Case 1: Purchase PointMedia Corporation (PPMC)INTRODUCTIONThis case is based on actual financial projections developedand provided by a publicly traded firm, Purchase Point MediaCorporation (PPMC). Carefully examine the PPMC projections,which are presented in a sequence and format suitable forbreak-even calculation and analysis. After you calculate thebreak-even point, use additional, publicly available informationto come to a decision with respect to market potential.The increase in the price per share of PPMC stock suggeststhat, over time, the market may have reacted to their resultsand analyses, using a comparable methodology.OBJECTIVESWhen you complete this case, you’ll be able to• Identify discernable errors, irregularities, and improprietiesin style and format within publicly reported data• Meet financial statement presentation requirements for aspecific “real world” example• Determine whether financial information provided followsgenerally accepted accounting principles (GAAP) or ispresented in “good form”• Distinguish between the substance and form offinancial statements• Estimate variable and fixed costs for a publiclytraded company• Assess publicly disseminated information from publiclytraded companies to determine the feasibility of marketpotential and market penetration• Exercise enhanced critical-thinking skillsSenior Capstone: Business 9

CASE BACKGROUNDPurchase Point Media Corporation (Pink Sheets: PPMC) iswhat some refer to as a thinly traded “corporate shell.” Thefirm held patents in the United States, Canada, UnitedKingdom, 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 thesepatents and related trademarks. The initial estimates suggesteda stock price of nearly $2.50 per share, before relatedper-share deductions for sale-related broker’s commissionsand legal fees. At the time of the news release, the firm’sstock was trading at $0.04 per share. In less than 60 daysthe 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 asa very risky investment, and the price per share for PPMCstock would be expected to fall short of or sell at a significantdiscount to the “anticipated” selling price for the firm’s intangibleassets. See Arbel and Strebel 1982 and 1983; Arbel,Carvell and Strebel 1983; and Arbel 1985 for guidance onthinly traded or “neglected” firms.)While this initial news release attracted speculators, causingthe stock price to rise, after months without any additionalnews releases, the stock price drifted down again. On August20, 2003, PPMC again announced its intention to sell thefirm’s intangible assets (Business Wire 2003).In the second announcement, PPMC management referredinterested investors to their corporate Web site. Among thedata provided, PPMC included a financial projection andother items they felt might be of interest to potential purchasersof 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” ofthe public disclosure circulated by PPMC. Then use the“substance” of this information to develop per-unit, salesbasedcontribution margins and break-even points for thefirst year of operations. Last, gather other publicly availableinformation to determine the market feasibility of achievingits break-even point.10 Senior Capstone: Business

20 Senior Capstone: Business

SUPPLEMENTAL INFORMATIONBrand Name versus Generic StocksGraphsSupplemental 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.Brand Name Stocks Generic StocksLess information risk More information risk

Higher quality of information Lower quality of informationLarge sample of consensusestimatesSmall or no sample of consensusestimatesMonitoring service or fee No monitoring service or feeLower return Higher returnHigher price (premium) Lower price (discount)Lower uncertainty Higher uncertaintyMoGraphsSupplemental 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.

ReferencesArbel, A. 1985. Generic Stocks: An old product in a new

package. 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 REQUIREMENTSSubstance versus Form andCritical ThinkingStep 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 withthe form of the report. There are many, including font changesthat have been corrected for printing here. Prepare a typed,clearly communicated summary of all errors or weaknessesyou find in the form of this report. There’s no magic numberof errors that you must identify and different students willproduce variations in their responses to this part of theassignment. Simply identify as many problems as you find,including spelling, punctuation, and usage errors. Althoughthe PPMC report isn’t well-written, don’t attempt to corrector rewrite the report.Here are a few examples of the kinds of errors you may findand how you’ll present them.Summary of Errors in the Form of the PPMC Report1. There are two sentence fragments, plus a

spelling error, in the introductory paragraph,as follows:Safe harbor statement under the privatesecurities litigation act of 1995.Changes in assumptions or changes in otherfactors effecting such statements.2. The second sentence in the introductory paragraphrefers to a “project” statement of netincome (“This project statement of net incomecontains . . .”). It appears that the author ofthis report intended to refer to a “projected”statement of net income, although that’s nota conventional accounting term.3. The third sentence in the introductory paragraphrefers to “Corporate house,” in which thefirst word of what appears to be a firm’s name iscapitalized and the second isn’t.4. The last sentence in the introductory paragraphuses “risk” in the singular form when it requiresthe plural: “You should independently investigateand fully understand all risk before makinginvestment decisions.”

Next, reread the PPMC report, focusing on problems with thesubstance of the report. Identify the obvious errors or problemsfirst by focusing on the addition or math errors. Prepare atyped, clearly communicated summary of all errors or weaknessesyou find in the substance of this PPMC report.A few examples follow:Summary of Errors in the Substance of thePPMC Report1. The report refers to a “Projected Statement ofNet Income” having been prepared in “accordancewith generally accepted accountingprinciples.” I have never heard of this financialstatement or any such GAAP requirement.2. Note 6 of the report contains an apparent matherror in the table. Specifically, there appears tobe a transposition error for the 3rd quarter inthe “15% commissions” column. The $5,382,000amount should be $5,832,000.Sometimes an issue may appear to represent both form andsubstance problems. In these cases, identify the problemswith the form of the PPMC report first. After completing thisrequirement, build on these results by identifying substanceproblems with the PPMC report. This methodological approachwill save you time and make it easier for you to organize yourthoughts as you progress through these requirements.Step 2Below is a recommend framework for the analysis and computation

of the PPMC break-even point in terms of carts andstores (Table 1). The PPMC Note column refers to the notes inthe PPMC source document. In fact, the PPMC notes appearto be organized by cost behavior. This is similar to the approachyou used in your Managerial Accounting course. You shouldfollow this approach or framework as you compute the PPMCbreak-even point 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.

Senior Capstone: Business 25There’s some potential for variation in answers, but yourconclusion should approximate a break-even pointbetween 3,000 and 4,000 stores for the first yearof operations.Step 3Now study Table 2, which presents a recommended frameworkfor the analysis and computation of the amount of marketshare required to achieve break-even in stores for PPMC. Thecomposition of the stores in the example will change over time.Using your own research skills and abilities, determine thenumber of grocery stores in the United States. For example,you could go to Yahoo!Finance to identify a stock for a publiclytraded grocery retailer (e.g., KR for Kroger), then use theYahoo!Finance feature that allows you to view stocks forcompeting firms in the same industry. Once you’ve donethat, go to the Web site for each firm, where the vast majoritylist the number of retail outlets.Table 1PPMC First yearNote J F M A M J J A S O N D AnnualStoresMultiply by 200 cartsTotal CartsMultiply byrevenue per cartTotal revenues 1Variable costs (VC)Amortization(2 year S/L) 2

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Writing GuidelinesRefer to the “Submitting Your Work” section at the end ofthis book for details on submission requirements for thePPMC Case assignment.Table 2Stock Ticker No. of Stores Firm Name

KR KrogerABS Albertson’sSafewayAholdSUPERVALUWinn-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 GroupTotal