SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

              [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                For the quarterly period ended September 30, 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: 0-28128

                             ELEGANT ILLUSIONS, INC.
        (Exact name of small business issuer as specified in its charter)


          DELAWARE                                           88-0282654
(State or other jurisdiction of                            (I.R.S. Employer
 incorporation or organization)                           Identification No.)


                 625 Cannery Row, Suite 205, Monterey, CA 93940
                    (Address of principal executive offices)

Issuer's telephone number, including area code:           (408) 649-1814
                             

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.

                                Yes __X__ No_____

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common equity as of the latest practicable date.

                Class                         Outstanding at September 30, 1996

  Common Stock, par value                              17,434,338 Shares
       $.001 per share

     Transitional Small Business Format (check one); Yes_____ No __X__


<PAGE>


                          PART I. FINANCIAL INFORMATION


Item 1. Financial Statements

     The  accompanying  financial  statements  are  unaudited  for  the  interim
periods,  but  include  all  adjustments  (consisting  only of normal  recurring
accruals)  which  management  considers  necessary for the fair  presentation of
results for the three and nine months ended September 30, 1996.

     Moreover,  these  financial  statements do not purport to contain  complete
disclosure in conformity  with  generally  accepted  accounting  principles  and
should be read in conjunction with the Company's  audited  financial  statements
at, and for the fiscal year ended December 31, 1995.

     The results  reflected  for the three and nine months ended  September  30,
1996 are not necessarily indicative of the results for the entire fiscal year.

<PAGE>


                    ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
                CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
                                                    December 31,   September 30,
                                                        1995            1996
                                                    ------------   -------------
                                     ASSETS
<S>                                                    <C>            <C> 
CURRENT ASSETS
    Cash and cash equivalents ....................     $1,699,110     $1,708,546
    Accounts receivable ..........................        103,876        114,879
    Inventory ....................................      1,369,348      1,783,191
    Prepaid expenses .............................         17,915         52,211
                                                       ----------     ----------

        TOTAL CURRENT ASSETS .....................      3,190,249      3,658,827

PROPERTY AND EQUIPMENT, NET ......................        751,181        818,824

OTHER ASSETS (including merchandise credit
  of $158,127 at September 30, 1996) .............         81,159        242,846
                                                       ----------     ----------
                                                       $4,022,589     $4,720,497
                                                       ==========     ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Note payable to bank .........................     $  750,000     $
    Income taxes payable .........................                        13,523
    Accounts payable and accrued expenses ........        119,982         95,893
                                                       ----------     ----------

        TOTAL CURRENT LIABILITIES ................        869,982        109,416

NOTE PAYABLE .....................................        100,000         20,000

DEFERRED INCOME TAXES ............................         69,778         69,778
                                                       ----------     ----------

        TOTAL LIABILITIES ........................      1,039,760        199,194
                                                       ----------     ----------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
    Common stock - authorized 20,000,000   shares,
      $.001 par value,  issued and outstanding 
      16,728,277 and 17,434,338 on December 31, 
      1995 and September 30, 1996, respectively            16,728         17,434
    Additional paid-in capital ...................      1,828,927      2,978,221
    Retained earnings ............................      1,137,174      1,525,648
                                                       ----------     ----------

        TOTAL STOCKHOLDERS' EQUITY ...............      2,982,829      4,521,303
                                                       ----------     ----------
                                                       $4,022,589     $4,720,497
                                                       ==========     ==========
</TABLE>
     See accompanying Notes to Consolidated Condensed Financial Statements.

                                      F-1

<PAGE>


                    ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
       FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)

<TABLE>
<CAPTION>
                                                    1995              1996
                                                ------------      ------------
<S>                                             <C>               <C>          
REVENUES ..........................             $     1,430,838   $   1,888,661

COST OF GOODS SOLD ................                     359,315         497,239
                                                ---------------   -------------

GROSS PROFIT ......................                   1,071,523       1,391,422

SELLING, GENERAL AND ADMINISTRATIVE                     825,151       1,068,097
                                                ---------------   -------------

INCOME BEFORE INCOME TAXES ........                     246,372         323,325

PROVISION FOR INCOME TAXES ........                      99,537         131,000
                                                ---------------   -------------

NET INCOME ........................             $       146,835     $   192,325
                                                ===============   =============

WEIGHTED AVERAGE SHARES OUTSTANDING                  16,728,000      17,434,000
                                                ===============   =============

NET INCOME PER COMMON SHARE .......             $           nil   $         .01
                                                ===============   =============
</TABLE>
     See accompanying Notes to Consolidated Condensed Financial Statements.

                                      F-2

<PAGE>


                    ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
        FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
                                                      1995           1996
                                                  ------------   ------------
<S>                                                 <C>           <C>        
REVENUES ..........................                 $ 4,088,222   $ 5,084,665

COST OF GOODS SOLD ................                     960,732     1,341,342
                                                    -----------   -----------

GROSS PROFIT ......................                   3,127,490     3,743,323

SELLING, GENERAL AND ADMINISTRATIVE                   2,506,353     3,093,849
                                                    -----------   -----------

INCOME BEFORE INCOME TAXES ........                     621,137       649,474

PROVISION FOR INCOME TAXES ........                     249,300       261,000
                                                    -----------   -----------

NET INCOME ........................                 $   371,837   $   388,474
                                                    ===========   ===========

WEIGHTED AVERAGE SHARES OUTSTANDING                  16,596,000    17,188,000
                                                    ===========   ===========

NET INCOME PER COMMON SHARE .......                 $       .02   $       .02
                                                    ===========   ===========
</TABLE>
     See accompanying Notes to Consolidated Condensed Financial Statements.

                                      F-3

<PAGE>


                    ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
        FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)

<TABLE>
<CAPTION>
                                                                               1995          1996
                                                                           ------------  ------------
<S>                                                                       <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income ........................................................   $   371,837    $   388,474
    Adjustments to reconcile net income to net cash
      provided by (used in) operating activities:
        Depreciation and amortization .................................       123,672        169,330
        Merchandise credit applied to purchases .......................                       41,873
        Changes in operating assets and liabilities:
           (Increase) decrease in accounts receivable .................         8,139        (11,003)
           (Increase) in inventory ....................................      (267,957)      (413,843)
           (Increase) decrease in prepaid expenses ....................        (6,350)       (34,296)
           Increase (decrease) in accounts payable and accrued expenses         3,515        (24,089)
           Increase (decrease) in income taxes payable ................        90,216         13,523
                                                                          -----------    -----------

NET CASH PROVIDED BY OPERATING ACTIVITIES .............................       323,072        129,969
                                                                          -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of property and equipment ................................      (147,177)      (232,643)
    Other assets ......................................................         2,414         (7,890)
                                                                          -----------    -----------

NET CASH USED IN INVESTING ACTIVITIES .................................      (144,763)      (240,533)
                                                                          -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
    Repayment of borrowing from bank credit line ......................                     (750,000)
    Partial repayment of note payable .................................       (10,000)       (80,000)
    Sale of common stock ..............................................       350,000        950,000
                                                                          -----------    -----------

NET CASH PROVIDED BY FINANCING ACTIVITIES .............................       340,000        120,000
                                                                          -----------    -----------

NET INCREASE IN CASH AND CASH EQUIVALENTS .............................       518,309          9,436

CASH AND CASH EQUIVALENTS BALANCE, Beginning of period ................       435,295      1,699,110
                                                                          -----------    -----------

CASH AND CASH EQUIVALENTS BALANCE, End of period ......................   $   953,604    $ 1,708,546
                                                                          ===========    ===========
</TABLE>
     See accompanying Notes to Consolidated Condensed Financial Statements.

                                      F-4



<PAGE>


                    ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS



1. COMMENTS

     The accompanying  consolidated condensed financial statements are unaudited
     but,  in  the  opinion  of  the  management  of the  Company,  contain  all
     adjustments,  consisting of only normal  recurring  accruals,  necessary to
     present fairly the financial position at September 30, 1996, the results of
     operations  for the three months and nine months ended  September  30, 1996
     and 1995, and the changes in cash flows for the nine months ended September
     30, 1996 and 1995. The  consolidated  balance sheet as of December 31, 1995
     is  derived  from  the  Company's  audited  financial  statements.  Certain
     information  and  footnote   disclosures  normally  included  in  financial
     statements  that have been prepared in accordance  with generally  accepted
     accounting  principles have been condensed or omitted pursuant to the rules
     and  regulations  of  the  Securities  and  Exchange  Commission,  although
     management of the Company  believes that the disclosures in these financial
     statements  are  adequate  to make the  information  presented  therein not
     misleading. For further information,  refer to the financial statements and
     footnotes  thereto  included in the Company's 1995 Form 10 - KSB filed with
     the  Securities  and Exchange  Commission.  Operating  results for the nine
     months period ended September 30, 1996, are not  necessarily  indicative of
     the results that may be expected for the year ending December 31, 1996.


2. SALE OF STOCK

     During the nine months ended  September 30, 1996,  the Company sold 606,061
     of  its  common  shares  for  $950,000  (net  of  commissions)  in  private
     placements and issued 100,000 shares to a certain  supplier in exchange for
     purchase of $200,000 of gemstones.

                                      F-5

<PAGE>


Item 2. Management's  Discussion And Analysis Of Financial Condition And Results
        Of Operations

Results of Operations

     Three Months Ended September 30, 1996

     Sales for the three months ended  September 30, 1996 increased  $457,823 or
approximately 32% when compared to the three months ended September 30, 1995.

     Management  believes  that the increase in sales was due to the addition of
four stores - two in St Croix,  US Virgin Islands (one copy jewelry and one fine
jewelry), one in the Anchorage Mall in San Francisco,  and one in the DoubleTree
Hotel in Monterey, California.

     As of  September  30,  1995,  the Company  operated 13 retail copy  jewelry
stores,  one fine jewelry store,  one handcraft and gifts store and one fine art
gallery  and as of  September  30,  1996,  the  Company  operated 16 retail copy
jewelry stores,  two fine jewelry stores,  one handcraft and gifts store and one
fine art gallery.

     The Costs of goods as a percentage of revenues  increased slightly from 25%
for the three months ended  September 30, 1995 to 26% for the three months ended
September  30,  1996;  however,  the cost of goods as a  percentage  of revenues
decreased slightly compared to the year ended December 31, 1995 (27%).

     During  the third  quarter of 1996,  selling,  general  and  administrative
expenses  increased  when  compared  to the third  quarter  of 1995 by  $242,946
(approximately  29%).  Management  believes that this increase was primarily the
result of: (i) the cost of operating four new stores that opened since the third
quarter of 1995;  and (ii) costs  associated  with the opening of two new stores
during  1996.  However,  as  a  percentage  of  sales,   selling,   general  and
administrative  expenses  decreased  from  approximately  58%  during  the third
quarter of 1995 to approximately 57% during the third quarter of 1996.

     Revenues same store locations.

     As of  September  30,  1995,  the Company  operated 13 retail copy  jewelry
stores,  one fine jewelry store,  one handcraft and gifts store and one fine art
gallery.  During the three months ended September 30, 1996,  revenues  increased
approximately  11% from the same period in 1995.  Management  believes that this
increase  was  due to the  improved  economic  climate,  increased  advertising,
improved  weather  conditions  on the east  coast and new  artists  added to the
Gallery inventory.


     Revenues - acquired locations.

     Revenues from the Monterey  stores  acquired as a result of the acquisition
of Cannery Row Enterprises,  Inc. decreased by approximately 3% during the three
months  ended  September  30, 1996 as  compared  and to the three  months  ended
September 30, 1995.  Management  believes that this decrease is primarily due to


                                      - 8 -

<PAGE>


the fact that the area experienced  above average weather  conditions during the
third quarter of 1995 which did not repeat during the third quarter of 1996.


Liquidity and Capital Resources

     As of  September  30,  1996,  the Company had  $1,708,546  in cash and cash
equivalents  and  its  current  assets  exceeded  its  current   liabilities  by
$3,549,411.  In addition, the balance on the Company's $100,000 note is now down
to $20,000.

     In  November  1996,  the  Company  opened a new copy  jewelry  store in the
Horizon Mall in Laughlin, Nevada. While the Company executed a lease for a store
in the  Stratosphere  in Las Vegas,  the  landlord  was  unable to  deliver  the
premises.  This lease was terminated and the landlord has reimbursed the Company
its expenses.

     During 1997,  the Company  plans to open an  additional  three  stores.  At
present,  the  Company is  negotiating  for a location at  Universal  Studios in
Orlando,  Florida,  the Horizon Mall in Gilroy,  California,  and the  Northport
Marketplace in Fort Lauderdale, Florida. No assurance can be given as to whether
the Company will open stores at any of these locations.

     Management believes that it will cost approximately  $450,000 to open these
three new stores.  Management  believes that the cost of opening these new store
will be paid from current cash reserves.

                                      - 9 -

<PAGE>


                           PART II - OTHER INFORMATION


Item 1.           Legal Proceedings

                           None.


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.


Item 6.           Exhibits and Reports on Form 8-K

                           None.

                                     - 10 -

<PAGE>


                                   SIGNATURES



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


                                         ELEGANT ILLUSIONS, INC.



Dated:  November 13, 1996               By: /s/James Cardinal
                                            -----------------
                                            James Cardinal,
                                            Chief Executive Officer




                                            /s/Tamara Gear
                                            --------------
                                            Tamara Gear, Treasurer

                                     - 11 -