UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549

                                  FORM 10-Q

                (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR
                   15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

              For the quarterly period ended September 30, 1997

                                     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 Number)



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


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

                                     N/A
       (Former Name, Former Address and Former Fiscal Year, if Changed Since
                                Last Report.)


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 [ ]

The  number  of  shares  outstanding  of  the  registrant's  common  stock  is
6,045,599 (as of November 7, 1997)


<PAGE>


                            PIERCING PAGODA, INC.


                                    INDEX
                                                                      PAGE
                        PART I - FINANCIAL INFORMATION               NUMBER

  Item 1.    Financial Statements

             Consolidated balance sheets as of
             September 30, 1997 and March 31, 1997                      3

             Consolidated statements of operations for the three
             months ended September 30, 1997 and 1996 and six 
             months ended September 30, 1997 and 1996                   4

             Consolidated statements of cash flows for the six
             months ended September 30, 1997 and 1996                   5

             Notes to consolidated financial statements                 7

  Item 2.    Management's discussion and analysis of financial
             condition and results of operations                        9

                         PART II - OTHER INFORMATION

     Item 1. Legal Proceedings                                         14

     Item 2. Changes in Securities                                     14

     Item 3. Defaults Upon Senior Securities                           14

     Item 4. Submission of Matters to a Vote of Security Holders       14

     Item 5. Other Information                                         14

     Item 6. Exhibits and Reports on Form 8-K                          15

             Signatures                                                16


                                     2
<PAGE>



PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                    PIERCING PAGODA, INC. AND SUBSIDIARY
                         CONSOLIDATED BALANCE SHEETS
                      (In thousands, except share data)
<TABLE>
<CAPTION>

                                                     September 30,   March 31,
                                                         1997           1997
                                                     -------------   -----------
   Assets                                            (Unaudited)

Current assets
<S>                                                    <C>            <C>    
   Cash                                                $ 2,719        $ 4,119
   Accounts receivable                                     811          2,233
   Inventory                                            50,944         43,109
   Deposits for inventory purchases                      5,737            850
   Prepaid expenses and other current assets               547            757
   Prepaid income taxes                                  2,656          1,494
   Deferred tax assets                                   1,721          1,530

                                                     -------------   -----------
Total current assets                                    65,135         54,092

Property, fixtures and equipment, net                   25,087         22,572
Other assets                                             6,372          3,077

                                                     =============   ===========
                                                      $ 96,594       $ 79,741
                                                     =============   ===========
   Liabilities and Stockholders' Equity

Current liabilities
   Accounts payable                                    $ 5,458        $ 3,668
   Current installments of long-term debt                  234            234
   Accrued expenses and other current liabilities        9,352          9,541

                                                     -------------   -----------
Total current liabilities                               15,044         13,443

Long-term debt, less current installments               25,772         26,690
Deferred tax liabilities                                   493          1,550
Other liabilities                                          687            536

                                                     -------------   -----------
Total liabilities                                       41,996         42,219

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 6,041,724 shares            61             53
   and 5,273,994
      at September 30, 1997 and March 31, 1997,
   respectively.
   Additional paid-in capital                           40,106         22,588
   Retained earnings                                    14,431         14,881

                                                     -------------   -----------
Total stockholders' equity                              54,598         37,522
                                                     -------------   -----------
                                                       $96,594       $ 79,741
                                                     =============   ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                     3
<PAGE>




                    PIERCING PAGODA, INC. AND SUBSIDIARY
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share data)
                                 (Unaudited)
<TABLE>
<CAPTION>

                                     Three months ended      Six months ended
                                       September 30,          September 30,
                                      1997        1996       1997       1996
                                    ----------  ---------   --------  ---------

<S>                                 <C>        <C>         <C>       <C>     
Net sales                           $ 42,877   $ 32,439    $ 85,750  $ 62,683

Cost of goods sold and occupancy
 expenses, (excluding depreciation
 on kiosks)                           24,099     18,723      48,865    36,186
                                    ----------  ---------   --------  ---------
Gross profit                          18,778     13,716      36,885    26,497

Selling, general and administrative
 expenses, (including depreciation
 on kiosks)                           18,445     13,477      36,299    25,898
                                    ----------  ---------   --------  ---------
Income from operations                   333        239         586       599

Interest and other income                105         74         208       134
Interest expense                         682        487       1,525       848
                                    ----------  ---------   --------  ---------
Loss before income taxes                (244)      (174)       (731)     (115)

Income tax benefit                       (91)       (69)       (281)      (45)
                                    ==========  =========   ========  =========
Net loss                              $ (153)    $ (105)     $ (450)    $ (70)
                                    ==========  =========   ========  =========

Loss per share                       $ (0.02)   $ (0.02)    $ (0.08)  $ (0.01)
                                    ==========  =========   ========  =========
Weighted average common shares and
 equivalent shares outstanding         6,195      5,370       5,849     5,369
                                    ==========  =========   ========  =========
</TABLE>

See accompanying notes to consolidated financial statements


                                     4
<PAGE>



                    PIERCING PAGODA, INC. AND SUBSIDIARY
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (In thousands)
                                 (Unaudited)
<TABLE>
<CAPTION>
                                                            Six months ended
                                                               September 30,
                                                       -------------------------
                                                          1997          1996
                                                       ------------  -----------

Cash flows from operating activities:
<S>                                                       <C>          <C>   
  Net loss                                                $ (450)      $ (70)
  Adjustments to reconcile net loss  to net cash
   used in operating activities:
     Depreciation and amortization                         2,512       1,639
     (Gain) loss on disposal of property, fixtures
       and equipment                                          (2)         48
     Other changes in other assets                           (20)        (85)
     Deferred income taxes                                   604           -
     Change in operating assets and liabilities
        net of effects of acquisitions:
      Accounts receivable                                  1,422         (83)
      Inventory                                           (5,468)    (11,993)
      Deposits for inventory purchases                    (4,887)     (3,070)
      Prepaid expenses and other current assets              210         170
      Prepaid income taxes                                (1,081)       (255)
      Accounts payable                                     1,790       7,432
      Accrued expenses and other current liabilities        (249)       (348)
      Other liabilities                                      (89)         57

                                                       ------------  -----------
Net cash used in operating activities                     (5,708)     (6,558)

Cash flows from investing activities:
  Additions to property, fixtures and equipment           (4,267)     (5,070)
  Payments for purchase of businesses                     (7,948)          -
  Proceeds from disposal of property, fixtures and
   equipment                                                  38          19
  Noncurrent deposits, net                                   (26)         15

                                                       ------------  -----------
Net cash used in investing activities                    (12,203)     (5,036)

Cash flows from financing activities:
  Repayments of long-term debt                               (18)        (10)
  Revolving line of credit, net                             (900)     11,445
  Loan fees paid                                             (16)          -
  Proceeds from issuance of long-term debt                     -         400
  Net proceeds from issuance of common stock under
   employee stock plans                                      256         171
  Proceeds from issuance of common stock, net             17,189           -

                                                       ------------  -----------
Net cash provided by financing activities                 16,511      12,006

                                                       ------------  -----------
Net increase (decrease) in cash                           (1,400)        412

Cash at beginning of period                                4,119       1,864

                                                       ============  ===========
Cash at end of period                                    $ 2,719     $ 2,276
                                                       ============  ===========
</TABLE>


                                     5
<PAGE>




                    PIERCING PAGODA, INC. AND SUBSIDIARY
              CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
                               (In thousands)
                                 (Unaudited)
<TABLE>
<CAPTION>
                                                            Six months ended
                                                               September 30,
                                                       -------------------------
                                                          1997          1996
                                                       ------------  -----------
Supplemental disclosures of cash flow  information: 
 Cash paid during the period for:
  
<S>                                                      <C>           <C>  
   Interest                                              $ 1,401       $ 801
                                                       ============  ===========
   Income taxes, net                                       $ 277       $ 210
                                                       ============  ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                     6
<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1            Summary of significant accounting policies

     The accompanying  consolidated financial statements of Piercing Pagoda,
     Inc. and subsidiary  (the  "Company")  have been prepared in accordance
     with  the  instructions  to Form  10-Q  and do not  include  all of the
     information  and footnotes  required by generally  accepted  accounting
     principles  for  complete  financial  statements.   These  consolidated
     financial  statements  include the results of  operations  for Piercing
     Pagoda,   Inc.  and  a  wholly  owned   subsidiary.   All  intercompany
     transactions have been eliminated in consolidation.  These consolidated
     financial  statements  should be read in conjunction with the Company's
     consolidated  financial statements and notes thereto for the year ended
     March 31, 1997. The financial information included herein is unaudited;
     however, the information reflects all adjustments (consisting solely of
     normal recurring  adjustments)  that are, in the opinion of management,
     necessary for a fair presentation of the financial position, results of
     operations and cash flows for the interim periods.

     Operating  results for the  three-month  and  six-month  periods  ended
     September 30, 1997 are not  necessarily  indicative of the results that
     may be expected for the entire fiscal year.

Note 2            Property, Fixtures and Equipment

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

                                              September 30,     March 31,
                                                  1997             1997
                                              -------------  -------------
<S>                                            <C>              <C>     
       Land                                    $     688        $    688
       Furniture and fixtures                      3,522           3,054
       Kiosks                                     22,701          19,832
       Building and improvements                   4,116           4,037
       Computer  equipment,  software  and
        other equipment                            8,654           7,396
                                              -------------  -------------
                                                  39,681          35,007
       Less  accumulated  depreciation and
        amortization                              14,594          12,435
                                              =============  =============
                                                $ 25,087        $ 22,572
                                              =============  =============
</TABLE>



                                     7
<PAGE>



Note 3            Accrued Expenses and Other Current Liabilities

     Accrued  expenses  and other  current  liabilities  are  summarized  as
     follows (in thousands):
<TABLE>
<CAPTION>

                                              September 30,      March 31,
                                                   1997            1997
                                              --------------    -----------
 <S>                                             <C>              <C> 
       Accrued   payroll, vacation and
        related taxes                           $ 4,141          $ 4,160
       Sales tax payable                            671              704
       Accrued rents payable                        504            1,091
       Liability under jewelry club
        program                                     975              747
       Liability under lifetime guarantee
        program                                   1,411            1,211
       Other accrued expenses                     1,650            1,628
                                              ==============    ===========
                                                $ 9,352          $ 9,541
                                              ==============    ===========
</TABLE>


Note 4            Purchase of businesses

     In April 1997, the Company  purchased  substantially all the operations
     of Silver and Gold  Connection,  Inc., an  independent  kiosk  retailer
     ("Silver  and Gold").  Silver and Gold had  operated  approximately  46
     kiosk locations selling primarily gold and silver jewelry. The purchase
     agreement  provides  for the  payment  of $4.7  million  for the  kiosk
     locations,  leases and store fixtures. The Company also acquired all of
     Silver and Gold's inventory for approximately $2.8 million.  The excess
     of the net assets acquired over their fair value of approximately  $3.0
     million has been  recorded as goodwill and is being  amortized  over 15
     years. In connection with the  acquisition,  the Company entered into a
     non-competition  agreement  with the principal  stockholder of Silver &
     Gold which  provides  for annual  payments of $60,000 to be made over a
     five year period.

Note 5            Secondary Offering

     On June 30, 1997, the Company completed a secondary offering of 650,000
     shares of its common stock.  The  transaction  resulted in net proceeds
     (after 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 97,500 shares of stock
     from the Company resulting in additional  proceeds (after  underwriting
     discounts  and  commissions)  to  the  Company  of  approximately  $2.3
     million.



                                     8
<PAGE>



ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Background

     The Company's  consolidated net sales are comprised  primarily of sales
     generated  by  the  Company's  stores  and,  to a much  lesser  extent,
     wholesale sales  primarily to an independent  store operator in Florida
     to which the  Company  licenses  the use of its store name and  concept
     (the "Florida  Licensee").  Cost of goods sold and  occupancy  expenses
     include the cost of  merchandise,  rent and  occupancy  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 of kiosks.

Results of operations

Three months ended September 30, 1997 and 1996

     Consolidated  net sales  increased  $10.5  million,  or 32% from  $32.4
     million for the three months ended  September 30, 1996 to $42.9 million
     for the three months ended  September  30, 1997.  This increase was due
     primarily to net sales  generated  by new stores  opened or acquired by
     the  Company  which were not in the  Company's  comparable  store base.
     Comparable  store sales  declined  $432,000 or 1.4% due  primarily to a
     planned reduction in promotional activity during the quarter and to the
     impact of new and acquired stores which operate in the same mall as the
     Company's  comparable  stores. Of the Company's 499 comparable  stores,
     approximately  125  operate in malls with a new or  acquired  companion
     store which opened within the last 18 months. There were a total of 769
     stores open at  September  30, 1997  compared to 565 at  September  30,
     1996, an increase of 36%. In addition,  wholesale  sales to the Florida
     licensee increased to $707,000 for the three months ended September 30,
     1997 from $555,000 in the three months ended  September 30, 1996.  This
     increase  reflects  increased  sales  volume at the Florida  Licensee's
     stores and the purchase of inventory for additional  locations operated
     by the  Florida  Licensee  versus the prior year.  The average  jewelry
     units sold per store  decreased  4% to 2,400 for the three months ended
     September  30,  1997  compared  to 2,500  for the  three  months  ended
     September 30, 1996.  The average price per jewelry unit sold  increased
     slightly  to $22.96  for the three  months  ended  September  30,  1997
     compared to $22.72 for the three months ended  September 30, 1996.  The
     decrease  in jewelry  units  sold and  increase  in  average  price per
     jewelry unit  reflect the planned  reduction  in  promotional  activity
     during the period as compared to the previous year.

     Gross profit increased $5.1 million, or 37%, from $13.7 million for the
     three months ended  September  30, 1996 to $18.8  million for the three
     months ended  September  30, 1997.  The  Company's  gross profit margin
     improved to 43.8% for the three months ended  September 30, 1997 versus
     42.3% for the three months ended September 30,

                                     9
<PAGE>


     1996. The increase in gross profit dollars was  attributable  primarily
     to the  Company's  increased net sales.  Gross profit  margin  improved
     primarily due to improved  merchandise margins caused by a reduction in
     promotional activities and lower merchandise costs to the Company. This
     was partially offset by increases in rent and occupancy as a percentage
     of net sales due to the large  number of newer  stores  operated by the
     Company and a decline in comparable store net sales.

     Selling, general and administrative expenses increased $4.9 million, or
     36%, from $13.5  million for the three months ended  September 30, 1996
     to $18.4  million for the three months ended  September  30, 1997. As a
     percentage of net sales, selling,  general and administrative  expenses
     increased  from 41.5% for the three months ended  September 30, 1996 to
     43.0% for the three months ended  September  30, 1997.  The increase in
     dollars was attributable primarily to the increase in the number of new
     and acquired stores and the pre-opening  costs for new stores,  as well
     as higher  supervisory  and  administrative  expenses  to  support  the
     current and expected growth in stores. The increase in selling, general
     and  administrative  expenses as a  percentage  of net sales  primarily
     reflects higher expenses associated with new stores opened and acquired
     by the Company.  This was partially offset by improvements in corporate
     overhead  as a  percentage  of net sales,  reflecting  leverage  over a
     larger sales base.  Depreciation and amortization expense increased 52%
     to $1.3  million in the three  months  ended  September  30,  1997 from
     $858,000 in the three months ended  September 30, 1996 due primarily to
     capital  expenditures  for new  stores and the  upgrading  of kiosks in
     existing locations.

     Interest  expense  increased  $195,000,  or 40%,  from $487,000 for the
     three months ended  September 30, 1996 to $682,000 for the three months
     ended  September 30, 1997,  and as a percentage of net sales  increased
     from 1.5% for the three months ended September 30, 1996 to 1.6% for the
     three months ended September 30, 1997. The increase in interest expense
     was due primarily to higher average balances on the Company's revolving
     line of credit and an  increase in fees paid under the  Company's  gold
     consignment arrangements.

     As a result of the  foregoing,  the Company's net loss  increased  from
     $105,000 for the three months ended  September 30, 1996 to $153,000 for
     the three months ended September 30, 1997.

Six months ended September 30, 1997 and 1996

     Consolidated  net sales  increased  $23.1  million,  or 37%, from $62.7
     million for the six months ended  September  30, 1996 to $85.8  million
     for  the six  months  ended  September  30,  1997.  This  increase  was
     primarily  due to an increase in the average  number of stores open for
     the six months ended  September 30, 1997, as compared to the six months
     ended  September  30,  1996  and a $1.4  million,  or 2%,  increase  in
     comparable  store net sales.  There were a total of 769 stores  open at
     September  30, 1997  compared to 565 at September 30, 1996, an increase
     of 36%. The average  jewelry units sold per store increased 2% to 5,000
     for the six months ended  September  30, 1997 compared to 4,900 for the
     six months ended September 30, 1996. The average price per jewelry unit

                                     10

<PAGE>


     sold was  relatively  unchanged  at  $23.46  for the six  months  ended
     September  30,  1997  compared  to  $23.60  for  the six  months  ended
     September 30, 1996.

     Gross profit  increased  $10.4 million,  or 39%, from $26.5 million for
     the six months ended  September  30, 1996 to $36.9  million for the six
     months ended  September  30, 1997.  The  Company's  gross profit margin
     improved  from 42.3% for the six months  ended  September  30,  1996 to
     43.0% for the six months  ended  September  30,  1997.  The increase in
     gross profit dollars was attributable to the Company's  increase in net
     sales.   Gross  profit  margin  improved   primarily  due  to  improved
     merchandise  margins  caused  by  a  recent  reduction  in  promotional
     activities and overall lower merchandise costs to the Company. This was
     partially  offset by increases in rent and occupancy as a percentage of
     net sales  due to the large  number  of newer  stores  operated  by the
     Company.

     Selling,  general and administrative  expenses increased $10.4 million,
     or 40%, from $25.9 million for the six months ended  September 30, 1996
     to $36.3  million for the six months ended  September  30,  1997.  As a
     percentage of net sales, selling,  general and administrative  expenses
     increased  from 41.3% for the six months  ended  September  30, 1996 to
     42.3% for the six months  ended  September  30,  1997.  The increase in
     dollars was attributable primarily to the increase in the number of new
     and acquired stores and the pre-opening  costs for new stores,  as well
     as higher  supervisory  and  administrative  expenses  to  support  the
     current and expected growth in stores. The increase in selling, general
     and  administrative  expenses as a  percentage  of net sales  primarily
     reflects higher expenses associated with new stores opened and acquired
     by the Company.  This was partially offset by improvements in corporate
     overhead  as a  percentage  of net sales,  reflecting  leverage  over a
     larger sales base.  Depreciation and amortization expense increased 56%
     to $2.5  million in the six months ended  September  30, 1997 from $1.6
     million in the six months  ended  September  30, 1996 due  primarily to
     capital  expenditures  for new and acquired stores and the upgrading of
     kiosks in existing locations.


     Interest expense increased $677,000,  or 80%, from $848,000 for the six
     months  ended  September  30,  1996 to $1.5  million for the six months
     ended  September 30, 1997,  and as a percentage of net sales  increased
     from 1.4% for the six months ended  September  30, 1996 to 1.8% for the
     six months ended  September 30, 1997. The increase in interest  expense
     was due primarily to higher average balances on the Company's revolving
     line of  credit  agreement  and an  increase  in fees  paid  under  the
     Company's gold consignment arrangements.

     As a result of the  foregoing,  the Company's net loss  increased  from
     $70,000 for the six months  ended  September  30, 1996 to a net loss of
     $450,000 for the six months ended September 30, 1997.

                                     11
<PAGE>


Liquidity and capital resources

     The Company's primary ongoing short-term capital requirements have been
     to fund an increase in inventory and to fund capital  expenditures  and
     working capital  (mostly  inventory) for new and acquired  stores.  The
     Company's  long-term  liquidity  requirements relate principally to the
     maturity  of its  long-term  debt  in  July of  2000,  operating  lease
     commitments  and store  expansion.  The  Company's  primary  sources of
     liquidity have been funds provided from operations,  a gold consignment
     program,  bank  borrowings  and in June of  1997,  an  offering  of the
     Company's  common  stock.  On June 30,  1997,  the Company  completed a
     public offering of 650,000 shares of its common stock. Subsequently, in
     July 1997, the  underwriters of the offering  exercised their option to
     purchase an  additional  97,500  shares of stock from the Company.  The
     total transaction resulted in net proceeds (after offering expenses) to
     the  Company of  approximately  $17.2  million  which was used to repay
     indebtedness  under  the  Company's   revolving  line  of  credit.  The
     Company's  working capital  increased to $50.1 million at September 30,
     1997 from $13.0  million at September  30, 1996. At September 30, 1997,
     the Company  had  outstanding  borrowings  of $23.3  million  under its
     revolving   line  of  credit  and  $2.7  million  of   long-term   debt
     outstanding,  including $234,000 classified as a current liability.  In
     addition,  the Company had consigned  107,078  ounces of gold under its
     gold consignment program valued at approximately $35.6 million.

     Net cash used in  operating  activities  was $5.7  million  for the six
     months ended  September  30, 1997 compared to $6.6 million for the same
     period  in the  prior  year.  Net  cash  used in  operating  activities
     primarily reflects increases in inventory and deposits for inventory in
     anticipation  of the  year-end  holiday  shopping  season.  These  were
     partially  offset by  depreciation  and  amortization,  a reduction  in
     accounts receivable and an increase in accounts payable.

     Net cash used in investing  activities was $12.2 million during the six
     months ended September 30, 1997 compared to $5.0 million during the six
     months ended September 30, 1996. Net cash used in investing  activities
     primarily  reflects the purchase of substantially all the operations of
     Silver and Gold  Connection in April 1997 and the addition of property,
     fixtures and equipment in connection with the opening of new stores and
     the renovation of existing stores.

     Net cash provided by financing activities was $16.5 million for the six
     months ended  September  30, 1997 versus $12.0  million  during the six
     months ended September 30, 1996.  During the six months ended September
     30,  1997,  the Company  completed  a secondary  offering of its common
     stock,  raising net proceeds of  approximately  $17.2 million which was
     used to repay a portion of existing indebtedness.

     The Company's revolving credit facility provides for maximum borrowings
     of $75 million  through a combination  of cash advances  (which may not
     exceed $45  million)  and  letters of credit  (which may not exceed $55
     million) to support the Company's gold consignment  financing  program.
     At September 30, 1997,  the Company had $14.6  million  available to be
     borrowed under its revolving credit facility and was in compliance with
     covenants  contained in the  agreement.  The Company  believes that the
     expected cash flows from operations,  its gold consignment  program and
     bank

                                     12
<PAGE>


     borrowings   will  be  sufficient  to  fund  the  Company's   currently
     anticipated capital and liquidity needs.

Seasonality

     The  Company's  business is highly  seasonal.  Due to the impact of the
     year-end holiday shopping season, the Company experiences a substantial
     portion of its annual net sales and  profitability  in its third fiscal
     quarter (ending December 31st).  The Company has generally  experienced
     lower net sales in each of the first,  second and fourth  quarters  and
     lower net income or net losses in each of those quarters.

     The Company's  results of operations may fluctuate  significantly  from
     quarter  to  quarter  as a result of a variety  of  factors,  including
     fluctuations   in  the  price  of  gold,   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, and changes in national and regional economic
     conditions.

Forward-Looking Statements

     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,"  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  are only  predictions  and that
     actual  events or results may differ  materially.  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: 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; 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;
     fluctuations in quarterly net sales, and, in particular,  third quarter
     net  sales;  fluctuations  in  gold  prices;   competitive  conditions;
     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;  and 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.

                                     13
<PAGE>



PART II - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

         There are no material legal proceedings against the Company

ITEM 2.     CHANGES IN SECURITIES

         None

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

         None

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


     On  September  17,  1997,  the  Registrant  held its Annual  Meeting of
     Stockholders. The stockholders approved the following proposals:

     To elect two directors to hold office until the 2000 Annual  Meeting of
     Stockholders  and  until  his  successor  has  been  duly  elected  and
     qualified.

            Director          For               Against

       Richard H. Penske   5,169,441               606
        Alan R. Hoefer     5,169,395               652

     To approve the amendment to the Company's 1994 Stock Option Plan.

            For               Against           Abstain

           5,126,579          37,352             6,116

     To ratify the  appointment  of KPMG Peat  Marwick LLP as the  Company's
     independent auditors for the 1998 fiscal year.

            For               Against           Abstain

           5,168,417           1,000               630


ITEM 5.     OTHER INFORMATION

         None.


                                     14
<PAGE>


ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

      a)    Exhibits

            11    Statement  regarding  computation  of net loss per  common
                  share and common share equivalent.

            27    Financial Data Schedule.

      b)    Reports on Form 8-K

            During the quarter ended  September 30, 1997, no reports on Form
            8-K were filed.

                                     15
<PAGE>



SIGNATURES


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





                                          PIERCING PAGODA, INC.
                                                (Registrant)



     Date:  November 7, 1997              /s/ John F. Eureyecko
                                          John F. Eureyecko
                                          President,
                                          Chief Operating Officer
                                          (Principal Financial Officer)



     Date:  November 7, 1997              /s/ Brandon R. Lehman
                                          Brandon R. Lehman
                                          Treasurer
                                          (Principal Accounting Officer)


                                     16
<PAGE>



                              INDEX TO EXHIBITS
                                                                   Sequentially
  Exhibit                                                           Numbered
   Number                                                             Page

     11      Statement regarding computation of net loss per
             common share and common share equivalent                  18

     27      Financial Data Schedule                                   19




                                     17
<PAGE>



Exhibit   11 - Statement regarding  computation of net loss per common share
          and common share equivalent.
<TABLE>
<CAPTION>


(In thousands, except per share data)           Three months        Six months
                                                    ended             ended
                                                September 30,     September 30,
                                                    1997               1997
                                               ----------------   -------------

<S>                                                <C>                <C>  
Average shares outstanding                         5,996              5,659
Net effect of dilutive stock options, based
   on the treasury stock method                      199                190

                                               ================   =============
Total shares used in computation                   6,195              5,849
                                               ================   =============

Net loss                                           $(153)             $(450)
                                               ================   =============

Net loss per common share and
   common share equivalent                         $(0.02)            $(0.08)
                                               ================   =============
</TABLE>



                                     18