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PRMO valuation (<u>earnings approach</u>): If we focus on

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JPS02 Member Level  Thursday, 12/09/10 11:13:41 PM
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PRMO valuation (earnings approach): If we focus on the common shares only and you take the reported net income at June 30/10 of $2,309,938 and divide it by 8,418,197,564 shares. You get a $.0003 EPS and times it by a minimum of 10 P/E ratio, the fair value of each common share is approximately $.003. So why is PRMO trading at .0002? I am not sure, anyone have any thoughts?

Now to your point about the inventory. the accounting standard is to record inventory at lower of cost or market value. The profit to be made on selling the inventory at market value will show in the income statement when the inventory is sold. If you take the net income of $2,309,938 and add back any expense that is not production related (i.e. admin., professional fees, depreciation) in order to approximate a gross margin per say, you get $3,236,257 which is very conservative since I considered export tax and fuel as part of costs of production. This represents a gross margin of 52.4%.

Using the conservative 52.4% gross margin ratio and assuming that PRMO can sell its entire June 30 inventory of $12,315,872 in the next year with out any additions and continue operations as normal in the next year which they should be able to since the demand for gold is increasing, you can roughly approximate a revenue figure of $23,503,572 for the next year. With projected revenues of $23,503,572 for 2010-11 and taking the net income/revenue ratio of June 30/10 of 37.42% (2,309,938/6,172,876) you get a projected net income of $8,795,036 for 2010-11. Given that we are assuming revenues will be four times higher, we should account for expenses being higher and reduce the 37.42% but I think the higher gold prices coming will more than make up for the additional expenses ratio variation.

No dilution: Using a projected net income for 2010-11 of $8,795,036 divided by 8,418,197,564 o/s shares, you get a projected EPS of $0.00104 and times it by a minimum of 10 P/E ratio, the project undiscounted fair value of each common share is approximately $.0104.

Full dilution: Now say MGMT gets greedy and wants to max out the entire a/s of 20.5 billion shares, $8,795,036 divided by 20.5 billion shares, you get a projected EPS of $0.000429 and times it by a minimum of 10 P/E ratio, the projected undiscounted fair value of each common share is approximately $.00429. ~ Not too bad for a fully diluted triple zero pinksheet stock!

This is my high level attempt at these calculations, let me know if you have any edits or if I have missed anything.

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