1.	Operations and Basis of Presentation

The accompanying condensed consolidated financial statements of pSivida Corp. and subsidiaries (the “Company”) as of December 31, 2012 and for the three and six months ended December 31, 2012 and 2011 are unaudited. Certain information in the footnote disclosures of these financial statements has been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnotes included in its Annual Report on Form 10-K for the fiscal year ended June 30, 2012. In the opinion of management, these statements have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended June 30, 2012, and include all adjustments, consisting only of normal recurring adjustments, that are necessary for the fair presentation of the Company’s financial position, results of operations, comprehensive loss and cash flows for the periods indicated. The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires management to make assumptions and estimates that affect, among other things, (i) reported amounts of assets and liabilities; (ii) disclosure of contingent assets and liabilities at the date of the consolidated financial statements; and (iii) reported amounts of revenues and expenses during the reporting period. The results of operations for the three and six months ended December 31, 2012 are not necessarily indicative of the results that may be expected for the entire fiscal year or any future period.

The Company develops tiny, sustained release, drug delivery products designed to deliver drug at a controlled and steady rate for months or years. The Company is focused on the treatment of chronic diseases of the back of the eye utilizing its core technology systems, Durasert™ and BioSilicon™. The Company currently has three approved products and two principal product candidates under development, which represent successive generations of the Durasert technology platform.

The Company’s most recently approved product is an injectable, sustained-release micro-insert for the treatment of vision impairment associated with chronic diabetic macular edema considered insufficiently responsive to available therapies (“DME”). This product, to be marketed under the name ILUVIEN®, is being developed by the Company’s licensee, Alimera Sciences, Inc. (“Alimera”). ILUVIEN for DME has received marketing authorization in each of the United Kingdom (“U.K.”), Austria, France, Germany, Portugal and Spain, and has been recommended for marketing authorization in Italy. Alimera has announced its plans to launch the direct commercialization of ILUVIEN for DME in Germany, the U.K. and France in 2013 and its pursuit of pricing and reimbursement in those countries.

Alimera reported its intention to respond in the first quarter of 2013 to the second Complete Response Letter (“2011 CRL”) received from the U.S. Food and Drug Administration (“FDA”) in November 2011 with respect to the New Drug Application (“NDA”) for ILUVIEN for DME. Based on a June 2012 meeting with the FDA, Alimera reported that it plans to respond to the issues raised by the FDA in the 2011 CRL, including additional analysis of the benefits and risks of ILUVIEN, based on clinical data from its two previously completed pivotal Phase III clinical trials (the “FAME™ Study”), and to focus on the population of patients with chronic DME considered insufficiently responsive to available therapies, the same indication for which regulatory approval was granted in various EU countries.

The Company plans to develop the same micro-insert used in ILUVIEN for the treatment of chronic, non-infectious uveitis affecting the posterior segment of the eye (“posterior uveitis”). The FDA has cleared the Company’s Investigational New Drug (“IND”) application, permitting it to move directly to two Phase III clinical trials for this indication without the necessity of conducting Phase I or Phase II trials. The FDA has agreed that the primary end point in these trials, which are expected to involve a total of 300 patients, will be recurrence of uveitis within 12 months and that the Company can reference much of the data, including the clinical safety data, from the clinical trials for ILUVIEN for DME. Treatment of posterior uveitis with this micro-insert is being studied in an investigator-sponsored Phase II study. Target enrollment for the study was expanded following completion of initial enrollment. The Company did not license Alimera the rights to use this micro-insert for the treatment of uveitis.

The Company is also developing a bioerodible, injectable micro-insert delivering latanoprost (the “Latanoprost Product”) to treat glaucoma and ocular hypertension. An investigator-sponsored Phase I/II dose-escalation study is ongoing to assess the safety and efficacy of this micro-insert in patients with elevated intraocular pressure. Pfizer Inc. (“Pfizer”) has an option, under certain circumstances, to license the development and commercialization of the Latanoprost Product worldwide.

The Company’s two FDA-approved products, Retisert® for the treatment of posterior uveitis and Vitrasert® for the treatment of AIDS-related cytomegalovirus retinitis, are surgically implanted. They are both licensed to Bausch & Lomb Incorporated (“Bausch & Lomb”).

BioSilicon is the second key technology platform the Company is targeting for sustained drug delivery. The Company’s primary research focus is on Tethadur™, which seeks to use BioSilicon to deliver peptides, proteins and other large biologic molecules on a sustained basis. The BioSilicon technology can also be designed for smaller molecules. The Company’s research program with respect to Tethadur includes a feasibility study of ophthalmic applications under a technology evaluation agreement with a global biopharmaceutical company and pre-clinical testing by the Company of a sustained release peptide for systemic application.

The Company is subject to risks, including, but not limited to, Alimera’s ability to finance, achieve additional marketing approvals for, successfully complete pricing reimbursement discussions for, commercialize and achieve market acceptance of, and generate revenues to pSivida from, ILUVIEN for DME in the EU; Alimera’s resubmission of its NDA for ILUVIEN for DME and its ability to obtain regulatory approval for, and if approved, to finance, successfully commercialize and achieve market acceptance of, and generate revenues to pSivida from, ILUVIEN for DME in the U.S.; the Company’s ability, and that of its collaboration partners, to obtain adequate financing to fund its and their respective operations through collaborations, sales of securities or otherwise, to successfully advance research, pre-clinical and clinical development of, and obtain regulatory approvals for, product candidates utilizing the Company’s technologies and to successfully commercialize them, to protect proprietary technologies, to comply with FDA and other governmental regulations and approval requirements and to execute on business strategies; competitive products and new disease treatments; and dependence on key personnel.

The Company has a history of operating losses and has financed its operations in recent years primarily from license fees, research and development funding, royalties and contingent cash payments from its collaboration partners, and from sales of equity securities. The Company believes that its cash, cash equivalents and marketable securities of $15.7 million at December 31, 2012 should enable the Company to maintain its current and planned operations into the first quarter of calendar year 2014, including plans for Phase III clinical trials of the posterior uveitis micro-insert expected to commence during the year ending June 30, 2013 (“fiscal 2013”). The Company’s funding of its operations beyond then is expected to depend on the amount and timing of cash receipts pursuant to its existing collaboration agreements with Alimera, Bausch & Lomb and Pfizer, as well as any funding from any possible future collaborations and/or financing transactions.

References to “$” are to U.S. dollars and references to “A$” are to Australian dollars.

New accounting pronouncements are issued periodically by the Financial Accounting Standards Board (“FASB”) and are adopted by the Company as of the specified effective dates. Unless otherwise disclosed below, the Company believes that the impact of recently issued pronouncements will not have a material impact on the Company’s financial position, results of operations and cash flows or do not apply to the Company’s operations.

In June 2011, the FASB issued ASU 2011-5 Comprehensive Income (Topic 220) – Presentation of Comprehensive Income, which provides new guidance on the presentation of comprehensive income. This guidance requires a company to present components of net income (loss) and other comprehensive income in one continuous statement or in two separate, but consecutive, statements. There are no changes to the components that are recognized in net income (loss) or other comprehensive income under current GAAP. The Company adopted this standard for the quarter ended September 30, 2012 and has presented the required information in one continuous statement of operations and comprehensive loss on a comparative basis. Other than a change in presentation, the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.