Case 1: Purchase Point Media Corporation (PPMC) INTRODUCTIONCase 1: Purchase Poi
Case 1: Purchase Point Media Corporation (PPMC) INTRODUCTIONCase 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 arepresented 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 priceper 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, youâll be able to â¢ Identify discernable errors, irregularities, and improprietiesin style and format within publicly reported data â¢ Meet financial statement presentation requirements for a specific âreal worldâ example â¢ Determine whether financial information provided follows generally accepted accounting principles (GAAP) or is presentedin âgood formâ â¢ Distinguish between the substance and form of financial statements â¢ Estimate variable and fixed costs for a publicly traded company â¢ Assess publicly disseminated information from publicly traded companies to determine the feasibility ofmarket potential and market penetration â¢ Exercise enhanced critical-thinking skills CASE BACKGROUND Purchase Point Media Corporation (Pink Sheets: PPMC) is what some refer to as a thinly traded âcorporate shell.â 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 priceof nearly $2.50 per share, before related per-share deductions for sale-related brokerâs commissions and legal fees. At the time of the news release, the firmâs stock was trading at $0.04 per share. In less than 60 days the stock was trading at more than $0.60per share (Cataldo 2003, 55â60), 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 asignificant discount to the âanticipatedâ selling price for the firmâs intangible assets. See Arbel and Strebel 1982 and 1983; Arbel, Carvell and Strebel 1983; and Arbel 1985 for guidance on thinly traded or âneglectedâ firms.) While this initial news releaseattracted 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 firmâs 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 firmâs intangibleassets (see Exhibit 1, Purchase Point Media Corp. statement, which follows). To begin this case, review and comment on the âformâ of the public disclosure circulated by PPMC. Then use the âsubstanceâ of this information to develop per-unit, salesbased contributionmargins and break-even points for the first year of operations.