Case 1 is from a firm called Purchase Point Media Corporation, or PPMC. PPMC was a thinly traded over-the-counter stock that issued some detailed financial projections. The data was presented in a very poor form; however, the substance and sequence of the data was organized in such a way that it was possible to compute a break-even point. You’ll study PPMC’s “Projected Statement of Net Income” and additional information provided, then integrate marketing and finance techniques to write a report on your findings.

Case 1: Purchase Point Media Corporation (PPMC)

INTRODUCTION

This case is based on actual financial projections developed and provided by a publicly traded firm, Purchase Point Media Corporation (PPMC). Carefully examine the PPMC projections, which are presented in a sequence and format suitable for break-even calculation and analysis. After you calculate the break-even point, use additional, publicly available information to come to a decision with respect to market potential. The increase in the price per share of PPMC stock suggests that, over time, the market may have reacted to their results and analyses, using a comparable methodology.

OBJECTIVES

When you complete this case, you’ll be able to

• Identify discernable errors, irregularities, and improprieties in style and format within publicly reported data

• Meet financial statement presentation requirements for a specific “real world” example

• Determine whether financial information provided follows generally accepted accounting principles (GAAP) or is presented in “good form”

• Distinguish between the substance and form of financial statements

• Estimate variable and fixed costs for a publicly traded company

• Assess publicly disseminated information from publicly traded companies to determine the feasibility of market potential and market penetration

• Exercise enhanced critical-thinking skills

CASE BACKGROUND

Purchase Point Media Corporation (Pink Sheets: PPMC) is what some refer to as a thinly traded “corporate shell.” The firm held patents in the United States, Canada, United Kingdom, and Germany for a shopping-cart display device, but was a nonreporting and nonoperating entity.

On March 18, 2002, PPMC reported its intention to sell these patents and related trademarks. The initial estimates suggested a stock price of nearly $2.50 per share, before related per-share deductions for sale-related broker’s commissions and legal fees. At the time of the news release, the firm’s stock was trading at $0.04 per share. In less than 60 days the stock was trading at more than $0.60 per share (Cataldo 2003, 55–60), for a 1,400 percent increase in price per share. (Note that investors and speculators alike would view this as a very risky investment, and the price per share for PPMC stock would be expected to fall short of or sell at a significant discount to the “anticipated” selling price for the firm’s intangible assets. See Arbel and Strebel 1982 and 1983; Arbel, Carvell and Strebel 1983; and Arbel 1985 for guidance on thinly traded or “neglected” firms.)

While this initial news release attracted speculators, causing the stock price to rise, after months without any additional news releases, the stock price drifted down again. On August 20, 2003, PPMC again announced its intention to sell the firm’s intangible assets (Business Wire 2003).

In the second announcement, PPMC management referred interested investors to their corporate Web site. Among the data provided, PPMC included a financial projection and other items they felt might be of interest to potential purchasers of the firm’s intangible assets (see Exhibit 1, Purchase Point Media Corp. statement, which follows).

To begin this case, review and comment on the “form” of the public disclosure circulated by PPMC. Then use the “substance” of this information to develop per-unit, salesbased contribution margins and break-even points for the first year of operations. Last, gather other publicly available information to determine the market feasibility of achieving its break-even point.

SUPPLEMENTAL INFORMATION

Brand Name versus Generic Stocks

Brand Name Stocks Generic StocksLess information risk More information riskHigher quality of information Lower quality of informationLarge sample of consensusestimates

Small or no sample of consensusestimates

Monitoring service or fee No monitoring service or feeLower return Higher returnHigher price (premium) Lower price (discount)Lower uncertainty Higher uncertaintyMore consistency Less consistency

GraphsSupplemental information is provided in Figures 1 and 2.Figure 1 illustrates the price per share for PPMC commonstock for the time period August 20, 2003 through September27, 2004. The latter date represents the specific event whenPPMC filed their 10QSB. Figure 2 compares the PPMC priceper share with comparable index measures, such as the DowJones Industrial Average, Standard and Poor’s 500, NASDAQ,and Russell 2000 indices, for the same period of time

FIGURE 1—The price per share for PPMC common stock, August 20, 2003 through September 27,2004, when PPMC filed their 10QSB

FIGURE 2—Comparison of the PPMC price per share over comparable index measures, such as the DowJones Industrial Average, Standard and Poor’s 500, NASDAQ, and Russell 2000 indices, for the sametime period

ReferencesArbel, A. 1985. Generic Stocks: An old product in a newpackage. The Journal of Portfolio Management 68: 4–13.Arbel, A., Carvell, S., and Strebel, P. 1983. Giraffes,Institutions and Neglected Firms. Financial AnalystsJournal 39: 57–63.Arbel, A., and Strebel, P. 1982. The Neglected and Small FirmEffects. The Financial Review: 201–18.Arbel, A., and Strebel, P. 1983. Pay attention to neglectedfirms! The Journal of Portfolio Management 9: 37–42.Business Wire. 2003. Purchase Point Media Corp.: CorporateUpdate (August 20).Cataldo, A. Information Asymmetry: A Unifying Concept forFinancial and Managerial Accounting Theories (includingillustrative case studies). Studies in Managerial andFinancial Accounting 13, 2003. Oxford, England:Elsevier Science (JAI). Series Editor: Marc Epstein.

PROJECT REQUIREMENTSThe project requires three steps to be presented.Step 1 – Identify Form and Substance Errors.Step 2 – Compute the Purchase Point Media (PPMC)break-even points in terms of carts and stores.Step 3 – Determine the number of grocery stores for variousfood chains.In one Word document, provide individual sections foreach Step. This Word document along with the Excel file(described below for Step 2) will be uploaded when you clickon the Take Exam button on your Student Portal to submityour project (described under the “Submitting YourAssignment” later in the instructions).This Senior Capstone project highlights your knowledgeand the skills you have developed over the course of youreducation. There is nothing “new” to be learned here.

The knowledge and skills required for this project includeEnglish Composition, Financial Accounting, ManagerialAccounting, Information Literacy and the abilities tothink critically, do research and to present your workin a professional manner.

Substance versus Form andCritical Thinking

Step 1In the infamous Enron bankruptcy case, the form of thefinancial statements prepared by the Enron Corporationand WorldCom was very professional; however, the substancewas lacking, leading to audit and market failures and theeventual bankruptcy of both of these big-cap, or largecapitalizationfirms. PPMC represents a reverse case, inwhich the form of the data contained in the PPMC newsrelease and corporate Web site was very poor.To begin, read the PPMC report, focusing on problems with theform of the report. (“Form” means spelling, punctuation, andcapitalization are correct and that the text is grammaticallycorrect. Also, form means that the format of the text as far asfont, bold, underlining, indents, and so on are correct.)Prepare a typed, clearly communicated summary of all errors

or weaknesses you find in the form of this report. This shouldbe a numbered list. There are well over 30 form errors in the document. (The ways to go about doing this for this step is tothink of yourself as an English Composition instructor and astudent has turned in a required paper that was written.)Although the PPMC report isn’t well-written, don’t attemptrewrite the report. Only present a numbered list of theerrors found.

To report the numbered list of form errors for this step, eacherror should have three components:

1. The location of the error.2. What the error is.3. How the text should have been written correctly.Here is an example of how you’ll present the form errors.

Summary of Errors in the Form of the PPMC Report1. Location:The first page of Exhibit 1, the last sentence of the firstparagraph states “You should independently investigateand fully understand all risk before making investmentdecisions.”Error:The word risk is singular. It should be plural.Correction:It should have been written “You should independentlyinvestigate and fully understand all risks before makinginvestment decisions.”

Next, reread the PPMC report, focusing on problems with thesubstance of the report. (“Substance” means the figures anddata that are being reported and making sure the math iscorrect.) Identify the obvious errors or problems first byfocusing on the addition or math errors. Prepare a typed,clearly communicated summary of all errors you find in thesubstance of this report. These should be presented in anumbered list.To report the numbered list of substance errors for this step,each error should have three components the same as thepresentation of the form errors:1. The location of the error.2. What the error is.

3. How the text should have been written correctly.

The heading for the substance errors should be “Summary ofErrors in the Substance of the PPMC Report”.Do not take this step lightly. The data and figures found inthe report are used to calculate the beak-even analysis forStep 2. As presented, the data is incorrect and therefore,the break-even analysis would be incorrect. Therefore, it isimportant that you find “all” of the substance errors andcorrect them as these corrected figures will be what youuse to make the break-even calculations for Step 2.

Step 2The PPMC Notes in the document appear to be organized bycost behavior. This is similar to the approach you used inyour Managerial Accounting course. You should follow thisapproach or framework as you compute the PPMC breakevenpoint in terms of carts and stores. Begin with revenues,follow with variable costs (VCs), develop the contributionmargin (CM; in aggregate), followed by fixed costs (FCs),and, finally, compute PPMC’s net operating income (NOI)and break-even point in terms of both carts and stores.

On your Student Portal, under the Supplements section ofthe Senior Capstone subject is a downloadable Excel filetitled “Exam 500895- PPMC Excel Spreadsheet”.Step 2 requires that you calculate the break-even points forboth carts and stores. Download this file and use it to calculatethe breakeven points.

Reference the Excel spreadsheet for Step 2 in the Word documentand include the spreadsheet as a separate file whensubmitting the project. The spreadsheet for the calculationsis too large to include in a table in a Word document or beable to read if an Excel spreadsheet is inserted. Therefore, there should be two files submitted for the project – thisWord document and the Excel spreadsheet with your workfor Step 2.

The majority of the work has been done for you when usingthe spreadsheet. The setup to be able to calculate the CM,NOI and the break-even points are part of the spreadsheet.What you need to do to interpret the Notes from the PPMC

document, input the data into the spreadsheet (be sure touse your “corrected substance” figures/data from Step 1),and do the calculations required to obtain the break-evenpoint for the carts and the break-even point for the stores.(Hint: Some cells in the spreadsheet have comments inserted.Pay attention to these comments. For example, there is acomment in a cell that has the formula to be used to calculatethe break-even point.)

Step 3Step 3 requires three items:1. The ticker symbol for the store chain.2. The number of stores for the store chain.3. A Works Cited page for the figures found as the numberof stores.Table 1 should be reproduced as a table in your Worddocument for Step 3 and the ticker symbol and thenumber of stores inserted from your own research.

To find the ticker symbol for each of the store chains, it is aseasy as opening up Google Chrome as your web browser andtyping in the store name followed by “ticker symbol” into thesearch box. The hits form the search should reveal the tickersymbol for that store. Alternatively, you could use a financialwebsite such as Yahoo Finance, E-trade, and so on to do yoursearching. All of the stores have a ticker symbol with theexception of one which is a private company.

Using your own research skills and abilities, determine thenumber of grocery stores for each store chain. How you goabout doing this is up to you and your research skills.Here is what you are looking for as far as the number of storesis concerned:• You are looking for the most “current” information.However, current doesn’t mean today.

For example, if store A (which has 10 stores) took overstore B (which had 3 stores) in a merger, then B is nolonger in business. The number of stores for A will be13 as of today because it is still in business. The numberof stores for B will be 3 which is how many it had beforethe merger. That is the most current for B – not zero.

As another example, if a store declares bankruptcy, it alldepends upon the bankruptcy status. If the store is inChapter 11, which is reorganization then the number ofstores will be the current information. If the store is inChapter 13, which is a closing of the business, then thenumber of stores will be zero.

Be aware that the solution to the number of stores in thetable is kept current, but that doesn't mean that data willall be “as of today.” It is possible that the most currentinformation might be 2015 or 2016. It all depends uponyour research and what is available. Finding the correctinformation is the purpose behind doing research.One other thing to watch out for in doing your research isa “name change.” If a store changes its name, then listboth the old name and the new name and the currentinformation available for the number of stores.

• You should rarely use third party sites such as GoogleFinance, InvestSnips, Investopedia, Wikipedia, newspaperarticles, and so on as these don’t have the mostcurrent and accurate information. You should use informationfrom the business web site, SEC filings, AnnualReports, and so on for the most applicable, relevant andcurrent information.• Lastly, this step involves research. “Research” is not doinga quick search and picking a web site or two and goingwith what is found. Research is looking at quite a fewsources and thinking critically about what is found as torelevancy, currency and accuracy. For example, one web page may say “about 500” stores, but, another page onthe website will say “536 stores” exactly. Or one web sitemight have information from March 2016 and anothermight have information from December 2016. Which ismore current and relevant? The December 2016 web site.Not only do you need to do research, but, you also mustthink critically about the information you find.

Along with Table 1, a Works Cited page needs to be includedfor Step 3. This is Standard English Composition. Workand/or figures that are not your own need to be cited aspart of a paper.

If no citations are provided or the citations are not properlyformatted, this becomes “Plagiarism”

• There should be a correctly formatted citation for each figurefor the number of stores for the grocery store chain.This is standard for English Composition and should followMLA or APA formatting. If you do not remember howto make a correct citation, do a search on the Internetfor “Purdue OWL” and when you get there search theOWL (Online Writing Lab) site for “MLA Works Cited:Electronic Sources (Web Publications)” as this is themost likely source you will use and refresh your memory.Alternatively, you can search Penn Foster’s Library forthe Purdue Owl web site and/or telephone and speakwith an English Instructor

• The web address provided for the citation should take thereader directly to the web page where the number ofstores can be found. The reader should not have to searchfor your information. Do not provide a generic webaddress such as the homepage of a web site unless theactual number of stores is on that web page.

Table 1

Stock Ticker No. of Stores Firm NameKR KrogerABS Albertson’s

SafewayAholdSUPERVALU

Winn-Dixie StoresPublix Super MarketsGreat Atlantic & PacificSmart & FinalIngles MarketsBlue Square-IsraelPathmarkRuddickWhole Foods MarketWeis MarketsMarsh SupermarketsNash FinchFresh BrandsWild Oats MarketsSpartan StoresEagle Food CentersGristede’s FoodsVillage Super MarketFoodarama SupermarketsArden Group

Total

Writing GuidelinesRefer to the “Submitting Your Work” section at the end ofthis book for details on submission requirements for thePPMC Case assignment.

Grading CriteriaYour assignment will be evaluated according to the followingcriteria:Content 80 percentWritten Communication 10 percentFormat 10 percent

Criteria

Content 80 pts• Identifies Form and Substance errors as instructed (worth 30 points)• Completes Step 2 – Compute the PPMC break-even point in terms ofcarts and stores (worth 40 points)• Completes Step 3 – Determine the number of grocery stores in theUnited States (worth 10 points)

Written Communication 10 pts

• Answers each question in a complete paragraph that includes anintroductory sentence, at least four sentences of explanation, anda concluding sentence• Uses correct grammar, spelling, punctuation, and sentence structure• Provides clear organization by using words like first, however, on theother hand, and so on, consequently, since, next, and when• Makes sure the paper contains no typographical errors• Properly formatted citations – (No Works Cited or incorrectlyformatted citations will result in a final grade of 1 for the projectdue to Plagiarism.)

Format 10 pts

The paper is double-spaced, typed in font size 12, and contains properlyformatted Internet research sources. It includes the student’s• Name and address• Student number, Course title and number, and project number