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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, 2000

                                      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 22, 2000 was approximately $75,369,043.

The number of shares  outstanding of the Registrant's  common stock is 9,188,298
(as of June 22, 2000).

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's  Proxy Statement to be filed with the Commission in
connection  with its 2000 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                                           13

      Item 3.  LEGAL PROCEEDINGS                                    14

      Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  14

      Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT                 14

                                      PART II

      Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY
               AND RELATED STOCKHOLDER MATTERS                      16

      Item 6.  SELECTED FINANCIAL DATA                              17

      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                                                 29

      Item 9.  CHANGES IN AND DISAGREEMENTS WITH
               ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
               DISCLOSURE                                           50

                                      PART III

      Item 10. DIRECTORS AND EXECUTIVE OFFICERS
               OF REGISTRANT                                        50

      Item 11. EXECUTIVE COMPENSATION                               50

      Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
               OWNERS AND MANAGEMENT                                50

      Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS       50

                                      PART IV

      Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
               AND REPORTS ON FORM 8-K                              51



<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, 2000, the Company operated
      940 stores in 44 states and Puerto Rico, including 907 kiosk stores and 33
      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  172 square
      feet in size,  typically  carry  approximately  3,500 SKUs,  require a low
      initial  investment,  can be opened quickly and are easily  accessible and
      visible  within malls.  During fiscal 2000, the average price of a jewelry
      item  sold  by the  Company  was  approximately  $27  and  average  annual
      comparable kiosk store net sales per square foot were $1,797.  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 3,500
      SKUs.  The average  price of a jewelry  item sold by the Company in fiscal
      2000  was  approximately  $27.  Approximately  60%  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  that 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 guarantee against  manufacturers  defects,  its complimentary
      ear piercing  service  with the  purchase of earrings  and its  "preferred
      customer"  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 periodically evaluates its information systems to determine if
      new or  additional  hardware or software is necessary  or desirable  based
      upon  expected  future  growth  plans.  The  Company  believes  it current
      inventory,  replenishment and  point-of-sale  systems are adequate to meet
      expected  future growth for at least the next two fiscal years.  In fiscal
      2000, the Company implemented a new product planning and analysis software
      package to enhance the Company's existing systems.

<PAGE>


      This  system was fully  installed  during  fiscal  2000 and  provides  the
      Company with additional tools to monitor and analyze product  performance.
      See  "Management's  Discussion  and  Analysis of Financial  Condition  and
      Results of Operations" for a discussion of Year 2000 issues.

           Growth Strategy

           The  Company's  objective  over the last  several  years  has been to
      secure its position as the dominant  kiosk-based  jewelry retailer.  Since
      the beginning of fiscal 1996,  the Company has opened 728 new stores,  355
      of which were acquired from third parties. Acquisitions completed over the
      last 5 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,  104
      locations  acquired from Sedgwick  Sales,  Inc. and 22 locations  acquired
      from the Company's former licensee in fiscal 1999.

           Upon  completing  the  purchase of store  locations,  the Company has
      sought  to  increase  the net  sales  and  profitability  of the  acquired
      locations by converting  the acquired  stores to the Company's  format and
      implementing  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 in
      September  1998 that it would  close many of these  locations  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.  Since that  time,  the  Company  has closed 40 of the former GCG
      stores and plans to close up to another  six.  In  addition,  the  Company
      closed another 83  under-performing  locations,  bringing the total stores
      closed  in the last two  fiscal  years to 123.  The  Company  focused  its
      efforts in fiscal 2000 on improving  the  operations  at the remaining GCG
      stores as well as other under-performing locations. These efforts included
      new or renovated  kiosks at many of the former GCG  locations,  additional
      training and incentive programs for all store personnel and changes to the
      merchandise  selection  across all the Company's  stores.  Based on fiscal
      2000  results,  the  Company  believes  the steps it has  taken  have been
      successful at improving the  operations  of these  locations.  The Company
      will  continue to monitor the results of all  under-performing  locations,
      including former GCG stores, and may close additional  locations in fiscal
      2001 that do not meet its performance requirements.

           The Company expects to continue to focus its efforts on improving the
      productivity  of its existing store base during fiscal 2001.  Accordingly,
      the Company  plans to open 40 to 60 new stores in fiscal  2001  (excluding
      any  acquisitions)  and to close  approximately  30 to 40 existing  stores
      during  the year.  The  Company  expects  to expand  the pace of its store
      openings in fiscal  2002 to  approximately  60 to 80 new stores  offset by
      approximately 20 to 30 store closures.  In selecting sites for new stores,
      the Company generally seeks malls that have at least 500,000 square

<PAGE>


           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  $123,000,
      including  approximately  $80,000  of  inventory  (a  portion  of which is
      generally  financed  through   consignment   arrangements),   $35,000  for
      construction  of the kiosk,  fixtures,  point-of-sale  register  and other
      equipment  and  supplies  and $9,000 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, 2000 there
      were 515 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  2000,  averaged  $333,000.  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 139 stores,  123 of
      which closed in the last two fiscal years, including 40 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, 2000, the Company  operated 33 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
      2000, the Company opened two in-line stores and expects to open up to four
      in-line  stores in fiscal  2001.  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 has also begun limited  expansion  into less  traditional
      retail  locations  such as airports and resorts.  During fiscal 2000,  the
      Company expanded the number of airport  terminal  locations it operates to
      four by adding two locations in Newark International  Airport. The Company
      plans to open at least one additional airport location in fiscal 2001. The
      Company also added to the number of resort locations it operates in fiscal
      2000 by opening a second location in Rehobeth Beach,  Delaware,  a seaside
      resort community.

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

           During fiscal 2000 the Company  significantly  expanded the selection
      of silver,  diamond and gemstone  merchandise at its stores. The selection
      of silver  merchandise  was expanded at all the Company's  locations while
      the  selection  of  diamond  and  gemstone  merchandise  was  expanded  to
      approximately 400 stores from 180 in the previous year. Silver merchandise
      displayed  strong sales gains,  increasing to  approximately  13% of total
      sales in fiscal 2000 from  approximately  10% in fiscal 1999.  The average
      price of a silver item sold also  increased  from $13.15 in fiscal 1999 to
      $17.85 in fiscal 2000. The performance of diamond and gemstone merchandise
      was also encouraging.  Diamond and gemstone products  accounted for nearly
      2% of sales in  fiscal  2000.  The  price of an  average  jewelry  unit of
      diamond and gemstone  merchandise was approximately  $92.24, far exceeding
      the Company average of approximately $26.55. The Company also continued to
      expand its Diamond Isle concept,  increasing the number of stores from one
      in fiscal 1999 to nine in fiscal 2000.  The Company has plans to add up to
      five additional  Diamond Isle locations prior to the 2000 holiday shopping
      season.


<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 89% 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  3,500
      SKUs,  approximately  80% of which have list prices under $100, and during
      fiscal  2000   generated  an  average   jewelry  item  selling   price  of
      approximately  $27.  The Company  also offers a selection  of non- jewelry
      items such as ear care products and jewelry cleaners. Approximately 60% 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 2000,  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
      -----------------------------------------------------------------
      <S>                                                   <C>
      Gold
          Chains and bracelets                                35%
          Charms and rings                                    22
          Earrings                                            27
          Miscellaneous items                                  2
      -----------------------------------------------------------------
           Total gold                                         86
        Silver jewelry and other items                        14
      -----------------------------------------------------------------
           Total net store sales                             100%
      -----------------------------------------------------------------
</TABLE>



           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 "preferred  customer"  jewelry
      club.  The Company also 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 clearance sales. The Company intends to continue to
      emphasize  these  promotions  and to monitor them in order to assess their
      relative success.


<PAGE>


           In addition to emphasizing  lower prices,  extensive  selection,  940
      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 2000,  approximately  11% of the  Company's  net sales were derived
      from the sale of earrings in connection with complimentary ear piercing.

            Guarantee on all jewelry items.  The Company will repair or replace,
      at no cost, all merchandise with manufacturing defects up to one year from
      date of purchase.

            Preferred  customer  jewelry club.  During fiscal 2000,  the Company
      modified its  preferred  customer  jewelry club  program.  The Company now
      offers a customer  incentive program which rewards frequent customers with
      a $10.00 discount certificate for every $100.00 of purchases.  The Company
      maintains  purchase  histories  for  customers who choose to enroll in the
      program and issues discount certificates quarterly based upon purchase and
      redemption  activity.  Certificates  expire within 90 days if unused.  The
      Company's  previous  jewelry club program  offered  customers,  after five
      purchases,  a credit on the next purchase  equal to the average price paid
      for the five  purchased  items.  During fiscal 2000,  customers  applied a
      total of approximately  $4.2 million of credits received under the current
      and previous jewelry club programs 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 73% of
      all purchases are cash transactions  (including  personal checks) with the
      remaining purchases being credit card sales.


<PAGE>



           Stores

            At March 31, 2000, the Company  operated 940 stores in 44 states and
      Puerto Rico,  including 907 kiosk stores and 33 in-line stores,  primarily
      under the names Piercing Pagoda,  Plumb Gold and Silver & Gold Connection.
      The Company's  kiosk stores average  approximately  172 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 lease commitment. At March 31,
      2000, the Company operated stores in 659 malls, and operated more than one
      location in 234 of those malls.  Of the stores  operated,  33 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   2000
      -------------------------------------------------------------------

      Number of stores:

<S>                                   <C>     <C>     <C>    <C>    <C>
        Beginning of period           366     513     682    789    931

        Opened/acquired:

           Piercing Pagoda(1)         121     108      61    126     21

           Plumb Gold(2)               34      66      24     11      1
           Silver & Gold
             Connection(3)             --      --      38     80     20

           Other(4)                    --       2      --      4     11
      -------------------------------------------------------------------

                Total opened(5)       155     176     123    221     53
      -------------------------------------------------------------------

           Total closed(6)              8       7      16     79     44
      -------------------------------------------------------------------

           Total at end of period     513     682     789    931    940
      -------------------------------------------------------------------

</TABLE>

      (1)   Includes  42 stores in fiscal  1996,  41 stores in fiscal  1997,  10
            stores in fiscal 1998,  64 stores in fiscal  1999,  and one store in
            fiscal 2000, 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  54 stores in fiscal 1999 and one store in fiscal 2000 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, 4 in-line stores in fiscal 1998 and 2 in-line stores in
            fiscal 2000.

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



<PAGE>



      Store Operations

            Store  operations  are divided into nine  regions,  each of which is
      supervised  by a regional  sales  manager.  The  regional  sales  managers
      supervise  the  Company's  district  sales  managers,   each  of  whom  is
      responsible  for an  average  of  approximately  twelve  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  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 sales managers and district sales 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 sales 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.
      Generally,  merchandise is delivered in bulk to the Company's headquarters
      where the  Company's  in-house  merchandise  staff  prepares the items for
      display on merchandise  pads.  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 2000, the Company's five largest  suppliers
       accounted  for  approximately  41% of the  merchandise  purchased  by the
       Company.  One of these  vendors  accounted for  approximately  15% of the
       Company's merchandise purchases during fiscal 2000. The

<PAGE>


      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.

      Management Information Systems

            The Company currently uses proprietary,  customized systems for both
      its  point-of-sale  functions  as well as for  inventory  management.  The
      Company's point-of-sale system processes all transaction-related activity,
      collects payroll information,  and provides data for the analysis of store
      performance and inventory control at the corporate  headquarters.  Through
      nightly polling of in-store registers,  sales and inventory information is
      provided to the corporate  headquarters.  This  information is used by the
      Company  to  monitor   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.

            The  Company  periodically  evaluates  its  information  systems  to
      determine  if new or  additional  hardware  or software  is  necessary  or
      desirable  based upon expected future growth plans.  The Company  believes
      its  current  inventory,   replenishment  and  point-of-sale  systems  are
      adequate to meet  expected  future growth for at least the next two fiscal
      years.  The Company  anticipates  that subsequent to fiscal 2002 it may be
      necessary to upgrade its inventory management and point-of-sale  software.
      It is expected that any new inventory management or point-of-sale software
      may require  modification  to  replicate  certain  custom  elements of the
      Company's existing system .

            In fiscal 2000,  the Company  implemented  new product  planning and
      analysis software.  The new software utilizes the SQL relational  database
      and  a  Windows  NT-based  client/server  architecture.  This  new  system
      provides enhanced  merchandise  analysis tools that will allow the Company
      to better  monitor and analyze the  performance  of its  merchandise.  See
      "Management's  Discussion and Analysis of Financial  Condition and Results
      of Operations" 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,  televised home shopping networks and
      internet  based  retailers.  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.


<PAGE>



      Employees

            As of March 31, 2000, the Company had approximately  2,247 full-time
      and approximately 3,174 part-time  employees.  Of these, 270 were employed
      full-time  and  53  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 2000 peak holiday season, the Company
      had 5,401 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.

      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 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,  Texas 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 in Oregon 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
      26 of the 27 stores it operates in Indiana. The state of Texas has enacted
      legislation  that regulates  body piercing  activities,  but  specifically
      excludes the earlobe.  Rules  covering the other parts of the ear have not
      yet been  finalized  and  accordingly,  the Company can not predict  their
      potential  effect on its operations in Texas. 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.
      Various  other  municipalities  regulate  or  impose  restrictions  on the
      piercing of ear cartilage.  The Company  believes that cartilage  piercing
      regulations  and  restrictions  do  not  have  a  material  impact  on its
      operations.  Management  also  believes  that the Company  complies in all
      material respects with all 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.


<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 four
      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, 2000, 412 expire before March 31, 2001.

            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


<PAGE>





      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, 1999, the securities class action litigation that had
      been filed  during  fiscal  1999  against  the  Company and certain of its
      officers  by Israel H. Buck et al. was  dismissed  with  prejudice  by the
      United States District Court for the Eastern District of Pennsylvania.  No
      appeal of the  dismissal was filed by the  plaintiffs  within the required
      time period.

      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, 2000.

      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,  2000.  All  executive
      officers serve at the discretion of the Board of Directors of the Company.

      -------------------------------------------------------------------
               Name          Age          Position with Company
      -------------------------------------------------------------------
      Richard H. Penske       57  Chairman   of  the   Board  and  Chief
                                  Executive Officer
       John F. Eureyecko      51  President, Chief Operating Officer,
                                  Secretary and Director
       Barry R. Clauser       46  Senior Vice President -- Merchandise
                                  Operations
       Sharon J. Zondag       44  Senior Vice President -- Store
                                  Operations
       Gilbert P. Hollander   46  Senior Vice President of Merchandise
                                  Purchasing
       Brandon R. Lehman      48  Treasurer

       Lisa E. Sankovsky      39  Vice President -- Real Estate

       Richard J. McKeon      42  Director of Management Information
                                     Systems
       Christopher J. Barone  35  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.


<PAGE>



            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.

           Gilbert P. Hollander joined the Company in May of 1997 as Director of
      New Business  Development,  was promoted to Vice  President of Merchandise
      Purchasing  in February of 1999 and was promoted to Senior Vice  President
      of Merchandise  Buying in February of 2000.  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.

            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.

            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.



<PAGE>




                                      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:

<TABLE>
<CAPTION>

                                               High       Low
          <S>                                  <C>        <C>
           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


           Fiscal 2000
           First Quarter                       $ 13.75    $  8.81
           Second Quarter                      $ 16.75    $ 12.75
           Third Quarter                       $ 15.13    $  8.13
           Fourth Quarter                      $ 13.88    $ 11.50

</TABLE>

           As of June 21, 2000, there were  approximately  165 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 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.


<PAGE>



      Item 6. SELECTED FINANCIAL DATA

           The selected  financial  data for the five years ended March 31, 2000
      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.

<TABLE>
<CAPTION>

                                                                              Fiscal Year Ended March 31,
                                                       --------------------------------------------------------------------------
                                                             2000            1999         1998          1997           1996
------------------------------------------------------ ----------------- ------------- ------------ -------------- --------------
                                                                 ( In thousands, except per share and operating data)
<S>                                                       <C>             <C>           <C>          <C>            <C>
Income Statement Data:
   Net sales                                              $ 280,718         $ 255,147   $ 222,128    $ 166,885       $ 121,581
   Cost of goods sold and occupancy expenses
    (excluding depreciation on kiosks and store
      fixtures)                                             144,556           137,072     119,328       92,308          67,440
------------------------------------------------------ ----------------- ------------- ------------ -------------- --------------
   Gross profit                                             136,162           118,075     102,800       74,577          54,141
   Selling, general and administrative expenses
     (including depreciation on kiosks and store
      fixtures)                                             111,082           102,464      82,916       60,845          43,887
------------------------------------------------------ ----------------- ------------- ------------ -------------- --------------
   Income from operations                                    25,080            15,611      19,884       13,732          10,254
   Interest and other income                                    251               367         562          386             282
   Interest expense                                           3,698             3,110       2,896        2,208           1,306
------------------------------------------------------ ----------------- ------------- ------------ -------------- --------------
   Earnings before income taxes                              21,633            12,868      17,550       11,910           9,230
   Income taxes                                               8,652             5,225       6,581        4,372           3,553
------------------------------------------------------ ----------------- ------------- ------------ -------------- --------------
   Net income                                              $ 12,981           $ 7,643    $ 10,969      $ 7,538         $ 5,677
------------------------------------------------------ ----------------- ------------- ------------ -------------- --------------
Earnings Per Share Data:
     Earnings per share:
         Basic                                                $ 1.43            $ 0.84     $ 1.25       $ 0.96         $ 0.72
         Diluted                                              $ 1.41            $ 0.82     $ 1.21       $ 0.93         $ 0.71
     Weighted average shares outstanding:
         Basic                                                9,066             9,119       8,765        7,886         7,856
         Diluted                                              9,237             9,331       9,062        8,084         7,988

Selected Operating Data:
   Number of stores at beginning of period                    931               789           682          513            366
   Stores added (net of closures and sales)                     9               142           107          169            147
------------------------------------------------------ ----------------- ------------- ------------ -------------- --------------
   Stores at end of period                                    940               931           789          682            513
------------------------------------------------------ ----------------- ------------- ------------ -------------- --------------

   Average jewelry units sold per
     comparable store (rounded) (1)                          11,700          11,700        11,800       12,000         11,600
   Average comparable store net sales (2)                 $ 312,000       $ 291,000     $ 295,000    $ 303,000      $ 295,000
   Average comparable store
     net sales per square foot (3)                           $1,668         $ 1,581       $ 1,630       $1,848        $ 1,821
   Average comparable store square footage (3)                  187             184           181          164           162
   Percentage increase  in
     comparable store net sales (4)                            6.7%            0.3%          3.0%         7.6%          12.4%
</TABLE>
<TABLE>
<CAPTION>

                                                                                       March 31,
                                                       ----------------- ------------- ------------ -------------- --------------
                                                             2000            1999         1998          1997           1996
------------------------------------------------------ ----------------- ------------- ------------ -------------- --------------
                                                                                     (In thousands)
<S>                                                        <C>             <C>           <C>          <C>            <C>
Balance Sheet Data:
   Working capital                                         $ 37,836        $ 47,571      $ 44,302     $ 40,649       $ 15,948
   Inventory                                                 63,960          53,685        53,149       43,109         25,390
   Total assets                                             127,293         123,300        96,099       79,741         47,906
   Current installments of long-term debt and
     revolving line of credit                                17,639             432           247          234          5,910
   Long term debt, less current installments                  4,929          25,169         9,742       26,690          2,350
   Stockholders' equity                                      84,714          74,491        66,328       37,522         29,579
------------------------------------------------------ ----------------- ------------- ------------ -------------- --------------
</TABLE>


<PAGE>



       (1) Reflects  average  jewelry units sold per  comparable  store based on
         283, 355,  493, 628 and 711  comparable  stores in fiscal 1996,  fiscal
         1997,  fiscal 1998,  fiscal 1999 and fiscal 2000,  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.

       (2) 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.

       (3) Reflects  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 162,
         164, 181, 184 and 187 square feet for fiscal 1996, 1997, 1998, 1999 and
         fiscal 2000, respectively.

       (4) Comparable  store net sales data is 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,
      -------------------------------------------------------------------

                                                   2000    1999   1998
                                                 ------------------------

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

      Cost of goods sold and occupancy expenses
         (excluding depreciation on kiosks)        51.5      53.7   53.7
      -------------------------------------------------------------------

      Gross profit                                 48.5      46.3   46.3

      Selling, general and administrative
       expenses(including depreciation
       on kiosks)                                  39.6      40.2   37.3

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

      Income from operations                        8.9       6.1    9.0

      Interest and other income                     0.1       0.1    0.2

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

      Earnings before income taxes                  7.7       5.0    7.9

      Income taxes                                  3.1       2.0    3.0
      -------------------------------------------------------------------

      Net income                                    4.6%      3.0%   4.9%
      -------------------------------------------------------------------
</TABLE>

           Comparison of Fiscal 2000 and Fiscal 1999

           Net Sales

           Net sales  increased  $25.6  million,  or 10%,  to $280.7  million in
      fiscal 2000 from $255.1  million in fiscal  1999.  This  increase  was due
      primarily  to a $13.9  million,  or  6.7%,  increase  in net  sales at the
      Company's 711 comparable  stores.  At March 31, 2000, the Company operated
      940 stores  compared to 931 stores at March 31,  1999,  an increase of 1%.
      During the year,  the Company  opened 53 stores and closed 44. The average
      jewelry units sold in fiscal 2000 per  comparable  store were unchanged at
      11,700 from fiscal 1999.  The average  price per jewelry unit sold for all
      the  Company's  stores  increased  to $26.55 in fiscal 2000 from $24.54 in
      fiscal 1999.

           Gross Profit

           Gross profit increased $18.1 million,  or 15.3%, to $136.2 million in
      fiscal  2000  from  $118.1  million  in fiscal  1999.  Gross  margin  also
      increased  from 46.3% of net sales in fiscal 1999 to 48.5% of net sales in
      fiscal 2000, an  improvement  of 2.2% of net sales.  The increase in gross
      profit is primarily  attributable to the Company's  increase in net sales.
      The  improvement  in  gross  profit  margin  primarily  reflects  improved
      merchandise  margins  due to lower  merchandise  costs,  less  promotional
      activity  during the year and changes in  merchandise  mix compared to the
      previous year.  During the current  fiscal year,  the Company  implemented
      certain changes to its merchandise

<PAGE>


           selection  that had a  favorable  impact on sales  and  gross  profit
      margin.  These changes  include the  introduction  of new 10k and 14k gold
      merchandise  styles with higher gross profit  margins and  increasing  the
      selection of non-gold merchandise.  In addition,  the Company modified its
      promotional  strategy,  reducing the amount of  store-wide  promotions  in
      favor of promotions on selected merchandise. As a result, a greater amount
      of sales were achieved at a higher average unit price and produced  better
      gross profit dollars and margin.  Additionally,  better  leverage of fixed
      rent and  occupancy  costs have  resulted in lower store rent expense as a
      percentage of net sales.  This is partially  attributable to the Company's
      efforts to eliminate under-performing stores from its portfolio. Since the
      beginning  of the  previous  fiscal  year,  the  Company  has  closed  123
      under-performing  stores  and  worked to  improve  the  operations  at its
      remaining stores.

           Selling, General and Administrative Expenses

           Selling,  general and administrative expenses increased $8.6 million,
      or 8.4%,  to $111.1  million in fiscal 2000 from $102.5  million in fiscal
      1999.  However,  as a  percentage  of  net  sales,  selling,  general  and
      administrative  expenses  decreased  to 39.6% in fiscal 2000 from 40.2% in
      fiscal 1999. The increase in selling,  general and administrative  expense
      primarily  reflects  the  combination  of higher  store  payroll  expense,
      greater   corporate   overhead   expense  and  higher   depreciation   and
      amortization  expense  compared  to the prior year.  These were  partially
      offset  by  reductions  in  supervisory  and  direct  and  indirect  store
      expenses.  The  increase  in store  payroll  was  caused  by  higher  base
      compensation as well as greater bonus payments due to higher sales volume.
      Corporate  overhead  expense  increased  due to the  hiring of  additional
      personnel into various corporate  functions  including  merchandise buying
      and  expenditures  to support the Company's  revised jewelry club program.
      Supervisory  and direct and indirect  store  expense  decreased due to the
      lower  level of both store  openings  and  closings  compared to the prior
      year.

           Depreciation and amortization expense increased 20.0% to $8.4 million
      in fiscal 2000 from $7.0 million in fiscal 1999. This was due primarily to
      capital  expenditures  for new  stores  and the  upgrading  of  kiosks  in
      existing  locations.  Additionally,  amortization  expense includes a full
      year  of  amortization  of  goodwill   acquired  in  connection  with  the
      acquisition  of 104 former GCG stores in July 1998 and 22 stores  acquired
      from the former  Florida  Licensee  in August  1998.  Approximately  $13.7
      million of goodwill was recorded in connection with these two acquisitions
      and is being amortized over fifteen years. Goodwill and other amortization
      expense  totaled  $1.9  million and $1.3  million in fiscal 2000 and 1999,
      respectively.

           Interest Expense

           Interest  expense  increased  $588,000,  or 19.0%, to $3.7 million in
      fiscal 2000 from $3.1 million in fiscal 1999,  and as a percentage  of net
      sales increased to 1.3% from 1.2%. Interest expense includes interest paid
      on bank borrowings,  fees paid for letters of credit, including letters of
      credit  to  support  the  Company's  gold  consignment  program,  and gold
      consignment fees. The increase in interest expense  primarily  reflects an
      increase in total average borrowings under the Company's revolving line of
      credit,  higher average interest rates under the revolving credit facility
      (6.84%  versus  6.75%) and higher  average  rates paid under the Company's
      gold consignment program (2.68% versus 1.94%).

           Income Tax Expense

           Income tax expense  increased  $3.5 million to $8.7 million in fiscal
      2000 from $5.2 million in fiscal 1999.  The increase in income tax expense
      is due to the increase in the Company's earnings before income taxes. As a
      percentage of earnings before income taxes,  income tax expense  decreased
      slightly  to 40.0% in fiscal  2000 from 40.6% in fiscal  1999.  Income tax
      expense in fiscal 1999

<PAGE>


           included  $165,000 of income taxes  recognized  for  potential  state
      income  exposure for periods  which were under audit.  Current year income
      tax expense does not include a comparable charge.

           Net Income

           The Company's net income  increased $5.3 million,  or 69.7%, to $13.0
      million in fiscal 2000 from $7.6 million in fiscal 1999 due to the factors
      described above.

           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.

           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

<PAGE>


           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 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.


           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,

<PAGE>


            bank  borrowings  and a public  offering  of common  stock  that was
       completed  during fiscal 1998.  The Company had working  capital of $37.8
       million  and $47.6  million at the end of fiscal  2000 and  fiscal  1999,
       respectively. See "Seasonality."

           Net cash provided by operating activities was $12.3 million in fiscal
      2000 versus $15.0  million in fiscal 1999.  Net cash provided by operating
      activities  in fiscal 2000  reflects net earnings  plus  depreciation  and
      amortization, increases in inventory reflecting the Company's introduction
      of new merchandise  styles,  partially  offset by changes in other current
      assets and  liabilities.  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 used in  investing  activities  was $9.4  million  and $28.3
      million  in fiscal  2000 and  fiscal  1999,  respectively.  These  amounts
      reflect $8.8  million and $12.6  million of capital  expenditures  related
      primarily  to new  stores in fiscal  2000 and fiscal  1999,  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.

           Net cash used in financing activities was $5.9 million in fiscal 2000
      compared to $14.6 million provided by financing activities in fiscal 1999.
      This reflects the repurchase of the Company's common stock pursuant to its
      stock  repurchase  program and net activity  under its  revolving  line of
      credit facility. The stock repurchase program was approved by the Board of
      Directors  on August 13,  1999 and  amended on  November  22,  1999.  This
      program  authorized  the Company to repurchase up to 400,000 shares of its
      common stock. Net cash provided by financing  activities was $14.6 million
      in fiscal  1999.  This  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.

           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  (8.00% at March 31, 2000) or (ii) a rate based on overnight
      federal funds  transactions  with Federal  Reserve  System members plus 50
      basis points (6.57% at March 31, 2000);  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  (7.24% at March  31,  2000 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, 2000, the
      Company  had  $45.2  million  available  for cash  borrowings  under  this
      revolving   credit   facility.   Letters  of  credit  in  the  amounts  of
      approximately $40.1 million and approximately $41.4 million were issued at
      March  31,  2000  and  1999,   respectively.   The  Company  is  currently
      negotiating with a syndicate of banks, which includes its current lenders,
      for a new revolving credit facility.  A new credit facility is expected to
      be in place by July 31, 2000

           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 was in compliance  with all
      the terms of its loan agreement at March 31, 2000


<PAGE>


           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 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  2000 and  1999,  average  financing  costs  under the
      consignment  agreements  were  approximately  2.68% and  1.94% 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  72% of the gold  content of its  merchandise  under the
      consignment  program.  As of March 31, 2000,  the amount of gold consigned
      was  142,000  ounces  with a value of $39.3  million.  At March 31,  1999,
      143,443  ounces  with a value  of  $40.1  million  were  consigned  by the
      Company.  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 2001 to total
      approximately $9.5 million, of which approximately $4.6 million is related
      primarily to the construction of new stores and the renovation of existing
      stores. The Company currently  anticipates opening  approximately 40 to 60
      new stores in fiscal 2001. The opening of a new store generally requires a
      total  investment  of  approximately  $123,000,   including  approximately
      $80,000 of  inventory (a portion of which is  generally  financed  through
      consignment   arrangements),   $35,000  for  construction  of  the  kiosk,
      fixtures,  point-of-sale  register  and other  equipment  and supplies and
      $9,000 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.

<PAGE>



           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  25% of the Company's annual
      net sales and 129% 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.

           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 2000                                        Fiscal 1999

                                         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                     $  58,154   $  54,827  $ 105,279   $  62,458  $  48,018  $  49,670   $ 101,985  $  55,474

      Gross profit(1)                  25,489      25,619     55,093      29,961     21,385     22,050      50,066     24,574

      Selling, general and
        administrative expenses(1)     25,348      25,848     32,388      27,498     20,755     24,172      32,356     25,181

      Income (loss)from                   141        (229)    22,705       2,463        630     (2,122)     17,710       (607)
        operations

      Net income (loss)                  (311)       (683)    12,972       1,003        102   $ (1,764)     10,169       (864)

      Diluted  earnings (loss) per
        share                         $ (0.03)    $ (0.07)   $  1.41      $  0.11   $  0.01    $ (0.19)    $  1.10   $  (0.09)
    ------------------------------- ----------- ---------- ----------- ---------- ---------- ----------- ---------- -----------



    Comparable Store Net Sales
      Increase (Decrease)                6.0%        6.3%       4.4%        11.8%      2.8%       0.3%        (3.1)%      3.6%



    As a Percentage of Net Sales:

      Gross profit(1)                   43.8%       46.7%      52.3%        48.0%     44.5%      44.4%        49.1%      44.3%

      Selling, general and
        administrative expenses(1)      43.6        47.1       30.8         44.0      43.2       48.7         31.7       45.4

      Income (loss) from
        operations                       0.2        (0.4)      21.6          3.9       0.1       (4.3)        17.4       (1.1)

      Net income (loss)                 (0.5)       (1.2)      12.3          1.6        -        (3.6)        10.0       (1.6)
    ------------------------------- ----------- ---------- ----------- ---------- ---------- ----------- ---------- -----------
</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.


<PAGE>


           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 were 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.

           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  successfully  transitioned  into  the Year  2000  (Y2K)
      without  any major  disruption  of  systems  or  business  operations.  No
      significant  Y2K  issues  were  experienced   relative  to  the  Company's
      merchandise  and  other  third  party  vendors.  Accordingly,  it was  not
      necessary to invoke any of the  Company's  contingency  plans,  which were
      developed for use in the event of supplier  delivery delay or failure,  or
      critical system or support equipment  interruption or failure. The Company
      will  continue  to  monitor  its  computer  applications  and those of its
      suppliers  and vendors  throughout  the year to ensure that any latent Y2K
      matters that may arise are addressed promptly.

           The  Company  spent  less than  $500,000  on  hardware  and  software
      purchased  specifically  to address  Year 2000 issues.  Expenditures  were
      funded  through  operating  cash  flows.  Operating  costs  related to Y2K
      compliance  projects were  incurred over several  quarters and expensed as
      incurred.  These  amounts  did not have a material  adverse  effect on the
      Company's financial  condition or operating results.  The Company does not
      believe  that the Y2K issue  presents  a  material  risk to the  Company's
      future results of operations, liquidity or capital resources.

           Recent Accounting Pronouncements

           In June 1998, the Financial  Accounting Standards Board (FASB) 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. In June of 1999,
      the FASB issued SFAS No. 137,  "Acounting for Derivative  Instruments  and
      Hedging Activities - Deferral of the Effective Date of SFAS No. 133." SFAS
      No. 137 delays the effective  date of SFAS No. 133 to the beginning of the
      first  quarter of the fiscal  year  beginning  after  June 15,  2000.  The
      Company does not anticipate adoption of this standard will have a material
      impact on the Company's financial condition or results of operations.


<PAGE>



      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  amount 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,
      2000.  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 is
      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.

<TABLE>
<CAPTION>

March 31, 2000
(In thousands)                                Expected Fiscal Year of Maturity
                             --------------------------------------------------------------------
                               2001        2002       2003       2004       2005     Thereafter     Total      Fair Value

<S>                           <C>        <C>        <C>        <C>      <C>          <C>         <C>            <C>
Fixed Rate Debt:

   Long-term notes              $ 439      $ 470      $ 500      $ 529    $ 569        $ 2,861     $ 5,368        $ 5,368
   Interest expense             $ 305      $ 283      $ 254      $ 222    $ 188          $ 667     $ 1,919
   Average interest rate        5.90%       6.00%     6.00%      5.98%     5.94%          5.72%

Variable Rate Debt:

   Revolving line of credit
                              $ 17,200      -           -          -          -           -         $ 17,200     $ 17,200
   Interest expense            $ 1,376      -           -          -          -           -         $ 1,376
   Average interest rate        8.00%

Interest Rate Swaps:
   1 Swap Receive Variable
     Pay Fixed                 $ 120      $ 125       $ 130      $ 140      $ 150      $ 1,775     $ 2,440           $ 55
     Variable Receive Rate
     = 6.24%
     Pay Rate = 6.23%
</TABLE>



<PAGE>


<TABLE>
<CAPTION>

March 31, 1999
(In thousands)                                Expected Fiscal Year of Maturity
                             --------------------------------------------------------------------
                               2000        2001       2002       2003       2004     Thereafter     Total      Fair Value

<S>                           <C>        <C>        <C>        <C>      <C>          <C>         <C>             <C>
Fixed Rate Debt:

   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,  2000,  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 of Financial  Condition and Results of Operations - Liquidity and
      Capital Resources."



<PAGE>



      Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                                                       Page
           Independent Auditors' Report                                 30

           Consolidated Balance Sheets at March 31, 2000 and 1999       31

           Consolidated  Statements  of Income for the Years
             ended March 31,2000, 1999 and 1998                         32

           Consolidated Statements of Changes in Stockholders'
             Equity for the Years ended
             March 31, 2000, 1999 and 1998                              33

           Consolidated Statements of Cash Flows for the Years ended
           March 31, 2000, 1999 and 1998                                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 subsidiaries as of March 31, 2000 and 1999 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,  2000.  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  auditing  standards
      generally  accepted  in the  United  States of  America.  Those  standards
      require that we plan and perform the audit to obtain reasonable  assurance
      about whether the financial statements are free of material  misstatement.
      An audit  includes  examining,  on a test basis,  evidence  supporting the
      amounts  and  disclosures  in the  financial  statements.  An  audit  also
      includes   assessing  the  accounting   principles  used  and  significant
      estimates made by 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 subsidiaries as of March 31, 2000 and 1999 and
      the results of their operations and their cash flows for each of the years
      in the  three-year  period  ended  March  31,  2000,  in  conformity  with
      accounting principles generally accepted in the United States of America.


                                                KPMG  LLP
      Allentown, Pennsylvania
      May 8, 2000




<PAGE>





           PIERCING PAGODA, INC.
           Consolidated Balance Sheets
           March 31,
           (In thousands, except share data)
<TABLE>
<CAPTION>

           -------------------------------------------------------------------------- ---------------- --- ----------------
           Assets                                                                          2000                 1999
           -------------------------------------------------------------------------- ---------------- --- ----------------
           <S>                                                                             <C>                  <C>
           Current assets:
               Cash                                                                          $ 1,137              $ 4,068
               Accounts receivable                                                             2,909                4,674
               Inventory                                                                      63,960               53,685
               Deposits for inventory purchases                                                  197                  707
               Prepaid expenses and other current assets                                       1,476                1,337
               Prepaid income taxes                                                                -                  131
               Deferred income taxes                                                             992                2,213

           -------------------------------------------------------------------------- ---------------- --- ----------------
           Total current assets                                                               70,671               66,815
           -------------------------------------------------------------------------- ---------------- --- ----------------

           Property, fixtures and equipment, net                                              35,692               34,293
           Goodwill, net                                                                      19,155               20,199
           Other assets, net                                                                   1,775                1,993

           -------------------------------------------------------------------------- ---------------- --- ----------------
                                                                                           $ 127,293            $ 123,300
           -------------------------------------------------------------------------- ---------------- --- ----------------

           Liabilities and Stockholders' Equity
           -------------------------------------------------------------------------- ---------------- --- ----------------
           Current liabilities:

               Accounts payable                                                              $ 2,912              $ 3,934
               Current installments of long-term debt and
                revolving line of credit                                                      17,639                  432
               Income taxes payable                                                               50                  125
               Accrued expenses and other current liabilities                                 12,234               14,753

           -------------------------------------------------------------------------- ---------------- --- ----------------
           Total current liabilities                                                          32,835               19,244
           -------------------------------------------------------------------------- ---------------- --- ----------------

           Long-term debt, less current installments                                           4,929               25,169
           Deferred income taxes                                                               4,144                3,476
           Other liabilities                                                                     671                  920

           -------------------------------------------------------------------------- ---------------- --- ----------------
           Total liabilities                                                                  42,579               48,809
           -------------------------------------------------------------------------- ---------------- --- ----------------

           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 9,179,988
                and 9,133,901 shares at March 31, 2000 and 1999, respectively.                    92                   92
               Additional paid-in capital                                                     41,339               40,906
               Treasury stock, at cost                                                        (3,191)                   -
               Retained earnings                                                              46,474               33,493

           -------------------------------------------------------------------------- ---------------- --- ----------------
           Total stockholders' equity                                                         84,714               74,491
           -------------------------------------------------------------------------- ---------------- --- ----------------
                                                                                           $ 127,293            $ 123,300
           -------------------------------------------------------------------------- ---------------- --- ----------------
</TABLE>

      See accompanying notes to consolidated financial statements.


<PAGE>



           PIERCING PAGODA, INC.
           Consolidated Statements of Income
           Years ended March 31,
           (In thousands, except per share data)
<TABLE>
<CAPTION>

           ---------------------------------------------------------------------- ------------------ --------------- --------------
                                                                                        2000              1999           1998
           ---------------------------------------------------------------------- ------------------ --------------- --------------

<S>                                                                                   <C>                <C>             <C>
           Net sales                                                                  $ 280,718          $ 255,147       $ 222,128
           Cost of goods sold and occupancy expenses
                (excluding depreciation on kiosks and store fixtures)                   144,556            137,072         119,328
           ---------------------------------------------------------------------- ------------------ --------------- --------------
           Gross profit                                                                 136,162            118,075         102,800

           Selling, general and administrative expenses
                (including depreciation on kiosks and store fixtures)                   111,082            102,464          82,916
           ---------------------------------------------------------------------- ------------------ --------------- --------------
           Income from operations                                                        25,080             15,611          19,884

           Interest and other income                                                        251                367             562
           Interest expense                                                               3,698              3,110           2,896
           ---------------------------------------------------------------------- ------------------ --------------- --------------
           Earnings before income taxes                                                  21,633             12,868          17,550

           Income taxes                                                                   8,652              5,225           6,581
           ---------------------------------------------------------------------- ------------------ --------------- --------------
           Net income                                                                  $ 12,981            $ 7,643        $ 10,969
           ---------------------------------------------------------------------- ------------------ --------------- --------------

           Basic earnings per share                                                     $ 1.43             $ 0.84          $ 1.25
           ---------------------------------------------------------------------- ------------------ --------------- --------------
           Diluted earnings per share                                                   $ 1.41             $ 0.82          $ 1.21
           ---------------------------------------------------------------------- ------------------ --------------- --------------
</TABLE>



      See accompanying notes to consolidated financial statements.



<PAGE>



<TABLE>
<CAPTION>

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

         (In thousands, except number of shares)

         ---------------------------------- ----------------------- -------------- ----------- ----------- -------------
                                                                      Additional
                                                 Common stock          paid-in      Treasury    Retained
                                               Shares      Amount       capital       Stock      Earnings      Total
         ---------------------------------- ------------- ---------- -------------- ----------- ----------- -------------
<S>                                           <C>              <C>     <C>          <C>          <C>           <C>
         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
         Share transactions under
         employee stock plans,
         including tax benefit                   46,087           -         433            -           -            433
         Purchase of treasury stock                   -           -           -        (3,191)         -         (3,191)
         Net income                                   -           -           -            -        12,981       12,981
         ---------------------------------- ------------- ---------- -------------- ----------- ----------- -------------
         Balance - March 31, 2000             9,179,988        $ 92    $ 41,339     $ (3,191)     $ 46,474     $ 84,714
         ---------------------------------- ------------- ---------- -------------- ----------- ----------- -------------

         See accompanying notes to consolidated financial statements.
</TABLE>


<PAGE>



           PIERCING PAGODA, INC.

           Consolidated Statements of Cash Flows

           Years ended March 31,
           (In thousands)

<TABLE>
<CAPTION>

           -------------------------------------------------------------- ------------------- -------------- ---------------
                                                                                 2000             1999            1998
           -------------------------------------------------------------- ------------------- -------------- ---------------
<S>                                                                            <C>                 <C>           <C>
           Cash flows from operating activities:
              Net income                                                       $ 12,981            $ 7,643       $ 10,969
              Adjustments to reconcile net income to net cash
           provided by operating activities:
                   Depreciation and amortization                                  8,400              7,030          5,402
                   Loss on disposal of property, fixtures and
                    equipment                                                       865                337            141
                   Other changes in other assets                                     69                 76           (101)
                   Deferred income taxes                                          1,889                833            732
                   Changes in operating assets and liabilities,
                      net of effects of acquisitions:
                        Accounts receivable                                       1,765             (3,688)           779
                        Inventory                                               (10,275)             1,274         (7,673)
                        Deposits for inventory purchases                            510               (161)           304
                        Prepaid expenses and other current
                         assets                                                    (139)              (277)          (301)
                        Prepaid income taxes                                        131                 84          1,279
                        Accounts payable                                         (1,022)               702           (436)
                        Accrued expenses and other current
                          liabilities                                            (2,519)             2,130          2,882
                        Income taxes payable                                        (75)              (671)         1,019
                        Other liabilities                                          (249)              (283)          (133)

           -------------------------------------------------------------- ------------------- -------------- ---------------
           Net cash provided by operating activities                             12,331             15,029         14,863
           -------------------------------------------------------------- ------------------- -------------- ---------------

           Cash flows from investing activities:
              Additions to property, fixtures and equipment                      (8,793)           (12,570)        (9,066)
              Payments for purchases of businesses                                 (527)           (15,583)        (7,980)
              Proceeds from disposal of property, fixtures and
               equipment                                                              -                  -             67
              Other changes in other assets, net                                    (88)              (100)           (25)

           -------------------------------------------------------------- ------------------- -------------- ---------------
           Net cash used in investing activities                               $ (9,408)         $ (28,253)     $ (17,004)
           -------------------------------------------------------------- ------------------- -------------- ---------------
</TABLE>



<PAGE>



           PIERCING PAGODA, INC.

           Consolidated Statements of Cash Flows - Continued

           Years ended March 31,

           (In thousands)
<TABLE>
<CAPTION>

           -------------------------------------------------------------- ------------------- -------------- ---------------
                                                                                 2000             1999            1998
           -------------------------------------------------------------- ------------------- -------------- ---------------
<S>                                                                              <C>                <C>           <C>
           Cash flows from financing activities:
              Repayments of long-term debt                                       $ (433)            $ (253)        $ (235)
              Revolving line of credit, net                                      (2,600)            11,058        (16,700)
              Proceeds from issuance of long-term debt                                -              3,565              -
              Debt issuance fees paid                                               (63)              (204)           (51)
              Proceeds from issuance of common stock, net                             -                  -         17,189
              Purchase of treasury stock                                         (3,191)                 -              -
              Net proceeds from the issuance of stock under
           employee share plans                                                     433                427            518

           -------------------------------------------------------------- ------------------- -------------- ---------------
           Net cash provided by financing activities                             (5,854)            14,593            721
           -------------------------------------------------------------- ------------------- -------------- ---------------
           -------------------------------------------------------------- ------------------- -------------- ---------------
           Net increase (decrease) in cash                                       (2,931)             1,369         (1,420)

           Cash at beginning of period                                            4,068              2,699          4,119

           -------------------------------------------------------------- ------------------- -------------- ---------------
           Cash at end of period                                                $ 1,137            $ 4,068        $ 2,699
           -------------------------------------------------------------- ------------------- -------------- ---------------

           Supplemental disclosures of cash flow     information:
              Cash paid during the period for:
                 Interest                                                       $ 3,710            $ 3,053        $ 2,877
                 Income taxes, net                                              $ 6,707            $ 5,072        $ 6,669
           -------------------------------------------------------------- ------------------- -------------- ---------------
</TABLE>


      Supplemental disclosure of operating activities:

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


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



(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, 2000, the Company operated 940 stores, including
      33  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
      preferred  customer  jewelry club  promotional  program.  The Company also
      accrues the estimated  costs  associated  with its  merchandise  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   receivables   consist   principally   of
      receivables  from credit card companies,  merchandise  credits  receivable
      from vendors or the gold-content value of merchandise at smelters.

           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.

            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

<PAGE>


        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  2000,  1 vendor  accounted  for 15% of total  merchandise
      purchased.  In  fiscal  1999  this  vendor  accounted  for  11%  of  total
      merchandise purchased. In 1998, no vendors supplied more than 10% of total
      merchandise purchased.

           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  $3,853,000,  $3,090,0000  and $2,508,000 in fiscal
      2000, 1999, and 1998, 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.

           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.



<PAGE>


           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,
                                               --------------------------
                                                  2000    1999     1998
      -------------------------------------------------------------------
<S>                                             <C>      <C>     <C>
      Basic                                     9,066    9,119   8,765
      Dilutive effect of outstanding stock
        options, using the treasury stock
        method                                    171      212     297
      -------------------------------------------------------------------
      Diluted                                   9,237    9,331   9,062
      -------------------------------------------------------------------
</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. (See Note 12.)

           Recent Accounting Pronouncements

           In June 1998, the Financial  Accounting Standards Board (FASB) 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. In June of 1999,
      the FASB issued SFAS No. 137,  "Acounting for Derivative  Instruments  and
      Hedging Activities - Deferral of the Effective Date of SFAS No. 133." SFAS
      No. 137 delays the effective  date of SFAS No. 133 to the beginning of the
      first  quarter of the fiscal  year  beginning  after  June 15,  2000.  The
      Company does not anticipate adoption of this standard will have a material
      impact on the Company's financial condition or results of operations.


(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,  2000,  1999 and 1998,  the
      Company  had  consigned  142,000,  143,443,  and  119,800  ounces of gold,
      respectively,  with values of $39,298,000,  $40,085,0000 and $36,060,0000,
      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,  2000,
      1999, and 1998 are consignment fees of $1,150,000,  $796,000 and $912,000,
      respectively, based on fee rates of approximately 2.68 %, 1.94% and 2.74%,
      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.


<PAGE>



(4)   Property, Fixtures and Equipment

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

<TABLE>
<CAPTION>
                                                                                                       March 31,
                                                                                       -------------------------------------
                                                                                              2000                 1999
         ----------------------------------------------------------------------------- ----------------- -- ----------------
<S>                                                                                        <C>                  <C>
         Land                                                                              $      688           $      688
         Furniture and fixtures                                                                 6,416                5,043
         Kiosks                                                                                33,744               30,681
         Building and improvements                                                              7,327                7,283
         Computer equipment, software and other equipment                                      12,988               11,622
         ----------------------------------------------------------------------------- ----------------- -- ----------------
                                                                                               61,163               55,317
         Less accumulated depreciation and amortization                                        25,471               21,024
         ----------------------------------------------------------------------------- ----------------- -- ----------------
                                                                                             $ 35,692             $ 34,293
         ----------------------------------------------------------------------------- ----------------- -- ----------------
</TABLE>

(5)   Goodwill and Other Assets

           Goodwill and other assets are summarized as follows (in thousands):

<TABLE>
<CAPTION>

                                                                                                         March 31,
                                                                                          ----------------------------------
                                                                                                2000               1999
         -------------------------------------------------------------------------------- --------------- -- ---------------
         <S>                                                                                 <C>                <C>
         Goodwill (net of accumulated amortization of $3,437 and
                $1,866 at March 31, 2000 and 1999, respectively)                             $ 19,155           $ 20,199
         -------------------------------------------------------------------------------- --------------- -- ---------------

         Other Assets:
            Noncompetition agreements (net of accumulated amortization of $523 and
              $303 at March 31, 2000 and 1999, respectively)                                      577                797
            Deferred expenses, principally long-term maintenance agreements                       333                455
            Cash surrender value of officers life insurance                                       522                487
            Other                                                                                 343                254
         -------------------------------------------------------------------------------- --------------- -- ---------------
                                                                                             $  1,775           $  1,993
         -------------------------------------------------------------------------------- --------------- -- ---------------
</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 provided 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>


           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.

 (6)  Accrued expenses and other current liabilities

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

<TABLE>
<CAPTION>

                                                           March 31,
                                                    ---------------------
                                                       2000        1999
      -------------------------------------------------------------------
<S>                                                 <C>         <C>
      Accrued payroll, vacation and related taxes   $  5,083    $  6,254
      Sales tax payable                                  834         719
      Accrued rents payable                            1,129       1,089
      Liability under jewelry club program               540         989
      Liability under merchandise guarantee program      901       1,321
      Accrued store closure costs                        493       1,250
      Other accrued expenses                           3,254       3,131
      -------------------------------------------------------------------
                                                    $ 12,234    $ 14,753
      -------------------------------------------------------------------
</TABLE>

     Included  in accrued  expenses is  approximately  $493,000  and  $1,250,000
     representing the estimated  closure costs for stores closed or to be closed
     at March 31, 2000 and 1999,  respectively.  These costs principally consist
     of  estimated  outstanding  lease  obligations  and  kiosk  disposal  costs
     associated  with the 44 and 79 stores the Company closed in fiscal 2000 and
     1999, respectively and 23 additional locations for which a closure decision
     had been  made at March  31,  1999,  but  which  are yet to be  closed.  In
     addition,  the  Company  made  payments  to  settle  31  outstanding  lease
     obligations,  which had also been accrued at March 31,  1999.  Accordingly,
     the  Company's  accrual for store  closure costs was reduced to reflect the
     payments towards these obligations.



<PAGE>



(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,
                                                     --------------------
                                                        2000       1999
      -------------------------------------------------------------------
<S>                                                  <C>        <C>
      Revolving line of credit                       $ 17,200   $ 19,800
      Industrial development authority financing        5,368      5,801
      -------------------------------------------------------------------
      Total long-term debt                             22,568     25,601
      Less current installments                        17,639        432
      -------------------------------------------------------------------
                                                      $ 4,929   $ 25,169
      -------------------------------------------------------------------
</TABLE>


           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  (8.00%  at March 31,  2000)  and a rate  based on the rates
      charged on overnight  federal  funds  transactions  with  Federal  Reserve
      System  members plus 50 basis points (6.57% at March 31,  2000).  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  (7.24% at March 31, 2000
      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, 2000,  the Company had $45.2  million  available  for cash  borrowings
      under this revolving credit facility.  Letters of credit in the amounts of
      $40,137,000  and  $41,387,000  were  issued  at March  31,  2000 and 1999,
      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, 2000.


           Borrowings  under the  revolving  line of credit  are  summarized  as
      follows (in thousands):

<TABLE>
<CAPTION>
                                                                                                     March 31,
                                                                                 -------------------------------------------
                                                                                      2000           1999           1998
         ----------------------------------------------------------------------- ------------- -------------- --------------
         <S>                                                                        <C>           <C>            <C>
         Borrowings at year end                                                       $17,200       $19,800        $ 7,500
         Interest rate on borrowings at year-end                                       7.26%         6.33%          6.80%
         Maximum amount of borrowings  outstanding at
            any month end                                                            $ 46,800      $ 54,000       $ 33,400
         Average aggregate borrowings during the year                                $ 25,865      $ 23,147       $ 20,492
         Weighted average interest rate during the year                                6.84%         6.75%          7.03%
         ----------------------------------------------------------------------- ------------- -------------- --------------
</TABLE>



<PAGE>


           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  $2,495,000 at March
      31, 2000 which is supported by a lien on the newly  constructed  warehouse
      and  distribution  center which has a net carrying  value of $3.0 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.

           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 $2,032,000 at March 31, 2000
      which is supported by a lien on the Company's  corporate  headquarters and
      distribution  center which has a net carrying value of approximately  $2.8
      million  at March  31,  2000.  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,  2000 (in
      thousands):

<TABLE>
<CAPTION>
                                                                          Amount
      -------------------------------------------------------------------
      <S>                                                       <C>
      2001                                                        $ 439
      2002                                                          470
      2003                                                          500
      2004                                                          529
      2005                                                          569
      Subsequent to 2005                                          2,861
      -------------------------------------------------------------------
      Total payments                                            $ 5,368
      -------------------------------------------------------------------
</TABLE>


<PAGE>



(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 2000.  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,  2000  under
      non-cancelable  operating  leases having  original  terms in excess of one
      year are as follows (in thousands):
<TABLE>
<CAPTION>

                                                                          Amount
      -------------------------------------------------------------------
     <S>                                                      <C>
      2001                                                    $ 21,660
      2002                                                      14,717
      2003                                                      10,018
      2004                                                       6,539
      2005                                                       3,184
      Subsequent to 2005                                         1,272
      -------------------------------------------------------------------
      Total rental payments                                   $ 57,390
      -------------------------------------------------------------------
</TABLE>

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

                                                      Years ended March 31,
                                                  ----------------------------
                                                    2000     1999      1998
      -------------------------------------------------------------------------
<S>                                             <C>       <C>       <C>
      Minimum rentals                           $ 31,376  $ 29,027  $ 23,690
      Contingent rentals                           2,181     2,003     1,916
      -------------------------------------------------------------------------
      Total rental expense                      $ 33,557  $ 31,030  $ 25,606
      -------------------------------------------------------------------------
</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 $400,000,
      $250,000 and $500,000 in fiscal 2000, 1999 and 1998, 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  $377,000,  $297,000  and
      $212,000  in fiscal  2000,  1999 and 1998,  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.


<PAGE>



(10)  Income Taxes

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

<TABLE>
<CAPTION>
                                                                                           Years ended March 31,
                                                                                 -------------------------------------------
                                                                                     2000          1999           1998
         ----------------------------------------------------------------------- ------------- -------------- --------------
         <S>                                                                          <C>           <C>            <C>
         Current tax expense:
              Federal                                                                 $ 6,172       $ 3,673        $ 5,346
              State                                                                       591           719            503
         ----------------------------------------------------------------------- ------------- -------------- --------------
                                                                                        6,763         4,392          5,849
         ----------------------------------------------------------------------- ------------- -------------- --------------
         Deferred tax expense
              Federal                                                                   1,416           645            570
              State                                                                       473           188            162
         ----------------------------------------------------------------------- ------------- -------------- --------------
                                                                                        1,889           833            732
         ----------------------------------------------------------------------- ------------- -------------- --------------
                                                                                      $ 8,652       $ 5,225        $ 6,581
         ----------------------------------------------------------------------- ------------- -------------- --------------
</TABLE>

           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,
                                                                                               -----------------------------
                                                                                                     2000           1999
         ------------------------------------------------------------------------------------- -------------- --------------
         <S>                                                                                      <C>            <C>
         Deferred tax liabilities:
            Excess of tax over book depreciation                                                   $ (4,639)      $ (3,877)
            Inventory                                                                                  (462)             -
            Employee benefit plans                                                                     (355)          (310)
         ------------------------------------------------------------------------------------- -------------- --------------
         Total deferred tax liabilities                                                              (5,456)        (4,187)
         ------------------------------------------------------------------------------------- -------------- --------------

         Deferred tax assets:
            Inventory                                                                                     -            235
            Accrual for merchandise guarantee costs                                                     366            528
            Accrued vacation expense                                                                    584            456
            Accrual for jewelry club costs                                                              219            395
            Accrued group insurance                                                                     270            266
            Accrued store closure costs                                                                 200            494
            Other                                                                                       665            550
         ------------------------------------------------------------------------------------- -------------- --------------
         Total deferred tax assets                                                                    2,304          2,924
         Less valuation allowance                                                                         -              -
         ------------------------------------------------------------------------------------- -------------- --------------
         Net deferred tax assets                                                                      2,304          2,924
         ------------------------------------------------------------------------------------- -------------- --------------
         Net deferred tax liability                                                                $ (3,152)      $ (1,263)
         ------------------------------------------------------------------------------------- -------------- --------------
</TABLE>

           Based upon the Company's  current and  historical  taxable income 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, 2000.


<PAGE>



           Income tax expense in fiscal  2000,  1999 and 1998  differs  from the
      amounts  computed by applying the federal  statutory rate of 35% to income
      before taxes as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                               Years ended March 31,
                                                                                  -------------------------------------------
                                                                                        2000          1999           1998
         ------------------------------------------------------------------------ -------------- ------------- --------------
<S>                                                                                    <C>            <C>           <C>
         Tax expense at statutory rates                                                $ 7,572        $ 4,504       $ 6,142
         State income taxes, net of federal benefit                                        692            590           432
         Non-deductible  amortization of cost in excess of net assets of acquired
            business                                                                       300            192            40
         Other                                                                              88            (61)          (33)
         ------------------------------------------------------------------------ -------------- ------------- --------------
                                                                                       $ 8,652        $ 5,225       $ 6,581
         ------------------------------------------------------------------------ -------------- ------------- --------------
</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,  $10,000 and $13,000 in fiscal
      2000, 1999, and 1998,  respectively,  representing certain direct expenses
      and  the  estimated  fair  value  of  providing  administrative  services,
      primarily allocations of salary and overhead.


(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 1,100,000.  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.
      All options granted in fiscal 2000, 1999 and 1998 were granted at the fair
      market value on the date of grant 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,
                                      -----------------------------------
                                           2000       1999        1998
      -------------------------------------------------------------------
     <S>                                 <C>        <C>         <C>
     Net income:
        As reported                      $ 12,981   $ 7,643     $ 10,969
        Pro forma                        $ 11,319   $ 6,587     $ 9,762

      Diluted earnings per share:
        As reported                       $ 1.41      $ 0.82      $ 1.21
        Pro forma                         $ 1.23      $ 0.71      $ 1.08
      -------------------------------------------------------------------
</TABLE>



<PAGE>



           The per share  weighted  average fair value of stock options  granted
      during  fiscal  2000,  1999  and  1998  were  $6.74,  $12.21  and  $10.56,
      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>

                                          2000       1999        1998
      -------------------------------------------------------------------
<S>                                      <C>        <C>         <C>
      Expected dividend yield             0.0%       0.0%        0.0%
      Expected volatility                59.4       58.9        42.1
      Risk-free interest rate             6.3        5.3         5.7
      Expected life (in years)            7.4        9.0         9.0
      -------------------------------------------------------------------
</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.

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

                                                   Weighted
                                                   Average      Shares
                                                   Exercise  Under Option
                                                    Price
      -------------------------------------------------------------------
      -------------------------------------------------------------------
<S>                                                <C>        <C>
      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
        Granted                                       10.01    144,300
        Exercised                                      9.06    (10,875)
        Canceled                                      15.60    (35,850)
      -------------------------------------------------------------------
      Outstanding at March 31, 2000                   12.03    888,023
      -------------------------------------------------------------------
      Exercisable                                   $ 11.09    558,914
      -------------------------------------------------------------------

</TABLE>



<PAGE>


<TABLE>
<CAPTION>
           The  following  table  summarizes  information  concerning  currently
      outstanding and exercisable options:

                                                                                         Exercise Price

                                                             $ 5.33 - $ 12.06    $ 12.33 - $15.00       $ 16.33 - $ 24.17
         ------------------------------------------------ --------------------- -------------------- -----------------------
         <S>                                                      <C>                 <C>                    <C>
         Options outstanding at March 31, 2000                     437,424               196,299              254,300
            Weighted average remaining contractual life
            (years)                                                  6.00                  7.12                 7.41
            Weighted average exercise price                        $ 7.60               $ 14.25              $ 17.92
         Options exercisable at March 31, 2000                     294,925               138,850              125,139
            Weighted average exercise price                        $ 6.68               $ 14.35              $ 17.88
         ------------------------------------------------ --------------------- -------------------- -----------------------
</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 2000,
      1999 and 1998, 33,423, 26,484 and 13,976 shares, respectively, were issued
      under this plan.

           On August 11, 1999, the Company announced that its Board of Directors
      authorized  management  to  purchase  up to  200,000  shares of its common
      stock. On November 22, 1999, the Board of Directors authorized an increase
      in the share  repurchase  program to a total of 400,000 shares.  Purchases
      will  be made  from  time to time  in the  open  market  and in  privately
      negotiated  transactions,  and it is expected  that funding of the program
      will come from operating cash flow and existing banking facilities.  As of
      March 31, 2000, the Company has  repurchased  254,150 shares of its common
      stock under the repurchase program at an average price of $12.56.

(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.


<PAGE>



(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, 1999, the securities class action  litigation that had
      been filed  during  fiscal  1999  against  the  Company and certain of its
      officers  by Israel H. Buck et al. was  dismissed  with  prejudice  by the
      United States District Court for the Eastern District of Pennsylvania.  No
      appeal of the  dismissal was filed by the  plaintiffs  within the required
      time period.

           At March  31,  2000,  the  Company  had  commitments  outstanding  of
      approximately  $1.4 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 2000 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 2000 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 2000 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 2000 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, 2000 and 1999        31

            Consolidated Statements of Income for the Years ended
            March 31, 2000, 1999 and 1998                                 32

            Consolidated Statements of Changes in Stockholders'
            Equity for the Years ended March 31, 2000, 1999 and 1998      33

            Consolidated Statements of Cash Flows for the Years ended
            March 31, 2000, 1999 and 1998                                 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.


<PAGE>



         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).

        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).

<PAGE>




       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).


<PAGE>



       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,  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).**

<PAGE>



       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   reference  to  Exhibit  10.22  to  the
                 Registrant's  Registration  Statement  on Form  S-1,  File  No.
                 33-80200,  initially  filed with the  Securities  and  Exchange
                 Commission on June14, 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).

       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
                 Exchang 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).

<PAGE>



       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     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.*

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

       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).


<PAGE>




          11   Not applicable.

          12   Not applicable.

          13   Not applicable.

          16   Not applicable.

          18   Not applicable.

          21   Subsidiaries of Registrant.*

          22   Not applicable.

        23.1   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 2000


<PAGE>




      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 19, 2000.

                                    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     Chief Executive Officer and     June 19, 2000
   Richard H. Penske          Chairman of the Board
                               Principal Executive Officer)





   /s/ John F. Eureyecko     Director, President and         June 19, 2000
   John F. Eureyecko         Chief Operating Officer
                             (Principal  Financial
                              and Accounting Officer)



   /s/ Alan R. Hoefer        Director                        June 19, 2000
   Alan R. Hoefer





   /s/ Mark A. Randol        Director                        June 19, 2000
   Mark A. Randol





   --------------------
   Douglas J. Tigert