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 June 30, 2001

                                       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.)

              542 Lighthouse Ave., Suite 5, Pacific Grove, CA 93950
 -------------------------------------------------------------------------------
                    (Address of principal executive offices)

Issuer's telephone number, including area code:      (831) 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 -----

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

                Class                               Outstanding at June 30, 2001
------------------------------------               ----------------------------
  Common Stock, par value                                 6,084,379 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 six months ended June 30, 2001.

         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, 2000.

         The results reflected for the three and six months ended June 30, 2001
are not necessarily indicative of the results for the entire fiscal year.



<PAGE>

                    ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                               December 31,     June 30,
                                                                                   2000           2001
                                                                                   ----           ----
                                                                                 (Derived     (Unaudited)
                                                                               from Audited
                                                                                 Financial
                                                                                Statements)


                                              ASSETS
CURRENT ASSETS
<S>                                                                               <C>            <C>
          Cash and cash equivalents                                               $1,899,722     $1,985,837
          Accounts receivable                                                        227,245        194,310
          Income tax receivable                                                        5,380          8,380
          Inventory                                                                2,897,755      2,932,959
          Prepaid expenses                                                           279,232        207,051
                                                                                     -------        -------

                  TOTAL CURRENT ASSETS                                             5,279,334      5,328,537
                                                                                   ---------      ---------

PROPERTY AND EQUIPMENT, NET                                                        2,196,339      2,120,395
                                                                                   ---------      ---------

OTHER ASSETS
          Deposits                                                                    68,264         71,339
          Patents and trademarks, net                                                  1,291            912
          Excess cost over net assets acquired                                        14,141         12,116
                                                                                      ------         ------
                                                                                      83,696         84,367
                                                                                      ------         ------
                                                                                  $7,559,369     $7,533,299
                                                                                   =========      =========

                     LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
          Current portion of long term debt                                          $10,118        $10,597
          Accounts payable and accrued expenses                                     $202,418        185,863
          Income taxes payable                                                             0              0
                                                                                           -              -
                    TOTAL CURRENT LIABILITIES                                        240,358        196,460
                                                                                     -------        -------

LONG TERM LIABILITIES

          Mortgage Payable                                                           463,430        457,391
          Deferred Income taxes payable                                              205,871        205,871
                                                                                     -------        -------
                                                                                     669,301        663,262
                                                                                     -------        -------
                    TOTAL LIABILITIES                                                881,837        859,722
                                                                                     -------        -------

STOCKHOLDERS' EQUITY
          Common stock-authorized 30,000,000 shares,
              $.001 par value, issued and outstanding
               6,146,446 shares in 1999 and 2000                                       6,147          6,147
          Additional paid in capital                                               3,914,509      3,914,509
          Retained earnings                                                        2,840,884      2,836,929
          Less treasury stock at cost
               (62,067 shares in 1999 and 1998)                                     (84,008)       (84,008)
                                                                                    --------       --------
                                                                                   6,677,532      6,673,577
                                                                                   ---------      ---------
                                                                                  $7,559,369     $7,533,299
                                                                                   =========      =========
</TABLE>

          See Accompanying Notes to Consolidated Condensed Financial Statements


                                      -2-
<PAGE>


ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 2001

<TABLE>
<CAPTION>


                                                                                   2000           2001
                                                                                   ----           ----
                                                                                (Unaudited)   (Unaudited)

<S>                                                                               <C>            <C>
REVENUES                                                                          $5,155,304     $4,524,906

COST OF GOODS SOLD                                                                $1,491,842     $1,390,140
                                                                               ----------------------------
GROSS PROFITS                                                                      3,663,462      3,134,766
                                                                                   ---------      ---------

EXPENSES
              SELLING, GENERAL AND ADMINISTRATION                                  3,280,063      2,888,242
              DEPRECIATION AND AMORTIZATION                                          216,296        228,615
              INTEREST EXPENSE                                                        26,543         24,862
                                                                               ----------------------------
                                                                                   3,522,902      3,141,719
                                                                                   ---------      ---------
INCOME(LOSS) BEFORE INCOME TAXES                                                     140,560        (6,953)

PROVISION FOR INCOME TAXES                                                            74,665        (3,000)
                                                                               ----------------------------
NET INCOME(LOSS)                                                                     $65,895        (3,953)
                                                                                    ========       ========
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
                                                                                      96,045              0
                                                                               ----------------------------
NET INCOME (LOSS)                                                                   ($30,150)       ($3,953)
                                                                                    ========       ========

WEIGHTED AVERAGE SHARES OUTSTANDING                                                6,146,446      6,146,446
                                                                                   =========      =========

BASIC AND DILUTED INCOME(LOSS) PER SHARE
          BEFORE ACCOUNTING CHANGE                                                     $0.01        ($0.00)

          CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                         (0.02)           0.00
                                                                               ----------------------------
          AFTER ACCOUNTING CHANGE                                                    ($0.00)        ($0.00)
                                                                                   =========       ========


</TABLE>







          See Accompanying Notes to Consolidated Condensed Financial Statements



                                      -3-
<PAGE>



ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 2001


<TABLE>
<CAPTION>

                                                                                2000          2001
                                                                                ----          ----
                                                                            (Unaudited)    (Unaudited)

<S>                                                                            <C>           <C>
REVENUES                                                                       $2,550,719    $2,317,461

COST OF GOODS SOLD                                                                799,919       699,699
                                                                           -------------- --------------
GROSS PROFITS                                                                   1,750,800     1,617,762
                                                                                ---------     ---------

EXPENSES
              SELLING, GENERAL AND ADMINISTRATION                               1,585,723     1,473,514
              DEPRECIATION AND AMORTIZATION                                        89,447       113,250
              INTEREST EXPENSE                                                     19,562        10,634
                                                                           -------------- --------------
                                                                                1,694,732     1,597,398
                                                                                ---------     ---------
INCOME(LOSS) BEFORE INCOME TAXES                                                   56,068        20,364

PROVISION FOR INCOME TAXES                                                         56,665        13,000
                                                                           -------------- --------------
NET INCOME(LOSS) BEFORE ACCOUNTING CHANGE                                           (597)         7,364
                                                                                 ========      ========
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE                                                                          96,045             0
                                                                           -------------- --------------
NET INCOME (LOSS)                                                                ($96,642)        $7,364
                                                                                 ========      ========


WEIGHTED AVERAGE SHARES OUTSTANDING                                             6,146,446     6,146,446
                                                                                =========     =========

BASIC AND DILUTED INCOME(LOSS) PER SHARE
                    BEFORE ACCOUNTING CHANGE                                      ($0.00)         $0.00
                                                                                   ======        ======
                    CUMULATIVE  EFFECT OF CHANGE IN
                    ACCOUNTING PRINCIPLE                                           (0.02)          0.00
                                                                           -------------- --------------
                AFTER ACCOUNTING CHANGE                                           ($0.02)         $0.00
                                                                                =========     =========


</TABLE>





          See Accompanying Notes to Consolidated Condensed Financial Statements


                                      -4-
<PAGE>



ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 2001

<TABLE>
<CAPTION>
                                                                                   2000           2001
                                                                                   ----           ----
                                                                                (Unaudited)   (Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                  <C>           <C>
          Net income(loss)                                                           $65,895       ($3,953)
          Adjustments to reconcile net income
              to net cash provided by (used in)
             operating activities:
                      Depreciation and amortization                                  216,296        228,616
                      Changes in operating assets and liabilities:
                        (Increase) Decrease in:
                          Accounts receivable                                         98,567         32,935
                          Inventory                                                (305,818)       (65,204)
                          Prepaid expenses                                           127,170         72,181
                        Income tax receivable                                         88,130        (3,000)
                        Increase (Decrease in):
                          Accounts payable and accrued expenses                     (61,347)       (16,555)
                          Income taxes payable                                        55,000              0
                                                                               -------------  -------------
NET CASH PROVIDED BY OPERATIONS                                                      283,893        245,020
                                                                               -------------  -------------
CASH FLOW FROM INVESTING ACTIVITIES
          Purchase of property and equipment                                       (636,769)      (152,672)
          Other assets                                                             (243,636)          (672)
                                                                               -------------  -------------
NET CASH USED IN INVESTING ACTIVITIES                                              (880,405)      (153,344)
                                                                               -------------  -------------
CASH FLOW FROM FINANCING ACTIVITIES
          Mortgage Payable                                                           477,160        (5,560)
                                                                               -------------  -------------
NET CASH USED IN FINANCING ACTIVITIES                                                477,160        (5,560)
                                                                               -------------  -------------
NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS                                (119,352)         86,116

CASH AND CASH EQUIVALENT BALANCE,
          Beginning of period                                                      1,760,254      1,899,722
                                                                               -------------  -------------
CASH AND CASH EQUIVALENT BALANCE,
          End of period                                                           $1,640,902     $1,985,838
                                                                                   =========      =========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
          Interest Paid                                                              $26,543        $24,862
          Income taxes paid                                                          $19,600


</TABLE>


          See Accompanying Notes to Consolidated Condensed Financial Statements



                                      -5-



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



1.       COMMENTS

         The accompanying unaudited consolidated condensed financial statements,
         which are for interim periods,  do not include all disclosure  provided
         in  the  annual  consolidated  financial  statements.  These  unaudited
         consolidated   condensed   financial   statements  should  be  read  in
         conjunction  with the consolidated  financial  statements and footnotes
         thereto  contained  in the  Annual  Report on Form  10-KSB for the year
         ended December 31, 2000 of Elegant Illusion,  Inc. (the "Company"),  as
         filed with the  Securities  and Exchange  Commission.  The December 31,
         2000  consolidated  condensed  balance  sheet was derived  from audited
         consolidated financial statements, but does not include all disclosures
         required by generally accepted accounting principles.


         In the opinion of the Company, the accompanying  unaudited consolidated
         condensed financial  statements contain all adjustments (which are of a
         normal  recurring  nature)  necessary  for a fair  presentation  of the
         financial  statements.  The results of operations for the three and six
         months  ended  June 30,  2001  are not  necessarily  indicative  of the
         results to be expected for the full fiscal year.


2.       ACCOUNTING CHANGE

         The Company during the quarter ending  September 30, 2000 adopted a new
         accounting  method  whereas  layaway  sales would only be recognized as
         sales upon delivery of the  merchandise to the customer.  The impact of
         this accounting change was a cumulative charge to net income of $96,045
         effective  at the  beginning  of the  period.  The pro forma  effect of
         retroactive  application of this  accounting  change to prior operating
         periods is immaterial.



                                      -6-
<PAGE>


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


Cautionary Statement on Forward-Looking Statements

         Except for the historical information contained herein, certain of the
matters discussed in this report are "forward-looking statements," as defined in
Section 21E of the Securities Exchange Act of 1934, which involve certain risks
and uncertainties, which could cause actual results to differ materially from
those discussed herein including, but not limited to, risks relating to changing
economic conditions, our shift in expansion plans and competitive pressures.

         We caution readers that any such forward-looking statements are based
on our current expectations and beliefs but are not guarantees of future
performance. Actual results could differ materially from those expressed or
implied in the forward-looking statements.

Results of Operations

         Sales for the quarter ended June 30, 2001 decreased $233,258 or
approximately 9.1% when compared to the quarter ended June 30, 2000.

         We believe that the decrease in sales was due primarily to the fact
that three locations (Mall of America, Royal Dane Mall and Seaport Jewelers)
that were open for the full second quarter of fiscal 2000 were closed for the
full second quarter of fiscal 2001, offset by the opening of the Vail Gallery.

         Sales for the six months ended June 30, 2001 decreased $630,398 or
approximately 12.2% when compared to the quarter ended June 30, 2000.


         We believe  this  decrease  also was due  primarily  to the  closing of
locations that were open for part or all of the same six months in 2000 (Hawaii,
Tulare,  Mall of America,  Royal  Dane,  and  Seaport  Jewelers),  offset by the
opening of the Vail Gallery.

         As of June 30, 2000, we operated 26 retail locations and as of June 30,
2001, we operated 24 retail locations.

         Costs of goods sold as a percentage  of revenues  decreased  from 31.4%
during the quarter  ended June 30, 2000 to 30.2%  during the quarter  ended June
30, 2001. We believe that this  decrease  during the three month periods was due
to the substantial  completion of the sales programs  discussed in our quarterly
report on form 10-QSB for the first quarter of 2001 during the second quarter of
2001.



                                      -7-
<PAGE>


         In this regard:

1.       while we continue to conduct a closeout sale on certain inventory items
         at our Steinbeck location; we

a.       have completed the remodeling of this store,
b.       have re-opened it,
c.       are in the process of hiring staff for the Fine Art Gallery  section of
         this store and
d.       are installing the Art;

2.       we continue to conduct a closeout sale at our Grapevine location and we
         closed our Utah store effective July 18, 2001; and

3.       we continue to conduct a sale to reduce  inventory at our Santa Barbara
         location and anticipate  relocating this store on approximately  August
         11, 2001.

         Costs of goods sold as a percentage of revenues increased from 28.9%
during the six months ended June 30, 2000 to 30.7% during the six months ended
June 30, 2001. We believe that the increase during the six month period was due
to the implementation of the sales programs discussed above during the first
quarter of fiscal 2001.

         During the quarter ended June 30, 2001, selling, general and
administrative expenses decreased when compared to the second quarter of 2000 by
$112,209, or approximately 7.1%. We believe that this decrease in expenses was
the result of the closing of five locations offset by the opening of one
location. As a percentage of sales, selling, general and administrative expenses
increased from approximately 62.2% during the second quarter of 2000 to
approximately 63.6% during the second quarter of 2001.

         During the six months ended June 30, 2001, selling, general and
administrative expenses decreased when compared to the second quarter of 2000 by
$391,821, or approximately 11.9%. We believe that this decrease in expenses was
the result of the closing of five locations offset by the opening of one
location. As a percentage of sales, selling, general and administrative expenses
increased slightly from approximately 63.6% during the first six months of 2000
to approximately 63.8% during the first six months of 2001.

Revenues Same Store Locations.
-----------------------------

         As of June 30, 2000, we operated 23 locations that were also in
operation at June 30, 2001: two in New Orleans, three in Monterey, one in
Sacramento, one in San Diego, one in Santa Barbara, one in San Francisco, one in
Palm Springs, one in Salt Lake City, one in Branson, one in Laughlin, one in
Gilroy, two in St Croix, one in St Thomas, one in Birch Run, one in Grapevine,
one in Maui, one in Michigan City, one in Orlando and one in Miromar. Revenues
from these locations for the quarter ended June 30, 2000, decreased
approximately 2.1% from the same period in 2000. Revenues from these locations
for the six months ended June 30, 2000, decreased approximately 6.1% from the
same period in 2000.


                                      -8-
<PAGE>

         As we noted in our prior quarterly report, we believe that the overall
decrease in same store revenues during the first quarter of 2001 (approximately
9.9%) was due in part to the current state of the national economy, in part to
decreased revenues at the two New Orleans locations and in part to a national
jewelry chain, with stores in three malls in which we operate, having an 80%
off, going out of business sale. We believe that this situation improved in the
second quarter due to improved revenues at our New Orleans location and a
reduced impact of the national chain's 80% going out of business sale.


         Inventory Turnover Ratios

         During the first and second quarters of 2001, we maintained an
inventory that provided a turnover ratio of 0.98.

         We believe that our current inventory turnover ratio of 0.98 is
appropriate for our plan of operation, including maintaining our strategy of
replacing inventory sold at our retail locations within a 2-3 day time frame. We
review items on hand, on a regular basis, to determine slow moving items, then
discount the price of those items so they are sold at prices that still generate
a positive gross margin. The inventory turnover ratio for the second quarter of
2000 was 1.16.

Liquidity and Capital Resources

         As of June 30, 2001, we had $1,985,837 in cash and cash equivalents up
$86,115 from December 31, 2000 and up $55,015 from March 31, 2001. Current
assets exceeded our current liabilities by $5,132,077 up $65,279 from December
31, 2000.

         In 2001, we plan on closing the Grapevine Mills and Utah locations and
focusing our new store openings on high traffic, tourist and mall locations. In
this regard we closed the Utah location on July 18, 2001 and we anticipate
closing the Grapevine location in mid August 2001.

         We have signed a lease for a location in Sarasota, Florida and plan to
open a fine art gallery there in September 2001. The Sarasota location is owned
by our three executive officers, James Cardinal, Gavin Gear and Tamara Gear. We
are leasing the store from them on terms that we believe are comparable to those
we could have obtained from an unaffiliated landlord.

         We have not  relocated  our  Anchorage  Mall (San  Francisco)  store as
planned. The landlord is in construction around our premises and under the terms
of our lease, we have closed the store, with abatement of all rents and charges,
until such time as the landlord completes construction.

         We have successfully negotiated a lease for the Santa Barbara store
which will open in its new location on or about August 11, 2001.

                                      -9-
<PAGE>


         We plan to license our Elegant Illusions trade name to permit others to
open signature stores  featuring  Elegant  Illusions brand copy jewelry.  We are
structuring  these  transactions  in a manner  that we believe  will not require
registration  under current  franchising  laws. We cannot assure  whether and to
what extent we will be successful in this endeavor.

         We also plan to license the right to sell our Elegant  Illusions  brand
copy  jewelry  to  existing  retail  jewelry  stores or  jewelry/gift  galleries
operating under their own trade name.  These stores would devote a department or
area to Elegant  Illusions  brand copy jewelry.  We cannot assure whether and to
what extent we will be successful in this endeavor.

         Our primary anticipated capital expenditures during the remainder of
fiscal 2001 include:

o        opening the Sarasota store;
o        relocating the Santa Barbara store;
o        possibly  increasing  inventory  to  accommodate   supplying  potential
         licensees; and
o        possibly,  opening  one to three  more  fine art  and/or  copy  jewelry
         stores.

         We believe that we have sufficient capital reserves for all of the
foregoing activities.

         In   September    1999,   we    established    an    e-commerce    site
(www.elegantillusions.com)  to sell its products over the internet.  However, to
date internet sales have not made a material  contribution to revenues.  In June
2000, we entered into an internet alliance with Vcommerce Corporation to provide
for the sale of certain of our jewelry  over the  internet.  We had  anticipated
that our  products  would  be  available  on the  internet  as a result  of this
alliance in late August or September 2000. Our products became available through
Vcommerce  commencing in November 2000; however,  revenues from this source have
not been material to date.



                                      -10-
<PAGE>



                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings
         -----------------
                           None.

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

We held our annual stockholders' meeting on June 1, 2001.  At that meeting, we

o        reelected management's slate of directors:

                                  In Favor      Withhold Authority    Abstain
James Cardinal                   4,978,463               2,333        1,967
Gavin Gear                       4,978,463               2,333        1,967
Tamara Gear                      4,978,463               2,333        1,967
Janet Heinze                     4,978,463               2,333        1,967
Barbara Z. Bokanovich            4,978,463               2,333        1,967

and

o        ratified the appointment of Jeffrey S. Gilbert, CPA, as auditor for the
         fiscal year ending December 31,  2001:4,980,597  in favor,  500 opposed
         and 1,666 abstained.

Item 5.  Other Information
         -----------------
                           None.

Item 6.  Exhibits and Reports on Form 8-K
         --------------------------------
                           None.
                                   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: August  3, 2001               s/James Cardinal
                                    ------------------------------------

                                     James Cardinal, Chief Executive Officer





                                     s/Tamara Gear
                                    ---------------------------------------

                                     Tamara Gear, Treasurer