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, 1996

                                       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
                                 Identification
                     Incorporation or Organization) 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
5,269,898 (as of February 12, 1997)


<PAGE>


                            PIERCING PAGODA, INC.


                                    INDEX
                                                                            PAGE
                        PART I - FINANCIAL INFORMATION               NUMBER

  Item 1.    Financial Statements

             Consolidated balance sheets as of
             December 31, 1996 and March 31, 1996                       3

             Consolidated statements of operations for the three
             months
             ended December 31, 1996 and 1995 and nine months           4
             ended
             December 31, 1996 and 1995

             Consolidated statements of cash flows for the  nine
             months ended December 31, 1996 and 1995                    5

             Notes to consolidated financial statements                 7

  Item 2.    Management's discussion and analysis of financial
             condition and results of operations                        8

                           PART II - OTHER INFORMATION

  Item 1.    Legal Proceedings                                         12

  Item 2.    Changes in Securities                                     12

  Item 3.    Defaults Upon Senior Securities                           12

  Item 4.    Submission of matters to a vote of security holders       12

  Item 5.    Other Information                                         12

  Item 6.    Exhibits and reports on Form 8-K                          13

             Signatures                                                14

                                       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>
                                                       December       March 31,
                                                          31,           1996
                                                         1996
                                                      ------------   ------------
   Assets                                             (Unaudited)
<S>                                                      <C>          <C>
Current assets:
   Cash ..............................................   $    4,082   $    1,864
   Accounts receivable ...............................        1,003          794
   Inventory .........................................       41,527       25,390
   Deposits for inventory purchases ..................          560          361
   Prepaid expenses and other current assets .........          313          468
   Prepaid income taxes ..............................         --            883
   Deferred tax assets ...............................        1,090          693

                                                         ----------   ----------
Total current assets .................................       48,575       30,453

Property, fixtures and equipment, net ................       20,774       15,806
Other assets .........................................        2,731        1,647

                                                         ==========   ==========
                                                         $   72,080   $   47,906
                                                         ==========   ==========
   Liabilities and Stockholders' Equity

Current liabilities
   Accounts payable ..................................   $   12,952   $    1,811
   Current installments of long-term debt and ........        1,646        5,910
   revolving line of credit
   Accrued expenses and taxes withheld ...............       11,493        6,784
   Income taxes payable ..............................        3,619         --

                                                         ----------   ----------
Total current liabilities ............................       29,710       14,505

Long-term debt, less current installments ............        2,697        2,350
Deferred tax liabilities .............................        1,703        1,259
Unbilled rent ........................................          306          213

                                                         ----------   ----------
Total liabilities ....................................       34,416       18,327

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 5,266,798 shares and
      5,240,29 at December 31, 1996 and March 31, 1996,
      respectively ...................................           53           53
   Additional paid-in capital ........................       22,514       22,183
   Retained earnings .................................       15,097        7,343

                                                         ----------   ----------
Total stockholders' equity ...........................       37,664       29,579
                                                         ----------   ----------
                                                         $   72,080   $   47,906
                                                         ==========   ==========
</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     Nine months ended
                                         December 31,           December 31,
                                     ---------------------   -------------------
                                       1996        1995       1996       1995
                                     ----------  ---------   --------  ---------

<S>                                    <C>        <C>        <C>        <C>
Net sales ..........................   $ 66,339   $ 49,141   $129,022   $ 94,528
Cost of goods sold and occupancy
expenses,(excluding depreciation on
kiosks) ............................     34,459     25,897     70,645     52,119
                                       --------   --------   --------   --------
Gross profit .......................     31,880     23,244     58,377     42,409

Selling, general and administrative
expenses,(including depreciation on
kiosks)                                  18,477     13,491     44,375     31,946
                                       --------   --------   --------   --------
Income from operations .............     13,403      9,753     14,002     10,463

Interest and other income ..........        110         66        244        174
Interest expense ...................        747        535      1,595        986
                                       --------   --------   --------   --------
Earnings before income taxes .......     12,766      9,284     12,651      9,651

Income tax expense .................      4,942      3,584      4,897      3,744
                                       ========   ========   ========   ========
Net income .........................   $  7,824   $  5,700   $  7,754   $  5,907
                                       ========   ========   ========   ========

Earnings per share .................   $   1.45   $   1.07   $   1.44   $   1.11
                                       ========   ========   ========   ========

Weighted average common shares and
    common share equivalents .......      5,413      5,350      5,381      5,319
                                       ========   ========   ========   ========
</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>
                                                          Nine months ended
                                                             December 31,
                                                       -------------------------
                                                          1996          1995
                                                       ------------  -----------
<S>                                                        <C>         <C>
Cash flows from operating activities:
  Net income ...........................................   $  7,754    $  5,907
  Adjustments to reconcile net income to net cash
  provided
   by operating activities:
     Depreciation and amortization .....................      2,580       1,913
     Loss on disposal of property, fixtures and
     equipment .........................................         62          30
     Other changes in other assets .....................       (122)       (161)
     Deferred income taxes .............................         47        (110)
     Decrease (increase) in assets:
      Accounts receivable ..............................       (209)        166
      Inventory ........................................    (16,137)    (13,519)
      Deposits for inventory purchases .................       (199)       (682)
      Prepaid expenses and other current assets ........        155        (155)
      Prepaid income taxes .............................        883        --
     Increase (decrease) in liabilities:
      Accounts payable .................................     11,141       6,831
      Accrued expenses and taxes withheld ..............      4,709       4,128
      Tax indemnification payable ......................       --        (1,216)
      Income taxes payable .............................      3,619       1,835
      Unbilled rent ....................................         93          12

                                                           --------    --------
Net cash provided by operating activities ..............     14,376       4,979

Cash flows from investing activities:
  Additions to property, fixtures and equipment ........     (7,546)     (5,551)
  Payments for purchase of business ....................       --          (610)
  Proceeds from disposal of property, fixtures and
  equipment ............................................         19        --
  Noncurrent deposits, net .............................     (1,045)       (111)

                                                           --------    --------
Net cash used in investing activities ..................     (8,572)     (6,272)

Cash flows from financing activities:
  Repayments of long-term debt .........................        (18)       --
  Revolving line of credit, net ........................     (4,299)       --
  Proceeds from issuance of long-term debt .............        400       2,540
  Cash dividends paid ..................................       --           (45)
  Proceeds from issuance of common stock ...............        331        --

                                                           --------    --------
Net cash provided by (used in) financing activities ....     (3,586)      2,495

                                                           --------    --------
Net increase in cash ...................................      2,218       1,202

Cash at beginning of period ............................      1,864       2,320

                                                           ========    ========
Cash at end of period ..................................   $  4,082    $  3,522
                                                           ========    ========
</TABLE>

                                       5

<PAGE>




                      PIERCING PAGODA, INC. AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
                                 (In thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                         Nine months ended
                                                            December 31,
                                                    -------------------------
                                                        1996          1995
                                                    ------------  -----------
<S>                                                    <C>            <C>
Supplemental disclosures of cash flow information:
  Cash paid during the period for:
Interest .................................             $1,464         $  912
                                                       ======         ======
Income taxes, net ........................             $   62         $2,019
                                                       ======         ======
</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,  1996.  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, 1996 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>

                                                          December 31,   March 31,
                                                               1996         1996
                                                            -------       -------
<S>                                                         <C>           <C>
Land ...................................................    $   688       $   688
Furniture and fixtures .................................      2,588         2,077
Kiosks .................................................     18,417        13,908
Building and improvements ..............................      4,018         3,822
Computer  equipment,  software  and ....................      6,943         5,130
other equipment
                                                            -------       -------
                                                             32,654        25,625
Less  accumulated  depreciation and ....................     11,880         9,819
amortization
                                                            =======       =======
                                                            $20,774       $15,806
                                                            =======       =======
</TABLE>

Note 3            Purchase of Business

     In  December  1996,  the  Company  entered  into an  agreement  to  acquire
     substantially  all the operations of Gemstone Jewelry and Weaver's Gems and
     Minerals ("Gemstone"), an independent kiosk retailer. Gemstone had operated
     approximately 100 kiosk locations as Gemstone's Jewelers,  Gold-N-Gifts and
     Facets of Nature.  The purchase  agreement provides for the payment of $2.0
     million for the kiosk  locations,  leases and store  fixtures.  The Company
     will also acquire all of Gemstone's  inventory,  the cost of which is to be
     determined  based upon a physical  inventory.  The cost of the inventory is
     estimated to be approximately $6.0 million.  In addition,  the Company will
     pay  $60,000  annually  for five  years to the  owner of  Gemstone  under a
     non-competition  agreement.  A $1.0  million  deposit  payment  towards the
     purchase of Gemstone is included in other assets at December 31, 1996.  The
     Company completed the purchase on January 29, 1997.

                                       7

<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, 1996 and 1995

     Consolidated net sales increased $17.2 million,  or 35%, from $49.1 million
     for the three months ended December 31, 1995 to $66.3 million for the three
     months ended  December  31, 1996.  This  increase was  primarily  due to an
     increase in the average  number of stores open for the three  months  ended
     December 31, 1996 as compared to the three  months ended  December 31, 1995
     and a $3.9 million,  or 9%, increase in comparable  store net sales.  There
     were a total of 585 stores  open at December  31,  1996  compared to 463 at
     December 31, 1995,  an increase of 26%. The average  jewelry units sold per
     store  increased 13% to 4,500 for the three months ended  December 31, 1996
     compared to 4,000 at December 31, 1995.  The average price per jewelry unit
     sold was relatively unchanged at $25.71 for the three months ended December
     31, 1996 compared to $26.02 for the three months ended December 31, 1995.

     Gross profit  increased  $8.7  million,  or 38%, from $23.2 million for the
     three months ended  December 31, 1995 to $31.9 million for the three months
     ended December 31, 1996. The Company's  gross profit margin  increased from
     47.3% for the three months  ended  December 31, 1995 to 48.1% for the three
     months ended  December 31, 1996.  The increase in gross profit  dollars was
     attributable primarily to the Company's increase in net sales. The increase
     in the  Company's  gross  profit  margin  reflects a higher gross profit on
     merchandise sold combined with decreases in rent and occupancy  expenses as
     a percentage of net sales. The increase in merchandise  gross profit is the
     result of lower merchandise  costs to the Company,  while at the same time,
     the Company  maintained  consistent  list prices charged to consumers.  The
     decrease in rent and  occupancy as a percentage  of net sales  reflects the
     fact that  despite the  increase  in net sales,  many stores were below the
     points at which  percentage  rents would have been required.  Additionally,
     relatively fixed common area maintenance,  mall advertising and other costs
     were spread over a higher level of net sales.

                                       8

<PAGE>


     Selling,  general and administrative  expenses  increased $5.0 million,  or
     37%,  from $13.5  million for the three months  ended  December 31, 1995 to
     $18.5 million for the three months ended December 31, 1996. As a percentage
     of net sales, selling,  general and administrative  expenses increased from
     27.5% for the three months  ended  December 31, 1995 to 27.9% for the three
     months ended  December 31, 1996.  The increase in dollars was  attributable
     primarily  to the  increase in the number of stores and higher  supervisory
     and  administrative  expenses to support the current and expected growth in
     stores.  Selling,  general  and  administrative  expenses  increased  as  a
     percentage of net sales due to a store management bonus program implemented
     during  the  current  fiscal  year  and  higher   administrative   expenses
     associated with new store openings.  Depreciation and amortization  expense
     increased 51% from $622,000 for the three months ended December 31, 1995 to
     $941,000  for 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  $212,000,  or 40%, from $535,000 for the three
     months  ended  December  31, 1995 to $747,000  for the three  months  ended
     December  31, 1996,  but was  relatively  unchanged as a percentage  of net
     sales. The increase in interest expense was due primarily to higher average
     balances on the Company's  revolving line of credit agreement,  an increase
     in fees paid under the Company's  gold  consignment  arrangements  due to a
     greater number of ounces consigned and higher gold consignment rates.

     As a result of the foregoing,  the Company's net income increased from $5.7
     million for the three  months  ended  December 31, 1995 to $7.8 million for
     the three months ended December 31, 1996.

Nine months ended December 31, 1996 and 1995

     Consolidated net sales increased $34.5 million,  or 37%, from $94.5 million
     for the nine months ended  December 31, 1995 to $129.0 million for the nine
     months ended  December  31, 1996.  This  increase was  primarily  due to an
     increase  in the average  number of stores  open for the nine months  ended
     December  31, 1996 as compared to the nine months  ended  December 31, 1995
     and a $6.3 million,  or 8%, increase in comparable  store net sales.  There
     were a total of 585 stores  open at December  31,  1996  compared to 463 at
     December 31, 1995,  an increase of 26%. The average  jewelry units sold per
     store  increased  9% to 9,500 for the nine months  ended  December 31, 1996
     compared to 8,700 for the nine months ended  December 31, 1995. The average
     price per jewelry unit sold was relatively unchanged at $24.63 for the nine
     months ended December 31, 1996 compared to $24.81 for the nine months ended
     December 31, 1995.

     Gross profit  increased  $16.0 million,  or 38%, from $42.4 million for the
     nine months ended  December  31, 1995 to $58.4  million for the nine months
     ended  December 31, 1996.  The  Company's  gross  profit  margin  increased
     slightly  from 44.9% for the nine months  ended  December 31, 1995 to 45.3%
     for the nine months ended  December 31, 1996.  The increase in gross profit
     dollars was attributable  primarily to the Company's increase in net sales.
     The increase in the Company's  gross profit margin  reflects a reduction in
     rent and occupancy as a percentage of sales and lower sales to the Florida

                                       9

<PAGE>


     licensee  relative to the total sales of the Company.  The decrease in rent
     and occupancy  expenses as a percentage of net sales resulted from the fact
     that,  despite the increase in net sales, many stores' net sales were still
     below the  points  at which  percentage  rents  would  have been  required.
     Additionally,  relatively fixed common area  maintenance,  mall advertising
     and other  occupancy  charges  were spread over the higher net sales level.
     The decrease in sales to the Florida  licensee had a positive impact on the
     Company's gross margin as these sales  contribute a lower gross margin than
     the Company's own retail sales.

     Selling,  general and administrative  expenses increased $12.5 million,  or
     39%,  from $31.9  million for the nine months  ended  December  31, 1995 to
     $44.4 million for the nine months ended  December 31, 1996. As a percentage
     of net sales, selling,  general and administrative  expenses increased from
     33.8% for the nine  months  ended  December  31, 1995 to 34.4% for the nine
     months ended  December 31, 1996.  The increase in dollars was  attributable
     primarily to the increase in the number of 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. Selling,  general and
     administrative  expenses  increased  as a  percentage  of net  sales due to
     higher expenses  associated with new store openings and a store  management
     bonus program implemented during the current fiscal year.  Depreciation and
     amortization  expense  increased  37% from $1.9 million for the nine months
     ended  December 31, 1995 to $2.6 million for the nine months ended December
     31,  1996 due  primarily  to  capital  expenditures  for new stores and the
     upgrading of kiosks in existing locations.

     Interest  expense  increased  $609,000,  or 62%, from $986,000 for the nine
     months  ended  December  31, 1995 to  $1,595,000  for the nine months ended
     December 31, 1996, and as a percentage of net sales increased from 1.0% for
     the nine months  ended  December 31, 1995 to 1.2% for the nine months ended
     December 31, 1996.  The increase in interest  expense was due  primarily to
     higher  average  balances  on  the  Company's   revolving  line  of  credit
     agreement,  an increase in fees paid under the Company's  gold  consignment
     arrangements  due to a greater  number of ounces  consigned and higher gold
     consignment rates.

     As a result of the  foregoing,  the  Company's  net income  increased  $1.9
     million,  or 32%, from $5.9 million for the nine months ended  December 31,
     1995 to $7.8 million for the nine months ended December 31, 1996.

Liquidity and capital resources

     The Company's primary on-going capital requirements are to fund an increase
     in inventory and to fund capital  expenditures  and working capital (mostly
     inventory) for new stores.  The Company's  primary sources of liquidity are
     funds  provided  by  operations,  its  gold  consignment  program  and bank
     borrowings.   Due  to  the  seasonal  nature  of  the  Company's  business,
     outstanding  borrowings under its credit  facilities  generally peak during
     the second and third  fiscal  quarters  as the Company  finances  inventory
     purchases in advance of the year-end holiday  shopping season.  At December
     31, 1996, the Company had outstanding  borrowings of $1.4 million under its
     revolving

                                       10

<PAGE>


     line of credit and $2.7 million of long-term  debt  outstanding,  excluding
     $225,000  classified as a current liability.  In addition,  the Company had
     consigned 82,000 ounces of gold under its gold  consignment  program valued
     at approximately $30.3 million.

     Net cash  provided by operating  activities  was $14.4 million for the nine
     months ended December 31, 1996 compared to $5.0 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  was in  anticipation  of the  purchase  of
     approximately  100 locations  from  Gemstone.  The Company  entered into an
     agreement to acquire these locations  during the quarter ended December 31,
     1996. The Company completed the purchase on January 29, 1997.

     Net cash used in  investing  activities  was $8.6  million  during the nine
     months  ended  December 31, 1996  compared to $6.3 million  during the nine
     months  ended  December 31,  1995.  Net cash used in  investing  activities
     primarily  reflects  the addition of  property,  fixtures and  equipment in
     connection  with the  opening of new stores and an  increase  in  deposits,
     primarily a $1.0 million deposit towards with the purchase of Gemstone.

     Net cash used in financing  activities was $3.6 million for the nine months
     ended  December  31,  1996  versus  $2.5  million   provided  by  financing
     activities  during the nine months ended  December  31, 1995.  Cash used in
     financing  activities  during  the nine  months  ended  December  31,  1996
     primarily reflects a reduction in borrowings under the Company's  revolving
     line of credit partially offset by an additional $400,000 long term loan in
     connection with the expansion of the Company's  corporate  headquarters and
     distribution  facility  and  $331,000  provided by  transactions  under the
     Company's employee stock option and employee stock purchase plans.

     The Company's  revolving  credit  provides for maximum  borrowings of $60.0
     million  with a cash  advance  sub-limit  of  $36.0  million.  This  credit
     facility  was  amended  on  December  17,  1996 to  extend  the term of the
     agreement to February 28, 1997. At December 31, 1996, the Company had $27.8
     million  available to be borrowed under its then existing  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.

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.

                                       11

<PAGE>



     The Company's  results of  operations  may also  fluctuate  from quarter to
     quarter as a result of a variety of factors,  including fluctuations in the
     price of gold or gold consignment rates, the amount and timing of new store
     openings,  the  integration  of such new stores into the  operations of the
     Company  and the net sales  contributed  by new stores.  The  addition of a
     large number of new stores significantly affects results of operations on a
     quarter-to-quarter basis.

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.
     Forward-looking  statements  include those related to the Company's ability
     to fund anticipated capital and liquidity needs. 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.  The risks
     and  uncertainties  which may  affect  the  operation  and  results  of the
     Company's  business  include,  but are not  limited  to,  general  economic
     conditions and the impact on discretionary spending in the geographic areas
     where  a  significant   number  of  the   Company's   stores  are  located,
     fluctuations  in the price of gold,  the  Company's  ability to finance its
     gold  merchandise  and  the  cost  of  such  financing,  future  regulation
     regarding ear piercing  activities,  the ability to obtain  favorable store
     locations on  satisfactory  lease terms,  the Company's  ability to finance
     expansion  plans and changes in the  competitive  environment  in which the
     Company operates.

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

         None.

ITEM 5.     OTHER INFORMATION

         None.


                                       12

<PAGE>



ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

      a)    Exhibits


            10.1  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.

            10.2  Sixth  Amendment And Agreement To Consignment  Agreement dated
                  October 31, 1996  between the  Registrant  and Fleet  Precious
                  Metals Inc.

            10.3  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.

            10.4  Asset  Purchase   Agreement  dated  January  29,  1997
                  Between  Piercing Pagoda,  Inc., EARS, Inc.,  Weaver's
                  Gems and Minerals, Inc. and Gemstone Jewelry, Inc.

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

            27    Financial Data Schedule.

      b)    Reports on Form 8-K

            During the quarter  ended  December 31, 1996, no reports on Form 8-K
            were filed.


                                       13

<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 12, 1997             /s/ John F. Eureyecko
                                          John F. Eureyecko
                                          President,
                                          Chief Operating Officer
                                          (Principal Financial Officer)



     Date:  February 12, 1997             /s/ Brandon R. Lehman
                                          Brandon R. Lehman
                                          Treasurer
                                          (Principal Accounting Officer)



                                       14

<PAGE>



                              INDEX TO EXHIBITS
                                                                    Sequentially
  Exhibit                                                           Numbered
   Number                                                             Page

    10.1     Fifth Amendment to Third Amended and Restated Loan
             Agreement and Twelfth Replacement Revolving Credit
             Note dated December 17, 1996 between the Registrant       16
             and Summit Bank.

    10.2     Sixth Amendment And Agreement To Consignment
             Agreement dated October 31, 1996 between the
             Registrant and Fleet Precious Metals Inc.                 19

    10.3     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                              21

    10.4     Asset Purchase Agreement dated January 29, 1997
             Between Piercing Pagoda, Inc., EARS, Inc., Weaver's
             Gems and Minerals, Inc. and Gemstone Jewelry, Inc.        22

     11      Statement regarding computation of net income per
             common share and common share equivalent                  35

     27      Financial Data Schedule                                   36


                                       15