Alto Ingredients Inc (ALTO)

[Rule_62]

ADVFN, here's what I've got on the FVA

Before I say anything else, just a reminder to anyone reading this post that I have no training or expertise in this area. Everything I state is based on my own observations and conclusions. What I present in this post is for discussion purposes. Posts on a posting board are no substitute for conducting your own due diligence.

BTW, for those who are not interested in a discussion on an estimate of the GAAP EPS, fair enough. However, there are a number of us posting on this board who are, as that's what the market reacts to on earnings release.

I'll start with a note from the March 2014 10Q, followed by the summary of warrant exercises. Keep in mind that summary makes two assumptions: that all the warrants involved in the 3rd party offering were actually exercised by June 30, and that no other warrants were exercised after the May 8th summary other than the warrants involved in the 3rd party offering.

That's followed by a summary of shares outstanding, and the sources used to gather all the above information.




Next comes the calculation of weighted shares:
(I haven't done this before, so let me know if I made a mistake)



Moving on to the calculation of the Fair Value. I am showing the tables from the Q4 2013 and Q1 2014 filings to provide perspective for the June 30 estimate.

Again I remind you about the assumptions applied to the number of warrants exercised. In addition, the following assumptions were applied to the factors shown in the June 30th table that were used to calculate the fair value for each series:
*I have assumed no change in volatility.
*The marketability restriction discount was decreased by the same amount as they decreased from Q4 2013 to Q1 2014.
*The interest rates were derived from the closest applicable treasury rate, based on the time left on each warrant series.

In addition, the time remaining on each warrant issue was decrease by 90 days from the March 31 value. Please note that the actual breakdown of the number of warrants exercised for the combined total of the $7.59 warrants was not provided in any PEIX filing (see the 1st image), so I have arbitrarily assigned those values as they appear in the June 30 table for the purpose of the fair value calculation.



Finally, the Fair Value Adjustment. Note the top half of the table for the March 31 calculation. That is the balance sheet entry for fair value shown in the Q1 10-Q In the bottom half of the first table I rearranged the entries so that the entries would provide a way to determine the actual fair value adjustment. I then applied that method to the June 30 figures to derive the June 30 FVA estimate (the FVA is unknown unless this 2nd) calculation is performed first).




Ok, now a couple notes on the above FVA. First, it onlu covers the FVA for the warrant and does not include any other Fair Value Adjustment that may apply for the quarter.

Second, as highlighted above in the first image, a non-cash exercise applied to a significant number of warrants exercised in Q2. In the fair value adjustment, the value of warrants exercised was derived by first deducting the value of those warrants exercised on a cashless basis from the total value of warrants exercised for the quarter. I have not found any guidance or example on how to approach this issue. If anyone has any insight on whether that approach was correct, please let me know. Needless to say, that applies for everything shown in this post. After all, the purpose in posting this information is solely to help the board work towards an estimate of the GAAP EPS for Q2. If you see where I've made an error, please post a correction (don't just say it's wrong, that doesn't help us move forward).

If no one sees any errors, next comes an attempt at estimating the EPS.