FORM 11-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/ X / ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended March 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 33-98288
A. Full title of the plan and the address of the plan, if different from
that of the issuer named below:
Piercing Pagoda, Inc. Employee Stock Purchase Plan
B. Name of the issuer of the securities held pursuant to the plan and the
address of its principal executive offices:
Piercing Pagoda, Inc.
3910 Adler Place
Bethlehem, PA 18017
<PAGE>
Independent Auditors' Report
To the Compensation Committee of the
Board of Directors of Piercing Pagoda, Inc.
We have audited the accompanying statements of financial condition of the
Piercing Pagoda, Inc. Employee Stock Purchase Plan (the "Plan") as of March 31,
2000 and 1999, and the related statements of income (deductions) and changes in
plan equity for each of the years in the three-year period ended March 31, 2000.
These financial statements are the responsibility of the Plan's administrator.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the Plan's administrator, as well as evaluating
the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial condition of the Plan as of March 31, 2000
and 1999, and the income (deductions) and changes in plan equity for each of the
years in the three-year period ended March 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.
Allentown, Pennsylvania KPMG LLP
June 2, 2000
<PAGE>
PIERCING PAGODA, INC.
EMPLOYEE STOCK PURCHASE PLAN
Statements of Financial Condition
March 31, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Assets
Investment in Piercing Pagoda, Inc. common stock
(74,744 and 47,794 shares, cost of $778,480 and
$547,344, at March 31, 2000 and 1999, respectively) $ 999,701 427,159
Participant contributions receivable from Piercing
Pagoda, Inc. 83,090 70,021
-------- --------
Total assets $ 1,082,791 497,180
==================
Equity
Plan equity $ 1,082,791 497,180
==================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PIERCING PAGODA, INC.
EMPLOYEE STOCK PURCHASE PLAN
Statements of Income (Deductions) and Changes in Plan Equity
Years ended March 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Income (deductions):
Participant contributions $ 334,602 303,790 216,363
Unrealized appreciation (depreciation)
on common stock 341,406 (340,969) 121,258
Realized gains on distributions 10,126 9,752 20,724
Distributions to Plan participants,
at market value (100,523) (58,180) (53,485)
--------- -------
Increase (decrease) in plan equity 585,611 (85,607) 304,860
Plan equity at beginning of period 497,180 582,787 _277,927
-------- -------- -------
Plan equity at end of period $ 1,082,791 497,180 582,787
========= ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PIERCING PAGODA, INC.
EMPLOYEE STOCK PURCHASE PLAN
Notes to Financial Statements
March 31, 2000, 1999 and 1998
(1) Description of the Plan
The following description of the Piercing Pagoda, Inc. Employee Stock
Purchase Plan (the "Plan") provides general information only. Participants
should refer to the Plan prospectus for more complete information.
The purpose of the Plan is to encourage and assist employees of Piercing
Pagoda, Inc. (the "Company") and its subsidiary, by giving them the
opportunity to acquire an equity interest in the Company through the
purchase of shares of the Company's common stock at a discount. A maximum
of 144,000 shares of common stock may be purchased under the Plan. The
Plan was adopted by the Board of Directors in October 1995 and was
approved by the stockholders of the Company in September 1996. The Plan
began operations on November 1, 1995.
(2) Summary of Significant Accounting Policies
Basis of Accounting
The financial statements of the Plan are prepared on the accrual basis of
accounting.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
changes therein, and disclosure of contingent assets and liabilities.
Actual results could differ from those estimates.
Investment Valuation
Investments, consisting of Piercing Pagoda, Inc. common stock, are stated
at market value based upon available market quotations. Market value was
$13.375 and $8.9375 per share at March 31, 2000 and 1999, respectively.
The cost values of investments under the Plan are calculated using an
average cost methodology.
Fiscal Year
The Plan's fiscal year ends March 31st.
Administrative Expenses
All administrative expenses of the Plan are paid for by the Company.
<PAGE>
PIERCING PAGODA, INC.
EMPLOYEE STOCK PURCHASE PLAN
Notes to Financial Statements, Continued
March 31, 2000, 1999 and 1998
Federal Income Tax
The Plan is intended to qualify as an "employee stock purchase plan" under
Sections 421 and 423 of the Internal Revenue Code of 1986. Under existing
federal income tax laws, the Plan is not subject to federal income tax.
When any shares of stock are sold by a participant, any gain or loss must
be recognized by that participant.
Stock Split
In June 1998, the Company's Board of Directors authorized a three-for-two
stock split effected in the form of a stock dividend payable to
shareholders of record on July 31, 1998, payable on August 13, 1998. All
share and per share amounts have been restated to reflect the stock split.
(3) Purchase and Distribution of Shares
Purchases are made by the Plan quarterly with the shares purchased
deposited into a brokerage firm account maintained for the Plan. The
common stock is purchased at a price equal to the lower of 85% of the
closing market price on the Nasdaq market on the first or last day of the
purchase period.
In the event of the termination of a participant's employment for any
reason, including retirement or death, all shares of common stock then
held for his or her benefit shall be registered in such individual's name.
Any amounts credited to such individual prior to the purchase of common
stock shall be refunded, without interest, to such individual.
Additionally, participants may elect, in accordance with Plan provisions,
to have common stock registered in the participant's name or have the Plan
sell shares credited to their account and receive cash.
(4) Participant Contributions Receivable
Participant contributions receivable from the Company represents payroll
deductions for the most recent purchase period for which a stock purchase
has not yet been made and deductions which are less than the cost of one
share of common stock that will be carried forward for use in purchasing
shares on the next quarterly purchase date.
<PAGE>
PIERCING PAGODA, INC.
EMPLOYEE STOCK PURCHASE PLAN
Notes to Financial Statements, Continued
March 31, 2000, 1999 and 1998
(5) Unrealized Appreciation
Changes in unrealized appreciation in common stock of the Plan are as
follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Unrealized appreciation:
Beginning of period $(120,185) $ 220,784 $99,526
End of period 221,221 (120,185) 220,784
------- --------- -------
Change in unrealized appreciation $ 341,406 $(340,969) $121,258
======= ========= =======
</TABLE>
(6) Realized Gains on Distributions
The realized gains on distributions of common stock as a result of
participant withdrawals is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Value of shares distributed:
Market value $ 100,523 $ 58,180 $ 53,485
Cost basis 90,397 48,428 32,761
------- ------ ------
Realized gains on distributions
to participants $ 10,126 $ 9,752 $ 20,724
====== ===== ======
</TABLE>
