A CASE STUDY ON MINISCRIBE CORPORATION
BA 219 - Corporate Financial Reporting
Dr. Helen S. Valderrama
Zuniga, Jose Antonio
University of the Philippines
Diliman, Quezon City
November 5, 2015
The study was about MiniScribe Corporation, a computer disk drive manufacturer that was reputed to be experiencing difficulties in cash flows and inventories. The objective of the report is to come up with a decision if Alexander and Ferris brokerage firm should continue to retain MiniScribe on its ‘Buy’ recommendation list or not. Research analyst, Paula Perry, was tasked by his manager to investigate the financial position and performance of MiniScribe Corporation using the available financial and qualitative information. The case was therefore analyzed from Paula Perry’s point of view as a research expert who must make a recommendation.
The analysis was conducted to obtain additional information from a given data and proceeding with an interpretation of the results. The group evaluated the case through analytical methodology that started from reviewing significant historical events of MiniScribe. Using the unaudited interim financial statements, the group prepared the statement of cash flow and this was examined to determine if the company has still enough cash to continue its operation. The group also calculated the company’s financial ratios to extract more quantitative information and was examined as compared to the disk drive manufacturers industry. MiniScribe’s stock price highs and lows were also evaluated. The ‘red flags’ gathered from all these analyses served as the group’s focal point in coming up with a recommendation.
After having a thorough investigation of the financial statements, financial ratios, and industry trends, the group recommends that MiniScribe be removed from Alexander and Ferris’ ‘Buy’ recommendation list. The firm’s liquidity, efficiency and profitability issues and other aggravating factors led the group to seriously question MiniScribe’s ability to continue as a going concern.
TABLE OF CONTENTS
I. CASE CONTEXT/BACKGROUND pages 1-2
II. PROBLEM DEFINITION AND POV page 2
MiniScribe Corporation Case Study on Financial Statement Fraud By Robert H. Barr, Jr., CPA, CFE, CFF © 2012 MiniScribe Corporation was founded in July 1980 by Terry Johnson. He started the company in the basement of his Longmont Colorado home. He started the company to take advantage of his desire to develop large quantity hard drives for personal computers. Sales for MiniScribe in 1981 totaled $81,000. By 1983 sales of MiniScribe were up to $77 million. In November 1983 MiniScribe had its initial public offering at a price of $11.50 per share. Beginning in 1984 and 1985 MiniScribe had increased competition as other companies had entered the hard disk market. In addition there had been a slowdown in computer industry growth. MiniScribe stock had dropped to one dollar per share. In 1985 company had lost $12,500,000. At that time many stock market analyst questioned the viability of MiniScribe and whether or not it could continue. Hambrecht & Quist to the Rescue During early 1985 San Francisco-based venture capital firm Hambrecht & Quist started having interest in investing in MiniScribe. Hambrecht & Quist had invested in a number of companies that needed additional capital and needed turnaround artists. During 1985 Hambrecht and Quist led a group of investors bringing $20 million to MiniScribe. $8,500,000 was invested directly by Hambrecht and Quist. Another $1,600,000 was invested by Q. T. Wiles who was one of the Hambrecht and Quist partners. The Hambrecht & Quist group also brought in another $9,900,000 from other investors. Q. T. Wiles, Hambrecht and Quist partner was named chairman of the board and CEO of MiniScribe Corporation. Wiles had been involved in several turnaround situations with Hambrecht & Quist and was considered to be a turnaround artist. Although MiniScribe Corporation was headquartered in Longmont Colorado, Wiles kept his office in San Francisco and carried on conversations with other management conference calls and quarterly meetings in San Francisco. In addition, Wiles was known