5. FAIR VALUE MEASUREMENT

4 Months Ended

Dec. 31, 2012

Fair Value Disclosures [Abstract]

5. FAIR VALUE MEASUREMENT

The Company uses a fair-value approach to value certain assets and liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The Company uses a fair value hierarchy, which distinguishes between assumptions based on market data (observable inputs) and an entity's own assumptions (unobservable inputs). The hierarchy consists of three levels:

· Level one - Quoted market prices in active markets for identical assets or liabilities;

· Level two - Inputs other than level one inputs that are either directly or indirectly observable; and

· Level three - Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each reporting period. Assets and liabilities measured at fair value on a recurring basis at December 31, 2012, August 31, 2012 and 2011 are summarized as follows:

Assets		Level 1		Level 2		Level 3		December 31, 2012
Fair value of cash equivalents	$	35,069	$	0	$	0	$	35,069
Restricted cash		0		163		0		163
Short-term investments		22,096		0		0		22,096
Total	$	57,165	$	163	$	0	$	57,328
Liabilities
Fair value of common stock warrants	$	0	$	0	$	16,405	$	16,405
Total	$	0	$	0	$	16,405	$	16,405
Assets		Level 1		Level 2		Level 3		August 31, 2012
Fair value of cash equivalents	$	13,162	$	0	$	0	$	13,162
Restricted cash		0		169		0		169
Short-term investments		15,307		0		0		15,307
Total	$	28,469	$	169	$	0	$	28,638
Liabilities
Fair value of common stock warrants	$	0	$	0	$	17,266	$	17,266
Total	$	0	$	0	$	17,266	$	17,266
Assets		Level 1		Level 2		Level 3		August 31, 2011
Fair value of cash equivalents	$	13,856	$	0	$	0	$	13,856
Restricted cash		0		114		0		114
Short-term investments		0		0		0		0
Total	$	13,856	$	114	$	0	$	13,970
Liabilities
Fair value of common stock warrants	$	0	$	0	$	23,575	$	23,575
Total	$	0	$	0	$	23,575	$	23,575

Cash equivalents and short-term investments represent the fair value of the Company's investment in four money markets and one short-term bond fund as of December 31, 2012 and August 31, 2012 and three money market accounts as of August 31, 2011. As of December 31, 2012 and August 31, 2012, the fair value of the Company's common stock warrant liability decreased resulting primarily from decrease in warrants outstanding due to warrants exercised, partially offset by an increase in the Company's common stock price compared to the stock price as of the prior fiscal year end.

Cash equivalents represent the fair value of the Company's investment in four money market accounts as of December 31, 2012 and three money market accounts as of August 31, 2012 and 2011.

  Marked-to-Market

The common stock warrants issued in the Company's August 2010 private placement and the Company's December 2009 equity financing are classified as liabilities under ASC 480 and are, therefore, re-measured using the Black-Scholes option valuation model at the end of every reporting period with the change in value reported in the Company's consolidated statements of comprehensive loss.

For the four months ended December 31, 2012 and the years ended August 31, 2012, 2011 and 2010, and for the cumulative period from September 8, 2005 (inception) to December 31, 2012, as a result of the marking-to-market of the warrant liability at period-end and the day prior to the exercise of warrants subject to warrant liability accounting, the Company recorded losses of $1.5 million, $3.2 million, $16.3 million and $26.9 million, respectively, in the line item adjustment to fair value of common stock warrants in its consolidated statements of comprehensive loss.  See Note 11 for further discussion on the calculation of the fair value of the warrant liability. Below is the activity of the warrant liabilities (in millions):

		Four months ended		Fiscal year ended
		December 31,		August 31,
		2012		2012		2011
Fair value of December 2009 direct offering warrants (including placement agent warrants) at beginning of period	$	2.9	$	5.9	$	5.8
December 2009 direct offering warrants exercised		(0.5)		(4.8)		(2.7)
Adjustment to mark to market common stock warrants		0.2		1.8		2.8
December 2009 direct offering common stock warrant liability at end of period		2.6		2.9		5.9
Fair value of August 2010 private placement warrants (including broker warrants) at beginning of period		14.4		17.7		9.9
August 2010 private placement warrants exercised		(1.9)		(4.7)		(0.7)
Adjustment to mark to market common stock warrants		1.3		1.4		8.5
August 2010 private placement common stock warrant liability at fair value at end of period		13.8		14.4		17.7
Total warrant liability at end of period	$	16.4	$	17.3	$	23.6

Effect of Raptor's Stock Price and Volatility Assumptions on the Calculation of Fair Value of Warrant Liabilities

As discussed above, the Company uses the Black-Scholes option pricing model as its method of valuation for warrants that are subject to warrant liability accounting. The determination of the fair value as of the reporting date is affected by Raptor's stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, expected stock price volatility over the term of the security and risk-free interest rate. In addition, the Black-Scholes option pricing model requires the input of an expected life for the securities for which we have estimated based upon the stage of the Company's development. The fair value of the warrant liability is revalued each balance sheet date utilizing Black-Scholes valuation model computations with the decrease or increase in fair value being reported in the statement of comprehensive loss as other income or expense, respectively. The primary factors affecting the fair value of the warrant liability are the Company's stock price and volatility. In addition, the Black-Scholes option pricing model requires the input of highly subjective assumptions, and other reasonable assumptions could provide differing results.

The Company's reported net loss was $19.4 million for the four months ended December 31, 2012. If the Company's December 31, 2012 closing stock price had been 10% lower, its net loss would have been approximately $2.0 million lower. If the Company's August 31, 2012 closing stock price had been 10% higher, its net loss would have been approximately $2.0 million higher

If the Company's December 31, 2012 volatility assumption had been 10% lower, the Company's net loss would have been approximately $0.7 million lower. If the Company's December 31, 2012 volatility assumption had been 10% higher, our net loss would have been approximately $0.7 million higher.