(2)	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The Company's consolidated financial statements include the accounts of the Company's direct and indirect wholly owned subsidiaries, Raptor Pharmaceuticals Inc., formerly known as Raptor Therapeutics Inc. which merged with Raptor Discoveries Inc. in December 2012 prior to changing its name and Raptor European Products, LLC, such subsidiaries incorporated in Delaware on August 1, 2007, and February 14, 2012, respectively, and Raptor Pharmaceuticals Europe B.V., Raptor Pharmaceuticals France SAS and RPTP European Holdings C.V., domiciled in the Netherlands on December 15, 2009, in France on October 30, 2012 and in the Grand Caymans on February 16, 2012, respectively. All inter-company accounts have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates of the consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Functional Currency

The Company's consolidated functional currency is the U.S. dollar. Raptor Pharmaceuticals Europe B.V. ("BV"), Raptor Pharmaceuticals France SAS ("SAS") and RPTP European Holdings C.V. ("CV"), the Company's European subsidiary, French subsidiary and Cayman-based subsidiary, respectively, use the European Euro as their functional currency. At each quarter end, each foreign subsidiary’s balance sheets are translated into U.S. dollars based upon the quarter-end exchange rate, while its statements of operations and comprehensive loss are translated into U.S. dollars based upon an average exchange rate during the period.

Fair Value of Financial Instruments

The carrying amounts of certain of the Company's financial instruments including cash equivalents, restricted cash, accounts payable, accrued liabilities, note payable and capital lease liability approximate fair value due either to length of maturity or interest rates that approximate prevailing market rates. The warrant liability is carried at fair value, which is determined using the Black-Scholes option valuation model at the end of each reporting period.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less, when purchased, to be cash equivalents. The Company maintains cash and cash equivalents, which consist principally of money market funds with high credit quality financial institutions. Such amounts exceed Federal Deposit Insurance Corporation insurance limits. Restricted cash represents compensating balances required by the Company's U.S. and European banks as collateral for credit cards. As of December 31, 2012 the Company had $1.2 million in cash and cash equivalents held by its foreign subsidiaries.

Short-term Investments

The Company invests in short-term investments in high credit-quality funds in order to obtain higher yields on its idle cash. Short-term investments consisted of a short-term duration government fund in the amount of $22.1 million and $15.3 million at December 31, 2012 and August 31, 2012, respectively. Such investments are not insured by the Federal Deposit Insurance Corporation. The Company did not hold investments as of August 31, 2011.

The Company completed an evaluation of its investments and determined that it did not have any other-than-temporary impairment as of December 31, 2012.

Prepaid Expenses and Other

Prepaid expenses consists primarily of advance payments to vendors, which will be expensed within one year from the balance sheet date.

Deferred Offering Costs

Deferred offering costs represent expenses incurred to raise equity capital related to financing transactions which have not yet been completed as of the balance sheet dates.

Note Payable and Debt Issuance Costs

Note payable consists of the Company's loan agreement with HealthCare Royalty Partners ("HC Royalty"), as lender, under which the Company agreed to borrow $50 million in two $25 million tranches. The Company received the first tranche in the amount of $25 millionin December 2012. The loan bears interest at an annual fixed rate of 10.75% of outstanding principal and includes a synthetic royalty component based on net product sales in a calendar year. The fixed and royalty interest are recognized as interest expense as incurred. As of December 31, 2012, there were no royalty payments since the Company had no approved products that generate revenue. Upon regulatory approval of RP103 for cystinosis, such synthetic royalty will be due to HC Royalty.

Debt issuance costs, which were capitalized and included in other long-term assets, are being amortized over the life of the loan using the interest method. .

Intangible Assets

Intangible assets include the intellectual property and other rights relating to DR Cysteamine (currently developed as RP103) and to an out-license acquired in the 2009 Merger. The intangible assets related to RP103 are amortized using the straight-line method over the estimated useful life of 20 years, which is the life of the intellectual property patents. The 20-year estimated useful life is also based upon the typical development, approval, marketing and life cycle management timelines of pharmaceutical drug products. The intangible assets related to the out-license will be amortized using the straight-line method over the estimated useful life of 16 years, which is the life of the intellectual property patents.

Fixed Assets

Fixed assets, which mainly consist of leasehold improvements, lab equipment, computer hardware and software and capital lease equipment, are stated at cost. Depreciation is computed using the straight-line method over the related estimated useful lives, except for leasehold improvements and capital lease equipment, which are depreciated over the shorter of the useful life of the asset or the lease term. Significant additions and improvements that have useful lives estimated at greater than one year are capitalized, while repairs and maintenance are charged to expense as incurred.

Segment Information

The Company has determined that it operates in only one segment, as it only reports profit and loss information on an aggregate basis to its chief operating decision maker. The Company's long-lived assets maintained outside the U.S. are not material.

Impairment of Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of tangible and identified intangible net assets of businesses acquired. Goodwill is not amortized, but is evaluated for impairment on an annual basis or more often when impairment indicators are present. The Company has one reporting unit. Therefore, the Company's consolidated net assets, including existing goodwill and other intangible assets, are considered to be the carrying value of the reporting unit. If the carrying value of the reporting unit is in excess of its fair value, an impairment may exist, and the Company must perform the second step of the analysis, in which the implied fair value of the goodwill is compared to its carrying value to determine the impairment charge, if any. If the estimated fair value of the reporting unit exceeds the carrying value of the reporting unit, goodwill is not impaired and no further analysis is required.

The Company makes judgments about the recoverability of purchased intangible assets with finite lives whenever events or changes in circumstances indicate that impairment may exist. Recoverability of purchased intangible assets with finite lives is measured by comparing the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. Impairment, if any, is measured as the amount by which the carrying value exceeds the fair value of the impaired asset.

Common Stock Warrant Liabilities

The Company issued warrants that contain conditional obligations that may require the Company to transfer cash to settle the warrants upon the occurrence of certain fundamental transactions. Therefore, the Company has classified the warrants as liabilities. The Company re-measures the liability at the end of every reporting period with the change in value reported in the Company's consolidated statements of operations and comprehensive loss. At the exercise date, the fair values of these warrants are re-measured and reclassified to equity.

Income Taxes

Income taxes are recorded under the liability method, under which deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Based on the weight of available evidence, including cumulative losses since inception and expected future losses, the Company has determined that it is more likely than not that the deferred tax asset amount will not be realized and therefore a full valuation allowance has been provided on the Company's net deferred tax assets.

The Company identifies uncertain tax positions and discloses any potential tax liability on their financial statements. The Company recognizes interest and/or penalties related to income tax matters as a component of income tax expense. As of December 31, 2012, there was no accrued interest and penalties related to uncertain tax positions.

The Company files U.S. Federal, California, various other state income and other tax returns and various foreign country income tax returns. The Company is currently not subject to any income tax examinations. Due to the Company's net operating losses ("NOLs"), generally all tax years remain open.

Research and Development

Research and development costs are charged to expense as incurred. Research and development expenses primarily include salaries and benefits for medical, clinical and regulatory personnel, preclinical studies, clinical trials and commercial drug manufacturing expenses prior to obtaining marketing approval. .

Advertising Expenses

The Company expenses advertising costs, including promotional expenses, as incurred. Advertising expenses were $1.3 million, $1.2 million and 2.5 million for the four month period ended December 31, 2012 and the years ended August 31, 2012 and the inception to date period, respectively.

Net Loss per Share

Net loss per share is calculated by dividing net loss by the weighted-average shares of common stock outstanding during the period. Diluted net loss per share is calculated by dividing net loss by the weighted-average shares of common stock outstanding and potential shares of common stock during the period. For all periods presented, potentially dilutive securities are excluded from the computation of fully diluted net loss per share as their effect is anti-dilutive. Potentially dilutive securities include:

	December 31,		August 31,
	2012		2012		2011
Warrants to purchase common stock		4,563		5,188		7,019
Options to purchase common stock		7,791		6,125		3,581
Total potentially dilutive securities		12,354		11,313		10,600

Net loss per share, basic and diluted, was $(0.37), $(0.80), $(1.15) and $(0.85) for the four months ended December 31, 2012 and the years ended August 31, 2012, 2011 and 2010, respectively.

Comprehensive Loss

The components of comprehensive loss include net loss and foreign currency translation adjustments.

Stock Option Plan

Compensation cost related to the Company's stock option plans is measured at the grant date based on the fair value of the equity instruments awarded and is recognized on a straight-line basis over the period during which an employee is required to provide service in exchange for the award, or the requisite service period, which is usually the vesting period. The Company recognizes expense associated with stock options issued to third parties, including consultants based upon the fair value of such awards on the date the options vest.

Reclassifications

Certain amounts previously reported under specific financial statement captions have been reclassified to be consistent with the current period presentation.

Recent Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment, or ASU 2011-08, which permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. Because the Company has only one reporting unit, which has a fair value higher than its carrying amount, the adoption of ASU 2011-08 had no material impact on its consolidated financial statements.

In July 2012, the FASB issued ASU No. 2012-02, Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment, or ASU 2012-02. ASU 2012-02 simplifies how entities test indefinite-lived intangible assets, other than goodwill, for impairment and permits an entity to first assess qualitative factors to determine whether it is more likely than not that the indefinite-lived intangible asset is impaired. The amendments are effective for annual and interim indefinite-lived intangible asset impairment tests performed for fiscal years beginning after September 15, 2012 (early adoption is permitted). The Company determined that the adoption of ASU 2011-04 did not have a material impact on its consolidated financial statements.

In August 2012, the FASB issued ASU No. 2012-03, Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 . The amendments affect various SEC paragraphs: (a) pursuant to the issuance of Staff Accounting Bulletin No. 114; (b) pursuant to the issuance of the SEC's Final Rule, Technical Amendments to Commission Rules and Forms Related to the FASB's Accounting Standards Codification, Release Nos. 33-9250, 34-65052, and IC-29748 August 8, 2011; and (c) related to ASU No. 2010-22, Accounting for Various Topics . These provisions do not amend the effective date of the original pronouncements. The Company determined that ASU 2012-03 did not have a material impact on the Company's consolidated financial statements.

In October 2012, the FASB issued ASU No. 2012-04, Technical Corrections and Improvements, or ASU 2012-04, which makes certain technical corrections and "conforming fair value amendments" to the FASB Accounting Standards Codification. The amendments affect various codification topics and apply to all reporting entities within the scope of those topics. These provisions of the amendment are effective upon issuance, except for amendments that are subject to transition guidance, which will be effective for fiscal periods beginning after December 15, 2012. The Company determined that ASU 2012-04 did not have a material impact on the Company's consolidated financial statements.