10-K/A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A
(Amendment No. 1)

[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For the fiscal year ended May 31, 2007
	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 1-7848
LAZARE KAPLAN INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)

Delaware	13-2728690
(State or other jurisdiction of	(IRS Employer
incorporation or organization)	Identification No.)
19 West 44th Street	10036
(Address of principal executive offices)	(Zip Code)
Registrant's telephone number, including area code (212) 972-9700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Name of each exchange on which registered
Common Stock ($1 par value)	American Stock Exchange
Preferred Share Purchase Rights	American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

     Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ___ No  X 

     Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ___ No  X 

      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 ___

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ]

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one):
     Large accelerated filer ______      Accelerated filer ______      Non-accelerated filer    X   

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X

     As of November 30, 2006 the aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant, computed by reference to the closing price for the registrant's common equity on the American Stock Exchange at that date was $19,672,199. As of July 31, 2007, 8,259,300 of the registrant's common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

     2007 definitive proxy statement to be filed with the Commission - incorporated by reference into Part III.

     2007 Annual Report to Stockholders for the fiscal year ended May 31, 2007 to be filed with the Commission-incorporated by reference into Parts II and IV.

Explanatory Note

     On August 29, 2007, Lazare Kaplan International Inc. filed its Annual Report on Form 10-K for the fiscal year ended May 31, 2007. This Amendmnet No. 1 has been filed to amend Item 15, exhibits and financial statement schedules, to include the financial statements and related consents of Bellataire and Gulfdiam DMCC pursuant to Rule 3-09 of Regulation S-X. No other changes have been made.

The following exhibits are attached herewith:

(23.1)	Consent of BDO Seidman, LLP
(23.2)	Consent of KSI SHAH & ASSOCIATES
(31.1)	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(31.2)	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(32.1)	Certifications Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(99.2)	Financial Statements of Bellataire, Pursuant to Rule 309 of Regulation S-X.
(99.3)	Financial Statements of Gulfdiam, Pursuant to Rule 309 of Regulation S-X.

SIGNATURE

      Pursuant to the requirements of Section 13 or 15(d) 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.

	LAZARE KAPLAN INTERNATIONAL INC.
August 26, 2008	By /s/ William H. Moryto                        William H. Moryto, Vice President and Chief Financial Officer
	By /s/ Maurice Tempelsman                        Maurice Tempelsman, Chairman of the Board of Directors

By /s/ Leon Tempelsman                         
Leon Tempelsman, Vice Chairman of the
Board of Directors and President
 (principal executive officer)

By /s/ Lucien Burstein                             
Lucien Burstein, Director

EX-23.1

EXHIBIT 23.1

Consent of Independent Registered Public Accounting Firm

Lazare Kaplan International Inc.
New York, New York

We hereby consent to the incorporation by reference in the Registration Statements (Form S-8, No. 333-40225, No. 333-92077 and No. 333-52303) of Lazare Kaplan International of our report dated August 28, 2007, relating to the consolidated financial statements, which appear in the Annual Report on Form 10-K that was filed with the SEC on August 29, 2007 on Form 10-K. We also consent to the incorporation by reference of our report dated August 28, 2007 relating to the financial statement schedule, which appears in the Form 10-K filed with the SEC on August 29, 2007.

/S/ BDO Seidman, LLP

New York, NY
August 25, 2008

Consent of Independent Registered Public Accounting Firm

Lazare Kaplan International Inc.
New York, New York

We hereby consent to the incorporation by reference in the Registration Statements (Form S-8, No. 333-40225, No. 333-92077 and No. 333-52303) of Lazare Kaplan International of our report dated August 27, 2007, relating to the Bellataire financial statements, an equity investee, which is included in the Annual Report on Form 10-K/A which was filed with the SEC on August 26, 2008.

/S/ BDO Seidman, LLP

New York, NY
August 25, 2008

EX-23.2

Exhibit 23.2

KSI SHAH & ASSOCIATES Chartered Accountants
Tel.: 04-332-5657, Fax: 04-332 5667 – Suite 1003, Khalid Al Attar Tower, Sh. Zayed Road, P.O. Box: 71241, Dubai – U.A.E. sna@sna-me.com

Ref: Cert./080804 25 August 2008

Lazare Kaplan International Inc.
New York, New York

Dear Sir,

We hereby consent to the incorporation by reference in the Registration Statements (Form S-8, No. 333-40225, No. 333-92077 and No. 333-52303) of Lazare Kaplan International of our report dated August 11, 2008, relating to the Gulfdiam DMCC financial statements, an equity investee, which is incorporated by reference in this Annual Report on Form 10-K.

Cordially,
CHARTERED ACCOUNTANTS
Dubai

EX-31.1

CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF
THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Leon Tempelsman, certify that:

1.      I have reviewed this Annual Report on Form 10-K/A of Lazare Kaplan International Inc.;

2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.      The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.      The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 26, 2008	By: /s/ Leon Tempelsman
	Leon Tempelsman
	President and Chief Executive Officer

EX-31.2

CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF
THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, William H. Moryto, certify that:

1.      I have reviewed this Annual Report on Form 10-K/A of Lazare Kaplan International Inc.;

2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.      The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.      The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 26, 2008	By: /s/ William H. Moryto
	William H. Moryto
	Vice President and Chief Financial Officer

EX-32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of Lazare Kaplan International Inc. (the "Company") on Form 10-K/A for the fiscal year ended May 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Leon Tempelsman, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 26, 2008	By: /s/ Leon Tempelsman
	Leon Tempelsman
	President and Chief Executive Officer

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of Lazare Kaplan International Inc. (the "Company") on Form 10-K/A for the fiscal year ended May 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William H. Moryto, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 26, 2008	By: /s/ William H. Moryto
	William H. Moryto
	Vice President and Chief Financial Officer

EX-99.2

EXHIBIT 99.2

Combined Financial Statements
Year Ended May 31, 2007 and the
Period from December 1, 2005 (Inception) to May 31, 2006

Combined Financial Statements
Year Ended May 31, 2007 and the
Period from December 1, 2005 (Inception) to May 31, 2006

1

Be	llataire
	Contents

Independent auditors’ report	3
Combined financial statements:
Balance sheets	4
Statements of operations	5
Statements of partners’ deficit	6
Statements of cash flows	7
Summary of significant accounting policies	8-9
Notes to combined financial statements	10-11

2

Independent Auditors’ Report

Bellataire
New York, New York

We have audited the accompanying combined balance sheets of Bellataire as of May 31, 2007 and 2006 and the related combined statements of operations, partners’ deficit, and cash flows for the year ended May 31, 2007 and the period from December 1, 2005 (inception) to May 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Bellataire at May 31, 2007 and 2006, and the results of its operations and its cash flows for the year ended May 31, 2007 and the period from December 1, 2005 (inception) to May 31, 2006 in conformity with accounting principles generally accepted in the United States.

/s/ BDO Seidman, LLP

August 27, 2007

3

	Be	llataire
Combined Balanc		e Sheets

May 31,		2007			2006
Assets
Current:
Cash	$	632,456		$	2,152,353
Accounts receivable		797,618			215,533
Inventories		7,561,251			4,195,886
Prepaid expenses and other current assets		119,650			136,325
	$	9,110,975		$	6,700,097
Liabilities and Partners’ Deficit
Current liabilities:
Accounts payable, accrued expenses and other current liabilities	$	603,817		$	776,860
Due to shareholders (net)		1,302,654			2,342,859
Total current liabilities		1,906,471			3,119,719
Loans payable to shareholders (Note 2)		11,336,332			4,800,000
Total liabilities		13,242,803			7,919,719
Partners’ deficit		(4,131,828	)		(1,219,622	)
	$	9,110,975		$	6,700,097

See accompanying summary of significant accounting policies
and notes to combined financial statements.

4

	Be	llataire
Combined Statements of Op		erations

					Period from
					December 1, 2005
		Year ended			(inception) to
		May 31, 2007			May 31, 2006
Net sales	$	5,931,295		$	448,675
Cost of goods sold (Note 4)		5,702,238			323,562
Gross profit		229,057			125,113
Selling, general and administrative expenses (Note 4)		3,141,263			1,444,735
Net loss	$	(2,912,206	)	$	(1,319,622	)

See accompanying summary of significant accounting policies
and notes to combined financial statements.

5

	Be	llataire
Combined Statements of Partner		s’ Deficit

Year ended May 31, 2007 and the period from December 1, 2005 (inception) to May 31, 2006
		Lazare Kaplan			Diamond
		International			Innovations			Total
Balance, December 1, 2005	$	-		$	-		$	-
Capital contribution		50,000			50,000			100,000
Net loss		(659,811	)		(659,811	)		(1,319,622	)
Balance, May 31, 2006		(609,811	)		(609,811	)		(1,219,622	)
Net loss		(1,456,103	)		(1,456,103	)		(2,912,206	)
Balance, May 31, 2007	$	(2,065,914	)	$	(2,065,914	)	$	(4,131,828	)

See accompanying summary of significant accounting policies
and notes to combined financial statements.

6

	Be	llataire
Combined Statements of Ca		sh Flows

					Period from
					December 1, 2005
		Year ended			(inception) to
		May 31, 2007			May 31, 2006
Cash flows from operating activities:
Net loss	$	(2,912,206	)	$	(1,319,622	)
Adjustments to reconcile net loss to net cash used in operating
activities:
(Increase) decrease in:
Accounts receivable		(582,085	)		(215,533	)
Inventories		(3,365,365	)		(4,195,886	)
Prepaid expenses and other assets		16,675			(136,325	)
Increase (decrease) in:
Accounts payable, accrued expenses and other current
liabilities		(173,043	)		776,860
Due to shareholders (net)		(1,040,205	)		2,342,859
Total adjustments		(5,144,023	)		(1,428,025	)
Net cash used in operating activities		(8,056,229	)		(2,747,647	)
Cash flows from financing activities:
Capital contributions		-			100,000
Proceeds from notes payable to shareholders		6,536,332			4,800,000
Net cash provided by financing activities		6,536,332			4,900,000
Net increase (decrease) in cash		(1,519,897	)		2,152,353
Cash, beginning of period		2,152,353			-
Cash, end of period	$	632,456		$	2,152,353

See accompanying summary of significant accounting policies
and notes to combined financial statements.

7

	Be	llataire
Summary of Significant Accounting		Policies

Description of Business and
Basis of Combination

Bellataire (the “Company”) is engaged in the production and distribution of loose diamonds and jewelry. Products include loose diamonds, rings, earrings, bracelets, necklaces and pendants that are sold throughout the United States, Belgium and Asia to jewelry retailers and wholesalers. The corporate structure is a combination of Bellataire LLC which is the selling agent in the U.S.; Bellataire BVBA which is the selling agent in Belgium; and Bellataire International which sources and manufactures the diamonds. In addition to selling diamonds owned by the Company, Bellataire LLC and Bellataire BVBA also sells diamonds owned by affiliates of the Company. It receives a 2% selling commission for selling these stones on their behalf.

The combined financial statements include all subsidiaries; all intercompany accounts and transactions have been eliminated in combination.

Inventories

Inventories consisting of loose diamonds, jewelry, labor and overhead associated with work-in-process and finished goods are valued at the lower of cost or market using the FIFO method.

Income Taxes

The partners are required to report the Company’s taxable income or loss on their respective income tax returns; accordingly, such income taxes are not reflected in the financial statements.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenue when title and risk of ownership have passed to the buyer, the earnings process is complete and the sale price is fixed or determinable.

Foreign Currency

All purchases of diamonds are denominated in U.S. dollars and all of the Company’s foreign sales are denominated in U.S. dollars.

8

1. Inventories Inventories, including amounts on consignment with customers, are stated at the lower of cost or market. The determination of market value is highly subjective as it is based on the relative significance assigned to various attributes of a diamond, including carat weight, color, clarity and quality of cut. If actual market conditions are less favorable than those projected by management, inventory write-downs may be required.

May 31,		2007		2006
Raw materials	$	-	$	703,881
Work-in-progress		2,009,273		1,888,487
Finished goods		2,953,451		1,317,942
Consignment		2,598,527		285,576
Total	$	7,561,251	$	4,195,886

2. Notes Payable –
Partners Per the Funding Agreement (Exhibit C) of the Operating Agreement dated November 30, 2005, each Partner has agreed to a capital commitment equal to one-half of the sum of:

(1)	$3,000,000 in cash, plus
(2)	the proceeds received by each Partner from “Transition Period Diamonds”, “Transition Period Accounts Receivable”, “Pre-Transition Period Diamonds” and “Pre-Transition Period Accounts Receivable”.
As of May 31, 2007, the Company had $100,000 of capital contributions, $11,336,332 of loans from parents (in equal amounts) and $5,765,936 available in borrowings. The loans do not bear interest and are due on demand. The shareholders do not intend on calling the loans within one year and, therefore, the loans have been classified as long term.

9

3.	Commitments and Contingency	Operating Leases
		The Company currently has no leases.
4.	Related Party Transactions	The Company utilizes the services of certain employees for administrative services and occupies office space pursuant to various loan-out agreements with affiliates, which costs are included in selling, general and administrative expenses. Related fees are billed to the Company monthly and are based on actual costs incurred by the affiliates. The Company additionally utilizes manufacturing services from affiliates, which are reported as a component of cost of goods sold.
		The total fees charged by the shareholders totaled $5,801,856 and $2,896,886 for the year ended May 31, 2007 and the period from December 1, 2005 (inception) to May 31, 2006, respectively.

10

EX-99.3

EXHIBIT 99.3

GULFDIAM DMCC

Financial Statements

31 December 2006

Registered Address:

Emirates Tower, Level No. 41
Sheikh Zayed Road
Dubai, United Arab Emirates

GULFDIAM DMCC

Financial Statements
31 December 2006

CONTENTS	PAGE
Auditors’ Report	1
Balance Sheet	2
Income Statement	3
Statement of Changes in Equity	4
Cash Flow Statement	5
Notes to the Financial Statements	6 - 9

PAGE 1

Auditors’ Report to the Shareholder of
GULFDIAM DMCC

Report on the Financial Statements

We have audited the accompanying financial statements of GULFDIAM DMCC, which comprises the balance sheet as of 31 December 2006, and the income statement, statement of changes in equity and cash flow statement for the period then ended, and a summary of significant accounting policies and explanatory notes.

Management’s Responsibilities for the Financial Statements

Management is responsible for the preparation and fair presentations of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstance.

Auditor’s responsibility:

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risk of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion:

In our opinion, the financial statements present fairly, in all material respects the financial position of GULFDIAM DMCC as of 31 December 2006 and its financial performance and its cash flow for the period then ended in accordance with International Financial Reporting Standards

CHARTERED ACCOUNTANTS
Dubai

11 August 2008

PAGE 2

GULFDIAM DMCC

Balance Sheet
31 December 2006

		2006
	Notes	US $
ASSETS
Current assets
Trade and other receivables	3	30,790,352
Prepayments		5,322
Bank current account		4,034,589
		34,830,263
Total assets		34,830,263
EQUITY & LIABILITIES
Shareholders’ funds
Share capital	4	54,500
Accumulated profits		3,508,018
Equity funds		3,562,518
Current account of shareholders	5	(2,806,414	)
Total shareholders’ funds		756,104
Current liabilities
Other payables	6	34,074,159
Total equity & liabilities		34,830,263

The accompanying notes form an integral part of these financial statements.
The report of the auditors is set forth on page1.
Approved by the directors on 11^thAugust 2008.

For GULFDIAM DMCC


DIRECTOR

PAGE 3

GULFDIAM DMCC

Income Statement
for the period ended 31 December 2006

		7 Sept. 2006
		to
		31 Dec. 2006
	Notes	US $
Revenue		77,281,370
Cost of sales		(73,256,358	)
Gross profit		4,025,012
Expenses	7	(18,161	)
Profit from operations		4,006,851
Finance cost	8, 9	(498,833	)
Net profit for the period		3,508,018

The accompanying notes form an integral part of these financial statements.

PAGE 4

GULFDIAM DMCC

Statement of Changes in Equity
for the period ended 31 December 2006

	Share	Accumulated
	Capital	Profits	Total
	US $	US $	US $
Introduced during the period	54,500	-	54,500
Net profit for the period	-	3,508,018	3,508,018
As at 31 December 2006	54,500	3,508,018	3,562,518

The accompanying notes form an integral part of these financial statements.

PAGE 5

GULFDIAM DMCC

Cash Flow Statement
for the period ended 31 December 2006

		7 Sept. 2006
		to
		31 Dec. 2006
	Notes	US $
Cash flows from operating activities
Net profit for the period		3,508,018
Adjustment:
Finance cost		498,833
Operating profit before working capital changes		4,006,851
Trade and other receivables		(30,790,352	)
Prepayments		(5,322	)
Other payables		34,074,159
Cash generated from/(used in) operations		7,285,336
Finance cost paid		(498,833	)
Net cash from operating activities		6,786,503
Cash flows from financing activities
Share capital introduced		54,500
Funds withdrawn by the shareholders (net)		(2,806,414	)
Net cash from financing activities		(2,751,914	)
Cash and cash equivalents at end of the period		4,034,589

The accompanying notes form an integral part of these financial statements.

PAGE 6

GULFDIAM DMCC

Notes to the Financial Statements
for the period ended 31 December 2006

1.    Legal status and business activity

a)    GULFDIAM DMCC is a limited liability company incorporated in the Dubai Multi Commodities Centre, Dubai, U.A.E. The company was incorporated on 7 September 2006 under the trade license No. 30540. The company is operating from office of a business associate at fixed charge.

b)    The company is registered to carry trading of rough and polish diamonds. During the period, the company was mainly engaged in trading of rough diamonds.

c)    These financial statements are prepared for a period of 116 days as of 31 December to coincide with other group companies’ financial year end.

d)    The pricing policies, terms of sales and purchase transactions and credit terms are as approved by the management.

2.    Significant accounting policies

The financial statements are prepared under the historical cost convention and in accordance with International Financial Reporting Standards. The significant accounting policies adopted are as follows:

a)    Trade and other receivables:

Provision is made for doubtful debts. Bad debts are written off as they arise.

b)    Trade and other payables:

Liabilities are recognized for amounts to be paid for goods or services received, whether or not invoiced to the company.

c)    Staff end of service benefits:

Provision is made for end-of-service gratuity payable to the staff at the balance sheet date in accordance with the U. A. E. labour law.

d)    Revenue:

Sales represent net amount invoiced for goods delivered during the period. Sales are recognized when the significant risks and rewards of ownership of the goods have passed to the buyer.

PAGE 7

GULFDIAM DMCC

Notes to the Financial Statements
for the period ended 31 December 2006

e)    Foreign currency transactions:

Transactions in foreign currencies are converted into US Dollars at the rate of exchange ruling on the date of the transaction. Assets and liabilities expressed in foreign currencies are translated into US Dollars at the rate of exchange ruling at the balance sheet date. Resulting exchange gains/losses are taken to the income statement.

f)    Cash and cash equivalents:

Cash and cash equivalents for the purpose of the cash flow statement comprise of cash on hand, bank current accounts, deposits free of encumbrance with a maturity date of three months or less from the date of deposit and highly liquid investments with a maturity date of three months or less from the date of investment.

g)    Dividend:

Dividend is paid out of accumulated profits, when declared.

		2006
		US $
3.	Trade and other receivables
	Trade receivables*	14,798,388
	Advance to suppliers	14,022,545
	Other receivables	1,969,419
		30,790,352
	*Subsequently received in full.
4.	Share capital
	200 shares of AED 1,000
	(converted US $ @ AED 3.67 each)	54,500
5.	Current account of shareholders
	This represents the current account balance of shareholders.
		2006
6.	Other payables	US $
	Short term loan from business associates (refer note 8)*	34,051,717
	Accruals	22,442
		34,074,159

• Represents short terms, unsecured loan from business associates which carry an interest charge as agreed .(Refer Note 9

PAGE 8

GULFDIAM DMCC

Notes to the Financial Statements
for the period ended 31 December 2006

		7 Sept. 2006
		to
		31 Dec. 2006
		US $
7.	Expenses
	Other administrative expenses	18,161
8.	Finance cost
	Business associates	498,833
9.	Financial instruments: Credit, interest rate and exchange rate risk exposures

Credit risk

Financial assets, which potentially expose the company to concentrations of credit risk comprise principally of trade and other receivables and bank balance.

The company’s bank balance in a current account is placed with a high credit quality financial institution.

As at 31 December 2006, the company’s maximum and significant exposure to credit risk from a customer situated within U.A.E. amounts to US $ 10,248,084 and from a customer situated outside U.A.E. amounts to US $ 3,665,960.

There is no significant concentration of credit risk from receivables outside the industry in which the company operates.

Interest rate risk

Interest on short term loans from business associates is charged based on floating rates which approximate the rate at which the company can borrow from its bank.

Exchange rate risk

There are no significant exchange rate risks as substantially all financial assets and financial liabilities are denominated in US Dollars or UAE Dirham to which the US Dollars is fixed.

10.   Financial instruments: Fair values

The fair value of the company's financial assets comprising of bank balances, trade and other receivables and financial liabilities comprising of trade and other payables, and bank borrowings approximate to their carrying values.

PAGE 9

GULFDIAM DMCC

Notes to the Financial Statements
for the period ended 31 December 2006

11.   Contingent liabilities

There were no contingent liabilities of a significant amount at the balance sheet date.

12.   Comparative figures

This being the first financial period of the company, there are no comparative figure.

13.   Reporting standards

The company’s financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). IFRS differ in certain respects from accounting principles generally accepted in the United States of America (“U.S. GAAP”). For the period September 7, 2006 through December 31, 2006, the application of U.S. GAAP in the preparation of the company’s financials statements would not have materially impacted reported net income or shareholder’s funds.