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 March 31, 1998

                                       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: (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  March 31, 1998
      -------------                            -------------------------------
  Common Stock, par value                              17,155,038 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 months ended March 31, 1998.

     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, 1997.

     The results  reflected  for the three  months  ended March 31, 1998 are not
necessarily indicative of the results for the entire fiscal year.



                                      -1-
<PAGE>





                    ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
                   CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                DECEMBER 31, 1997 AND MARCH 31, 1998 (UNAUDITED)




                                      -2-
<PAGE>

                    ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS


                                                March 31,    December 31,
                                                  1998           1997
                                                ---------    ------------
                                               (Unaudited)  (Derived from
                                                               Audited
                                                              Financial
                                                             Statements)
                                     ASSETS

CURRENT ASSETS
  Cash and cash equivalents                   $ 1,336,163   $ 1,321,448
  Accounts receivable                             412,412       357,124
  Income taxes receivable                          82,192        82,192
  Inventory                                     2,403,253     2,424,755
  Prepaid expenses                                129,224        90,427
                                              -----------   -----------

    TOTAL CURRENT ASSETS                        4,363,244     4,275,946

PROPERTY AND EQUIPMENT, NET                     1,185,980     1,216,353

OTHER ASSETS                                      109,459        91,002
                                              -----------   -----------

                                              $ 5,658,683   $ 5,583,301
                                              ===========   ===========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable and accrued expenses       $   108,391   $   113,751
  Income taxes payable                             46,599
                                              -----------   -----------

    TOTAL CURRENT LIABILITIES                     154,990       113,751

DEFERRED INCOME TAXES                             127,871       127,871
                                              -----------   -----------

    TOTAL LIABILITIES                             282,861       241,622
                                              -----------   -----------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
  Common stock - authorized 30,000,000 shares
   $.001 par value, issued and outstanding
    17,434,338 shares                              17,434        17,434
  Additional paid-in capital                    2,978,221     2,978,221
  Retained earnings                             2,464,175     2,392,080
  Less treasury stock at cost
    (93,100 shares in 1997 and
    186,200 shares in 1998)                       (84,008)      (46,056)
                                              -----------   -----------

    TOTAL STOCKHOLDERS' EQUITY                  5,375,822     5,341,679
                                              -----------   -----------
                                              $ 5,658,683   $ 5,583,301
                                              ===========   ===========

     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 MARCH 31, 1998 AND 1997 (UNAUDITED)


                                                  1998           1997
                                              ------------   ------------

REVENUES                                      $ 2,165,578    $ 1,907,399

COST OF GOODS SOLD                                620,552        579,730
                                              ------------   ------------

GROSS PROFIT                                    1,545,026      1,327,669

EXPENSES
  Selling, general and administrative           1,334,525      1,125,186
  Depreciation and amortization                    85,755         62,722
                                              ------------   ------------

    TOTAL EXPENSES                              1,420,280      1,187,908
                                              ------------   ------------

INCOME BEFORE INCOME TAXES                        124,746        139,761

PROVISION FOR INCOME TAXES                         52,651         55,900
                                              ------------   ------------

NET INCOME                                    $    72,095    $    83,861
                                              ============   ============

WEIGHTED AVERAGE SHARES OUTSTANDING            17,272,000     17,434,000
                                              ============   ============

BASIC EARNINGS PER COMMON SHARE               $       .00    $       .00
                                              ============   ============

  See accompanying Notes to Consolidated Condensed Financial Statements.

                                       -4-

<PAGE>


                    ELEGANT ILLUSIONS, INC. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
         FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)


                                                  1998           1997
                                              ------------   ------------

CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                  $    72,095    $    83,861
  Adjustments to reconcile net income to
   net cash provided by operating activities:
    Depreciation and amortization                  85,755         62,722
    Changes in operating assets and liabilities:
     (Increase) Decrease in:
      Accounts receivable                         (55,288)        14,011
      Inventory                                    21,502         44,934
      Prepaid expenses                            (38,797)         1,209
     Increase (Decrease in):
      Accounts payable and accrued expenses        (5,360)        22,574
      Income taxes payable                         46,599        (14,015)
                                              ------------   ------------

        NET CASH PROVIDED BY
         OPERATING ACTIVITIES                     126,506        215,296
                                              ------------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchase of property and equipment              (54,318)       (46,288)
  Deposits                                        (19,521)         2,045
                                              ------------   ------------

        NET CASH USED BY INVESTING ACTIVITIES     (73,839)       (44,243)
                                              ------------   ------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Repayment of note payable                                      (20,000)
  Purchase of treasury stock                      (37,952)
                                              ------------   ------------

        NET CASH PROVIDED BY
         FINANCING ACTIVITIES                     (37,952)      (20,000)
                                              ------------   ------------

NET INCREASE IN CASH AND CASH EQUIVALENTS          14,715        151,053

CASH AND CASH EQUIVALENTS BALANCE,
 Beginning of period                            1,321,448      1,886,297
                                              ------------   ------------

CASH AND CASH EQUIVALENTS BALANCE,
 End of period                                $ 1,336,163    $ 2,037,350
                                              ============   ============

SUPPLEMENTAL CASH FLOW DISCLOSURE:
  Interest paid                                   $           $     291
  Income taxes paid                               $   6,053   $  69,914

     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 disclosures  provided in
     the annual  consolidated  condensed financial  statements.  These unaudited
     consolidated  condensed financial  statements should be read in conjunction
     with  the  consolidated  financial  statements  and the  footnotes  thereto
     contained in the Annual  Report on Form 10-KSB for the year ended  December
     31, 1997 of Elegant  Illusions,  Inc.  (the  "Company"),  as filed with the
     Securities and Exchange Commission. The December 31, 1997 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
     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 months ended March 31,
     1998 are not  necessarily  indicative of the results to be expected for the
     full fiscal year.

                                       -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 annual 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,  the Company's  expansion  plans and
competitive pressures.

      The Company cautions readers that any such forward-looking  statements are
based on management's 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 March 31, 1998 increased $258,179 or 13.5% when
compared to the quarter ended March 31, 1997.

      Management  believes that the increase in sales was due to the addition of
four locations (Gilroy, Kenosha, Tulare and St. Thomas) in 1997.

      As of March 31, 1997, the Company  operated 20 retail  locations and as of
March 31, 1998, the Company operated 24 retail  locations.  Although the Company
added four stores in 1997,  it closed its  Pavilions  store in January  1997 and
consolidated Steinbeck Lady into Steinbeck Jewelers.

      The Costs of goods as a percentage  of revenues  decreased  slightly  from
30.1% in fiscal  1996 to 28.7% in fiscal  1997.  Management  believes  that this
decrease was due to the Company's ongoing efforts to reduce costs.

      During  the  quarter   ended  March  31,   1998,   selling,   general  and
administrative  expenses increased when compared to the first quarter of 1997 by
$209,339  (approximately 18.6%). As a percentage of sales, selling,  general and
administrative  expenses  increased  from  approximately  59.0% during the first
quarter  of 1997 to  approximately  61.6%  during  the  first  quarter  of 1998.
Management  believes  that this  increase was the result of a number of factors.
One factor was the cost of operating the four new stores opened in 1997. Another
factor was labor costs.  In this regard sales staff  wages,  as a percentage  of
sales, increased from 11.2% during the first quarter of 1997 to 12.4% during the
first  quarter  of 1998 and  management  salaries,  as a  percentage  of  sales,
increased  from 7.0%  during the first  quarter of 1997 to 8.4% during the first
quarter of 1998.  Management  raised  labor  costs to  stabilize  the  Company's
workforce in light of the strong  economic  conditions in the United States over
the past  year.  Management  believes  that  increased  salaries  will lead to a
decrease  in job  turnover  and added  revenues  during the  remainder  of 1998.
Increased  labor costs also  reflects an  increase in staff in  anticipation  of
meeting the  additional  administrative  burdens of  operating  the stores to be
opened  pursuant to the Company's  expansion  plans.  The Company also increased
media  advertising in the first quarter of 1998 as compared to the first quarter
of 1997. As a percentage of sales, media advertising  increased from 1.8% during

                                      -7-
<PAGE>

the first  quarter  of 1997 to 2.3%  during  the  first  quarter  of 1998.  This
increase in media advertising is part of the Company's long-term plan to promote
name recognition.  

      Revenues same store locations.

      As of March 31, 1997, the Company  operated 20 locations  (which  includes
Steinbeck  Lady)  that were also in  operation  at March  31,  1998:  two in New
Orleans,  four in Monterey,  one in Sacramento,  one in San Diego,  one in Santa
Barbara,  two in San Francisco,  one in Palm Springs, one in Salt Lake City, one
in Portland,  one in Branson,  one in  Minneapolis,  one in Laughlin,  two in St
Croix and one in Oahu. The Company's  Pavilions  store in Sacramento,  which was
operating on March 31, 1996,  closed in January  1997.  Revenues  from the above
mentioned  20  locations  for  the  quarter  ended  March  31,  1998,  decreased
approximately  10% from the same period in 1997.  Management  believes that this
decrease in same store revenues was due primarily to an exceptionally good first
quarter in 1997.  Same store  sales for the first  quarter  ended March 31, 1997
exceeded same store sales for the first quarter of 1996 by approximately 19%. In
this regard,  during March 1997,  the  Company's  Bourbon  Street  Gallery had a
single  $100,000  transaction.  Excluding  this  transaction,  same store  sales
decreased  by 4.7% during the first  quarter of 1998 when  compared to the first
quarter of 1997.

      In 1996,  the Company  adjusted  some of its software in light of the year
2000 problem.  Management  does not believe that the year 2000 problem will have
any material adverse affect on the Company's operations or revenues.

Liquidity and Capital Resources

      As of  March  31,  1998,  the  Company  had  $1,336,163  in cash  and cash
equivalents  and  its  current  assets  exceeded  its  current   liabilities  by
$1,181,173.

      In  October  1997,  subsequent  to the  opening  of a new store in Gilroy,
California,  the Company  announced  plans for a 50 store expansion over a three
year period.  Pursuant to the Company's expansion plan, the Company opened three
stores  (Tulare,  California,  Kenosha,  Wisconsin and St. Thomas,  U.S.  Virgin
Islands)  during the remainder of 1997. The Company plans to open  approximately
25 of the stores over the next 19 months and anticipates  opening  approximately
six of these new stores in 1998. At this time,  management believes,  but cannot
assure, that six of these stores will be located at Birch Run, Michigan (opening
May 27, 1998); Michigan City, Indiana (opening June 2, 1998);  Universal Studios
in  Orlando,  Florida  (anticipated  to open in October  1998);  Ontario  Mills,
California; Grapevine Mills, Texas; and Maui, Hawaii. The Company also plans to
move its Kenosha store from one location to a new location within the same mall.

      The cost of opening new stores  ranges from  approximately  $ 120,000 to $
140,000,  depending  upon a number  of  factors.  Based  upon  past  experience,
management  anticipates that it will need  approximately $ 3,500,000 to open the
planned 25 stores over the next 19 months.  Factored into the anticipated amount
of funds needed to complete the planned expansion, are funds required to further
increase  the  Company's  management  and  administrative  staff to  handle  the
increased  operations  that  will  result  from  the  planned  expansion.  It is

                                      -8-
<PAGE>

anticipated  that the  opening  of  additional  new stores  will be funded  from
current cash reserves and revenues and, to the extent required, from bank and/or
equity  financing.  No  assurance  can be given that the Company will be able to
secure additional bank and/or equity financing,  if required.  Completion of the
Company's  planned  store  expansion is dependant  on the  Company's  ability to
obtain adequate financing on acceptable terms. In addition,  no assurance can be
given as to the actual  number or location of stores that the Company  will open
in the future.

      The Company has an advance line of credit up to  $2,000,000  from Comerica
Bank to open new stores and the Company's  Subsidiary  has a $350,000  revolving
line of credit from Comerica Bank for working capital  purposes.  These lines of
credit are collateralized by the Company's assets and the Company is required to
maintain certain  financial  ratios and covenants.  As of March 31, 1998 and the
date hereof, no funds had been advanced on the these lines of credit.


                                      -9-
<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

                  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: May 19, 1998                 /s/ James Cardinal
                                    James Cardinal, Chief Executive Officer




                                    /s/ Tamara Gear
                                    Tamara Gear, Treasurer


                                      -11-