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 December 31, 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
6,049,799 (as of February 9, 1998) <PAGE>


<PAGE>


                            PIERCING PAGODA, INC.


                                    INDEX
                                                                      PAGE
                        PART I - FINANCIAL INFORMATION               NUMBER

  Item 1.    Financial Statements

             Consolidated balance sheets as of
             December 31, 1997 (unaudited) and March 31, 1997           3

             Unaudited  consolidated  statements of operations for the three
             months  ended  December 31, 1997 and 1996 and nine months ended
             December 31, 1997 and 1996 4

             Unaudited consolidated statements of cash flows for
             the nine months ended December 31, 1997 and 1996           5

             Notes to consolidated financial statements                 7

  Item 2.    Management's discussion and analysis of financial
             condition and results of operations                       10

                          PART II - OTHER INFORMATION

     Item 1. Legal Proceedings                                         16

     Item 2. Changes in Securities and Use of Proceeds                 16

     Item 3. Defaults Upon Senior Securities                           16

     Item 4. Submission of Matters to a Vote of Security Holders       16

  Item 5.    Other Information                                         16

  Item 6.    Exhibits and Reports on Form 8-K                          16

             Signatures                                                17

<PAGE>


<PAGE>



PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


                     PIERCING PAGODA, INC. AND SUBSIDIARY
                          CONSOLIDATED BALANCE SHEETS
                       (In thousands, except share data)
<TABLE>
<CAPTION>
                                                     December 31,    March 31,
                                                         1997           1997
                                                     -------------   -----------
   Assets                                            (Unaudited)
<S>                                                  <C>           <C>
Current assets
   Cash                                              $   5,135     $    4,119
   Accounts receivable                                   1,677          2,233
   Inventory                                            63,132         43,109
   Deposits for inventory purchases                        651            850
   Prepaid expenses and other current assets               391            757
   Prepaid income taxes                                      -          1,494
   Deferred tax assets                                   1,887          1,530

                                                     -------------   -----------
Total current assets                                    72,873         54,092

Property, fixtures and equipment, net                   25,535         22,572
Other assets                                             6,256          3,077

                                                     =============   ===========
                                                     $ 104,664       $ 79,741
                                                     =============   ===========
   Liabilities and Stockholders' Equity

Current liabilities
   Accounts payable                                  $  12,482       $  3,668
   Current installments of long-term debt                  235            234
   Income taxes payable                                  4,961              -
   Accrued expenses and other current liabilities       17,092          9,541

                                                     -------------   -----------
Total current liabilities                               34,770         13,443

Long-term debt, less current installments                2,463         26,690
Deferred tax liabilities                                   864          1,550
Other liabilities                                          707            536

                                                     -------------   -----------
Total liabilities                                       38,804         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
      6,045,899 shares and 5,273,99 at December
      31, 1997 and March 31, 1997, respectively.            61             53
   Additional paid-in capital                           40,192         22,588
   Retained earnings                                    25,607         14,881

                                                     -------------   -----------
Total stockholders' equity                              65,860         37,522
                                                     -------------   -----------
                                                     $ 104,664       $ 79,741
                                                     =============   ===========
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>


<PAGE>




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

                                      Three months ended     Nine months ended
                                         December 31,           December 31,
                                       1997        1996       1997       1996
                                     ----------  ---------   --------  ---------

<S>                                 <C>        <C>        <C>        <C>
Net sales                           $ 89,915   $ 66,339   $ 175,665  $ 129,022

Cost of goods sold and occupancy
expenses (excluding depreciation on
kiosks)                               44,684     34,459      93,549     70,645
                                     ----------  ---------   --------  ---------
Gross profit                          45,231     31,880      82,116     58,377

Selling, general and administrative
expenses (including depreciation on
kiosks)                               26,672     18,477      62,971     44,375
                                     ----------  ---------   --------  ---------
Income from operations                18,559     13,403      19,145     14,002

Interest and other income                165        110         373        244
Interest expense                         897        747       2,422      1,595
                                     ----------  ---------   --------  ---------
Income before income taxes            17,827     12,766      17,096     12,651

Income tax expense                     6,651      4,942       6,370      4,897
                                     ==========  =========   ========  =========
Net income                           $ 11,176    $ 7,824     $10,726   $ 7,754
                                     ==========  =========   ========  =========

Basic earnings per share               $ 1.85     $ 1.49      $ 1.85    $ 1.48
                                     ==========  =========   ========  =========

Diluted earnings per share             $ 1.80     $ 1.45      $ 1.80    $ 1.44
                                     ==========  =========   ========  =========
</TABLE>

See accompanying notes to consolidated financial statements



<PAGE>


<PAGE>



                     PIERCING PAGODA, INC. AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In thousands)
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                          Nine months ended
                                                             December 31,
                                                       -------------------------
                                                          1997          1996
                                                       ------------  -----------
<S>                                                     <C>          <C>
Cash flows from operating activities:
  Net income                                            $ 10,726     $ 7,754
  Adjustments to reconcile net income  to net cash
   provided by operating activities:
     Depreciation and amortization                         3,927       2,580
     Loss on disposal of property, fixtures and
      equipment                                               48          62
     Other changes in other assets                           (21)       (122)
     Deferred income taxes                                   809          47
     Changes  in  operating  assets  and  liabilities,  net  of  effects  of
        acquisitions:
      Accounts receivable                                    556        (209)
      Inventory                                          (17,656)    (16,137)
      Deposits for inventory purchases                       199        (199)
      Prepaid expenses and other current assets              366         155
      Prepaid income taxes                                 1,494         883
      Accounts payable                                     8,814      11,141
      Accrued expenses and other current liabilities       7,551       4,709
      Income taxes payable                                 5,048       3,619
      Other liabilities                                     (129)         93

                                                       ------------  -----------
Net cash provided by operating activities                 21,732      14,376

Cash flows from investing activities:
  Additions to property, fixtures and equipment           (6,070)     (7,546)
  Payments for purchase of businesses                     (7,950)          -
  Proceeds from disposal of property, fixtures and
   equipment                                                  68          19
  Noncurrent deposits, net                                   (44)     (1,045)

                                                       ------------  -----------
Net cash used in investing activities                    (13,996)     (8,572)

Cash flows from financing activities:
  Repayments of long-term debt                               (26)        (18)
  Revolving line of credit, net                          (24,200)     (4,299)
  Loan fees paid                                             (19)          -
  Proceeds from issuance of long-term debt                     -         400
  Net proceeds from issuance of common stock under
   employee stock plans                                      336         331
  Proceeds from issuance of common stock, net             17,189           -

                                                       ------------  -----------
Net cash used in financing activities                     (6,720)     (3,586)

                                                       ------------  -----------
Net increase in cash                                       1,016       2,218

Cash at beginning of period                                4,119       1,864

                                                       ============  ===========
Cash at end of period                                    $ 5,135     $ 4,082
                                                       ============  ===========
</TABLE>



<PAGE>


<PAGE>




                     PIERCING PAGODA, INC. AND SUBSIDIARY
               CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
                                (In thousands)
                                  (Unaudited)
<TABLE>
<CAPTION>

                                                          Nine months ended
                                                             December 31,
                                                       -------------------------
                                                          1997          1996
                                                       ------------  -----------
<S>                                                      <C>         <C>   

Supplemental disclosures of cash flow information:
  Cash paid during the period for:

   Interest                                              $ 2,147     $ 1,464
                                                       ============  ===========
   Income taxes, net                                     $  (981)       $ 62
                                                       ============  ===========
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>


<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  nine-month  periods ended
     December 31, 1997 are not  necessarily  indicative  of the results that
     may be expected for the entire fiscal year.

Note 2            Earnings per share

     The  Company  adopted  Statement  of  Financial   Accounting  Standards
     ("SFAS")  No.  128  "Earnings  Per Share"  during the third  quarter of
     fiscal  1998.  SFAS No. 128 replaces  the  presentation  of primary and
     fully  diluted  earnings  per share  with a  presentation  of basic and
     diluted earnings per share. All prior period earnings per share amounts
     have been restated to conform with the provisions of SFAS No.
     128.

     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 the  exercise of  outstanding  stock  options,  using the treasury
     stock method.

                                      1998              1997
            Basic:
               Quarter              6,044,501         5,261,842
               Year-to-date         5,793,189         5,253,146

            Diluted:
               Quarter              6,224,845         5,412,987
               Year-to-date         5,974,304         5,380,671

     Basic  earnings per share is computed by dividing  income  available to
     common  stockholders  by the weighted  average  number of common shares
     outstanding  during the period.  Diluted earnings per share is computed
     by dividing  income  available to common  stockholders  by the weighted
     average number of common shares outstanding during the period increased
     to include the number of additional  common shares that would have been
     outstanding if the dilutive potential common shares had been issued.


<PAGE>


<PAGE>


Note 3            New Accounting Pronouncements

     In June 1997,  the FASB  issued SFAS  No.130  "Reporting  Comprehensive
     Income" and SFAS No. 131  "Disclosure  about  Segments of an Enterprise
     and  Related  Information."  SFAS  130  establishes  standards  for the
     reporting  of  comprehensive  income  and  its  components   (revenues,
     expenses,  gains and losses) in the financial statements.  SFAS No. 131
     establishes   standards  for  reporting  selected  financial  data  and
     descriptive  information  about  an  enterprises  reportable  operating
     segments (as defined).  The adoption of these standards will not impact
     the earnings, financial condition or liquidity of the Company.


Note 4            Property, Fixtures and Equipment

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

                                              December 31,      March 31,
                                                  1997             1997
                                              ----------------  -------------
<S>                                             <C>             <C>
       Land                                     $    688        $    688
       Furniture and fixtures                      3,764           3,054
       Kiosks                                     23,664          19,832
       Building and improvements                   4,155           4,037
       Computer  equipment,  software  and         8,734           7,396
       other equipment
                                              ----------------  -------------
                                                  41,005          35,007
       Less  accumulated  depreciation and        15,470          12,435
       amortization
                                              ================  =============
                                                $ 25,535        $ 22,572
                                              ================  =============
</TABLE>


Note 5            Accrued Expenses and Other Current Liabilities

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

                                               December 31,      March 31,
                                                   1997            1997
                                              ---------------   ------------
<S>                                           <C>                <C>
       Accrued payroll, vacation and
        related taxes                         $   6,827          $ 4,160
       Sales tax payable                          3,205              704
       Accrued rents payable                      2,035            1,091
       Liability under jewelry club
        program                                   1,060              747
       Liability under lifetime guarantee
        program                                   1,411            1,211
       Other accrued expenses                     2,554            1,628
                                              ===============   ============
                                               $ 17,092          $ 9,541
                                              ===============   ============
</TABLE>


<PAGE>


<PAGE>


Note 6            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 7            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.




<PAGE>


<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 December 31, 1997 and 1996

     Consolidated  net sales  increased  $23.6  million,  or 36%, from $66.3
     million for the three months ended  December 31, 1996 to $89.9  million
     for the three months ended  December  31, 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  increased  $1.8 million or 2.9%.  There were a
     total of 783  stores  open at  December  31,  1997  compared  to 585 at
     December 31, 1996, an increase of 34%. In addition,  wholesale sales to
     the Florida  licensee  increased  to $1.9  million for the three months
     ended  December  31, 1997 from $1.1  million in the three  months ended
     December 31, 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 4,300 for the
     three  months ended  December 31, 1997  compared to 4,500 for the three
     months ended December 31, 1996. The average price per jewelry unit sold
     was relatively  unchanged at $25.63 for the three months ended December
     31, 1997  compared to $25.71 for the three  months  ended  December 31,
     1996.

     Gross profit  increased  $13.3 million,  or 42%, from $31.9 million for
     the three months ended December 31, 1996 to $45.2 million for the three
     months ended  December  31, 1997.  The  Company's  gross profit  margin
     improved to 50.3% for the three months  ended  December 31, 1997 versus
     48.1% for the three  months ended  December  31, 1996.  The increase in
     gross  profit  dollars  was  attributable  primarily  to the  Company's
     increased  net sales.  The increase in gross profit margin is primarily
     the result of lower merchandise costs to the Company, while at the same
     time,  the  Company  maintained   consistent  list  prices  charged  to
     consumers.   This   improvement  was  partially   offset  by  increased
     promotional  activity at the Company's stores. A significant portion of
     the Company's  lower  merchandise  costs was due to lower market prices
     for gold.  There can be no assurance  that the  Company's  gross profit
     margin will not be adversely affected in the future should the price of
     gold increase.


<PAGE>


<PAGE>


     Selling, general and administrative expenses increased $8.2 million, or
     44%, from $18.5 million for the three months ended December 31, 1996 to
     $26.7  million for the three  months  ended  December  31,  1997.  As a
     percentage of net sales, selling,  general and administrative  expenses
     increased  from 27.9% for the three months  ended  December 31, 1996 to
     29.7% for the three  months ended  December  31, 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 as well as higher  regular and  overtime  payroll  costs
     incurred  to  adequately  staff the  Company's  stores  during the peak
     holiday shopping  season.  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  49% to $1.4 million in the three  months ended  December 31,
     1997 from  $941,000 in the three  months  ended  December  31, 1996 due
     primarily to capital  expenditures  for new stores and the upgrading of
     kiosks in existing locations.

     Interest  expense  increased  $150,000,  or 20%,  from $747,000 for the
     three months  ended  December 31, 1996 to $897,000 for the three months
     ended  December 31, 1997,  and as a percentage  of net sales  decreased
     from 1.1% for the three months ended  December 31, 1996 to 1.0% for the
     three months ended December 31, 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. These were partially offset by lower interest
     rates on the Company's current revolving line of credit agreement.  The
     decrease in interest  expense as a percentage of net sales reflects the
     spread of interest expense over a higher level of net sales.

     Income tax expense increased $1.8 million to $6.7 million for the three
     months  ended  December 31, 1997 from $4.9 million for the three months
     ended  December 31, 1996.  As a percentage  of earnings  before  income
     taxes,  income tax expense decreased to 37.3% in fiscal 1997 from 38.7%
     in fiscal  1996.  The  increase  in income  tax  expense  is due to the
     increase in the Company's earnings before income taxes. The decrease in
     income taxes as a percentage of earnings before income taxes reflects a
     shift in the distribution of the Company's earnings before income taxes
     away from states with higher income tax rates.

     As a result of the foregoing,  the Company's net income  increased from
     $7.8  million for the three  months  ended  December  31, 1996 to $11.2
     million for the three months ended December 31, 1997.

Nine months ended December 31, 1997 and 1996

     Consolidated  net sales  increased  $46.7 million,  or 36%, from $129.0
     million for the nine months ended  December 31, 1996 to $175.7  million
     for the  nine  months  ended  December  31,  1997.  This  increase  was
     primarily  due to an increase in the average  number of stores open for
     the nine months ended December 31, 1997, as compared to the nine months
     ended  December  31,  1996 and a $3.0  million,  or 2.6%,  increase  in
     comparable  store net sales.  There were a total of 783 stores  open at
     December 31, 1997  compared to 585 at December 31, 1996, an increase of
     34%. The average jewelry units


<PAGE>


<PAGE>


     sold per store increased 2% to 9,700 for the nine months ended December
     31, 1997 compared to 9,500 for the nine months ended December 31, 1996.
     The average  price per jewelry  unit sold was  relatively  unchanged at
     $24.52 for the nine months ended  December 31, 1997  compared to $24.63
     for the nine months ended December 31, 1996.

     Gross profit  increased  $23.7 million,  or 41%, from $58.4 million for
     the nine months ended  December 31, 1996 to $82.1  million for the nine
     months ended  December  31, 1997.  The  Company's  gross profit  margin
     improved  from 45.2% for the nine  months  ended  December  31, 1996 to
     46.7% for the nine months  ended  December  31,  1997.  The increase in
     gross profit dollars was attributable to the Company's  increase in net
     sales.  The increase in gross profit  margin is primarily the result of
     lower  merchandise  costs to the Company,  while at the same time,  the
     Company  maintained  consistent list prices charged to consumers.  This
     was partially offset by increased promotional activity and increases in
     rent and occupancy as a percentage of net sales due to the large number
     of newer stores operated by the Company.  A significant  portion of the
     Company's  lower  merchandise  costs was due to lower market prices for
     gold.  There can be no assurance that the Company's gross profit margin
     will not be adversely  affected in the future  should the price of gold
     increase.

     Selling,  general and administrative  expenses increased $18.6 million,
     or 42%, from $44.4 million for the nine months ended  December 31, 1996
     to $63.0  million for the nine months ended  December  31,  1997.  As a
     percentage of net sales, selling,  general and administrative  expenses
     increased  from 34.4% for the nine months  ended  December  31, 1996 to
     35.8% for the nine months  ended  December  31,  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 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 as well as higher
     regular and  overtime  payroll  costs  incurred to staff the  Company's
     stores  during the peak holiday  shopping  season.  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 50% to $3.9 million in the nine months
     ended  December  31, 1997 from $2.6  million in the nine  months  ended
     December  31, 1996 due  primarily to capital  expenditures  for new and
     acquired stores and the upgrading of kiosks in existing locations.


     Interest expense increased $800,000,  or 50%, from $1.6 million for the
     nine months ended December 31, 1996 to $2.4 million for the nine months
     ended  December 31, 1997,  and as a percentage  of net sales  increased
     from 1.2% for the nine months  ended  December 31, 1996 to 1.4% for the
     nine months ended December 31, 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.

     Income tax expense  increased $1.5 million to $6.4 million for the nine
     months  ended  December  31, 1997 from $4.9 million for the nine months
     ended  December 31, 1996.  As a percentage  of earnings  before  income
     taxes,  income tax expense decreased to 37.3% in fiscal 1997 from 38.7%
     in fiscal  1996.  The  increase  in income  tax  expense  is due to the
     increase in the Company's earnings before income taxes. The decrease in


<PAGE>


<PAGE>


     income taxes as a percentage of earnings before income taxes reflects a
     shift in the distribution of the Company's earnings before income taxes
     away from states with higher income tax rates.

     As a result of the foregoing,  the Company's net income  increased from
     $7.8  million  for the nine  months  ended  December  31, 1996 to $10.7
     million for the nine months ended December 31, 1997.

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 $38.1 million at December 31,
     1997 from $18.9 million at December 31, 1996. At December 31, 1997, the
     Company  had no  outstanding  borrowings  under its  revolving  line of
     credit  and $2.7  million  of  long-term  debt  outstanding,  including
     $235,000  classified as a current liability.  In addition,  the Company
     had consigned 103,274 ounces of gold under its gold consignment program
     valued at approximately $30.0 million.

     Net cash  provided by operating  activities  was $21.7  million for the
     nine months ended  December 31, 1997  compared to $14.4 million for the
     same  period  in  the  prior  year.  Net  cash  provided  by  operating
     activities  primarily  reflects  the  results of the  year-end  holiday
     shopping season,  non-cash charges for depreciation and amortization as
     well as increases in current  liabilities.  These were partially offset
     by increases in  inventory  to support  newly opened  stores and future
     scheduled store  openings.  A portion of the increase in inventory also
     reflects pre-existing  inventory from stores acquired by the Company in
     the prior fiscal year.

     Net cash used in investing activities was $14.0 million during the nine
     months ended December 31, 1997 compared to $8.6 million during the nine
     months ended December 31, 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 used in  financing  activities  was $6.7  million for the nine
     months  ended  December  31, 1997 versus $3.6  million  during the nine
     months ended December 31, 1996.  Net cash used in financing  activities
     during the nine months  ended  December 31, 1997  primarily  reflects a
     reduction in borrowings  under the Company's  revolving  line of credit
     partially  offset  by  the  proceeds  of a  secondary  offering  of the
     Company's common stock completed in June of 1997.


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<PAGE>



     On November 21, 1997, the Company  amended its revolving line of credit
     agreement,  increasing the maximum amount of borrowings available.  The
     Company's  amended  revolving  credit  facility  provides  for  maximum
     borrowings of $80 million through a combination of cash advances (which
     may not exceed $50 million) and letters of credit (which may not exceed
     $55  million)  to support  the  Company's  gold  consignment  financing
     program.  At December 31, 1997, the Company had $47.8 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 borrowings will be sufficient to fund the
     Company's currently anticipated capital and liquidity needs.

     The Company is aware of "Year 2000" issues  existing in the programming
     code of some  existing  computer  systems.  The  Company  is  currently
     working to  identify,  correct or  reprogram,  and test its systems for
     Year 2000  compliance.  The Company expects its Year 2000 project to be
     completed on a timely basis.  However,  there can be no assurance  that
     the systems of other companies on which the Company's systems also rely
     will be timely converted or that any such failure to convert by another
     company would not have an adverse affect on the Company's systems.

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,  improve and maintain  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


<PAGE>


<PAGE>


     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.


<PAGE>


<PAGE>



PART II - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

         There are no material legal proceedings against the Company

ITEM 2.     CHANGES IN SECURITIES AND USE OF PROCEEDS

         None

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

         None

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


         None

ITEM 5.     OTHER INFORMATION

         None.

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

      a)    Exhibits

            10.43 First   Amendment  to  Syndicated   Loan  Agreement  dated
                  November 21, 1997 between the  Registrant  and Summit Bank
                  and CoreStates Bank, N.A.

            10.44 Replacement Revolving Note dated November 21, 1997 between
                  the Registrant and Summit Bank.

            10.45 Replacement Revolving Note dated November 21, 1997 between
                  the Registrant and First Union National Bank.

            10.46 Replacement Revolving Note dated November 21, 1997 between
                  the Registrant and CoreStates Bank, N.A..

            27.1  Financial Data Schedule.

      b)    Reports on Form 8-K

            During the quarter  ended  December 31, 1997, no reports on Form
            8-K were filed.


<PAGE>


<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:  February 9, 1998              /s/ John F. Eureyecko
                                          John F. Eureyecko
                                          President,
                                          Chief Operating Officer
                                          (Principal Financial Officer)



     Date:  February 9, 1998              /s/ Brandon R. Lehman
                                          Brandon R. Lehman
                                          Treasurer
                                          (Principal Accounting Officer)



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<PAGE>



                              INDEX TO EXHIBITS
                                                                   Sequentially
  Exhibit                                                           Numbered
   Number                                                             Page

   10.43     First Amendment to Syndicated Loan Agreement dated
             November 21, 1997 between the Registrant and Summit
             Bank and CoreStates Bank, N.A.                            20

   10.44     Replacement Revolving Note dated November 21, 1997
             between the Registrant and Summit Bank.                   24

   10.45     Replacement Revolving Note dated November 21, 1997
             between the Registrant and First Union National Bank.     25

   10.46     Replacement Revolving Note dated November 21, 1997
             between the Registrant and CoreStates Bank, N.A..         27

    27.1     Financial Data Schedule                                   19