The Company determined not to allow the Agreement to automatically renew for 2008, because the Company and K&G are currently negotiating the terms of a new manufacturing agreement that would become effective January 1, 2008. Negotiations are ongoing. The Agreement remains effective through the end of 2007.

The Agreement sets forth the terms and conditions applicable to the purchase by K&G of Moissanite jewels from the Company for the purpose of designing, distributing and manufacturing jewelry incorporating Moissanite jewels. Pursuant to the Agreement, the Company agreed to supply to K&G, and K&G agreed to purchase from the Company, as many carats of Moissanite jewels as K&G required from time to time. The pricing for such purchases by K&G is determined under the pricing policy in effect for similarly situated customers of the Company, subject to change by the Company on 90 days written notice. So long as K&G engages in marketing efforts to promote Moissanite jewelry, the Company will credit against future purchases of Moissanite by K&G, an amount equal to up to 10% of the net receipts of K&G's purchases of Moissanite. The amount of the credit cannot exceed the amount of K&G's marketing expenses. During the term of the Agreement, K&G has the non-exclusive, royalty-free right and license to use certain of the Company's trademarks in connection with its marketing of Moissanite jewelry.

The initial term of the Agreement expired on December 31, 2006. However, the Agreement automatically renews for successive one-year terms unless either party gives notice of intent to terminate at least 60 days prior to the end of the then-current term. Upon termination, K&G must cease promoting and distributing Moissanite jewelry and cease using any proprietary rights granted to it by the Company.    In addition, the Company shall repurchase K&G's inventory of undamaged Moissanite jewels, as defined at the discretion of the Company, at the price paid to the Company by K&G. In the event that C&C repurchases K&G's inventory of Moissanite jewels, there will be no re-stocking fee applied to product returned.