This excerpt taken from the GMCR 10-K filed Mar 30, 2006.
4. Line of Credit
The Company had a line of credit arrangement with a bank, which provided up to $6,000,000 of borrowings, subject to the level of qualifying accounts receivable and inventory. The borrowings, due upon demand, were secured by a primary lien on all assets of the Company. The line of credit expires in December 2006.
In connection with entering into a previous line of credit arrangement, the Company issued warrants to purchase 17,857 shares of Common Stock at an exercise price of $7.00 per share. The right to exercise these warrants commenced as of the date of the agreement, and expires on July 20, 2006. The warrants include a conversion feature whereby the holder may convert the warrants, in whole or in part, into a number of common shares as determined by a conversion formula.
4. Line of Credit (continued)
The Company estimated the fair value of the warrants using the Black-Scholes option pricing model. The Black-Scholes valuation models require the input of highly subjective assumptions, including the expected stock price volatility. The warrants have characteristics significantly different from those of stock options, and changes in the subjective input assumptions can materially affect the fair value estimate. Based on the Company's assessment, no value has been assigned to the warrants.