UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

|  |                                                                                                                                    
|- | -----------------------------------------------------------------------------------------------------------------------------------
|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                                                                                                                                 
|  |                                                                                                                                    
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES EXCHANGE ACT OF 1934For the transition period from ________ to

Commission file number 1-7848LAZARE 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 o Nox

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 o Nox

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 Noo

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 o | Accelerated filer o | 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 o Nox

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.

---



Part 1

Item 1. Business

The Company

Lazare
Kaplan International Inc. (the Company) was incorporated in 1972 under the
laws of the state of Delaware as the successor to a business which was founded
by Mr. Lazare Kaplan in 1903. The Company is engaged in the cutting, polishing
and selling of branded and non-branded (commercial) diamonds. The Companys
premier product line is comprised of ideally proportioned diamonds which it
markets internationally under the brand name Lazare Diamonds®.
Ideally proportioned diamonds are distinguished from non-ideal cut diamonds by
the symmetrical relationship of their facets, which optimize the balance of
brilliance, sparkle and fire in a polished diamond. Due to these
characteristics, Lazare Diamonds command a premium in the marketplace. The
Company believes there are only a small number of companies worldwide engaged
primarily in the production of ideally proportioned diamonds and that it is one
of the largest U.S. providers of ideal cut diamonds. The Company cuts and
polishes fine make commercial diamonds at diamond cutting facilities in Russia,
South Africa and Namibia which it markets to wholesalers, distributors and, to
a growing extent, retail jewelers. All rough stones purchased by the Company
are either selected for manufacturing or resold as rough diamonds in the
marketplace. The Company believes that the combination of its cutting and
polishing operations and its trading operations enables the Company to purchase
larger quantities of rough diamonds from which it may select those rough
diamonds best suited for the Companys current needs.

The
Companys marketing strategy in the selling of Lazare Diamonds is directed
primarily toward quality conscious consumers throughout the United States,
South America, the Far East, the Middle East and Europe. The Company focuses
its distribution efforts for Lazare Diamonds on selectivity with a view towards
helping retailers who carry the product maintain a competitive advantage.
Lazare Diamonds can be found at some of the most prestigious jewelry stores
around the world, including those with international reputations and those
known only in their communities as being the highest quality retail jewelers.
This strategy helps ensure that the Companys product is presented in an
environment consistent with its superior quality and image. The Company also
sells to certain jewelry manufacturers and diamond wholesalers. The Company has
developed a comprehensive grading system which, when coupled with the ideal
cut standard, allows jewelers to order inventory by category rather than
through the more cumbersome process of visual selection. In addition, the
Company designs, manufactures (through independent contractors) and sells a
line of high quality jewelry which features Lazare Diamonds.

An
important element of the Companys strategy is the promotion of the Lazare
Diamond brand name. Every Lazare Diamond bears a laser
inscription on its outer perimeter, invisible to the naked eye, containing the
Lazare Kaplan logo and an identification number unique to the stone. The laser
signature also allows consumers to register their Lazare Diamonds with the
Company under its program, The Lazare Diamond Registry®, thereby
providing proof of ownership in case of loss or theft.

One of the
Companys important suppliers of rough diamonds is the Diamond Trading Company
(DTC), the rough diamond sales arm of the De Beers Group. Based on published
reports, the Company believes that more than half of the worlds current rough
diamond output is sold by the DTC. The Company has been a client of the DTC for
approximately 60 years. In order to diversify its sources of rough diamond
supply, the Company has an office in Antwerp to supplement its rough diamond
needs by secondary market purchases and has entered into relationships with
other primary source suppliers. The Company believes that its success in
maintaining quantities and qualities of polished inventory that best meet its
customers needs is achieved through its ability to fully integrate its diverse
rough and polished diamond sources.

The Company
operates various manufacturing facilities. The Companys domestic manufacturing
operation is located in Puerto Rico. The Company believes its work force in
Puerto Rico is among the most highly skilled in the diamond industry. This
facility generally produces polished diamonds having weights of 1/5 of a carat
and greater. The Company also operates manufacturing facilities in Moscow and
Barnaul, Russia, Namibia and South Africa. The facilities in Russia are
operated pursuant to an agreement with AK ALROSA of Russia. The facility in
Namibia is operated under a strategic cooperation agreement with NamGem Diamond

2

---



Manufacturing Company (PYT) Ltd. The facility in South Africa is
operated by Nozala Diamonds (Pty) Ltd, a joint cutting and polishing operation
with Nozala Investments (Pty) Ltd, a broadly based womens empowerment
investment group.

Diamond Supply

The
Companys overall revenues are, in part, dependent upon the availability of
rough diamonds, the worlds known sources of which are highly concentrated.
Based upon published reports, the Company believes that Angola, Australia,
Botswana, Brazil, Canada, Ghana, Guinea, Ivory Coast, Namibia, Republic of the
Congo, Russia, Sierra Leone and South Africa account for more than 90% of
present world rough gem diamond production. The DTC is the primary world-wide
marketing mechanism of the rough diamond industry. Sales for the DTC are made
in London and South Africa to a select group of clients (sightholders) which,
according to published reports, number approximately 95, including the Company.
Based upon published reports, the Company believes that more than half of the
worlds current rough diamond output is sold by the DTC and its affiliated
companies. In order to maintain their purchasing relationship, the DTCs
clients have traditionally been expected to purchase substantially all of the
diamonds offered to them by the DTC. Companies that are not sightholders must
either purchase their requirements from sightholders or seek access to that
portion of the world supply not marketed by the DTC.

The DTC has
been and continues to be an important supplier of rough diamonds to the
Company. The DTC periodically invites its clients to submit their requirements
as to the amount and type of stones they wish to purchase. Employees of the
Company attend offerings of rough diamonds (sights) held by the DTC
periodically during the year in London. At sights, the Company purchases, at the
DTCs stated price, an assortment of rough diamonds known as a series, the
composition of which attempts to take into account the qualitative and
quantitative requirements of the Company based on requests submitted to the DTC
by the Company. The Company has been a sightholder for approximately 60 years.
The loss of its status as a sightholder could have a material adverse effect on
the Company.

In 2000,
the DTC announced significant changes in its approach to rough diamond
marketing. In brief, the DTC stated that it would stop open market purchases,
alter its market control and pricing policies and focus on selling its own
mining productions through its Supplier of Choice marketing programs. These
policy changes were intended to drive consumer demand for diamond jewelry by
fostering the development of efficient distribution networks that stimulate
demand, support the emergence of internationally recognized brands to meet
consumer needs, supply clients with a consistent supply of rough diamonds and
encourage and support additional investment in marketing and advertising
programs with the goal of developing an industry led by advertising and
marketing support.

The DTC has
announced a revision of their Supplier of Choice program. All current
sightholders have received notification of termination effective December 31,
2007. It is expected that new sightholder appointments will be made in December
of 2007. The Company is hopeful it will be reappointed as a sightholder at that
time. The Company believes it is well positioned to benefit from these changes
in the DTCs approach to diamond marketing. However, there can be no assurance
that this policy change will not have a material adverse effect on the
Companys operations.

During the
third quarter of fiscal 2004, the Company signed a cooperation agreement with
NamGem for the cutting and polishing of diamonds in Namibia. NamGem is
Namibias flagship venture in the international diamond polishing industry.
Under the terms of the agreement the Company provides marketing and technical
manufacturing assistance to NamGem. The Company purchases rough diamonds and
supervises the manufacturing of those deemed suitable to cut and polish. The
Company pays NamGem for manufacturing on a fee for services basis. All rough
and polished diamonds are bought and sold by the Company for its account.

During
September 2006 the Company and the Overseas Private Investment Corporation, an
independent agency of the United States (OPIC) signed a commitment letter
pursuant to which OPIC committed to provide approximately $25 million of
long-term financing in support of the acquisition of certain rough diamonds to
be cut and polished in Namibia. Pursuant thereto, a subsidiary of the Company
and OPIC entered into a financing agreement in February 2007. The Company is
currently in negotiations with third parties regarding changes to its

3

---



existing Namibian operations. Pending a satisfactory outcome of these
negotiations and subject to various conditions precedent under the financing
agreement, the Company anticipates initial borrowing under the facility to
commence during fiscal 2008.

During the
fourth quarter of fiscal 2004 the Company signed a four year technical
cooperation agreement regarding the marketing of rough diamonds with SODIAM,
the government entity responsible for the development and marketing of diamonds
produced in Angola. The Company began active buying operations in the Angolan
informal sector during the first quarter of fiscal 2005. During the third
fiscal quarter of 2006 the Companys rough buying operation expanded to include
buying in the Angolan formal sector.

During the
second fiscal quarter 2007 Angolan formal sector operations were transferred to
separate joint venture companies. The Company is currently negotiating a
further expansion and restructuring of its Angolan operations to include
exploration and development through various additional joint ventures.

In November
2004, the Company signed an agreement with Nozala Investments (PTY) LTD., a
broadly based womens empowerment investment group, for cooperation in South
Africas diamond sector. The agreement contemplates diamond mining, cutting,
polishing, and distribution. The joint venture is in line with the South
African Governments recently announced program to promote new entrants and
investment in the domestic diamond sector, increasing the sectors contribution
to economic development. Cutting and polishing activities which concentrate on
local sources of rough diamond supply, commenced during the third fiscal
quarter of 2006.

In order to
diversify its sources of supply, the Company has entered into arrangements with
other primary source suppliers and manufacturers. The Company also has
established an office in Antwerp to supplement its rough and polished diamond
needs by making purchases in the secondary market.

Through
February 2009, the Companys wholly-owned subsidiary, Pegasus Overseas Ltd.
(POL) has an exclusive agreement with Diamond Innovations Inc. (DI) under
which POL will market natural diamonds that have undergone a high pressure,
high temperature (HPHT) process to improve the color of certain gem diamonds
without reducing their all-natural content. The process is permanent and
irreversible and it does not involve treatments such as irradiation, laser
drilling, surface coating or fracture filling and is conducted before the final
cutting and polishing by the Company. The process is used only on a select,
limited range of natural diamonds with qualifying colors, sizes and clarities
for both round and fancy cuts. The estimated number of gemstones with
characteristics suitable for this process is a small fraction of the overall
diamond market. POL sells only diamonds that have undergone the HPHT process
under the brand name Bellataire®. Each Bellataire diamond is laser inscribed
with a unique identification number.

In November
2005, the Company (including certain of its subsidiaries) amended certain terms
of its agreement with DI relating to the sourcing, manufacture and marketing of
Bellataire diamonds. The amendment and related agreements seek to increase the
sales and profitability of Bellataire diamonds by more closely aligning the
economic interests of the parties through shared management of product
sourcing, manufacturing and marketing as well as the sharing of related costs.

The Company
has rough diamond supply arrangements in Russia for the cutting and polishing
of diamonds in Russia. See Cutting and Polishing.

The Company
believes that it has good relations with its suppliers, that its trade
reputation and established customer base will continue to assure access to
primary sources of diamonds and that its sources of supply are sufficient to
enable the Company to meet its present and foreseeable needs. However, the
Companys sources of supply could be affected by political and economic
developments in producing countries over which the Company has no control.
While the Company believes that alternative sources of supply may be available,
any significant disruption of the Companys access to its primary source
suppliers could have a material adverse effect on its ability to purchase rough
diamonds.

As a
concerned member of the international diamond industry and global community at
large, the Company fully supports and complies with policies which prohibit the
trade in conflict diamonds, prevent money

4

---



laundering and combat the financing of terrorism, a position which
reflects the Companys leadership in the industry. The Company fully complies
with clean diamond trading and anti-money laundering legislation adopted by the
United States Government such as the USA PATRIOT ACT and the Clean Diamond
Trade Act, and supports relevant resolutions of concerned regional governments
and international organizations including the OECD and the United Nations. The
Company is a founding member of the United Nations Global Compact which was
launched in 2000 to initiate a global compact of shared values and principles
which will give a human face to the global market. The Company will continue
to join various industry and trade associations in condemning and combating the
trade in illicit diamonds and to comply fully with World Diamond Congress
resolutions for industry self-regulation in respect of the Kimberley Process
Certification Scheme, including implementation of the prescribed System of
Warranties and Code of Conduct. Furthermore, the Company long ago adopted the
highest professional and ethical standards in every aspect of our business and
is fully compliant with the DTCs recently developed Diamond Best Practices
Principles.

5

---



Cutting and Polishing

In March
1999, the Company and ALROSA entered into a ten year agreement (the ALROSA
Agreement) to expand their relationship in the cutting, polishing and
marketing of rough gem diamonds for up to $100 million a year. Under the terms
of the ALROSA Agreement, the Company and ALROSA agreed to refurbish certain diamond
cutting facilities in Russia. At present, the Companys operations in Russia
are consolidated in two facilities, both of which are fully operational. These
facilities are staffed by Russian technicians and jointly managed and
supervised by the Company and ALROSA personnel. Under the ALROSA agreement, the
Company sells the resulting polished diamonds through its worldwide
distribution network. The proceeds from the sale of these polished diamonds,
after deduction of rough diamond cost, are generally shared equally with
ALROSA. This agreement does not require the Company to advance funds for the
purchase of rough diamonds. Any interruption in the supply of diamonds from
Russia could have a material adverse effect on the Company.

The Company
has signed a strategic cooperation agreement with NamGem Diamond Manufacturing
Company (PTY) Ltd. (NamGem) for the cutting and polishing of diamonds in
Namibia. NamGem is Namibias flagship venture in the international diamond
polishing industry. Under the terms of the agreement, the Company provides
technical manufacturing assistance and supervises the manufacture of the
Companys rough diamonds deemed suitable to cut and polish.

The Company
believes that its factory in Puerto Rico is among the largest cutting and
polishing facilities in the United States. Each diamond received in Puerto Rico
is evaluated against strict management standards designed to maximize its
potential economic contribution to the Company. Expert technicians, assisted by
proprietary computer software, determine whether to cut the diamond to ideal or
commercial proportions or resell the diamond. The shape of the diamond, its
color, clarity, size, potential profitability and salability are among the
criteria used in making such determinations.

Rough
diamonds selected for cutting are analyzed and where desirable are sorted for
sawing to achieve the desired shape and to eliminate imperfections. They are
then cut and polished into finished gems. Each finished ideal cut diamond
(weighing .18 carats and larger) which is marketed as a Lazare Diamond is
inscribed with the Lazare Kaplan logo and its own identification number by the
Companys patented laser inscription process. The Company believes its work
force in Puerto Rico is one of the most highly skilled in the diamond industry.

The Company
believes that it is recognized in the diamond industry for the high quality and
brilliance of the gems it cuts and that it also enjoys a reputation as an
imaginative and innovative cutter of large and difficult diamonds.

Pricing

Rough
Diamond Prices

Through its
control of more than half of the value of the current world rough diamond
output, the DTC can exert significant control over the pricing of rough and
polished diamonds by adjusting the quantity and pricing of rough diamonds it
supplies to the marketplace. Rough diamond prices established by the DTC have
been characterized historically by steady increases over the long term;
however, prices in the secondary market have experienced a greater degree of
volatility, particularly during the late 1970s. Traditionally, the Company has
been able to pass along such price increases to its customers. From time to
time, however, the Company has absorbed these price increases in the short term
to maintain an orderly pricing relationship with its customers. This has, in
the past, caused temporary adverse effects on the Companys earnings. A large
rapid increase in rough diamond prices could materially adversely affect the
Companys revenues and operating margins if the increased cost of rough
diamonds could not be passed along to its customers in a timely manner.

According
to published reports, during 1995 there was an emergence of a two-tier market
for rough diamonds. The first tier is comprised of better quality rough
diamonds, where supply and demand appear to be in balance. The Company conducts
its cutting and polishing operations almost exclusively in this segment of the
market. The second tier is comprised of small, less expensive, imperfect rough
diamonds. The prices for these

6

---



diamonds have been considerably more volatile since 1995. Because the
Company focuses primarily on better quality rough diamonds, this volatility has
not had a significant effect on the Company. However, a significant decrease in
the price of better quality rough diamonds could materially adversely affect
the Companys revenues, operating margins and inventory value.

Polished
Diamond Prices

Over the
past 60 years, increases in the price of rough diamonds have generally resulted
in a corresponding increase in the price of polished diamonds. However, during
periods of economic uncertainty, there may be a significant time lag before the
Company is able to increase polished diamond prices. During the period of high
inflation in the late 1970s, investors speculated in hard assets, driving
polished diamond prices to exceptionally high levels which in turn caused
significant increases in the cost of rough diamonds. However, the moderation of
inflation during the early 1980s resulted in a sudden and massive shift of
investments from hard assets to financial instruments, resulting in dramatic
price declines for polished diamonds which caused a market liquidity crisis as
prices of some categories of polished diamonds fell below the inventory costs
of such diamonds. Since this period in the early 1980s, the Company believes
the pricing of polished diamonds has returned to its historical pattern of
generally responding to increases in the pricing of rough diamonds. The Company
has broadened its sales base and implemented strict inventory, pricing and
purchasing controls which it believes could lessen the impact of fluctuations
in the price of rough and polished diamonds. These include computerized rough
diamond evaluation programs and inventory utilization programs. However, there
can be no assurance that volatility in the price of polished diamonds could not
occur again. Any rapid decrease in the price of polished diamonds could have a
material adverse effect on the Company in terms of inventory reserves, lower
sales and lower margins.

Marketing, Sales and Distribution

Marketing
Strategy

The
Companys sales strategy is directed primarily toward quality conscious
consumers throughout the United States, South America, the Far East, the Middle
East and Europe. The Company focuses its distribution efforts for Lazare
Diamonds on selectivity with a view to helping retailers who carry the product maintain
a competitive advantage. Lazare Diamonds can be found at some of the most
prestigious jewelry stores around the world, including both those with
international reputations and those recognized only in their local communities
as being the highest quality retail jewelers. This strategy helps ensure that
the Companys product is presented in an environment consistent with its
superior quality and image.

The Company
also sells to certain jewelry manufacturers and diamond wholesalers. The Company
has developed a comprehensive grading system for its diamonds which, when
coupled with the ideal cut standard, allows jewelers to order inventory by
category rather than through the more cumbersome process of visual selection.
In addition, the Company designs, manufactures (through independent
contractors) and sells a line of high quality jewelry that features Lazare
Diamonds.

A key
element of the Companys strategy is the promotion of the Lazare Diamond brand
name directly to consumers. The Company is able to market its diamonds under a
brand name to retailers because (a) the ideal cut differentiates the Companys
diamonds from commercial diamonds in the marketplace and (b) each Lazare
Diamond is inscribed with the Companys logo and identification number using
the Companys patented laser inscription process, thus authenticating the
diamonds. The Company holds domestic and various international patents for this
process. In addition, in March 2006 an additional U.S. patent was issued to the
Company relating to microinscribed gemstones. The Company has additional
domestic and international patents-pending.

The
Companys decision to pursue the brand name strategy is reinforced by two
factors - a rising trend among informed consumers to purchase quality, brand
name products, and the need among upscale jewelers to set themselves apart in
an increasingly competitive market by carrying and promoting a highly
differentiated product.

7

---



Building
awareness and acceptance of the Lazare Diamond brand name is accomplished
through a comprehensive marketing program which includes sales training,
cooperative advertising, sales promotion and public relations. A wide
assortment of sales promotion materials has been designed to facilitate jewelers
sales of the Companys diamonds and fine jewelry line to consumers. Public
relations events are offered which help build traffic in retail stores. The
Company has a program to build both free standing and in-counter boutiques in
the stores of a select group of its retail clients. The Company believes these
marketing programs have been and will continue to be instrumental in increasing
sales. The Company intends to continue concentrating its Lazare Diamond®
marketing efforts towards the quality retail jeweler.

The Lazare
Diamond Registry program has been established by the Company to enable
consumers to register their Lazare Diamonds with the Company using the laser
inscribed identification number, thereby providing proof of ownership in case
of loss or theft.

The Company
markets high quality commercial cut diamonds and diamond jewelry through its
worldwide distribution network to wholesalers, jewelry manufacturers,
distributors and retailer jewelers.

In
addition, Bellataire® diamonds and jewelry are marketed through upscale
retailers and select distributors throughout the world. Bellataire diamonds are
all-natural diamonds that have been restored to their intrinsic beauty through
a patented high pressure, high temperature (HPHT) process that improves the
color of a limited group of gem diamonds.

The Company
has developed its own E-commerce site (www.lazarediamonds.com). This site
directly links the Company to its retailers, which serves to further strengthen
the ties with its retail client base.

Sales and Distribution

While the
purchase and sale of rough diamonds is concentrated among relatively few
parties, based on published reports industry wide retailing of polished
diamonds occurs through over 40,000 jewelry stores in the United States, over
25,000 retailers in Japan and over 60,000 retail stores in Europe. The
Companys sales efforts for its polished diamonds are directed primarily toward
the fine quality segment of these retailers (the majority of which are
independently owned and operated), wholesalers and distributors and, to a
lesser extent, to jewelry manufacturers. Full time regional sales
representatives located throughout the United States, Latin America, Japan,
Hong Kong and Europe, are generally compensated, in whole or in part, on a
commission or incentive basis and handle sales throughout the respective
territories in which they operate.

The
Companys U.S. sales force is supported by a New York based in-house sales and
service department. Sales to certain of the Companys largest accounts are
handled by headquarters personnel. Most of the Companys major accounts are
customers of long standing.

The Company
has been actively working to expand its foreign business activities,
particularly in the Far East countries of Japan, Hong Kong, Singapore, Taiwan,
Korea, China and Malaysia and recently throughout Latin America, Italy and the
Middle East.

The Company
uses a comprehensive sorting and inventory classification system for grading
color and clarity of its ideal cut polished diamonds. This system, combined
with the fact that the Companys stones are uniformly cut to ideal proportions,
reduces and in some cases eliminates the need for customers to view diamonds
before placing orders. The system enables customers to standardize their
inventories, order by mail or telephone and minimize their inventory
investment.

8

---



The
percentages of the Companys total domestic and foreign net sales to its
customers, which include a combination of both rough diamonds and polished
diamonds sales taken together, for the past three fiscal years are set forth
below:

|                       |  |      |     |      |  |      |   |  |     |  
|---------------------- |  | ---- | --- | ---- |  | ---- | - |  | --- | -
|                       |  |      |    
|                       |  | 2007 |     | 2006 |  | 2005 |  
|                      
|United States          |  |      | 15  | %    |  | 13   | % |  | 20  | %
|Far East               |  |      | 8   | %    |  | 7    | % |  | 9   | %
|Europe, Israel & Other |  |      | 77  | %    |  | 80   | % |  | 71  | %
|                      
|                       |  |      | 100 | %    |  | 100  | % |  | 100 | %
|                       |  |      |     |      |  |      |   |  |     |  

The
worlds rough diamond trading markets are primarily located in Belgium, India,
and Israel; therefore, the majority of the Companys rough diamond sales have
been transacted with foreign customers.

The
Company believes that due to the possible international resale of diamonds by
its customers, the above percentages may not represent the final location of
retail sales of its product. All of the Companys foreign sales, other than
those made in Japan, are denominated in United States dollars. The
profitability of foreign sales of either polished or rough diamonds is
consistent with that of domestic sales of similar merchandise.

Competition

The
polished and rough diamond business is highly competitive. While the Company
believes that it has achieved a reputation as a leading cutter and distributor
of high quality diamonds, it faces competition in sales to its customers in the
United States and abroad from many other suppliers. In addition, the Company
sells rough diamonds in the competitive world market. A substantial number of
cutters and polishers and traders, some of which the Company believes to be
larger or to have greater financial resources than the Company, sell diamonds
of all qualities to the Companys customers.

The
Company believes there are significant barriers to entry by potential
competitors into the business of manufacturing and distributing high quality cut
diamonds. Among the most important of these barriers are the need for
significant working capital to purchase rough diamonds and hold polished
inventory, the long-term relationships required to have access to adequate
supplies of rough diamonds, the limited number of persons with the skills
necessary to consistently cut significant amounts of high quality cut diamonds,
the difficulty in obtaining access to upscale channels of distribution, the
importance of public recognition of an established brand name, a reputation for
diamond cutting excellence, and the procurement of computer systems to report
on and monitor the manufacturing and distribution network.

Employees

At July 31,
2007, the Company had 178 full-time employees including seven regional sales
representatives. The Company maintains an apprenticeship program at its
facility in Puerto Rico, through which it trains its cutters, who are highly
skilled workers. The Company provides paid vacations, sick leave, group life,
disability, hospitalization and medical insurance for its employees. The
Company has a 401(k) retirement plan for its U.S. and Puerto Rico employees.
The Company believes that it has satisfactory relationships with its employees.
None of the Companys employees are represented by a union.

9

---



Item 1A. Risk Factors

Supply

The
worlds sources of rough diamonds are highly concentrated in a limited number
of countries. Varying degrees of political and economic risk exist in these
countries. As a consequence, the diamond business is subject to various
sovereign risks beyond the Companys control, such as changes in laws and
policies affecting foreign trade and investment. In addition, the Company is
subject to various political and economic risks, including the instability of
foreign economies and governments, labor disputes, war and civil disturbances
and other risks that could cause production difficulties or stoppages, restrict
the movement of inventory or result in the deprivation or loss of contract
rights or the taking of property by nationalization or expropriation without
fair compensation. Any significant disruption of the Companys sources of
supply, or restriction of inventory movement could have a material adverse
effect on the Company.

Based
upon published reports, the Company believes that more than half of the worlds
current diamond output is sold by the Diamond Trading Company (DTC), the
rough diamond sales arm of the De Beers Group. The DTC is the primary
world-wide marketing mechanism of the rough diamond industry. Sales for the DTC
are made in London and South Africa to a select group of clients
(sightholders) which, according to published reports, number approximately
95, including the Company. The DTC has been and continues to be an important
supplier of rough diamonds to the Company. The Company has been a sightholder
for approximately 60 years. The loss of its status as a sightholder could have
a material adverse effect on the Company.

The
Companys cooperation arrangement with ALROSA and its sourcing arrangements in
Angola represent a significant part of its operations. Any interruption in the
supply of diamonds from Russia or Angola could have a material adverse effect
on the Company.

Rough Pricing

Through
its control of more than half of the value of the current world rough diamond
output, the DTC can exert significant control over the pricing of rough and
polished diamonds by adjusting the quantity and pricing of rough diamonds it
supplies to the marketplace. Historically, the Company has been able to pass
along such price increases to its customers. From time to time, however, the
Company has absorbed these price increases in the short term to maintain an
orderly pricing relationship with its customers. This has, in the past, caused
temporary adverse effects on the Companys earnings. A large rapid increase in
rough diamond prices could materially adversely affect the Companys revenues
and operating margins if the increased cost of rough diamonds could not be
passed along to its customers in a timely manner. Conversely, a significant
decrease in the price of better quality rough diamonds could materially
adversely affect the Companys revenues, operating margins and inventory value.

Polished Pricing

Any
rapid decrease in the price of polished diamonds could have a material adverse
effect on the Company in terms of inventory reserves, lower sales and lower
margins.

Competition

The
polished and rough diamond business is highly competitive. A substantial number
of cutters and polishers and traders, some of which the Company believes to be
larger or to have greater financial resources than the Company, sell diamonds
of all qualities to the Companys customers.

Item 1B.Unresolved Staff Comments

Not
applicable.

10

---



Item 2. Properties

In June
2003, the Company entered into a lease for 17,351 square feet of office space,
a portion of which will be devoted to sales rooms, at 19 West 44th
Street, New York City, for a term expiring September 30, 2019 at an annual
rental rate of approximately $594,000 (subject to escalations). This location
serves as the Companys corporate headquarters.

The Company
also owns a manufacturing facility in Caguas, Puerto Rico. The Caguas facility
consists of approximately 12,650 square feet.

The Company
leases office space in Antwerp, Belgium for a term expiring May 31, 2015 at an
annual rental rate of approximately $50,000. The Company has the right to
terminate the lease on May 31, 2009, and 2012.

The Company
also leases office space in Antwerp, Belgium for a term expiring August 11,
2013 at an annual rental rate of approximately 52,000 Euros (approximately
$64,000). The lease is cancelable by either the Company or the landlord on
August 11, 2008 and 2010.

The Company
owns a 330 square meter office in Antwerp, Belgium, a portion of which is
devoted to sales rooms.

The Company
leases office space in Hong Kong for a term expiring May 31, 2008 at an annual
rental rate of 672,000 Hong Kong dollars (approximately $87,000).

The Company
leases office space in Tokyo for a term expiring August 31, 2008 at an annual
rental rate of 18,200,000 Japanese Yen (approximately $150,000).

The Company
believes that its facilities are fully equipped and adequate to fulfill its
operating and manufacturing needs.

Item 3. Legal Proceedings

On May 25, 2006, the Company filed a complaint in the United States District Court for the Southern District of New York against Photoscribe Technologies, Inc. (Photoscribe). The
complaint asserted infringement of the Companys intellectual property rights by Photoscribe with respect to two of the Companys patents (the patents-in-suit). The patents-in-suit have claims relating to methods of, and
apparatus for, laser inscribing gemstones, as well as the inscribed gemstones themselves.

On November 22, 2006, the Company amended its complaint against Photoscribe to include the Gemological Institute of America (the GIA) as a co-defendant. As of February 1996, the
Company and the GIA entered into an exclusive United States inscription agreement (except for the Companys own use) with respect to certain intellectual property, which is owned by the Company relating to certain laser inscription equipment
and methods (the Inscription Agreement) and which includes the patents-in-suit. The GIA has purportedly terminated the Inscription Agreement as of July 31, 2006 under its terms. The GIA then began to commercially use Photoscribe
equipment to inscribe gemstones, thus providing the basis to include the GIA in the suit. In addition to the same charges of patent infringement that were originally made against Photoscribe, the amended complaint also charges the GIA with breach of
the exclusive license agreement prior to its purported termination and breach of a letter agreement by which GIA was to maintain the Companys equipment that it had been using. The amended complaint further charges Photoscribe with tortious
interference with the Companys business relationship with the GIA.

On July 19, 2007, the Company filed a Second Amended Complaint which included Mr. David Benderly, President of Photoscribe, as an additional individual defendant, based on discovery during the case, which showed that Mr.
Benderly controlled and directed the infringing activity of Photoscribe, and is thus personally liable for patent infringement. Further, the Second Amended Complaint charged Mr. Benderly with fraud based on a demonstration of Photoscribe equipment
he gave in 2000 to counsel for the Company to show that the equipment did not infringe the Company's patents. However, discovery has indicated that he setup the machine for use during the demonstration to give the impression that the Photoscribe
equipment could not operate to infringe the Company's patents when he knew that it could.

In the Photoscribe-GIA-Benderly litigation the Company seeks injunctive relief, as well as damages, including inscription fees and lost profits based on lost sales and the value added to
inscribed gemstones by reason of the use of infringing systems by Photoscribe and the GIA. The Company also seeks to recover damages it suffered as a result of Mr. Benderlys fraud.

GIA,
Photoscribe and Benderly have answered the Second Amended Complaint and all deny
liability for the charges made by the Company. GIA has also filed counterclaims
alleging non-infringement, invalidity and unenforceability of the patents-in-suit.
Further, GIA has

11

---



asserted counterclaims for (i) breach of contract based on the allegation that the Company failed to provide operative equipment or to maintain the equipment and (ii) false marking for allegedly placing patent numbers on
equipment that was not covered by the patents. GIA has additionally filed a counterclaim for equitable estoppel and implied license on the basis that the Company has submitted diamonds to GIA to be graded and these stones may be inscribed by GIA on
Photoscribe equipment. The Company has moved to strike this defense. Further, the Company believes that the other counterclaims are without merit and will actively defend against them.

Photoscribe and David Benderly allege counterclaims for non-infringement, invalidity and unenforceability of the patents-in-suit. Further, Photoscribe and Benderly have asserted a counterclaim
which charges the Company with an antitrust violation under Section 2 of the Sherman Act for monopolizing the laser inscription market. The company will vigorously contest this counterclaim and the others as baseless.

The Company intends to continue to pursue its Second Amended Complaint against Photoscribe, the GIA and Benderly, and to defend aggressively against their counterclaims. A trial date has been
set for February 25, 2008.

Item 4. Submission of Matters to a Vote of Security Holders

None

Executive Officers of the Company

The
following table sets forth information regarding executive officers of the
Company.

|                   |  |                                             |  |    
|------------------ |  | ------------------------------------------- |  | ---
|NAME               |  | POSITION                                    |  | AGE
|                   |  |                                             |  |    
|                  
|Maurice Tempelsman |  | Chairman of the
 Board                      |  | 78 
|                   |  |                                             |  |    
|Leon Tempelsman    |  | Vice Chairman of
 the
 Board and President  |  | 51 
|                   |  |                                             |  |    
|William H. Moryto  |  | Vice President and
 Chief Financial Officer |  | 49 

All officers were elected by the Board of Directors at its meeting
following the Annual Meeting of Stockholders held in November 2006. All
officers hold office until the Board of Directors meeting following the next
Annual Meeting of Stockholders and until their respective successors have been
duly elected and qualified.

Maurice
Tempelsman is the Chairman of the Board and a director of the Company and a
general partner of Leon Tempelsman & Son (LTS), a partnership with
interests in real estate, venture capital, investments and an ownership
interest in the Company. He has held these positions since 1984. Maurice
Tempelsman is the father of Leon Tempelsman.

Leon
Tempelsman is the Vice Chairman of the Board, the President and a director of
the Company and a general partner of Leon Tempelsman & Son. He has held
these positions since 1984. Leon Tempelsman is the son of Maurice Tempelsman.

12

---



The Company
believes that neither the Tempelsmans nor LTS currently engages directly or
indirectly in any activities competitive with those of the Company.

William H.
Moryto has been Vice President and Chief Financial Officer since May 2000.

Part II

Item 5. Market for Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities

The Companys
common stock (par value $1 per share) is traded on the American Stock Exchange.

Market
prices and other information with respect to the Companys common stock are
hereby incorporated by reference to the Companys Annual Report.

The
following table presents a summary of share repurchases made by the Company
during the quarter ended May 31, 2007 under the Companys share repurchase
program authorized by our Board of Directors.

|           |  |                                     |        |                                |   |                                                                             |  |                                                                        |        |  |   |           | 
|---------- |  | ----------------------------------- | ------ | ------------------------------ | - | --------------------------------------------------------------------------- |  | ---------------------------------------------------------------------- | ------ |  | - | --------- | 
|           |  | Total
 Number of
 Shares
 Purchased |        | Average
 Price Paid
 per Share |   | Total Number of
 Shares Purchased
 as Part of Publicly
 Announced
 Programs |  | Maximum Dollar
 Value that May
 Yet Be
 Purchased
 Under the
 Programs |       
|          
|MARCH 2007 |  |                                     |       |                                | $ |                                                                            |  |                                                                        |       |  | $ | 2,000,000 | 
|APRIL 2007 |  |                                     | 63,334 |                                | $ | 8.07                                                                        |  |                                                                        | 63,334 |  | $ | 1,488,895 | 
|MAY 2007   |  |                                     |       |                                | $ |                                                                            |  |                                                                        |       |  | $ | 1,488,895 | 
|           |  |                                     |        |                                |  
|           |  |                                     | 63,334 |                                | $ | 8.07                                                                        |  |                                                                        | 63,334 |  |   |           | 
|           |  |                                     |        |                                |  

On April
11, 2007, the Board of Directors of the Company adopted a resolution to
continue to purchase in the open market, at any time and from time to time
during the fiscal year ending May 31, 2008, shares of the Companys common
stock with an aggregate value not to exceed $2.0 million.

Item 6. Selected Financial Data

Selected
financial data are hereby incorporated by reference to the Companys Annual
Report.

Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations

Managements
discussion and analysis of financial condition and results of operations is
hereby incorporated by reference to the Companys Annual Report.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

At May 31,
2007, the Company had borrowings totaling approximately $121.6 million
outstanding under various credit agreements. The interest rates on these
borrowings are variable and therefore the general level of U.S. and foreign
interest rates affects interest expense. Increases in interest expense
resulting from an increase in interest rates could impact the Companys results
of operations. The Companys policy is to take actions that would mitigate such
risk when appropriate. These actions include staggering the term and rate of
its borrowings to match anticipated cash flow. International business
represents a major portion of the Companys revenues and profits. All purchases
of rough diamonds worldwide are denominated in U.S. dollars. All of the
Companys foreign sales are denominated in U.S. dollars, with the exception of
those sales made by the Companys subsidiary, Lazare Kaplan Japan Inc., which
are denominated in Japanese yen. The functional currency for Lazare Kaplan
Japan is the Japanese yen and, as of May 31, 2007 and 2006, the Company
recognized cumulative foreign

13

---



currency translation adjustments with regard to the activities of
Lazare Kaplan Japan in the amount of $(766,000) and $(425,000) respectively,
which are shown as a component of stockholders equity in the accompanying
balance sheets.

Item 8. Financial Statements and Supplementary Data

(a) The
following financial statements and supplementary data are hereby incorporated
by reference to the Companys Annual Report.

| |       |                                                                                                                
| | ----- | ---------------------------------------------------------------------------------------------------------------
| | (i)   | Report of BDO
 Seidman, LLP                                                                                    
| |       |                                                                                                                
| | (ii)  | Consolidated
 Statements of Operations for each of the three years in the period ended May
 31, 2007.          
| |       |                                                                                                                
| | (iii) | Consolidated
 Balance Sheets as at May 31, 2007 and May 31, 2006.                                              
| |       |                                                                                                                
| | (iv)  | Consolidated
 Statements of Stockholders Equity for each of the three years in the period
 ended May 31, 2007.
| |       |                                                                                                                
| | (v)   | Consolidated
 Statements of Cash Flows for each of the three years in the period ended May
 31, 2007.          
| |       |                                                                                                                
| | (vi)  | Notes to
 Consolidated Financial Statements.                                                                   

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.

Item 9A. Controls and Procedures

The
Company, under the supervision and with the participation of its management,
including its principal executive officer and principal financial officer,
evaluated the effectiveness of the design and operation of its disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) to the
Securities and Exchange Act of 1934) as of the end of the period covered by
this report. Based on this evaluation, the principal executive officer and
principal financial officer concluded that the Companys disclosure controls
and procedures are effective in reaching a reasonable level of assurance that
information required to be disclosed by the Company in the reports that it
files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time period specified in the
Securities and Exchange Commissions rules and forms.

The
principal executive officer and principal financial officer also conducted an
evaluation of internal control over financial reporting (Internal Control) to
determine whether any changes in Internal Control occurred during the quarter
ended May 31, 2007 that may have materially affected or which are reasonably
likely to materially affect Internal Control. Based on that evaluation, there
has been no change in the Companys internal controls over financial reporting
during the quarter ended May 31, 2007 that has materially affected, or is
reasonably likely to affect, the Companys internal controls over financial
reporting.

Item 9B. Other Information

None.

Part III

Except for
information regarding Executive Officers of the Company, which, in accordance
with Instruction G to Form 10-K, is included in Part I hereof, the information
called for by Part III (Items 10, 11, 12, 13, and 14) is

14

---



incorporated by reference herein to the Companys definitive proxy
statement to be filed with the Commission within 120 days after the close of
its fiscal year ended May 31, 2007.

Part IV

Item 15. Exhibits and Financial Statement Schedules

| |     |    |                                                                                         
| | --- | -- | ----------------------------------------------------------------------------------------
| | (a) | 1. | The response to
 this portion of Item 15 is set forth in Item 8 of Part II hereof.      
| |     |    |                                                                                         
| |     | 2. | The schedule and
 reports of the independent registered public accounting firms thereon.
| |     |    |                                                                                         
| |     | 3. | The exhibits
 listed in the exhibit index attached hereto.                              

15

---



Report of Independent Registered Public
Accounting Firm

The Board of Directors and Shareholders
of Lazare Kaplan International Inc.

The audits referred to in our report dated August
    28, 2007 relating to the consolidated financial statements of Lazare Kaplan
    International Inc., which are incorporated in Item 8 of the Form 10-K by
    reference to the annual report to stockholders for the year ended May 31,
    2007 included the audits of the financial statement schedule listed in the
    accompanying index for the years ended May 31, 2007, 2006 and 2005. This
    financial statement schedule is the responsibility of the Companys management. Our responsibility is to express an
opinion on this financial statement schedule based upon our audits.

In our opinion such financial statement schedule presents fairly, in
all material respects, the information set forth therein for the years ended
May 31, 2007, 2006 and 2005.

BDO Seidman, LLP
New York, NY

August 28, 2007

16

---



LAZARE KAPLAN INTERNATIONAL INC.

AND SUBSIDIARIES

SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS

|                                 |  |                                  |         |                                 |   |                                      |  |                      |   |                            |   |         |      |   |         | 
|-------------------------------- |  | -------------------------------- | ------- | ------------------------------- | - | ------------------------------------ |  | -------------------- | - | -------------------------- | - | ------- | ---- | - | ------- | 
|COLUMN A                         |  | COLUMN B                         |         | COLUMN C                        |   | COLUMN D                             |  | COLUMN E             |  
|                                 |  |                                  |         |                                 |   |                                      |  |                      |  
|                                
|                                 |  |                                  |         | Additions                       |   |                                      |  |                      |  
|                                 |  |                                  |         |                                 |   |                                      |  |                      |  
|                                 |  |                                  |         |                                 |   |                                      |  |                      |   |                            |   |         |      |   |         | 
|Description                      |  | Balance at
 beginning
 of period |         | Charged to
 costs and
 expenses |   | Charged to
 other accounts
 describe |  | Deductions
 describe |   | Balance at
 end
 of period |  
|                                 |  |                                  |         |                                 |   |                                      |  |                      |   |                            |  
|                                 |  |                                  |         |                                 |   |                                      |  |                      |   |                            |   |         |      |   |         | 
|YEAR ENDED MAY 31,
 2007:        |  |                                  |         |                                 |   |                                      |  |                      |   |                            |   |         |      |   |         | 
|                                 |  |                                  |         |                                 |   |                                      |  |                      |   |                            |   |         |      |   |         | 
|Allowance for
 doubtful accounts |  | $                                | 515,000 |                                 | $ | 358,000                              |  | $                    |  |                            | $ | (27,000 | )(A) | $ | 846,000 | 
|                                 |  |                                  |         |                                 |   |                                      |  |                      |   |                            |   |         |      |   |         | 
|                                
|YEAR ENDED MAY 31,
 2006:        |  |                                  |         |                                 |   |                                      |  |                      |   |                            |   |         |      |   |         | 
|                                 |  |                                  |         |                                 |   |                                      |  |                      |   |                            |   |         |      |   |         | 
|Allowance for
 doubtful accounts |  | $                                | 360,000 |                                 | $ | 168,000                              |  | $                    |  |                            | $ | (13,000 | )(A) | $ | 515,000 | 
|                                 |  |                                  |         |                                 |   |                                      |  |                      |   |                            |   |         |      |   |         | 
|                                
|YEAR ENDED MAY 31,
 2005:        |  |                                  |         |                                 |   |                                      |  |                      |   |                            |   |         |      |   |         | 
|                                 |  |                                  |         |                                 |   |                                      |  |                      |   |                            |   |         |      |   |         | 
|Allowance for
 doubtful accounts |  | $                                | 365,000 |                                 | $ | 59,000                               |  | $                    |  |                            | $ | (64,000 | )(A) | $ | 360,000 | 
|                                 |  |                                  |         |                                 |   |                                      |  |                      |   |                            |   |         |      |   |         | 

|    |                      
|--- | ---------------------
|(A) | Amounts written
 off.

17

---



Item 15. Exhibits
and Financial Statement Schedules (continued)

|     |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                  
|---- | -------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | (b)                                                                        | Exhibits                                                                                                                                                                                                                                                                                                                                                                         
|     |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                  
|(3)  | Articles of
 Incorporation and Bylaws                                     
|     |                                                                           
|     | (a)                                                                        | Certificate of
 Incorporation, as amended - incorporated herein by reference to Exhibit 3(a)
 to the Companys Annual Report on Form 10-K for the fiscal year ended May 31,
 1987 filed with the Commission on August 26, 1987, as amended on January 14,
 1988.                                                                                                                 
|     |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                  
|     | (b)                                                                        | Certificate of
 Amendment of Certificate of Incorporation filed with the Secretary of State
 of the State of Delaware on November 1, 1990 - incorporated herein by
 reference to Exhibit (3)(b) to the Companys Annual Report on Form 10-K for
 the fiscal year ended May 31, 1992 filed with the Commission on August 28,
 1992.                                               
|     |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                  
|     | (c)                                                                        | Certificate of
 Amendment of the Certificate of Incorporation filed with the Secretary of
 State of the State of Delaware on November 6, 1997 - incorporated by
 reference to Exhibit 4.1(a) (iii) to Companys Registration Statement for the
 Lazare Kaplan International Inc. 1997 Long Term Stock Incentive Plan on Form
 S-8 filed with the Commission on November 14, 1997.
|     |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                  
|     | (d)                                                                        | Certificate of
 Designations of Series A Junior Participating Preferred Stock filed with the
 Secretary of State of the State of Delaware on November 6, 1997 -
 incorporated by reference to Exhibit 4.1(b) to the Companys Registration
 Statement on Form S-8 filed with the Commission on November 14, 1997.                                                                
|     |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                  
|     | (e)                                                                        | By-laws, as
 amended - incorporated herein by reference to Exhibit 3(e) to the Companys
 Annual Report on Form 10-K for the fiscal year ended May 31, 2005 filed with
 the Commission on August 25, 2005, as amended and restated through November
 4, 2003.                                                                                                                    
|     |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                  
|     | (f)                                                                        | Certificate of
 Amendment of the Certificate of Incorporation filed with the Secretary of
 State of the State of Delaware on March 28, 2002.                                                                                                                                                                                                                                     
|     |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                  
|     | (g)                                                                        | Amendments to
 By-laws  incorporated herein by reference to Exhibit 3.1 to the Companys
 Current Report on Form 8-K filed with the Commission on April 17, 2007.                                                                                                                                                                                                               
|     |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                  
|(4)  | Instruments
 defining the rights of security holders, including indentures
|     |                                                                           
|     | (a)                                                                        | Amended and
 Restated Rights Agreement, dated as of April 24, 2007, between Lazare Kaplan
 International Inc. and Mellon Investor Services LLC, Rights Agent 
 incorporated herein by reference to Exhibit 99.1 to the Companys Current
 Report on Form 8-K filed with the Commission on April 30, 2007.                                                                       
|     |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                  
|(10) | Material Contracts                                                        
|     |                                                                           
|     | (a)                                                                        | Lazare Kaplan
 International Inc. Amended and Restated 1988 Stock Option Incentive Plan -
 incorporated herein by reference to Exhibit 4.1 to the Companys Registration
 Statement on Form S-8 filed with the Commission on November 5, 1990.                                                                                                                                   
|     |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                  
|     | (b)                                                                        | Lazare Kaplan
 International Inc. 1997 Long Term Stock Incentive Plan - incorporated herein
 by reference to Exhibit A to the Companys proxy statement for its Annual
 Meeting of Stockholders held on November 5, 1997 filed with the Commission on
 September 17, 1997.                                                                                                       
|     |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                  
|     | (c)                                                                        | Form of Incentive
 Stock Option Agreement for options granted pursuant to the Lazare Kaplan
 International Inc. 1997 Long Term Stock Incentive Plan - incorporated herein
 by                                                                                                                                                                                                    

18

---



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     | reference to
 Exhibit 4.5(a) to the Companys Registration Statement on Form S-8 filed with
 the Commission on November 14, 1997.                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (d) | Form of
 Non-Qualified Stock Option Agreement for options granted pursuant to the
 Lazare Kaplan International Inc. 1997 Long Term Stock Incentive Plan -
 incorporated herein by reference to Exhibit 4.5(a) to the Companys
 Registration Statement on Form S-8 filed with the Commission on November 14,
 1997.                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (e) | Revolving Credit
 Agreement, dated as of August 14, 2002, by and among the Company, as
 Borrower, ABN AMRO Bank N.V., as Administrative Agent and Arranger, and ABN
 AMRO Bank N.V. and Bank Leumi USA, as Bank Lenders  incorporated herein by
 reference to exhibit 10(e) to the Companys Annual Report on Form 10-K for
 the fiscal year ended May 31, 2002 filed with the Commission on August 28,
 2002.                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (f) | Cooperation
 Agreement, dated March 23, 1999 between the Company and AK Almazi Rossii
 Sakha - incorporated herein by reference to Exhibit 10(n) to the Companys
 Annual Report on Form 10-K for the fiscal year ended May 31, 1999 filed with
 the Commission on August 27, 1999 (certain portions of this agreement have
 been omitted pursuant to a request for confidential treatment).                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (g) | Processing
 Agreement, dated as of February 20, 1999, between Pegasus Overseas Ltd. and a
 wholly-owned subsidiary of General Electric Company - incorporated herein by
 reference to Exhibit 10(o) to the Companys Annual Report on Form 10-K for
 the fiscal year ended May 31, 1999 filed with the Commission on August 27,
 1999 (certain portions of this agreement have been omitted pursuant to a
 request for confidential treatment).
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (h) | Leon Tempelsman
 Retirement Benefit Plan of Lazare Kaplan International Inc.  incorporated
 herein by reference to Exhibit 10(o) to the Companys Annual Report on Form
 10-K for the fiscal year ended May 31, 1997 filed with the Commission on
 August 28, 1997.                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (i) | Stock Purchase
 Agreement by and between Fifth Avenue Group, LLC and the Company dated as of
 January 18, 2002  incorporated by reference to Exhibit (w) to the Companys
 Current Report on Form 8-K filed with the Commission on January 28, 2002.                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (j) | Shareholders
 Agreement by and among Maurice Tempelsman, Leon Tempelsman and Fifth Avenue
 Group, LLC dated as of January 18, 2002  incorporated herein by reference to
 Exhibit (x) to the Companys Current Report on Form 8-K filed with the
 Commission on January 28, 2002.                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (k) | Form of
 Irrevocable Proxy from Fifth Avenue Group, LLC to Maurice Tempelsman and Leon
 Tempelsman  incorporated herein by reference to Exhibit (y) to the Companys
 Current Report on Form 8-K filed with the Commission on January 28, 2002.                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (l) | Lease Agreement
 between EBS Forty-Fourth Property Associates LLC and Lazare Kaplan
 International Inc. dated June 6, 2003.  incorporated herein by reference to
 exhibit 10(r) to the Companys Annual Report on Form 10-K for the fiscal year
 ended May 31, 2003, filed with the Commission on August 26, 2003.                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (m) | Amendment to the
 Revolving Credit Agreement, dated May 28, 2003, by and among the Company, as
 Borrower, ABN AMRO Bank N.V., as Administrative Agent and Arranger, and ABN
 AMRO Bank N.V. and Bank Leumi USA, as Bank Lenders incorporated herein by
 reference to exhibit 10(s) to the Companys Annual Report on Form 10-K for
 the fiscal year ended May 31, 2003, filed with the Commission on August 26,
 2003.                        

19

---



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (n) | Amendment to the
 Revolving Credit Agreement, dated November 24, 2003, by and among the
 Company, as Borrower, ABN AMRO Bank N.V., as Administrative Agent and
 Arranger, and ABN AMRO Bank N.V. and Bank Leumi USA, as Bank Lenders 
 incorporated herein by reference to exhibit 10(t) to the Companys Annual
 Report on Form 10-K for the fiscal year ended May 31, 2004, filed with the
 Commission on August 27, 2004.                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (o) | Cooperation
 Agreement, dated January 9, 2004, between Lazare Kaplan International Inc.
 and NamGem Diamond Manufacturing Company (PTY) Ltd. and Namdeb Diamond
 Corporation (PTY) Ltd. (certain portions of this agreement have been omitted
 pursuant to a request for confidential treatment)  incorporated herein by
 reference to exhibit 10(u) to the Companys Annual Report on Form 10-K for
 the fiscal year ended May 31, 2004, filed with the Commission on August 27,
 2004.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (p) | Agreement dated
 April 29, 2004 between Lazare Kaplan International Inc. and Sociedade de
 Comercializacao de Diamantes de Angola, SARL (SODIAM) (certain portions of
 this agreement have been omitted pursuant to a request for confidential
 treatment)  incorporated herein by reference to exhibit 10(v) to the
 Companys Annual Report on Form 10-K for the fiscal year ended May 31, 2004,
 filed with the Commission on August 27, 2004.                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (q) | Amendment to the
 Revolving Credit Agreement, dated September 13, 2004, by and among the
 Company, as Borrower, ABN AMRO Bank N.V., as Administrative Agent and
 Arranger, and ABN AMRO Bank N.V. and Bank Leumi USA, as Bank Lenders. 
 incorporated herein by reference to exhibit 10(x) to the Companys Annual
 Report on Form 10-K for the fiscal year ended May 31, 2005, filed with the
 Commission on August 25, 2005.                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (r) | Amendment to the
 Revolving Credit Agreement, dated November 24, 2004, by and among the
 Company, as Borrower, ABN AMRO Bank N.V., as Administrative Agent and
 Arranger, and ABN AMRO Bank N.V. and Bank Leumi USA, as Bank Lenders. 
 incorporated herein by reference to exhibit 10(y) to the Companys Annual
 Report on Form 10-K for the fiscal year ended May 31, 2005, filed with the
 Commission on August 25, 2005.                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (s) | Amendment to the
 Revolving Credit Agreement, dated May 6, 2005, by and among the Company, as
 Borrower, ABN AMRO Bank N.V., as Administrative Agent and Arranger, and ABN
 AMRO Bank N.V. and Bank Leumi USA, as Bank Lenders.  incorporated herein by
 reference to exhibit 10(z) to the Companys Annual Report on Form 10-K for
 the fiscal year ended May 31, 2005, filed with the Commission on August 25,
 2005.                                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (t) | Amendment to the
 Revolving Credit Agreement, dated July 15, 2005, by and among the Company, as
 Borrower, ABN AMRO Bank N.V., as Administrative Agent and Arranger, and ABN
 AMRO Bank N.V. and Bank Leumi USA, as Bank Lenders.  incorporated herein by
 reference to exhibit 10(aa) to the Companys Annual Report on Form 10-K for
 the fiscal year ended May 31, 2005, filed with the Commission on August 25,
 2005.                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (u) | Revolving Credit
 Agreement dated September 28, 2004 by and between Lazare Kaplan
 International, as Borrower and HSBC Bank USA, National Association, as
 Lender.  incorporated herein by reference to exhibit 10(ab) to the Companys
 Annual Report on Form 10-K for the fiscal year ended May 31, 2005, filed with
 the Commission on August 25, 2005.                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (v) | Amended and
 Restated Credit Facility Agreement, dated December 1, 2004, between ABN AMRO
 Bank N.V., Tokyo Branch, Lazare Kaplan Japan Inc., and Lazare Kaplan                                                                                                                                                                                                                                                                                                                          

20

---



| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      | International Inc.
  incorporated herein by reference to exhibit 10(ac) to the Companys Annual
 Report on Form 10-K for the fiscal year ended May 31, 2005, filed with the
 Commission on August 25, 2005.                                                                                                                                                                                                                                                                   
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (w)  | Amendment to the
 Leon Tempelsman Retirement Benefit Plan of Lazare Kaplan International Inc.,
 effective as of March 1, 2005.  incorporated herein by reference to exhibit
 10(ae) to the Companys Annual Report on Form 10-K for the fiscal year ended
 May 31, 2005, filed with the Commission on August 25, 2005.                                                                                                                                                        
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (x)  | William H. Moryto
 Retirement Benefit Plan of Lazare Kaplan International Inc., effective as of
 February 1, 2005.  incorporated herein by reference to exhibit 10(af) to the
 Companys Annual Report on Form 10-K for the fiscal year ended May 31, 2005,
 filed with the Commission on August 25, 2005.                                                                                                                                                                    
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (y)  | Credit Facility
 Letter Agreement, dated December 30, 2005, between Antwerpse Diamantbank NV
 and the Company.  incorporated herein by reference to exhibit 10(ag) to the
 Companys Quarterly Report on Form 10-Q for the fiscal period ended November
 30, 2005, filed with the Commission on January 13, 2006.                                                                                                                                                             
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (z)  | Credit Facility
 Letter Agreement, dated December 30, 2005, between Antwerpse Diamantbank NV
 and Lazare Kaplan Belgium, N.V.  incorporated herein by reference to exhibit
 10(ah) to the Companys Quarterly Report on Form 10-Q for the fiscal period
 ended November 30, 2005, filed with the Commission on January 13, 2006.                                                                                                                                              
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (aa) | Amendment to the
 Revolving Credit Agreement by and among the Company, as Borrower, ABN AMRO
 Bank N.V., as Administrative Agent and Arranger, and ABN AMRO Bank N.V and
 Bank Leumi USA, as Lenders, dated December 1, 2005.  incorporated herein by
 reference to exhibit 10(ai) to the Companys Quarterly Report on Form 10-Q
 for the fiscal period ended November 30, 2005, filed with the Commission on
 January 13, 2006.                                             
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (ab) | Amendment, dated
 December 1, 2005, to the Revolving Credit Agreement by and between the
 Company, as Borrower and HSBC Bank USA, National Association, as Lender. 
 incorporated herein by reference to exhibit 10(aj) to the Companys Quarterly
 Report on Form 10-Q for the fiscal period ended November 30, 2005, filed with
 the Commission on January 13, 2006.                                                                                                        
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (ac) | Amendment, dated
 December 1, 2005, to the Credit Facility Agreement among ABN AMRO Bank N.V.,
 Tokyo Branch, Lazare Kaplan Japan Inc., and the Company.  incorporated
 herein by reference to exhibit 10(ak) to the Companys Quarterly Report on
 Form 10-Q for the fiscal period ended November 30, 2005, filed with the
 Commission on January 13, 2006.                                                                                                                  
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (ad) | Limited Liability
 Company Agreement of Bellataire International LLC, executed by DI Bahamas
 Inc. and LKI Bahamas Ltd. dated as of November 30, 2005 (certain portions of
 this agreement have been omitted pursuant to a request for confidential
 treatment).  incorporated herein by reference to exhibit 10(al) to the
 Companys Quarterly Report on Form 10-Q for the fiscal period ended November
 30, 2005, filed with the Commission on January 13, 2006.           
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (ae) | Amended and
 Restated Limited Liability Company Agreement of Bellataire LLC executed by
 the Company and Diamond Innovations, Inc. dated as of November 30, 2005
 (certain portions of this agreement have been omitted pursuant to a request
 for confidential treatment).  incorporated herein by reference to exhibit
 10(am) to the Companys Quarterly Report on Form 10-Q for the fiscal period
 ended November 30, 2005, filed with the Commission on January 13, 2006.

21

---



| |      |                                                                                                                                                                                                                                                                                                                        
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (af) | Letter Agreement,
 dated as of November 30, 2005, from Diamond Innovations, Inc. to, and agreed
 to by, Pegasus Overseas Ltd., the Company, Bellataire International LLC,
 Bellataire LLC and Bellataire BVBA (certain portions of this agreement have
 been omitted pursuant to a request for confidential treatment).
| |     
| | (ag) | Second Amendment to Revolving Credit Agreement by
    and between the Company and HSBC Bank USA, National Association.                                                                                                                                                                                                 
| |     
| | (ah) | Amendment to the
 Revolving Credit Agreement by and among the Company, as Borrower, ABN AMRO
 Bank N.V., as Administrative Agent and Arranger, and ABN AMRO Bank N.V. and
 Bank Leumi USA, as Lenders, dated April 13, 2007.                                                                                           
| |     
| | (ai) | Credit Facility
 Letter Agreement between the Company, as Borrower, and ABN AMRO Bank N.V., as
 Lender, dated April 13, 2007.                                                                                                                                                                                          

22

---



|       |                                                                                                                                                                                                                                                                      
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(13)   | 2006 Annual Report
 to Security Holders - incorporated herein by reference to the Companys 2006
 Annual Report to Stockholders to be filed with the Commission.                                                                                                     
|       |                                                                                                                                                                                                                                                                      
|(14)   | Code of Conduct
 for the President and senior financial officers of the Company  incorporated
 herein by reference to exhibit 14 to the Companys Annual Report on Form 10-K
 for the fiscal year ended May 31, 2004, filed with the Commission on August
 27, 2004.
|       |                                                                                                                                                                                                                                                                      
|(21)   | Subsidiaries                                                                                                                                                                                                                                                         
|       |                                                                                                                                                                                                                                                                      
|(23.1) | Consent of BDO
 Seidman, LLP (to be filed at a later date)                                                                                                                                                                                                           
|       |                                                                                                                                                                                                                                                                      
|(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.                                                                                                                                            
|       |                                                                                                                                                                                                                                                                      
|(99.1) | Amended and
 restated Audit Committee Charter  incorporated herein by reference to
 Exhibit A to the Companys Definitive Proxy Statement for the fiscal year
 ended May 31, 2004, filed with the Commission on October 7, 2004.                                    
|       |                                                                                                                                                                                                                                                                      
|      
|(99.2) | Financial statements of Bellataire, pursuant to Rule
    3-09 of Regulation S-X (to be filed at a later date).                                                                                                                                                       
|       |                                                                                                                                                                                                                                                                      
|(99.3) | Financial Statements of Gulfdiam, pursuant to Rule 3-09 of Regulation S-X (to be filed at a later date)                                                                                                                                                              
|       |                                                                                                                                                                                                                                                                      
|(c)    | Not applicable.                                                                                                                                                                                                                                                      
|       |                                                                                                                                                                                                                                                                      

23

---



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.                              
|      
|       |                 |  | By                                                              | /s/ William H.
 Moryto
|       |                 |  |                                                                 |                       
|       |                 |  | William H. Moryto,
 Vice President
 and Chief Financial Officer
|       |                 |  |                                                                 |                       
|Dated: | August 29, 2007 |  |                                                                 |                       

Pursuant to
the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|                         |  |                          |  |                
|------------------------ |  | ------------------------ |  | ---------------
|Signature                |  | Title                    |  | Date           
|                         |  |                          |  |                
|                         |  |                          |  |                
|/s/ Maurice
 Tempelsman  |  | Chairman of the          |  | August 29, 2007
|                         |  | Board of Directors       |  |                
|(Maurice
 Tempelsman)    |  |                          |  |                
|                         |  |                          |  |                
|/s/ Leon
 Tempelsman     |  | Vice Chairman of
 the    |  | August 29, 2007
|                         |  | Board of Directors
 and  |  |                
|(Leon Tempelsman)        |  | President
 (principal    |  |                
|                         |  | executive officer)       |  |                
|                         |  |                          |  |                
|                         |  |                          |  |                
|/s/ Lucien
 Burstein     |  | Director                 |  | August 29, 2007
|                         |  |                          |  |                
|(Lucien Burstein)        |  |                          |  |                
|                         |  |                          |  |                
|/s/ Richard A.
 Berenson |  | Director                 |  | August 29, 2007
|                         |  |                          |  |                
|(Richard A.
 Berenson)   |  |                          |  |                
|                         |  |                          |  |                
|/s/ Robert A. Del
 Genio |  | Director                 |  | August 29, 2007
|                         |  |                          |  |                
|(Robert A. Del
 Genio)   |  |                          |  |                
|                         |  |                          |  |                
|/s/ William H.
 Moryto   |  | Vice President and       |  | August 29, 2007
|                         |  | Chief Financial
 Officer |  |                
|(William H.
 Moryto)     |  | (principal
 financial    |  |                
|                         |  | and accounting
 officer) |  |                

24

---