UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2006 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to Commission file number 000-25377 House of Taylor Jewelry, Inc. (Name of small business issuer in its charter)  Nevada33-0805583(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.)9200 Sunset Boulevard, Suite 425
West Hollywood, California90069(Address of Principal Executive Offices)(Zip Code) Issuer's Telephone Number: (310) 860-2660 Securities registered under Section 12(b) of the Exchange Act:  None.  Securities registered under Section 12(g) of the Exchange Act:  Common stock, $0.0001 par value  Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. [ ]  Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ x ] No [  ]  Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. [  ]    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No  [ x ]  The issuers revenues for its most recent fiscal year were $31,793,037.  The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of April 9, 2007 was $20,816,238.  The number of shares outstanding of the issuers common equity, as of April 9, 2007 was 40,363,791.  DOCUMENTS INCORPORATED BY REFERENCE  None.  Transitional Small Business Disclosure Format (Check one): Yes ___ No _x _   This annual report contains forward-looking statements, including statements regarding the companys prospects for continued operation and existence and statements regarding the companys plans, objectives, expectations and intentions. Those forward-looking statements are based on managements current expectations and are subject to a number of risks, factors and uncertainties that may cause actual results, events and performance to differ materially from those referred to in the forward-looking statements.  Those risks, factors and uncertainties include, but are not limited to, our untested business model, our substantial reliance on our licenses from Interplanet and Sandbox, our substantial dependence on management and the possibility that we may be unable to manage growth. The cautionary statements made in this annual report should be read as being applied to all related forward-looking statements wherever they appear in this document


TABLE OF CONTENTS  Page Description of Business 2 Description of Property 8 Legal Proceedings 8 Submission of Matters to a Vote of Security Holders 8 Market for Common Equity and Related Stockholder Matters 9 Managements Discussion and Analysis or Plan of Operation 12 Financial Statements 33 Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 33 Controls and Procedures 33 Directors, Executive Officers, Promoters and Control Persons. 35 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 40 Certain Relationships and Related Transactions 41 Exhibits 45 Principal Accountant Fees and Services 47





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PART I  Description of Business  Background  We are the result of a merger between House of Taylor Jewelry, Inc., a California corporation, and a newly formed acquisition subsidiary of Nurescell Inc., a Nevada corporation with no active operations or material assets (the HJWL Transaction). We completed the HJWL Transaction effective May 20, 2005, at which time we changed Nurescells name to House of Taylor Jewelry, Inc. (HOTJ) and we changed the name of our operating subsidiary to Global Jewelry Concepts, Inc.  Our roots in the jewelry industry date back to 1989 when Jack and Monty Abramov, second generation jewelry industry professionals, established RJM Manufacturers with their father and mother, Raphael and Rachel Abramov, to manufacture 18 karat and platinum fine jewelry featuring diamonds and precious gems. In 2001, the Abramov family formed Techline Jewelry to undertake the introduction of CAD (computer assisted design) in jewelry design, which materially advanced manufacturing and quality standards in jewelry fabrication. Computer assisted design is intended to facilitate rapid modeling that can display three dimensional jewelry models being considered by the design team, assure accurate and consistent designs that will be faithfully followed and reproduced in the manufacturing process, and can result in less waste during manufacturing, thereby also improving efficiency and reducing costs. In 2002, Techline introduced its Mirabelle 18k consumer brand to the marketplace with its Original Diamond Handbag Collection of detailed, handcrafted, miniature purse pendants, designed with diamonds and French enamel. The Mirabelle boutique collections grew to include the fine jewelry gaming line Players Club, and the artistically floral Flower Power collections, as well as the Victorian Collection, and the Black and White Collection.  Techline was acquired by House of Taylor Jewelry, Inc. prior to the HJWL Transaction in May 2005. In May 2005, before completing the HJWL Transaction, House of Taylor Jewelry, Inc., a California corporation, completed the first major step toward our new branding model by entering into an exclusive, worldwide licensing agreement with Interplanet Productions Ltd, the marketing entity through which Dame Elizabeth Taylor brings her jewelry line of branded products to the marketplace. The licensing agreement provides us with the exclusive use of the House of Taylor Jewelry name and, subject to Interplanets approval, a broad, exclusive license to manufacture, market and enter into sublicense agreements for the manufacture and marketing of all categories of jewelry, including diamonds, colored stones, pearls, semiprecious stones, watches, costume jewelry and bridal adornment. As an integral aspect of the licensing arrangement, Dame Elizabeth Taylor may collaborate in design directions and approve certain Elizabeth® and ET branded jewelry designs. In May 2005, before completing the HJWL Transaction, House of Taylor Jewelry, Inc., a California corporation, also entered into an exclusive licensing agreement with Sandbox Jewelry, LLC, a subsidiary of Kathy Ireland Worldwide. By adding this license, we combined branding and creative resources in fine jewelry design and direct source partnering to serve jewelry retailers with an array of unique creations marketed under the House of Taylor® Jewelry and Kathy Ireland® brands. Our license with Sandbox is limited principally to North America and does not cover watches or costume jewelry. Inspired by Ms. Irelands best selling Style Guides®, the diverse Kathy Ireland series serves, in our opinion, as an opening to mid-tier pricing for House of Taylor Jewelry. Ms. Ireland leads design direction for her own collections and serves as an Ambassador for House of Taylor Jewelry under the direction of Dame Elizabeth Taylor.


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Business Model We are a Los Angeles-based international jewelry company. We serve fine jewelry retailers worldwide with diverse jewelry creations marketed under the prestigious House of Taylor Jewelry brand. We are implementing a business model that involves manufacturing and marketing our own fine jewelry products under our Elizabeth®,  ET®, House of Taylor Jewelry®,  and Kathy Ireland Jewelry® brands, while leveraging the manufacturing resources, distribution and marketing infrastructures of some of the leading fine and fashion jewelry manufacturers in the world. We also have our Kathy Ireland specialty brands that include J du J and The Quilts of Gees Bend. Our principal shareholders include entities owned by Dame Elizabeth Taylor and Kathy Ireland and members of the Abramov family. We have an exclusive license with Interplanet Productions Ltd, the marketing entity through which Dame Elizabeth Taylor brings her jewelry line of branded products to the marketplace. This license provides us with the exclusive use of the House of Taylor Jewelry name and, subject to Interplanets approval, a broad, exclusive license to manufacture, market and enter into sublicense agreements for the manufacture and marketing of all categories of jewelry, including diamonds, colored stones, pearls, semiprecious stones, watches, costume jewelry and bridal adornment. We also have an exclusive license with Sandbox Jewelry, LLC, a subsidiary of Kathy Ireland Worldwide, that allows us to design, promote and sell jewelry under Kathy Ireland® brands. We combine branding and creative resources in fine jewelry design and direct source partnering to serve jewelry retailers with an array of unique and attractive creations marketed under the House of Taylor® Jewelry and Kathy Ireland® brands. Our license with Sandbox is limited principally to North America and does not cover watches or costume jewelry. We target our Elizabeth®, ET®, and House of Taylor ®, brands to upper tier retail channels. Elizabeth®, ET, and House of Taylor® jewelry lines feature price points currently ranging from about $3,000 to over $1 million. We sell our principal Kathy Ireland Collection jewelry lines primarily through independent jewelry stores and smaller jewelry store chains, and plan to expand our distribution of  Kathy Ireland specialty brands through jewelry store chains and department store retail channels. Kathy Ireland Collection jewelry lines feature price points ranging from about $200 to $3,500. In 2006 we  designed or acquired designs on more than 600 new products that comprise the Elizabeth, ET, House of Taylor, and Kathy Ireland Collections which had their formal retail launch at major industry trade shows in June 2006. Jewelers generally credit the bridal business with 30% to 50% of their revenue.  The December holidays are also a major factor in sales of watches and jewelry. Jewelry sales are highly seasonal, with 40% of revenue and the majority of profits often generated in the fourth quarter.  Jewelry sources report that almost 25% of the specialty retail purchases are made in December. We have noticed, however, a trend away from retailer over-dependence on December holiday sales. We attribute this trend to such factors as · various gift-giving occasions and opportunities such as birthdays, anniversaries, graduations and other events, · year-round spending, and · the growth of purchases of jewelry by women for themselves. Nevertheless, jewelry sales continue to be seasonal, and year to year growth dependent on the economy.


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Outsourcing We outsource our manufacturing, generally to our designs, specifications and orders. Among the factors we consider in our outsourcing decisions are a manufacturers product quality,  ability to meet or exceed delivery schedules, ability to deliver product and volume orders with consistency in stone selection and workmanship, faithful adherence to our designs, access to or mastery of various jewelry-making skills and technology, as well as cost and potential  improvements to our gross margins. In the past, substantially all of our products were manufactured for us by one company located in China. While we have a well-established relationship with that manufacturer, we believe that numerous other manufacturers have similar capabilities to produce the quality and volume of fine jewelry we plan to source directly over the next three years. We are now outsourcing the majority of our manufacturing of our diamond essential and basic and classic diamond jewelry in the United States through established relationships with local casting and setting operations.  This allows HOTJ to streamline operations, shorten production time, save time and duty charges from overseas and provide quick turnaround time for special orders. We currently have more than ten manufacturers producing goods for us, including major fine jewelry manufacturers whose competencies are in specific categories of fine jewelry (such as large diamonds, bridal and quality, colored gemstones). Precious and semiprecious gems and precious metals used in making our jewelry may be purchased from a variety of sources.  Except as noted below, we believe that there are numerous alternative sources for gems and precious metals and that the loss of any single supplier would not have a material adverse effect on our operations. We have established relationships with a number of global diamond cutters, manufacturers and suppliers to insure we will have a consistent, well priced supply of polished diamonds and diamond jewelry to meet the anticipated demands from our customers and to establish HOTJ as a key branded supplier to the trade.  We primarily purchase diamonds from two key vendors. Should trade relations between us and either of these vendors to be disrupted, we believe that our sales would be affected in the short term until alternative supply arrangements could be established. Diamonds of two carat or greater of the quality we demand are, on a relative basis, more difficult to acquire than smaller diamonds. Our currently established sources for smaller stones could be more easily replaced in the event of a disruption in supply than could sources for larger-sized stones. Diamonds The supply and price of rough (uncut and unpolished) diamonds in the principal world markets have been and continue to be significantly influenced by a single entity, the Diamond Trading Corporation (the DTC) the sales and marketing arm of De Beers Centenary AG, a Swiss corporation. However, the role of the DTC is rapidly changing and that change has greatly affected, and likely will continue to affect, traditional channels of supply in the markets for rough and cut diamonds. The DTC continues to supply a significant portion of the world market for rough, gem-quality diamonds, notwithstanding that its historical ability to control worldwide production supplies has been significantly diminished due to changing politics in diamond-producing countries and revised contractual arrangements with independent mine operators. Nonetheless, the DTC continues to exert a significant influence on the demand for polished diamonds through advertising and marketing efforts throughout the world and through the requirements it imposes on those who purchase rough diamonds from the DTC (siteholders).


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The DTC has increased the number of siteholders over the last 24 months.  New sightholders now include jewelry companies that sell diamonds directly to consumers.  The DTC has announced that those who remain siteholders will be expected to somehow add value to the diamond manufacture and distribution process including but not limited to diamond advertising, promotional and branding initiatives or to supply diamonds to those companies who are. By these initiatives the DTC aims to drive consumer demand for diamond jewelry, to grow the diamond business and to match the growth rates enjoyed by other luxury goods sectors. As a result of these DTC sponsored initiatives, we have observed multiple new marketing initiatives by various merchants in almost all major consumer markets. We believe that these new marketing initiatives will improve consumer awareness and may stimulate retail purchases. As a result, we believe these initiatives to be positive for our industry sales and growth. The availability and price of diamonds to the DTC and to our suppliers may be, to some extent, dependent on the political situation in diamond-producing countries, the opening of new mines and the continuance of the prevailing supply and marketing arrangements for rough diamonds. As a consequence of changes in the siteholder system and increased competition in the wholesale and retail diamond trade, substantial demand exists for rough diamonds, which have resulted in significant increases in diamond prices in 2004 and 2005. Sustained interruption in the supply of rough diamonds, an over-abundance of supply or a substantial change in the marketing arrangements described above could adversely affect us and the wholesale and retail jewelry industries in general. Changes in the marketing and advertising policies of the DTC and its direct purchasers could affect consumer demand for diamonds. Because the DTC has encouraged its siteholders to add value and possibly engage in diamond brand development, demand for diamonds may further increase and thereby affect the supply of diamonds in certain categories. In 2007, HOTJ entered into an agreement with a sightholder of the DTC, which calls for this supplier to offer us preferred pricing and terms on our diamond purchases. We expect that this alliance will allow us to purchase finely polished certified diamonds, add value with brand markings and marketing materials, and increase sales to retailers.  HOTJ has formed relationships with several other suppliers, some of which are DTC sightholders, and others who are not affiliated with the DTC, to insure that a consistent and uninterrupted supply of diamonds is available to HOTJ for sale and for the production of diamond based products. Finished Jewelry We currently purchase finished jewelry from more than ten manufacturers but we own the original molds of our jewelry models for products which weve designed. While we believe that our relationships with these manufacturers are good, we anticipate that there are alternative sources for most jewelry items.  However, due to the designs and craftsmanship involved in certain of our jewelry lines, if our relationship with these manufacturers is impaired, or if we encounter delays in scheduled deliveries, we might encounter difficulty in finding readily available and acceptable alternative supply sources in the short term.  We are evaluating and in discussions with companies that have successfully developed a longstanding reputation and solid industry acceptance to determine their abilities to manufacture private label products under our brands.  We seek to work with the companies that best round out the product categories necessary to meet the price points, design requirements and merchandise requested by our retailers.


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About our Licenses and Licensors Interplanet Productions, Ltd./Dame Elizabeth Taylor Interplanet granted us an exclusive worldwide license in May 2005 to distribute specified items of jewelry that include diamond, color, precious, semi-precious and pearl Fashion Jewelry consisting of earrings, rings, bracelets, necklaces, brooches, bangles and charms. We refer to these jewelry categories as Licensed Products. Within the categories of Licensed Products Interplanet has also granted to us the rights to market the entire costume jewelry category of non-precious metals and stone simulants, under the Elizabeth, ET and House of Taylor marks and related marks, as part of the House of Taylor jewelry collections. We may not advertise, market, promote, and display materials, nor may we use other artwork without prior written approval by Interplanet. Interplanet owns all right, title and interest in and to all jewelry designs that will be part of the Elizabeth Taylor Core and Basic Collections and has sole and exclusive ownership of all right, title, and interest in and to  licensed marks, names and designs and any registrations that have been issued or may be issued thereon. The initial license term ends on December 31, 2011 and is renewable for two additional seven-year terms under certain conditions. Interplanet has the right to terminate the license immediately if Jack Abramov and Monty Abramov are no longer associated with our business, if the license with Sandbox terminates, if we effect a merger or sale of the company, if we fail to pay established minimum royalties, as well as under certain other events enumerated in the agreement occur. In consideration of the license, we have agreed to pay Interplanet a royalty of up to 10% of net sales, depending on the type of jewelry sold. Dame Elizabeth Taylor is an internationally acclaimed Hollywood luminary, having starred in more than fifty-five feature films. Dame Elizabeth Taylor has personally amassed one of the worlds foremost jewelry collections and she is, in our view, more associated with diamonds and fine jewelry than any other woman in the world. Her personal collection includes pieces of unparalleled historic stature such as the Krupp Diamond, the Taj Mahal Diamond (dating to 1627) and the La Peregrina Pearl that was discovered in Panama in the early 1500s and recently placed on display at the Smithsonian Institution in Washington, D.C. For nearly 20 years, she has been a leader in AIDS activism, including her founding role in the American Foundation for AIDS Research (AmFAR), and the establishment of The Elizabeth Taylor AIDS Foundation (ETAF). She has also been a successful businesswoman with a best-selling line of fragrances. The recipient of numerous honors and awards, she was made a Dame of the British Empire in the year 2000. In 1987, France bestowed upon her that nations most prestigious award, the Legion dHonneur, and in 2001, President Clinton recognized her with the Presidential Citizens Medal. She has won two Academy Awards for Best Actress, and in 1993 she received the Jean Hersholt Humanitarian Award from the Academy of Motion Pictures Arts and Sciences for her work on behalf of those suffering from AIDS and on behalf of AIDS research. She has also received the BAFTA Fellowship from the British Academy of Film and Television Arts, as well as the Lifetime Achievement Award from the American Film Institute. Sandbox Jewelry, LLC/Kathy Ireland In May 2005 Sandbox granted us an exclusive license to distribute jewelry, including gold, silver, diamond, pearl and semi-precious jewelry, under the Kathy Ireland mark and related marks as part of the House of Taylor Jewelry collection. The territory of the license is the United States, Puerto Rico, the U.S. Virgin Islands and Canada. The license has a seven-year term and is renewable for two additional seven-year terms under certain conditions.  In consideration of the license, we have agreed to pay Sandbox a royalty of up to 5% of net sales depending on the type of


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jewelry sold.  Sandbox may terminate the license for a material breach of the license agreement, including failure to meet certain sales goals and failure to make royalty payments. Kathy Ireland began her career as a supermodel, and approximately twelve years ago, became Chief Designer and Chief Executive Officer of Kathy Ireland Worldwide, Inc., a design and marketing company. The stated mission of Kathy Ireland Worldwide is finding solutions for families, especially busy moms. By staying true to her mission, Ms. Ireland has developed, in our opinion, an impressive array of brand partners and products outside of the jewelry industry, including furniture, flooring, lighting, window treatments, permanent florals, and fashion. We believe that her dedication to expressing that mission statement in her offerings of quality products and services has earned her widely held respect and admiration in the business community. Fairchild Publications, the publisher of Womens Wear Daily and HFN, named Ms. Ireland one of the fifty most influential people in the world of fashion, outranking Vera Wang, Tommy Hilfiger, and Giorgio Armani. Kathy Ireland is also the recipient of The Outstanding Mother of the Year Award from the National Mothers Day Committee, and she serves as National Ambassador for Youth and the PTA. She has been featured in INC Magazine as the nations leading female celebrity entrepreneur. Ms. Ireland has also been recognized as a best friend to working mothers by the Associated Press and The Times of London; and by Forbes for building a design empire. Competition We encounter significant competition in all of our product lines from manufacturers, wholesalers and other third-party providers, some of which specialize in just one area in which we may be active. Many of our competitors have established worldwide, national or local reputations for style, design, brand recognition, quality, expertise and customer service similar to that of the Company. They compete and we will compete on the basis of those reputations. Other jewelers and retailers compete primarily through advertised price promotions. We expect to compete on the basis of reputation for quality products, brand recognition, customer service and distinctive value-priced merchandise. We currently do not intend to compete by engaging in price promotional advertising. Competition for engagement jewelry sales is particularly fierce and becoming more so. The rise of the Internet and increased use of diamond condition reports issued by independent gemological associations have given rise to what we believe is a mistaken impression among certain consumers that diamonds, engagement and bridal jewelry are commodity items and that significant quality differences do not exist. Our prices for diamonds, engagement and bridal jewelry reflect the rarity of the stones as well as the cut, clarity and other quality factors of the jewelry that we endeavor to incorporate within our branded products. We expect to compete in our markets by emphasizing quality, attractive design and customer service. We are in the process of establishing an Internet strategy but have not yet implemented it. We expect to have our Internet operations substantially launched sometime in 2007, however, we can give no assurance that we will be successful in doing so. We expect that competition in this area will become more intense as the technology improves. We will seek, following launch and implementation, to maintain and improve our position in the Internet marketplace by emphasizing our branding and refining and expanding our merchandise selection, price points and services. Seasonality Our jewelry business is seasonal in nature, with the largest initial purchases of opening orders for manufacturers from retailers occurring at one or more of the major jewelry shows during the buying season that traditionally extends from about May through July of each year.  Retailers


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place their orders with manufacturers and request delivery from about June through November each year to prepare for the holiday season in the fourth calendar quarter.  Additional purchasing by retailers also occurs in January as retailers begin to replenish their inventory and prepare for Valentine and Mothers Day sales events.  The bridal category of engagement rings and wedding bands is not as seasonal as other categories of jewelry. We have found that this category continues to be a material part  of year round diamond revenue that is often critical for the typical jewelry stores profitability and that this category typically represents a proportionally greater percentage of a retailers annual sales and revenue than do other jewelry categories. Management expects this seasonality in our business to continue. Employees At March 31, 2007, we had 15 full time employees, all of whom are located within our principal offices.  Description of Property We currently maintain executive offices within approximately 4,900 square feet of office space at 9200 Sunset Boulevard, Suite 425, West Hollywood, California, which we have leased through March 2009. We currently pay a minimum annual rent of $156,400. That amount increases by three percent per year during the term of the lease. Members of the Abramov family have guaranteed our obligations under the lease. We expect this leased space to be adequate for our principal offices for the foreseeable future.  Legal Proceedings We are not a party to any material legal proceedings and, to our knowledge, none is contemplated or threatened.  Submission of Matters to a Vote of Security Holders  No matters were submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders.


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PART II  Market for Common Equity and Related Stockholder Matters. Since March 1, 2006 our common stock has been quoted on the Nasdaq Capital Market under the symbol HOTJ. From May 20, 2005, our common stock was quoted on the Nasdaq Bulletin Board under the symbol HJWL. From April 22, 2005 to May 20, 2005, our common stock was quoted on the Nasdaq Bulletin Board under the symbol NUCL, and under the symbol NUSL prior to April 22, 2005. The following table sets forth the quarterly high and low bids for our common stock as reported by the Nasdaq Bulletin Board for the past two calendar years and gives effect to our 1 for 1,000 reverse stock split in April 2005. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions:  Year ending December  31, 2006:QuarterHighLow3/31/06$ 7.50$ 3.856/30/06$ 4.14$ 1.519/30/06$ 2.06$ 1.1812/31/06$ 2.83$ 1.79Year ending December  31, 2005:QuarterHighLow03/31/05$10.00$ 2.0006/30/05$10.00$ 0.1509/30/05$  6.50$ 5.5012/31/05$  7.19$ 5.50  As of April 9, 2007, the closing price per share was $2.43. Number of Holders of Common Stock As of December 31, 2006, we had approximately 500 stockholders of record, excluding beneficial owners whose shares are held by banks, brokers and other nominees. Dividends We currently intend to retain future earnings to finance the operation, development and expansion of our business.  We do not anticipate paying cash dividends on our common stock in the foreseeable future. Payment of future cash dividends, if any, will be at the discretion of our board of directors and will depend on our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors that our board of directors considers relevant.


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Recent Sales of Unregistered Securities On April 25, 2005, each of the Registrants then two principal shareholders converted outstanding promissory notes into 810,038 shares of the Registrants common stock. Effective May 20, 2005, Registrant entered into subscription agreements with five accredited investors providing for the purchase and sale of 125,000 units of Registrants securities at a price of $4.00 per unit (a Unit or Units in the plural). Each Unit consisted of two shares of common stock and one common stock purchase warrant entitling the holder thereof to purchase one share of Registrants common stock prior to May 16, 2008 at a strike price per share of $3.50. Pursuant to the terms of a Convertible Promissory Note dated March 21, 2003 (the Note) that Registrant issued to Triton Private Equities Fund, L.P. (Triton), Triton converted the Note on May 20, 2005 into 400,000 shares of Registrants common stock. As a result of that conversion, all of the principal and accrued interest of the Note was deemed paid in full and the Note was cancelled.  Prior to February 16, 2005, Triton had been Registrants controlling shareholder. Effective the close of business on May 20, 2005, Registrant entered into an agreement and plan of reorganization (the Merger Agreement) by and among Registrant, HOTJ Acquisition Corp., a wholly owned subsidiary of Registrant (Merger Sub), and House of Taylor Jewelry, Inc. (HOTJ), a California corporation, providing for the merger of Merger Sub with and into HOTJ. Registrant issued 30,000,000 shares of its common stock to the nine shareholders of HOTJ and Registrant agreed to assume HOTJs outstanding options and warrants. Pursuant to the Merger Agreement Registrant was also obligated to issue an additional 3,000,000 shares of its common stock to two principal shareholders of HOTJ if certain conditions were fulfilled and, after fulfillment of those conditions, Registrant issued these additional shares to those two shareholders in June 2005. On May 20, 2005, Registrant issued 150,000 shares of its common stock to a limited liability company in an unregistered issuance for introduction services provided to Registrant in connection with the Merger Agreement. The issuee represented to Registrant that it (i) is an accredited investor (as defined in Regulation D under the Securities Act of 1933), (ii) has the business or financial experience to protect its interests in connection with its investment in Registrant and to evaluate the merits and risks of such investment and (iii) has a net worth and/or annual income which give it the ability to bear the economic risk of its investment in Registrant. Based on the foregoing, we believe that this issuance was made pursuant to an exemption from registration under Section 4(2). On August 12, 2005, Registrant completed a private placement offering of 1,523,980 Units, each  consisting of one share of its common stock (individually a Share and collectively the Shares) and one common stock purchase warrant (individually a Warrant and collectively the Warrants) at a price of $4.25 per Unit for gross proceeds of $6,476,915. The Warrants are exercisable for a period of five years and entitle holders to purchase Shares (the Warrant Shares) for $7.00 per Warrant Share. At the closing of this placement, Registrant also issued to seven affiliates of the placement agent five year warrants to purchase 152,398 shares of Registrants common stock on the same terms.  We subsequently filed and caused a registration statement relating to these securities to become effective. On May 12, 2006, the Company received gross proceeds of $11,660,000 pursuant to the issuance of senior secured convertible notes (the Notes) and warrants in a private placement. The Notes are convertible into 2,915,000 shares of the Companys Common Stock, based upon an initial conversion price of $4.00 per share, which is subject to anti-dilution and other adjustments. Series A Warrants to purchase up to 2,186,250 shares of the


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Companys Common Stock, Series B Warrants to purchase up to 947,375 shares of the Company's Common Stock and Series C Warrants to purchase up to 1,894,750 shares of the Company's Common Stock were also issued to the Buyers as part of the transaction. The Series A Warrants have an initial exercise price of $5.00 per share and are exercisable commencing November 12, 2006. The Series B Warrants and Series C Warrants are not initially exercisable and only become exercisable on one or more mandatory conversions which can be made at the Companys discretion if certain conditions are met, as more fully described in the Notes. The exercise price(s) of the Series B Warrants and Series C Warrants will not be fixed until the Company's discretionary exercise of a Mandatory Conversion based on a formula set forth in the Series B and Series C Warrants.  We subsequently filed and caused a registration statement relating to these securities to become effective. The sales and issuances of common stock and warrants to purchase common stock in private placements listed above were made by us in reliance upon the exemptions from registration provided under Section 4(2) and 4(6) of the Securities Act of 1933, as amended, and the standards of Rule 506 of Regulation D, promulgated by the Securities and Exchange Commission under federal securities laws and comparable exemptions for sales to accredited investors under state securities laws. The offers and sales were made to accredited investors as defined in Rule 501(a) under the Securities Act, no general solicitation was made by us or any person acting on our behalf; the securities that we sold were subject to transfer restrictions, and the certificates for those shares contained an appropriate legend stating that they had not been registered under the Securities Act and may not be offered or sold absent registration or pursuant to an exemption therefrom.


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Managements Discussion and Analysis or Plan of Operation. Management considers its success in developing new products, and channels to market them, under the Elizabeth Taylor and Kathy Ireland brands to be critical challenges. We are implementing a business model that involves having our products manufactured according to our designs and specifications and marketing fine jewelry products under our Elizabeth®,  ET®, House of Taylor Jewelry®, and Kathy Ireland Jewelry® Exclusively for House of Taylor Jewelry, while leveraging the manufacturing resources, distribution and marketing infrastructures of some of the leading fine and fashion jewelry manufacturers in the world. Our Kathy Ireland specialty brands include J du J and The Quilts of Gees Bend. We currently sell our Kathy Ireland Collection jewelry lines primarily through independent jewelry stores, and plan to further expand distribution with non-competing products to department store retail channels.  The Kathy Ireland collections feature price points ranging from about $200 to $3,500. We target upper tier retail channels with our Elizabeth®, and House of Taylor Jewelry® lines which feature price points ranging from about $3,000 to over $1 million. Each of these branded lines include products from various categories including diamond basics, loose diamonds, colored stones, bridal, and pearls. We have designed and completed more than 600 new products that comprise the Elizabeth®, House of Taylor Jewelry® and Kathy Ireland Jewelry® Collections, many of which had their formal launch at major industry trade shows in the Spring and Summer of 2006. While meeting with jewelry retailers at the major trade shows, in their stores and at our offices, we asked them what product(s) they had the greatest need for and what sold best in their stores. The majority expressed the need for a consistent and competitive supply of loose and mounted diamonds and diamond jewelry, in particular, branded products in those categories.  In the third quarter of 2006, we launched an initiative to meet this expressed need and increase our sales of branded loose diamonds and a wider range of diamond jewelry to both the retail and wholesale trade.  We sought to establish HOTJ as an internationally recognized global source for diamonds with the added value of a brand.  In the fourth quarter we expanded this initiative and now examine, grade and certify our diamonds of one carat and above with reputable gem trade laboratories and brand markings to differentiate HOTJ diamonds from other branded and non branded product and to provide the end consumer with our company set standards and assurances of quality, value, craftsmanship and conflict free sourcing. We established relationships with a number of global diamond cutters, manufacturers and suppliers to insure we will have a consistent, well priced supply of polished diamonds and diamond jewelry to meet the anticipated demands from our customers and to establish HOTJ as a key branded supplier to the trade.  We sold loose diamonds to the wholesale trade at a minimal markup and with extended terms in order to expand the channels for the distribution and sale of our products, and to increase market penetration and brand awareness.  We see the increased distribution of our branded diamonds through various supply channels as a marketing and awareness initiative to ultimately drive consumers to our HOTJ authorized jewelry retailers. HOTJ has ramped up the production of our Kathy Ireland diamond essentials and classic diamond jewelry in response to the demand from our retailers for the most frequently purchased diamond items such as solitaires, studs, pendants, 3stone jewelry and tennis bracelets. At the end of 2006, our brands were in approximately 250 retail stores and we are  targeting to open more than 500 new stores for these products in 2007. We review our operations based on both our financial results and various non-financial measures. Among the key financial factors upon which management focuses in reviewing performance are gross profit margin, operating income or loss, net cash provided by operating activities and growth in net sales. We are dependent on outside manufacturers and suppliers to meet our anticipated increased demand and their failure to meet scheduled delivery dates and design


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quality could negatively impact our sales and overall profitability. We are currently expanding our supplier network in order to ensure our ability to meet customer needs. We believe that maintaining high overall customer satisfaction is critical to our ongoing efforts to promote our brands and to increase our net sales and net income. We routinely contact our retailers to obtain customer feedback and address any issues or concerns. Our financial results, including our net sales, gross profit and operating income can and do vary significantly from quarter to quarter as a result of a number of factors, many of which are beyond our control. These factors include the seasonality of our net sales, general economic conditions, the costs to acquire diamonds and precious metals, the product mix of our customer orders, and the level of consumer acceptance of each new branded product line. Results of Operations Results of operations for the year ended December 31, 2006 as compared to the year ended December 31, 2005 Net sales for the year ended December 31, 2006 totaled $31,800,000, an increase of $26,200,000 (468%) from net sales of $5,600,000 for the year ended December 31, 2005.  Of that amount, $22,400,000 was from the sale of loose diamonds, primarily to the wholesale market, with one customer accounting for 47% of diamond sales and 33% of total sales. Net sales includes $900,000 of related party sales.  Sales of our branded jewelry products increased approximately $5,300,000 in 2006 and there was an increase in sales of our discontinued Mirabelle product of approximately $500,000 that was sold at its current carrying value, which was less than its original cost.  These increases were slightly offset by a decrease of approximately $1,300,000 in sales of our Techline products, which have also been discontinued. Our cost of goods sold consists of the cost of merchandise (principally finished products), freight and duty. The Company does not have significant warehouse costs.  Our inventory management, fulfillment and freight out and insurance costs are included in selling, shipping, general and administrative expense.  Gross profit as a percentage of sales declined from 20% (net of the write down of inventory of $485,500) in 2005 to 11% in 2006 due primarily to a change in product mix.  We generated revenues of approximately $21,600,000 from sales of loose diamonds which traditionally have wholesale margins of under five percent. During the third and fourth quarter of 2006, we had loose diamond sales to the wholesale trade at a minimal markup in order to increase market penetration and brand awareness.  As an incentive to certain customers in the third quarter, we offered extended terms on the brand mark-up that we charged on loose diamond sales and will allow a credit for the amount of the markup at the time it is due if the value has not yet been recognized by the marketplace. We have established an allowance to fully reserve for these amounts of approximately $191,000.  Sales of closeout merchandise of approximately $902,000 at current carrying value, as well the sales of heavily discounted products, also contributed to the reduced gross profit. Selling, shipping and general and administrative expenses were approximately $8,500,000 for the year ended December 31, 2006, compared to $5,000,000 for the year ended December 31, 2005, an increase of $3,500,000. Advertising, marketing and selling expenses increased $975,000, including an increase in commissions and sales management expense of $500,000.  Royalty expense to related parties increased $365,000 due to the increased sales. Non-cash amortization costs associated with our license agreements and intellectual property increased $360,000 as there was a full year of amortization in 2006 as opposed to seven months in 2005. Expenses related to being a public company, including filing fees and investor relations expense, increased $670,000.


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This increase includes $335,000 of non-cash compensation expense associated with options issued to our directors in 2005.  Professional fees, including $380,000 of expenses paid with shares and warrants, increased by $450,000 in 2006.  Payroll and related expense increased $310,000 in 2006 due to the addition of personnel.  Interest expense was $3,618,000 for the year ended December 31, 2006 compared to $227,000 for the same period last year. Of the amount in 2006, $2,680,000 is amortization of debt issuance costs related to the convertible notes, and the balance is interest paid on the convertible notes and related party notes.  In 2005, interest resulted from balances on a line of credit and interest on related party notes payable. Results of operations for the year ended December 31, 2005 as compared to the year ended December 31, 2004 During 2005 we expended much of our efforts in designing and sourcing new products and developing sales and marketing strategies and programs. In anticipation of the introduction of the brands at major national jewelry shows, the Company focused on new products to be incorporated into the Elizabeth Taylor and Kathy Ireland lines rather than existing products. These activities were the primary reasons for the decrease in sales in 2005 as compared to sales in 2004.  We lowered prices on existing merchandise during the first half of the year in order to reduce our inventory of goods which were not going to be part of our new lines.  The remaining inventory of these products was sold at below cost in 2006 and a loss on write down of inventory of $485,500 was recorded in the year ended December 31, 2005.  Net sales for the year ended December 31, 2005 totaled $5,600,000, a decrease of $800,000 (13%) from net sales of $6,400,000 for the year ended December 31, 2004.  Of that amount, approximately $4,600,000 was a result of a decrease in sales of our existing Mirabelle and Techline products offset with approximately $3,800,000 of  increased branded product sales. Our cost of goods sold consists of the cost of merchandise (principally finished products), freight and duty. The Company does not have significant warehouse costs.  Our inventory management, fulfillment and freight out and insurance costs are included in selling, shipping, general and administrative expense. Gross profit declined from that of the prior year because of decreased sales and lower margins. Gross profit as a percentage of sales was 20% (net of the write down of inventory of $485,500) for the year ended December 31, 2005, compared to 34% for year ended December 31, 2004. The reduced gross profit percentage in 2005 was the result of a number of factors including the sale of existing products at lower prices in order to reduce inventories of the non-branded generic product lines. Certain of our sales were of goods we had on consignment from manufacturers and sales of consigned goods traditionally have a lower margin.  Additionally, in the fourth quarter of 2005, we sold more loose stones than in the prior year, which also have a lower gross profit margin than finished jewelry. Selling, shipping and general and administrative expenses were $5,000,000 for the year ended December 31, 2005, compared to $1,550,000 for the year ended December 31, 2004, an increase of $3,450,000. There was an increase of approximately $656,500 in professional fees, including legal and accounting, which were associated with the reorganization and merger and the requirements of a public company.  Advertising and marketing expense, increased approximately $690,000 from approximately $318,000 in 2004 to $1,008,000 in 2005. This increase included a marketing fee of $100,000 contractually due to our licensors as well as greatly increased spending on trade shows and print advertising in both the trade publications and consumer magazines in order to introduce our brands. We also incurred a non-cash expense of approximately $128,000 for financial consulting.  Payroll expense increased approximately $405,000 from approximately


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$593,000 in 2005 to approximately $998,000 in 2005 due to increased staffing which also caused increases in supplies and other employee related expenses.  We also incurred approximately $204,000 of royalty expense and $593,000 of non-cash amortization expense associated with our license agreements and intellectual property acquired in 2005. Interest expense was $227,000 for the year ended December 31, 2005 compared to $216,000 for the same period last year. Interest expense relates principally to the line of credit, the $60,000 of imputed interest on an obligation to a vendor, which was due after three years from purchase, without interest, in 2005, and interest on related party notes of approximately $67,000. Other income in the year ended December 31, 2005 amounted to $981,980 which was the result of the settlement, at a discount, of the obligation to a vendor. Liquidity and Capital Resources Operations and liquidity needs are funded through cash flows from operations, debt and equity offerings, as the well as utilizing, when needed, borrowings under the Companys various credit lines.  During 2006 and 2005, the Company incurred significant expenses in its efforts to design and source new products and develop new sales and marketing strategies.  In 2005, the Company incurred significant costs to complete its reverse acquisition, The Company is evaluating its cash needs and existing and forecasted cash utilization rate and plans to raise additional debt or equity capital in the short term to provide funding for ongoing future operations.  No  assurances  can be given that the  Company  will be successful  in  obtaining  additional  capital,  or that  such  capital  will be available on terms acceptable to the Company. The Company's continued existence is dependent upon its ability to raise capital and to market and sell its products successfully. During the year ended December 31, 2006, the Company used $9,100,000 in its operations. The principal components of the cash used in operations included the net loss of $8,400,000 and an increase in inventory of approximately $7,100,000. The increase in accounts receivable of approximately $22,000,000 was due to increased sales and extended terms we offered to some of our customers in order to increase our brands penetration and visibility in key markets. These decreases in cash provided by operations were somewhat offset by an increase in accounts payable of approximately $23,000,000, primarily due to the purchase of diamond inventory. For the year ended December 31, 2005, the Company used $4,900,000 in its operations. The principal components of the cash used in operations included the net loss of $3,500,000, an increase in inventory of $1,600,000, and an increase in prepaid advertising and marketing expenses of $284,000. Accounts payable decreased by approximately $729,000. This decrease was primarily due to the settlement of an amount due to one vendor of approximately $2,000,000 which was settled at a gain by payment of $981,980. This decrease in payables was offset by increases of approximately $1,200,000 primarily related to inventory purchases. These decreases in cash provided by operations were offset by a reduction of accounts receivable of approximately $560,000 due to increased collections and lower sales volumes and an increase in accrued liabilities of $410,000, consisting primarily of marketing and professional fees. For the year ended December 31, 2006, investing activities used approximately $72,500 for the purchase of equipment, including a laser machine and safes. For the year ended December 31, 2005, investing activities used $275,000 for the purchase of intellectual property related to our brands and approximately $72,000 for the purchase of equipment, while $500,000 was acquired as a result of our recapitalization.  As the Company


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outsources manufacturing, it has historically low requirements for additions to property and equipment.  For the year ended December 31, 2006, financing activities provided approximately $9,800,000. The sale of convertible notes and warrants in a private placement in May 2006 as described below provided approximately $10,360,000 and we made payments on loans to shareholders of approximately $550,000.  For the year ended December 31, 2005, financing activities provided approximately $4,600,000. This included $5,700,000 from the sale of units (consisting of common stock and warrants) in a private placement in August 2005 as described below and $230,000 from the issuance of common stock and an increase of borrowings on our line of credit of approximately $1,400,000. This was offset by $447,000 of cash distributions to stockholders, repayments of loans to shareholders of approximately $420,000 and the restriction of $2,000,000 as collateral for our line of credit. Financing activities used $1,450,000 in the year ended December 31, 2004, principally reducing the balance of the line of credit and distributions to stockholders.  May 2006 Private Placement  In May 2006, we entered into a series of agreements pursuant to a private placement transaction providing for, among other things, the issuance of senior convertible notes (Notes) and warrants to purchase shares of the Companys $.0001 par value per share common stock.  On May 12, 2006 we issued notes in the aggregate principal amount of $11,660,000 and Series A Warrants to purchase up to 2,186,250 shares of the Companys Common Stock.  The net proceeds of the issuance totaled approximately $10.3 million after direct placement costs of approximately $1.3 million. The notes are convertible into 2,915,000 shares of HOTJs common stock at any time at the option of the holders at an initial conversion price of approximately $4.00 per share, subject to adjustment. The notes can be converted at the Companys option if certain criteria are satisfied.  The Company also entered into a Security Agreement which grants the holders of the Notes a first priority security interest in all of the Companys assets. The Notes bear interest at 9.75% payable quarterly, in arrears, and have an initial conversion price of $4.00.  The conversion price is subject to adjustment if: (i) the Company fails to meet a Sales Threshold as shown on the following table; and (ii) the Average Market Price on the applicable date is less than $5.00.  The Sales Thresholds and dates are:  Sales ThresholdDate$14,000,000 for the 3 fiscal quarters endingSeptember 30, 2006$30,000,000 for the year endingDecember 31, 2006$45,000,000 for the year endingDecember 31, 2007  The Company sales exceeded the Sales Threshold for the three fiscal quarters ended September 30, 2006.  Sales for the year ended December 31, 2006 totaled $31.8 million (including $22.4 million of loose diamond sales) and, accordingly, the Sales Threshold for that period was met.


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The Series A Warrants have an initial exercise price of $5.00 per share, a term of 60 months and became exercisable on November 12, 2006. The Company also issued Series B Warrants to purchase up to 947,375 shares of the Company's Common Stock and Series C Warrants to purchase up to 1,894,750 shares of the Company's Common Stock.  The Series B Warrants and Series C Warrants are not initially exercisable and only become exercisable upon the occurrence of certain conditions, including the Company causing a conversion of the Notes. Certain affiliates of ours consisting of (i) members of the Abramov family as a group, (ii) Interplanet Productions, Ltd and (iii) Sandbox Jewelry LLC, owned by Kathy Ireland Worldwide, (collectively referred to as the Stockholders) each agreed to invest $125,000, for an aggregate amount of $375,000, on the same terms as other investors, except that, notwithstanding any provisions in the transactions documents, each of the Stockholders agreed not to convert or exercise any securities at a price which is lower than the closing bid price of the Companys Common Stock on the date of the closing until after the shareholders of the Company have voted in favor of the issuance of all of the securities as described in the transaction documents in accordance with applicable law and the rules and regulations of the Nasdaq Capital Market. The principal amount of the notes is to be repaid in nine quarterly installments, based on the outstanding principal at the date of the payment, beginning on April 1, 2007.  Such principal payments may be paid in cash or, at the option of the Company, if certain conditions are satisfied, in shares of the Companys common stock. Any shares of common stock used to pay an installment of principal will be valued at the lower of the current conversion price or 85% of the Average Market Price as defined in the Notes. Under certain conditions, if the Average Market Price equals or exceeds $5.50 per share then the principal payment that is due is deferred until the maturity date of the notes. On February 21, 2007, two holders of the Companys convertible notes converted their entire note holdings for a total of $1,500,000 in the aggregate.  The Company issued 375,000 common shares upon the conversion and paid approximately $180,000 of Make-Whole Amounts as defined in the notes. On April 2, 2007, the Company paid the first principal payment of $1,087,222 and accrued interest of $238,509 on its convertible notes by issuing a total of 542,416 shares of common stock.  The Company Conversion Price (as defined in the notes) was $2.44.  In accordance with the terms of the notes, five of our noteholders, all affiliates of the Company, elected to defer the payment of $41,666 of principal and $9,141 of interest due to them on April 2, 2007 until March 31, 2009. On April 2, 2007, two holders of the Companys convertible notes converted the remaining balances of their notes totaling of $88,889 in the aggregate.  The Company issued 22,224 common shares upon the conversion.  The noteholders waived their rights to the Make-Whole Amount as defined in the notes. Interest is due quarterly, starting on July 1, 2006. The interest rate is 9.75% per annum. All or a portion of the accrued and unpaid interest may be paid in cash or, at the option of the Company, if certain conditions are satisfied, in shares of the Companys common stock. Any shares of common stock used to make an interest payment will be valued at the lower of the conversion price or 85% of the Average Market Price on the applicable interest payment date. The registration rights agreement required us to file a registration statement for the resale of a number of shares of Common Stock equal to 150% of the sum of the number of shares issuable upon conversion of the Notes and upon the number of shares issuable upon exercise of the Warrants by June 26, 2006 and required that the registration statement be declared effective by July 11, 2006 if there was no review of the registration statement by the SEC.  The registration rights agreement


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states that the registration statement must remain effective and available for use until earlier of the date the noteholders can sell all of the securities covered by the registration statement without restriction pursuant to Rule 144(k) and the date all of such securities have been sold pursuant to the registration statement. We filed our registration statement on June 26, 2006 and it was declared effective by the SEC on July 10, 2006. If thereafter the registration statement ceases to be effective, we may be required to pay damages of 1.5% percent of the aggregate purchase price of the Notes and Warrants monthly until such failure is cured.  These damages will have a cash payment cap of 10% of the aggregate purchase price. August 2005 Private Placement On August 12, 2005 we completed a private placement of 1,523,980 units at a price of $4.25 per unit for total gross proceeds of $6,476,915. Each unit consisted of one share of our common stock and one common stock purchase warrant that allows the holder thereof to purchase one share of our common stock  at $7.00 per share, subject to anti-dilution provisions and other adjustments.  We engaged Laidlaw & Co (UK) Ltd, as our exclusive placement agent to offer the units. We paid Laidlaw a fee equal to eight percent (8%) of the gross proceeds derived from the sale of the units, reimbursed Laidlaw for certain of its expenses, principally legal fees, and also issued to Laidlaw affiliates five year warrants to purchase up to 10% of the number of shares of common stock sold in the placement at an exercise price of $7.00 per share. Moreover, we agreed to register with the SEC the shares of common stock issuable upon exercise of these warrants. We also agreed to indemnify Laidlaw against various liabilities, including liabilities under the Securities Act of 1933, as amended, or to contribute to payments that Laidlaw may be required to make in respect of any of those liabilities.  We further agreed to file a registration statement with the SEC on or before September 26, 2005 registering the shares and shares issuable upon exercise of the warrants for resale. In the event that we had failed to file the registration statement on or before that date or in the event that the registration statement was not declared effective on or before December 31, 2005, then we had agreed to pay investors in the placement liquidated damages in an amount equal to 1.5% of the amount invested for each 30 day period beyond September 26, 2005 until we filed the registration statement or beyond December 31, 2005 until the SEC declared the registration statement to be effective.  We filed a registration statement on Form SB-2 on September 23, 2005.  On February 13, 2006, the company and investors holding more than a majority of the underlying securities covered by the registration rights agreement amended the registration rights agreement.  The amendment provided that unregistered shares of common stock of the Company could be used to pay liquidated damages pursuant to the registration rights agreement.   The amendment also provided that the aggregate number of shares of common stock that could be issued pursuant to the liquidated damages provision not exceed 7,600,000.  Our registration statement was declared effective on February 14, 2006.   The amount of damages due to the investors under the registration rights agreement was approximately $97,000 and we issued 19,431 shares in settlement of the amount due. In August 2005 our principal lending institution provided us with a $2,000,000 line of credit secured by a certificate of deposit. We repaid the outstanding balance of $2,000,000 on January 4, 2006.


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Critical Accounting Policies and Use of Estimates The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States which requires management to make estimates and assumptions that affect the accounting for and recognition of assets, liabilities, stockholders equity, revenue and expenses. Estimates and assumptions are made because certain information is dependent on future events. The most significant estimates used in preparing the financial statements are those relating to the collectibility of receivables and the market value used in valuation of inventory. Actual results could differ from those estimates. Revenue Recognition The Company recognizes revenue when all four revenue recognition criteria have been met: persuasive evidence of an arrangement exists, the product has been delivered or the service has been rendered, the price is fixed or determinable and collection is probable. The Company recognizes revenue from product sales when all of the foregoing conditions are met which in general is at the time of shipment where the risk of loss and title has passed to the customer. When products are shipped to customers on consignment, revenue is recognized when the customers report sales of the products to the Company. The Company follows the guidance provided by EITF 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent in recording the sales of loose diamonds as gross revenue.  The Company acts as the principal in each transaction, takes title to the diamonds and bears the delivery, collection and return risks.  Also, the Company determines the pricing, adds value by branding and has discretion in supplier selection. Inventory  Inventory consists principally of finished products and is stated at the lower of cost (first-in, first-out) or market.  The Company evaluates inventory  balances for excess quantities and obsolescence on a regular basis by analyzing estimated demand,  inventory on hand,  sales levels and other  information.  Based on that analysis, the Companys  management  estimates the amount of provisions  made for obsolete or slow moving inventory.  Concentrations of credit risk  The Company grants credit in the normal course of business to its customers and periodically performs credit analysis and monitors the financial condition of its customers to reduce credit risk.  In 2006, the Company has offered extended terms to certain of its customers in order to achieve greater penetration and visibility in key markets. The Companys management reviews receivables on an ongoing basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts.  Trade receivables are written off when deemed uncollectible.  Recoveries of previously written off receivables are recorded when received.  No interest is charged on past due accounts.  The allowance for doubtful accounts has been increased in 2006 due to the opening of new doors with which the Company has less historical experience. An allowance for returns is provided based on an ongoing review of returns and managements expectation of returns based on their evaluation of current business conditions. The Company does not have a policy of allowing customers to return products, but may accept returns


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where the customer concurrently purchases additional products or where the Company considers the likelihood of collection to be remote. While the Company does not generally accept returns, at December 31, 2006 and 2005, the allowance for returns was increased substantially because the Company saw the necessity of accepting returns of mostly non-branded products that were not part of our core HOTJ jewelry collections. This accommodation is made for jewelry retailers who are making concurrent purchases of branded products, have established long-term relationships with the Company and intend to continue as authorized House of Taylor Jewelry retailers. Long-lived Assets The Company evaluates long-lived assets whenever events or changes in business circumstances or the planned use of assets indicate that their carrying amounts may not be fully recoverable or that their useful lives are no longer appropriate. Reviews are performed to determine whether the carrying values of assets are impaired primarily based on comparison to undiscounted expected future cash flows. If the comparison indicates that impairment exists, the impaired asset is written down to its fair value. Significant management judgment is required in the forecast of future operating results that are used in the preparation of expected discounted and undiscounted cash flows.  The Company concluded that there was no impairment of its long-lived assets at December 31, 2006. Recent accounting pronouncements In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. This Statement permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company does not expect SFAS No. 159 to have any impact on the Companys financial condition or results of operations. In November 2006, the FASB ratified EITF Issue No. 06-07, Issuers Accounting for a Previously Bifurcated Conversion Option in a Convertible Debt Instrument When the Conversion Option No Longer Meets the Bifurcation Criteria in FASB Statement No. 133 ( EITF 06-07). EITF 06-07 affects convertible debt issuers with previously bifurcated conversion options that no longer require separate derivative accounting under SFAS 133. EITF 06-07 states that when a previously bifurcated conversion option no longer requires separate accounting, the issuer shall disclose (1) a description of the change causing the conversion option to no longer require bifurcation and (2) the amount of the derivative liability reclassified to shareholders equity. EITF 06-07 is effective for interim and annual periods beginning after December 15, 2006.  The Company does not expect EITF 06-07 to have any impact on the Companys financial condition or results of operations. In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans(SFAS 158), which amends SFAS 87 and SFAS 106 to require recognition of the overfunded or underfunded status of pension and other postretirement benefit plans on the balance sheet. Under SFAS 158, gains and losses, prior service costs and credits, and any remaining transition amounts under SFAS 87 and SFAS 106 that have not yet been recognized through net periodic benefit cost will be recognized in accumulated other comprehensive income, net of tax effects, until they are amortized as a component of net periodic cost. The measurement date - the date at which the benefit obligation and plan assets are measured - is required to be the companys fiscal year end. SFAS 158 is effective for publicly-held companies for fiscal years ending after December 15, 2006,


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except for the measurement date provisions, which are effective for fiscal years ending after December 15, 2008. The Company does not expect SFAS No. 158 to have any impact on the Companys financial condition or results of operations. In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for the Company on January 1, 2008 and is not expected to have a significant impact on the Companys financial statements. On September 13, 2006, the SEC issued Staff Accounting Bulleting No. 108 (SAB 108). SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a potential current year misstatement. Prior to SAB 108, companies might evaluate the materiality of financial statement misstatements using either the income statement or balance sheet approach, with the income statement approach focusing on new misstatements added in the current year, and the balance sheet approach focusing on the cumulative amount of misstatement present in a companys balance sheet. Misstatements that would be material under one approach could be viewed as immaterial under another approach, and not be corrected. SAB 108 now requires that companies view financial statement misstatements as material if they are material according to either the income statement or balance sheet approach. The Company has analyzed SAB 108 and determined that upon adoption it will have no impact on the reported results of operations or financial conditions. In July 2006, the FASB published FASB Interpretation (FIN) No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, to address the noncomparability in reporting tax assets and liabilities resulting from a lack of specific guidance in FASB Statement of Financial Accounting Standards (SFAS) No. 109 (SFAS 109), Accounting for Income Taxes, on the uncertainty in income taxes recognized in an enterprises financial statements. FIN 48 will apply to fiscal years beginning after December 15, 2006, with earlier adoption permitted. The Company is evaluating the potential impact of this FIN on its financial position and results of operations and cash flows In March 2006, the FASB issued Statement No. 156 (SFAS 156), Accounting for Servicing of Financial Assets. SFAS 156 amends SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS 156 permits, but does not require, an entity to choose either the amortization method or the fair value measurement method for measuring each class of separately recognized servicing assets and servicing liabilities. SFAS 156 is effective for fiscal years beginning after September 15, 2006 and is not expected to have any impact on the Companys consolidated financial statements. In February 2006, the FASB issued FASB 155, Accounting for Certain Hybrid Financial Instruments an amendment of FASB 133, Accounting for Derivative Instruments and Hedging Activities, and FASB 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. FASB 155, provides the framework for fair value remeasurement of any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation as well as establishes a requirement to evaluate interests in securitized financial assets to identify interests. FASB 155 further amends FASB 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. The guidance of FASB 155 also clarifies which interest-only strips and principal-only strips are not subject to the requirements of FASB 133 and concentrations of credit risk in the form of subordination are not embedded derivatives. This Statement is effective for all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006. FASB 155 is not expected to have a


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material impact on the Company's consolidated financial statements. The Company is evaluating the potential impact of this new pronouncement on its financial position and results of operations and cash flows. In February 2006, the FASB decided to move forward with the issuance of a final FSP FAS 123R-4 Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event. The guidance in FSP FAS 123R-4 amends paragraphs 32 and A229 of FASB Statement No. 123R to incorporate the concept articulated in footnote 16 of FAS 123R. That is, a cash settlement feature that can be exercised only upon the occurrence of a contingent event that is outside the employees control does not meet the condition in paragraphs 32 and A229 until it becomes probable that the event will occur. Originally under FAS 123R, a provision in a share-based payment plan that required an entity to settle outstanding options in cash upon the occurrence of any contingent event required classification and accounting for the share based payment as a liability. This caused an issue under certain awards that require or permit, at the holders election, cash settlement of the option or similar instrument upon (a) a change in control or other liquidity event of the entity or (b) death or disability of the holder. With this new FSP, these types of cash settlement features will not require liability accounting so long as the feature can be exercised only upon the occurrence of a contingent event that is outside the employees control (such as an initial public offering) until it becomes probable that event will occur. The guidance in this FSP shall be applied upon initial adoption of Statement 123(R). An entity that adopted Statement 123(R) prior to the issuance of the FSP shall apply the guidance in the FSP in the first reporting period beginning after February 2006. Early application of FSP FAS 123R-4 is permitted in periods for which financial statements have not yet been issued. The Company does not expect that this new FSP will have any impact upon its financial position, results of operations or cash flows. Factors That May Affect Future Results This report, including Managements Discussion and Analysis or Plan of Operation, contains forward-looking statements and other prospective information relating to future events. These forward-looking statements and other information are subject to certain risks and uncertainties that could cause results to differ materially from historical or anticipated results. Other sections of this prospectus may include additional factors which could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.


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Risks relating to the company We have licensed our Elizabeth Taylor brands from Interplanet Productions, Ltd. and our Kathy Ireland brands from Sandbox Jewelry, LLC, a subsidiary of Kathy Ireland Worldwide, and the impairment or loss of either of these licenses will adversely impact our operations and sales. We are dependent on our licenses for implementation of our branded business model. A termination of either license would materially damage our goodwill with suppliers, retailers and consumers. If our license with Interplanet terminates we will be obligated to change the name of our business and will no longer be able to sell jewelry under the House of Taylor Jewelry brands and designs. The license with Interplanet may be terminated immediately if Jack Abramov and Monty Abramov are no longer associated with our business, if the license with Sandbox is terminated, if we effect a merger or sale of our company as well as under certain other circumstances. The license with Sandbox may be terminated upon a material breach of that license, including for failure to meet certain sales goals and failure to make royalty payments. Our license may terminate if we do not pay to Interplanet established minimum annual royalties that increase over the seven-year term of the agreement. Over the course of the initial seven-year term of the license, we are obligated to pay Interplanet minimum royalties that increase annually ranging from $580,000 to almost $3,000,000. Interplanet has the right to terminate our license if annual royalties do not at least meet established minimum amounts. If our license is terminated we will be obligated to change our name to delete the reference to House of Taylor and to cease producing jewelry under our brand names and designs. If that were to occur we would experience severe disruptions in our operations that may cause our shareholders to lose all or substantially all of their investment in our common stock. Our business plan is based on continually promoting our brands, and if the value of our brands were to diminish, our revenue, results of operations and prospects would be materially harmed. Dame Elizabeth Taylor and Kathy Ireland, as well as their names, their images and the trademarks and other intellectual property rights relating to these, are integral to our marketing efforts and form the cores of our brand names. Our future success and the value of our brand names depend, to a large degree, on the reputations of Dame Elizabeth Taylor and Kathy Ireland. If the public image or reputation of Dame Elizabeth Taylor or Kathy Ireland is tarnished or otherwise diminished we may lose customers and incur substantial losses. The value of our brands may also diminish if for any reason, which may include death or disability, we are deprived of the services of, or ability to collaborate with, either of Dame Elizabeth Taylor and Kathy Ireland. The value of our brands may also be diminished if we were unable adequately to protect our brand names and designs. We are susceptible to others imitating our designs and jewelry products to give those items the same look and feel as our branded collections. We may not be able successfully to protect our intellectual property rights from infringement. In addition, the laws of many foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Imitation of our designs, including the look and feel of our products or other infringements of our intellectual property rights, could harm the value of our brands causing us added cost and lost or reduced revenue.


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The execution of our business model depends on our ability to retain key executives and our license with Interplanet will terminate if we lose their services. Our success depends on the efforts and abilities of senior management, Jack Abramov, President and Chief Executive Officer and Monty Abramov, Executive Vice President, Chief Design Officer. Each of these officers has entered into an employment agreement with us for a term that ends in May 2012.  Our ability to implement our business plan successfully would be jeopardized if either of Jack Abramov or Monty Abramov becomes incapable of fulfilling his obligations to us and a capable successor is not found.  Moreover, Interplanet Productions Ltd, the licensor of the House of Taylor Jewelry name and other licensed marks that are vital to our business, has the right to terminate the license immediately if Jack Abramov and Monty Abramov are no longer associated with our business.  We can give no assurance that qualified individuals will be available to replace existing management should replacement become necessary, or that capable entrepreneurial personnel can be attracted to manage our operations.  We believe that our future success will also depend significantly upon our ability to attract, motivate, and retain additional highly skilled managerial, technical and design, as well as experienced sales personnel. Competition for experienced and talented personnel is intense. We can give no assurance that we will be successful in attracting, assimilating, and retaining the personnel we require to grow and sustain our operations. Our limited operating history has not yet generated positive cash flow from our current business model that focuses on promoting and marketing our branded jewelry lines. Although our subsidiary, Techline, has been engaged in designing and marketing jewelry since about November 2001, we have been operating under the current business model of designing, manufacturing, distributing and promoting our branded jewelry lines under House of Taylor Jewelry labels since about May 2005. This short time frame provides a limited period for investors to evaluate our new business model. Because of this lack of operating history in connection with our new business model and the uncertain nature of the rapidly changing markets that we serve, we believe the prediction of future results of operation is difficult. Our prospects must be evaluated with a view to risks encountered by a company in an early stage of development.  While we are optimistic about our prospects and believe in the strengths of our Elizabeth Taylor and Kathy Ireland brands, we can provide no assurance that we will be profitable, have a positive cash flow or otherwise be successful. We require substantial investment to launch and promote our branded jewelry lines and if we fail to raise capital to support and fund our expanding operations we may be unable to grow our business and generate positive cash flow. We are in effect a new company that has no prior history in launching a branded business model within the jewelry industry. We may require additional capital in order to launch our new branded jewelry lines and continue to support and increase our sales and marketing efforts and fund our growth.  In addition, we may be required to spend greater-than-anticipated funds if unforeseen difficulties arise in the course of these or other aspects of our business. As a consequence, we will be required to raise additional capital through public or private equity or debt financings, collaborative relationships, bank facilities or other lines of credit arrangements. We cannot assure that such additional capital will be available on terms acceptable to us, if at all. Additional equity financing will be dilutive to our stockholders, and debt financing, if available, may involve restrictive covenants that could limit our operations and increased interest costs. Our inability to obtain sufficient financing may:


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· cause us to lose the ability to obtain favorable source pricing and purchase terms for our  goods,  · reduce our ability to provide favorable pricing and terms to our customers, and  require us to delay, scale back or eliminate some or all of our expansion programs and our marketing and promotional activities.  Liquidity and going concern  The consolidated financial statements have been presented on the basis that the Company is a going concern, which contemplates the realization of assets and the satisfaction of liabilities  in the normal course of business. The Company incurred a loss in 2006 of $8,400,000 and  has  an  accumulated  deficit  of  approximately  $11.3 million as of December 31, 2006. The Company used approximately $9.1 million in operations during the year ended December 31, 2006.  The Company is evaluating its cash needs and existing and forecasted cash utilization rate and plans to raise additional debt or equity capital in the short term to provide funding for ongoing future operations. No  assurances  can be given that the  Company  will be successful  in  obtaining  additional  capital,  or that  such  capital  will be available on terms acceptable to the Company.  The Company's continued existence is dependent upon its ability to raise  capital  and to market  and sell its products  successfully. The financial statements do not include any adjustments to reflect future effects on the recoverability and classification of assets or amounts and classification of  liabilities  that may result if the Company is unsuccessful. If we are unable to handle warehousing and sales fulfillment our customer relationships will be damaged and we will lose revenue. Substantially all of our warehousing, inspection, shipping, and customer service for our bridal jewelry categories were conducted on our behalf through October 2005 by a Los Angeles, California based manufacturer and wholesaler of bridal, fashion and other jewelry.  Since November 2005, we have handled all fulfillment in house. If we are unable to handle fulfillments in a secure, efficient and timely manner we may experience customer dissatisfaction, order cancellations and merchandise Our inability to manage growth could cause disruptions to our business and generate dissatisfaction among our retailers. To manage our anticipated growth, we must oversee transaction processing methods, implement operations and financial systems, improve procedures and controls, hire qualified persons and train and manage our employees. We must also look to support and be responsible to an expanding number of retailers who carry one or more of our branded collections. We may not be able to implement these items in an effective and timely manner, or at all.  An inability to manage these challenges of growth could disrupt or harm our supplier and retailer relationships, cause cost increases and generate losses.  We can provide no assurance that we will achieve planned expansion goals, manage growth effectively, increase sales or revenues, or ever operate profitably. Concentration of share ownership among our existing executive officers, directors and principal stockholders may prevent others from influencing corporate decisions. Our executive officers, directors and principal stockholders, as a group, beneficially own approximately 31,000,000 of our shares, or about 78% of our currently outstanding common stock. As a result, these stockholders, acting together, will have the ability to exert control over


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substantially all matters requiring approval by our stockholders, including the election and removal of directors and any proposed merger, consolidation or sale of all or substantially all of our assets and other corporate transactions. This concentration of ownership could be disadvantageous to other stockholders with interests different from those of our officers, directors and principal stockholders. If our brands, designs and collections are not accepted by our customers, we will not capture market share.  As a result of our limited operating history, our ability to execute our business strategy is materially uncertain and our operations and prospects are subject to all risks inherent in a developing business enterprise. Our limited operating history also makes it difficult to evaluate our long-term commercial viability. Our ability to execute our business strategy must be evaluated in light of the problems, expenses and difficulties frequently encountered by new businesses in general and by jewelry businesses specifically. While management believes that our Elizabeth Taylor and Kathy Ireland brands will have immediate national and international name recognition and generate substantial goodwill, the success of our business will depend, in significant part, on the markets acceptance of our new brands and the jewelry lines designed for those brands.  We can provide no assurance that these new brands will be successfully received in the marketplace. If the growth and demand for and acceptance and purchase of our brands do not occur or if our brand development and market acceptance occur at a rate that is less rapid than we have anticipated, our business, financial condition and results of operations will be materially and adversely affected. If retailers of our products do not accept or if they cease to sell our products or fail to purchase our products at anticipated levels, we may lose or not be able to increase revenues resulting in further reported losses. Our business model provides for the sale of our branded jewelry lines to retail stores and chains meeting sales standards and other requirements that we establish.  Our results of operations will depend to a significant extent upon the commercial success of the retail jewelry select to carry and market our jewelry lines.  If these retail jewelry stores fail to purchase our branded jewelry lines at anticipated levels or if our relationships with these customers are impaired, we may experience no revenue growth and continued losses. Our operating results may fluctuate significantly. We expect to experience substantial variations in our net sales and operating results from quarter to quarter. We believe that the factors which influence variable quarterly results include · the timing of our introduction of new Elizabeth Taylor and Kathy Ireland product lines, · the level of consumer acceptance of each new branded product line, general economic and industry conditions that affect consumer spending and retail purchasing on discretionary matters such as jewelry, · the seasonality of the markets in which we participate, · the timing of trade shows, · product mix of customer orders,


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· timing of the placement or the cancellation of customer orders, · returns of consignment merchandise in excess of planned levels, · the success and efficiency of our handling fulfillment, including packaging, shipping, invoicing and collecting on merchandise sold, and · the actions of competitors. As a result of these actual and anticipated fluctuations in our revenue and operating expenses, we believe that period-to-period comparisons of our results of operations are not and will not be a reliable indication of our future performance. Increases in the price of raw materials or their reduced availability could increase our cost of sales and decrease our profitability if we are unable to pass these added costs to our customers. Our principal raw materials and work in process include diamonds, other precious and semiprecious gemstones, gold, silver, pearls and other high fashion items comprising our jewelry products. The price and availability of any of these items may fluctuate significantly, depending on a variety of factors including supply conditions, government regulation, economic climate and other unpredictable factors. Any price increases in the materials underlying our jewelry lines could increase our cost of sales and decrease our profitability unless we are able to pass higher prices on to our customers.  Moreover, any decrease in the availability of these goods could impair our ability to meet our customer delivery requirements in a timely manner. The success of our business depends upon our ability to offer innovative, well priced and style sensitive branded products. The jewelry industry across all price points is characterized by changing or evolving consumer preferences. As a result, our success will depend on our ability to source, design, develop, market and deliver attractive products at a reliable pace that is competitive with other manufacturers in our several segments and price points. We must continue to create and present jewelry products and lines that appeal to multiple consumer segments across a range of consumer accepted price points. If we are unable to develop on a regular basis attractively designed branded products and updated core jewelry lines we could: · limit our ability to differentiate, segment and price our products; · adversely affect retail and consumer acceptance of our jewelry lines within the sales categories that we serve; and · limit sales potential. The increasing importance of branded design innovation and stylings in the jewelry business requires us to strengthen our internal sensitivity to style trends and to rely on successful relationships with third parties, such as suppliers of pearls, diamonds, colored precious and semi-precious gemstones and bridal fashion jewelry.


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Our dependence on outside manufacturers and suppliers may reduce our ability to control the creation and supply of our products, which could harm our sales, reputation and overall profitability. We depend on outside manufacturers, suppliers and vendors to help us design, secure, finance, supply and ship our goods in an environment characterized by continuing cost pressure and increasing demands for branded product and marketing innovation. This dependence could subject us to difficulty in obtaining or making timely delivery of branded products of acceptable quality and style. This dependence could result in our failure to meet delivery requirements of our customers. Failure to make timely deliveries may cause our customers to cancel orders, refuse to accept deliveries, reduce future orders, any of which could harm our sales, reputation and overall profitability. To the extent we are not able to secure or maintain relationships with independent suppliers or contractors that are able to fulfill our requirements, our business will be harmed. We may experience sales resistance and revenue declines, particularly for our couture categories, in down turning  general economic cycles. The jewelry industry is a cyclical one that is heavily dependent upon the overall level of consumer spending. Purchases of jewelry and related fashion goods tend to be highly correlated with economic cycles and the disposable income of our consumers. Our customers may anticipate and respond to adverse changes in economic conditions and uncertainties by reducing inventory and canceling orders. As a result, any substantial deterioration in general economic conditions, increases in interest rates, acts of war, terrorist or political events that diminish consumer spending and confidence in any of the geographical areas in which we compete could reduce our sales and adversely affect our business and financial conditions. Our business is highly competitive and depends on consumer spending patterns. The jewelry industry is highly competitive and fragmented. We face a variety of competitive challenges that include: · anticipating and quickly responding to changing consumer demands; · developing high style, high quality branded jewelry products, including rings, necklaces, earrings, bracelets and other high quality products in sizes, colors and types that appeal to consumers of varying age groups, disposable income and tastes; · competitively pricing our lines of jewelry products and achieving customer perception of value for our brands; and · providing strong and effective marketing support and incentives to our retail jeweler customers. Our inability to meet these competitive challenges may harm our customer relationships, negatively impact consumer confidence in our brands and result in our having undesirable inventory that cannot be sold at a profit.


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If our products infringe upon the intellectual property rights of others we may incur significant litigation costs and damages that could harm our reputation and cause us losses. From time to time, we may receive notices that claim we have infringed upon, misappropriated or misused other parties proprietary rights and such claims could result in litigation. Such litigation, whether as a plaintiff or a defendant, may harm our reputation, cost us money, divert management attention and prevent us from offering some of our products. Any claims or litigation in this area, whether we ultimately prevail or not, could be time-consuming and costly, injure our reputation or require us to enter into royalty or licensing arrangements. We may not be able to enter into these royalty or licensing arrangements on commercially reasonable terms, if at all. Risks relating to our common stock Our stock price may be volatile, and you may not be able to resell your shares at or above the price you paid. There has only been a limited public market for our securities and we can provide no assurance that an active trading market in our securities will develop or be maintained.  In addition, the overall market for securities in recent years has experienced extreme price and volume fluctuations that have particularly affected the market prices of many smaller companies. We expect that the trading price of our common stock may be subject to significant fluctuations for reasons that may include, but are not limited to: · quarterly variations in operating results and achievement of key business metrics; · changes in earnings estimates by securities analysts, if any; · any differences between reported results and securities analysts published or unpublished expectations; · announcements of new contracts or service offerings by us or our competitors; · market reaction to any acquisitions, joint ventures or strategic investments announced by us or our competitors; · demand for our services and products; · shares being sold pursuant to Rule 144 or upon exercise of warrants; · stock market price and volume fluctuations attributable to inconsistent trading volume levels; · future sales of equity or debt securities, including sales which dilute existing investors; and · general economic or stock market conditions unrelated to our operating performance. These fluctuations, as well as general economic and market conditions, may have a material or adverse effect on the market price of our common stock.


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Shares eligible for future sale may adversely affect the market for our securities. From time to time, certain of our stockholders who hold restricted securities may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144, promulgated under the Securities Act, subject to certain limitations. In general, pursuant to Rule 144, a stockholder (or stockholders whose shares are aggregated) who owns restricted securities and who has satisfied a one-year holding period may, under certain circumstances, sell within any three-month period a number of securities which does not exceed the greater of 1% of the then outstanding shares of common stock or, or if our securities are listed for trading on a national exchange, the average weekly trading volume of the class during the four calendar weeks prior to such sale. Rule 144 also permits, under certain circumstances, the sale of restricted securities, without any limitation, by stockholders who are non-affiliates and who have held the securities for at least two-years. In February 2006, we registered for resale shares of common stock and  shares of common stock issuable upon exercise of warrants that we sold in our May 2005 and August 2005 private placements.  Any substantial sales by holders of these securities or by other holders pursuant to Rule 144 may have a depressive effect on the market price of our securities. Risks Related to Our Private Placement of Senior Convertible Notes and Warrants In connection with our private placement of the Notes and issuance of Warrants to the Note Holders in May 2006, we may have to convert the Notes into shares of our Common Stock, and issue shares of our Common Stock upon exercise of the Class A Warrants, at prices which may result in substantial dilution to our shareholders. At  December 31, 2006, the Company could be obligated to issue (1) up to 2,915,000 shares issuable upon conversion of the Notes, subject to adjustment, and (2) up to 2,186,250 shares issuable upon exercise of the Class A Warrants. The conversion price for the Notes is $4.00 per share, subject to adjustment. The exercise prices for the Class A Warrant $5.00 per share. The maturity date for the Notes is March 31, 2009, unless any installment payment is extended according to the terms of the Notes. A Noteholder may defer any installment for up to twenty four months from its due date.. The Class A Warrants expire on May 11, 2011. The issuance of any shares of our Common Stock pursuant to the conversion or exercise of the above securities could significantly dilute your ownership in the Company  In February 2007, two of our noteholders converted $1,500,000 of notes in the aggregate and we issued 375,000 shares of common stock upon conversion.  In April 2007, two holders of the Companys convertible notes converted the remaining balances of their notes totaling of $88,889 in the aggregate and we issued 22,224 shares of common stock upon conversion. The principal and interest payable on the Notes are convertible into shares of our Common Stock, and under certain circumstances this conversion is mandated. The number of shares of our Common Stock that are issuable upon conversion of the Notes is equal to the aggregate amount of the principal, interest and fees then due and payable with respect to the Note divided by the fixed conversion price then in effect (which, as of December 31, 2006, is $4.00 per share). The fixed conversion price is subject to adjustment in the event of future dilutive financing transactions, which would result in the Notes becoming convertible into a greater number of shares of our Common Stock.


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Accounting charges resulting from the warrants issued in connection with the Notes led to significant non-cash charges which adversely impact future interest expense and net loss, and may also lead to future volatility in our financial statements. Because of certain contractual provisions in the warrant agreements together with certain provisions of United States Generally Accepted Accounting Principles, we will be required to record approximately $6.65 million in non-cash interest charges over the life of the Notes (in addition to interest expense relating to the 9.75% interest rate borne by the Notes which will be paid in cash or shares of our common stock, at our option). Additionally, we were required to record the warrants as derivative liabilities, which must be marked to market on a quarterly basis. This will likely result in a significant adverse impact to future net income and earnings per share and will likely introduce additional volatility to our future operating results. The influx of additional shares of our Common Stock into the market may create downward pressure on the trading price of our Common Stock. The initial sale or secondary resale of significant amounts of our Common Stock in the public markets could have an adverse effect on the market price of our Common Stock. As a result, you may lose all or a portion of your investment and we may experience difficulty in selling our equity securities in the future at prices that we deem to be appropriate. The entry of shares issued to Note Holders, on conversion, exercise or otherwise in connection with their securities, into the public market or the mere expectation of the entry of those shares into the market, could adversely affect the market price of our Common Stock and could impair our ability to obtain capital through securities offerings. The significant downward pressure on the market price of our Common Stock that would result from the sale of a significant amount of such shares of Common Stock could also encourage short sales. These short sales occur when an investor commits to sell a security that he or she does not own at the time such commitment is made, but that the investor hopes to buy in earnest at a lower price in the future before he or she must deliver the security to the counterparty on the original sale. Note Holders may be expected to engage in short selling when they believe that the price of the underlying security will decline before the time of settlement. In the event of a significant increase in short selling of our Common Stock, other investors may interpret such increase as a sign that the market price of our Common Stock will decline, causing further downward pressure on the market price. Substantial leverage and debt service obligations may adversely affect our cash flows. In connection with the initial sale of the Notes on May 12, 2006, we incurred new indebtedness of $11,660,000. As a result of this indebtedness, our principal and interest payment obligations increased substantially. The degree to which we are leveraged could, among other things: · make it difficult for us to make payments on the Notes; · make it difficult for us to obtain financing for working capital, acquisitions or other purposes on   favorable terms, if at all, including financing to fund the development or expansion of our jewelry operations; · make us more vulnerable to industry downturns and competitive pressures; and · limit our flexibility in planning for, or reacting to changes in, our business.


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Our ability to meet our debt service obligations will depend upon our future performance, which will be subject to financial, business and other factors affecting our operations, many of which are beyond our control. The agreements governing the Note and Warrants contain various covenants which may limit our ability to operate our business. The agreements governing the Notes and the Warrants contain various provisions that limit our ability to, among other things: declare or pay dividends on our Common Stock, redeem any stock, effect certain mergers or other corporate transactions, issue additional securities, or create or incur additional indebtedness. These restrictions could limit our ability to plan for or react to market conditions or meet extraordinary capital needs or otherwise restrict corporate activities, any of which could have a material adverse impact on our business. As long as the Class A Warrants are outstanding, it may limit our ability to raise additional funds. During the term that the Class A Warrants are outstanding, the holders of those warrants are given the opportunity to profit from a rise in the market price of our Common Stock. In addition, the Class A Warrants are not redeemable by us. We may find it more difficult to raise additional equity capital while these warrants are outstanding. At any time during which these warrants are likely to be exercised, we may be able to obtain additional equity capital on more favorable terms from other sources.   Special Note Regarding Forward-Looking Statements This report on Form 10KSB includes forward-looking statements. All statements other than statements of historical facts, including statements regarding our future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words believe, may, estimate, continue, anticipate, intend, should, plan, expect and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions described in Factors That May Affect Future Results and elsewhere in this prospectus. Other sections of this prospectus may include additional factors which could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements. You should not rely upon forward-looking statements as predictions of future events or performance. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.


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Financial Statements.  Our financial  statements  are contained in pages F-1 through F-25,  which appear at the end of this annual report.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. On August 1, 2005, our board of directors terminated Marcum & Kliegman, LLP as our independent accountants. The report of Marcum & Kliegman, LLP on Nurescells financial statements for the fiscal year ended March 31, 2005 did not contain an adverse opinion or disclaimer of opinion, or was modified as to uncertainty, audit scope or accounting principles. The report of Marcum & Kliegman, LLP on Nurescells financial statements for the fiscal year ended March 31, 2004 and March 31, 2003 did not contain an adverse opinion or disclaimer of opinion, nor was it modified as to uncertainty, audit scope or accounting principles, however, the report was modified to include an explanatory paragraph wherein they expressed substantial doubt about our ability to continue as a going concern. During the years ended March 31, 2003, 2004 and 2005 and through the four months ended July 31, 2005, there were no disagreements with Marcum & Kliegman, LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to satisfaction of Marcum & Kliegman, LLP, would have caused them to make reference to the subject matter of such disagreements in connection with their report on Nurescells financial statements for those years. On August 1, 2005, we engaged Stonefield Josephson, Inc. as our independent accountants to audit our financial statements for the periods and to the extent included within its report. The decision to change our independent accountants to Stonefield was considered and approved by our Board of Directors. Neither we, nor anyone acting on our behalf, consulted Stonefield regarding any matters specified in Items 304(a)(2)(i) or 304(a)(2)(ii) of Regulation S-B.  Controls and Procedures.  Our management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the fiscal year which is the subject of the Annual Report on Form 10-KSB. Based on this evaluation, our principal executive officer and principal financial officer have concluded that the design and operation of our disclosure controls and procedures are effective. There were no significant changes in our internal control over financial reporting during the quarter ended December 31, 2006 that have materially affected, or are likely to materially affect, our internal control over financial reporting.  Although the evaluation did not detect any material weaknesses or significant deficiencies in the Companys system of internal accounting controls over financial reporting, management identified certain potentialdeficiencies in its level of staffing, and inherent limitations in its electronic data processing software. These potential deficiencies resulted in several instances of input error and affected our closing process. The Company plans to add additional accounting personnel and replace its electronic data processing software during the second quarter of 2007 to address these resource issues.


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Item 8b.  Other Information None.


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PART III  Item 9.  Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act. Our directors and executive officers are: NameAgePositionsJack Abramov41Chairman of the Board, President, Chief Executive and a directorMonty Abramov36Executive Vice President, Chief Design Officer, Secretary and a directorPauline Schneider51Chief Financial OfficerPeter Mainstain58Director, Chairman of the Audit Committee and member of the Compensation CommitteeFrank M. Devine64Director, member of the Audit  and Compensation CommitteesDr. Larry Chimerine66Director, Chairman of the Compensation Committee and member of the Audit Committee Jack Abramovwas appointed President and Chief Executive Officer in May 2005. Jack Abramov brings 17 years of experience in the fine jewelry business including manufacturing and diamond sourcing. Mr. Jack Abramov has served as Vice President of our wholly-owned subsidiary, Techline Jewelry Inc, since that company was founded in November 2001. Techline was founded by members of the Abramov family, including Raphael and Rachel Abramov, Jack Abramov and his brother, Monty Abramov, and was acquired by House of Taylor Jewelry, Inc. prior to the HJWL Transaction in May 2005. Jack Abramovbegan his career in 1988 after receiving a Bachelor of Science Degree in Marketing and Finance from California State University. He joined the family business, RJM Jewelry Manufacturers and Importers, and was mentored by his late father, Raphael who founded that company. Monty Abramovhas been our Executive Vice President, Chief Design Officer, and Secretary since May 2005 and brings more than 12 years of creative design direction experience to our operations. Mr. Monty Abramov began working with his brother Jack and late father Raphael in 1993.  He was a co-founder of Techline Jewelry Inc. and was instrumental in implementing and launching Techlines Mirabelle designs including the Original Diamond Handbag Collection, Players Club and Flower Power. Before joining the family business in 1993, Mr. Monty Abramov received a Bachelor of Science degree in Finance and Real Estate from California State University. Pauline Schneiderhas been our Chief Financial Officer since October 17, 2005. Ms. Schneider served as Vice President - Finance for PRB Gas Transportation Inc. from May 2004 through August 2005 where she aided through three rounds of private financing, an initial public offering, two material acquisitions, and listing on the American Stock Exchange.  From October 2003 to May 2004 she was the interim accounting officer for Navidec, Inc.  From May 2002 to October 2003 Ms. Schneider was an independent consultant for various privately owned companies where she provided accounting and business advisory services.  From May 2001 to May 2002 she was Vice President  Finance for Eagle Print Solutions, Inc. where she was responsible for all


35


accounting functions and assisted in performing due diligence on numerous acquisition opportunities.  From November 2000 to May 2001 she worked as a consultant for Visual Data Corporation where, from June 1995 to November 2000, she was Chief Financial Officer/Controller. At Visual Data Ms. Schneider was responsible for all accounting, administrative and financial reporting functions, including SEC compliance, and assisted in coordinating private equity offerings and its initial public offering. Peter Mainstainis a co-founder of Tanner Mainstain Blatt & Glynn, An Accountancy Corporation, where he has practiced since 1975. Mr. Mainstain is a certified public accountant licensed to practice in the State of California since 1973. He is a member of the Board of Directors of Cal West Bancorp, a publicly held community bank and a member of its audit committee. He is also a member of the Board of Directors of The Arthritis Foundation of Southern California and has served as a member of the Board of Governors of the City of Hope.  Mr. Mainstain joined us as a director in September 2005. Mr. Mainstain is the Chairman of our Audit Committee. Frank M. Devinehas for more than the last ten years been an independent business consultant to various clients that included Salton, Inc., Lithium House, and South East Asia Corporation on matters principally related to marketing and sales. Mr. Devine joined us as a director in September 2005. Dr. Larry Chimerinehas for the past 15 years been president of Radnor International Consulting Inc., based in Radnor, Pennsylvania and partner and member of the Investment Committee of Miller Investment Management, based in West Conshocken, Pennsylvania. For more than the past 25 years Dr. Chimerine has been an economic consultant advising financial institutions and government agencies on the state of the United States and world economics, on specific industries and business sectors, and on the impact of economic conditions on decision making, budgeting, and strategic planning. He has served on the House of Representatives Task Force on International Competitiveness, the Census Advisory Committee and the Economic Policy Board of the Department of Commerce. He is the author or editor of several books as well as articles that have appeared in the New York Times, Washington Post, and American Economic Review. Dr. Chimerine joined us as a director in September 2005. Board of Directors Our Board of Directors is currently comprised of five persons. Our directors serve for one-year terms, or until an earlier resignation, death or removal, or their successors are elected. Two of our officers and directors, Jack Abramov and Monty Abramov, are brothers. Audit committee The Audit Committee of our Board of Directors is responsible for reviewing and monitoring our financial statements and internal accounting procedures, recommending the selection of independent auditors by our board, evaluating the scope of the annual audit, reviewing audit results, consulting with management and our independent auditor prior to presentation of financial statements to stockholders and, as appropriate, initiating inquiries into aspects of our internal accounting controls and financial affairs. Our Audit Committee consists of Peter Mainstain who serves as Chairman, Frank Devine and Dr. Larry Chimerine. Our Board of Directors has determined that Mr. Mainstain qualifies as an Audit Committee financial expert under the federal securities laws.


36


Compensation Committee All members of our Compensation Committee are independent directors. We currently expect that the Compensation Committee will recommend approval to the full Board of the annual compensation budget for all employees, bonuses, grants of stock options and any adoptions or changes to our benefit plans. Code of Conduct and Ethics Our Board of Directors has adopted a code of business conduct and ethics applicable to our directors, officers and employees, in accordance with applicable federal securities laws and the Nasdaq Rules. Indemnification of executive officers and directors We have agreed to indemnify our executive officers and directors for all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by them in respect of any civil, criminal or administrative action or proceeding to which they are made a party by reason of being or having been a director or officer, if (a) they acted honestly and in good faith with a view to our best interests, and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, they had reasonable grounds for believing that their conduct was lawful. To the extent that our directors, officers and controlling persons are indemnified under provisions that may be contained in our bylaws, Nevada law or contractual arrangements against liabilities arising under the Securities Act, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. Item 10. Executive Compensation Employment agreements As of May 20, 2005 the Company entered into employment contracts with each of Jack Abramov and Monty Abramov. The initial term of each of the employment agreements is seven years and the annual base salary of each executive is $240,000, subject to discretionary increases and bonuses by our Board of Directors. Each of the employment agreements also provides for a monthly automobile allowance in the amount of $1,500 and reimbursement for expenses incurred. Mrs. Rachel Abramov is a co-founder of Techline with her late husband, Raphael Abramov, and is the mother of Jack Abramov and Monty Abramov, our two principal executive officers. As of May 20, 2005 the Company entered into an employment agreement with Rachel Abramov for an initial term of seven years and an annual base salary of $100,000, subject to discretionary increases and bonuses, by our Board of Directors. Mrs. Rachel Abramovs employment agreement also provides for an automobile allowance of $1,500 per month and reimbursement of expenses incurred. Mrs. Abramov principally acts as day-to-day liaison with our suppliers, sales persons, our employees and certain of our retail customers.


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Summary Compensation Table  The following table sets forth information with regard to compensation for services rendered in all capacities to the Company by the named executive officers.  The information set forth in the table reflects compensation earned by such individuals for services during the covered periods.  In accordance with the new rules of the Securities and Exchange Commission related to Executive Compensation disclosure, this table includes newly required information only for the Companys fiscal year ended December 31, 2006.  Name and
Principal PositionYearSalaryBonusStock AwardsOption
AwardsNon-Equity
Incentive
Plan
CompensationChange in
Pension
Value and
Nonqualified
Deferred
Compensation
EarningsAll Other
CompensationTotal($)($)($)($)(#)($)($)($)Jack Abramov,
President, Chief Executive Officer, Director2006
2005
2004$240,000
$230,000
$140,000









$34,482 (1)
$24,735 (2)
$26,600 (3)$274,482
$254,735
$166,600Monty Abramov
Senior Vice President, Director2006
2005
2004$240,000
$230,000
$109,000









$32,294 (4)
$20,613 (5)
$17,700 (6)$272,294
$250,613
$126,700Pauline Schneider,
Chief Financial Officer2006
2005
2004$187,500
$  32,083










$35,787 (7)
$  2,894 (8)
$223,287
$  34,977
(1)
includes car allowance of $18,000 and medical insurance of $16,482
(2)
includes car allowance of $14,700 and medical insurance of $10,035.
(3)
includes car allowance of $11,200 and medical insurance of $15,400.
(4)
includes car allowance of $18,000 and medical insurance of $14,394
(5)
includes car allowance of $12,120 and medical insurance of $8,493.
(6)
includes car allowance of $  7,600 and medical insurance of $10,100.
(7)
includes car allowance of $18,167 and medical insurance of $17,620
(8)   includes medical insurance of $ 2,894  Stock options granted during the most recently completed financial year  None  Option exercises in last fiscal  None Directors Compensation We pay our outside directors $1,000 for meetings attended in person and $500 for telephonic meetings in which they participate. We also reimburse them for their out-of-pocket costs, including travel and accommodations, relating to their attendance at any directors meeting.


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The following table summarizes compensation paid to all of our non-employee directors:  NameFees  Earned or Paid
in CashStock AwardsOption
Awards
(1)Non-Equity
Incentive
Plan
CompensationChange in
Pension
Value and
Nonqualified
Deferred
Compensation
EarningsAll Other
CompensationTotal($)($)($)($)($)($)($)Larry Chimerine$ 4,000$ 111,625$ 115,625Frank Devine$ 5,000$ 111,625$ 116,625Peter Mainstain$ 5,000$ 111,625$ 116,625(1)
Each Director was awarded 100,000 options to acquire common stock at $5.80 per share on September 29, 2005. Of these options, 25,000 vested immediately and the balance vest ratably over three years. There have been no other option grants to our directors. As of December 31, 2006, 100,000 options are outstanding for each director of which 50,000 options are vested.  Section 16(a) Beneficial Ownership Reporting Compliance  Section 16(a) of the Exchange Act requires the Company's directors and executive officers, and persons who own more than 10 percent of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission (the "SEC") initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the year ended December 31, 2006, all officers, directors and greater than ten percent beneficial owners listed in the above table below complied with the following Section 16(a) filing requirements.


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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The following table sets forth certain information regarding the beneficial ownership of our common stock as of December 31, 2006 by · each of our officers and directors; · our officers and directors as a group; and · each person who is known by us to own beneficially more than 5% of our outstanding common stock.  Name of beneficial ownerNumber
of shares (1)Percentage
of total (2)Executive officers and directors:Jack Abramov (3)(9)3,819,1509.7%Monty Abramov (3)(9)3,819,1509.7%Peter Mainstain (4) (5)50,000*Frank M. Devine (3) (5)59,500*Dr. Larry Chimerine (5) (6)100,000*All executive officers and directors as a group (6 persons)7,847,80019.8.%Stockholders owning 5% or more:Interplanet Productions, Limited (7)(10)
c/o Reback Lee & Company, Inc.
12400 Wilshire Blvd., Ste 1275
Los Angeles, California 9002514,154,68835.9%Sandbox Jewelry, LLC (8)(10)
10900 Wilshire Boulevard, 15th Floor
Los Angeles, California 900247,104,68818.0%Rachel Abramov, Trustee (11)
Rachel & Raphael Abramov Family Trust
c/o House of Taylor Jewelry, Inc.
9200 Sunset Boulevard, Suite 425
West Hollywood, California 900692,039,6875.2%Castlerigg Master Investments Ltd. (12)
c/o Sandell Asset Management Corp.
40 West 57th Street, 26th Floor
New York, NY 100192,187,5005.3%* Less than 1%

(1)
To our knowledge, the persons named in the table have sole voting and investment power with respect to all shares of common stock owned by them, subject to community property laws where applicable.
(2)
Based on 39,399,153 shares of common stock outstanding, without giving effect to shares issuable upon the exercise of outstanding options, warrants or other rights.
(3)
Address is 9200 Sunset Blvd., Suite 425, West Hollywood, California 90069.
(4)
Address is 10866 Wilshire Boulevard, 10th floor, Los Angeles, California 90024.
(5)
Includes currently exercisable options to purchase 50,000 shares of common stock.
(6)
Address is 4740 South Ocean Blvd., #1111, Highland Beach, FL  33487
(7)
Beneficially owned by Dame Elizabeth Taylor
(8)
Beneficially owned by Kathy Ireland Worldwide; Kathy Ireland is the chief executive and


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controlling shareholder of Kathy Ireland Worldwide.
(9)
Includes 10,000 shares issuable upon conversion of notes and currently exercisable warrants to purchase 7,500 shares of common stock.
(10)
Includes 31,250 shares issuable upon conversion of notes and currently exercisable warrants to purchase 23,438 shares of common stock.
(11)
Includes 11,250 shares issuable upon conversion of notes and currently exercisable warrants to purchase 8,437 shares of common stock.
(12)
Includes 1,250,000 shares issuable upon conversion of notes and currently exercisable warrants to purchase 937,500 shares of common stock.  Certain Relationships and Related Transactions, and Director Independence Triton Private Equities Fund, L.P. Triton (formerly a significant shareholder) loaned to the company, then known as Nurescell Inc., or provided for its benefit, various sums to be repaid by Nurescell under the terms of a Convertible Promissory Note dated March 21, 2003 (the Triton Note). The Triton Note, together with accrued interest, was convertible into shares of Nurescells common stock at a rate based on a conversion amount which varied based on a percentage of a specified average closing bid price of the common stock during a specified period prior to the conversion date. On February 16, 2005, Triton converted $307,030 in principal and accrued interest of the Triton Note into 140,517 shares of Nurescells common stock. On that same date, Nurescell and Triton amended the Triton Note to (i) set a maturity date of February 16, 2006, (ii) provide that the Triton Note could not be voluntarily paid prior to the maturity date and (iii) provide that Triton was entitled, at its option at any time prior to the full payment of the Triton Note, to convert the entire principal amount of the Triton Note, and accrued interest thereon, into 400,000 shares of Nurescells common stock, with the number of such shares to remain constant despite any reverse or forward stock split which might have occurred prior to the date of conversion. Triton ceased to be a controlling shareholder of Nurescell on February 16, 2005. Effective May 20, 2005, Triton converted the Triton Note into 400,000 shares of our common stock as full payment for all amounts owing to Triton. Transactions with prior controlling shareholders. On February 28, 2005, Nurescell issued two promissory notes payable to Nurescells then two principal shareholders, 412S, LLC and 2FeetCan, LLC (the LLC Notes). The principal amount of each of the LLC Notes was initially $25,000 but subject to increase in the event that the LLCs loaned additional sums to Nurescell. The LLC Notes bore an annual 10% rate of interest, and the aggregate principal amount of each LLC Note, plus all accrued interest, was due and payable thirty days after written demand. On April 25, 2005, the principal amount of each of the LLC Notes increased to $35,000 as the result of additional $10,000 loans made to Nurescell by each LLC. On that same date, Nurescell and the LLCs entered into a Debt Conversion Agreement, pursuant to which all of the principal and accrued interest of each LLC Note was converted into 810,038 shares of our common stock and each LLC Note was then cancelled. Transactions with House of Taylor Jewelry principal shareholders and affiliates. In connection with completing the organization and issuing shares of common stock of House of Taylor Jewelry, Inc., a California corporation (the HOTJ Organization), prior to the HJWL Transaction in May 2005, we entered into licensing agreements with Interplanet and with Sandbox, entities owned or controlled by Dame Elizabeth Taylor and by Kathy Ireland, respectively. Pursuant to these license agreements with Interplanet and with Sandbox, we are


41


allowed exclusive use of Elizabeth Taylor and Kathy Ireland names, brands and designs approved by them, subject to a royalty and other provisions. Our license with Interplanet grants us an exclusive license to distribute specified items of jewelry that include diamond, color, precious, semi-precious and pearl Fashion Jewelry consisting of earrings, rings, bracelets, necklaces, brooches, bangles and charms. Licensed Products from Interplanet also include the entire costume jewelry category of non-precious metals and stone simulants, under the Elizabeth Taylor and House of Taylor marks and related marks as part of the House of Taylor jewelry collection.  The territory of the license is worldwide. We may not advertise, market, promote, and display materials, nor may we use other artwork without prior written approval by Interplanet. Interplanet owns all right, title and interest in and to all jewelry designs that will be part of the Elizabeth Taylor Core and Basic Collections and has sole and exclusive ownership of all right, title, and interest in and to all licensed marks and any registrations that have been issued or may be issued thereon. The initial license term ends on December 31, 2011 and is renewable for two additional seven-year terms under certain conditions. Interplanet has the right to terminate the license immediately, or on at least 30 days notice, if · Jack  Abramov and Monty Abramov are no longer associated with our business, · if the license with Sandbox terminates, · if we effect a merger or sale of our company, · if we fail to pay minimum annual royalties that over the course of the license increase in range from $580,000 to almost $3,000,000, or · other conditions that are enumerated in the agreement occur. If the Interplanet license is terminated we will be obligated to change our name to delete the reference to House of Taylor and cease producing jewelry under our brand names and designs. As an additional inducement to Interplanet to enter into the license agreement with us, we agreed to grant Interplanet a continuing second priority lien, subject only to a first priority lien in favor of our senior secured lender. In consideration of the license, we have agreed to pay Interplanet a royalty of up to 10% of net sales, depending on the type of jewelry sold. Our license with Sandbox grants us an exclusive license to distribute jewelry, including gold, silver, diamond, pearl and semi-precious jewelry, under the Kathy Ireland mark and related marks as part of the House of Taylor jewelry collection. We are not licensed to sell costume jewelry and time pieces. The territory of the license is the United States, Puerto Rico, the U.S. Virgin Islands and Canada. The license has a seven-year term and is renewable for two additional seven-year terms under certain conditions.  Under the license we are obligated to develop a sales growth plan that over the term will grow sales revenues from $4,000,000 to $18,000,000. If we fail to meet these financial goals, Sandbox may terminate its license with us. Moreover, we are obligated to pay Sandbox royalties based on at least 85% of the minimum projected revenues and if we fail to do so Sandbox may terminate our license. Sandbox may also terminate our license for any other material breach of the license agreement. In consideration of the license, we have agreed to pay Sandbox a royalty of up to 5% of net sales, depending on the type of jewelry sold. In connection with the HOTJ Organization, we also acquired from members of the Abramov family all of the issued and outstanding shares of Techline, then a California corporation that had elected for federal tax purposes to be treated under Subchapter S of the Internal Revenue Code. Immediately prior to that transaction, Techline issued a promissory note in the amount of


42


$1,200,000 and a security agreement to members of the Abramov family. This note bears annual interest at the rate of 8%, is subordinate to Techlines senior lender, Bank Leumi USA, is secured by Techlines assets and requires Techline to commence making 12 quarterly payments of principal and interest to the Abramovs commencing October 1, 2005. Techline has periodically drawn down on a line of credit and has borrowed money from Bank Leumi USA, Los Angeles, California. To secure payment of this credit facility and performance of all other loans, obligations and duties of the borrower, Techline granted the bank a security interest in all assets of Techline. Certain members of the Abramov family have guaranteed these obligations to the bank. Following receipt of proceeds from the private placement we paid the amounts owed to bank and it released these members of the Abramov family from their guarantees. In July 2005 members of the Abramov family paid approximately $300,000 to reduce the amount then owing to the bank. These amounts have been repaid from the proceeds of the private offering. Effective May 20, 2005 we also acquired an additional license from Interplanet for the use of certain images of Dame Elizabeth Taylors jewelry taken by John Bigelow Taylor. We are allowed to use these photographs in certain pre-approved advertising and promotions. We agreed to pay $250,000 for rights granted under this license. Of this amount, we paid $125,000 on May 20, 2005 and agreed to pay the balance at the rate of $25,000 per month for five consecutive months that commenced August 15, 2005. The initial term of this license will run concurrently with the term of the principal license with Interplanet. We currently expect that we may be able to recoup the cost of this additional license from promotional fees that we anticipate receiving from certain of our retail jewelers who display these photographs and images. Following recoupment of the fees paid for this additional license, we will share with Interplanet one half of any future revenues that we may receive from promotional fees derived from these photographs and images. On May 20, 2005, Interplanet, Sandbox, Jack Abramov and Monty Abramov acquired 12,000,000, 6,000,000, 4,040,000 and 4,040,000 shares, respectively, of our common stock pursuant to the HJWL Transaction. In addition, on June 7, 2005, we issued 2,000,000 additional shares of common stock to Interplanet and 1,000,000 additional shares of common stock to Sandbox pursuant to the terms of the HJWL Transaction. Each of Interplanet, Sandbox, Jack Abramov and Monty Abramov owns more than 10% of our outstanding common stock and collectively these shareholders (inclusive of the Rachel and Raphael Abramov Family Trust) own in the aggregate approximately 80% of our outstanding shares of common stock. In May 2005, Global Jewelry Concepts, Inc. (formerly known as House of Taylor Jewelry, Inc.) entered into employment agreements with Jack Abramov and Monty Abramov to serve as the President and Chief Executive Officer of House of Taylor Jewelry, Inc. and as Vice President of House of Taylor Jewelry, Inc., respectively. The initial term of each of the employment agreements is seven years and the annual base salary of each executive is $240,000, subject to discretionary increases by our Board of Directors. Each of the employment agreements also provides for a monthly automobile allowance in the amount of $1,500 and reimbursement for out-of-pocket expenses. In May 2005 Global Jewelry Concepts, Inc. also entered into an employment agreement with Mrs. Rachel Abramov, a co-founder of Techline and the mother of Jack and Monty Abramov, for a seven-year term at an annual salary of $100,000 and a monthly car allowance of $1,500.


43


In May 2006 the following officers and principal stockholders of the Company purchased Notes and Warrants in a private placement: WarrantsNotesSeries ASeries BSeries CJack Abramov$     40,0007,5003,2506,500Monty Abramov$     40,0007,5003,2506,500Interplanet Productions, Ltd.$   125,00023,43710,15620,313Sandbox Jewelry, LLC$   125,00023,43710,15620,313Rachel Abramov, Trustee
Rachel & Raphael Abramov
Family Trust$    45,0008,4373,6557,313 Members of the Abramov family have guaranteed the lease obligations on the premises that we currently occupy as our principal executive offices. Conflicts of Interest Policies All future transactions between us and any of our officers and directors must be on terms no less favorable than could be obtained from independent third parties.  Our bylaws require that a majority of disinterested directors is required to approve any proposal in which any of our officers or directors has a principal or other interest. Other than as described in this section and in the section above entitled Sales of restricted securities, there are no material relationships between us and any of our directors, executive officers or known holders of more than 5% of our common stock.


44


Exhibits  Number Exhibit 1.1 Placement Agent Agreement (7) 1.2 Placement Agent Warrant (7) 2.1 Agreement and Plan of Reorganization, dated as of May 20, 2005, by and among Nurescell, Inc., HOTJ Acquisition Corp. and House of Taylor of Jewelry, Inc. (1) 2.2 Promissory Note Payable by Techline Jewelry, Inc. to Rachel Abramov, As Trustee Of The Raphael Abramov And Rachel Abramov Family Trust, Dated As Of July 31, 1999, Jack Abramov And Monty Abramov  (7) 2.3 Security Agreement (7) 3.1 Articles of Incorporation, as amended (4) 3.2 Certificate of Amendment to Articles of Incorporation (5) 3.3 Certificate of Amendment to Articles of Incorporation (6) 3.4 By-laws of the registrant (4) 3.5 Code of Business Conduct and Ethics (7) 4.1 Form of Warrant Agreement (May 2005) (1) 4.2 Registration Rights Agreement (May 2005) (1) 4.3 Securities Purchase Agreement (August 2005) (2) 4.4 Form of Warrant Agreement (August 2005) (2) 4.5 Registration Rights Agreement, as amended (August 2005) (8) 4.6 Form of Lock-up/Leak-out Agreement (7) 10.1 Employment Agreement - Jack Abramov (2) 10.2 Employment Agreement - Monty Abramov (2) 10.3 Employment Agreement - Rachel Abramov (2) 10.4 License Agreement between House of Taylor Jewelry, Inc and Interplanet Productions, Ltd. dated May 18, 2005 (7) 10.5 License Agreement between House of Taylor Jewelry, Inc and Sandbox Jewelry, LLC dated May 18, 2005 (7) 10.6 House of Taylor Jewelry, Inc./Baguette World Fulfillments Agreement (3) 10.7 Securities Purchase Agreement (May 2006) (10) 10.8 Form of Note (May 2006) (9) 10.9 Form of warrant (May 2006) (9) 10.10 Form of Registration Rights Agreement (May 2006) (9) 10.11 Form of Security Agreement (May 2006) (9) 10.12 Form of Pledge Agreement (May 2006) (9) 10.13 Form of Guarantee (May 2006) (9) 10.14 Form of Voting Agreement (May 2006) (9) 21.1 List of Subsidiaries (7) 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act. 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act. 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


45


________________ (1) Incorporated by reference from Form 8-K filed with the SEC on August 17, 2005. (2) Incorporated by reference from Form 8-K filed with the SEC on May 26, 2005. (3) Incorporated by reference from Form 8-K filed with the SEC on July 13, 2005. (4) Incorporated by reference from Nurescells Registration Statement on Form 10K-SB (File No. 0-25377). (5) Incorporated by reference from Form 8-K filed with the SEC on February 24, 2004. (6) Incorporated by reference from Form 8-K filed with the SEC on May 13, 2005. (7) Incorporated by reference from Registration Statement on Form SB-2 (File No. 333-128523) filed September 23, 2005. (8) Incorporated by reference from Form 8-K filed with the SEC on February 13, 2006. (9) Incorporated by reference from Form 8-K filed with the SEC on May 8, 2006. (10) Incorporated by reference from Form 8-K filed with the SEC on May 15, 2006.


46


Principal Accountant Fees and Services.  Audit Fees  The aggregate fees billed for the year ended December 31, 2006 for professional services rendered by Stonefield Josephson, Inc. (Stonefield) for the audit of our annual financial statements for the year ended December 31, 2005 and the quarterly review of financial statements for the quarters ended March 31, 2006 , June 30, 2006 and September 30, 2006 was $340,500  The aggregate fees billed for the year ended December 31, 2005 for professional services rendered by Stonefield Josephson, Inc. (Stonefield) for the audit of our annual financial statements for the year ended December 31, 2004 and the quarterly review of financial statements for the quarters ended March 31, 2005, June 30, 2005 and September 30, 2005 was $190,600.  Audit-Related Fees  The aggregate fees billed for audit-related services rendered in 2006 by Stonefield Josephson, Inc.  which are not reported under Audit Fees above were $58,500. These fees were primarily for assistance and review of our May offering of our convertible notes and the filing of our registration statements on Form S-3 and Form SB-2.  The aggregate fees billed for audit-related services rendered in 2005 by Stonefield Josephson, Inc.  which are not reported under Audit Fees above were $45,800. These fees were primarily for assistance and review of our recapitalization transaction, our August private placement and the filing of our registration statement on Form SB-2.  Audit Committee Pre-Approval Policies and Procedures  Our Audit Committees policy is to pre-approve all audit and permissible non-audit services provided by our independent auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services. The independent auditor and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditor in accordance with this pre-approval.


47


SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on April 16, 2006 House of Taylor Jewelry, Inc.By/s/ Jack AbramovJack AbramovChief Executive Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on April 16, 2007. SignatureTitle/s/ Jack AbramovChief Executive Officer and President, Director (principal executive officer)Jack Abramov/s/ Pauline SchneiderChief Financial Officer, Director
(principal financial and accounting officer)Pauline Schneider/s/ Monty AbramovVice President and Secretary, DirectorMonty Abramov/s/ Peter MainstainDirectorPeter Mainstain/s/ Frank M. DevineDirectorFrank M. Devine/s/ Dr. Larry ChimerineDirectorDr. Larry Chimerine


48


Index to Consolidated Financial Statements  Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2006 and 2005 Consolidated Statements of Operations for the years ended December 31, 2006 and 2005 Consolidated Statements of Stockholders Equity for the years ended December 31, 2006 and 2005 Consolidated Statements of Cash Flows for the years ended December 31, 2006 and 2005 Notes to Consolidated Financial Statements        49


Report of Independent Registered Public Accounting Firm  Board of Directors House of Taylor Jewelry, Inc.  We have audited the accompanying consolidated balance sheets of House of Taylor Jewelry, Inc. as of December 31, 2006 and 2005, and the related consolidated statements of operations and stockholders equity and cash flows for the years ended December 31, 2006 and 2005. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.  In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of House of Taylor Jewelry, Inc. as of December 31, 2006 and 2005, and the results of its operations and its cash flows for the years ended December 31, 2006 and 2005 in conformity with accounting principles generally accepted in the United States of America.  The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the company as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company incurred a net loss of $8,353,277 and used cash for operating activities of $9,220,634 during the year ended December 31, 2006, and had an accumulated deficit of $11,292,220 as of December 31, 2006. The foregoing matters raise substantial doubt about the ability of the Company to continue as a going concern. Managements plans in regard to these matters are also described in Note 1. These financial statements do not include any adjustments that might result from the outcome of these uncertainties.  As discussed in Note 2 to the consolidated financial statements, in 2006 the Company adopted Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment.  /s/ Stonefield Josephson, Inc.  Los Angeles, California April 16, 2007  F-1    House of Taylor Jewelry, Inc.  Consolidated Balance Sheets December 31,20062005ASSETSCurrent assetsCash and cash equivalents$1,689,282$1,070,163Cash and cash equivalents  restricted-2,000,000Accounts receivable - trade, net of allowance of $868,537 and $367,788,  respectively (includes $203,839 and $23,385 due from related parties, respectively)23,753,8132,269,533Inventory, net of allowance of $31,377 and  $485,500, respectively10,445,0453,304,253Deferred debt issuance costs574,416-Prepaid expenses, includes prepaid royalties to related parties of $175,229500,423291,031Total current assets36,962,9798,934,980Property and equipment, less accumulated depreciation195,395173,447Intellectual property - related party, less accumulated amortization201,667247,500License agreements - related party, less accumulated amortization4,528,3025,433,962Deferred debt issuance costs, net of current portion287,209-Deposits20,58220,265Total Assets$42,196,134$14,810,154LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Line of credit-$2,005,911Accounts payable24,705,1181,301,938Accrued expenses (includes $50,000 and $100,000 due to related parties, respectively)569,566529,687Deferred rent expense34,56933,000Current portion of convertible notes payable, including $77,780 due to related parties, net2,418,434-Current portion of notes payable - related parties, subordinated570,834391,696Total current liabilities28,298,5214,262,232Convertible notes payable, less current portion, including $155,560 due to related parties, net4,836,869-Notes payable - related parties, less current portion, subordinated244,638866,255Warrant liability3,804,075-Commitments and contingenciesTotal Liabilities37,184,1035,128,487Stockholders equity:Preferred stock - $.0001 par value, 1,000,000 shares authorized,  0  issued and outstanding--Common Stock - $.0001 par value, 2,000,000,000 shares authorized, 39,399,153 and 38,285,281 issued and outstanding, respectively3,9413,829Additional paid-in capital16,300,31012,616,781Accumulated deficit(11,292,220)(2,938,943)Total stockholders equity5,012,0319,681,667Total liabilities and stockholders equity$42,196,134$14,810,154 The accompanying notes to the consolidated financial statements are an integral part of these financial statements.





F-2


House of Taylor Jewelry, Inc.  Consolidated Statements of Operations  Year ended
December 31,20062005Net sales (including sales to related parties of $946,410 and $23,698, respectively)$31,793,037$5,613,379Cost of goods sold28,145,8914,968,516Gross profit3,647,146644,863Expenses:Selling, shipping and general and administrative8,496,6664,980,704Loss from operations(4,849,520)(4, 335,841)Other income (expense):Discount received on
settlement of payable to vendor-981,980Interest income119,22056,953Interest expense(3,617,913)(226,783)(3,498,693)812,150Loss before income taxes(8,348,213)(3,523,691)State income taxes5,0646,181Net loss$(8,353,277)$(3,529,872)Net loss per share:basic and diluted$ (0.21)$  (0.10)Weighted average shares outstanding:basic and diluted38,954,12836,001,544  The accompanying notes to the consolidated financial statements are an integral part of these financial statements.


F-3


House of Taylor Jewelry, Inc.  Consolidated Statements of Stockholders Equity  Common StockDue from
StockholdersAdditional
Paid-in
CapitalRetained earnings
(accumulated deficit)TotalNo. SharesAmountBalance at December 31, 200428,500,0002,850(95,000)2,203,150590,9292,701,929Shares and warrants issued for cash1,500,000150-229,850-230,000Outstanding and treasury shares of House of Taylor Jewelry, Inc. at date of merger3,753,801376-499,624-500,000Additional shares issued3,000,000300-5,999,700-6,000,000Distributions---(2,114,936)-(2,114,936)Reduction of amount due from  stockholders--95,000--95,000Net proceeds from sale of Units in private placement1,523,980152-5,648,510-5,648,662Shares issued for services7,5001-22,499-22,500Warrants issued for services---128,384-128,384Net loss for the year
ended December 31, 2005----(3, 529,872)(3,529,872)Balance at December 31, 200538,285,2813,829-12,616,781(2,938,943)9,681,667Warrants issued for services---311,094-311,094Stock based compensation---334,877-334,877Exercise of warrants5,0001-749-750Cashless exercise of warrants1,036,010104-(104)--Shares issued for interest38,8624-126,491-126,495Shares issued for services34,0003-68,297-68,300Beneficial conversion feature---2,842,125-2,842,125Net loss for the year ended December 31, 2006----(8,353,277)(8,353,277)Balance at December 31, 200639,399,153$3,941-$16,300,310$(11,292,220)$5,012,031  The accompanying notes to the consolidated financial statements are an integral part of these financial statements.


F-4


House of Taylor Jewelry, Inc.  Consolidated Statements of Cash Flows Year ended December 31,20062005Operating Activities:Net loss$(8,353,277)($3,529,872)Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activitiesDepreciation and amortization1,002,055629,132Amortization of debt issuance costs2,679,975-Write down of inventory to net realizable value-485,500Warrants issued for services311,094128,384Stock based compensation334,877-Stock issued for interest126,495-Stock issued for services68,300-Increase in allowance for bad debts and returns500,749117,788Changes in assets and liabilities:Accounts receivable(21,985,029)(559,397)Inventory(7,140,792)(1,592,215)Prepaid expenses, etc(209,392)(283,731)Deposits(317)(10,000)Accounts payable23,403,180(728,908)Accrued expenses39,879409,475Deferred rent expense1,5698,000Net cash used in operating activities(9,220,634)(4,925,844)Investing activities:Additions to property and equipment(72,509)(71,542)Cash acquired at recapitalization-500,000Acquisition of intellectual property-(150,000)Payment of note issued for intellectual property-(125,000)Net cash (used in) provided by investing  activities(72,509)153,458Financing activities:Increases (decrease) in line of credit(2,005,911)1,405,911Cash restricted as collateral for line of credit2,000,000(2,000,000)Issuance of convertible notes, net of costs10,359,902Proceeds from sale of units-5,671,161Issuance of common stock and warrants750230,000Increase (decrease) in loans receivable from stockholders-95,000Increase (decrease) in advance to affiliate-56,450Increase (decrease) in loan from stockholder(442,479)(421,379)Distributions, less non cash distributions-(447,450)Net cash provided by financing activities9,912,2624,589,693Net increase (decrease) in cash619,119(182,693)Cash and cash equivalents at beginning of year1,070,1631,252,856Cash and cash equivalents at end of year$1,689,282$1,070,163Supplemental cash flow information:Cash paid during period for:Interest$487,313$196,323Income taxes$3,200$6,180Non-cash investing and financing activities:Debt issued for purchase of intellectual property-$125,000Shares issued for license agreement-$6,000,000Warrants issued for services$311,094$128,384Shares issued for services$68,300$22,500Shares issued for interest$126,495-Note issued in payment of distributions-$1,667,486 The accompanying notes to the consolidated financial statements are an integral part of these financial statements.


F-5


House of Taylor Jewelry, Inc.  Notes To Consolidated Financial Statements 1. Organization and business In May 2005, House of Taylor Jewelry, Inc. (a Nevada corporation, formerly Nurescell Inc.  an inactive development stage company  the Company or HOTJ) issued 30,000,000 shares of its common stock in exchange for 100% of the outstanding common stock of House of Taylor Jewelry, Inc. (a California corporation) which changed its name to Global Jewelry Concepts, Inc. (Global). The Companys balance sheet at the date of the exchange consisted principally of cash. As a result, the shareholders of Global owned approximately 90% of the Companys outstanding common stock. For accounting purposes the transaction has been treated as a recapitalization with Global as the acquirer and the statements of operations and cash flows consist of those of Globals operating subsidiary, Techline Jewelry, Inc. (Techline). Techline was organized in November 2001 in California and designed and distributed fine jewelry principally to wholesale and retail companies in the United States.  Nurescell, Inc. had a fiscal year end of March 31. Following the transaction the Company adopted the calendar fiscal year end of Global, which is the accounting acquirer. Global was organized in May 2005 and its stockholders consisted of Interplanet Productions, Ltd. (Interplanet), Sandbox Jewelry, LLC (Sandbox), and the former stockholders of Techline. Global entered into an exclusive licensing agreement with Interplanet, the marketing entity through which Dame Elizabeth Taylor brings her jewelry line of branded products to the marketplace. The licensing agreement provides the Company with the exclusive use of the House of Taylor Jewelry name and, subject to Interplanets approval, a broad, exclusive license to manufacture, market and enter into sublicense agreements for the manufacture and marketing of all categories of jewelry, including diamonds, colored stones, pearls, semiprecious stones, watches, costume jewelry and bridal adornment. Global also entered into an exclusive licensing agreement with Sandbox, a subsidiary of Kathy Ireland Worldwide. By adding this license, the Company combined branding and creative resources in fine jewelry design to serve jewelry retailers with an array of unique creations marketed under the House of Taylor® Jewelry and Kathy Ireland® brands. The Companys license with Sandbox is limited principally to North America and does not cover watches or costume jewelry. Ms. Ireland leads design direction for her own collections and serves as an Ambassador for House of Taylor Jewelry under the direction of Dame Elizabeth Taylor. Upon satisfaction of a contingency set forth in the merger agreement between Nurescell and HOTJ, the Company issued an additional 2,000,000 shares to Interplanet and 1,000,000 shares to Sandbox. The Company determined that these shares should be capitalized as costs associated with the license agreements. Under the aforementioned licensing agreements, the Company has developed multiple new product lines including bridal, diamond basics, fashion and pearls to market under its Elizabeth Taylor and Kathy Ireland brands. These products will be sold through retail channels ranging from specialty couture jewelry retailers, independent jewelry stores, large chain jewelry and department store retailers. Our current jewelry sales are primarily to


F-6


specialty couture and independent jewelry retailers and our loose diamond sales are to both retailers and wholesalers.  Liquidity and Going Concern  The consolidated financial statements have been presented on the basis that the Company is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  The Company incurred a net loss in 2006 of $8,353,277, and has an accumulated deficit of approximately $11.3 million as of December 31, 2006. The Company used approximately $9.2 million of cash in operations during the year ended December 31, 2006. In 2007, approximately $3.9 million of our convertible notes will be payable.  Such principal payments may be paid in cash or, at the option of the Company, if certain conditions are satisfied, in shares of the Companys common stock.  Our first principal payment, was paid in common stock on April 2, 2007 as more fully described in Note 13.  The Company is evaluating its cash needs and existing and forecasted cash utilization rate and plans to raise additional debt or equity capital in the short term to provide funding for ongoing future operations.  No  assurances  can be given that the  Company will be successful  in  obtaining  additional  capital,  or that  such  capital  will be available on terms acceptable to the Company.  This raises substantial doubt about the Companys ability to continue as a going concern. The Company's continued existence is dependent upon its ability to raise capital and to market and sell its products successfully.  The accompanying financial statements do not include any adjustments to reflect future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result if the Company is unable to continue as a going concern. 2. Significant Accounting Policies Estimates and Assumptions The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States which requires management to make  estimates and assumptions that affect the accounting for and recognition of assets, liabilities, stockholders equity, revenue and expenses. Estimates and assumptions are made because certain information is dependent on future events. The most significant estimates used in preparing the financial statements are those relating to the collectibility of receivables and the market value used in valuation of inventory. Actual results could differ from those estimates. Comprehensive Income (Loss) For the years ended December 31, 2006 and 2005 comprehensive income consists only of net income and, therefore, a Statement of Other Comprehensive Income (Loss) has not been included in these financial statements. Per Share Information Basic income (loss) per share are determined by dividing the net loss by the weighted average shares of common stock outstanding during the period. Diluted income per share would be determined by dividing the net income by the weighted average shares of


F-7


common stock outstanding plus the dilutive effects of stock options and warrants. Stock options and warrants outstanding of 4,847,628 and 4,141,378 have been excluded from the calculation of loss per share at December 31, 2006 and 2005 because the effect would be anti-dilutive. Revenue Recognition The Company recognizes revenue when all four revenue recognition criteria have been met: persuasive evidence of an arrangement exists, the product has been delivered or the service has been rendered, the price is fixed or determinable and collection is probable. The Company recognizes revenue from product sales when all of the foregoing conditions are met which in general is at the time of shipment where the risk of loss and title has passed to the customer. When products are shipped to customers on consignment, revenue is recognized when the customers report sales of the products to the Company. The Company follows the guidance provided by EITF 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent in recording the sales of loose diamonds as gross revenue.  The Company acts as the principal in each transaction, takes title to the diamonds and bears the delivery, collection and return risks.  Also, the Company determines the pricing, adds value by branding and has discretion in supplier selection. Advertising Costs All advertising costs are expensed as incurred and charged to operations within Selling, shipping, general and administrative expenses. Such costs were approximately $447,000 and $390,000 for the years ended December 31 2006 and 2005, respectively. Cash and Cash Equivalents The Company considers all highly liquid debt instruments with original maturity dates of three months or less when purchased to be cash equivalents. At December 31, 2006 there was approximately $710,000 held in a time deposit account that matured weekly and at December 31, 2005, there was approximately $1,000,000 held in a time deposit account that matured monthly included in cash and cash equivalents. The Company maintains its cash in bank deposits, which at times may exceed federally insured limits. The Company has not experienced any losses in such accounts. Restricted cash and cash equivalents were collateral for the Companys line of credit.  Fair Value of Financial Instruments  The carrying values of cash, note receivable, note payable, accounts payable and other accrued liabilities approximate fair value due to either their short-term nature or interest rates which approximate market rates. Inventory  Inventory consists principally of finished products and is stated at the lower of cost (first-in, first-out) or market. The Company evaluates inventory balances for excess quantities and obsolescence on a regular basis by analyzing estimated demand, inventory on hand,


F-8


sales levels and other information. Based on that analysis, the Companys management estimates the amount of provisions made for obsolete or slow moving inventory.  Concentrations of Credit Risk  The Company grants credit in the normal course of business to its customers and periodically performs credit analysis and monitors the financial condition of its customers to reduce credit risk.  In 2006, the Company has offered extended terms to certain of its customers in order to achieve greater penetration and visibility in key markets. The Companys management reviews receivables on an ongoing basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Trade receivables are written off when deemed uncollectible. Recoveries of previously written off receivables are recorded when received. No interest is charged on past due accounts.  The allowance for doubtful accounts has been increased in 2006 due to sales to new customers with which the Company has less historical experience. An allowance for returns is provided based on an ongoing review of returns and managements expectation of returns based on their evaluation of current business conditions. The Company does not have a general policy of allowing customers to return products, but accepts returns where the customer concurrently purchases additional products or where the Company considers the likelihood of collection to be remote.  Allowances are adjusted on a quarterly basis based on the above review and analysis. The allowances for doubtful accounts and returns are as follows:  December 31,20062005Allowance for doubtful accounts$110,693$  22,024Allowance for sales returns757,844345,764$868,537$367,788 At December 31, 2006 and 2005, the allowance for returns was increased substantially because the Company saw the necessity of accepting returns of mostly non-branded products that were not part of our core HOTJ jewelry collections. This accommodation is made for jewelry retailers who are making concurrent purchases of branded products, have established long-term relationships with the Company and intend to continue as authorized House of Taylor Jewelry retailers. In the third quarter of 2006, HOTJ launched an initiative to increase sales of branded loose diamonds to the wholesale trade at a minimal markup in order to expand the channels for the distribution and sale of our products, and to increase market penetration and brand awareness.  Total loose diamond sales for the year ended December 31, 2006, to both wholesalers and retailers, totaled approximately $22.4 million.  As an incentive to those customers who purchased in the third quarter, we offered extended payment terms on the mark-up that we charged on loose diamond sales and will allow a credit for the amount of the markup at the time it is due if the value has not yet been recognized by the marketplace.  We have established a reserve for these amounts of approximately $191,000, which is


F-9


included in the allowance for sales returns at December 31, 2006. The sales of the diamonds are final and returns are not accepted. Sales to customers that represented 10% or more of the Companys sales for the years ended December 31, 2006 and 2005 are as follows (as a percentage of sales):  Customer20062005A33.0%-B11.0%-C11.0%-D<10%10.3% Receivables from customers which represented 10% or more of the Companys receivables at December 31, 2006 and 2005 are as follows:  Customer20062005A40%-B14%-C14%-D<10%22.9% At December 31, 2006, approximately $18.2 million of accounts receivable was related to the sale of diamonds to wholesalers. Costs and Expenses Cost of goods sold consists of the cost of merchandise (principally finished products), freight and duty. The Company does not have significant warehouse costs. Our inventory management, fulfillment, freight out and insurance costs are included in selling, shipping, general and administrative expense. Freight out is charged to the customer and is recorded as revenue. Property and Equipment Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized. Minor replacements, maintenance and repairs are expensed. Depreciation is provided on the straight-line basis over the estimated useful life (five to seven years) of the related assets. Segments of an Enterprise and Related Information The Company follows SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information.  SFAS No. 131 requires that a public business enterprise report financial and descriptive information about its reportable operating segments on the basis that is used internally for evaluating segment performance and deciding how to allocate


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resources to segments.  We sell jewelry and gemstones to retailers and wholesalers.  We have no other segment which meets the quantitative thresholds for reportable segments. Income Taxes The Company is organized as a C Corporation.  In accordance with SFAS No. 109, Accounting for Income Taxes,deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts recorded in the balance sheet and for operating losses. In evaluating the realizability of net deferred tax assets, the Company will take into account a number of factors, primarily relating to the Companys ability to generate taxable income. The Company has recorded a deferred tax asset attributable to the net operating losses for the years ended December 31, 2006.  The Company has recorded a 100% valuation reserve as it is not more likely than not that the deferred asset will be realized. Stock Based Compensation Through the end of fiscal 2005, the Company measured compensation expense for stock-based incentive programs utilizing the intrinsic value method prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Under this method, the Company did not record compensation expense when stock options were granted to eligible participants as long as the exercise price was not less than the fair market value of the stock when the option was granted. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123") and SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," the Company disclosed the pro forma net income per share as if the fair value-based method had been applied in measuring compensation expense for stock-based incentive awards. In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123R, "Share Based Payment: An Amendment of FASB Statements No. 123 and 95" ("SFAS 123R). This statement requires that the cost resulting from all share-based payment transactions be recognized in the Company's consolidated financial statements. In addition, in March 2005 the Securities and Exchange Commission ("SEC") released SEC Staff Accounting Bulletin No. 107, "Share-Based Payment" ("SAB 107"). SAB 107 provides the SEC's staffs position regarding the application of SFAS 123R and certain SEC rules and regulations, and also provides the staffs views regarding the valuation of share-based payment arrangements for public companies. Generally, the approach in SFAS 123R is similar to the approach described in SFAS 123. However, SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of operations based on their fair values. Pro forma disclosure of fair value recognition, as prescribed under SFAS 123, is no longer an alternative. In the first quarter of 2006, the Company adopted the fair value recognition provisions of SFAS 123R utilizing the modified-prospective-transition method. In accordance with SFAS 123R, the Company recognized compensation expense in 2006 related to stock options granted to directors based on compensation cost for all share-based payments granted prior to, but not yet vested as of, December 31, 2005, based on the grant date fair value estimated in accordance with SFAS 123, adjusted for an estimated future forfeiture rate.  There were no share based payments granted in the year ended December 31, 2006.


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Under the modified-prospective-transition method, results for the prior periods have not been restated. As a result of adopting Statement 123(R), the company's income before income taxes and net income for the year ended December 31, 2006 are $334,877 lower, than if it had continued to account for share-based compensation under Opinion 25. Basic and diluted earnings per share for the year ended December 31, 2006 are the same as if the company had continued to account for share-based compensation under Opinion 25. Had compensation cost for the options issued been determined based upon the fair value at the grant date for options granted, consistent with the provisions of SFAS No. 123, (see Note 10 for assumptions used in determining fair value.)  the Companys net loss and net loss per share for the year ended December 31, 2005 would have been increased to the pro forma amounts indicated below:  2005Net loss:As reported$(3,529,872)Total stock based employee compensation expense determined under fair value method for all awards308,438Pro forma net loss$(3,838,310)Net loss per share, basic and diluted:As reported:$ (0.10)Pro forma$ (0.11)  The following table summarizes activity for options during the year ended December 31, 2006 and 2005:  December 31, 2006December 31, 2005Number of SharesWeighted Avg.   Exercise PriceNumber of SharesWeighted Avg. Exercise PriceBalance, beginning of year325,000$5.37--Granted during the year--325,000$5.37Balance, end of the year325,000$5.37325,000$5.37Exercisable, end of the year175,000$4.9991,000$2.61  The weighted average remaining contractual life for the options outstanding at December 31, 2006 is 8.3 years. The fair value of each option granted is estimated on the date of grant using the Black Scholes option pricing model. The weighted average fair value of options exercisable at December 31, 2006 is $2.42.The weighted average fair value of options granted during the year ended December 31, 2005 and exercisable at December 31, 2005 is $2.33. As of December 31, 2006, all stock options, vested and non-vested, had no intrinsic value, as their exercise price exceeded the current market price of the Companys common stock.


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Long-lived Assets  The Company evaluates long-lived assets whenever events or changes in business circumstances or the planned use of assets indicate that their carrying amounts may not be fully recoverable or that their useful lives are no longer appropriate. Reviews are performed to determine whether the carrying values of assets are impaired primarily based on comparison to undiscounted expected future cash flows. If the comparison indicates that impairment exists, the impaired asset is written down to its fair value. Significant management judgment is required in the forecast of future operating results that are used in the preparation of expected discounted and undiscounted cash flows.  The Company concluded that there was no impairment of its long-lived assets at December 31, 2006. Recent Accounting Pronouncements In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. This Statement permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company does not expect SFAS No. 159 to have any impact on the Companys financial condition or results of operations. In November 2006, the FASB ratified EITF Issue No. 06-07, Issuers Accounting for a Previously Bifurcated Conversion Option in a Convertible Debt Instrument When the Conversion Option No Longer Meets the Bifurcation Criteria in FASB Statement No. 133 ( EITF 06-07). EITF 06-07 affects convertible debt issuers with previously bifurcated conversion options that no longer require separate derivative accounting under SFAS 133. EITF 06-07 states that when a previously bifurcated conversion option no longer requires separate accounting, the issuer shall disclose (1) a description of the change causing the conversion option to no longer require bifurcation and (2) the amount of the derivative liability reclassified to shareholders equity. EITF 06-07 is effective for interim and annual periods beginning after December 15, 2006.  The Company does not expect EITF 06-07 to have any impact on the Companys financial condition or results of operations. In September 2006, FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans(SFAS 158), which amends SFAS 87 and SFAS 106 to require recognition of the overfunded or underfunded status of pension and other postretirement benefit plans on the balance sheet. Under SFAS 158, gains and losses, prior service costs and credits, and any remaining transition amounts under SFAS 87 and SFAS 106 that have not yet been recognized through net periodic benefit cost will be recognized in accumulated other comprehensive income, net of tax effects, until they are amortized as a component of net periodic cost. The measurement date - the date at which the benefit obligation and plan assets are measured - is required to be the companys fiscal year end. SFAS 158 is effective for publicly-held companies for fiscal years ending after December 15, 2006, except for the measurement date provisions, which are effective for fiscal years ending after December 15, 2008. The Company does not expect SFAS No. 158 to have any impact on the Companys financial condition or results of operations. In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally


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accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for the Company on January 1, 2008 and is not expected to have a significant impact on the Companys financial statements. On September 13, 2006, the SEC issued Staff Accounting Bulleting No. 108 (SAB 108). SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a potential current year misstatement. Prior to SAB 108, companies might evaluate the materiality of financial statement misstatements using either the income statement or balance sheet approach, with the income statement approach focusing on new misstatements added in the current year, and the balance sheet approach focusing on the cumulative amount of misstatement present in a companys balance sheet. Misstatements that would be material under one approach could be viewed as immaterial under another approach, and not be corrected. SAB 108 now requires that companies view financial statement misstatements as material if they are material according to either the income statement or balance sheet approach. The Company has analyzed SAB 108 and determined that upon adoption it will have no impact on the reported results of operations or financial conditions. In July 2006, the FASB published FASB Interpretation (FIN) No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, to address the noncomparability in reporting tax assets and liabilities resulting from a lack of specific guidance in FASB Statement of Financial Accounting Standards (SFAS) No. 109 (SFAS 109), Accounting for Income Taxes, on the uncertainty in income taxes recognized in an enterprises financial statements. FIN 48 will apply to fiscal years beginning after December 15, 2006, with earlier adoption permitted. The Company is evaluating the potential impact of this FIN on its financial position and results of operations and cash flows In March 2006, the FASB issued Statement No. 156 (SFAS 156), Accounting for Servicing of Financial Assets. SFAS 156 amends SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS 156 permits, but does not require, an entity to choose either the amortization method or the fair value measurement method for measuring each class of separately recognized servicing assets and servicing liabilities. SFAS 156 is effective for fiscal years beginning after September 15, 2006 and is not expected to have any impact on the Companys consolidated financial statements. In February 2006, the FASB issued SFAS 155, Accounting for Certain Hybrid Financial Instruments an amendment of FASB 133, Accounting for Derivative Instruments and Hedging Activities, and FASB 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. FASB 155, provides the framework for fair value remeasurement of any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation as well as establishes a requirement to evaluate interests in securitized financial assets to identify interests. FASB 155 further amends FASB 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. The guidance of FASB 155 also clarifies which interest-only strips and principal-only strips are not subject to the requirements of FASB 133 and concentrations of credit risk in the form of subordination are not embedded derivatives. This Statement is effective for all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006. FASB


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155 is not expected to have a material impact on the Company's consolidated financial statements. The Company is evaluating the potential impact of this new pronouncement on its financial position and results of operations and cash flows. In February 2006, the FASB decided to move forward with the issuance of a final FSP FAS 123R-4 Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event. The guidance in FSP FAS 123R-4 amends paragraphs 32 and A229 of FASB Statement No. 123R to incorporate the concept articulated in footnote 16 of FAS 123R. That is, a cash settlement feature that can be exercised only upon the occurrence of a contingent event that is outside the employees control does not meet the condition in paragraphs 32 and A229 until it becomes probable that the event will occur. Originally under FAS 123R, a provision in a share-based payment plan that required an entity to settle outstanding options in cash upon the occurrence of any contingent event required classification and accounting for the share based payment as a liability. This caused an issue under certain awards that require or permit, at the holders election, cash settlement of the option or similar instrument upon (a) a change in control or other liquidity event of the entity or (b) death or disability of the holder. With this new FSP, these types of cash settlement features will not require liability accounting so long as the feature can be exercised only upon the occurrence of a contingent event that is outside the employees control (such as an initial public offering) until it becomes probable that event will occur. The guidance in this FSP shall be applied upon initial adoption of Statement 123(R). An entity that adopted Statement 123(R) prior to the issuance of the FSP shall apply the guidance in the FSP in the first reporting period beginning after February 2006. Early application of FSP FAS 123R-4 is permitted in periods for which financial statements have not yet been issued. The Company does not expect that this new FSP will have any impact upon its financial position, results of operations or cash flows. 3. Property & Equipment Property and equipment consists of: December 31,Useful lives20062005Computer equipment5 years$  39,041$  28,711Furniture and machinery5  7 years208,819149,040Leasehold improvements5 years54,88452,484302,744230,235Accumulated depreciation107,34956,788$195,395$173,447 Depreciation expense was for the years ended December 31, 2006 and 2005 was $50,561 and $35,594, respectively.


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4. Intangible Assets Intangible assets consist of: December 31,20062005License agreements$6,000,000$6,000,000Intellectual property275,000275,0006,275,0006,275,000Accumulated amortization1,545,031593,538$4,729,969$5,681,462 Amortization expense of intangible assets for the years ended December 31, 2006 and 2005 was $951,494 and $593,538, respectively. The intellectual property consists of photographs used in our branding efforts, which were acquired with a combination of cash and a note. The property is stated at cost, was acquired from a related party and is being amortized over the six-year period of the related agreement. The note was repaid in full during the year ended December 31, 2005. The license agreements have been recorded at the fair market value of the 3,000,000 shares issued as consideration and are being amortized over their initial term of 79.5 months. Estimated amortization expense related to these intangible assets for the next five years and all years thereafter is as follows:  Year Ending December 31, 2007$     951,4942008951,4942009951,4942010951,4942011923,993$   4,729,969 5. Line of credit Through July 2005, the line of credit provided for maximum borrowings based on a percentage of eligible receivables and inventory up to a maximum borrowing of $1,500,000. The loan agreement required, among other things, that the Company maintain tangible net worth of not less than $2,000,000 and that it maintain a specified debt to net worth ratio. In July 2005, the bank increased the maximum borrowings to $2,000,000 (collateralized by the Companys time deposit of that amount), removed the above requirements and guarantees and subordinations and extended the term of the line until August 2006. At December 31, 2005, borrowings bear interest at 8.4%. On January 4, 2006, the Company repaid and closed its line of credit of $2,000,000.


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6. Major Vendors and Accounts Payable During the year ended December 31, 2006, our five largest suppliers accounted for $29,311,000 or 85% of the Companys total product purchases. One of these suppliers, from which we purchase most of our loose diamonds, accounted for $20,800,000 or 60% of total purchases. At December 31, 2006, this diamond vendor made up $20,000,000 or 80% of our accounts payable. During the year ended December 31, 2005, our largest six suppliers accounted for $4,100,000 or 87% of the Companys total product purchases. Each of these suppliers accounted for 10% or more of total purchases. At December 31, 2005, three of these vendors comprised $729,000 or 58% of our accounts payable. 7. Senior Secured Convertible Notes  In May 2006, the Company entered into a series of agreements pursuant to a private placement transaction providing for, among other things, the issuance of senior convertible notes (Notes) and warrants to purchase shares of the Companys $.0001 par value per share common stock.  On May 12, 2006 the Company issued notes in the aggregate principal amount of $11,660,000 and Series A Warrants to purchase up to 2,186,250 shares of the Companys Common Stock.  The net proceeds of the issuance totaled approximately $10.3 million after direct placement costs of approximately $1.3 million. The notes are convertible into 2,915,000 shares of HOTJs common stock at any time at the option of the holders at an initial conversion price of $4.00 per share, subject to adjustment. The notes can be converted at the Companys option if certain criteria are satisfied.  The Company also entered into a Security Agreement that grants the holders of the Notes a first priority security interest in all of the Companys assets. The Notes bear interest at 9.75% payable quarterly, in arrears, and have an initial conversion price of $4.00. The conversion price is subject to adjustment if: (i) the Company fails to meet a Sales Threshold as shown on the following table; and (ii) the Average Market Price on the applicable date is less than $5.00.  The Sales Thresholds and dates are:  Sales ThresholdDate$14,000,000 for the three fiscal quarters endingSeptember 30, 2006$30,000,000 for the year endingDecember 31, 2006$45,000,000 for the year endingDecember 31, 2007


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The Company exceeded the Sales Threshold for the three fiscal quarters ended September 30, 2006.  Sales for the year ended December 31, 2006 totaled $31.8 million (including $22.4 million of loose diamond sales) and, accordingly, the Sales Threshold for that period was met.  The Series A Warrants have an initial exercise price of $5.00 per share, a term of 60 months and became exercisable on November 12, 2006. The Company also issued Series B Warrants to purchase up to 947,375 shares of the Company's Common Stock and Series C Warrants to purchase up to 1,894,750 shares of the Company's Common Stock.  The Series B Warrants and Series C Warrants are not initially exercisable and only become exercisable upon the occurrence of certain conditions, including the Company causing a conversion of the Notes. Certain affiliates of the Company consisting of (i) members of the Abramov family as a group, (ii) Interplanet Productions, Ltd and (iii) Sandbox Jewelry LLC, owned by Kathy Ireland Worldwide, (collectively referred to as the Stockholders) each agreed to invest $125,000, for an aggregate amount of $375,000, on the same terms as other investors, except that, notwithstanding any provisions in the transactions documents, each of the Stockholders agreed not to convert or exercise any securities at a price which is lower than the closing bid price of the Companys Common Stock on the date of the closing until after the shareholders of the Company have voted in favor of the issuance of all of the securities as described in the transaction documents in accordance with applicable law and the rules and regulations of the Nasdaq Capital Market. The principal amount of the notes is to be repaid in nine quarterly installments, based on the principal outstanding at the time of the payment, beginning on April 1, 2007.  Such principal payments may be paid in cash or, at the option of the Company, if certain conditions are satisfied, in shares of the Companys common stock. Any shares of common stock used to pay an installment of principal will be valued at the lower of the current Conversion Price or the Company Conversion Price which is equal to 85% of the Average Market Price as defined in the Notes.  Under certain conditions, if the Average Market Price equals or exceeds $5.50 per share then the principal payment that is due is deferred until the maturity date of the notes. The first principal payment was paid in shares of common stock as more fully described in Note 13. Interest is due quarterly, starting on July 1, 2006. The interest rate is 9.75% per annum. All or a portion of the accrued and unpaid interest may be paid in cash or, at the option of the Company, if certain conditions are satisfied, in shares of the Companys common stock. Any shares of common stock used to make an interest payment will be valued at the lower of the conversion price or 85% of the Average Market Price on the applicable interest payment date.  At December 31, 2006, interest payable of $13,650 and $270,562 are included in accounts payable and accrued expenses, respectively. After reviewing the applicable accounting literature, the Company concluded the notes did not meet the definition of conventional debt per EITF 05-02 and EITF 00-19, due to a provision which provides for the possible reset of the conversion price which results in the debt not being convertible into a fixed number of shares.  Under SFAS 133, if the debt is determined to be unconventional, then the Company is required to look to EITF 00-19 to determine how the embedded conversion feature would be classified (as liability or equity)


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if it were freestanding and therefore determine if it qualified for the scope limitation in paragraph 11 a. of SFAS 133 or if it required derivative accounting. Upon review of EITF 00-19, paragraphs 12  32, the Company concluded that all applicable requirements for equity treatment were met, including the Company having sufficient authorized shares to issue the maximum number required under the note provisions and the potential liquidated damages under the registration rights agreement being limited to 10%, which is less than a reasonable estimate of the discount between the FMV of registered and unregistered shares. The intrinsic value of the conversion option in the notes totaling $2.8 million was calculated in accordance with EITF 00-27 Application of Issue No. 98-5 to Certain Convertible Instruments and recorded as additional paid in capital and a corresponding reduction of the carrying value of the note. The Company is accounting for the Series A warrants, issued in connection with the note, as derivative liabilities in accordance with SFAS 133, Accounting for Derivative Instruments and Hedging Activities, EITF 00-19, Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in a Companys Own Stock and EITF No. 05-2, The Meaning of Conventional Convertible Debt Instrument in Issue No. 00-19. The warrant liability was valued at $3,804,075 on the warrant issuance date and adjusted at December 31, 2006 in accordance with EITF 00-19 which requires the liability to be adjusted to fair value at each reporting period.  At December 31, 2006, the warrant liability was valued at $3,804,075.  The Company used the Black-Scholes model to value the liability.  The assumptions used at May 12, 2006 and December 31, 2006 included expected volatility of 58.9% and 95.9% and a risk free interest rate of 5.00% and 4.53%, respectively. The discount attributable to the issuance date intrinsic value of the conversion option and the fair value of the warrants, totaling $6.6 million, is being amortized using the effective interest method over the term of the note.  During the year ended December 31, 2006, $2,241,505 of this discount was amortized to expense.  For financial statement presentation purposes, the discount is allocated between current and non-current on a pro rata basis. The components of convertible notes, net are as follows:  CurrentNon-CurrentPrincipal amount of notes$ 3,886,667$7,773,333Less discount(1,468,233)(2,936,464)Net carrying value$ 2,418,434$4,836,869 In connection with the financing arrangement, the Company incurred financing costs of $1.3 million. The total financing costs were capitalized and are being amortized over the life of the note using the effective interest method. During the year ended December 31, 2006, $438,470 of the capitalized financing costs were amortized to expense. The registration rights agreement required the Company to file a registration statement for the resale of a number of shares of Common Stock equal to 150% of the sum of the number of shares issuable upon conversion of the Notes and upon the number of shares issuable


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upon exercise of the Warrants by June 26, 2006 and required that the registration statement be declared effective by July 11, 2006 if there was no review of the registration statement by the SEC.  The registration rights agreement states that the registration statement must remain effective and available for use until earlier of the date the noteholders can sell all of the securities covered by the registration statement without restriction pursuant to Rule 144(k) and the date all of such securities have been sold pursuant to the registration statement. The Company filed its registration statement on June 26, 2006 and it was declared effective by the SEC on July 10, 2006. If thereafter the registration statement ceases to be effective, the Company may be required to pay damages of 1.5% percent of the aggregate purchase price of the Notes and Warrants monthly until such failure is cured.  These damages will have a cash payment cap of 10% of the aggregate purchase price. 8. Stockholders Equity Common Stock In August 2005, the Company sold 1,523,980 units at $4.25 per unit in a private placement. The total amount raised, net of selling commissions and expenses, amounted to approximately $5,560,000. Each unit consisted of one share of common stock and a warrant to purchase one share of common stock at $7.00 per share at any time until August 12, 2010. In addition, the Company issued 152,398 warrants to affiliates of the placement agent.  The Company entered into a registration rights agreement with the investors in the private placement that required the Company file a registration statement with the Securities and Exchange Commission (SEC) with respect to these securities within the specified period from closing of the transaction. On February 14, 2006, the SEC declared the Companys registration statement filed on Form SB-2 effective. The registration rights agreement required the payment of liquidated damages in an amount equal to 1.5% of the amount invested for each 30-day period beyond December 31, 2005 until the SEC declared the registration statement to be effective. The amount of damages due to the investors under this agreement was approximately $97,000. Under the registration rights agreement as amended February 13, 2006, the Company was permitted to pay these damages with unregistered shares of the Companys common stock.  The Company issued 19,431 shares in settlement of the amount due. 9. Commitments and Contingencies On June 29, 2005, the Company entered a Fulfillments Agreement. The services provided under the agreement commenced during the quarter ended September 30, 2005. The agreement provided for services to be provided to the Company, consisting of warehousing, inspecting, shipping, billing, collecting and other services. The fulfillment house was entitled to a commission of 5% on all House of Taylor products sold by its sales people. Further, the agreement also provided that the Company be paid a distribution fee for products included in the Companys line which were manufactured and sold by the fulfillment vendor. Through December 31, 2005, sales of these products were billed and recorded as revenue by the Company and the amount due to the fulfillment house was recorded as cost of goods sold. Substantially all of our warehousing, inspection, shipping, and customer service for our bridal jewelry categories, were conducted on our behalf through November 3, 2005, by this fulfillment vendor. The parties mutually terminated this


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agreement on an amicable basis and the Company has, by mutual agreement since November 2005, handled all fulfillment services in house. The Company has employment agreements with three officers providing for aggregate minimum annual compensation of $580,000 through 2012. The Company is the licensee under agreements with affiliates which provide for the payment of royalties on products sold. Royalty rates range from 0.05% to 10% depending on the brand and product sold. The licenses are for seven years (renewable for two additional seven year terms under certain circumstances) and provide for targeted royalties over the initial term of approximately $15,500,000. The licenses can be terminated by the Licensors for a number of reasons including failure to reach certain sales targets resulting in less than anticipated royalties, if our Chief Executive Officer or our VP of Design are no longer associated with the Company, and if the Company is sold or merges.  During the years ended December 31, 2006 and 2005, the Company incurred $569,679 and $204,055 of royalty expense, respectively, under these licenses. In the normal course of the Companys business operations, the Company has entered into operating leases for office space and a vehicle. Future payments, by year, under these operating leases and service agreements are as follows: 2007$ 190,6042008195,224200939,087Total$ 424,915 10. Related party transactions In connection with the merger in May 2005, the shareholders of Techline Jewelry, Inc. received distributions which included a note for $1,365,090 (and collateralized by a security interest in the assets of the subsidiary, subject to the first security interest held by a bank) payable over three years with interest at 8% a year. Further, the shareholders agreed to repurchase any of the accounts receivable at May 20, 2005 that remained outstanding over a specified period. As of December 31, 2006, the note has been reduced approximately $41,000 by accounts receivable so repurchased and other adjustments. The shareholders also loaned the Company $302,396, payable on demand with interest at 8% a year. This loan was repaid during the year ended December 31, 2005. In March 2004, the Company entered a lease for its office space lease which provides for minimum annual rent starting at $123,000 a year, increasing 3% per year through March 2009. A stockholder has guaranteed payments under the lease. During the year ended December 31, 2006 the Company incurred $569,679 of royalty expense to related parties.  At December 31, 2006 there were prepaid royalties due to related parties of $175,229 included in prepaid expense and $50,000 of marketing fees due to related parties included in accrued expenses.


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During the year ended December 31, 2005, the Company incurred $204,055 of royalty expense to related parties.  At December 31, 2005, there was $51,707 of royalties due to related parties included in accounts payable and $100,000 of marketing fees due to related parties included in accrued expenses. During the years ended December 31, 2006 and 2005, incurred marketing expense of $143,500 and $60,073, respectively, to related parties. During the years ended December 31, 2006 and 2005, the Company recorded sales of $946,410 and $23,698 to related parties, respectively. At December 31, 2006 and 2005, accounts receivable included $203,839 and $23,385 due from related parties, respectively.  Certain affiliates of the Company each invested $125,000, for an aggregate amount of $375,000, in our offering of convertible notes in May 2006.  Interest payable to these affiliates of $3,047 and $6,094 is included in accounts payable and accrued expenses, respectively, at December 31, 2006. 11. Warrants  At December 31, 2006, there are outstanding warrants for the purchase of common stock as follows:  Date of issueWarrantsExercise priceFirst exercisableExpiration date5/20/2005275,000$1.005/20/20065/20/20095/20/2005125,000$3.505/16/20055/16/20085/20/200540,000$1.005/20/20055/20/20095/20/200540,000$1.001/1/20065/20/20098/12/20051,523,980$7.008/12/20058/12/20108/12/2005152,398$7.008/12/20058/12/201011/8/200530,000$7.0512/7/200512/7/201011/8/200530,000$7.051/7/200612/7/201011/8/200530,000$7.052/7/200612/7/201011/8/200530,000$7.053/7/200612/7/201011/8/200530,000$7.054/7/200612/7/201011/8/200530,000$7.055/7/200612/7/20105/12/20062,186,2504,522,628  12. Income Taxes Through May 20, 2005, the Companys only operating subsidiary had elected to be taxed under the provisions of Sub-Chapter S of the Internal Revenue Code. Under those provisions, the Company did not pay federal corporate income taxes on its taxable income and incurred a liability for California income taxes at the rate of 1 1/2 %. The Companys stockholders were liable for individual federal and California income taxes on the Companys taxable income. Since that date, the Company is taxable as a C corporation.


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In accordance with SFAS No. 109,Accounting for Income Taxes,deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts recorded in the balance sheet and for operating losses.  In evaluating the realizability of net deferred tax assets, the Company will take into account a number of factors, primarily relating to the Companys ability to generate taxable income.  The Company has recorded a deferred tax asset attributable primarily to the net operating losses for the year ended December 31, 2006 and the seven months ended December 31, 2005, respectively, and has provided a valuation allowance in the same amount as it is more likely than not that the asset will be not be realized.  The reconciliation of income tax provision computed at federal statutory rates to income tax expense (benefit) is as follows:  For the year
Ended
December 31,
2006For the seven months ended
December 31,
2005Statutory rate35.0%35.0%State tax8.84%5.7%Change in valuation allowance(43.84%)(40.7%)Effective tax (expense) benefit rate0.0%0.0% At December 31, 2006, the Company had a net operating loss carryforward, for federal and state income tax purposes, of approximately $7,700,000.  This net operating loss carryforward, if not utilized to reduce taxable income in future periods, will expire between 2015 and 2026. The significant components of the current deferred tax asset at December 31, 2006 are as follows: 20062005Operating loss for the year ended December 31,$  3,662,076$1,436,658Non-cash interest expense(982,675)-Non-deductible amortization expense(397,041)(117,463)Increase in bad debt allowance(38,872)-Expenses paid with options and warrants(283,194)-Other(12,182)-Deferred tax benefit for year ended December 31,1,948,1121,319,195Valuation allowance (100%)(1,948,112)(1,319,195)Deferred tax asset, net$              -$              -


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13. Subsequent Events Related Party Note Payable  On January 11, 2007, the Company issued a promissory note for $1,000,000 to a related party.  The note is due on demand and bears interest at 8%, payable quarterly.  Note Conversion  On February 21, 2007, two holders of the Companys convertible notes converted their entire note holdings for a total of $1,500,000 in the aggregate.  The Company issued 375,000 common shares upon the conversion and paid approximately $180,000 of Make-Whole Amounts as defined in the notes.  On April 2, 2007, two holders of the Companys convertible notes converted the remaining balances of their notes totaling of $88,889 in the aggregate.  The Company issued 22,224 common shares upon the conversion.  The noteholders waived their rights to the Make-Whole Amount as defined in the notes.  Strategic Alliance  In March 2007, the Company entered into an agreement with Fine Diamonds LLC/Festdiam Cutting Works (Fine), a Sightholder of the Diamond Trading Company (DTC), the sales and marketing arm of the De Beers Group of Companies.The agreement calls for Fine to offer the Company preferred pricing and terms on its purchases of diamonds, both certified and uncertified, in the grades, ranges and sizes that the Company has historically purchased.  The Company will issue 100,000 shares of common stock to a principal of Fine in 2007 as consideration for services rendered in connection with establishing and promoting the relationship to date, and as a further incentive to aid the Company in broadening its wholesale and retail distribution of branded and unbrandeddiamonds.  Beginning with 2008, and for each subsequent calendar year that the Company and Fine elect to continue this relationship, HOTJ expects to  issue 50,000 shares of common stock at June 30 and again at December 31,  provided that the Company purchases at least $10,000,000 from Fine during each six month period ending on such dates. If the purchases during the first six months are less than $10,000,000 but the total purchases for the calendar year equal at least $20,000,000, then HOTJ will nevertheless issue the further share amountto equal an aggregate of 100,000 shares of HOTJ stock for that calendar year.  While the parties intend for the agreement to have an initial term of five yearsthe arrangement maybe modified or canceled by either party upon thirty days notice.  Engagement of Strategic Advisor  In March 2007, the Company engaged Financo, Inc. as its strategic and transactional advisor.  The Company expects Financo will assist it with developing strategic plans that may include adding channels of distribution for the Companys current and new product


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lines, expanding its brands overseas and evaluating new licensing and sub-licensing opportunities.  Initial Installment Payment of Convertible Notes  On April 2, 2007, the Company paid the first principal payment of $1,087,222 and accrued interest of $238,509 on its convertible notes by issuing a total of 542,416 shares of common stock.  The Company Conversion Price (as defined in the notes) was $2.44.  In accordance with the terms of the notes, five of our affiliated noteholders elected to defer the payment of $41,666 of principal and $9,141 of interest due to them on April 2, 2007 until March 31, 2009.


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