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                             SECURITIES AND EXCHANGE COMMISSION
                                   Washington, D.C. 20549
                                         FORM 10-K
      (Mark one)
           (X)                  ANNUAL REPORT PURSUANT TO SECTION 13 OR
                        15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

                          For the fiscal year ended March 31, 1999

                                             or

           (  )         TRANSITION REPORT PURSUANT TO SECTION 13 OR
                       15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
                     For the transition period from _______ to _______

                               Commission File Number 0-24860

                                   PIERCING PAGODA, INC.
                   (Exact Name of Registrant as Specified in its Charter)

                                       Delaware 23-1894725
                      (State or Other Jurisdiction of (I.R.S. Employer
                      Incorporation or Organization) Identification No.)

                           3910 Adler Place, Bethlehem, PA 18017
                          (Address of Principal Executive Offices)

             Registrant's Telephone Number, Including Area Code: (610) 691-0437

                Securities Registered Pursuant to Section 12(b) of the Act:

                                            None

                Securities Registered Pursuant to Section 12(g) of the Act:

                          Common Stock (par value $.01 per share)
                                      (Title of Class)

     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 for 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 [ ]

     Indicate by check mark if disclosure of delinquent  filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best  of  the  Registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [X]

     The aggregate  market value of Common Stock held by  non-affiliates  of the
Registrant on June 23, 1999 was approximately $108,574,312.

     The  number of  shares  outstanding  of the  Registrant's  common  stock is
9,143,100 (as of June 23, 1999).

                            DOCUMENTS INCORPORATED BY REFERENCE

     Portions  of  the  Registrant's  Proxy  Statement  to  be  filed  with  the
Commission  in  connection  with its 1999  Annual  Meeting of  Shareholders  are
incorporated by reference into Part III of this Form 10-K.
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                                   PIERCING PAGODA, INC.
                                     TABLE OF CONTENTS

                                                                  PAGE
                                           PART I

      Item 1.  BUSINESS                                             3

      Item 2.  PROPERTIES                                           12

      Item 3.  LEGAL PROCEEDINGS                                    13

      Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  13

      Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT                 14

                                             PART II

      Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY
               AND RELATED STOCKHOLDER MATTERS                      15

      Item 6.  SELECTED FINANCIAL DATA                              16

      Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
               FINANCIAL CONDITION AND RESULTS OF OPERATIONS        19

      Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES             27
               ABOUT MARKET RISK

      Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY
               DATA                                                 28

      Item 9.  CHANGES IN AND DISAGREEMENTS WITH
               ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
               DISCLOSURE                                           51

                                             PART III

      Item 10. DIRECTORS AND EXECUTIVE OFFICERS
               OF REGISTRANT                                        51

      Item 11. EXECUTIVE COMPENSATION                               51

      Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
               OWNERS AND MANAGEMENT                                51

      Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS       51

                                             PART IV

      Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
               AND REPORTS ON FORM 8-K                              52



<PAGE>


                                            PART I

      Item 1.  BUSINESS

            The Private Securities Litigation Reform Act of 1995 provides a safe
       harbor  for  forward-looking  statements.  A number  of the  matters  and
       subject  areas  discussed  in  "Management's  Discussion  and Analysis of
       Financial   Condition  and  Results  of  Operations,"  in  the  following
       "Business" section and elsewhere in this Annual Report are not limited to
       historical or current facts and deal with potential future  circumstances
       and   developments.   Prospective   investors  are  cautioned  that  such
       forward-looking  statements,  which may be  identified  by words  such as
       "anticipate,"  "believe,"  "expect,"  "estimate,"  "intend,"  "plan," and
       similar  expressions,  are only  predictions  and that  actual  events or
       results may differ materially.  Forward-looking  statements include those
       relating to: the ability of the Company to  successfully  assimilate  and
       increase the net sales volume and  profitability of recently acquired and
       newly opened stores,  anticipated store openings and closings,  estimated
       capital  expenditures,  the absence of material  adverse impact  expected
       from the possible loss of any current supplier,  the possible termination
       of any current consignment agreement arrangement,  the possible enactment
       of new  legislation or  modification  of existing  legislation  and legal
       proceedings.  A variety  of  factors  could  cause the  Company's  actual
       results to differ  materially from the expected results  expressed in the
       Company's forward-looking statements,  including, without limitation: (i)
       the Company's  ability to secure  suitable  store sites on a timely basis
       and on  satisfactory  terms,  the  Company's  ability to hire,  train and
       retain  qualified   personnel,   the  availability  of  adequate  capital
       resources and the successful integration of new stores into the Company's
       existing operations; (ii) the Company's ability to successfully implement
       and improve management information systems,  procedures and controls on a
       timely  basis and in such a manner as is  necessary  to  accommodate  the
       increased  number of transactions and customers and the increased size of
       the Company's operations; (iii) fluctuations in quarterly net sales, and,
       in particular, third quarter net sales; (iv) fluctuations in gold prices;
       (v) competitive conditions; (vi) economic conditions affecting disposable
       consumer income, such as employment,  business conditions, interest rates
       and taxation,  as well as trends with respect to mall shopping  generally
       and the ability of mall anchor tenants and other  attractions to generate
       customer  traffic in the  vicinity  of the  Company's  stores;  (vii) the
       impact of Year 2000 issues on the  Company's  own  systems  and  external
       parties;  and (viii) the possibility of the enactment of legislation,  or
       the modification of existing or pending legislation,  in jurisdictions in
       which the Company operates, that would adversely affect the Company's ear
       piercing or other activities.
           General

            Piercing  Pagoda is the  largest  retailer of gold  jewelry  through
       kiosk  stores in the  United  States.  At March  31,  1999,  the  Company
       operated  931 stores in 44 states and Puerto  Rico,  including  900 kiosk
       stores and 31 in-line stores.  The Company offers an extensive  selection
       of popular-priced 14 karat and 10 karat gold chains, bracelets, earrings,
       charms and rings, as well as a selection of silver jewelry,  all in basic
       styles at everyday low prices. The Company's stores are generally located
       in high traffic  concourses of regional  shopping malls and are primarily
       operated  under the names Piercing  Pagoda,  Plumb Gold and Silver & Gold
       Connection.  The Company's kiosk stores average  approximately 170 square
       feet in size,  typically carry  approximately  3,300 SKUs,  require a low
       initial  investment,  can be opened quickly and are easily accessible and
       visible within malls.  During fiscal 1999, the average price of a jewelry
       item  sold  by the  Company  was  approximately  $25 and  average  annual
       comparable kiosk store net sales per square foot were $1,693. The Company
       believes  that its low price  points and  focused  merchandise  selection
       differentiate it from other mall-based jewelry retailers.


<PAGE>



           Operating Strategies

            Piercing  Pagoda's  objective is to maintain its  leadership  of the
       gold  jewelry  kiosk  market  and  increase  its   penetration  in  malls
       throughout  the United States while  enhancing the  profitability  of its
       overall  operations.  Principal  elements  of the  Company's  strategy to
       achieve this objective are as follows:

            Focused  Merchandise  Selection.   The  Company  differentiates  its
       merchandise  selection from other jewelry retailers by focusing primarily
       on basic  styles  of  lower-priced  14 karat and 10 karat  gold  jewelry,
       comprised  primarily of chains,  bracelets,  earrings,  charms and rings,
       supplemented  by a selection  of sterling  silver,  diamond and  gemstone
       merchandise.  The  Company  offers an  extensive  selection  within  each
       merchandise category,  and its stores typically carry approximately 3,300
       SKUs.  The average  price of a jewelry item sold by the Company in fiscal
       1999  was  approximately  $25.  Approximately  80% of a  typical  store's
       merchandise  is common to all  stores,  and the  remaining  products  are
       selected  based upon the  characteristics  and local  preferences  of the
       particular store's customer base.

            Easy-to-Shop  Environment.  The  Company  seeks to locate  its kiosk
       stores in high  traffic  areas of regional  malls and  emphasizes  strong
       visual  presentations of its stores and its merchandise to appeal to both
       destination  customers  and  impulse  shoppers.  Each  item has a clearly
       visible price tag that facilitates browsing and comparison shopping while
       minimizing  the need for sales support.  The  merchandise is displayed on
       specially  designed pads in glass  showcases which maximize the number of
       items shown.

            Competitive  Everyday Low Pricing.  Piercing Pagoda's pricing policy
       is to maintain everyday low prices complemented by selective  promotions.
       The Company's goal is to be the value leader in the  popular-priced  gold
       jewelry  business in the markets  that it serves.  The Company  regularly
       monitors  price  levels at its  competitors  in order to ensure  that its
       prices  are  competitive  and  the  Company   believes  that  its  volume
       purchasing and established relationships with suppliers contribute to its
       ability to remain competitive.

            Customer Service. The Company emphasizes providing knowledgeable and
       responsive  customer  service to  distinguish  Piercing  Pagoda  from its
       competition and to create customer loyalty.  Accordingly, the Company has
       developed  and  implemented  extensive  employee  training and  incentive
       programs.  The Company believes that its commitment to customer  service,
       along with a lifetime  guarantee for its merchandise,  its  complimentary
       ear   piercing   service   with  the   purchase  of   earrings   and  its
       "buy-five-get-one-free"  jewelry club,  enhance the Company's  ability to
       generate repeat business and to attract new customers.

            Sophisticated   Management   Information  Systems.  The  Company  is
       committed to maintaining  sophisticated  management  information systems.
       Currently,  the  Company  utilizes a  customized  management  information
       system that  incorporates  point-of-sale  computers in its stores with an
       inventory management and replenishment  system. These proprietary systems
       allow the Company to monitor and control  effectively  the merchandise at
       its stores and enable the Company to identify and react promptly to sales
       trends.  Based on the sales data, the Company tailors  individual stores'
       merchandise levels,  plans its purchasing in order to benefit from volume
       purchasing  discounts  from its  suppliers and  prioritizes  the in-house
       preparation of merchandise.  The Company completed a thorough  evaluation
       of its inventory  management software needs in fiscal 1998 and determined
       that,  with  minor  modification,  its  current  proprietary  system  can
       accommodate  expected  future  growth  for at least  the next two  fiscal
       years. The Company completed the necessary  modifications to its existing
       system  in  fiscal  1999 and is  currently  using  the  modified  system.
       Accordingly,  implementation of a new inventory  management system is not
       expected to begin until after fiscal 2000. The Company has

<PAGE>


            purchased,  and is  currently  installing,  a product  planning  and
       analysis  software  package that will  supplement the existing  system as
       well as any inventory  management  package the Company does upgrade to in
       the future.  See  "Management's  Discussion  and  Analysis  of  Financial
       Condition  and  Results  of  Operations"  for a  discussion  of Year 2000
       issues.

           Growth Strategy

            Over the last four  fiscal  years the Company has sought to increase
       its market share and mall penetration  through a combination of new store
       openings and stores  acquired from third  parties.  Of the 675 stores the
       Company has opened since the beginning of fiscal 1996,  353 were acquired
       from independent third parties through purchase arrangements. The Company
       believes that  acquiring  locations from third parties can be a favorable
       method of  expanding  its  operations  when the seller has a portfolio of
       desirable  store  locations.  Acquisitions  completed  over the last four
       fiscal years  include 67 locations  acquired  from Earring Tree in fiscal
       1996,  93 locations  acquired  from  Gemstone  Jewelry in fiscal 1997, 43
       locations  acquired from Silver & Gold  Connection in fiscal 1998 and 143
       locations  acquired  through  several  different  purchase   transactions
       completed in fiscal 1999.

            Upon  completing  the  purchase of store  locations,  the  Company's
       strategy  to increase  the net sales and  profitability  of the  acquired
       locations has been to convert the acquired stores to the Company's format
       and  implement  the  Company's  merchandising  strategies.  This has been
       accomplished  by revising the  merchandise mix of the acquired stores and
       by retraining sales associates and store management  personnel to provide
       the same level of customer  service  emphasized  in the  Company's  other
       stores. The Company believes that its ability to execute these strategies
       has been a key element in the  successful  assimilation  of many of these
       acquired  stores into the Company's  operations.  Failure to successfully
       integrate new and acquired stores into the Company's  operations can have
       a  material  adverse  effect  on the  Company's  results  of  operations,
       particularly  during  the  Company's  first,  second  and  fourth  fiscal
       quarters which are seasonally lower sales periods.

            During fiscal 1999, the Company opened 221 new and acquired  stores,
       the largest  number of store  openings the Company has ever  completed in
       one fiscal year.  Included in these openings were 104 locations purchased
       in July 1998  from  Sedgwick  Sales,  Inc.,  a  kiosk-based  retailer  of
       primarily  gold-plated  jewelry operating primarily under the name Golden
       Chain Gang  ("GCG").  After a review of the  initial  sales  results  and
       future sales  potential of the  locations  acquired from GCG, the Company
       announced  on  September  28,  1998  that it would  close  20-30 of these
       locations  by  March  31,  1999  and work to  improve  operations  at the
       remaining  stores.  The combination of significant  pre-opening costs and
       lower  than  expected   sales   results  at  these,   as  well  as  other
       under-performing  stores,  negatively  affected the  Company's  operating
       results for fiscal 1999,  particularly in the second fiscal  quarter.  At
       March 31,  1999,  the Company had closed 30 of the  under-performing  GCG
       stores as well as another 49  under-performing  stores bringing the total
       stores  closed in fiscal  1999 to 79. To improve  the  operations  at the
       remaining GCG locations,  the Company  initiated a  rejuvenation  program
       that included new or renovated kiosks at many of the former GCG locations
       and additional training for store personnel. The Company will continue to
       monitor  the  results  of the  remaining  GCG  locations  and  may  close
       additional  locations  in fiscal  2000  that do not meet its  performance
       requirements.

            Opening new stores  will  continue  to be an  important  part of the
       Company's growth strategy.  The Company plans to open approximately 45 to
       65 new  stores in  fiscal  2000 and 60 to 80 new  stores  in fiscal  2001
       (excluding any  acquisitions) and to close  approximately  25-35 existing
       stores during each period. In selecting sites for new stores, the Company
       generally  seeks malls that have at least  500,000  square  feet,  a high
       volume of shopping traffic,  strong anchor tenants and sites available in
       the  higher  traffic  areas of the mall.  Opening  a new store  generally
       requires  a  total  investment  of  approximately   $107,000,   including
       approximately $70,000 of inventory (a portion of which is


<PAGE>


            generally financed through  consignment  arrangements),  $30,000 for
       construction  of the kiosk,  fixtures,  point-of-sale  register and other
       equipment  and supplies  and $7,000 for  pre-opening  expenses  which are
       expensed  when  incurred.  New stores can  typically be opened as soon as
       eight weeks after obtaining a lease commitment. In addition to evaluating
       malls in  which  it does not  operate  stores,  the  Company  continually
       evaluates  malls  where its stores are located to  determine  whether net
       sales  volumes  warrant  another  kiosk in such malls.  At March 31, 1999
       there were 505 stores  operating in malls where the Company operated more
       than one location.  Annual net sales for such stores, which were open for
       all of fiscal 1999, averaged $309,000. The Company believes that Piercing
       Pagoda's strong national retailing reputation, along with the flexibility
       of its kiosk store format,  make its stores attractive to mall developers
       and managers

            As part of its ongoing operations, the Company continually evaluates
       the  performance  of its stores and the malls in which they are  located.
       Since kiosks require a relatively low investment to open and can be moved
       relatively  easily,  the Company's  expansion  strategy  includes closing
       kiosks  when  appropriate  and  relocating  the kiosks to new  locations.
       During the past three fiscal years, the Company has closed 102 stores, 79
       of which closed in fiscal 1999, including 30 former GCG stores.

            The  Company's  expansion  may  also  include  retail  concepts  and
       locations other than the Company's  standard kiosks in regional malls. As
       of March 31, 1999, the Company operated 31 in-line stores,  most of which
       were  acquired  as part of the  Earring  Tree  acquisition.  The  Company
       continues to evaluate and develop its in-line  store  concept.  In fiscal
       1999,  the Company  opened four in-line  stores and expects to open up to
       four in-line  stores in fiscal 2000.  The in-line  store format may allow
       the Company to expand into malls where kiosks are not  utilized,  as well
       as to increase its presence in malls where it already operates kiosks; to
       offer a larger  selection of merchandise,  including higher price points;
       and to take advantage of certain  favorable  lease  opportunities  if and
       when they are presented.

            The Company is currently testing a selection of lower priced diamond
       and gemstone  merchandise  in a group of  approximately  180 locations as
       well as one "Diamond Isle", a kiosk location selling  exclusively diamond
       merchandise.  Initial  results  through  the  1998  holiday  season  were
       encouraging and the Company intends to add diamond merchandise to another
       two hundred locations in fiscal 2000. Additionally, the Company has plans
       to add up to six  additional  Diamond  Isle  locations  prior to the 1999
       holiday shopping season.

            The Company has also begun limited  expansion into less  traditional
       retail  locations  such as airports and resorts.  During fiscal 1999, the
       Company began operations at its first airport  terminal  locations in the
       Philadelphia  International Airport and Dulles International Airport. The
       Company  has  signed  a lease  agreement  to open a  location  at  Newark
       International  Airport and expects to open this  location in fiscal 2000.
       Additionally,  in fiscal  1999,  the  Company  opened a  location  in the
       Citicorp  Center in Chicago,  Illinois.,  which  houses a commuter  train
       station.  The  Company  also  expects  to  add to the  number  of  resort
       locations it operates in fiscal 2000. The Company  currently  operates in
       two resort locations in Puerto Rico and one in Rehobeth Beach,  Delaware,
       a seaside resort community. The Company expects to open a second location
       in Rehobeth Beach in fiscal 2000 as well as another  location in a resort
       area of Houston, Texas.

            In  appropriate  situations,  the Company will  continue to evaluate
       potential  acquisitions  of  existing  stores or store  sites  from third
       parties.


<PAGE>



           Merchandising and Marketing

           Merchandising

            The Company offers an extensive selection of popular-priced 14 karat
       and 10 karat gold chains, bracelets,  earrings, charms and rings, as well
       as a selection of silver  jewelry.  The Company  focuses its  merchandise
       selection, approximately 92% of which is gold jewelry, on basic styles at
       everyday  low prices.  The  Company  believes  that,  by offering a broad
       assortment of basic styles, it provides its customers with a wide variety
       of choices while limiting  merchandising  risks  associated  with fashion
       trends.  The Company  maintains a balance  between  new  merchandise  and
       proven  successful  styles.  Prior to introducing new items in all of its
       stores,  the Company usually tests the items in  approximately  50 of its
       highest volume stores. The Company's stores typically carry approximately
       3,300 SKUs,  approximately  88% of which have list prices  under $80, and
       during  fiscal 1999  generated an average  jewelry item selling  price of
       approximately  $25.  The Company  also offers a selection of non- jewelry
       items such as ear care products and jewelry  cleaners.  Approximately 80%
       of a  typical  store's  merchandise  is  common  to all  stores,  and the
       remaining products are selected based upon the  characteristics and local
       preferences of the particular store's customer base.

            During  fiscal 1999,  the Company's  store net sales by  merchandise
       category as a percentage of total store net sales were as follows:
<TABLE>
<CAPTION>

                                                               Percent
                                                               of Total
            Merchandise Category                              Store
                                                              Sales (1)
      -------------------------------------------------------------------
<S>                                                             <C>
        Gold
          Chains and bracelets                                   37%
          Charms and rings                                       25
          Earrings                                               23
          Miscellaneous items                                     1
      -------------------------------------------------------------------
           Total gold                                            86
        Silver jewelry and other items                           14
      -------------------------------------------------------------------
           Total net store sales                                100%
      -------------------------------------------------------------------
</TABLE>

            (1) Excludes  $983,000 of wholesale  sales to the Florida  Licensee.
       See "Item 7. Management's Discussion and Analysis."


           Marketing

            Piercing  Pagoda's pricing policy is to maintain everyday low prices
       complemented by selective  promotions.  The Company seeks to be the value
       leader for  popular-priced  gold jewelry in the malls in which its stores
       are located.  The Company's  stores display  merchandise on pads in glass
       enclosed  showcases  with  clearly  visible  price  tags that  facilitate
       browsing and  comparison  shopping,  while  minimizing the need for sales
       support.  The modular  merchandise display trays in which the merchandise
       pads fit are  configured so as to maximize the number of items  displayed
       and  to  minimize  unused  space  in  the  showcases.   Generally,   gold
       merchandise  is priced based on the price the Company paid its  suppliers
       for such  merchandise,  and the  items are not  repriced  based on normal
       fluctuations in the price of gold. The Company  regularly  monitors price
       levels  at its  competitors  in  order to  ensure  that  its  prices  are
       competitive,  and the Company  believes  that its volume  purchasing  and
       established  supplier  relationships  contribute to its ability to remain
       competitive.  In  addition  to  everyday  low  prices,  the Company has a
       "buy-five-get-one-free" jewelry club. The Company also


<PAGE>


            utilizes  promotional events such as "Buy Two Get One Free" and "Buy
       One Get One at Half Off",  in  addition to other  promotional  events and
       clearanceales.  The  Company  intends  to  continue  to  emphasize  these
       promotions  and to sales.  The Company  intends to continue to  emphasize
       these  promotions  and to monitor them in order to assess their  relative
       success.

            In addition to emphasizing lower prices,  extensive  selection,  931
       nationwide locations and over 20 years of retail experience,  the Company
       promotes the following:

            Complimentary  ear  piercing.  With the  purchase of  earrings,  the
       Company offers  complimentary ear piercing and a free check-up after four
       weeks.  The Company utilizes a  state-of-the-art  ear piercing system and
       requires all employees performing ear piercing services to be trained and
       recertified by the Company annually.  The Company limits its ear piercing
       service to the ear and will not pierce any other part of the body. During
       fiscal 1999,  approximately  11% of the  Company's net sales were derived
       from the sale of earrings in connection with complimentary ear piercing.

            Lifetime  guarantee on all jewelry items. The Company will repair or
       replace, at no cost, all merchandise with manufacturing defects.

            Membership in the "buy-five-get-one-free"  jewelry club. The Company
       offers a  customer  incentive  program  pursuant  to  which,  after  five
       purchases,  a customer is entitled to a credit on the next purchase equal
       to the average  price paid for the five  purchased  items.  During fiscal
       1999,  customers applied  approximately  $5.8 million of credits received
       under the jewelry club to purchases.

            Free layaway.  The Company will hold items for up to 90 days, with a
       deposit, for customers until the full purchase price is paid.

            Piercing Pagoda relies  primarily on highly visible store locations,
       attractive   store  designs  and  an  inviting  visual   presentation  of
       merchandise   to  attract   prospective   customers.   In  addition,   it
       occasionally utilizes fliers, brochures and other point-of-sale materials
       to  educate  potential  consumers  about the  features  and  benefits  of
       shopping at the Company's stores.

            The Company  generally  does not advertise  independently,  but does
       participate  in  programs  sponsored  by the malls in which  the  Company
       operates, including local and regional newspaper advertising, advertising
       circulars,  seasonal  full-color  catalogues  and  radio  and  television
       commercials.  In almost all of the  Company's  locations,  the Company is
       obligated  by the  terms of its  lease to  contribute  to the cost of the
       mall's  advertising.  The Company also  participates in national discount
       coupon book programs,  mall-sponsored  promotions and a variety of public
       relations activities.

            Unlike many jewelry retailers, the Company does not extend credit to
       its customers, thereby minimizing bad debt expense.  Approximately 75% of
       all purchases are cash transactions  (including personal checks) with the
       remaining purchases being credit card sales.

           Stores

            At March 31, 1999, the Company  operated 931 stores in 44 states and
       Puerto Rico, including 900 kiosk stores and 31 in-line stores,  primarily
       under the names Piercing Pagoda, Plumb Gold and Silver & Gold Connection.
       The Company's  kiosk stores average  approximately  170 square feet, with
       approximately  37 linear feet of display  cases.  The  Company  generally
       seeks  to  locate  its  kiosk  stores  in  high  traffic  areas  of  mall
       concourses, and has created several standard kiosk store designs that can
       be adapted to a particular store's location or to the design requirements
       of the mall. The kiosks are manufactured to the Company's  specifications
       by third party kiosk suppliers and typically can be completed so that new
       stores can be opened within eight weeks after obtaining a

<PAGE>


            lease commitment.  At March 31, 1999, the Company operated stores in
       653 malls,  and operated more than one location in 228 of those malls. Of
       the stores operated,  31 were in-line stores, most of which were acquired
       from Earring Tree.


            The  following  table sets forth the  Company's  store  openings and
       closings for the periods indicated:
<TABLE>
<CAPTION>

                                            Fiscal year ended March 31,
                                            -----------------------------

                                              1996    1997  1998   1999
      -------------------------------------------------------------------

      Number of stores:

<S>                                           <C>     <C>     <C>   <C>
        Beginning of period                   366     513     682   789

        Opened/acquired:

           Piercing Pagoda(1)                 121     108      61   126

           Plumb Gold(2)                       34      66      24    11

           Silver & Gold Connection(3)          0       0      38    80

           Other(4)                             0       2       0     4
      -------------------------------------------------------------------

                Total opened(5)               155     176     123   221
      -------------------------------------------------------------------

           Total closed(6)                      8       7      16    79
      -------------------------------------------------------------------

           Total at end of period             513     682     789   931
      -------------------------------------------------------------------
</TABLE>


(1)  Includes 42 stores in fiscal 1996,  41 stores in fiscal 1997,  10 stores in
     fiscal 1998 and 64 stores in fiscal 1999, respectively,  that were acquired
     and reopened under the Piercing Pagoda name. Includes stores operated under
     the name Piercing  Pagoda Too in malls where a store is operated  under the
     name Piercing Pagoda. Other than the acquisitions noted, stores that change
     names are not included as new openings.

(2)  Includes 24 stores in fiscal  1996,  55 stores in fiscal  1997, 3 stores in
     fiscal 1998 and 7 stores in fiscal 1999,  respectively,  that were acquired
     and reopened under the Plumb Gold name. Other than the acquisitions  noted,
     stores that change names are not included as new openings.

(3)  Includes  34  stores  in  fiscal  1998  and  54  stores  in  fiscal   1999,
     respectively,  that were  acquired  and  reopened  under the  Silver & Gold
     Connection  name.  Other than the  acquisitions  noted,  stores that change
     names are not included as new openings.

(4)  Includes 1 store in fiscal 1999 that was acquired  and  reopened  under the
     Gemstone name.

(5)  Includes 14 in-line  stores in fiscal 1996, 7 in-line stores in fiscal 1997
     and 4 in-line stores in fiscal 1998.

(6)  Includes 1 store sold to the Florida  Licensee in fiscal 1997, and 3 stores
     sold in fiscal 1998. The Company  acquired all of the outstanding  stock of
     the Florida  Licensee on August 31,  1998,  and now operates all the former
     licensed stores as its own.


      Store Operations

            Store  operations  are divided  into ten  regions,  each of which is
       supervised by a regional  manager.  The regional  managers  supervise the
       Company's district  managers,  each of whom is responsible for an average
       of  approximately  ten stores within a specific  geographic area. Each of
       the Company's  stores has a full-time  manager and a full-time  assistant
       manager  in  addition  to  hourly  sales  associates,  most of whom  work
       part-time.  The  number of hourly  sales  associates  fluctuates  greatly
       depending on seasonal needs.

            The Company  believes that  providing  knowledgeable  and responsive
       customer  service is a crucial  element to its success and,  accordingly,
       has developed and implemented  extensive  employee training and incentive
       programs.  In  addition  to  training  during  the  first  few  weeks  of
       employment and frequent field  training,  the Company  produces  training
       videos for sales associates. The Company

<PAGE>


            monitors its training  program by having sales  associates  complete
       worksheets  after viewing each video.  Additionally,  every  August,  all
       sales personnel complete  "Piercing  University" where they are retrained
       in the  state-of-the-art,  safe,  sterile ear piercing method utilized by
       the Company.  Store  managers,  most of whom are promoted from within the
       Company,  also complete  extensive  training  programs  during which they
       receive training in management  skills and employee  relations as well as
       in sales and customer service.  The Company  regularly  monitors customer
       service at its stores by using "secret shoppers" who complete  evaluation
       forms after visiting stores as customers.  Regional managers and district
       managers  generally spend  approximately  one week, two to four times per
       year, in the Company's corporate  headquarters where they receive ongoing
       administrative and operational training.

            The Company seeks to instill  enthusiasm and dedication in its store
       management  personnel and sales associates through incentive programs and
       regularly  solicits  employee  suggestions  regarding  store  operations.
       Management believes that its employee-oriented culture creates a sense of
       personal  accountability  among  its  employees,  as well as pride in the
       Company  and its  merchandise,  resulting  in a higher  level of customer
       service. Sales associates, as well as store management personnel, receive
       base  compensation  plus  incentive  compensation  and  are  entitled  to
       discounts on purchases. The Company seeks to motivate its store personnel
       to focus  on team  success  by  having  the  incentive  portion  of their
       compensation  related  primarily  to  store  performance  and to a lesser
       extent to individual performance. District managers and their supervisors
       are eligible for stock options and stock purchases on a discounted  basis
       pursuant to the Company's  1995 Employee  Stock Purchase Plan, as well as
       for commissions and bonuses. The Company experiences a significant amount
       of turnover among its personnel,  especially among its sales  associates,
       that it believes is typical of its industry.

      Purchasing and Distribution

            The Company's  centralized  purchasing  department  selects and test
       markets  its  merchandise,  develops  relationships  with  suppliers  and
       monitors the  merchandise  levels at the  Company's  stores and corporate
       distribution  center.  Target  merchandise  levels  for  each  store  are
       calculated according to the individual store's sales volume of each item.
       Merchandise is delivered in bulk to the Company's  headquarters where the
       Company's  in-house  merchandise  staff prepares all items for display on
       merchandise  pads,  thereby  eliminating   supplier  display  preparation
       charges.  Items are  tagged  with a price and  stickered  with a bar code
       label for tracking.

            The Company  utilizes  approximately  150 vendors,  primarily in the
       United States,  Italy and Asia, who supply various jewelry products.  The
       Company's  purchase  agreements with its suppliers are all denominated in
       U.S.  dollars.  During fiscal 1999, the Company's five largest  suppliers
       accounted  for  approximately  39% of the  merchandise  purchased  by the
       Company.  One of these  vendors  accounted for  approximately  11% of the
       Company's  merchandise purchases during fiscal 1999. The Company does not
       believe that the loss of any current  supplier would adversely affect its
       operations.  The Company has no long-term  contracts  for the purchase of
       merchandise.  Management  believes that the relationships the Company has
       established  with its suppliers are good. The Company has not experienced
       any difficulty in obtaining  satisfactory  sources of supply and believes
       that adequate  alternative  sources of supply exist for substantially all
       types of merchandise sold in its stores.

            The Company maintains a quality control program,  with all shipments
       from  suppliers  being  counted or weighed and  visually  inspected  upon
       receipt at the  Company's  offices.  In addition,  the Company  regularly
       assays  a  portion  of gold  merchandise  shipments  to  assure  that the
       merchandise is of the karat represented by the supplier.


<PAGE>



      Management Information Systems

            The   Company    currently    uses   a    proprietary,    customized
       client/server-based  system for its inventory management system.  Through
       nightly polling of in-store registers,  the Company monitors sell-through
       information  and inventory  levels,  enhancing  the Company's  ability to
       control  effectively  the  merchandise  at its stores and to identify and
       react  promptly to sales  trends.  Based on the sales  data,  the Company
       tailors individual stores'  merchandise  levels,  plans its purchasing in
       order to benefit from volume purchasing  discounts from its suppliers and
       prioritizes the in-house preparation of merchandise.

            After a thorough  review of its inventory  management  and financial
       and accounting  systems  completed in fiscal 1998, the Company  concluded
       that its  current  proprietary  inventory  management  and  replenishment
       system would, with minor modification,  be adequate to meet the Company's
       needs  at  least  through  fiscal  2000.  The  Company   implemented  the
       modifications  in fiscal 1999 and now currently  operates on the modified
       system. The Company anticipates that subsequent to fiscal 2000 it will be
       necessary to upgrade its inventory management  software.  In fiscal 1999,
       the Company purchased,  and is currently  installing,  a separate product
       planning and analysis  software package that will supplement the existing
       system as well as any  inventory  management  package  the  Company  does
       upgrade  to in  the  future.  It  is  expected  that  any  new  inventory
       management software may require  modification to replicate certain custom
       elements of the Company's existing system.

            In fiscal 1999, the Company implemented new financial and accounting
       software.  The new financial and accounting  software system utilizes the
       SQL   relational   database   and  a   Windows   NT-based   client/server
       architecture.  The  Company  believes  that  the  combination  of the new
       software  and  client/server  technology  will  provide the Company  with
       better analytical tools and enhance the information-sharing  capabilities
       of  the  Company's  management  information  systems.  See  "Management's
       Discussion and Analysis" for a discussion of Year 2000 issues.

      Competition

            The retail jewelry  business is highly  competitive  and the Company
       believes that the primary  elements of competition in the  popular-priced
       jewelry business are price, selection,  customer service, quality and the
       appeal and  convenience  of store  locations.  The Company  competes with
       national  and  regional   jewelry  chains,   department   stores,   local
       independently  owned  jewelry  stores and  chains,  catalogue  showrooms,
       discounters,  direct mail suppliers and televised home shopping networks.
       Certain of the Company's competitors have significantly greater financial
       and other resources than the Company.  The retailing business is affected
       by changes in consumer taste, demographic trends and the type, number and
       location of competing stores.  The Company also believes that it competes
       for store  locations and for consumers'  discretionary  spending  dollars
       with retailers that offer merchandise other than jewelry.

      Employees

            As of March 31, 1999, the Company had approximately  2,248 full-time
       and approximately 3,019 part-time employees.  Of these, 235 were employed
       full-time  and 128  part-time  at the  Company's  corporate  offices  and
       distribution  facility  while the  balance  were  employed as part of the
       Company's field sales force. The number of employees fluctuates depending
       on  seasonal  needs.  During the fiscal  1999 peak  holiday  season,  the
       Company had 4,686 part-time employees. None of the Company's employees is
       covered by a collective bargaining  agreement,  and the Company considers
       relations with its employees to be good.


<PAGE>



      Trademarks

            The Company believes its registered  trademarks  "Piercing  Pagoda,"
       "Silver Station" and "Silver & Gold  Connection,"  along with the Company
       logo and "Plumb  Gold" name,  are  important  elements  of the  Company's
       marketing strategy. In addition, the Company has a trademark applications
       pending for "Piercing  Pagoda the Gold Company",  "Diamond Isle" and "The
       Gold  Station."  The Company is not  otherwise  dependent  on any patent,
       trademark, service mark or copyright.

      Government Regulation

            The  Company's  ear  piercing  service is not  regulated  by federal
       statute. Currently,  Oregon, Indiana and Minnesota are the only states in
       which  the  Company  operates  that  regulate  ear-piercing   activities.
       Legislation  in Oregon  requires  the Company,  and any of its  employees
       administering  ear piercing  services in stores in Oregon, to be licensed
       by the State.  The legislation  also deems ear piercing  through anywhere
       but the  lobe  of the  ear to be  body  piercing,  which  is  subject  to
       additional  restrictions,  including  that  it  must  be  performed  in a
       separate  room.  Accordingly,  the Company limits its ear piercing to the
       ear lobe in Oregon. The state of Indiana has enacted  legislation similar
       to the Oregon legislation,  but which excludes the licensing  requirement
       and, accordingly,  the Company limits its ear piercing to the ear lobe in
       27 of the 28 stores it operates in Indiana.  Two  municipalities,  one in
       Indiana and one in  Minnesota  have  enacted  legislation  which  imposes
       various  restrictions  upon ear piercing that make it impractical for the
       Company to comply. Accordingly, the Company does not perform ear piercing
       in the one  location in each  municipality  affected  by the  regulation.
       Legislation  that was  previously  pending in Ohio has been  enacted in a
       revised form that regulates all body piercing practices, but specifically
       excludes ear piercing.  Ear piercing "standards" were enacted in place of
       regulation.  The  Company's  ear piercing  procedures  meet the currently
       required   standards.   The   Company  is  aware  of   approximately   15
       jurisdictions   in   which   legislation   to   regulate   ear   piercing
       establishments is pending.  There is legislation pending in Massachusetts
       where  the  Company  currently  operates  36  stores  that  would  direct
       regulators to develop procedures  applicable to body piercing,  which the
       proposed  legislation  currently  defines to exclude  the ear lobe but to
       include  all  other  parts  of  the  ear.  Generally,   however,  pending
       legislation  proposes  requiring  the  consent of a parent or guardian in
       order to pierce the ears of a minor (which the Company  requires  even in
       the  absence of  legislation),  the  posting of certain  notices  and the
       obtaining of certain  registrations  and  licenses,  but does not require
       special  procedures  for  piercing  of portions of the ear other than the
       lobe.  Management  believes  that the Company  complies  in all  material
       respects with applicable  legislation.  While the Company does not expect
       existing or proposed legislation to have a material adverse effect on the
       Company's  business,  there is no assurance that governmental bodies will
       not modify existing  legislation in such a way, or enact new legislation,
       that would  restrict or prohibit the Company from  providing ear piercing
       services in its stores or otherwise continuing to conduct its business as
       presently operated.

            In April 1993, after an investigation,  the Occupational  Safety and
       Health  Administration  ("OSHA")  issued an opinion  that  establishments
       which use an ear piercing  system such as the one utilized by the Company
       and which  maintain an ear piercing  policy such as the  Company's do not
       expose  employees  to  blood  and,  therefore,  are not  subject  to OSHA
       regulations concerning employee exposure to blood.


<PAGE>


      Item 2.  PROPERTIES

            The Company leases all of its store  locations,  but owns the kiosks
       and other fixtures.  The Company's  typical lease is for a period of five
       years and includes a minimum base rent, a percentage  rent based on store
       sales,  a common area  maintenance  charge and  payments to a  merchants'
       association.  In  addition,  substantially  all of the  Company's  leases
       require the Company to contribute to the cost of advertising for the mall
       in which the  store  subject  to the lease is  located.  The  Company  is
       generally  required under the terms of its leases to maintain and conform
       its stores to agreed upon  standards.  Of the  Company's  store leases at
       March 31, 1999, 222 expire before March 31, 2000.

            The  Company  owns a  73,000  square  foot  building  in  Bethlehem,
       Pennsylvania  that serves as its corporate  headquarters and distribution
       center.  To  accommodate  the  Company's  recent  growth,  an  additional
       facility was constructed on  approximately  five acres of vacant land the
       Company owns adjacent to the Bethlehem property. This new facility, which
       was completed during fiscal 1999, is approximately 71,000 square feet and
       is used primarily for additional distribution and warehousing functions.


      Item 3.  LEGAL PROCEEDINGS

            The Company is periodically a defendant in certain legal actions and
       other  claims  arising in the  ordinary  course of its  business.  In the
       opinion of  management,  liabilities,  if any,  arising from the ultimate
       resolution  of such actions would not have a material  adverse  effect on
       the Company's financial position, results of operations or liquidity.

            On October 19,  1998,  a lawsuit was filed,  purportedly  as a class
       action,  against the Company and certain of its executive officers in the
       U.S. District Court of the Eastern District of Pennsylvania.  The lawsuit
       alleges, among other things, that the Company and certain of its officers
       made materially false and misleading statements and/or failed to disclose
       material  information  regarding the Company's  business  performance and
       prospects.  On January 4, 1999, the Company filed a motion to dismiss the
       suit, after which the plaintiffs filed an amended complaint.  The Company
       currently  has  pending  before the court a motion to dismiss the amended
       complaint. The Company believes that the lawsuit has no merit and intends
       to contest the case vigorously if its motion to dismiss is  unsuccessful.
       Although  the  ultimate  outcome  of the  lawsuit  cannot be  determined,
       management  does not  believe  the  outcome  of the  lawsuit  will have a
       material adverse effect on the financial position,  results of operations
       or cash flows of the  Company.  However,  there can be no assurance as to
       the ultimate resolution of this matter.

      Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

            No matters were submitted to a vote of security  holders,  through a
       solicitation  of proxies or otherwise,  during the fourth  quarter of the
       fiscal year ended March 31, 1999.


<PAGE>



      Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

            The following  table sets forth certain  information  concerning the
       executive  officers of the Company as of March 31,  1999.  All  executive
       officers  serve  at the  discretion  of the  Board  of  Directors  of the
       Company.

      -------------------------------------------------------------------
               Name          Age          Position with Company
      -------------------------------------------------------------------
      Richard H. Penske       56  Chairman   of  the   Board  and  Chief
                                  Executive Officer
       John F. Eureyecko      50  President, Chief Operating Officer,
                                  Secretary and Director
       Barry R. Clauser       45  Senior Vice President -- Merchandise
                                  Operations
       Sharon J. Zondag       44  Senior Vice President -- Store
                                  Operations
       Brandon R. Lehman      47  Treasurer
       Gilbert P. Hollander   45  Vice President of Merchandise
                                  Purchasing

       Lisa E. Sankovsky      38  Vice President - Real Estate

       Richard J. McKeon      41  Director of Management Information
                                  Systems
       Christopher J. Barone  34  Corporate Controller
       ------------------------------------------------------------------

            Richard H.  Penske has served the  Company  and its  predecessor  in
       various capacities for more than 25 years. Mr. Penske served as President
       of the  Company  from  1980 to June  1996,  and has  served  as the Chief
       Executive  Officer since 1986. Mr. Penske has served as a director of the
       Company since 1978.

            John F. Eureyecko  joined the Company in October 1991 and has served
       as President and Chief Operating  Officer since June 1996. Mr.  Eureyecko
       had  previously  served as Executive  Vice President from January 1992 to
       June 1996 and as Chief Financial Officer from February 1994 to June 1996.
       Mr.  Eureyecko was elected as Secretary in January 1992 and as a director
       in March 1994. Mr.  Eureyecko joined the Company with 18 years experience
       at  Triangle  Building  Supplies  and Lumber  Co.,  a building  materials
       retailer,  where he last  served as Senior  Vice  President  and  General
       Manager.

            Barry R. Clauser  joined the Company in October 1976 as an assistant
       to the Executive Vice  President.  He has served as the Company's  Senior
       Vice President - Merchandise Operations since April 1988.

            Sharon J. Zondag  joined the Company in October 1976 as an Assistant
       Store  Manager.  Ms. Zondag served as Vice  President - Store  Operations
       from February 1986 to March 1988. Since March 1988, Ms. Zondag has served
       as Senior Vice President - Store Operations.

            Brandon  R.  Lehman  joined the  Company  in August  1991 as a staff
       accountant  and became the Corporate  Controller in 1992.  Mr. Lehman was
       elected  Treasurer in March 1994.  Mr.  Lehman joined the Company with 16
       years of experience at Ice City,  Inc., a retailer of seasonal  products,
       where he last served as Corporate Treasurer.

            Gilbert P.  Hollander  joined the Company in May of 1997 as Director
       of New  Business  Development  and  was  promoted  to Vice  President  of
       Merchandise Purchasing in February of 1999. Prior to joining the Company,
       Mr. Hollander held various senior management positions with Silver & Gold
       Connection, a kiosk based jewelry retailer and has owned and operated his
       own wholesale and retail jewelry business.


<PAGE>


            Lisa E. Sankovsky  joined the Company in 1983 as an assistant to Mr.
       Penske,  focusing  on  lease  administration.  Ms.  Sankovsky  served  as
       Director of Real Estate from February 1994 to July 1995. Since July 1995,
       Ms. Sankovsky has served as Vice President - Real Estate.

            Richard J. McKeon has served as Director of  Management  Information
       Systems since he joined the Company in November 1990.  From 1987 to 1990,
       Mr. McKeon was a programmer trainer with Valley Computer Learning Center,
       a computer training company.

            Christopher J. Barone has served as the Corporate  Controller  since
       October 1994.  Prior thereto,  he served in various  capacities with KPMG
       LLP from September 1989 to October 1994, most recently as Audit Manager.



                                             PART II

     Item 5.  MARKET FOR  REGISTRANT'S  COMMON  EQUITY AND  RELATED  STOCKHOLDER
               MATTERS

            The Company  consummated  the initial public  offering of its common
       stock on October 20,  1994,  and its common stock is traded on the Nasdaq
       National Market ("Nasdaq") under the symbol "PGDA".

            The following table sets forth,  for the fiscal quarters  indicated,
       the high and low sales prices per share for the  Company's  common stock,
       as reported on Nasdaq, for the last two fiscal years(1):


                                               High       Low
           Fiscal 1998
           First Quarter                        $18.67    $16.00
           Second Quarter                       $21.33    $16.59
           Third Quarter                        $20.75    $15.83
           Fourth Quarter                       $20.83    $18.00

           Fiscal 1999
           First Quarter                        $25.67    $20.83
           Second Quarter                       $24.30    $11.06
           Third Quarter                        $16.13     $8.50
           Fourth Quarter                       $11.06     $8.88





            (1)Prices  reflect 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.

            As of June 23, 1999, there were  approximately 179 holders of record
       of the Company's common stock.

            There are currently no restrictions on the use of retained  earnings
       for the distribution of dividends,  as long as the Company is not, or the
       making of such distribution would not cause the Company to be, in default
       under its existing credit facility. However, the Company currently

<PAGE>


            intends  to  retain  any  future  earnings  to fund  operations  and
       continued development of its business and, therefore, does not anticipate
       paying cash dividends on its common stock for the foreseeable future. The
       payment of  dividends  is at the  discretion  of the  Company's  Board of
       Directors and will be based upon the earnings,  capital  requirements and
       operating and financial condition of the Company, among other factors, at
       the time such  dividends  are  considered.  The  Company has not paid any
       dividends since the beginning of fiscal 1996.

      Item 6. SELECTED FINANCIAL DATA

            The selected  financial data for the five years ended March 31, 1999
       is qualified by reference to and should be read in  conjunction  with the
       Company's   consolidated  financial  statements  and  notes  thereto  and
       "Management's Discussion and Analysis of Financial Condition and Results
       of Operations" appearing elsewhere herein.


<PAGE>


<TABLE>
<CAPTION>

                                                        Fiscal Year Ended March 31,
                                      -----------------------------------------------------------
                                         1999       1998         1997        1996      1995
-------------------------------------------------------------------------------------------------
                  (In thousands, except per share and selected
                                 operating data)

Income Statement Data:
<S>                                   <C>         <C>         <C>         <C>          <C>
  Net sales                           $ 255,147   $ 222,128   $ 166,885   $ 121,581    $ 86,076
  Cost of goods sold and occupancy
   expenses (excluding depreciation                                 1
   on kiosks and store fixtures)         37,072     119,328      92,308      67,440      48,069

-------------------------------------------------------------------------------------------------
  Gross profit                          118,075     102,800      74,577      54,141      38,007
  Selling, general and administrative
   expenses (including depreciation
   on kiosks and store fixtures)        102,464      82,916      60,845      43,887      30,007

-------------------------------------------------------------------------------------------------
  Income from operations                 15,611      19,884      13,732      10,254       8,000
  Interest and other income                 367         562         386         282         307
  Interest expense                        3,110       2,896       2,208       1,306       1,427
-------------------------------------------------------------------------------------------------
  Earnings before income taxes           12,868      17,550      11,910       9,230       6,880
  Income taxes(1)                         5,225       6,581       4,372       3,553       3,352
-------------------------------------------------------------------------------------------------
  Net income (1)                        $ 7,643    $ 10,969     $ 7,538     $ 5,677     $ 3,528
-------------------------------------------------------------------------------------------------
Earnings Per Share Data:
   Earnings per share:
      Basic                              $ 0.84      $ 1.25      $ 0.96      $ 0.72
      Diluted                            $ 0.82      $ 1.21      $ 0.93      $ 0.71
   Weighted average shares
    outstanding:
      Basic                               9,119       8,765       7,886       7,856
      Diluted                             9,331       9,062       8,084       7,988
Pro Forma Data:
  Pro forma net income (1)                                                              $ 4,156
  Pro  forma  diluted earnings  per
   share (1) (2)                                                                         $ 0.61
  Pro forma  weighted  average shares
   outstanding (2)                                                                        6,837

Selected Operating Data:
  Number of stores  at  beginning  of
    period                                  789         682         513         366         295
  Stores  added (net of closures  and
    sales)                                  142         107         169         147          71
-------------------------------------------------------------------------------------------------
  Stores at end of period                   931         789         682         513         366
-------------------------------------------------------------------------------------------------

  Average jewelry units sold per
   comparable store (rounded) (3)        11,700      11,800      12,000      11,600      10,800
  Average  comparable store net sales  $291,000   $ 295,000    $ 303,00   $ 295,000   $ 266,000
(4)
  Average comparable store
   net sales per square foot (5)         $1,581     $ 1,630      $1,848     $ 1,821     $ 1,652
  Average   comparable  store  square
    footage (5)                             184         181         164         162         161
  Percentage increase  in
   comparable store net sales (6)          0.3%        3.0%        7.6%       12.4%        9.8%
</TABLE>

<TABLE>
<CAPTION>

                                                         March 31,
                                      -----------------------------------------------------------
                                          1999       1998      1997         1996       1995
-------------------------------------------------------------------------------------------------
                                                              (In thousands)
Balance Sheet Data:
<S>                                    <C>         <C>         <C>         <C>         <C>
  Working capital                      $ 47,571    $ 44,302    $ 40,649    $ 15,948    $ 13,556
  Inventory                              53,685      53,149      43,109      25,390      15,128
  Total assets                          123,300      96,099      79,741      47,906      32,122
  Current installments of long-term
   debt and revolving line of credit        432         247         234       5,910         -
  Long  term   debt, less current
   installments                          25,169       9,742      26,690       2,350         -
  Stockholders' equity                   74,491      66,328      37,522      29,579      23,862
-------------------------------------------------------------------------------------------------
</TABLE>


<PAGE>




            (1) Prior to its  initial  public  offering,  the Company was an "S"
       corporation  for federal  and  certain  state  income tax  purposes,  and
       accordingly,  was subject only to limited  corporate  income  taxes.  For
       fiscal  1995,  income tax  expense  includes  the state tax  expense  for
       certain states in which the Company did not elect "S" corporation  status
       prior to the initial public offering in October 1994, a one-time deferred
       tax charge for conversion from "S" corporation to "C" corporation  status
       for federal  and certain  state  purposes,  and the current and  deferred
       taxes  applicable to the Company's  income as a "C"  corporation  for the
       period after the initial public  offering.  Due to the allocation  method
       utilized  for tax return  purposes,  tax  expense  for the post  offering
       period  includes  taxes  payable to taxing  authorities  and  payments to
       certain of the Company's  stockholders  pursuant to a tax indemnification
       agreement between the Company and such stockholders.

            (2) Pro  forma  diluted  earnings  per share  has been  computed  by
       dividing  pro forma net income by the weighted  average  number of common
       shares and common share  equivalents  outstanding  during fiscal 1995, as
       adjusted to reflect  the sale of shares  during June of fiscal 1994 and a
       3-for-2 stock split payable to  shareholders  of record on July 31, 1998,
       as if they had been outstanding for the entire period.

            (3) Reflects  average jewelry units sold per comparable  store based
       on 260, 283, 355, 493 and 628  comparable  stores in fiscal 1995,  fiscal
       1996,  fiscal  1997,  fiscal  1998 and fiscal  1999  respectively,  which
       represent  the number of all stores  open at the end of such  fiscal year
       which were also open as of the beginning of the preceding year.

            (4) Average net sales per  comparable  store is calculated  based on
       the net sales of all stores  open as of the  beginning  of the  preceding
       fiscal year divided by the number of such stores.

            (5) Reflect average net sales per square foot for comparable  stores
       (those  stores open at the end of the  respective  fiscal year which were
       also open as of the beginning of the preceding  fiscal year) based on the
       approximate average square footage per comparable store of 161, 162, 164,
       181 and 184  square  feet for fiscal  1995,  1996,  1997,  1998 and 1999,
       respectively.

            (6)  Comparable  store net sales  data are  calculated  based on the
       change  in net  sales  of all  stores  open  as of the  beginning  of the
       preceding fiscal year.



<PAGE>



  Item 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS


            Net sales are comprised  primarily of sales generated by stores and,
       until August 31, 1998, wholesale sales, primarily to a licensee operating
       in the state of Florida (the "Florida Licensee").  Cost of goods sold and
       occupancy  expenses  include  the cost of  merchandise,  rent  and  other
       occupancy  expenses  and the  cost of  preparing  merchandise  for  sale.
       Selling,   general  and   administrative   expenses   include  store  and
       supervisory payroll, corporate overhead and non-occupancy store expenses,
       including depreciation on kiosks.

           Results of Operations

            The following table sets forth, for the periods  indicated,  certain
       selected income statement data expressed as a percentage of net sales:
<TABLE>
<CAPTION>

                                Fiscal Year Ended
                                    March 31,
      -------------------------------------------------------------------

                                                   1999    1998   1997
                                                 ------------------------

<S>                                               <C>      <C>    <C>
      Net sales                                   100.0%   100.0% 100.0%

      Cost of goods sold and occupancy expenses
         (excluding depreciation on kiosks)         53.7     53.7  55.3
      -------------------------------------------------------------------

      Gross profit                                  46.3     46.3   44.7

      Selling, general and administrative
       expenses (including
       depreciation on kiosks)                      40.2     37.3   36.5
      -------------------------------------------------------------------

      Income from operations                         6.1      9.0    8.2

      Interest and other income                      0.1      0.2    0.2

      Interest expense                               1.2      1.3    1.3
      -------------------------------------------------------------------

      Earnings before income taxes                   5.0      7.9    7.1

      Income taxes                                   2.0      3.0    2.6
      -------------------------------------------------------------------

      Net income                                     3.0%     4.9%   4.5%
      -------------------------------------------------------------------
</TABLE>


           Comparison of Fiscal 1999 and Fiscal 1998

           Net Sales

            Net sales  increased  $33.0 million,  or 14.9%, to $255.1 million in
       fiscal 1999 from $222.1  million in fiscal  1998.  This  increase was due
       primarily to net sales  generated by new stores opened or acquired by the
       Company and to a $794,000,  or 0.3%,  increase  in  comparable  store net
       sales. At March 31, 1999, the Company operated 931 stores compared to 789
       stores at March 31, 1998,  an increase of 18%. The average  jewelry units
       sold per comparable  store were relatively  unchanged at 11,700 in fiscal
       1999 from 11,800 in fiscal 1998.  The average price per jewelry unit sold
       for all the Company's  stores was also relatively  unchanged at $24.54 in
       fiscal  1999 from $24.53 in fiscal  1998.  Included in total net sales is
       approximately  $982,000  of  wholesale  sales  to the  Florida  Licensee,
       compared to $4.3 million in fiscal 1998. On August 31, 1998,  the Company
       purchased all of the outstanding  stock of the Florida Licensee and began
       operating  the  former  Licensee's  22  stores  as its own.  Accordingly,
       wholesale sales ceased on that date and all subsequent  sales activity of
       the acquired stores is reflected as part of the Company's own net sales.


<PAGE>



           Gross Profit

            Gross profit increased $15.3 million, or 14.9%, to $118.1 million in
       fiscal 1999 from $102.8  million in fiscal 1998 while gross profit margin
       remained  level at 46.3% for both  periods.  Gross profit  margin,  while
       unchanged  in total,  reflects an increase  caused by the  conversion  of
       sales from  wholesale to retail sales at the 22 stores  acquired from the
       former Florida Licensee,  offset by a decrease in merchandise  margin and
       higher rent and occupancy expenses.  The Company realizes a higher margin
       on its own retail sales than it previously obtained on wholesale sales to
       the former  Florida  Licensee  which  caused the increase in gross profit
       margin.  Merchandise margins declined due to greater promotional activity
       in an attempt to increase sales, particularly at the Company's comparable
       stores.  The  increase in rent and  occupancy  as a  percentage  of sales
       reflects  the less  than  expected  sales  performance  at the  Company's
       comparable  stores,  particularly  during the holiday season,  as well as
       lower sales at other under-performing  stores and the lower initial sales
       volumes at new stores opened by the Company.

           Selling, General and Administrative Expenses

            Selling,   general  and  administrative   expenses  increased  $19.6
       million, or 23.6%, to $102.5 million in fiscal 1999 from $82.9 million in
       fiscal  1998.  As  a  percentage  of  net  sales,  selling,  general  and
       administrative  expenses  increased to 40.2% in fiscal 1999 from 37.3% in
       fiscal 1998.  The combined  effect of  non-recurring  pre-opening  costs,
       lower than expected  sales results at many of the acquired  locations and
       expenses  recorded  to  close  under-performing  stores  resulted  in the
       significant increase in both selling, general and administrative expenses
       and their  relationship  to net sales.  During  fiscal 1999,  the Company
       opened  221  new  and   acquired   stores,   including   104  former  GCG
       locations.This  represents  the largest  number of new stores the Company
       has ever opened in a single  fiscal  year.  After a review of the initial
       sales results and future sales  potential of the 104  locations  acquired
       from GCG, the Company announced on September 28, 1998 that it would close
       30 of these locations by March 31, 1999 and work to improve operations at
       the remaining  stores.  In addition the Company chose to close another 49
       under-performing stores by year-end,  bringing the total stores closed in
       fiscal  1999 to 79, the  largest  number of stores the  Company  has ever
       closed in one fiscal year.  During  fiscal 1999,  the Company  recognized
       approximately $1.6 million of store closure costs as additional  selling,
       general and  administrative  expense of which $1.3 million is included in
       accrued  expenses and other current  liabilities at March 31, 1999. These
       costs include estimated  outstanding lease obligations and kiosk disposal
       costs associated with the 79 stores the Company closed in fiscal 1999 and
       35  additional  locations  for which a closure  decision had been made at
       March 31, 1999, but which are scheduled to close in fiscal 2000.

            Depreciation  and  amortization  expense  increased  29.6%  to  $7.0
       million in fiscal  1999 from $5.4  million in fiscal  1998.  This was due
       primarily  to capital  expenditures  for new stores and the  upgrading of
       kiosks in  existing  locations.  Additionally,  amortization  expense for
       goodwill  increased due to the  acquisition  of 104 former GCG stores and
       the 22 stores acquired from the former Florida  Licensee in July 1998 and
       August 1998,  respectively.  Approximately  $13.7 million of goodwill was
       recorded in connection with these two acquisitions and is being amortized
       over fifteen years.  Goodwill  amortization  expense totaled $1.3 million
       and $613,000 in fiscal 1999 and 1998, respectively.

           Interest Expense

            Interest  expense  increased  $214,000,  or 7.4%, to $3.1 million in
       fiscal 1999 from $2.9 million in fiscal 1998,  and as a percentage of net
       sales  decreased  to 1.2% from 1.3%.  The  increase in interest  expense,
       which includes interest paid on bank borrowings, fees paid for letters of
       credit  as  part of the  Company's  gold  consignment  program  and  gold
       consignment fees, primarily reflects an increase in

<PAGE>


            total  average  borrowings  under the  Company's  revolving  line of
       credit  and an  increase  in the  number  of ounces  consigned  under the
       Company's gold consignment program.  These were partially offset by lower
       average  weighted  interest  rates  on  borrowings  under  the  Company's
       revolving line of credit (6.75% versus 7.03%) and lower consignment rates
       charged by the Company's gold banks (1.94% versus 2.74%).

           Income Tax Expense

            Income tax expense  decreased $1.4 million to $5.2 million in fiscal
       1999 from $6.6 million in fiscal 1998. As a percentage of earnings before
       income taxes,  income tax expense  increased to 40.6% in fiscal 1999 from
       37.5% in fiscal  1998.  The  decrease in income tax expense is due to the
       decrease  in the  Company's  earnings  before  income  taxes.  The higher
       effective  income  tax rate in 1999  resulted  from the effect of certain
       acquisition-related  costs and other  charges  for  which  there  were no
       corresponding  tax  benefits and an  additional  $165,000 of income taxes
       recognized  for  potential  state income  exposure for periods  currently
       under audit.

           Net Income

            The Company's net income  decreased $3.4 million,  or 30.9%, to $7.6
       million in fiscal  1999 from $11.0  million in fiscal  1998.  The Company
       believes that the decrease resulted  primarily from the factors described
       above.

           Comparison of Fiscal 1998 and Fiscal 1997

           Net Sales

            Net sales  increased  $55.2 million,  or 33.1%, to $222.1 million in
       fiscal 1998 from $166.9  million in fiscal  1997.  This  increase was due
       primarily to net sales  generated by new stores opened or acquired by the
       Company and to a $4.3 million,  or 3.0%, increase in comparable store net
       sales. At March 31, 1998, the Company operated 789 stores compared to 682
       stores at March 31, 1997.  The average  jewelry units sold per comparable
       store decreased  slightly,  or 1.7%, to 11,800 in fiscal 1998 from 12,000
       in fiscal 1997. This is due in part to the 138 additional stores included
       in the  comparable  store base in fiscal  1998 that  generally  had lower
       dollar and unit sales volume than the Company's older comparable  stores.
       The average  price per  jewelry  unit sold for all the  Company's  stores
       increased  slightly,  or $0.05,  to $24.53 in fiscal  1998 from $24.48 in
       fiscal 1997.  Wholesale sales to the Florida Licensee  increased 59.3% to
       $4.3  million in fiscal 1998 from $2.7  million in fiscal 1997 to support
       the increased  retail sales of the Florida  Licensee  including  sales at
       three additional locations purchased from the Company during fiscal 1998.

           Gross Profit

            Gross profit increased $28.2 million, or 37.8%, to $102.8 million in
       fiscal 1998 from $74.6  million in fiscal 1997 while gross profit  margin
       increased  to 46.3% in fiscal 1998 from 44.7% in fiscal  1997.  The gross
       profit margin  improvement  primarily reflects lower costs of merchandise
       during the period,  partially offset by an increase in promotional events
       held by the Company  during  fiscal 1998 versus  fiscal  1997.  The gross
       profit  margin  improvement  was  also  reduced  by  increased  rent  and
       occupancy  expense  as a  percentage  of net sales due to the 123 new and
       acquired  stores  opened  during the year and their lower  initial  sales
       volumes.

           Selling, General and Administrative Expenses

            Selling,   general  and  administrative   expenses  increased  $22.0
       million,  or 36.1%, to $82.9 million in fiscal 1998 from $60.9 million in
       fiscal 1997. As a percentage of net sales, selling, general

<PAGE>


            and  administrative  expenses increased to 37.3% in fiscal 1998 from
       36.5% in fiscal 1997. The increase in selling, general and administrative
       expense as a percentage of net sales  primarily  reflects higher expenses
       associated   with  new  stores   opened  and  acquired  by  the  Company.
       Depreciation and amortization  expense increased 50.0% to $5.4 million in
       fiscal 1998 from $3.6 million in fiscal 1997.  This was due  primarily to
       capital  expenditures  for new  stores  and the  upgrading  of  kiosks in
       existing  locations as well as higher  amortization  expense for goodwill
       recorded in connection with acquisitions in February 1997 and April 1997.
       A total of $6.4 million of goodwill was recorded in connection with these
       two acquisitions and is being amortized over fifteen years.

           Interest Expense

            Interest expense  increased  $688,000,  or 31.3%, to $2.9 million in
       fiscal 1998 from $2.2 million in fiscal 1997,  and as a percentage of net
       sales was  unchanged  at 1.3% in fiscal  1998 and 1997.  The  increase in
       interest expense,  which includes interest paid on bank borrowings,  fees
       paid for  letters  of credit as part of the  Company's  gold  consignment
       program  and gold  consignment  fees,  primarily  reflects an increase in
       total average borrowings under the Company's revolving line of credit and
       an increase in the number of ounces  consigned  under the Company's  gold
       consignment  program.  These  increases were partially  offset by a lower
       average interest rate on the revolving line of credit, which was in place
       for  all of  fiscal  1998,  and the use of the  proceeds  of a  secondary
       offering  of the  Company's  common  stock in June of 1997 to repay  debt
       incurred in connection with acquisitions.

           Income Tax Expense

            Income tax expense  increased $2.2 million to $6.6 million in fiscal
       1998 from $4.4 million in fiscal 1997. As a percentage of earnings before
       income taxes,  income tax expense  increased to 37.5% in fiscal 1998 from
       36.7% in fiscal  1997.  The  increase in income tax expense is due to the
       increase  in the  Company's  earnings  before  income  taxes.  The higher
       effective  income  tax rate in 1998  resulted  from the effect of certain
       acquisition-related  costs and other  charges  for  which  there  were no
       corresponding tax benefits.

           Net Income

            The Company's net income increased $3.5 million,  or 46.7%, to $11.0
       million in fiscal  1998 from $7.5  million in fiscal  1997.  The  Company
       believes that such increase resulted primarily from the factors described
       above.


           Liquidity and Capital Resources

            The Company's primary ongoing short-term  capital  requirements have
       been to fund an increase in inventory  and to fund  capital  expenditures
       and working capital (mostly  inventory) for new and acquired stores.  The
       Company's  long-term  liquidity  requirements  relate  principally to the
       maturity  of  its  long-term  debt  in  July  of  2000,  operating  lease
       commitments  and  store  expansion.  The  Company's  primary  sources  of
       liquidity have been funds provided from  operations,  a gold  consignment
       program,  bank  borrowings and a public offering of common stock that was
       completed  during fiscal 1998.  The Company had working  capital of $47.6
       million  and $44.3  million at the end of fiscal  1999 and  fiscal  1998,
       respectively. See "3/4 Seasonality."

            Net cash  provided  by  operating  activities  was $15.0  million in
       fiscal 1999 versus  $14.9  million in fiscal 1998.  Net cash  provided by
       operating  activities in fiscal 1999 primarily reflects net earnings plus
       depreciation  and  amortization,  partially  offset by changes in working
       capital requirements. Net cash provided by operating activities in fiscal
       1998 reflects net earnings plus

<PAGE>


            depreciation and amortization,  including  increases in inventory to
       support new and acquired store growth.

            Net cash used in investing  activities  was $28.3  million and $17.0
       million  in fiscal  1999 and fiscal  1998,  respectively.  These  amounts
       reflect $12.6 million and $9.1 million of capital expenditures related to
       new stores in fiscal 1999 and fiscal 1998, respectively. Additionally, in
       fiscal 1999,  the Company paid $3.0  million for the  acquisition  of 104
       former GCG locations and $11.4 million for all of the  outstanding  stock
       of the former  Florida  Licensee.  In fiscal 1998,  the Company paid $8.0
       million for the acquisition of 47 locations.

            Net cash  provided  by  financing  activities  was $14.6  million in
       fiscal  1999 and  $721,000  in fiscal  1998.  These  changes  in net cash
       provided by financing activities over the last two fiscal years primarily
       reflect the Company's  expansion and  acquisition  activity  during those
       periods.  During  fiscal  1999,  cash  provided by  financing  activities
       primarily reflects an increase in the Company's  revolving line of credit
       and additional  long-term  debt.  These increases were used to fund store
       expansion,  acquisitions and the construction of an additional  warehouse
       and  distribution  center.  Net cash provided by financing  activities in
       fiscal  1998  reflects  the  proceeds  of an  offering  of  common  stock
       completed  in  July  1997,  partially  offset  by a  repayment  of  funds
       previously borrowed under the Company's revolving line of credit.

            The Company  currently  has an  unsecured  revolving  line of credit
       facility,  which  expires  July  31,  2000,  that  provides  for  maximum
       borrowings of $105 million  through a combination of cash advances (which
       may not exceed $65 million)  and letters of credit  (which may not exceed
       $70 million) to support the Company's gold consignment financing program.
       Amounts  borrowed  under the facility  generally  accrue  interest at the
       higher of (i) the prime rate of the  Company's  primary  lender minus 100
       basis points  (6.75% at March 31, 1999) or (ii) a rate based on overnight
       federal funds  transactions  with Federal  Reserve System members plus 50
       basis points (5.625% at March 31, 1999);  however,  the Company may elect
       to have all or any portion of the outstanding  balance under the facility
       accrue  interest  at a rate based on one,  two,  three or six month LIBOR
       plus 110 basis points (6.04% at March 31, 1999 for a one month maturity),
       subject to certain restrictions. Fees are paid on letters of credit based
       on amounts outstanding at an annual rate of 0.75%. At March 31, 1999, the
       Company  had $41.2  million  available  for cash  borrowings  under  this
       revolving  credit   facility.   Letters  of  credit  in  the  amounts  of
       approximately  $41.4 million and approximately  $37.2 million were issued
       at March 31, 1999 and 1998, respectively.

            The loan agreement  contains various  covenants  which,  among other
       things,  limit certain  corporate acts of the Company such as mergers and
       acquisitions;   require  the  Company  to  maintain   minimum  ratios  of
       indebtedness  to  adjusted  net income (as  defined),  current  assets to
       current  liabilities  and  indebtedness to  capitalization  (as defined);
       place  limitations on the Company's  ability to incur  additional debt or
       grant  security  interests in its assets;  and  restrict the  redemption,
       purchase or retirement of its capital stock.

            The Company  utilizes gold consignment  arrangements  that allow the
       Company to finance its gold  merchandise at rates which are less than its
       traditional bank borrowing rates. Under the consignment arrangements, the
       Company   generally  sells  to  a  consignor  the  gold  content  of  the
       merchandise that it owns and  simultaneously  has the gold consigned back
       to the Company.  The jewelry  containing the consigned gold is commingled
       with the gold jewelry owned by the Company.  The Company's  obligation to
       the consignors is based upon the price of gold at the time of the sale by
       the  Company  of  the  consigned  gold  and,  therefore,  is  subject  to
       fluctuation  based on changes in the  market  value of gold.  If the gold
       ounces in merchandise held for sale by the Company is about to be reduced
       below the amount of gold  consigned,  the Company either  repurchases the
       gold from a consignor or purchases additional gold jewelry from suppliers
       to support the amount of consigned  gold.  In the event the price of gold
       at the time of such repurchases or purchases is greater than the

<PAGE>


            price at the time the gold was originally sold to the consignor, the
       Company's  gross profit  margin will be  decreased.  The Company does not
       engage, and currently has no plans to engage, in hedging  transactions to
       protect  against  fluctuations  in the market value of gold or to lock in
       prices for future purchases. The Company does, however, manage the amount
       of gold consigned in relation to its total merchandise available for sale
       in order to  provide  the  Company  with the  flexibility  to  consign or
       repurchase gold according to seasonal  fluctuations in merchandise levels
       and sales.

            During  fiscal  1999 and 1998,  average  financing  costs  under the
       consignment  agreements  were  approximately  1.94% and 2.74% per  annum,
       respectively,  of the market  value of the gold held  under  consignment.
       Additionally,  the  current  consignment  agreements  require a letter of
       credit to support the market value of the gold  consigned to the Company.
       The  financing  cost  to  the  Company  of  the  consignment  program  is
       substantially  less than the cost that  would have been  incurred  if the
       Company  financed  the  purchase  of all of its  gold  requirements  with
       borrowings  under its revolving credit  facility.  The Company's  current
       gold consignment  arrangements are terminable by either party upon either
       30 or 45  days  notice,  depending  on the  consignor.  Gold  consignment
       programs are common in the gold jewelry industry and the Company believes
       that, if the  institutions  with which it currently has gold  consignment
       agreements were to terminate such  agreements,  it would have a number of
       opportunities to establish gold  consignment  programs with terms similar
       to its current arrangements.

            During  the last two fiscal  years,  the  Company  has  financed  an
       average of approximately 70% of the gold content of its merchandise under
       the  consignment  program.  As of March  31,  1999,  the  amount  of gold
       consigned  was 143,443  ounces with a value of $40.1  million and 119,800
       ounces with a value of $36.1  million at March 31,  1998.  The  consigned
       gold is not  included in inventory on the  Company's  balance  sheet and,
       therefore, there is no related liability recorded. If the market value of
       gold increases,  assuming the number of ounces consigned remain constant,
       the  financing  costs  incurred  by the  Company  which are  included  in
       interest expense,  and the repayment  obligations to the consignors under
       the consignment arrangements, will increase in proportion to the increase
       in the market value of gold.  Additionally,  the amount of the letters of
       credit would need to be increased to support the  increased  market value
       of the consigned gold,  thereby reducing the amount which might otherwise
       be available for cash  borrowings  under the Company's  revolving  credit
       facility.

            The Company anticipates capital expenditures in fiscal 2000 to total
       approximately  $7.1  million,  of which  approximately  $4.0  million  is
       related primarily to the construction of new stores and the renovation of
       existing stores. The Company currently  anticipates opening approximately
       40 to 65 new stores in fiscal 2000. The opening of a new store  generally
       requires  a  total  investment  of  approximately   $107,000,   including
       approximately  $70,000 of  inventory  (a  portion  of which is  generally
       financed through consignment  arrangements),  $30,000 for construction of
       the kiosk,  fixtures,  point-of-sale  register  and other  equipment  and
       supplies and $7,000 for  pre-opening  expenses  which are  expensed  when
       incurred.  The Company  believes  that the expected net cash  provided by
       operating  activities,  its gold consignment  program and bank borrowings
       under its  revolving  line of credit  facility will be sufficient to fund
       the Company's currently anticipated capital and liquidity needs.

           Seasonality

            The Company's business is highly seasonal.  Due to the impact of the
       holiday shopping season, the Company experiences a substantial portion of
       its total net sales and profitability in its third fiscal quarter (ending
       December 31st).  During the last two fiscal years, the month of December,
       on average,  has accounted for  approximately 26% of the Company's annual
       net sales and 109% of its annual income from operations.  The Company has
       generally  experienced  lower net sales in each of the first,  second and
       fourth  quarters of each fiscal year,  and lower net income or net losses
       in each of those quarters.


<PAGE>



           Quarterly Data

            Set forth below is certain summary  information  with respect to the
       Company's operations for the most recent eight fiscal quarters:
<TABLE>
<CAPTION>



                                                 Fiscal 1999                                       Fiscal 1998

                                      1st        2nd       3rd          4th          1st         2nd        3rd         4th
                                   Quarter     Quarter   Quarter      Quarter        Quarter    Quarter    Quarter     Quarter

     -----------------------------------------------------------------------------------------------------------------------------
                                                              (In thousands, except per share data)
    Statement of Income Data:

<S>                               <C>         <C>       <C>            <C>          <C>         <C>        <C>        <C>
      Net sales                   $  48,018   $  49,670 $ 101,985      $  55,474    $  42,873   $  42,877  $  89,915  $  46,463

      Gross profit(1)                21,385      22,050    50,066         24,574       18,107      18,778     45,231     20,684

      Selling, general and
       administrative expenses(1)    20,755      24,172    32,356         25,181       17,854      18,445     26,672     19,945

      Income (loss)from
        operations                      630     (2,122)    17,710          (607)          253         333     18,559        739

      Net income (loss)                 102   $ (1,764)    10,169          (864)        (297)       (153)     11,176        243

      Diluted earnings(loss) per
       share                        $  0.01    $ (0.19)   $  1.10      $  (0.09)     $ (0.03)    $ (0.01)    $  1.20    $  0.03

     -----------------------------------------------------------------------------------------------------------------------------



    Comparable Store Net Sales
      Increase (Decrease)              2.8%        0.3%    (3.1)%           3.6%         5.8%      (1.4)%       2.9%       4.8%



    As a Percentage of Net Sales:

      Gross profit(1)                 44.5%       44.4%     49.1%          44.3%        42.2%       43.8%      50.3%      44.5%

      Selling, general and
       administrative expenses(1)      43.2        48.7      31.7           45.4         41.6        43.0       29.7       42.9

      Income (loss)from
       operations                       0.1       (4.3)      17.4          (1.1)          0.6         0.8       20.6        1.6

      Net income (loss)                   -       (3.6)      10.0          (1.6)        (0.7)       (0.4)       12.4        0.5

</TABLE>

--------------------------------------------------------------------------------


(1)  Gross profit  excludes  depreciation  on kiosks.  Depreciation on kiosks is
     included in selling,  general and  administrative  expenses.  See Note 1 of
     Notes to Consolidated Financial Statements.

            If for any reason the Company's net sales were below those  normally
       expected for the third fiscal quarter,  and, in particular,  the month of
       December,  the  Company's  annual  financial  results would be materially
       adversely  affected.  The  seasonality  of the Company's  business puts a
       significant demand on working capital resources to provide for a build-up
       of  merchandise  for the  holiday  season.  Historically,  the  Company's
       working capital requirement is at its lowest level in January,  increases
       steadily through the end of November,  when it reaches its highest level,
       and declines rapidly through the holiday season.

            The Company's results of operations may fluctuate significantly from
       quarter to quarter as a result of a variety  of  factors,  including  the
       amount and timing of acquisitions and new store openings, the integration
       of recently  acquired and newly opened stores into the  operations of the
       Company, the timing of promotions, fluctuations in the price of gold, and
       changes in  national  and  regional  economic  conditions.  For  example,
       earnings from  operations in the first and second and fourth  quarters of
       fiscal 1999 and 1998 have been adversely  affected by the integration and
       assimilation  of 520 stores opened or acquired over the last three fiscal
       years.  This was due primarily to the relatively fixed nature of rent and
       other  occupancy  costs and  selling,  general and  administrative  costs
       associated with the recently acquired and newly opened stores,  which had
       a significant adverse impact on these lower net sales volume quarters.


<PAGE>



           Inflation

            The impact of inflation on the Company's  operating results has been
       moderate in recent years,  reflecting the relatively  moderate  levels of
       inflation which have been experienced in the United States. The Company's
       leases for stores typically  provide for a percentage rent based on store
       sales and, therefore, to the extent retail prices increase,  there may be
       an increase in occupancy  costs.  Generally,  the Company prices its gold
       merchandise  based on the price it paid suppliers for the merchandise and
       does not reprice the items based upon normal fluctuations in the price of
       gold.  While  inflation  has not had a  material  impact  upon  operating
       results,  there can be no assurance that the Company's  business will not
       be affected by inflation in the future.

           Year 2000 Compliance

            The  information  set forth in this section is a Year 2000 Readiness
       Disclosure  as  defined  in  the  Year  2000  Information  Readiness  and
       Disclosure Act.

            The  Company  is  aware  of  "Year  2000"  issues  existing  in  the
       programming  code  of  some  information  technology  ("IT")  and  non-IT
       systems. The Year 2000 issue may arise because many hardware and software
       systems only use two digits to  represent  the year.  As a result,  these
       systems may not be able to process  dates  beyond  1999,  which may cause
       errors or failures in IT or non-IT systems.

            The Company  relies  significantly  on both IT and non-IT systems in
       its  retail  outlets  as  well  as  at  its  corporate  headquarters  and
       distribution center. These systems include hardware and software that the
       Company uses to conduct its operations,  analyze business performance and
       safeguard  assets.  The Company is currently  performing a  comprehensive
       review of these systems in  preparation  for the Year 2000. The Company's
       strategy for  addressing  Year 2000  compliance is to replace or renovate
       all critical systems identified as non-compliant by a target date of July
       31, 1999 followed by final testing and remediation by September 30, 1999.
       The first phase of this approach involves identifying all critical IT and
       non-IT  systems and making an initial  assessment  of each as either Year
       2000 compliant or  non-compliant.  The Company is substantially  complete
       with this  phase of its Year 2000  review and has  nearly  completed  the
       replacement   or   renovation   of   systems   which  were  found  to  be
       non-compliant. The process of testing the compliance of systems initially
       assessed as compliant,  as well as the replaced or renovated systems, has
       also  begun  and  is  progressing  according  to the  Company's  original
       schedule.  To date,  the  Company  has met all  costs  of its  Year  2000
       remediation  efforts with existing internal staff resources and has spent
       less than  $500,000 on hardware  and software  purchased to  specifically
       address  Year  2000  issues.  The  cost of  these  efforts  has not  been
       separately  tracked or allocated  and,  accordingly,  the Company  cannot
       precisely determine the expense incurred. The Company does not anticipate
       future Year 2000 costs will be material and will continue to use internal
       staff supplemented by external resources if necessary.

            The Company  expects its own Year 2000  project to be completed on a
       timely  basis.  However,  there can be no  assurance  that the systems of
       other  companies  on  which  the  Company's  systems  also  rely  will be
       compliant.  The Company is seeking  confirmation from its primary vendors
       that they are  developing  and  implementing  plans to  become  Year 2000
       compliant.  However,  there can be no assurance that the systems of third
       parties,  which are not within the control of the Company,  will function
       properly.  The  failure  of  certain  primary  vendors  to be  Year  2000
       compliant may have an adverse  impact on the Company's  performance.  The
       Company  is  developing  contingency  plans  as part  of its  remediation
       efforts and the Company  expects  such plans to be completed by September
       30, 1999.



<PAGE>


            While the Company  continues  to believe  that the Year 2000 matters
       discussed  above  will  not  have a  material  impact  on  its  business,
       financial  condition  or results  of  operations,  it  remains  uncertain
       whether or to what extent the Company may be affected.

           Recent Accounting Pronouncements

            In June  1998,  the  Financial  Accounting  Standards  Board  issued
       Statement of Financial  Accounting  Standards (SFAS) No. 133,  Accounting
       for  Derivative  Instruments  and  Hedging  Activities.   This  statement
       establishes   accounting   and   reporting   standards   for   derivative
       instruments,  including certain derivative  instruments embedded in other
       contracts  (collectively  referred  to as  derivatives),  and for hedging
       activities. This statement is effective for all fiscal quarters of fiscal
       years beginning after June 15, 1999,  however,  the Financial  Accounting
       Standards  Board has  proposed  a one year delay in  implementation.  The
       Company  does  not  anticipate  adoption  of this  standard  will  have a
       material  impact on the  Company's  financial  condition  or  results  of
       operations.

            In March 1998, the AICPA Accounting  Standards  Executive  Committee
       issued  Statement  of Position  (SOP) 98-1,  Accounting  for the Costs of
       Computer  Software  Developed  or Obtained  for  Internal  Use.  SOP 98-1
       requires  that certain costs  related to the  development  or purchase of
       internal-use  software be  capitalized  and amortized  over the estimated
       useful life of the software.  The SOP also requires that costs related to
       the preliminary stage and the post-implementation/operations  stage of an
       internal-use   computer  software  development  project  be  expensed  as
       incurred.  This statement is effective for fiscal years  beginning  after
       December 15, 1998. The Company has adopted this standard  effective April
       1, 1998.  Adoption of this standard did not have a material impact on the
       Company's financial condition or results of operations for fiscal 1999.

      Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

           Interest Rate Risk

            The  Company's  primary  market  risk  exposure  is from  changes in
       interest rates,  The Company's policy is to manage interest rate exposure
       through  the  use of a  combination  of  fixed  and  floating  rate  debt
       instruments  and,  in fiscal  1999,  an  interest  rate  swap  agreement.
       Generally,  the  Company  seeks to match  the  terms of its debt with its
       purpose.  The  Company  uses a  variable  rate line of credit to  provide
       working  capital  for  operations  and  inventory  build-up  prior to the
       holiday selling season.  Construction  and  improvements to the Company's
       headquarters  and  warehouse  and  distribution  center are financed with
       long-term,  fixed rate notes. In fiscal 1999, the Company entered into an
       interest  rate  swap  agreement  related  to  a  new  long-term  note  to
       effectively  convert it from a variable rate note to a fixed rate note. A
       standard  interest  rate swap  agreement  involves the payment of a fixed
       rate times a notional amount by one party in exchange for a floating rate
       times the same notional from another  party.  The Company  originated the
       long-term note as a variable rate instrument in anticipation of a decline
       in interest rates,  then used the interest rate swap agreement to fix the
       rate.  The  counterparty  to the swap  agreement is one of the  Company's
       primary lenders under its revolving line of credit.

            The table below  summarizes  the Company's  market risks  associated
       with  long-term debt  obligations  and its interest rate swap as of March
       31, 1999. For long-term debt  obligations,  the table presents cash flows
       related to  payments  of  principal  and  interest  by  expected  year of
       maturity.  For the interest  rate swap,  the table  reflects the notional
       amount  underlying  the  interest  rate  swap by year  of  maturity.  The
       notional amount is used to calculate contractual payments to be exchanged
       and are not actually paid or received.  Fair values were  computed  based
       upon  discounted  cash flows using market interest rates as of the end of
       the period.


<PAGE>



<TABLE>
<CAPTION>


                        Expected Fiscal Year of Maturity
                             --------------------------------------------------------------------
(000's)                        2000        2001       2002       2003       2004     Thereafter     Total      Fair Value

Fixed Rate Debt:

<S>                           <C>        <C>        <C>        <C>      <C>          <C>         <C>             <C>
   Long-term notes              $ 425      $ 446      $ 470      $ 500    $ 529        $ 3,431     $ 5,801         $ 5,801
   Interest expense             $ 336      $ 311      $ 283      $ 254    $ 222          $ 857     $ 2,263
   Average interest rate        6.02%       6.02%     6.02%      6.00%     5.97%          5.83%

Variable Rate Debt:

   Revolving line of credit
                                 -        $19,800       -          -          -           -        $ 19,800       $ 19,800
   Interest expense           $ 1,253       $ 418       -          -          -           -         $ 1,671
   Average interest rate        6.33%     6.33%

Interest Rate Swaps:
   1 Swap Receive Variable
     Pay Fixed                 $ 125      $ 120       $ 125      $ 130      $ 140      $ 1,925     $ 2,565          $ (49)
     Variable Receive Rate
     = 5.05%
     Pay Rate = 6.23%

</TABLE>


           Limitations of the tabular presentation

            As the table  incorporates  only those  interest rate risk exposures
       that exist at March 31,  1999,  it does not consider  those  exposures or
       positions  that could arise  after that date.  In  addition,  actual cash
       flows of  financial  instruments  may differ  materially  from cash flows
       presented in the table due to future  fluctuations  in interest rates and
       Company debt levels.

           Commodity risk

            For a discussion of the commodity risk associated with the Company's
       holdings of gold  merchandise  see Item 7.  "Management's  Discussion and
       Analysis - Liquidity and Capital Resources".


<PAGE>



      Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                                                        Page
           Independent Auditors' Report                                  30

           Consolidated Balance Sheets at March 31, 1999 and 1998        31

           Consolidated Statements of Income for the Years ended
           March 31, 1999, 1998 and 1997                                 32


           Consolidated Statements of Changes in Stockholders'
           Equity for the Years ended March 31, 1999, 1998 and 1997      33

           Consolidated Statements of Cash Flows for the Years ended
           March 31, 1999, 1998 and 1997                                 34

           Notes to Consolidated Financial Statements                    36


<PAGE>




                                  Independent Auditors' Report



      The Board of Directors
      Piercing Pagoda, Inc.:

            We have  audited the  accompanying  consolidated  balance  sheets of
       Piercing  Pagoda,  Inc. and  subsidiary as of March 31, 1999 and 1998 and
       the related consolidated  statements of income,  changes in stockholders'
       equity  and cash  flows  for each of the years in the  three-year  period
       ended March 31, 1999.  These  consolidated  financial  statements are the
       responsibility  of the Company's  management.  Our  responsibility  is to
       express an opinion on these  consolidated  financial  statements based on
       our audits.

            We  conducted  our  audits in  accordance  with  generally  accepted
       auditing standards.  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
       management,  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 consolidated  financial  statements referred to
       above present fairly, in all material respects, the financial position of
       Piercing  Pagoda,  Inc. and  subsidiary as of March 31, 1999 and 1998 and
       the  results  of their  operations  and their  cash flows for each of the
       years in the three-year  period ended March 31, 1999, in conformity  with
       generally accepted accounting principles.

                                                KPMG  LLP
      Allentown, Pennsylvania
      May 10, 1999




<PAGE>




--------------------------------------------------------------------------------
<TABLE>
<CAPTION>


      PIERCING PAGODA, INC.
      Consolidated Balance Sheets
      March 31,
      (In thousands, except share data)
      ------------------------------------------------------------------
      Assets                                        1999        1998
      ------------------------------------------------------------------
      Current assets:
<S>                                               <C>         <C>
         Cash                                       $ 4,068     $ 2,699
         Accounts receivable                          4,674       1,454
         Inventory                                   53,685      53,149
         Deposits for inventory purchases               707         546
         Prepaid expenses and other current           1,337       1,058
         assets
         Prepaid income taxes                           131         215
         Deferred income taxes                        2,213       1,972

      ------------------------------------------------------------------
      Total current assets                           66,815      61,093
      ------------------------------------------------------------------

      Property, fixtures and equipment, net          34,293      27,215
      Goodwill, net                                  20,199       6,296
      Other assets, net                               1,993       1,495

      ------------------------------------------------------------------
                                                  $ 123,300    $ 96,099
      ------------------------------------------------------------------

      Liabilities and Stockholders' Equity
      ------------------------------------------------------------------
       Current liabilities:
         Accounts payable                           $ 3,934     $ 3,232
         Current installments of long-term debt
            and revolving line of credit                432         247
         Income taxes payable                           125         889
         Accrued expenses and other current          14,753      12,423
         liabilities

       -----------------------------------------------------------------
       Total current liabilities                     19,244       16,791
       -----------------------------------------------------------------

      Long-term debt, less current installments      25,169       9,742
      Deferred income taxes                           3,476       2,535
      Other liabilities                                 920         703

      ------------------------------------------------------------------
      Total liabilities                              48,809      29,771
      ------------------------------------------------------------------

      Commitments and contingencies
      Stockholders' equity
         Preferred stock, par value $.01 per
         share,                                           -           -
           authorized 3,000,000 shares. None
         issued.
         Common stock, par value $.01 per share,
         authorized
         15,000,000 shares. Issued 9,133,901
         and                                             92         91
         9,087,616 shares at March 31, 1999 and
         1998, respectively.
         Additional paid-in capital                  40,906     40,387
         Retained earnings                           33,493     25,850

      ------------------------------------------------------------------
      Total stockholders' equity                     74,491     66,328
      ------------------------------------------------------------------
                                                  $ 123,300    $ 96,099
      ------------------------------------------------------------------
</TABLE>

      See accompanying notes to consolidated financial statements.


<PAGE>


<TABLE>
<CAPTION>

      PIERCING PAGODA, INC.
      Consolidated  Statements  of Income  Years ended March 31, (In  thousands,
      except per share data)
      -----------------------------------------------------------------------
                                                   1999      1998     1997
      -----------------------------------------------------------------------

<S>                                             <C>        <C>      <C>
      Net sales                                 $ 255,147  $222,128 $166,885

      Cost of goods sold and occupancy expenses
       (excluding depreciation on kiosks and
      store fixtures)                            137,072    119,328   92,308
      -----------------------------------------------------------------------
      Gross profit                               118,075    102,800   74,577

      Selling, general and administrative
      expenses                                   102,464     82,916   60,845
         (including depreciation on kiosks and
      store fixtures)
      -----------------------------------------------------------------------
      Income from operations                      15,611     19,884   13,732

      Interest and other income                      367        562      386
      Interest expense                             3,110      2,896    2,208
      -----------------------------------------------------------------------
      Earnings before income taxes                12,868     17,550   11,910

      Income taxes                                 5,225      6,581    4,372
      -----------------------------------------------------------------------
      Net income                                 $ 7,643   $ 10,969  $ 7,538
      -----------------------------------------------------------------------

      Basic earnings per share                     $ 0.84     $ 1.25   $ 0.96
      -----------------------------------------------------------------------
      Diluted earnings per share                   $ 0.82     $ 1.21   $ 0.93
      -----------------------------------------------------------------------

</TABLE>


      See accompanying notes to consolidated financial statements.



<PAGE>


<TABLE>
<CAPTION>

      PIERCING PAGODA, INC.
      Consolidated Statements of Changes in Stockholders' Equity

      Years ended March 31,

      (In thousands, except number of shares)

                                                                     Additional
                                                 Common stock          paid-in      Retained
                                              Shares      Amount       capital      earnings     Total
         ---------------------------------- ------------ ---------- -------------- ----------- -----------
<S>                                         <C>               <C>     <C>           <C>        <C>
         Balance - March 31, 1996           7,860,439         $ 79    $ 22,157       $ 7,343    $ 29,579
         Share transactions under
         employee stock plans,
         including tax benefit                  50,552           -         405             -         405
         Net income                                 -            -           -         7,538       7,538
         ---------------------------------- ------------ ---------- -------------- ----------- -----------
         Balance - March 31, 1997           7,910,991         $ 79    $ 22,562      $ 14,881    $ 37,522
         Share transactions under
         employee stock plans,
         including tax benefit                  55,375           -         648             -         648
         Secondary public offering           1,121,250          12      17,177             -      17,189
         Net income                                 -            -           -        10,969      10,969
         ---------------------------------- ------------ ---------- -------------- ----------- -----------
         Balance - March 31, 1998           9,087,616         $ 91    $ 40,387      $ 25,850    $ 66,328
         Share transactions under
         employee stock plans,
         including tax benefit                  46,285           1         519             -         520
         Net income                                 -            -           -         7,643       7,643
         ---------------------------------- ------------ ---------- -------------- ----------- -----------
         Balance - March 31, 1999           9,133,901         $ 92    $ 40,906      $ 33,493    $ 74,491
         ---------------------------------- ------------ ---------- -------------- ----------- -----------
</TABLE>

      See accompanying notes to consolidated financial statements.


<PAGE>


<TABLE>
<CAPTION>

      PIERCING PAGODA, INC.

      Consolidated Statements of Cash Flows

      Years ended March 31,

      (In thousands)

                                                                      1999           1998         1997
         ------------------------------------------------------ --------------- ------------- -----------

         Cash flows from operating activities:
<S>                                                                 <C>           <C>           <C>
            Net income                                              $ 7,643       $ 10,969      $ 7,538
            Adjustments  to  reconcile  net  income  to  net  cash  provided  by
             operating activities:
                Depreciation and amortization                         7,030          5,402        3,636
                Loss on disposal of property, fixtures and
                 equipment                                              337            141           93
                Other changes in other assets                            76           (101)         (97)
                Deferred income taxes                                   833            732          335
                Changes in operating assets and  liabilities,  net of effects of
                  acquisitions:
                    Accounts receivable                              (3,688)           779       (1,428)
                    Inventory                                         1,274         (7,673)     (12,951)
                    Deposits for inventory purchases                   (161)           304         (489)
                    Prepaid expenses and other current
                                                                       (277)          (301)        (289)
                    Prepaid income taxes                                 84          1,279         (514)
                    Accounts payable                                    702           (436)       1,857
                    Accrued expenses and other current
                      liabilities                                     2,130          2,882        2,697
                    Income taxes payable                               (671)         1,019            -
                    Other liabilities                                  (283)          (133)          72

         ------------------------------------------------------ --------------- ------------- -----------
         Net cash provided by operating activities                   15,029         14,863          460
         ------------------------------------------------------ --------------- ------------- -----------

         Cash flows from investing activities:
            Additions to property, fixtures and equipment           (12,570)        (9,066)      (9,724)
            Payments for purchases of businesses                    (15,583)        (7,980)      (8,010)
            Proceeds from disposal of property, fixtures and
              equipment                                                   -             67           22
            Other changes in other assets, net                         (100)           (25)         574

         ------------------------------------------------------ --------------- ------------- -----------
         Net cash used in investing activities                      (28,253)       (17,004)     (17,138)
         ------------------------------------------------------ --------------- ------------- -----------

</TABLE>




<PAGE>


<TABLE>
<CAPTION>

      PIERCING PAGODA, INC.

      Consolidated Statements of Cash Flows - Continued

      Years ended March 31,

      (In thousands)
                                                                       1999           1998         1997
         ------------------------------------------------------ --------------- ------------- -----------

         Cash flows from financing activities:
<S>                                                                 <C>            <C>          <C>
            Repayments of long-term debt                               (253)          (235)        (216)
            Revolving line of credit, net                            11,058        (16,700)      18,480
            Proceeds from issuance of long-term debt                  3,565              -          400
            Debt issuance fees paid                                    (204)           (51)         (39)
            Proceeds from issuance of common stock, net                   -         17,189            -
            Net proceeds from the issuance of stock under
             employee share plans                                       427            518          308

         ------------------------------------------------------ --------------- ------------- -----------
         Net cash provided by financing activities                   14,593            721       18,933
         ------------------------------------------------------ --------------- ------------- -----------
         ------------------------------------------------------ --------------- ------------- -----------
         Net increase (decrease) in cash                              1,369         (1,420)       2,255

         Cash at beginning of period                                  2,699          4,119        1,864

         ------------------------------------------------------ --------------- ------------- -----------
         Cash at end of period                                      $ 4,068        $ 2,699      $ 4,119
         ------------------------------------------------------ --------------- ------------- -----------

         Supplemental disclosures of cash flow information:
            Cash paid during the period for:
              Interest                                              $ 3,053        $ 2,877      $ 2,100
              Income taxes, net                                     $ 5,072        $ 6,669      $ 4,551
         ------------------------------------------------------ --------------- ------------- -----------

</TABLE>


      Supplemental disclosure of operating activities:

            During each of the years ended March 31,  1999,  1998 and 1997,  the
       Company entered into noncompetition agreements for $500,000, $300,000 and
       $300,000, respectively.


      See accompanying notes to consolidated financial statements.



<PAGE>


PIERCING PAGODA, INC.

Notes to Consolidated Financial Statements (continued)

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PIERCING PAGODA, INC.

Notes to Consolidated Financial Statements
March 31, 1999, 1998 and 1997
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------


(1)   Statement of Significant Accounting Policies

           Principles of Consolidation

            The consolidated  financial  statements  include the accounts of the
       Company  and its  wholly  owned  subsidiaries.  Significant  intercompany
       accounts and transactions have been eliminated in consolidation.

           Operations

            The Company is a national retailer of gold jewelry primarily through
       kiosk stores in enclosed  shopping  malls.  The Company  operates  stores
       primarily under the names Piercing  Pagoda,  Plumb Gold and Silver & Gold
       Connection. At March 31, 1999, the Company operated 931 stores, including
       31  in-line  stores.  The  Company's  home  office  provides  centralized
       administrative  and  warehousing  services  and  assembles  some  of  the
       products sold at its stores.

            In  addition  to its own retail  units,  the  Company  had  licensed
       operations at 22 stores and three retail cart  locations in Florida until
       August 31, 1998. The Company  provided the licensee with  merchandise and
       promotional and administrative services.  Income from licensee operations
       was based on a percentage of the  licensee's  sales and earnings from the
       sale of  merchandise  to the  licensee.  On August 31, 1998,  the Company
       acquired  all of the  outstanding  common stock of the licensee and began
       operating the stores as its retail outlets. See Note 5.

           Sales

            Sales  consist  primarily  of  net  sales  to the  Company's  retail
       customers at its kiosk and in-line stores. Also included in sales through
       August 31, 1998, are wholesale  sales to the Company's  licensee.  At the
       time of each retail sale, the Company  accrues the estimated costs of its
       "buy-five-get-one-free"  jewelry club  promotional  program.  The Company
       also accrues the estimated costs associated with its "lifetime guarantee"
       program for subsequent customer returns due to manufacturer's  defects in
       the  jewelry.  All  other  returns  have  an  immaterial  effect  on  the
       consolidated financial statements.

           Accounts Receivable

            The Company's accounts receivable consist principally of receivables
       from  credit card  companies  and  merchandise  credits  receivable  from
       vendors.

           Inventory and Cost of Goods Sold

            Inventories  are  stated  at the  lower of cost or  market.  Cost is
       determined  by  the  first-in,   first-out  (FIFO)  method.  The  Company
       purchases  gold  merchandise  and sells the gold  content of a portion of
       such   merchandise   to  financial   institutions   ("consignors")   that
       simultaneously  consign the gold back to the Company.  In accordance with
       the terms of the  agreements,  the Company has the option of repaying the
       consignors in an  equivalent  number of ounces of gold or cash based upon
       the then quoted market price of gold.


<PAGE>



            The Company has excluded the consigned  gold content of  merchandise
       in its possession  from its inventory  because it does not yet have title
       to the gold which it holds under its consignment arrangements.  This gold
       has been  manufactured into merchandise for sale and the costs associated
       with this manufacturing process are included in inventory.

            Cost of  goods  sold  and  occupancy  expenses  include  the cost of
       merchandise,  rent  and  occupancy  expenses  and the  cost of  preparing
       merchandise  for  sale.  A major  component  of the  cost of  merchandise
       includes the previously  consigned gold after it has been  repurchased by
       the Company from the consignors.

            In fiscal  1999 one vendor  accounted  for 11% of total  merchandise
       purchased.   In  1998,  no  vendors  supplied  more  than  10%  of  total
       merchandise  purchased.   In  fiscal  1997,  two  vendors  accounted  for
       approximately 11% and 10%,  respectively,  of total merchandise purchased
       by the Company.

           Property, Fixtures and Equipment

            Property, fixtures and equipment are stated at cost. Depreciation is
       computed over the estimated  useful lives of the related assets using the
       straight-line method.

                 Depreciable lives are as follows:


                   Furniture and fixtures               3-10 years
                   Building and improvements            10-39 years
                   Kiosks                               5-10 years
                   Computer equipment, software and
                   other equipment                      5-7 years

            Substantially all depreciation  expense,  including  depreciation on
       kiosks, is included in selling, general and administrative expense rather
       than  occupancy  expense,  since the  Company  believes  that the primary
       function of its kiosks is to display  merchandise for sale.  Depreciation
       expense for kiosks was  $3,090,000,  $2,508,000  and $1,890,000 in fiscal
       1999, 1998, and 1997, respectively.

            Maintenance and repairs are expensed as incurred.  Expenditures  for
       renovations are capitalized.  Upon the sale, replacement or retirement of
       property,  fixtures and equipment,  the cost and accumulated depreciation
       thereon are removed from the accounts.  Gain or loss on sale,  retirement
       or other disposition of property,  fixtures and equipment is reflected in
       earnings.

           Goodwill

            Costs in  excess  of fair  value of net  assets  acquired  are being
       amortized on a  straight-line  basis over periods of up to fifteen years.
       The Company  assesses  the  recoverability  of  goodwill  by  determining
       whether  the  remaining   balance  can  be  recovered  through  projected
       undiscounted future cash flows.


<PAGE>



           Leasing Expenses

            The Company  recognizes lease expense on a straight-line  basis over
       the term of the lease when lease agreements  provide for increasing fixed
       rentals.  The  difference  between  lease expense  recognized  and actual
       payments  made is  included  in  other  liabilities  on the  consolidated
       balance sheets.

           Preopening Costs and Advertising Expense

            Preopening  and  start-up  costs  for  new  stores  are  charged  to
       operations as incurred. Costs of advertising and sales promotion programs
       are charged to operations when incurred.

           Income Taxes

            Income taxes are accounted for under the asset and liability method.
       Deferred  income tax assets and liabilities are recognized for the future
       tax  consequences  attributable  to  differences  between  the  financial
       statement  carrying  amounts of existing assets and their  respective tax
       bases.  Deferred  income taxes are recorded at the enacted rates expected
       to apply to  taxable  income in the  periods  in which the  deferred  tax
       liability or asset is expected to be settled or realized. The effect of a
       change in tax rate is  recognized as income or expense in the period that
       includes the enactment date.

           Net Income Per Share

            Basic earnings per share calculations are determined by dividing net
       income  by  the  weighted  average  number  of  shares  of  common  stock
       outstanding during the period.  Diluted earnings per share are determined
       by dividing net income by the weighted average number of shares of common
       stock and dilutive common stock equivalents outstanding.

            The following weighted average number of shares of common stock were
       used in the  calculations  for earnings per share.  The diluted  weighted
       average  number of shares  includes  the net shares  that would be issued
       upon exercise of  outstanding  stock  options,  using the treasury  stock
       method (in thousands).
<TABLE>
<CAPTION>

                              Years ended March 31,
                                               --------------------------
                                                  1999    1998     1997
      -------------------------------------------------------------------
<S>                                             <C>      <C>     <C>
      Basic                                     9,119    8,765   7,886
      Dilutive effect of outstanding stock
        options, using the treasury stock         212      297     198
        method
      -------------------------------------------------------------------
      Diluted                                   9,331    9,062   8,084
      -------------------------------------------------------------------
</TABLE>


           Use of Estimates

            Management  of the  Company  has  made a  number  of  estimates  and
       assumptions  relating to the reporting of assets and  liabilities and the
       disclosure  of  contingent   assets  and  liabilities  to  prepare  these
       consolidated  financial  statements in conformity with generally accepted
       accounting principles. Actual results could differ from those estimates.


<PAGE>



           Stock Option Plan

            The Company has elected to continue to account for its stock  option
       plan in accordance  with the  provisions of Accounting  Principles  Board
       ("APB")  Opinion No. 25,  Accounting  for Stock  Issued to  Employees  as
       permitted by Statement of  Financial  Accounting  Standards  ("SFAS") No.
       123,   Accounting  for   Stock-Based   Compensation   ("SFAS  No.  123").
       Accordingly,  compensation  expense is recorded on the date of grant only
       if the market price of the underlying  stock exceeds its exercise  price.
       However,  pro forma  disclosure  of net income and  earnings per share is
       required under SFAS No. 123 with  compensation  expense for the Company's
       stock option plan determined based on the fair value method.

           Recent Accounting Pronouncements

            In June  1998,  the  Financial  Accounting  Standards  Board  issued
       Statement of Financial  Accounting  Standards (SFAS) No. 133,  Accounting
       for  Derivative  Instruments  and  Hedging  Activities.   This  statement
       establishes   accounting   and   reporting   standards   for   derivative
       instruments,  including certain derivative  instruments embedded in other
       contracts  (collectively  referred  to as  derivatives),  and for hedging
       activities. This statement is effective for all fiscal quarters of fiscal
       years  beginning  after June 15, 1999.  The Company  does not  anticipate
       adoption of this  standard  will have a material  impact on the Company's
       financial condition or results of operations.


            In March 1998, the AICPA Accounting  Standards  Executive  Committee
       issued  Statement  of Position  (SOP) 98-1,  Accounting  for the Costs of
       Computer  Software  Developed  or Obtained  for  Internal  Use.  SOP 98-1
       requires  that certain costs  related to the  development  or purchase of
       internal-use  software be  capitalized  and amortized  over the estimated
       useful life of the software.  The SOP also requires that costs related to
       the preliminary stage and the post-implementation/operations  stage of an
       internal-use   computer  software  development  project  be  expensed  as
       incurred.  This statement is effective for fiscal years  beginning  after
       December 15, 1998. The Company has adopted this standard  effective April
       1, 1998.  Adoption of this standard did not have a material impact on the
       Company's financial condition or results of operations for fiscal 1999.


           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.   Stockholders'  equity  has  been  restated  to  give  retroactive
       recognition to the stock split for all periods presented by reclassifying
       from  additional  paid-in  capital  to common  stock the par value of the
       additional shares arising from the split. In addition,  all share and per
       share amounts have been restated to reflect the stock split.


<PAGE>



(2)    Common Stock Offering

            On June 30,  1997,  the Company  completed  a secondary  offering of
       975,000  shares of its common  stock.  The  transaction  resulted  in net
       proceeds  (after   underwriting   discounts,   commissions  and  offering
       expenses) to the Company of approximately $14.9 million which was used to
       repay  indebtedness  under  the  Company's   revolving  line  of  credit.
       Subsequently,  in July 1997, the  underwriters of the offering  exercised
       their option to purchase an additional  146,250  shares of stock from the
       Company  resulting  in  additional  net  proceeds of  approximately  $2.3
       million.

(3)    Gold Consignment Agreements

            In connection with the acquisition of certain inventory, the Company
       maintains  gold   consignment   agreements.   In  accordance  with  these
       consignment  agreements,   title  to  the  gold  remains  with  the  gold
       consignors  until  purchased by the Company.  At March 31, 1999, 1998 and
       1997, the Company had consigned  143,443,  119,800,  and 88,300 ounces of
       gold,   respectively,   with  values  of  $40,085,000,   $36,060,000  and
       $30,749,000,  respectively.  The purchase price per ounce is based on the
       Second  London  Gold  Fixing.  This  gold  was  generally  in the form of
       merchandise for sale held by the Company at its offices or in its stores.
       Consigned  gold is not  included  in  inventory,  and there is no related
       liability recognized.

            Included  in interest  expense  for the years ended March 31,  1999,
       1998 and 1997 are  consignment  fees of $796,000,  $912,000 and $620,000,
       respectively, based on fee rates of approximately 1.94%, 2.74% and 2.45%,
       respectively,  of the value of consigned gold. The fee rates are adjusted
       periodically  by the consignors  upon giving seven to thirty days advance
       notice  to  the  Company.  The  gold  financing   arrangements  could  be
       terminated  by either the Company or the lender on 30 or 45 days  notice,
       depending on the consignor.

(4)   Property, Fixtures and Equipment

            A summary  of major  classes of  property,  fixtures  and  equipment
       follows (in thousands):
<TABLE>
<CAPTION>

                                    March 31,
                                                   ----------------------
                                                      1999        1998
      -------------------------------------------------------------------
<S>                                                  <C>         <C>
      Land                                             $ 688       $ 688
      Furniture and fixtures                           5,043       3,881
      Kiosks                                          30,681      24,043
      Building and improvements                        7,283       5,413
      Computer   equipment, software and other
       equipment                                      11,622       9,326
      -------------------------------------------------------------------
                                                      55,317      43,351
      Less accumulated depreciation and amortization  21,024      16,136
      -------------------------------------------------------------------
                                                     $34,293     $27,215
      -------------------------------------------------------------------
</TABLE>



<PAGE>



(5)   Goodwill and Other Assets

           Goodwill and other assets are summarized as follows (in thousands):
<TABLE>
<CAPTION>

                                    March 31,
                                                    ---------------------
                                                       1999        1998
      -------------------------------------------------------------------
<S>                                                 <C>         <C>
     Goodwill(net of accumulated amortization of
      $1,866 and $735 at March 31, 1999 and 1998,
         respectively)                              $ 20,199    $ 6,296
      -------------------------------------------------------------------

      Other Assets:
        Noncompetition agreements (net of
         accumulated amortization of $303 and
         $125 at March 31, 1999 and 1998,
         respectively)                                  797         475
        Deferred expenses, principally long-term
         maintenance agreements                         455         416
        Cash surrender value of officers life
         insurance                                      487         415
        Other                                           254         189
      -------------------------------------------------------------------
                                                    $ 1,993     $ 1,495
      -------------------------------------------------------------------
</TABLE>


            On August 31, 1998,  the Company  purchased  all of the  outstanding
       common stock of Piercing Pagoda of Florida,  Inc. ("PPF"),  the Company's
       sole licensee and operator of 22 locations  under the Company's  Piercing
       Pagoda and Plumb Gold trade names.  The purchase  agreement  provides for
       the  payment of  approximately  $11.4  million,  subject to certain  post
       closing  adjustments,  for all of the outstanding common stock of PPF and
       the  payment of  $100,000  per year for five  years  under the terms of a
       non-competition   agreement   with  the   former   shareholder   of  PPF.
       Additionally,  the former  shareholder  of PPF entered into an employment
       agreement  with the Company as a corporate  vice  president  at an annual
       salary  of  $125,000.  The cost in  excess  of the fair  value of the net
       assets acquired over their fair value of approximately  $11.1 million has
       been  recorded  as goodwill  and is being  amortized  over 15 years.  The
       acquisition  was accounted for as a purchase and the net assets  acquired
       and operations of these kiosks are included in the Company's consolidated
       financial statements from the date of acquisition.



<PAGE>


            The following unaudited pro forma financial information presents the
       combined  results  of  operations  of  the  Company  and  PPF  as if  the
       acquisition  had  occurred as of the  beginning  of fiscal 1998 and 1999,
       after giving effect to certain  adjustments,  including  amortization  of
       goodwill,  increased  interest expense on debt related to the acquisition
       and related income tax effects. The pro forma financial  information does
       not  necessarily  reflect  the  results  of  operations  that  would have
       occurred had the Company and PPF  constituted a single entity during such
       periods.

<TABLE>
<CAPTION>

                               Twelve months ended
                                    March 31,
                                    1999 1998
    -----------------------------------------------------------------------
                            (In thousands, except per
                                   share data)

<S>                                             <C>           <C>
    Net sales                                   $ 257,154     $ 226,219
    -----------------------------------------------------------------------

    Net income                                   $ 6,926      $ 10,275
    -----------------------------------------------------------------------

    Diluted income per share                       $ 0.74       $ 1.15
    -----------------------------------------------------------------------
</TABLE>


            In July 1998,  the Company  purchased  104 of the retail  outlets of
       Sedgwick Sales, Inc., an independent kiosk retailer  operating  primarily
       under the name Golden Chain Gang ("GCG"). The purchase agreement provides
       for the payment of $3.0  million for these  kiosk  locations,  leases and
       store fixtures. No inventory was acquired. The cost in excess of the fair
       value of the net assets acquired of  approximately  $2.6 million has been
       recorded as goodwill and is being amortized over 15 years. After a review
       of the  initial  sales  results  and future  sales  potential  of the 104
       locations acquired from GCG,  management  announced on September 28, 1998
       that it would close 30 of these locations by March 31, 1999. See Note 6.

            In  April  1997,  the  Company   purchased   substantially  all  the
       operations of a company which  operated  retail  jewelry kiosks under the
       name  Silver  & Gold  Connection  for  approximately  $7.8  million.  The
       acquisition  was accounted for as a purchase and the net assets  acquired
       and operations of these kiosks are included in the Company's consolidated
       financial statements from the date of acquisition.  The cost in excess of
       the fair value of net assets acquired of  approximately  $4.7 million has
       been  recorded  as  goodwill  and is being  amortized  over 15 years.  In
       connection   with  the   acquisition,   the   Company   entered   into  a
       noncompetition  agreement with the principal stockholder of Silver & Gold
       Connection  which provides for annual payments of $60,000 to be made over
       a five-year  period.  The effect of this  transaction was not material to
       the results of operations of the Company.



<PAGE>


            In January  1997,  the Company  purchased  substantially  all of the
       operations  of the  companies  operating  retail  kiosks  under the names
       Gemstone  Jewelry,  Gold-n-Gifts  and  Facets  of  Nature  (collectively,
       "Gemstone"),  which sold gold and silver  jewelry,  pewter and other gift
       items, for approximately $8.0 million.  The acquisition was accounted for
       as a purchase and the assets  acquired and operations of these kiosks are
       included in the Company's consolidated financial statements from the date
       of  acquisition.  The  cost in  excess  of the fair  value of net  assets
       acquired of approximately  $1.7 million has been recorded as goodwill and
       is being amortized over 15 years. In connection with the acquisition, the
       Company  entered  into a  noncompetition  agreement  with  the  principal
       stockholder of Gemstone which provides for annual  payments of $60,000 to
       be made over a five-year  period.  The effect of this transaction was not
       material to the results of operations of the Company.

 (6) Accrued expenses and other current liabilities

            Accrued  expenses and other current  liabilities  are  summarized as
       follows (in thousands):

<TABLE>
<CAPTION>

                                    March 31,
                                                    ---------------------
                                                       1999        1998
      -------------------------------------------------------------------
<S>                                                 <C>         <C>
      Accrued payroll, vacation and related taxes   $ 6,254     $  5,230
      Sales tax payable                                 719         794
      Accrued rents payable                           1,089         938
      Liability under jewelry club program              989       1,109
      Liability under lifetime guarantee program      1,321       1,411
      Accrued store closure costs                     1,250           -
      Other accrued expenses                          3,131       2,941
      -------------------------------------------------------------------
                                                    $ 14,753    $ 12,423
      -------------------------------------------------------------------
</TABLE>

            Included in accrued expenses at March 31, 1999 is approximately $1.2
       million  representing the estimated closure costs for stores closed or to
       be closed at March 31, 1999. These costs principally consist of estimated
       outstanding lease  obligations  associated with the 79 stores the Company
       closed in fiscal 1999 and the 35 additional locations for which a closure
       decision  had been made at March 31,  1999,  but which are  scheduled  to
       close in fiscal 2000.

(7) Long-term debt and revolving line of credit

            A summary of long-term debt and revolving line of credit follows (in
       thousands):

<TABLE>
<CAPTION>
                                    March 31,
                                                     --------------------
                                                        1999       1998
      -------------------------------------------------------------------
<S>                                                  <C>        <C>
      Revolving line of credit                       $ 19,800   $ 7,500
      Industrial development authority financing        5,801     2,489
      -------------------------------------------------------------------
      Total long-term debt                             25,601     9,989
      Less current installments                           432       247
      -------------------------------------------------------------------
                                                     $ 25,169   $ 9,742
      -------------------------------------------------------------------
</TABLE>



<PAGE>


            The Company currently has an unsecured revolving line of credit with
       its  primary  lender  acting as agent  for a  syndicate  of  banks.  This
       facility, which expires July 31, 2000, provides for maximum borrowings of
       $105 million through a combination of cash advances (which may not exceed
       $65  million) or letters of credit  (which may not exceed $70 million) to
       support  the  Company's  gold  consignment  financing  program.   Amounts
       borrowed under the facility  generally  accrue  interest at the higher of
       the rates  designated by the Company's  primary  lender as its prime rate
       minus 100 basis points  (6.75% at March 31, 1999) and a rate based on the
       rates  charged on  overnight  federal  funds  transactions  with  Federal
       Reserve  System  members plus 50 basis points (5.625% at March 31, 1999).
       However,  the  Company  may  elect  to  have  all or any  portion  of the
       outstanding balance under the facility accrue interest at a rate based on
       one, two,  three or six month LIBOR plus 110 basis points (6.04% at March
       31,  1999 for a  one-month  maturity),  subject to certain  restrictions.
       Outstanding  letters of credit  incur a fee  charged at an annual rate of
       0.75%.  At March 31, 1999,  the Company had $41.2  million  available for
       cash borrowings under this revolving  credit facility.  Letters of credit
       in the amounts of $41,387,000  and  $37,213,000  were issued at March 31,
       1999 and 1998, respectively.

            The loan agreement  contains various  covenants  which,  among other
       things,  limit certain  corporate acts of the Company such as mergers and
       acquisitions;   requires  the  Company  to  maintain  minimum  ratios  of
       indebtedness  to  adjusted  net income (as  defined),  current  assets to
       current  liabilities  and  indebtedness to  capitalization  (as defined);
       places  limitations on the Company's  ability to incur additional debt or
       grant  security  interests in its assets and  restricts  the  redemption,
       purchase  or  retirement  of  its  capital  stock.  The  Company  was  in
       compliance with these covenants as of March 31, 1999.


            Borrowings  under the  revolving  line of credit are  summarized  as
       follows (in thousands):
<TABLE>
<CAPTION>
                                                               March 31,
                                                      --------------------------
                                                        1999     1998      1997
      --------------------------------------------------------------------------
<S>                                                  <C>       <C>     <C>
      Borrowings at year end                         $19,800    $7,500   $24,200
      Interest rate on borrowings at year-end          6.33%     6.80%     7.50%
      Maximum  amount of borrowings
        outstanding at any month end                 $54,000   $33,400   $28,789
      Average aggregate borrowings
       during the year                               $23,147   $20,492   $14,823
      Weighted  average interest rate
       during the year                                 6.75%    7.03%     7.50%
      --------------------------------------------------------------------------
</TABLE>

            In February  1999, the Company  obtained a $1,000,000,  fifteen-year
       term  loan in  connection  with the  Company's  construction  of a second
       warehouse and distribution center. This industrial  development authority
       sponsored  loan  requires  monthly  payments of principal and interest of
       approximately  $8,000 through March 2014 at an effective  annual interest
       rate of 5.38%.

            In April 1998, the Company obtained a $2,565,000,  fifteen-year term
       loan to finance the  construction of a second  warehouse and distribution
       facility on land the Company owns adjacent to its existing facility. This
       loan is collateralized by a letter of credit totaling $2,620,000 at March
       31, 1999 which is supported by a lien on the newly constructed  warehouse
       and  distribution  center which has a net carrying value of $3.1 million.
       The loan  requires  annual  payments of  principal  at a varying  rate of
       interest.  In July 1999,  the Company  entered into an interest rate swap
       agreement  with one of its  primary  lenders  for a  notional  amount  of
       $2,565,000  that   effectively   converted  the  variable  rate  interest
       obligation  to a 6.23%  fixed  rate  obligation  for the full term of the
       loan.


<PAGE>


            In May 1996,  the Company  obtained an  additional  $400,000 loan in
       connection with the expansion of the Company's corporate headquarters and
       distribution  facility in the prior  fiscal year.  This loan,  through an
       industrial development authority,  requires monthly payments of principal
       and  interest of  approximately  $4,000  through May 2006 at an effective
       annual interest rate of 4.59%.

            In October 1995,  the Company  obtained a $2,540,000,  ten-year term
       loan  through  an   industrial   development   authority.   The  loan  is
       collateralized  by a letter of credit  totaling  $2,247,000  at March 31,
       1999 which is supported by a lien on the Company's corporate headquarters
       and  distribution  center which has a net carrying value of approximately
       $2.9 million at March 31, 1999. The terms of the loan require semi-annual
       interest  payments at varying interest rates averaging 6.8% over the life
       of the  loan.  Principal  payments,  in  varying  amounts,  are  required
       annually.

            Maturities  of the term loans are as  follows at March 31,  1999 (in
       thousands):

<TABLE>
<CAPTION>
                                                                 Amount
      -------------------------------------------------------------------
<S>   <C>                                                       <C>
      2000                                                        $ 425
      2001                                                          446
      2002                                                          470
      2003                                                          500
      2004                                                          529
      Subsequent to 2004                                          3,431
      -------------------------------------------------------------------
      Total payments                                            $ 5,801
      -------------------------------------------------------------------
</TABLE>

(8)   Leases

            The Company leases space primarily in shopping malls under operating
       leases  expiring in various  years  through  fiscal  2009.  In the normal
       course of business, operating leases are generally renewed or replaced by
       other leases;  thus, it is  anticipated  that future annual lease expense
       will not be less than the amount  shown  below for 1999.  Generally,  the
       leases  also  contain   provisions  for  contingent  rental  payments  of
       approximately 10% of gross sales in excess of specified amounts.

            Minimum   future  rental   payments  as  of  March  31,  1999  under
       non-cancelable  operating  leases having  original terms in excess of one
       year are as follows (in thousands):
<TABLE>
<CAPTION>

                                                                Amount
      -------------------------------------------------------------------
<S>   <C>                                                     <C>
      2000                                                    $ 22,411
      2001                                                      15,728
      2002                                                       9,183
      2003                                                       5,203
      2004                                                       2,470
      Subsequent to 2004                                         1,626
      -------------------------------------------------------------------
      Total rental payments                                   $ 56,621
      -------------------------------------------------------------------
</TABLE>



<PAGE>


            A  summary  of  minimum  rent  and  contingent  rent  expense  under
       operating leases is as follows (in thousands):
<TABLE>
<CAPTION>

                              Years ended March 31,
                                                   --------------------------
                                                  1999       1998     1997
      -----------------------------------------------------------------------
<S>                                            <C>        <C>        <C>
      Minimum rentals                          $ 29,027   $ 23,690   $ 17,292
      Contingent rentals                           2,003     1,916      1,498
      -----------------------------------------------------------------------
      Total rental expense                     $ 31,030   $ 25,606   $ 18,790
      -----------------------------------------------------------------------
</TABLE>


(9)   Employee Benefit Plans

            The Company has a defined  contribution  plan for Company  employees
       who are at least 21 years of age and have  worked at least 1,000 hours in
       the past year.  The Plan  consists of a profit  sharing fund and a 401(k)
       fund.  Annual  contributions to the profit sharing fund are determined at
       the  discretion  of  management.  Total  contributions  to this fund were
       $250,000,   $500,000  and  $300,000  in  fiscal  1999,   1998  and  1997,
       respectively.

            The  Company  provides  a  matching  contribution  provision  to the
       Company's  401(k) fund.  The matching rate for Company  contributions  is
       $.50 per dollar  contributed  by the employee up to 4% of the  employee's
       income. The Company's matching  contributions totaled $297,000,  $212,000
       and $181,000 in fiscal 1999, 1998 and 1997, respectively.  These matching
       contributions are 100% vested at the time they are made.

            See  Note  12 for a  description  of the  Company's  employee  stock
       purchase plan.

(10)  Income Taxes

            Income taxes in the  consolidated  statements of income  consists of
       the following components (in thousands):

<TABLE>
<CAPTION>
                                                 Years ended March 31,
                                               --------------------------
                                                 1999    1998     1997
      -------------------------------------------------------------------
      Current tax expense:
<S>                                            <C>      <C>     <C>
         Federal                               $ 3,673  $ 5,346 $ 3,703
         State                                     719      503     334
      -------------------------------------------------------------------
                                                 4,392    5,849   4,037
      -------------------------------------------------------------------
      Deferred tax expense
         Federal                                   645      570     251
         State                                     188      162      84
      -------------------------------------------------------------------
                                                   833      732     335
      -------------------------------------------------------------------
                                               $ 5,225  $ 6,581 $ 4,372
      -------------------------------------------------------------------
</TABLE>



<PAGE>


            The tax effect of temporary  differences  that give rise to deferred
       tax  assets  and  deferred  tax   liabilities  are  presented  below  (in
       thousands):
<TABLE>
<CAPTION>

                                                            March 31,
                                                       --------------------
                                                          1999       1998
      ---------------------------------------------------------------------
      Deferred tax liabilities:
<S>                                                     <C>       <C>
        Excess of tax over book depreciation            ($ 3,877  ($ 2,827)
        Employee benefit plans                             (310)      (250)
      ---------------------------------------------------------------------
      Total deferred tax liabilities                     (4,187)    (3,077)
      ---------------------------------------------------------------------

      Deferred tax assets:
        Inventory                                           235        382
        Accrual for lifetime guarantee costs                528        563
        Accrued vacation expense                            456        468
        Accrual for jewelry club costs                      395        443
        Accrued group insurance                             266        226
        Accrued store closure costs                         494          -
        Other                                               550        432
      ---------------------------------------------------------------------
      Total deferred tax assets                           2,924      2,514
      Less valuation allowance                                -         -
      ---------------------------------------------------------------------
      Net deferred tax assets                             2,924      2,514
      ---------------------------------------------------------------------
      Net deferred tax liability                        ($ 1,263)   ($ 563)
      ---------------------------------------------------------------------
</TABLE>

            Based upon the Company's current and historical  taxable history and
       the anticipated level of future taxable income, management of the Company
       believes the existing deductible  differences will, more likely than not,
       reverse in future  periods in which the  Company  generates  net  taxable
       income.  Accordingly,  the Company does not believe a valuation allowance
       is necessary at March 31, 1999.


            Income tax expense in 1999,  1998 and 1997  differs from the amounts
       computed by applying the federal  statutory  rate of 34% to income before
       taxes as follows (in thousands):

    <TABLE>
<CAPTION>
                                                   Years ended March 31,
                                                 -------------------------
                                                   1999     1998     1997
      --------------------------------------------------------------------
<S>                                               <C>     <C>      <C>
      Tax expense at statutory rates              $ 4,375 $ 5,967  $ 4,049
      State income taxes, net of federal benefit      599     439      276
      Non-deductible  amortization of cost in
        excess of net assets of acquired business     187      39        6
      Other                                            64     136       41
      --------------------------------------------------------------------
                                                  $ 5,225 $ 6,581  $ 4,372
      --------------------------------------------------------------------
</TABLE>

(11)  Transactions with Related Parties

            The Company performs certain  administrative  functions for entities
       owned by the Company's  Chief  Executive  Officer and its President.  The
       Company  charged to the entities  $10,000,  $13,000 and $10,000 in fiscal
       1999, 1998, and 1997, respectively,  representing certain direct expenses
       and the  estimated  fair  value  of  providing  administrative  services,
       primarily allocations of salary and overhead.


<PAGE>



            Included  in accounts  receivable  at March 31, 1999 and 1998 are $0
       and  $420,000,  respectively,  from the  sale of  merchandise  and  other
       supplies to the licensee. On August 31, 1998, the Company acquired all of
       the outstanding stock of the licensee. See Note 5.

(12)  Stockholders' Equity

            The Company has a stock  option plan that  provides for the grant of
       common stock  options to eligible  employees  and others.  The  aggregate
       maximum  number of shares of common stock  available for awards under the
       plan is 900,000.  Stock  options  granted may be the fair market value of
       the  stock  or at a price  determined  by a  committee  of the  Board  of
       Directors.  The  options  vest over a period of up to five  years and are
       exercisable  over a period  determined by the  committee,  but not longer
       than ten years.

            The Company  applies APB Opinion No. 25 in  accounting  for its plan
       and, accordingly,  no compensation cost has been recognized for its stock
       options  in  the  financial   statements.   Had  the  Company  determined
       compensation  cost based on the fair  market  value at the grant date for
       its stock options under SFAS No. 123, the Company's net income would have
       been changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>

                                              Years ended March 31,
                                      -----------------------------------
                                           1999       1998       1997
      -------------------------------------------------------------------
      Net income:
<S>                                      <C>        <C>        <C>
        As reported                      $ 7,643    $ 10,969   $ 7,538
        Pro forma                        $ 6,587    $ 9,762     $ 6,728

      Diluted earnings per share:
        As reported                       $ 0.82      $ 1.21    $ 0.93
        Pro forma                         $ 0.71      $ 1.08    $ 0.83
      -------------------------------------------------------------------
</TABLE>


            The per share weighted  average fair value of stock options  granted
       during  fiscal  1999,  1998 and  1997  were  $12.21,  $10.56  and  $9.22,
       respectively,  on the  date  of  grant  and  were  determined  using  the
       Black-Scholes    option-pricing    model   based   upon   the   following
       weighted-average assumptions:

<TABLE>
<CAPTION>

                                          1999       1998        1997
      -------------------------------------------------------------------
<S>                                      <C>        <C>          <C>
      Expected dividend yield             0.0%       0.0%         0.0%
      Expected volatility                58.9       42.1         49.4
      Risk-free interest rate             5.3        5.7          5.4
      Expected life (in years)            9.0        9.0          9.6
      -------------------------------------------------------------------
</TABLE>

            Pro forma net income  reflects  only  options  granted  since fiscal
       1996.  Therefore,  the full impact of calculating  compensation  cost for
       stock  options  under SFAS No. 123 is not  reflected in the pro forma net
       income amounts  presented  above because  compensation  cost is reflected
       over the  option's  vesting  period of up to five years and  compensation
       cost for options granted prior to April 1, 1995 is not considered.


<PAGE>


           Summarized stock option data is as follows:
<TABLE>
<CAPTION>

                                                   Weighted
                                                    Average      Shares
                                                   Exercise   Under Option
                                                    Price
      -------------------------------------------------------------------
      -------------------------------------------------------------------
<S>                                                  <C>       <C>
      Outstanding at March 31, 1996                  $ 6.06    374,400
        Granted                                       13.86    279,000
        Exercised                                      5.52    (38,325)
        Canceled                                       9.05    (22,950)
      -------------------------------------------------------------------
      Outstanding at March 31, 1997                    9.65    592,125
        Granted                                       17.45    224,250
        Exercised                                      7.97    (41,400)
        Canceled                                      12.55    (24,300)
      -------------------------------------------------------------------
      Outstanding at March 31, 1998                   11.98    750,675
        Granted                                       17.52     71,000
        Exercised                                      7.01    (19,825)
        Canceled                                      18.24    (11,402)
      -------------------------------------------------------------------
      Outstanding at March 31, 1999                   12.51    790,448
      -------------------------------------------------------------------
      Exercisable                                    $ 9.70    449,148
      -------------------------------------------------------------------
</TABLE>


            The following  table  summarizes  information  concerning  currently
       outstanding and exercisable options:

<TABLE>
<CAPTION>

                                                   Exercise Price
                                       $ 5.33 -         $ 9.00 -      $ 14.00 -
                                        $ 7.08           $ 12.33        $ 24.17
      --------------------------------------------------------------------------
<S>                                     <C>              <C>            <C>
      Options outstanding at
        March 31, 1999                  244,850          116,949        428,649
      Weighted average remaining
       contractual life (years)            5.25             7.70           8.40
      Weighted average exercise
        price                            $ 5.48          $ 11.64        $ 16.77
      Options exercisable at
        March 31, 1999                  243,050           56,250        149,848
      Weighted average exercise
           price                         $ 5.48          $ 12.11        $ 15.64
      --------------------------------------------------------------------------
</TABLE>


            On October 12, 1995, the Company  created an Employee Stock Purchase
       Plan under which the sale of 144,000  shares of its common stock has been
       authorized.  Generally,  all  employees  who  meet the  requirements  for
       participation  in any of the Company's  other employee  benefit plans are
       also eligible to participate in this plan.  Employees may designate up to
       the lesser of $25,000 or 5% of their annual compensation for the purchase
       of common stock. The price for the shares purchased under the plan is the
       lower of 85% of the  fair  market  value on the  first or last day of the
       purchase period. Employees are not permitted to obtain share certificates
       or sell or  transfer  any  shares  for one year  from the last day of the
       offering period in which the shares were  purchased.  During fiscal 1999,
       1998 and 1997,  26,484,  13,976 and  12,226  shares,  respectively,  were
       issued under this plan.



<PAGE>


(13)  Fair Value of Financial Instruments

            Cash,  Accounts  Receivable,  Accounts  Payable and Gold Consignment
              Agreements

            The carrying  amount  approximates  fair value  because of the short
       maturity of these instruments.

           Long-term Debt

            The fair value of the Company's long-term debt approximates its cost
       based  on  current  rates  offered  to the  Company  for debt of the same
       remaining maturities.

(14)  Commitments and Contingencies

            The Company is periodically a defendant in certain legal actions and
       other  claims  arising in the  ordinary  course of its  business.  In the
       opinion of  management,  liabilities,  if any,  arising from the ultimate
       resolution  of such actions would not have a material  adverse  effect on
       the Company's financial position, results of operations or liquidity.

            On October 19,  1998,  a lawsuit was filed,  purportedly  as a class
       action,  against the Company and certain of its executive officers in the
       U.S. District Court of the Eastern District of Pennsylvania.  The lawsuit
       alleges, among other things, that the Company and certain of its officers
       made materially false and misleading statements and/or failed to disclose
       material  information  regarding the Company's  business  performance and
       prospects.  On January 4, 1999, the Company filed a motion to dismiss the
       suit, after which the plaintiffs filed an amended complaint.  The Company
       currently  has  pending  before the court a motion to dismiss the amended
       complaint. The Company believes that the lawsuit has no merit and intends
       to contest the case vigorously if its motion to dismiss is  unsuccessful.
       Although  the  ultimate  outcome  of the  lawsuit  cannot be  determined,
       management  does not  believe  the  outcome  of the  lawsuit  will have a
       material adverse effect on the financial position,  results of operations
       or cash flows of the  Company.  However,  there can be no assurance as to
       the ultimate resolution of this matter.


            At March 31,  1999,  the  Company  had  commitments  outstanding  of
       approximately  $1.1 million primarily for the construction of new kiosks,
       in-line stores or the  renovation of existing  stores as well as fixtures
       and supplies for current and planned stores.




<PAGE>




      Item 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON
               ACCOUNTING  AND FINANCIAL DISCLOSURE

           None.

                                              PART III

      Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

            The  information  required by this item (except for the  information
       regarding  executive  officers  called for by Item 401 of Regulation  S-K
       which is included in Part I hereof as Item 4A in accordance  with General
       Instruction  G(3)),  is  incorporated by reference to the information set
       forth in the  Company's  definitive  Proxy  Statement for its 1999 Annual
       Meeting of  Stockholders  to be filed with the  Securities  and  Exchange
       Commission  within 120 days  following  the end of the  Company's  fiscal
       year.

      Item 11. EXECUTIVE COMPENSATION

            The  information  required by this item is incorporated by reference
       to the information set forth in the Company's  definitive Proxy Statement
       for its  1999  Annual  Meeting  of  Stockholders  to be  filed  with  the
       Securities and Exchange  Commission  within 120 days following the end of
       the Company's fiscal year.

      Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

            The  information  required by this item is incorporated by reference
       to the information set forth in the Company's  definitive Proxy Statement
       for its  1999  Annual  Meeting  of  Stockholders  to be  filed  with  the
       Securities and Exchange  Commission  within 120 days following the end of
       the Company's fiscal year.


      Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

            The  information  required by this item is incorporated by reference
       to the information set forth in the Company's  definitive Proxy Statement
       for its  1999  Annual  Meeting  of  Stockholders  to be  filed  with  the
       Securities and Exchange  Commission  within 120 days following the end of
       the Company's fiscal year.



<PAGE>


                                             PART IV

      Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

      (a)   Documents filed as part of this Report.

         1. Financial Statements                                        Page

            Independent Auditors' Report                                  30

            Consolidated Balance Sheets at March 31, 1999 and 1998        31

            Consolidated Statements of Income for the Years ended
            March 31, 1999, 1998 and 1997                                 32

            Consolidated Statements of Changes in Stockholders'
            Equity for the Years ended March 31, 1999, 1998 and 1997      33

            Consolidated Statements of Cash Flows for the Years ended
            March 31, 1999, 1998 and 1997                                 34

            Notes to Consolidated Financial Statements                    36

         2. Financial Statement Schedules.

            All Financial Statement Schedules for which provision is made in the
       applicable   accounting   regulations  of  the  Securities  and  Exchange
       Commission  are either not  applicable or not required  under the related
       instructions  or the required  information  is given in the  Consolidated
       Financial Statements or Notes thereto, and therefore have been omitted.

         3. Exhibits

  Exhibit
    No.


      2     See 10.40, 10.41 and 10.43.

      3.1   Restated    Certificate   of   Incorporation   of   the   Registrant
            (incorporated  by  reference  to  Exhibit  3.1 to  the  Registrant's
            Registration  Statement on Form S-1,  File No.  33-80200,  initially
            filed with the Securities and Exchange Commission on June 14, 1994).

      3.2   Amended and  Restated  By-laws of the  Registrant  (incorporated  by
            reference to Exhibit 3.2 to the Registrant's  Registration Statement
            on Form S-1, File No. 33-80200,  initially filed with the Securities
            and Exchange Commission on June 14, 1994).


      4     Specimen  Common  Stock  Certificate  (incorporated  by reference to
            Exhibit 4 to the  Registrant's  Registration  Statement on Form S-1,
            File No. 33-80200,  initially filed with the Securities and Exchange
            Commission on June 14, 1994).

      9     None.

      10.1  Third Amended and Restated Loan  Agreement  dated  February 13, 1995
            between  the  Registrant  and First  Valley  Bank  ("First  Valley")
            (incorporated by reference to Exhibit 10.1 to the Registrant's  Form
            10-K filed with the Securities  and Exchange  Commission on June 28,
            1995).

<PAGE>





      10.2  Letter  Amendment to Third Amended and Restated Loan Agreement dated
            April 28, 1995 between the Registrant and First Valley (incorporated
            by  reference to Exhibit  10.2 to the  Registrant's  Form 10-K filed
            with the Securities and Exchange Commission on June 28, 1995).

      10.3  Amendment  to  Third  Amended  and  Restated  Loan  Agreement  dated
            November   21,  1995  between  the   Registrant   and  First  Valley
            (incorporated by reference to Exhibit 10.11 to the Registrant's Form
            10-Q filed with the Securities and Exchange  Commission on August 9,
            1995).

      10.4  Second  Amendment to Third Amended and Restated Loan Agreement dated
            November   21,  1995  between  the   Registrant   and  First  Valley
            (incorporated by reference to Exhibit 10.11 to the Registrant's Form
            10-Q filed with the Securities  and Exchange  Commission on February
            14, 1996).

      10.5  Tenth  Replacement  Revolving  Loan Note  dated  November  21,  1995
            between the Registrant and First Valley  (incorporated  by reference
            to  Exhibit  10.12 to the  Registrant's  Form  10-Q  filed  with the
            Securities and Exchange Commission on February 14, 1996).

      10.6  Master Advance Note  Extension  And/Or  Modification  And/Or Renewal
            Agreement  dated  November 21, 1995 between the Registrant and First
            Valley   (incorporated   by  reference  to  Exhibit   10.13  to  the
            Registrant's  Form  10-Q  filed  with the  Securities  and  Exchange
            Commission on February 14, 1996).

      10.7  Letter of Amendment to Third  Amended and  Restated  Loan  Agreement
            dated  December  18, 1995  between the  Registrant  and First Valley
            (incorporated by reference to Exhibit 10.15 to the Registrant's Form
            10-Q filed with the Securities  and Exchange  Commission on February
            14, 1996).

      10.8  Letter of Amendment to Third  Amended and  Restated  Loan  Agreement
            Between  Piercing  Pagoda,  Inc. and First Valley dated February 28,
            1996  (incorporated by reference to Exhibit 10.8 to the Registrant's
            Form 10-K filed with Securities and Exchange  Commission on June 25,
            1996).

      10.9  Third  Amendment to Third Amended and Restated Loan Agreement  dated
            September   5,  1996   between  the   Registrant   and  Summit  Bank
            (incorporated by reference to Exhibit 10.1 to the Registrant's  Form
            10-Q filed with the Securities  and Exchange  Commission on November
            13, 1996).

      10.10 Eleventh  Replacement  Revolving  Loan Note dated  September 5, 1996
            between the Registrant and Summit Bank (incorporated by reference to
            Exhibit 10.2 to the Registrant's Form 10-Q filed with the Securities
            and Exchange Commission on November 13, 1996).

      10.11 Fourth  Amendment to Third Amended and Restated Loan Agreement dated
            October  18,   1996   between   the   Registrant   and  Summit  Bank
            (incorporated by reference to Exhibit 10.3 to the Registrant's  Form
            10-Q filed with the Securities  and Exchange  Commission on November
            13, 1996).

      10.12 Twelfth  Replacement  Revolving  Loan Note dated  October  18,  1996
            between the Registrant and Summit Bank (incorporated by reference to
            Exhibit 10.4 to the Registrant's Form 10-Q filed with the Securities
            and Exchange Commission on November 13, 1996).

      10.13 Fifth  Amendment to Third  Amended and Restated  Loan  Agreement and
            Twelfth  Replacement  Revolving  Credit Note dated December 17, 1996
            between the Registrant and Summit Bank (incorporated by reference to
            Exhibit 10.1 of the Registrant's Form 10-Q filed with the Securities
            and Exchange Commission on February 13, 1997).


      10.14 Bond  Placement  Agreement  between  Northampton  County  Industrial
            Development Authority, Meridian Bank ("Meridian") and the Registrant
            dated October 12, 1995 (incorporated by reference to exhibit 10.3 to
            the  Registrant's  Form 10-Q filed with the  Securities and Exchange
            Commission on February 14, 1996).

<PAGE>




      10.15 Loan Agreement between  Northampton  County  Industrial  Development
            Authority and the Registrant dated October 15, 1995 (incorporated by
            reference to Exhibit 10.4 to the  Registrant's  Form 10-Q filed with
            the Securities and Exchange Commission on February 14, 1996).

      10.16 Reimbursement  Agreement  between the  Registrant and Meridian dated
            October 15, 1995  (incorporated  by reference to Exhibit 10.5 to the
            Registrant's  Form  10-Q  filed  with the  Securities  and  Exchange
            Commission on February 14, 1996.


      10.17 Continuing  Disclosure  Agreement  between  Dauphin Deposit Bank and
            Trust Company  ("Dauphin") and the Registrant dated October 15, 1995
            (incorporated by reference to Exhibit 10.6 to the Registrant's  Form
            10-Q filed with the Securities  and Exchange  Commission on February
            14, 1996).

      10.18 Continuing  Letter  of Credit  Agreement  between  Meridian  and the
            Registrant  dated  October 19, 1995  (incorporated  by  reference to
            Exhibit 10.7 to the Registrant's Form 10-Q filed with the Securities
            and Exchange Commission on February 14, 1996).

      10.19 Promissory  Note between  Meridian and the Registrant  dated October
            19,  1995   (incorporated  by  reference  to  Exhibit  10.8  to  the
            Registrant's  Form  10-Q  filed  with the  Securities  and  Exchange
            Commission on February 14, 1996).

      10.20 Open-End  Mortgage and Security  Agreement  between Meridian and the
            Registrant  dated  October 19, 1995  (incorporated  by  reference to
            Exhibit 10.9 to the Registrant's Form 10-Q filed with the Securities
            and Exchange Commission on February 14, 1996).

      10.21 Assignment of Lessor's  Interest in Leases between  Meridian and the
            Registrant  dated  October 19, 1995  (incorporated  by  reference to
            Exhibit  10.10  to  the  Registrant's   Form  10-Q  filed  with  the
            Securities and Exchange Commission on February 14, 1996).

      10.22 Consignment Agreement dated November 30, 1990 between Fleet Precious
            Metals Inc. ("Fleet") and the Registrant  (incorporated by reference
            to Exhibit 10.15 to the Registrant's  Registration Statement on Form
            S-1, File No.  33-80200,  initially  filed with the  Securities  and
            Exchange Commission on June 14, 1994).

      10.23 First  Amendment and Agreement to Consignment  Agreement  dated July
            26, 1994 between Fleet and the Registrant (incorporated by reference
            to Exhibit 10.17 to the Registrant's  Registration Statement on Form
            S-1, File No.  33-80200,  initially  filed with the  Securities  and
            Exchange Commission on June 14, 1994).

      10.24 Third  Amendment  and  Agreement  to  Consignment   Agreement  dated
            September 19, 1995 between the Registrant and Fleet (incorporated by
            reference to Exhibit 10.2 to the  Registrant's  Form 10-Q filed with
            the Securities and Exchange Commission on February 14, 1996).
      10.25 Fourth  Amendment  and  Agreement  to  Consignment  Agreement  dated
            December 1, 1995 between the Registrant and Fleet  (incorporated  by
            reference to Exhibit 10.14 to the Registrant's  Form 10-Q filed with
            the Securities and Exchange Commission on February 14, 1996).

      10.26 Fifth  Amendment  and  Agreement  to  Consignment   Agreement  dated
            December 21, 1995 between the Registrant and Fleet  (incorporated by
            reference to Exhibit 10.16 to the Registrant's  Form 10-Q filed with
            the Securities and Exchange Commission on February 14, 1996).

      10.27 Sixth Amendment And Agreement To Consignment Agreement dated October
            31,  1996  between the  Registrant  and Fleet  Precious  Metals Inc.
            (incorporated by reference to Exhibit 10.2 of the Registrant's  Form
            10-Q filed with the Securities  and Exchange  Commission on February
            13, 1997).

      10.28 Amended  and  Restated  Consignment  Agreement  dated July 26,  1994
            between Rhode Island Hospital Trust National Bank and the Registrant
            (incorporated  by  reference  to Exhibit  10.16 to the  Registrant's
            Registration  Statement  on Form S-1,  File No.  33-80200,  nitially
            filed with the Securities and Exchange Commission on June 14, 1994).
            initially filed with the Securities and Exchange  Commission on June
            14, 1994).

      10.29 Second  Amendment  to Amended and  Restated  Consignment  Agreement,
            dated  September  11, 1995 between the  Registrant  and Rhode Island
            Hospital Trust National Bank  (incorporated  by reference to Exhibit
            10.1 to the  Registrant's  Form 10-Q filed with the  Securities  and
            Exchange Commission on February 14, 1996).

      10.30 Third Amendment to Amended and Restated Consignment  Agreement dated
            July 26, 1994,  dated  December 26, 1996 between the  Registrant and
            Rhode Island Hospital Trust National Bank (incorporated by reference
            to  Exhibit  10.3 of the  Registrant's  Form  10-Q  filed  with  the
            Securities and Exchange Commission on February 13, 1997).

      10.31 Registrant's  1994 Stock Option Plan  (incorporated  by reference to
            Exhibit 10.7 to the Registrant's Registration Statement on Form S-1,
            File No. 33-80200,  initially filed with the Securities and Exchange
            Commission on June 14, 1994).**

      10.32 Registrant's  1994 Restricted Stock Plan  (incorporated by reference
            to Exhibit 10.8 to the Registrant's  Registration  Statement on Form
            S-1, File No.  33-80200,  initially  filed with the  Securities  and
            Exchange Commission on June 14, 1994) .**

      10.33 Registrant's  Annual  Incentive Plan  (incorporated  by reference to
            Exhibit 10.9 to the Registrant's Registration Statement on form S-1,
            File No. 33-80200,  initially filed with the Securities and Exchange
            Commission on June 14, 1994).**

      10.34 Registrant's Retirement & Savings Plan (incorporated by reference to
            Exhibit  10.14 to the  Registrant's  Registration  Statement on Form
            S-1, File No.  33-80200,  initially  filed with the  Securities  and
            Exchange Commission on June 14, 1994).**

      10.35 Registrant's Employee Stock Purchase Plan (incorporated by reference
            to the  Registrant's  Registration  Statement on Form S-8,  File No.
            33-982288,   initially   filed  with  the  Securities  and  Exchange
            Commission on October 18, 1995).**

      10.36 Tax  Indemnification  Agreement dated June 10, 1994 (incorporated by
            reference  to  Exhibit  10.10  to  the   Registrant's   Registration
            Statement on Form S-1, File No.  33-80200,  initially filed with the
            Securities and Exchange Commission on June 14, 1994).

      10.37 Amendment  to Tax  Indemnification  Agreement  dated August 30, 1994
            (incorporated  by  reference  to Exhibit  10.19 to the  Registrant's
            Registration  Statement on Form S-1,  File No.  33-80200,  initially
            filed with the Securities and Exchange Commission on June 14, 1994).

      10.38 Restatement  and  Modification  of Licensing  Agreement  between the
            Registrant and Piercing Pagoda of Florida,  Inc., dated June 3, 1994
            (incorporated  by  reference  to Exhibit  10.13 to the  Registrant's
            Registration  Statement on Form S-1,  File No.  33-80200,  initially
            filed with the Securities and Exchange Commission on June 14, 1994).

      10.39 Agreement  together with  Addendum  dated August 4, 1994 between the
            Registrant and Lehigh Valley Industrial Park, Inc.  (incorporated by
            reference  to  Exhibit  10.22  to  the   Registrant's   Registration
            Statement on Form S-1, File No.  33-80200,  initially field with the
            Securities and Exchange Commission on June 14, 1994).

      10.40 Asset  Purchase  Agreement  dated January 29, 1997 Between  Piercing
            Pagoda,  Inc.,  EARS,  Inc.,  Weaver's Gems and  Minerals,  Inc. and
            Gemstone Jewelry, Inc. (incorporated by reference to Exhibit 10.4 to
            the  Registrant's  Form 10-Q filed with the  Securities and Exchange
            Commission on February 13, 1997).

      10.41 Asset  Purchase  Agreement  dated  April 25, 1997  between  Piercing
            Pagoda,   Inc.  and  the  Silver  &  Gold  Trading   Company,   Inc.
            (incorporated  by  reference  to Exhibit  10.41 to the  Registrant's
            Registration  Statement  on Form S-1 File No.  333-27213,  initially
            filed with the Securities and Exchange Commission on May 15, 1997).

<PAGE>




      10.42 Syndicated Loan Agreement dated March 27, 1997 by and among Piercing
            Pagoda,  Inc.,  CoreStates Bank,  N.A.,  Summit Bank and First Union
            National  Bank  (incorporated  by reference to Exhibit  10.42 to the
            Registrant's  Registration Statement on Form S-1 File No. 333-27213,
            initially  filed with the Securities and Exchange  Commission on May
            15, 1997).

      10.43 First Amendment to Syndicated  Loan Agreement  dated  November,  21,
            1997 between the  Registrant  and Summit Bank and  CoreStates  bank,
            N.A. (incorporated by reference to Exhibit 10.43 to the Registrant's
            Form 10-Q filed  with the  Securities  and  Exchange  Commission  on
            February 12, 1998).

      10.44 Replacement  Revolving  Note dated  November  21,  1997  between the
            Registrant  and Summit Bank  (incorporated  by  reference to Exhibit
            10.44 to the  Registrant's  Form 10-Q filed with the  Securities and
            Exchange Commission on February 12, 1998).

      10.45 Replacement  Revolving  Note dated  November  21,  1997  between the
            Registrant  and First Union  (incorporated  by  reference to Exhibit
            10.45 to the  Registrant's  Form 10-Q filed with the  Securities and
            Exchange Commission on February 12, 1998).

      10.46 Replacement  Revolving  Note dated  November  21,  1997  between the
            Registrant and CoreStates  Bank, N.A.  (incorporated by reference to
            Exhibit  10.46  to  the  Registrant's   Form  10-Q  filed  with  the
            Securities and Exchange Commission on February 12, 1998).

      10.47 Seventh  Amendment  and  Agreement to  Consignment  Agreement  dated
            October  2,  1997  Between  Fleet  Precious  Metals,  Inc.  and  the
            Registrant  (incorporated by reference to the Registrant's Form 10-K
            filed with the Securities and Exchange Commission on June 22, 1998).

      10.48 Asset Purchase  Agreement dated May 8, 1998 between Piercing Pagoda,
            Inc.  and Sedgwick  Sales,  Inc.,  a Nevada  corporation,  Donald M.
            Sedgwick,  Gregory K.  Stapley,  The  Sedgwick  Family Trust and the
            Beneficiary   of  the   Trust.(incorporated   by  reference  to  the
            Registrant's  Form  10-K  filed  with the  Securities  and  Exchange
            Commission on June 22, 1998).

      10.49 Not applicable.

      10.50 Eighth Amendment and Agreement to Consignment Agreement Dated May 5,
            1998,   Between  the  Registrant  and  Fleet  Precious  Metals  Inc.
            (incorporated by reference to the Registrant's  Form 10-Q filed with
            the Securities and Exchange Commission on August 13, 1998).

      10.51 Fourth Amendment To Amended And Restated Consignment Agreement Dated
            May 15, 1998 Between The Registrant And Rhode Island  Hospital Trust
            National Bank  (incorporated by reference to the  Registrant's  Form
            10-Q filed with the Securities and Exchange Commission on August 13,
            1998).

      10.52 Second Amendment to Syndicated Loan Agreement Date September 2, 1998
            between the  Registrant  and Summit Bank,  First Union National Bank
            and  CoreStates  Bank,  N.A.   (incorporated  by  reference  to  the
            Registrant's  Form  10-Q  filed  with the  Securities  and  Exchange
            Commission on February 12, 1999).

      10.53 Second  Revolving  Replacement  Note Dated September 2, 1998 between
            the  Registrant and Summit Bank.  (incorporated  by reference to the
            Registrant's  Form  10-Q  filed  with the  Securities  and  Exchange
            Commission on February 12, 1999).

      10.54 Second  Revolving  Replacement  Note Dated September 2, 1998 between
            the  Registrant  and First  Union  National  Bank  (incorporated  by
            reference to the  Registrant's  Form 10-Q filed with the  Securities
            and Exchange Commission on February 12, 1999).

      10.55 Bond Placement Agreement Dated April 29, 1998 between the Registrant
            and CoreStates  Securities  Corp.  (incorporated by reference to the
            Registrant's  Form  10-Q  filed  with the  Securities  and  Exchange
            Commission on February 12, 1999).

      10.56 Open-end  Mortgage  and  Security  Agreement  Dated  April 29,  1998
            between the Registrant and CoreStates  Bank, N.A.  (incorporated  by
            reference to the  Registrant's  Form 10-Q filed with the  Securities
            and Exchange Commission on February 12, 1999).

      10.57 Trust  Indenture  Dated April 29, 1998  between the  Registrant  and
            Dauphin Deposit Bank And Trust Company (incorporated by reference to
            the  Registrant's  Form 10-Q filed with the  Securities and Exchange
            Commission on February 12, 1999).

      10.58 Pledge and  Security  Agreement  Dated  April 29,  1998  between the
            Registrant and CoreStates  Bank, N.A.  (incorporated by reference to
            the  Registrant's  Form 10-Q filed with the  Securities and Exchange
            Commission on February 12, 1999).

      10.59 Assignment  of Lease  Interest  Dated  April 29,  1998  between  the
            Registrant and CoreStates  Bank, N.A.  (incorporated by reference to
            the  Registrant's  Form 10-Q filed with the  Securities and Exchange
            Commission on February 12, 1999).

      10.60 Reimbursement  Agreement Dated April 29, 1998 between the Registrant
            and Summit Bank, First Union National Bank and CoreStates Bank, N.A.
            (incorporated by reference to the Registrant's  Form 10-Q filed with
            the Securities and Exchange Commission on February 12, 1999).

      10.61 Mortgage subordination agreement between Northampton County New Jobs
            Corp,  First Union National Bank ,and the Registrant  dated February
            18, 1999.*

      10.62 Consent,  Subordination and Assumption  Agreement effective February
            18, 1999 between the Registrant,  Northampton  County New Jobs Corp.
            in favor of the Pennsylvania Industrial Development Authority.*
      10.63 Stock Purchase  Agreement by and between Piercing  Pagoda,  Inc. and
            Richard P.  Russ,  dated as of August 31,  1998 .  (incorporated  by
            reference to the Registrant's Form 8-K filed with the Securities and
            Exchange Commission on September 16, 1998).

      11 Not applicable.

      12 Not applicable.

      13 Not applicable.

      16    Not applicable.

      18    Not applicable.

      21    Subsidiaries of Registrant.*

      22 Not applicable.

      23 Consent of KPMG LLP, independent certified public accountants.*

      24 None.

      27    Financial Data Schedule. *


         * Filed herewith.

         ** Management contract or compensatory plan or arrangement.

          (b) Reports on Form 8-K

      The   Company did not file any Current Reports on Form 8-K during the last
            quarter of fiscal 1999.


      SIGNATURES


     Pursuant  to the  requirements  of  Section  13 or 15(d) 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 in the
     township of Hanover in the Commonwealth of Pennsylvania on June 24, 1999.

                                    PIERCING PAGODA, INC.



      By:                           /s/ John F. Eureyecko
                                    John F. Eureyecko
                                    President and
                                    Chief Operating Officer



<PAGE>



     Pursuant to the requirements of the Securities and Exchange  Commission Act
     of 1934, this report has been signed by the following  persons on behalf of
     the registrant in the capacities and dates indicated below.

           Signature                Title                   Date




 /s/ Richard H. Penske
   Richard H. Penske        Chief Executive Officer and      June 24, 1999
                               Chairman of the Board
                        (Principal Executive Officer)





/s/ John F. Eureyecko
  John F. Eureyecko        Director, President and           June 24, 1999
                           Chief Operating Officer
                           (Principal  Financial and
                           Accounting Officer)


/s/ Alan R. Hoefer
  Alan R. Hoefer           Director                           June 24,1999




/s/ Mark A. Randol
  Mark A. Randol           Director                          June 24, 1999