Please highlight all source information per the instructions (ALL SOURCE INFORMATION USED WILL NEED TO BE HIGHLIGHTED AND WEBSITE LINKS NEED TO BE PROVIDED TO BE ABLE TO VERIFY EACH SOURCE). 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 informa- tion to come to a decision with respect to market potential. The increase in the price per share of PPMC stock suggests that, over time, 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 impropri- eties 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 sug- gested 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 intan- gible 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 pur- chasers 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, sales- based 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 Stocks

Less information risk More information risk

Higher quality of information Lower quality of information

Large sample of consensus Small or no sample of consensus estimates estimates

Monitoring service or fee No monitoring service or fee

Lower return Higher return

Higher price (premium) Lower price (discount)

Lower uncertainty Higher uncertainty

More consistency Less consistency

Graphs

Supplemental information is provided in Figures 1 and 2. Figure 1 illustrates the price per share for PPMC common stock for the time period August 20, 2003 through September 27, 2004. The latter date represents the specific event when PPMC filed their 10QSB. Figure 2 compares the PPMC price per share with comparable index measures, such as the Dow Jones 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 Dow Jones Industrial Average, Standard and Poor’s 500, NASDAQ, and Russell 2000 indices, for the same time period References

Arbel, 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 Analysts Journal 39: 57–63. Arbel, A., and Strebel, P. 1982. The Neglected and Small Firm Effects. The Financial Review: 201–18. Arbel, A., and Strebel, P. 1983. Pay attention to neglected firms! The Journal of Portfolio Management 9: 37–42. Business Wire. 2003. Purchase Point Media Corp.: Corporate Update (August 20). Cataldo, A. Information Asymmetry: A Unifying Concept for Financial and Managerial Accounting Theories (including illustrative case studies). Studies in Managerial and Financial Accounting 13, 2003. Oxford, England: Elsevier Science (JAI). Series Editor: Marc Epstein.

PROJECT REQUIREMENTS

The 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 various food chains. In one Word document, provide individual sections for each Step. This Word document along with the Excel file (described below for Step 2) will be uploaded). MUST PROVIDE FORMULAS FOR ALL CALCULATIONS AND A DETAILED EXPLANATION OF THE FORMULA The knowledge and skills required for this project include English Composition, Financial Accounting, Managerial Accounting, Information Literacy and the abilities to think critically, do research and to present your work in a professional manner.

Substance versus Form and Critical Thinking Step 1

In the infamous Enron bankruptcy case, the form of the financial statements prepared by the Enron Corporation and WorldCom was very professional; however, the substance was lacking, leading to audit and market failures and the eventual bankruptcy of both of these big-cap, or large- capitalization firms. PPMC represents a reverse case, in which the form of the data contained in the PPMC news release and corporate Web site was very poor. To begin, read the PPMC report, focusing on problems with the form of the report. (“Form” means spelling, punctuation, and capitalization are correct and that the text is grammatically correct. Also, form means that the format of the text as far as font, 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 should be a numbered list. There are well over 30 form errors in the document. (The way to go about doing this for this step is to think of yourself as an English Composition instructor and a student has turned in a required paper that was written.) Although the PPMC report isn’t well-written, don’t attempt to rewrite the report. Only present a numbered list of the errors found. To report the numbered list of form errors for this step, each error 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 Report

1. Location: The first page of Exhibit 1, the last sentence of the first paragraph states “You should independently investigate and fully understand all risk before making investment decisions.”

Error: The word risk is singular. It should be plural.

Correction: It should have been written “You should independently investigate and fully understand all risks before making investment decisions.” Next, reread the PPMC report, focusing on problems with the substance of the report. (“Substance” means the figures and data that are being reported and making sure the math is correct.) Identify the obvious errors or problems first by focusing on the addition or math errors. Prepare a typed, clearly communicated summary of all errors you find in the substance of this report. These should be presented in a numbered list. To report the numbered list of substance errors for this step, each error should have three components the same as the presentation 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 of Errors in the Substance of the PPMC Report”. Do not take this step lightly. The data and figures found in the report are used to calculate the beak-even analysis for Step 2. As presented, the data is incorrect and therefore, the break-even analysis would be incorrect. Therefore, it is important that you find “all” of the substance errors and correct them as these corrected figures will be what you use to make the break-even calculations for Step 2.

Step 2

The PPMC Notes in the document appear to be organized by cost behavior. This is similar to the approach you used in your Managerial Accounting course. You should follow this approach or framework as you compute the PPMC break- even point in terms of carts and stores. Begin with revenues, follow with variable costs (VCs), develop the contribution margin (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. Step 2 requires that you calculate the break-even points for both carts and stores. Download this file and use it to calcu- late the breakeven points. Reference the Excel spreadsheet for Step 2 in the Word docu-ment and include the spreadsheet as a separate file(MUST PROVIDE FORMULAS FOR ALL CALCULATIONS AND A DETAILED EXPLANATION OF THE FORMULA) The majority of the work has been done for you when using the 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 to use your “corrected substance” figures/data from Step 1), and do the calculations required to obtain the break-even point 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 a comment in a cell that has the formula to be used to calcu- late the break-even point.)

Step 3

Step 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 number of stores. Table 1 should be reproduced as a table in your Word document for Step 3 and the ticker symbol and the number of stores inserted from your own research. To find the ticker symbol for each of the store chains, it is as easy as opening up Google Chrome as your web browser and typing in the store name followed by “ticker symbol” into the search box. The hits form the search should reveal the ticker symbol for that store. Alternatively, you could use a financial website such as Yahoo Finance, E-trade, and so on to do your searching. All of the stores have a ticker symbol with the exception of one which is a private company. Using your own research skills and abilities, determine the number of grocery stores for each store chain. How you go about doing this is up to you and your research skills. Here is what you are looking for as far as the number of stores is 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 over store B (which had 3 stores) in a merger, then B is no longer in business. The number of stores for A will be 13 as of today because it is still in business. The number of stores for B will be 3 which is how many it had before the merger. That is the most current for B – not zero.

As another example, if a store declares bankruptcy, it all depends upon the bankruptcy status. If the store is in Chapter 11, which is reorganization then the number of stores will be the current information. If the store is in Chapter 13, which is a closing of the business, then the number of stores will be zero.

Be aware that the solution to the number of stores in the table is kept current, but that doesn't mean that data will all be “as of today.” It is possible that the most current information might be 2015 or 2016. It all depends upon your research and what is available. Finding the correct information is the purpose behind doing research.

One other thing to watch out for in doing your research is a “name change.” If a store changes its name, then list both the old name and the new name and the current information available for the number of stores.

• You should rarely use third party sites such as Google Finance, InvestSnips, Investopedia, Wikipedia, newspa- per articles, and so on as these don’t have the most current and accurate information. You should use infor- mation from the business web site, SEC filings, Annual Reports, and so on for the most applicable, relevant and current information.

• Lastly, this step involves research. “Research” is not doing a quick search and picking a web site or two and going with what is found. Research is looking at quite a few sources and thinking critically about what is found as to relevancy, currency and accuracy. For example, one web page may say “about 500” stores, but, another page on the website will say “536 stores” exactly. Or one web site might have information from March 2016 and another might have information from December 2016. Which is more current and relevant? The December 2016 web site. Not only do you need to do research, but, you also must think critically about the information you find.

Along with Table 1, a Works Cited page needs to be included for Step 3. This is Standard English Composition. Work and/or figures that are not your own need to be cited as part of a paper. If no citations are provided or the citations are not properly formatted, this becomes “Plagiarism” which is unacceptable.

• There should be a correctly formatted citation for each figure for the number of stores for the chain. This is standard for English Composition and should fol- low MLA or APA formatting. If you do not remember how to make a correct citation, do a search on the Internet for “Purdue OWL” and when you get there search the OWL (Online Writing Lab) site for “MLA Works Cited: Electronic Sources (Web Publications)” as this is the most likely source you will use and refresh your memory. Alternatively, you can search Library for the Purdue Owl web site and/or telephone and speak with an English Instructor.

• The web address provided for the citation should take the reader directly to the web page where the number of stores can be found. ALL SOURCE INFORMATION USED WILL NEED TO BE HIGHLIGHTED AND WEBSITE LINKS NEED TO BE PROVIDED TO BE ABLE TO VERIFY EACH SOURCE. The reader should not have to search for your information. Do not provide a generic web address such as the homepage of a web site unless the actual number of stores is on that web page. Table 1

Stock Ticker No. of Stores Firm Name

KR

ABS Albertson’s

Safeway

Ahold

SUPERVALU

Winn-Dixie Stores

Publix Super Markets

Great Atlantic & Pacific

Smart & Final

Ingles Markets

Blue Square-Israel

Pathmark

Ruddick

Whole Foods Market

Weis Markets

Marsh

Nash Finch

Fresh Brands

Wild Oats Markets

Spartan Stores

Eagle Food Centers

Gristede’s Foods

Village Super Market

Foodarama Supermarkets

Arden Group

Total Criteria Grade

• Identifies Form and Substance errors as instructed

• Completes Step 2 – Compute the PPMC break-even point in terms of carts and stores

• Completes Step 3 – Determine the number of grocery stores in the United States

Written Communication • Answers each question in a complete paragraph that includes an introductory sentence, at least four sentences of explanation, and a concluding sentence

• Uses correct grammar, spelling, punctuation, and sentence structure

• Provides clear organization by using words like first, however, on the other hand, and so on, consequently, since, next, and when

• Makes sure the paper contains no typographical errors

• Properly formatted citations – (No Works Cited or incorrectly formatted citations will result in a final grade of 1 for the project due to Plagiarism.)

Format

The paper is double-spaced, typed in font size 12, and contains properly formatted Internet research sources.

Please highlight all source information per the instructions (ALL SOURCE INFORMATION USED WILL NEED TO BE HIGHLIGHTED AND WEBSITE LINKS NEED TO BE PROVIDED TO BE ABLE TO VERIFY EACH SOURCE).

Total Grade %