Forward-Looking Statements

You should read the following discussion of our results of operations and financial condition in conjunction with the financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion includes "forward-looking statements" and you should read the section titled

Overview

iBio, Inc. ("iBio" and the "Company") is a biotechnology company focused on commercializing its proprietary technology, the iBioLaunch™ platform, for biologics including vaccines and therapeutic proteins. Our strategy is to promote our technology through commercial product collaborations and license arrangements. We expect to share in the increased value our technology provides through upfront license fees, milestone revenues, service revenues, and royalties on end products. We believe our 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. Our near-term focus is to establish business arrangements for use of our technology by licensees for the development and production of products for both therapeutic and vaccine uses. Vaccine candidates presently being advanced on our proprietary platform are applicable to newly emerging strains of H1N1 swine-like influenza, and H5N1 avian influenza, yellow fever, and anthrax. Therapeutic candidates presently being advanced on our proprietary platform include human alpha-galactosidase A for the treatment of Fabry disease, human C-1 esterase inhibitor for the treatment of hereditary angioedema, human alpha-1 antitrypsin for treatment of disorders caused by a lack or deficiency of alpha-1 antitrypsin, and several other therapeutic protein targets for which preliminary product feasibility has been demonstrated.

In order to attract appropriate licensees and increase the value of our share of such intended contractual arrangements, we engaged the Center for Molecular Biotechnology of Fraunhofer USA, Inc., or FhCMB, in 2003 to perform research and development activities to develop the platform and to create our first product candidate. We selected a plant-based influenza vaccine for human use as the product candidate to exemplify the value of the platform. Based on research conducted by FhCMB, our proprietary technology is applicable to the production of vaccines for any strain of influenza including the newly-emerged strains of H1N1 swine-like influenza. A Phase 1 clinical trial of a vaccine candidate for H1N1 influenza, based on iBio's technology, was initiated in September 2010. We announced positive interim results in June 2011. The vaccine candidate demonstrated strong induction of dose correlated immune responses, with or without adjuvant, as assessed by virus microneutralization antibody assays and hemagglutination inhibition ("HAI") responses. The vaccine was safe and well tolerated at all doses when administered with and without adjuvant.

In connection with the research and development agreement, FhCMB agreed to use its best efforts to obtain grants from governmental and non-governmental entities to fund additional development of our proprietary plant-based technology. Consequently, in addition to the funding we have provided, FhCMB has received funding from the Bill & Melinda Gates Foundation for development of various vaccines based upon our proprietary technology including an experimental vaccine for H5N1 avian influenza. A Phase 1 clinical trial of a vaccine candidate for H5N1 influenza, based on iBio's technology, was initiated in December 2010 and is ongoing. The results of this trial are expected to be released in toward the end of fourth quarter calendar year 2011.

In addition to the platform and product development engagements, in 2006, the Company engaged FhCMB to create a prototype production module for products made through the use of the platform. The purpose of this engagement was to demonstrate the ease and economy with which platform-based products could be manufactured in order to attract potential licensees and increase the value of our share of such business arrangements. The prototype design, which encompasses the entire production process from the seeding through pre-infiltration plant growth, infiltration with agrobacteria, harvesting of plant tissue and purification of target proteins, was completed in May 2008. A pilot plant based upon this

In January 2011, we announced the grant of a commercial, royalty-bearing license to Fiocruz/Bio-Manguinhos of Brazil to develop, manufacture and sell certain vaccines based upon our proprietary technology. Fiocruz/Bio-Manguinhos will invest $6.5 million to bring the first product candidate, a new yellow fever vaccine, through a Phase I clinical trial.

Yellow fever is a viral infection in the group of diseases known as hemorrhagic fevers. The virus is transmitted by mosquitoes, and is common in South America and sub-Saharan Africa. The disease, which causes fever, nausea and pain, varies in severity, but is frequently lethal when it progresses to bleeding or to liver damage. The World Health Organization has estimated that 200,000 unvaccinated people contract yellow fever each year, and 30,000 die from the disease.

Development of the new yellow fever vaccine candidate will be performed through a commercial collaboration among the Company, Fiocruz/Bio-Manguinhos, and FhCMB. The license covers the nations of Latin America, the Caribbean and Africa. The Company retains the right to sell the products developed under the license and collaboration agreement in any other territory with a royalty back to Fiocruz/Bio-Manguinhos.

Bio-Manguinhos is a unit of the Oswaldo Cruz Foundation (Fiocruz), a central agency of the Ministry of Health of Brazil. Fiocruz/Bio-Manguinhos produces and develops immunobiological items to respond to public health demands. Its product line consists of vaccines, reagents and biopharmaceuticals.
Fiocruz/Bio-Manguinhos is a leading company in the national export of human vaccines and a major participant in total export sales of the Brazilian pharmaceutical sector. Fiocruz/Bio- Manguinhos is one of the main producers of vaccines and diagnostics for infectious diseases in Latin America. Fiocruz/Bio-Manguinhos is a certified World Health Organization provider to United Nations agencies, and is a leading world manufacturer of yellow fever vaccine, which it has exported to 70 countries.

The Company established non-commercial arrangements among the Company, certain government entities, a non-governmental organization (which we refer to herein as a NGO) and FhCMB, pursuant to which the Company grants non-commercial rights to use its platform for the development and production by FhCMB of product candidates selected by the government entities and NGO, in consideration for grants by the government entities and NGO directly to FhCMB to fund such research and development.

Through (i) the Company/FhCMB contracts and (ii) the non-commercial arrangements described above (which we refer to collectively as the "business structure"), the Company retains ownership of the intellectual property and exclusive worldwide commercial rights in the fields of human health and veterinary influenza applications of the intellectual property. The Company licenses or otherwise grants use rights (a) to government and NGO entities for not-for-profit applications of the intellectual property for the development or application for which they granted or were granted funding, and (b) to FhCMB for research purposes and applications in other fields.

This business structure helps the Company to enhance the value of commercial rights and the scope of applications of its platform technology. It also helps the Company demonstrate the validity and apparent value of the platform to parties to whom it will offer licenses or other business opportunities. Outsourcing our research and development work allows us to develop our product candidates, and thereby promote the value of our platform for licensing and product development purposes, without bearing the full risk and expense of establishing and maintaining our own research and development staff and facilities. FhCMB is

The Company's platform technology is sometimes referred to as "iBioLaunch™ technology" or the "iBioLaunch™ platform," and the category of this technology is sometimes referred to as "plant-based technology" or as a "plant-based platform."

The Company has exclusive control over, and the rights to ownership of, the intellectual property related to all human health and veterinary influenza applications of the plant-based technology developed by FhCMB. Current development projects include conducting proof-of-principle preclinical studies and conducting clinical studies of proprietary influenza vaccines.

Many biotech drugs have been on the market long enough for patents on them to expire. Emerging opportunities for biosimilars (also known as biogenerics or follow-on biologics) creates potential for our platform technology to be used by potential licensees to enter the market utilizing what the Company expects to be an economical production system. The Company is seeking commercial partners for this category of products and is unlikely to develop products in this category without the financial and marketing support of a commercial partner.

Our proposed products are in the preclinical or early clinical stage of development and will require significant further research, development, clinical testing and regulatory clearances. They are subject to the risks of failure inherent in the development of products based on innovative technologies. These risks include, but are not limited to, the possibilities that any or all of the proposed products will be found to be ineffective or unsafe, or otherwise fail to receive necessary regulatory clearances; that the proposed products, although effective, will be uneconomical to market; that third parties may now or in the future hold proprietary rights that preclude us from marketing them; or that third parties will market superior or equivalent products. Accordingly, we are unable to predict whether our research and development activities will result in any commercially viable products or applications. Further, due to the extended testing and regulatory review process required before marketing clearance can be obtained, we do not expect to be able to commercialize any therapeutic drug for at least four years, either directly or through our current or prospective partners or licensees. There can be no assurance that our proposed products will prove to be safe or effective or receive regulatory approvals that are required for commercial sale.

Historically, in addition to the development of the platform technology described in the preceding paragraphs, the Company has also generated sales of nutritional supplements utilizing plants as sources of high-quality nutritional minerals. The Company has a patented process for hydroponic growth of edible plants that causes them to accumulate high levels of important nutritional minerals such as chromium, selenium, iron and zinc. The Company utilized the services of various wholly-owned subsidiaries of our Former Parent company, Integrated BioPharma, Inc. ("Integrated BioPharma" or "Former Parent") to support the production, marketing and sales of these phytomineral products.

Results of Operations

For the years ended June 30, 2011 versus June 30, 2010

Revenues

Research and development expense

Research and development expense for the year ended June 30, 2011 was approximately $3,084,000 compared to $2,517,000, a difference of $567,000 for the comparable period in 2010. This increase for the year ended June 30, 2011 primarily relates to two new research agreements that were entered into with FhCMB for selected therapeutic targets and the use of a certain enzyme as a carrier molecule for $592,000. In addition, FhCMB was engaged to outsource the Fiocruz/Bio-Manguinhos agreement for their expertise for their work as defined in the agreement, to advance the yellow fever vaccine project using iBio's technology and such expense was approximately $520,000. Salaries and benefits increased by approximately $175,000 and stock-based compensation increased by $246,000. Cost incurred under the TTA agreement decreased by approximately $917,000 for the year ended June 30, 2011. Such decrease related to a $1 million obligation that was expensed upfront in the previous year. The accounting for the TTA agreement has been consistently applied, to expense such amounts as services are rendered.

General and administrative expenses

General and administrative expense for the year ended June 30, 2011 was $7,091,000 compared to $2,072,000 for the comparable period in 2010. This increase of $5,019,000 was primarily due to the following:

Non-cash stock-based compensation - options    $ 2,404,000
Non-cash stock-based compensation - warrants     1,064,000
Impairment of intangible assets                    586,000
NYSE listing fees and other                        150,000
Salaries and benefits                              191,000
Royalties                                          100,000
Professional fees                                  187,000
Investor relations                                 174,000
Other                                              163,000
                                               - ---------

Total                                          $ 5,019,000
                                               - ---------

The increase in non-cash stock based compensation expense for options of $2,404,000 related to the Company's grant of 2,140,000 and 1,430,000 options for the years ended June 30, 2011 and 2010, respectively. The average weighted exercise price was $2.44 and $0.78 for the years ended June 30, 2011 and 2010, respectively. This resulted in a higher fair value option price of $1.98 and $1.56 for the years ended June 30, 2011 and 2010, respectively based upon the Black-Scholes option-pricing model.

The increase in non-cash based compensation expense for warrants of $1,064,000 primarily related to an issuance of warrants to purchase 500,000 shares of common stock as compensation for financial services at an exercise price of $0.87 per share. During the year ended June 30, 2011 and 2010, the Company recorded an expense of approximately $874,000 and $0, respectively. In October 2010, the Company issued warrants to a marketing development firm to purchase 300,000 shares of common stock at $1.38 per share. These warrants were cancelled and reissued as a warrant to purchase 75,000 shares of common stock at $1.38 with the same terms in exchange for terminating services with such firm. The Company accounted for the cancellation and reissuance of these warrants as a modification. As of result of this transaction, the stock price was higher at the date of

Evaluating for impairment requires judgment, including the estimation of future cash flows, future growth rates and profitability and the expected life over which cash flows will occur. Changes in the Company's business strategy or adverse changes in market conditions could impact impairment analyses and require the recognition of an impairment charge equal to the excess of the carrying value over its estimated fair value.

During the fourth quarter of June 30, 2011, the Company re-evaluated its business strategy and reviewed its product portfolio. After such review, the Company's near-term potential for an upfront milestone revenues and/or licensing deals led to further evaluation of its intangible assets. The Company recorded an impairment charge of approximately $586,000 in general and administrative expense for the year ended June 30, 2011. There was no impairment charge for the year ended June 30, 2010.

In connection with the Company's filing fee to list on the New York Stock, its annual fees and other related expenses, the Company's expenses increased by approximately $150,000 for the year ended June 30, 2011.

Salaries and benefits increased by $191,000 for the year ended June 30, 2011 was primarily due to a hiring of a CFO during the fourth quarter of 2011, hiring of a VP of business development and raises to the CEO and the president.

Under the TTA agreement with FhCMB, the royalty expense increased for the year ended June 30, 2011 by $100,000.

Professional fees increased by $187,000 for the year June 30, 2011 primarily for fees incurred in investigating potential transactions.

Investor relations increased by $174,000 for the year June 30, 2011 primarily for engaging investor relation firms to increase investor awareness.

Other income (expenses)

The derivative instrument liability non-cash charge for the year ended June 30, 2011 was approximately $2,474,000 as compared $1,515,000 for the comparable period in 2010. The increase of $959,000 primarily reflects the increase in the Company's stock price at June 30, 2011 as compared to 2010. The calculation of this derivative liability is affected by factors which are subject to significant fluctuations and are not under the Company's control. This liability resulted from the August 2008 equity financing from a down round provision. Therefore, the resulting effect upon our net loss is subject to significant fluctuations and will continue to be subject to significant fluctuations until the warrants either expire in August 2013 or are exercised prior to that date. The accounting guidance applicable to these warrants requires the Company (assuming all other inputs to the Black-Scholes option-pricing model remain constant) to record a non-cash expense when the Company's stock price is rising and recording non-cash income when the Company's stock price is falling.

The Company has incurred significant losses and negative cash flows from operations since its spinoff from its Former Parent in August 2008. As of June 30, 2011, the Company's had an accumulated deficit of approximately $25,662,000 and cash used from operations for the years ended June 30, 2011 and 2010 was approximately $5,338,000 and $2,348,000, respectively. The Company has historically financed its activities through the sale of common stock and warrants. To date, the Company has dedicated most of its financial resources to investing in its iBioLaunch™ platform, advancing intellectual property and general and administrative activities. Cash on hand as of June 30, 2011 of approximately $2,843,000 is expected to support the Company's activities through January 2012.

The Company plans to fund its development and commercialization activities through January 2012 and beyond through milestone receipts from licensing arrangements including 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 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 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 possibly cease operations.

These matters raise substantial doubt about the Company's ability to continue as a going concern. These 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 that uncertainty.

The Company acquired Technology from FhCMB through a TTA dated in December 2003, as amended. Terms of the TTA require the Company to: a) make payments to FhCMB of $2,000,000 per year for five years, aggregating $10,000,000, for research and development services beginning in November 2009; and b) pay FhCMB 1% of all receipts derived by the Company from sales of products produced utilizing the Technology and 15% of all receipts derived by the Company from licensing the Technology to third parties with an overall minimum annual payment of $200,000 beginning with the twelve months ending December 31, 2010. The Company incurred a milestone amount of $250,000 for the year ended June 30, 2010. For the years ended June 30, 2011 and 2010, the expense was approximately $1,333,000 and $2,250,000, respectively.

In December 2010, the Company and FhCMB entered into a $1,660,000 research services agreement for research on selected therapeutic targets utilizing the Company's technology. The expense for the year ended June 30, 2011was approximately $457,000.

In March 2011, the Company and FhCMB entered into a $432,000 research services agreement for research regarding the use of a certain enzyme as a carrier molecule. The expense for the year ended June 30, 2011was approximately $135,000.

Remaining minimum commitments under the commitments to FhCMB as of June 30, 2011 are as follows:

2012         $ 3,507,000
2013           2,200,000
2014           2,200,000
2015             200,000
2016             200,000
Thereafter     1,600,000
             - ---------
             $ 9,907,000
             - ---------

Critical Accounting Policies and Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from those estimates. The significant estimates are valuation and recovery of intangible assets, stock-based compensation, valuation of derivative instruments and income taxes and valuation of income taxes.

Research and Development

Research and development costs primarily consist of salaries and benefits, research contracts for the advancement of product development, stock-based compensation, and consultants The Company expenses all research and development costs in the periods in which they are incurred.

Stock-Based Compensation

The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award the requisite service period vesting period. The grant-date fair value of employee share options is estimated using the Black-Scholes option pricing model adjusted for the unique characteristics of those instruments. Compensation expense for options and warrants granted to non-employees is determined by the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measured. Compensation expense for options granted to non-employees is measured each period as the underlying options or warrants vests.

Income Taxes

The Company accounts for income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is recognized in income or expense in the period that the change is effective. Tax benefits are recognized when it is probable that the deduction will be sustained. A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will either expire before the Company is able to realize the benefit, or that future deductibility is uncertain. As of June 30, 2011 and 2010, the Company had recognized a valuation allowance to the full extent of our net deferred tax assets since the likelihood of realization of the benefit does not meet the more likely than not threshold.

The Company files a U.S. federal income tax return as well as returns for various states. The Company's income taxes have not been examined by any tax jurisdiction since its spin off in August 2008. Uncertain tax positions taken on our tax returns will be accounted for as liabilities for unrecognized tax benefits. The Company will recognize interest and penalties, if any, related to unrecognized tax benefits

Derivatives and Hedging-Contracts in Entity's Own Equity

. . .