. The Company’s strategy is to promote its commercial products through collaborations and license arrangements. iBio expects to receive upfront license fees, milestone revenues, service revenues and royalties on end products. The Company believes its technology offers the opportunity to develop products that might not otherwise be commercially feasible, and to work with both corporate and government clients to reduce their costs during product development and meet their needs for low-cost, high-quality biologics manufacturing systems. The Company’s near-term focus is to establish business arrangements for use of its technology by licensees for the development and production of products for both therapeutic and vaccine uses.

Basis of Presentation

The accompanying financial information at December 31, 2011 and for the three and six months ended December 31, 2011 and 2010, 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. 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 condensed balance sheet amounts as of June 30, 2011 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, 2011 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.

The Company plans to fund its further development and commercialization through licensing and partnering arrangements, which may include milestone receipts and royalties, and/or the sale of equity securities. 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 dilution. Further, if additional funds are raised through the issuance of equity or debt, additional securities may have powers, designations, preferences or rights senior to its currently outstanding securities. 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 development and/or commercialization of one or more product candidates; b) seek collaborators for product candidates at an earlier stage than would otherwise be desirable and/or on terms that are less favorable than might otherwise be available; or c) relinquish or otherwise dispose of rights to technologies, product candidates, or products that it would otherwise seek to develop or commercialize itself and d) possibly cease operations.

In addition to the normal risks associated with a new business venture, there can be no assurance that any of the Company’s further research and 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, 2011 Form 10-K.There have been no significant changes to these policies or changes in accounting pronouncements during the three and six months ended December 31, 2011. During the three and six months ended December 31, 2011, the Board of Directors modified the terms of previously issued options to eliminate the cancellation provision, thus permitting an option holder, upon termination without cause, to exercise the vested portion of an option post-termination up to 10 years after the grant date. Current period option awards granted also include these terms. See Note C for compensation expense relating to such modification. Through September 30, 2011, the Company used the simplified method of estimating the expected term for share-based compensation. During the three months ended December 31, 2011, the Company ceased using the simplified method and now estimates the expected term for each award. The Company uses its historical stock price volatility consistent with the expected term of grant as the basis for its expected volatility assumption. The risk-free interest rate is based upon the yield of U.S. Treasury securities consistent with the expected term of the option. The dividend yield assumption is based on the Company's history of zero dividend payouts and expectation that no dividends will be paid in the foreseeable future. The Company uses its historical stock price volatility consistent with the expected term of grant as the basis for its expected volatility assumption. The risk-free interest rate is based upon the yield of U.S. Treasury securities consistent with the expected term of the option. The dividend yield assumption is based on the Company's history of zero dividend payouts and expectation that no dividends will be paid in the foreseeable future.

Loss Per Share

Basic earnings (loss) per share is computed by dividing the net income (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, pursuant to ASC 260, “Earnings Per Share” diluted loss per share for the three and six months ended December 31, 2011 and 2010, were the same as basic loss per share. There were 13,298,607 and 11,358,607 options and warrants for the three and six months ended December 31, 2011 and 2010 that were excluded from the calculation of dilutive earnings per shares since they were anti-dilutive.

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, 2011 and 2010:

Fair Value of Financial Instruments

The Company’s financial instruments primarily include cash, accounts receivable, other current assets, accounts payable, accrued expenses and a derivative liability. Due to the short-term nature of cash, accounts receivable, current assets, accounts payable, and the derivative instrument liability, relating to a warrant with down round protection, 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:

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

The following table sets forth the Company’s assets and liabilities measured at fair value on a recurring basis, by input level, in the condensed balance sheet at December 31, 2011 and June 30, 2011.

The above valuations were determined using level 2 inputs. The reconciliation of the derivative financial instrument 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 our 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, 2011 and 2010 and June 30, 2011 were as follows:

Deferred Offering Costs

Deferred offering costs relating to an equity offering that is imminent are capitalized until the event occurs. Such costs are charged to additional paid-in capital when the offering occurs or expensed if the offering is not completed. At December 31, 2011, deferred offering costs were approximately $85,000 and are included in other assets.