Inventories

Inventories consisted of the following (in thousands):

Notes Payable

On October 30, 2012, the Company entered into agreements with its largest note holders, Venture Lending & Leasing V, Inc. and Venture Lending & Leasing VI, Inc. (collectively referred to as “VLL”) to amend the repayment terms of its outstanding debt obligations ($3,031,000 at December 31, 2012).  Additionally, prior to the execution of these agreements, VLL held 556,612 warrants to purchase common stock (the “Warrants”), which in the aggregate had a total put option cash value of $2,000,000 (the “Put Warrant Liability”) and was included in long term liabilities on the Company’s balance sheet.

On October 30, 2012, the Company also entered into a stock purchase agreement (collectively with the above, the “Agreement”) with Venture Lending & Leasing V, LLC and Venture Lending & Leasing VI, LLC (collectively referred to as “LLC”).  In connection with the Agreement, the Company issued LLC 4,320,985 shares of its common stock with an aggregate grant date fair market value of $3,500,000, or approximately $0.81 per share (the “Shares”) in exchange for LLC’s agreements to surrender the Warrants and Put Warrant Liability. If at any time between October 30, 2012 through either March 31, 2014 or July 31, 2015 (the “Settlement Dates”) LLC sells the Shares, the proceeds from the sale of the Shares will be applied as follows (the “Grace Period”):

If the Shares are not sold during the Grace Period, then the then fair value of the stock is to be determined at either of the Settlement Dates and the repayment of the Put Warrant Liability, prepayment of outstanding, distribution of gains from the sale of the Shares, or calculation of the Cash Shortfall will consummate.

On October 30, 2012, upon the issuance of the Shares, the Company recorded a prepayment of $2,000,000 and $1,500,000 net against the Put Warrant Liability and the outstanding notes payable, respectively, on that date.

At December 31, 2012, the Shares had not yet been sold by LLC and the fair value of the Shares at December 31, 2012 amounted to $2,636,000 (approximately $0.61 per share).  Accordingly, in connection with the decrease in fair market value of the Shares, the Company recorded a loss on the fair value in the amount of $864,000, which is included in the accompanying condensed consolidated statements of operations for the three and nine months ended December 31, 2012.  The fair value of the Shares will continue to be marked to market with any gain or loss recorded in the statement of operations until either the Shares are sold by the holder or the Settlement Dates, whichever is earlier. As of December 31, 2012, $2,000,000 and $636,000 have been recorded as prepayments against the Put Warrant Liability and outstanding notes payable, respectively, on the accompanying condensed consolidated balance sheet.