SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549



                                    FORM 10-Q

             Quarterly Report Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934


For the quarterly period ended February 28, 1998

Commission File No.  0-19369


                   LITTLE SWITZERLAND, INC.

    (Exact name of registrant as specified in its charter)

Delaware                            66-0476514
(State of Incorporation)            (I.R.S Employer
                                    Identification No.)

161-B Crown Bay Cruise Ship Port
St. Thomas U.S.V.I.                             00802
(Address of Principal Executive Offices)   (Zip Code)

(340) 776-2010
(Registrant's Telephone Number, Including Area Code)


Indicate  by check  mark  whether  the  Registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the preceding 12 months (or such shorter  period that the registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days.

                    YES    X     NO



At March  30,  1998,  8,554,202  shares of $.01 par  value  common  stock of the
registrant were outstanding.





<PAGE>



                   LITTLE SWITZERLAND, INC.

                      INDEX TO FORM 10-Q

            FOR THE QUARTER ENDED February 28, 1998


                                                                    PAGE
PART I.         FINANCIAL INFORMATION

Item 1.         Financial Statements

      Consolidated Balance Sheets as of
      February 28, 1998 (unaudited) and
      May 31, 1997                                                     3

      Consolidated Statements of Income (unaudited)
      for the three and nine months ended
      February 28, 1998 and March 1, 1997                              4


      Consolidated Statements of Cash Flows (unaudited)
      for the nine months ended February 28,1998 and
      March 1, 1997                                                    5

      Notes to Consolidated Financial
      Statements (unaudited)                                           6-13


Item 2.         Management's Discussion and Analysis
                of Financial Condition and Results
                of Operations                                         14-19


Item 3.  Quantitative and Qualitative Disclosures
                about Market Risk                                     19


PART II. OTHER INFORMATION


Item 1.         Legal Proceedings                                     20

Item 5.         Other Information                                     20

Item 6.         Exhibits and Reports on Form 8-K                      21

Signature Page                                                        22




<PAGE>



PART I.  FINANCIAL INFORMATION                                       FORM 10-Q
Item 1.  Financial Statements                                        Page 3
                    LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                      (in thousands except per share data)
                                   (unaudited)
                                                   February 28,      May 31,
                          ASSETS                       1998           1997
Current assets:                                    (unaudited)
                                                   -----------     -----------
   Cash and cash equivalents.......................$  3,284        $  1,710
   Accounts receivable.............................   2,483           2,083
   Inventory.......................................  47,447          44,728
   Prepaid expenses and other current assets.......   3,725           2,172
                                                    --------       ---------
         Total current assets......................  56,939          50,693
                                                    --------       ---------

Property, plant and equipment, at cost.............  39,509          38,565
   Less -- Accumulated depreciation................ (17,178)        (15,201)
                                                    --------       ---------
                                                     22,331          23,364
                                                    --------       ---------

Other assets.......................................   3,084           3,334
                                                    --------       ---------

         Total assets..............................$ 82,354        $ 77,391
                                                   =========       =========

               LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
   Current portion of long term debt...............$  2,225        $  2,225
   Unsecured notes payable.........................   9,700           8,100
   Accounts payable................................   9,926           7,002
   Accrued and currently deferred income taxes.....     319             429
   Other accrued expenses and deferred income......   2,763           2,431
                                                   ---------       ---------
         Total current liabilities.................  24,933          20,187

Long term debt.....................................   4,450           6,119

Deferred income taxes..............................     186             186
                                                   ---------       ---------
         Total liabilities.........................  29,569          26,492



Commitments and contingencies......................     ---             ---

Minority interest..................................   1,619           1,619
                                                   ---------       ---------
Stockholders' equity:
  Preferred stock, $.01 par value--
    Authorized--5,000 shares
    Issued and outstanding--none...................     ---             ---
  Common stock, $.01 par value--
    Authorized--20,000 shares
    Issued and outstanding--8,549 shares
      at February 28, 1998 and 8,462 shares at
      May 31, 1997 ................................      85              85
Capital in excess of par...........................  15,234          14,811
Retained earnings..................................  35,847          34,384
                                                   ---------       ---------

      Total stockholders' equity...................  51,166          49,280
                                                   ---------       ---------

      Total liabilities, minority interest
         and stockholders' equity..................$ 82,354        $ 77,391
                                                   =========       =========

           See accompanying notes to consolidated financial statements


<PAGE>



PART I. FINANCIAL INFORMATION                                    FORM 10-Q
Item 1. Financial statements                                     Page 4


                    LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
                        Consolidated Statements of Income
                      (in thousands except per share data)
                                   (unaudited)



                                 For the three              For the nine
                                 months ended               months ended
                            February 28,   March 1,     February 28,   March 1,
                               1998           1997          1998        1997
                              ------        ------        ------        ------

Net sales...................$ 34,925      $ 32,624      $ 76,329      $ 65,950
Cost of sales...............  19,901        18,126        43,612        36,918
                              ------        ------        ------        ------

Gross profit................  15,024        14,498        32,717        29,032

Selling, general and
administrative expenses.....  12,352        11,263        29,657        27,211

Business interruption
insurance (proceeds)........   ---             ---           --           (560)
                              ------        ------        ------        ------

  Operating income..........   2,672         3,235         3,060         2,381

Interest expense, net.......     481           398         1,278         1,166
                              ------        ------        ------        ------
   Income before
      income taxes..........   2,191         2,837         1,782         1,215

Provision for
income taxes................     402           426           320           133
                              ------        ------        ------        ------

Net income..................$  1,789      $  2,411     $   1,462      $  1,082
                            ========      ========     =========      ========


Basic earnings
   per share................$   0.21      $   0.28     $    0.17      $   0.13
                            ========      ========     =========      ========

Fully diluted earnings
   per share................$   0.21      $   0.28     $    0.17      $   0.13
                            ========      ========     =========      ========




            See accompany notes to consolidated financial statements



<PAGE>



PART I. FINANCIAL INFORMATION                                   FORM 10-Q
Item 1. Financial statements                                    Page 5

                    LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                                 (in thousands)
                                   (unaudited)

                                                     For the nine months ended
                                                      February 28,    March 1,
Cash flows from operating activities:                     1998          1997
                                                       --------       --------
Net income............................................$  1,462       $  1,082
     Adjustments to reconcile net income to net cash
       provided by (used in) operating activities--
       Depreciation...................................   1,977          2,341
       Changes in assets and liabilities:
         (Increase) decrease in accounts receivable...    (400)            49
         (Increase) in inventory......................  (2,720)        (2,705)
         (Increase) in prepaid expenses
           and other current assets...................  (1,553)        (2,025)
          Decrease in other assets....................     251            200
          Increase in accounts payable................   2,925          4,017
          Increase (decrease) in other accrued
            expenses and deferred income..............     332           (950)
         (Decrease) in accrued and currently
           deferred income taxes......................    (110)          (974)
                                                        -------        -------
   Net cash provided by operating activities..........   2,164          1,035
                                                        -------        -------
Cash flows from investing activities:
     Capital expenditures.............................    (944)        (3,627)
                                                        -------        -------
   Net cash (used in) investing activities............    (944)        (3,627)
                                                        -------        -------
Cash flows from financing activities:
     Proceeds from unsecured notes payable............  26,825         21,500
     Repayments of unsecured notes payable............ (25,225)       (19,500)
     Repayments of long term borrowings...............  (1,669)           --
     Issuance of common stock.........................     423             19
                                                        -------        -------
Net cash provided by financing activities.............     354          2,019
                                                        -------        -------

Net increase (decrease) in cash and cash equivalents..   1,574           (573)

Cash and cash equivalents, beginning of period........   1,710           5,393
                                                        -------        -------
Cash and cash equivalents, end of period..............$  3,284       $  4,820
                                                        =======        =======

During the nine months ended  February  28, 1998 and March 1, 1997,  the Company
paid income taxes of $429 and $1,354, respectively,  and paid interest of $1,283
and $1,100, respectively.


           See accompanying notes to consolidated financial statements


<PAGE>



FINANCIAL INFORMATION                                         FORM 10-Q
Item 1.  Financial statements                                 Page 6


                 LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
                 Notes to Consolidated Financial Statements

                             (unaudited)

1. CONSOLIDATED FINANCIAL STATEMENTS

         The  accompanying   consolidated   financial   statements  include  the
operations  of Little  Switzerland,  Inc. (the  "Company")  and its wholly owned
subsidiaries,  L.S.  Holding,  Inc. and L.S.  Wholesale,  Inc.  All  significant
intercompany  balances  have  been  eliminated  in  consolidation.  The  interim
financial  statements are unaudited  and, in the opinion of management,  contain
all adjustments  necessary to present fairly the Company's financial position as
of February  28, 1998 and March 1, 1997 and the  results of its  operations  and
cash flows for the interim periods presented. It is suggested that these interim
financial  statements be read in conjunction  with the financial  statements and
the notes thereto included in the Company's latest report on Form 10-K/A.

         The results of  operations  for the interim  periods  presented are not
necessarily indicative of the results to be expected for a full fiscal year, due
to the seasonal nature of the Company's operations.


2. 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
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.


3. TRANSACTIONS WITH AFFILIATES

         The Company  enters into a number of  transactions  with Town & Country
Corporation and its affiliates ("Town & Country"), of which one of the Company's
directors is a controlling  shareholder.  The Company purchases a portion of its
merchandise from Town & Country at prices that management  believes  approximate
arm's-length transactions.



<PAGE>



                                                                FORM 10-Q
                                                                Page 7


                    LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                   (unaudited)


4. CREDIT ARRANGEMENTS

         The Company has available a total of $23.7 million in unsecured  credit
facilities, of which $9.8 million is available for borrowing. Approximately $4.2
million of the credit  facilities is utilized to secure  customs bonds and other
bank guarantees required in the normal course of business.  Any unfunded portion
of  the  facilities  can be  withdrawn  at the  bank's  discretion.  Outstanding
borrowings against these credit facilities totaled approximately $9.7 million as
of February 28, 1998.  Additionally,  in February 1996, the Company secured term
debt of  approximately  $8.9  million  from its two lead  banks to  finance  the
acquisition of the fixtures,  leasehold  rights and inventories of two stores in
Barbados.  Interest  on  this  debt  accrues  at  an  annual  interest  rate  of
approximately  7.25%, and is payable monthly.  The principal is payable in equal
quarterly  payments  over a four  year  period,  commencing  March  1997.  As of
February 28, 1998,  the Company had $6.7 million of term debt  outstanding.  The
Company has been notified by one of its primary banks,  The Chase Manhattan Bank
("Chase"),  that the consummation of the merger with Destination Retail Holdings
Corporation.  ("DRHC")  may trigger  defaults of certain  covenants  in its $4.4
million term loan agreement  with the Company (which had an outstanding  balance
of $3.3 million at February 28, 1998). Additionally, the Company's other primary
bank, Bank of Nova Scotia ("Scotia"), has agreed to extend its $4.5 million term
loan  agreement  (with an  outstanding  balance of $3.4  million at February 28,
1998) to April 30, 1998.  In  connection  with such  extention,  the Company was
notified by Scotia that its decision to extend did not constitute  acceptance or
waiver of any potential breach of its loan agreement should the merger with DRHC
be consummated as planned. The Company plans to negotiate a further extension of
the Scotia term loan to the date of the merger,  but no assurances  can be given
as to  whether  Scotia  will  grant such an  extension.  Representatives  of the
Company  and DRHC have been in contact  with  Chase and Scotia to discuss  these
matters.  The  Company is in  compliance  with all other  restrictive  covenants
related to its unsecured and term debt agreements. Additionally, the Company has
available separate facilities for foreign exchange contracts.






<PAGE>



                                                                   FORM 10-Q
                                                                   Page 8


                    LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                   (unaudited)

5. EARNINGS PER SHARE

         The  Company  adopted  SFAS No.  128,  Earnings  per  Share,  effective
December 15, 1997. In accordance  with the  requirements  of SFAS No. 128, basic
earnings per share is computed by dividing  net income by the  weighted  average
number of shares  outstanding  and  diluted  earnings  per  share  reflects  the
dilutive  effect  of  stock  options  (as  calculated  utilizing  the  "Treasury
Method").  The  weighted  average  number of shares  outstanding,  the  dilutive
effects of outstanding  stock  options,  and the shares under option plans which
were  anti-dilutive  for the periods  included in this report are as follows (in
thousands):

                                       Three Month Ended   Nine Month Ended
                                       2/28/98    3/1/97   2/28/98   3/1/97
                                       -------    ------   -------   ------

Weighted average number of
  shares used in basic
  earnings per share
  calculation..........................8,494      8,461      8,473     8,460

Dilutive effects of options............  229         79        221        38

Weighted average number of
  shares used in diluted
  earnings per share
  calculation..........................8,723      8,540      8,694     8,498

Shares under option plans
  excluded in computation
  of diluted earnings per
  share due to anti-dilutive
  effects         .....................  256       550         256       750


6. ACCOUNTING FOR INCOME TAXES

         The Company follows the liability method of accounting for 
income taxes as set forth in Statement of Financial Accounting
Standards ("SFAS") No. 109, Accounting for Income Taxes.  Under



<PAGE>



                                                                  FORM 10-Q
                                                                  Page 9


                    LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                   (unaudited)


SFAS No.  109,  deferred  tax  assets and  liabilities  are  recognized  for the
expected  future  tax  consequences  of events  that have been  included  in the
financial  statements  or tax  returns.  The  amount  of  deferred  tax asset or
liability is based on the  difference  between the  financial  statement and tax
bases of assets and  liabilities  using enacted tax rates in effect for the year
in which the differences are expected to reverse.


7.  OTHER ASSETS

         Other assets consist  primarily of amounts  related to  non-competition
agreements, rental deposits and the excess of cost over the fair market value of
the  net  assets  of  the  business  acquired  (goodwill).  Amounts  related  to
non-competition  agreements  are  amortized  over the  lives  of the  respective
agreements.  Amounts  related to goodwill are being amortized over periods of up
to ten  years.  Accumulated  amortization  totaled  approximately  $572,000  and
$340,000 at February 28, 1998 and May 31, 1997, respectively.

         The Company accounts for long-lived and intangible assets in accordance
with SFAS No. 121,  Accounting for the  Impairment of Long-lived  Assets and for
Long-lived Assets to be Disposed of. The Company  continually reviews applicable
assets for events or changes in circumstances  which might indicate the carrying
amount  of  the  assets  may  not  be  recoverable.  The  Company  assesses  the
recoverability  of these assets by  determining  whether the  amortization  over
their remaining lives can be recovered  through  projected  undiscounted  future
results.  The amount of  impairment,  if any,  is  measured  based on  projected
discounted  future  results  using a discount rate  commensurate  with the risks
involved. No such impairment existed as of February 28, 1998.


8.  STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123 -
          ACCOUNTING FOR STOCK-BASED COMPENSATION

         In December 1995, the Financial Accounting Standards Board
issued SFAS No. 123, Accounting for Stock-Based Compensation, which
became effective for fiscal years beginning after December 15,
1995.  SFAS No. 123 requires employee stock-based compensation to


<PAGE>



                                                                 FORM 10-Q
                                                                 Page 10


                    LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

                                   (unaudited)


be either  recorded or  disclosed  at its fair value.  Management  continues  to
account for employee stock-based  compensation under Accounting Principles Board
Opinion  No. 25 and did not  adopt the new  accounting  provision  for  employee
stock-based compensation under SFAS No. 123. The additional required disclosures
will be included in the Company's fiscal year end financial statements.


9.  ADVERTISING

         The Company  expenses the costs of  advertising as  advertisements  are
printed and distributed. The Company's advertising expenses consist primarily of
advertisements  with local,  regional and national travel  magazines,  which are
produced on a periodic basis and distributed to visiting tourists, and fees paid
for  promotional  "port  lecturer"  programs  directed  primarily at cruise ship
passengers.


10.  COMMITMENTS AND CONTINGENCIES


Merger Agreement

         On February 4, 1998, the Company  entered into an Agreement and Plan of
Merger (the "Merger  Agreement")  with Destination  Retail Holdings  Corporation
("DRHC"),  LSI Acquisition  Corp.  ("Sub"),  Young Caribbean  Jewellery  Company
Limited, Alliance International Holdings Limited and CEI Distributors,  Inc. The
Merger Agreement provides that Sub will be merged with and into the Company (the
"Merger"), pursuant to which the holders of the issued and outstanding shares of
the common stock, par value $.01 per share, of the Company will receive $8.10 in
cash per share. The consummation of the Merger is subject to certain conditions,
including,  among others, approval by the Company's  stockholders.  The Board of
Directors of the Company has unanimously  approved the Merger  Agreement and has
scheduled  a  Special  Meeting  of  Stockholders  on  May  8,  1998  in  Boston,
Massachusetts  to  request  stockholder  approval  of the Merger  Agreement.  In
connection  with the Special Meeting of  Stockholders,  the Company mailed proxy
materials to the stockholders of the Company on or about April 3, 1998.


<PAGE>



                                                                 FORM 10-Q
                                                                 Page 11


                    LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

                                   (unaudited)


The Company's Relationship with Rolex


         The Company  typically orders and receives products from Montrex Rolex,
S.A. and its affiliates (collectively,  "Rolex") during most months of the year.
Since the last shipment of Rolex products in January,  1998, Rolex has suspended
shipments  of its  products to the Company and has orally  informed  the Company
that it will  continue  to  suspend  all  shipments  unless and until the Merger
Agreement with Destination Retail Holdings Corp. ("DRHC") is terminated. In that
regard,  the Company has received copies of  correspondence  from Rolex to DRHC,
which  indicate  that Rolex does not believe it would be in its best interest to
begin a business relationship with DRHC.

         The Company  believes  that the loss of any major  supplier,  including
Rolex,  could  adversely  affect the Company's  results of operations.  Sales of
Rolex watches  accounted  for 24%, 23% and 25% of the Company's  sales in fiscal
1997, fiscal 1996 and fiscal 1995, respectively. In order to mitigate the impact
on sales during fiscal 1998 of the  suspension  of shipments of Rolex  products,
the Company has redistributed Rolex products from lower traffic stores to higher
traffic stores.  There can be no assurances that Rolex will resume  shipments of
its  products  in the future or that the effect on the  Company's  sales will be
mitigated by such redistribution efforts.


EMPLOYEE DEFALCATION

         In July 1997,  management  disclosed to its  independent  auditors that
certain transactions may have been recorded in error on the books of the Company
for the fiscal year ended May 31, 1997. As a result,  the Company engaged Arthur
Andersen LLP to evaluate  the matter and  determine  the impact,  if any, on the
Company's previously and currently reported  consolidated  financial statements.
After  extensive  review,  analysis and  evaluation,  which focused on unlocated
differences in cash balances,  management believes that an employee  defalcation
occurred  during the 1997  fiscal  year.  The  employee  was able to  circumvent
existing internal  controls largely due to lapses in appropriate  segregation of
duties


<PAGE>



                                                                  FORM 10-Q
                                                                  Page 12


                    LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

                                   (unaudited)


regarding cash deposits and disbursements, inter-bank transfers and bank account
reconciliations.  These  lapses in the  segregation  of such duties were further
exacerbated by the resignation of the Company's  Assistant Treasurer on February
28, 1997, which office was not filled until April 29, 1997. Two individuals, one
of whom was an employee of the  Company,  were  arrested on February 10, 1998 in
connection   with  this   defalcation   and  charged   with   embezzlement   and
misappropriation of the property of the Company.

         The  estimated  loss of  approximately  $2.4 million was  classified as
Selling,  general  and  administrative  expense  in the  consolidated  financial
statements  for the fiscal year ended May 31, 1997.  SG&A for the three and nine
month   periods   ended  March  1,  1997  include   $935,000  and  $1.7  million
respectively, of defalcation loss expense.

         The Company has insurance  coverage with a maximum claim  limitation of
$1,000,000 (less a $25,000 deductible).  A claim for the full amount of the loss
has been  submitted and an interim  payment of $305,000 has been received by the
Company.  The Company  also  intends to seek full  restitution  from the charged
individuals,  however,  the Company does not know what, if any, of the funds are
still in the possession of such individuals.  The Company has, to date, received
$65,000 in  restitution  from the  employee.  In addition  to pursuing  criminal
charges,  the Company commenced civil proceedings against the two individuals on
March 12,  1998 in an effort to reclaim any such  funds.  The  Company  also has
received $305,000 from its insurance carrier as partial settlement of its claim.
Recoveries relating to these losses are recorded as credits to Selling,  general
and administrative expense in the periods received.


HURRICANE DAMAGE

         In September  1995,  Hurricanes  Luis and Marilyn  inflicted  damage to
several  of the  Company's  stores  and  caused  significant  damage to  various
islands'  infrastructures,  including hotels and other tourist facilities. As of
November 20, 1996, all stores had reopened.


<PAGE>





                                                                FORM 10-Q
                                                                Page 13


                    LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

                                   (unaudited)


         The  Company  has  settled  all  outstanding   claims  related  to  the
hurricanes with its insurance carrier. In connection with this final settlement,
the  Company  received  approximately  $13.4  million in property  and  business
interruption   insurance   proceeds.   The  Company   recorded  a  net  gain  of
approximately  $4.7 million in fiscal 1996, after write-offs  related to damaged
assets  of  approximately  $8.1  million,   including  furniture  and  fixtures,
inventory  and other assets  related to stores  affected by the  hurricanes.  In
addition,  approximately  $560,000,  representing fiscal 1997 lost profits for a
store in Marigot  that was not reopened  until  November  1996,  was recorded as
deferred income on the Company's  consolidated balance sheet as of June 1, 1996.
In the nine month period ended March 1, 1997, the Company  recorded  $560,000 as
business interruption insurance proceeds.

























<PAGE>



                                                                  FORM 10-Q
                                                                  Page 14

PART I. FINANCIAL INFORMATION


ITEM 2.            Management's Discussion and Analysis
               of Financial Condition and Results of Operations



RESULTS OF OPERATIONS


NET SALES

         Net sales for the third  quarter  ended  February  28,  1998 were $34.9
million or 7.1%  higher than net sales of $32.6  million  for the  corresponding
period last year.  Net sales of $76.3  million for the nine month  period  ended
February  28,  1998 were 15.7%  higher  than net sales of $66.0  million for the
corresponding period last year.

         Net sales for the  stores  which  were  open for the full  three  month
period  this year and last year  improved  to $33.4  million  or 5.6% from $31.6
million last year. Net sales of $72.1 million for stores which were open for the
full nine month period this year and last year increased 11.4% from net sales of
$64.7 million for the corresponding period last year.

         Management  attributes these  improvements to an increase in tourism in
the Caribbean, improved sales in Alaska, concentration on core product lines and
suppliers and the Company's  aggressive  promotional  programs  directed  toward
Caribbean cruise ships, hotels and resorts.


GROSS PROFIT

         Gross  profit as a  percentage  of net sales  during the three and nine
month  periods  ended  February  28,  1998 were 43.0% and  42.9%,  respectively,
compared  to the three and nine month  periods  ended March 1, 1997 of 44.4% and
44.0%,   respectively.   Management  attributes  the  decline  in  gross  margin
percentage to clearance  markdowns to liquidate  discontinued  product lines and
the effect of  relative  changes in the sales mix between the this year and last
year periods.





<PAGE>




                                                                FORM 10-Q
                                                                Page 15

PART I. FINANCIAL INFORMATION


ITEM 2.            Management's Discussion and Analysis
               of Financial Condition and Results of Operations


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

         SG&A  increased  9.7% to $12.4 million for the three month period ended
February 28, 1998 from $11.3 million for the same period last year. As a percent
to net sales,  SG&A  increased to 35.4% for the quarter ended  February 28, 1998
from 34.5% for the corresponding quarter last year. SG&A increased 9.0% to $29.7
million for the nine month period ended February 28, 1998 from $27.2 million for
the corresponding period last year. As a percent to net sales, SG&A decreased to
38.9% for the nine  month  period  this year  from  41.3% for the  corresponding
period last year. The dollar  increases for both periods this year are primarily
due to new  stores  in St.  Lucia  and in  Skagway,  Alaska,  and  non-recurring
professional  fees of approximately  $1.6 million for the three month period and
$2.2  million for the nine month  period  ended  February  28,  1998,  which are
primarily related to the Company's  strategic  planning  efforts.  The three and
nine month periods last year include $935,000 and $1.7 million respectively,  of
defalcation loss expense.  The percent to sales decrease is primarily due to the
effect of the sales increases on fixed expenses.


THE COMPANY'S RELATIONSHIP WITH ROLEX

         The Company  typically orders and receives products from Montrex Rolex,
S.A. and its affiliates (collectively,  "Rolex") during most months of the year.
Since the last shipment of Rolex products in January,  1998, Rolex has suspended
shipments  of its  products to the Company and has orally  informed  the Company
that it will  continue  to  suspend  all  shipments  unless and until the Merger
Agreement with Destination Retail Holdings Corp. ("DRHC") is terminated. In that
regard,  the Company has received copies of  correspondence  from Rolex to DRHC,
which  indicate  that Rolex does not believe it would be in its best interest to
begin a business relationship with DRHC.

         The Company  believes  that the loss of any major  supplier,  including
Rolex,  could  adversely  affect the Company's  results of operations.  Sales of
Rolex watches accounted for 24%, 23% and 25%



<PAGE>


                                                               FORM 10-Q
                                                               Page 16

PART I. FINANCIAL INFORMATION


ITEM 2.            Management's Discussion and Analysis
               of Financial Condition and Results of Operations


of  the  Company's   sales  in  fiscal  1997,   fiscal  1996  and  fiscal  1995,
respectively. In order to mitigate the impact on sales during fiscal 1998 of the
suspension of shipments of Rolex products,  the Company has redistributed  Rolex
products from lower traffic  stores to higher  traffic  stores.  There can be no
assurances  that Rolex will resume  shipments  of its  products in the future or
that the effect on the Company's sales will be mitigated by such  redistribution
efforts.


EMPLOYEE DEFALCATION

         In July 1997,  management  disclosed to its  independent  auditors that
certain  transactions  may have  been  recorded  in  error  on the  books of the
Company.  As a result, the Company engaged Arthur Andersen,  LLP to evaluate the
matter and  determine  the  impact,  if any,  on the  Company's  previously  and
currently reported consolidated  financial  statements.  After extensive review,
analysis  and  evaluation,  which  focused  on  unlocated  differences  in  cash
balances,  management  believes  that an employee  defalcation  occurred  during
fiscal 1997.  The employee was able to  circumvent  existing  internal  controls
largely  due to lapses in  appropriate  segregation  of  duties  regarding  cash
deposits   and   disbursements,    inter-bank   transfers   and   bank   account
reconciliations.  These  lapses in the  segregation  of such duties were further
exacerbated by the resignation of the Company's  Assistant Treasurer on February
28, 1997, which office was not filled until April 29, 1997.

         Two  individuals,  one of whom was an  employee  of the  Company,  were
arrested on February 10, 1998 in connection  with this  defalcation  and charged
with  embezzlement  and  misappropriation  of the property of the  Company.  The
Company will continue to pursue all possible  remedies to the fullest  extent of
the law in the  prosecution  of these  two  individuals  and any  other  persons
determined to be involved in the theft. The estimated loss of approximately $2.4
million has been classified as SG&A in the consolidated financial statements for
the fiscal year ended May 31, 1997.  For the three and nine month  periods ended
March 1, 1997,  the estimated  defalcation  losses of $935,000 and $1.7 million,
respectively,  have been included in general and  administrative  expense in the
accompanying consolidated statements of income.



<PAGE>


                                                               FORM 10-Q
                                                               Page 17

PART I. FINANCIAL INFORMATION


ITEM 2.            Management's Discussion and Analysis
               of Financial Condition and Results of Operations


         The  Company has  insurance  coverage  which calls for a maximum  claim
limitation  of  $1,000,000  (with a  $25,000  deductible).  A claim for the full
amount of the loss has been  submitted  and an interim  payment of $305,000  has
been received by the Company.  The Company also intends to seek full restitution
from the charged  individuals,  however, the Company does not know what, if any,
of the funds are  still in the  possession  of such  individuals.  To date,  the
Company has received  $65,000 in restitution  from the employee.  In addition to
pursuing criminal charges,  the Company commenced civil proceedings  against the
two  individuals  on March  12,  1998 in an effort to  reclaim  any such  funds.
Recoveries relating to these losses are recorded as credits to Selling,  general
and administrative expenses in the periods received.


OTHER

         Net interest expense for the three month period ended February 28, 1998
was $481,000 compared to $398,000 in the corresponding period last year. For the
nine month  period,  net  interest  expense  was $1.3  million  compared to $1.2
million in the  corresponding  period last year. These increases  reflect higher
average  borrowings  this year due to higher  average  inventories  required  to
support increased sales.

         The Company's  effective tax rates for the three and nine month periods
ended  February  28, 1998 were  approximately  18%. For the three and nine month
periods ended March 1, 1997, the effective tax rates were  approximately 15% and
11%, respectively.


LIQUIDITY AND CAPITAL RESOURCES

         Net cash  provided by  operations  during the nine month  period  ended
February  28,  1998  was  $2.2  million,   compared  to  $1.0  million  for  the
corresponding  nine month period last year. The increase in net cash provided by
operations  primarily  reflects a smaller  increase in Prepaid  expenses  and an
increase in Other accrued  income  expenses and deferred  income,  compared to a
decrease last year.


<PAGE>



                                                                  FORM 10-Q
                                                                  Page 18

PART I. FINANCIAL INFORMATION


ITEM 2.            Management's Discussion and Analysis
               of Financial Condition and Results of Operations


         The  Company's  working  capital  position  as  of  February  28,  1998
increased to $32.0  million from $30.5 million at May 31, 1997.  Current  ratios
were  2.3  and  2.5  as of  the  corresponding  periods,  respectively.  Capital
expenditures were approximately $944 thousand during the nine month period ended
February 28, 1998, compared to $3.6 million during the corresponding period last
year.

         The Company has available a total of $23.7 million in unsecured  credit
facilities, of which $9.8 million is available for borrowing. Approximately $4.2
million of the credit  facilities is utilized to secure  customs bonds and other
bank guarantees required in the normal course of business.  Any unfunded portion
of  the  facilities  can be  withdrawn  at the  bank's  discretion.  Outstanding
borrowings against these credit facilities totaled approximately $9.7 million as
of February 28, 1998.  Additionally,  in February 1996, the Company secured term
debt of  approximately  $8.9  million  from its two lead  banks to  finance  the
acquisition of the fixtures,  leasehold  rights and inventories of two stores in
Barbados.  Interest  on  this  debt  accrues  at  an  annual  interest  rate  of
approximately  7.25%, and is payable monthly.  The principal is payable in equal
quarterly  payments  over a four  year  period,  commencing  March  1997.  As of
February 28, 1998,  the Company had $6.7 million of term debt  outstanding.  The
Company has been notified by one of its primary banks,  The Chase Manhattan Bank
("Chase"),  that the consummation of the merger with Destination Retail Holdings
Corporation  ("DRHC")  may  trigger  defaults of certain  covenants  in its $4.4
million term loan agreement  with the Company (which had an outstanding  balance
of $3.3 million at February 28, 1998). Additionally, the Company's other primary
bank, Bank of Nova Scotia ("Scotia"), has agreed to extend its $4.5 million term
loan  agreement  (with an  outstanding  balance of $3.4  million at February 28,
1998) to April 30, 1998.  In  connection  with such  extension,  the Company was
notified by Scotia that its decision to extend did not constitute  acceptance or
waiver of any potential breach of its loan agreement should the merger with DRHC
be consummated as planned. The Company plans to negotiate a further extension of
the Scotia term loan to the date of the merger but no assurances can be given as
to whether Scotia will grant such an extension.  Representatives  of the Company
and DRHC have been in contact  with Chase and Scotia to discuss  these  matters.
The Company is in compliance with all other restrictive covenants related to its
unsecured and term debt agreements. Additionally, the Company


<PAGE>



                                                                  FORM 10-Q
                                                                  Page 19

PART I. FINANCIAL INFORMATION


ITEM 2.            Management's Discussion and Analysis
               of Financial Condition and Results of Operations



has available  separate  facilities for foreign exchange  contracts.  It remains
management's expectation that funds available from operations and bank financing
will be sufficient to fund  operations and expansion for at least the next three
years.


FORWARD-LOOKING STATEMENTS

         This quarterly report on Form 10-Q contains certain statements that are
"forward-looking   statements"  as  that  term  is  defined  under  the  Private
Securities  Litigation  Reform Act of 1995 and releases issued by the Securities
and Exchange Commission.  The words "believe," "expect," "anticipate," "intend,"
"estimate" and other  expressions  which are  predictions of or indicate  future
events  and  trends  and which do not  relate  to  historical  matters  identify
forward-looking statements. Forward-looking statements involve known and unknown
risks,  uncertainties  and other  factors,  which may cause the actual  results,
performance or achievements of the Company to differ materially from anticipated
future  results,  performance  or  achievements  expressed  or  implied  by such
forward- looking  statements.  The Company  undertakes no obligation to publicly
update or  revise  any  forward-looking  statement,  whether  as a result of new
information, future events or otherwise.

         The future operating results and performance  trends of the Company may
be  affected  by  a  number  of  factors,  including,  without  limitation,  the
following:  (I) the  frequency  of  tourist  visits to the  locations  where the
Company   maintains  retail  stores,   (ii)  the  Company's  ability  to  retain
relationships  with its major suppliers of product for resale,  (iii) weather in
the  Company's  markets,  (iv)  actions  of the  Company's  competitors  and the
Company's  ability to respond to such  actions,  (v)  economic  conditions  that
affect the buying patterns of the Company's customers,  (vi) availability of new
tourist  markets for expansion and (vii) the continued  success of the Company's
efforts to  implement  its  planned  strategic  initiatives.  In addition to the
foregoing,  the Company's  actual future  results could differ  materially  from
those  projected  in the  forward-looking  statements  as a  result  of the risk
factors set forth in the  Company's  various  filings  with the  Securities  and
Exchange  Commission and of changes in general economic  conditions,  changes in
interest  rates and/or  exchange  rates and changes in the  assumptions  used in
making such forward-looking statements.


<PAGE>



                                                                  FORM 10-Q
                                                                  Page 20



ITEM 3. Quantitative and Qualitative Disclosures about Market
            Risk

            None.



PART II.  OTHER INFORMATION



ITEM 1.   Legal Proceedings


         The Company is  involved in various  legal  proceedings  which,  in the
opinion  of  management,  will not result in a  material  adverse  effect on the
financial condition or results of operations of the Company.


ITEM 5.   Other Information


         On February 4, 1998, the Company  entered into an Agreement and Plan of
Merger (the "Merger  Agreement")  with Destination  Retail Holdings  Corporation
("DRHC"),  LSI Acquisition  Corp.  ("Sub"),  Young Caribbean  Jewellery  Company
Limited, Alliance International Holdings Limited and CEI Distributors,  Inc. The
Merger Agreement provides that Sub will be merged with and into the Company (the
"Merger"), pursuant to which the holders of the issued and outstanding shares of
the common stock, par value $.01 per share, of the Company will receive $8.10 in
cash per share. The consummation of the Merger is subject to certain conditions,
including,  among others, approval by the Company's  stockholders.  The Board of
Directors of the Company has unanimously  approved the Merger  Agreement and has
scheduled  a  Special  Meeting  of  Stockholders  on  May  8,  1998  in  Boston,
Massachusetts  to  request  stockholder  approval  of the Merger  Agreement.  In
connection  with the Special Meeting of  Stockholders,  the Company mailed proxy
materials to the stockholders of the Company on about April 3, 1998.









<PAGE>


                                                                FORM 10-Q
                                                                Page 21

PART II.  OTHER INFORMATION



ITEM 6.  Exhibits and Reports of Form 8-K

(a)      Exhibits

                  2.1      The Merger Agreement between the Company, Destination
                           Retail Holdings  Corporation,  LSI Acquisition Corp.,
                           Young Caribbean  Jewellery Company Limited,  Alliance
                           International  Holdings Limited and CEI Distributors,
                           Inc. is  incorporated  herein by reference to Exhibit
                           2.1 to the Current  Report on Form 8-K filed with the
                           Securities  and  Exchange  Commission  on February 6,
                           1998.

                  3.1      The Amended and Restated Certificate of Incorporation
                           of the Company is incorporated herein by reference to
                           Exhibit  3.3 to  Amendment  No.  1 to  the  Company's
                           Registration  Statement on Form S-1, Registration No.
                           33-40907,  filed  with the  Securities  and  Exchange
                           Commission on July 10, 1992  ("Amendment No. 1 to the
                           Form S-1").


                  3.2      The Amended and  Restated  By-Laws of the Company are
                           incorporated  herein by  reference  to Exhibit 3.4 to
                           Amendment  No.  1 to  the  Form  S-1  and  the  First
                           Amendment to the Amended and  Restated  Bylaws of the
                           Company is  incorporated  herein by  reference to the
                           Current  Report on Form 8-K filed with the Securities
                           and Exchange Commission on November 12, 1997.


(b)      Reports on Form 8-K during the quarter ended February 28, 1998

                  1.       On  February  6, 1998,  the  Company  filed a Current
                           Report  on Form 8-K  announcing  that it had  entered
                           into a Merger  Agreement with DRHC and certain of its
                           affiliates,   and  that   the   annual   meeting   of
                           stockholders,  previously  scheduled  for February 5,
                           1998, had been postponed pending stockholder approval
                           of the Merger Agreement.






<PAGE>



                                                                FORM 10-Q
                                                                Page 22


                 LITTLE SWITZERLAND, INC. AND SUBSIDIARIES


                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                          LITTLE SWITZERLAND, INC.


Date: April 14,1998                      /s/ Thomas S. Liston

                                         Thomas S. Liston
                                         Chief Financial Officer,
                                         Vice President and
                                         Treasurer































<PAGE>