SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                 --------------

                                    FORM 10-Q


(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934 
For the quarterly period ended September 30, 1998 
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934
For the transition period from _____________________to______________________


                        Commission File Number: 000-23329
                                    C3, Inc.
- --------------------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

               North Carolina                             56-1928817
- ----------------------------------------------   ------------------------------
       (State or other jurisdiction of                 (I.R.S. Employer
       incorporation or organization)                 Identification No.)

              3800 Gateway Boulevard, 310, Morrisville, N.C. 27560
- -------------------------------------------------------------------------------
                    (Address of principal executive offices)

                                  919-468-0399
                     --------------------------------------
                         (Registrant's telephone number,
                              including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                   Yes X   No 
                                      ---    ---


As of November 9, 1998 there were 6,972,009 shares of the Registrant's Common
Stock, no par value per share, outstanding.

                                       1

<PAGE>
                                    C3, Inc.
                                      Index


Part I.   Financial Information

- --------------------------------------------------------------------------------


Item 1.   Financial Statements

           Condensed Balance Sheets - September 30, 1998 And December 31, 1997

           Condensed Statements of Operations - Three Months And Nine Months
           Ended September 30, 1998 And 1997

           Condensed Statements Of Cash Flows - Nine Months Ended September 30,
           1998 And 1997


           Notes To Condensed Financial Statements


I
tem  2.  Management's Discussion And Analysis Of Financial Condition And
          Results Of Operations



Part II.  Other Information

- --------------------------------------------------------------------------------


Item 2.   Changes In Securities And Use Of Proceeds


Item 5.   Other Information


Item 6.   Exhibits And Reports On Form 8-K


Signatures


                                       2

<PAGE>


Part I.   Financial Information


Item 1.   Financial Statements

                                    C3, Inc.
                            Condensed Balance Sheets

<TABLE>
<CAPTION>
<S>                                                           <C>            <C>
                                                    September 30,   December 31,
                                                        1998            1997
                                                    ------------    ------------
Assets                                              (Unaudited)
Current Assets:
     Cash and equivalents                           $ 34,401,501    $ 43,980,385
     Accounts receivable, net                            524,086           4,298
     Interest receivable                                 159,848         177,654
     Inventories                                       1,812,887         278,602
     Prepaid expenses and other assets                   300,803          73,274
                                                    ------------    ------------
              Total current assets                    37,199,125      44,514,213


Equipment, net                                         3,655,028         214,990
Patent and license rights, net                           207,388         143,886
                                                    ------------    ------------
              Total assets                          $ 41,061,541    $ 44,873,089
                                                    ============    ============

Liabilities and Shareholders' Equity
Current Liabilities:
     Accounts payable:
              Cree Research, Inc.                   $  1,412,483    $    567,110
              Other                                      345,206         237,186
     Accrued expenses                                    309,399
     Deferred revenue                                     71,906          22,512
                                                    ------------    ------------
              Total current liabilities                2,138,994         826,808

Commitments and Contingencies

Shareholders' Equity:

     Common stock                                     47,821,538      47,743,431
     Additional paid-in capital - stock options        1,855,039       1,632,804
     Accumulated deficit                             (10,754,030)     (5,329,954)
                                                    ------------    ------------
              Total shareholders' equity              38,922,547      44,046,281
                                                    ------------    ------------
              Total liabilities and shareholders' 
               equity                               $ 41,061,541    $ 44,873,089
                                                    ============    ============
</TABLE>

See notes to Condensed Financial Statements


                                       3

<PAGE>

                                    C3, Inc.
                       Condensed Statements Of Operations
                                   (Unaudited)

<TABLE>
<CAPTION>
                                     Three Months Ended              Nine Months Ended
                                       September 30,                   September 30,
                                 ---------------------------   ----------------------------             
<S>                                 <C>            <C>             <C>             <C> 
                                    1998           1997            1998            1997
                                 ------------  -------------   -----------    -------------
                                                              
Net sales                        $ 1,326,373    $      --      $ 1,778,938    $      --
Cost of goods                      1,089,648           --        1,380,200           --
                                 -----------    -----------    -----------    -------------
Gross profit                         236,725           --          398,738           --
Operating expenses:
    Marketing and sales              928,598        186,786      2,202,597        233,397
    General and administrative       543,018        352,858      1,885,224        675,661
    Research and development         785,869        577,347      3,196,711      1,029,918
                                 -----------    -----------    -----------    -------------
Total operating expenses           2,257,485      1,116,991      7,284,532      1,938,976
                                 -----------    -----------    -----------    -------------


Operating loss                    (2,020,760)    (1,116,991)    (6,885,794)    (1,938,976)

Interest income, net                 467,532         71,031      1,461,718        184,407
                                 -----------    -----------    -----------    -------------

Net loss                        $ (1,553,228)   $(1,045,960)   $(5,424,076)   $(1,754,569)
                                   =========      =========      =========      =========
Basic and  diluted net loss
     per share                  $      (0.22)   $     (0.46)   $     (0.78)   $     (0.78)
                                   =========      =========      =========      =========
Weighted-average common
     shares, basic and diluted     6,956,071      2,261,102      6,945,356      2,261,102
                                   =========      =========      =========      =========
</TABLE>


See notes to Condensed Financial Statements.


                                       4

<PAGE>

                                    C3, Inc.
                       Condensed Statements Of Cash Flows
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                       Nine Months Ended September 30,
                                                       -------------------------------  
<S>                                                         <C>             <C> 
                                                            1998            1997
                                                        ------------    ------------
Operating Activities:                                         
Net loss                                                $ (5,424,076)   $ (1,754,569)
Adjustments:
     Depreciation and amortization                           106,345          14,668
     Compensation  expense  related  to stock options        276,648         175,000
     Change  in  operating  assets  and liabilities:
          Net change in assets                            (2,263,796)       (130,332)
          Net change in liabilities                          754,901         457,107
                                                        ------------    ------------
     Net cash used by operating activities                (6,549,978)     (1,238,126)
                                                        ------------    ------------

Investing Activities:
Purchase of equipment                                     (2,980,066)        (91,317)
Patent costs                                                 (72,534)        (81,527)
                                                        ------------    ------------
     Net cash used by investing activities                (3,052,600)       (172,844)
                                                        ------------    ------------
Financing Activities:
Stock options exercised                                       23,694            --
Proceeds from preferred stock offerings,
           net of costs                                         --         4,981,376
                                                        ------------    ------------
     Net cash provided by financing activities                23,694       4,981,376
                                                        ------------    ------------

Net change in cash and equivalents                        (9,578,884)      3,570,406

Cash and equivalents, beginning of period                 43,980,385       1,167,458
                                                        ------------    ------------
Cash and equivalents, end of period                     $ 34,401,501    $  4,737,864
                                                        ============    ============
</TABLE>

See notes to Condensed Financial Statements.


                                       5

<PAGE>

                                    C3, Inc.

                     Notes To Condensed Financial Statements
                                   (Unaudited)

1.  Basis Of Presentation

The accompanying unaudited financial statements have been prepared in conformity
with generally accepted accounting principles. However, certain information or
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed, or
omitted, pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the financial statements include all
normal recurring adjustments which are necessary for the fair presentation of
the results of the interim periods presented. Interim results are not
necessarily indicative of results for the fiscal year. Certain reclassifications
have been made to prior year's financial statements to conform to the
classifications used in fiscal 1998. These financial statements should be read
in conjunction with the Company's audited financial statements for the year
ended December 31, 1997, as set forth in the Company's Form 10-K, filed with the
Securities and Exchange Commission on March 31, 1998.

Prior to July 1, 1998 C3, Inc. was a development stage company which devoted
substantially all of its efforts to research and product development and
development of its initial markets and did not, through June 30, 1998, generate
significant revenues from its planned principal operations.

In preparing financial statements that conform with generally accepted
accounting principles, management must make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and amounts of
revenues and expenses reflected during the reporting period. Actual results
could differ from those estimates.


2.  Inventories

Inventories are stated at the lower of cost or market. Inventories consisted of
the following:

                                  September 30,  December 31,
                                     1998            1997
                                  ------------   -------------

        Raw materials             $   37,240       $     --      
                                                  
        Work in process              356,553          278,602
                                                  
        Finished goods             1,419,094             --
                                  ----------       ----------
                                                  
        Total inventory           $1,812,887       $  278,602
                                  ==========       ==========


                                       6

<PAGE>

3.    Non-Cash Operating Expenses

During the quarter ended September 30, 1998, in accordance with Accounting
Principals Board Opinion No. 25, the Company recorded compensation expense of
approximately $130,000 relating to stock options. Cumulatively for the nine
months ended September 30, 1998, such compensation expense aggregated
approximately $277,000. Compensation expense related to stock options for the
quarter and nine months ended September 30, 1997 was approximately $109,000.
This compensation expense is recorded in general and administrative expense in
the statements of operations.


4.    Newly Issued Accounting Pronouncements

In June 1997, Statement of Financial Accounting Standards No. 130 ("FAS 130"),
Comprehensive Income, was issued. This Statement establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. FAS 130 is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods is required.
However, this Statement does not currently affect the Company's financial
statements since it has no items of other comprehensive income in any period
presented.

In June, 1998, Statement of Financial Accounting Standards No. 133 ("FAS 133"),
Accounting for Derivative Instruments and Hedging Activities, was issued. This
statement establishes standards for valuing and reporting at fair value all
derivative instruments as either assets or liabilities. FAS 133 is effective for
all fiscal quarters of all fiscal years beginning after June 15, 1999. The
Company has not evaluated the impact of the adoption of this Statement on the
consolidated financial statements.


                                       7

<PAGE>


I
tem 2:  Management's Discussion And Analysis Of Financial Condition And Results
         Of Operations

This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934 that relate to the Company's future plans, objectives, estimates and
goals. These statements are subject to numerous risks and uncertainties,
including macro and micro economic factors that affect businesses operating in
the international economy, the Company's reliance on Cree Research, Inc.
("Cree") as a developer and supplier of silicon carbide crystals, the level of
growth in domestic and international gemstone jewelry markets, the level of
market acceptance of and demand for the Company's products, and the actions of
existing and potential competitors. These and other risks and uncertainties are
described under the heading "Business Risks" in the Company's Form 10-K for the
year ended December 31, 1997, which was filed with the Securities and Exchange
Commission on March 31, 1998. While the Company is no longer a development stage
company, it remains subject to the risks and uncertainties described therein.
These risks and uncertainties could cause actual results and developments to be
materially different from those expressed or implied by any of the
forward-looking statements included herein.

Overview

From its inception in June 1995 through June 30, 1998, the Company was a
development stage enterprise that devoted its resources to funding research and
development of colorless lab-created moissanite gemstones, market research,
developing initial consumer marketing themes and assembling a management team.
The Company's principal business is the manufacture, marketing and distribution
of lab-created moissanite gemstones ("Moissanite"). Moissanite is being marketed
as an exclusive new gemstone with properties, including brilliance, fire and
hardness that rival other fine gemstones like diamonds, sapphires, rubies and
emeralds.

The Company began shipping Moissanite to retailers in Atlanta and Miami/Ft.
Lauderdale during the second quarter of 1998, and, in July 1998, launched
consumer-focused advertising and promotion activities in those areas. During the
third quarter of 1998 the Company expanded the number of retailers in the
southeastern states of North Carolina, South Carolina, Georgia and Florida and
increased the number of international distributors. Throughout the balance of
1998, the Company will focus on the market introduction of Moissanite throughout
the southeastern United States and will continue limited distribution and
promotional activities in domestic locations outside this region. The Company
will also continue its efforts to expand the international distribution of
Moissanite.

The Company expects its sales volumes to increase gradually as it increases
production capacity and as the market introduction expands geographically. As
distribution of Moissanite expands, the Company will incur increasing spending
levels as it continues to make investments in development efforts with Cree to
increase production volumes of lower cost moissanite, as it makes investments in
receivables, inventory and manufacturing equipment, and as it increases
advertising, marketing and personnel expenditures. The Company expects to
continue operating at a loss through part or all of 1999. Moreover, there can be
no assurance that the Company will ever achieve the expected sales increases or
profitability or that if profitability is achieved, that such profitability can
be sustained.


                                       8

<PAGE>

Results Of Operations

Three Months ended September 30, 1998 compared with Three Months ended September
30, 1997.

Net sales for the quarter ended September 30, 1998, were $1,326,373. The Company
generated net sales of approximately $1,200,000 from Moissanite and
approximately $110,000 from the Company's proprietary test instrument. Prior to
July 1, 1998 sales of Moissanite were netted against research and development
expenses. There were no sales for the third quarter of 1997.

Gross profit was $236,725 or 18% of net sales for the quarter ended September
30, 1998. These margins decreased from the second quarter of 1998 in which the
gross margin was 33% due to the Company's introduction of Moissanite which
initially has lower gross margins than the Company's test instrument. The
Company will seek to gradually increase gross margins for Moissanite as the
Company and Cree work to improve yields from the crystal growth process. Gross
margins for test instruments will likely decrease over time as the Company
enters into additional volume distribution agreements and if it experiences
pricing pressures on its testers anticipated to occur with the introduction of
competitive test instruments.

Research and development expenses increased from $577,347 for the three months
ended September 30, 1997 to $785,869 for the three months ended September 30,
1998. Research and development expenses increased by approximately $260,000
under the Company's July 1998 Amended and Restated Development Agreement with
Cree Research, Inc. The July 1998 agreement replaces the two previous
development agreements between C3 and Cree and provides both parties increased
flexibility to pursue further color and yield improvements on both 2-inch and
3-inch diameter crystals. This increase was offset by a reduction of internal
development costs of approximately $50,000 primarily due to production personnel
costs moving out of research and development expenses as the Company emerged
from the development stage.

Marketing and sales expenses increased from $186,786 for the three months ended
September 30, 1997 to $928,598 for the three months ended September 30, 1998.
The increase was primarily due to consumer-focused advertising and marketing
expenses associated with the initial launch of Moissanite in the Atlanta and
Miami/Ft. Lauderdale areas and compensation expense associated with the
expansion of the Company's sales staff.

General and administrative expenses rose from $352,858 for the three months
ended September 30, 1997 to $543,018 for the three months ended September 30,
1998. The increase primarily reflected compensation and other expenses related
to additional staff, occupancy expenses, investor relations and legal expenses
associated with business expansion and additional SEC compliance obligations
incurred as a public company.

Net interest income increased from $71,031 for the three months ended September
30, 1997 to $467,532 for the three months ended September 30, 1998. This
increase resulted from higher interest income earned on higher cash balances due
primarily to the investment of proceeds from the Company's initial public
offering in November 1997.


                                       9

<PAGE>

Nine Months ended September 30, 1998 compared with Nine Months ended September
30, 1997.

Net sales for the nine months ended September 30, 1998, were $1,778,938. The
Company generated net sales of approximately $1,200,000 from Moissanite and
approximately $560,000 from the Company's proprietary test instrument. In
addition, during the first six months of 1998 prior to emerging from the
development stage, the Company generated net sales of approximately $324,000 for
gemstones, which have been netted against research and development expenses on
the operating statement because many of the gemstones were associated with the
Company's research and development program. There were no sales for the nine
months ended September 30, 1997.

Gross profit was $398,738 or 22% of net sales for the nine months ended
September 30, 1998. Gross margins decreased compared to the six months ended
June 30, 1998 in which the gross margins were 36%, due to the Company's
introduction of Moissanite which initially has lower gross margins than the
Company's test instrument. The Company will seek to gradually increase gross
margins for Moissanite as the Company and Cree work to improve yields from the
crystal growth process. Gross margins for test instruments will likely decrease
over time as the Company enters into additional volume distribution agreements
and if it experiences pricing pressures on its testers anticipated to occur with
the introduction of competitive test instruments.

Research and development expenses increased from $1,029,918 for the nine months
ended September 30, 1997 to $3,196,711 for the nine months ended September 30,
1998. Approximately 1,960,000 of the increase was attributable to development
expenses incurred under the Company's June 1997 Development Agreement, January
1998 Supplemental Development Agreement, and July 1998 Amended and Restated
Development Agreement with Cree Research, Inc. The July 1998 agreement replaces
the two previous development agreements between C3 and Cree and provides both
parties increased flexibility to pursue further color and yield improvements on
both 2-inch and 3-inch diameter crystals. The remaining increase was due to
increased expenditures for the Company's internal development of prototype
gemstone pre-forming and faceting operations and compensation expense for
Company research and development staff.

Marketing and sales expenses increased from $233,397 for the nine months ended
September 30, 1997 to $2,202,597 for the nine months ended September 30, 1998.
The increase was primarily due to development and execution of consumer-focused
advertising and marketing expenses associated with the initial launch of
Moissanite in the Atlanta and Miami/Ft. Lauderdale areas, compensation and
travel expense and increased market research expenditures.

General and administrative expenses rose from $675,661 for the nine months ended
September 30, 1997 to $1,885,224 for the nine months ended September 30, 1998.
The increase primarily reflected compensation and other expenses related to
additional staff, occupancy expenses, investor relations and legal expenses
associated with business expansion and additional SEC compliance obligations
incurred as a public company. During the first nine months of 1997, the Company
had few paid employees.

Net interest income increased from $184,407 for the nine months ended September
30, 1997 to $1,461,718 for the nine months ended September 30, 1998. This
increase resulted from higher interest income earned on higher cash balances due
primarily to the investment of proceeds from the Company's initial public
offering in November 1997.


                                       10

<PAGE>

Liquidity And Capital Resources

The Company has financed its operations primarily from the net proceeds of its
initial public offering of common stock in November 1997 and, prior to such
offering, from the net proceeds of private equity sales. The net proceeds from
the initial public offering were $41,072,982. During the third quarter of 1998,
the Company used $1,989,600 to fund operations and $2,702,774 to fund capital
expenditures and patent expenses. At September 30, 1998, the Company had
approximately $34.4 million of cash and equivalents and approximately $35.1
million of working capital. The Company anticipates that its existing capital
resources will be adequate to satisfy its capital requirements for at least the
next 12 months.

Due to developments in the Company's business, several balance sheet items
changed during the quarter. Accounts receivable and inventories have increased
significantly over December 1997 levels due to the introduction of Moissanite
and the moissanite/diamond test instrument. In addition, accrued expenses
increased over fiscal year-end levels primarily as a result of payroll and
benefit expenses. Accounts payable, particularly those to Cree, have also
increased significantly as a result of the Company's acquisition of additional
crystal growth systems from Cree used to produce silicon carbide crystals,
payables for purchases of silicon carbide crystals, and increased expenditures
under the Amended and Restated Development Agreement with Cree.

In May 1998, the Company agreed to acquire approximately $3.4 million of crystal
growth systems from Cree to provide additional production capacity for silicon
carbide crystals. The Company is paying the purchase price of the systems on a
monthly basis as the systems are manufactured. Once completed, the systems will
remain at Cree where Cree will use them to produce silicon carbide crystals for
the Company. When the systems are fully depreciated, the Company is obligated to
transfer title to Cree. The first of these systems came on-line during August
1998 with the balance expected to come on line through the remainder of 1998.
Through September 30, 1998, the Company has funded approximately $2,650,000 of
the purchases and will fund the balance of the purchase of these systems from
its existing cash and equivalents.

The Company has also entered into a number of agreements with specialty retail
jewelry stores in the United States and with international distributors. See

I
tem 5 of Part II of this Quarterly Report. To support this expansion of its
distribution network, the Company has begun to build an inventory of moissanite
gemstones and intends to significantly increase its advertising and marketing
expenditures. The Company intends to fund these development activities,
inventories and advertising and marketing expenditures from its existing cash
and equivalents.


                                       11

<PAGE>

Year 2000 Compliance

Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept entries to distinguish 21st century dates from 20th century
dates. The inability to recognize or properly treat dates subsequent to December
31, 1999 may cause a company's systems and applications to process critical
financial and operational information incorrectly. The Company has undertaken a
program to address the Year 2000 issue with respect to the following: (i) the
Company's information technology and operating systems; and (ii) certain systems
of the Company's major suppliers, including Cree (insofar as such systems relate
to the Company's business activities with such parties).

As part of its evolution to an operating company, the Company has selected and
is in the process of implementing an enterprise-wide information technology
system to support the long-term information needs of the Company. The Company
has received written confirmation from the software vendor that the information
technology system selected by the Company is fully Year 2000 compliant. The
Company anticipates that the implementation of this system and testing of the
Year 2000 compliance of the system will be completed by December 31, 1998 and
that the Year 2000 issue will not pose significant operational problems for its
computer systems. The Company is in the process of reviewing its non-information
technology systems for Year 2000 compliance and expects this review to be
complete by mid 1999. The Company believes the Year 2000 exposure with respect
to those systems is insignificant.

The Company has also initiated communications with its significant suppliers and
vendors, including Cree. The Company is coordinating efforts with these parties
to minimize the extent to which its business will be vulnerable to their failure
to remediate their own Year 2000 issues. The Company has received confirmation
from its significant suppliers and vendors that they have developed plans to
address the Year 2000 compliance issues of their systems prior to December 31,
1999.

The crystal growth systems which Cree uses to produce silicon carbide crystals
for the Company are dependent upon microprocessors. Although Cree has confirmed
to the Company that it is addressing the Year 2000 issues with respect to all of
its systems including the crystal growth systems, the Company has not yet been
informed that compliance has been achieved for the growth systems. Any loss or
delay in the receipt of silicon carbide crystals could indefinitely delay
deliveries of Moissanite to the Company's customers which would have a materiel
adverse impact on the Company's business, operating results and financial
condition. The Company will continue to monitor this issue with Cree.

There can be no assurance that the systems of such third parties on which the
Company's business relies will be modified on a timely basis. The Company's
business, financial condition or results of operations could be materially
adversely affected by the failure of its systems or those operated by other
parties to operate properly beyond December 31, 1999. To the extent possible,
the Company will be developing and executing contingency plans designed to allow
continued operation in the event of failure of the Company's or third parties'
systems.


                                       12

<PAGE>


Part II - Other Information


Item 2: Changes In Securities And Use Of Proceeds

On November 14, 1997, the Securities and Exchange Commission declared the
Company's Registration Statement on Form S-1 (File No. 333-36809) to be
effective. The net proceeds of this offering were $41,072,982. As of September
30, 1998, the Company had approximately $28,884,100 of the remaining net
proceeds of the offering invested in money market accounts, debt instruments
having an original maturity of three months or less and other highly liquid
investments. Approximately $3,986,700 of the proceeds have been used in research
and development, of which $130,325 was paid to officers, directors or
shareholders owning more than ten percent of the Common Stock outstanding. The
Company has also used approximately $3,453,200 to fund sales, marketing and
administrative expenses, of which $205,000 was paid to officers, directors or
shareholders owning more than ten percent of the Common Stock outstanding. The
Company also expended approximately $1,718,900 to build inventory of its
products. In addition, the Company acquired $3,030,100 of production equipment,
including $2,650,000 of crystal growth systems from Cree, certain computerized
wafering and preform development equipment, and other equipment.


                                       13

<PAGE>


Item 5:  Other Information

On October 15, 1998, the Company's board of directors increased its size to nine
members and elected Barbara Kotlikoff as a director. Ms. Kotlikoff has more than
20 years experience in the jewelry, fashion and advertising industries. Since
1995, Ms. Kotlikoff has been a senior executive with Monet Group, Inc., a
privately held manufacturer and distributor of jewelry, and currently serves as
Monet's president and managing director - international. Upon the election of
Ms. Kotlikoff, the board of directors was classified into three groups of three
directors each. The first group, consisting of Jeff N. Hunter, Barbara Kotlikoff
and Kurt Leutzinger, will serve until the 1999 annual meeting of shareholders,
the second group, consisting of Howard Rubin, Joel N. Levy and Ollin B. Sykes,
will serve until the 2000 annual meeting of shareholders and the third group,
consisting of Richard G. Hartigan, Jr., Kurt Nassau and Frederick A. Russ, will
serve until the 2001 annual meeting of shareholders. Beginning with the 1999
annual meeting of the shareholders, directors will be elected for an initial
term of three years.

The Company has entered into a number of agreements with specialty retail
jewelry stores in 47 cities, primarily in the initial launch area of the
Southeastern United States. The initial consumer launch activities in the
Southeastern United States began in mid-July 1998. Additionally, the Company has
entered into 8 international agreements for distribution of moissanite gemstones
in 16 countries and various areas in the Caribbean. The international agreements
require the purchase of an aggregate of approximately $19 million of moissanite
gemstones through the year 2000, with approximately $1.4 million of those
purchases during calendar 1998.

On October 20, 1998, Cree Research, Inc., the Company's exclusive supplier of
silicon carbide crystals, achieved the first milestone for 3-inch diameter
crystals under the Amended and Restated Development Agreement with Cree entered
into in July 1998 by producing, in development, a 3-inch crystal meeting
mutually agreed upon yields of useable material. A 3-inch crystal can produce
approximately twice as many moissanite gemstones as a 2-inch crystal with the
same percentage of useable material. Future activities under the development
program will be focused on moving this initial achievement to a repeatable
process and then into a manufacturing process. The Agreement establishes
performance milestones for 1999 and contemplates that the Company and Cree will
revise the performance milestones annually to provide both parties with more
flexibility to pursue further color and yield improvements on both 2-inch and
3-inch diameter crystals.

In March and September 1998, the Company entered into a first and second
amendment, respectively, to its agreement with John M. Bachman, Inc. ("JMB").
These amendments provide for the Company to advance JMB additional funds to
expand the production facilities of its affiliate which facets the Company's
Moissanite gemstone preforms. These funds will be repaid through reductions to
future cutting charges, which have been increased on a per stone basis to
reflect additional services to be provided by JMB. The amendments also grant the
Company a right of first refusal to acquire any excess gemstone cutting capacity
that occurs at JMB's affiliate and any equity securities offered by JMB or its
affiliate. The amendments extend the term of the Company's agreement with JMB to
December 31, 2000. The Company has the right to terminate the agreement at any
time after January 1, 2000 upon 90 days written notice.


                                       14

<PAGE>


Item 6:  Exhibits And Reports On Form 8-K

    (a)  Exhibits

    Exhibit 10.27 Employment Agreement, dated April 6, 1998, between Mark Kellam
                  and C3, Inc.
    Exhibit 10.28 First Amendment to Agreement dated March 23, 1998, between 
                  John M. Bachman, Inc. and C3, Inc.*
    Exhibit 10.29 Second Amendment to Agreement, dated September 28, 1998 
                  between John M. Bachman, Inc. and C3, Inc.*
    Exhibit 27.1  Financial Data Schedule


    *  The Company has requested that certain portions of this Exhibit be given
       confidential treatment. An unredacted version of this Exhibit has been
       filed with the Commission.



    (b) Report on Form 8-K

The Company did not file any reports on 8-K during the three months ended
September 30, 1998.

                                       15

<PAGE>

                                   Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

C3, Inc.

Dated:  November 9, 1998          /s/ Jeff  N. Hunter
                                  -------------------
                                  Jeff N. Hunter
                                  Chief Executive Officer and Chairman of the
                                  Board and Director
                                  (Principal Executive Officer)





Dated:  November 9, 1998          /s/ Mark W. Hahn
                                  ----------------
                                  Mark W. Hahn
                                  Chief Financial Officer
                                  (Principal Financial and
                                  Accounting Officer)


                                       16











                              EMPLOYMENT AGREEMENT
                               DATED APRIL 6, 1998
                        BETWEEN C3, INC. AND MARK KELLAM






<PAGE>
                              EMPLOYMENT AGREEMENT


       THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
effective as of April 6, 1998 by and between C3, Inc., a North Carolina company
with its principal office at 3800 Gateway Boulevard, Suite 310, Morrisville,
North Carolina, 27560 (the "Company), and Mark Kellam, an individual currently
residing at 709 River Forest Road, Pittsboro, North Carolina, 27312
("Employee").

                              Statement of Purpose

       The Company wishes to obtain the services of Employee on the terms and
conditions and with the benefits set forth in this Agreement. Employee desires
to be employed by the Company on such terms and conditions and to receive such
additional consideration as set out herein.

       Therefore, in consideration of the mutual covenants contained in this
Agreement, the grant of certain options to purchase common stock of the Company
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and Employee agree as follows:

       1. Employment. The Company hereby agrees to employ Employee, and Employee
hereby accepts such employment, on the terms and conditions set forth in
 this
Agreement.

       2. Term of Employment. The term of Employee's employment under this
Agreement shall commence as of the date of this Agreement and shall continue on
and through December 31, 1998. Termination of employment shall be governed by
Paragraph 7 of this Agreement, and unless terminated by either party as provided
in Paragraph 7, this Agreement shall automatically, at the expiration of each
then existing term, renew for successive one year terms.

       3. Position and Duties. The Employee shall serve as Director of
Technology of the Company. Employee will, under the direction of the President
and CEO of the Company, faithfully and to the best of his ability perform the
duties as set out on Exhibit A hereto and such additional duties as may be
reasonably assigned by the President and Board of Directors. Employee agrees to
devote his entire working time, energy and skills to the Company while so
employed.

      4. Compensation and Benefits. Employee shall receive compensation and
benefits for the services performed for the Company under this Agreement as
follows:

         (a) Base Salary. Employee shall receive a base salary of $104,000 per
year, payable in regular and equal monthly installments ("Base Salary").

         (b) Employee Benefits. Employee shall receive such benefits as are made
available to the other employees of the Company, including, but not limited to,
life, medical and disability insurance, retirement benefits and such vacation as
is provided to the other employees of the Company (the "Employee Benefits").

                                       1

<PAGE>

         (c) Incentive Compensation. Employee shall participate in such
incentive plans as may be approved by the Board of Directors from time-to-time.
The specific incentive compensation plans for 1998 are as set out on Exhibit B
hereto.

      5. Reimbursement of Expenses. The Company shall reimburse Employee for all
reasonable out-of-pocket expenses incurred by Employee specifically and directly
related to the performance by Employee of the services under this Agreement.

      6. Withholding. The Company may withhold from any payments or benefits
under this Agreement all federal, state or local taxes or other amounts as may
be required pursuant to applicable law, government regulation or ruling.

      7. Termination of Employment.

         (a) Death of Employee. If the Employee shall die during the Term, this
Agreement and the employment relationship hereunder will automatically terminate
on the date of death, which date shall be the last day of the Term.

         (b) Termination of Just Cause. The Company shall have the right to
terminate the Employee's employment under this Agreement at any time for Just
Cause, which termination shall be effective immediately. Termination for "Just
Cause" shall include termination for the Employee's personal dishonesty, gross
incompetence, willful misconduct, breach of a fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, regulation (other than traffic violations or similar offenses),
written Company policy or final cease-and-desist order, conviction of a felony
or of a misdemeanor involving moral turpitude, unethical business practices in
connection with the Company's business, misappropriation of the Company's assets
(determined on a reasonable basis), disability or material breach of any other
provision of this Agreement, provided that the Employee has received written
notice from the Company of such material breach and such breach remains uncured
thirty days after the delivery of such notice. For purposes of this subsection,
the term "disability" means the inability of Employee, due to the condition of
his physical, mental or emotional health, to satisfactorily perform the duties
of his employment hereunder for a continuous three month period; provided
further that if the Company furnishes long term disability insurance for the
Employee, the term "disability" shall mean that continuous period sufficient to
allow for the long term disability payments to commence pursuant to the
Company's long term disability insurance policy. In the event the Employee's
employment under this Agreement is terminated for Just Cause, the Employee shall
have no right to receive compensation or other benefits under this Agreement for
any period after such termination.

            (c) Termination Without Cause. The Company may terminate the
Employee's employment other than for "Just Cause," as described in Subsection
(b) above, at any time upon written notice to the Employee, which termination
shall be effective immediately. In the event the Company terminates Employee
pursuant to this Subsection (c), (i) the Employee will receive the Base Salary
for the remainder of the then existing term ("Termination Compensation"), so
long as the Employee complies with Sections 8, 9 and 10 of the Agreement and
(ii) the Company shall take such action as may be required to vest any unvested
benefits of the Employee under any employee stock-based or other benefit plan or
arrangement for those options which are scheduled to vest within 180 of the
termination date. Such amounts shall be payable at the times such amounts would
have been paid in accordance with Section 4. In addition, Employee shall
continue to participate in the same group hospitalization plan, health care
plan, dental care plan, life or other insurance or death benefit plan, and any
other present or 


                                       2

<PAGE>

future similar group employee benefit plan or program for which officers of the
Company generally are eligible, on the same terms as were in effect prior to
Employee's termination, either under the Company's plans or comparable coverage,
for all periods Employee receives Termination Compensation. Notwithstanding
anything in this Agreement to the contrary, if Employee breaches Sections 8, 9
or 10 of this Agreement, the Employee will not be entitled to receive any
further compensation or benefits pursuant to this Section 7(c).

         (d) Change of Control Situations. In the event of a Change of Control
of Company at any time after the date hereof, Employee may voluntarily terminate
employment with Company up until twelve (12) months after the Change of Control
for "Good Reason" and, subject to Section 7(f), (y) be entitled to receive in a
lump sum (i) any compensation due but not yet paid through the date of
termination and (ii) in lieu of any further salary payments from the date of
termination to the end of the then existing term, an amount equal to the
Termination Compensation times 2, and (z) shall continue to participate in the
same group hospitalization plan, health care plan, dental care plan, life or
other insurance or death benefit plan, and any other present or future similar
group employee benefit plan or program for which officers of the Company
generally are eligible, or comparable plans or coverage, for a period of two
years following termination of employment by the Employee, on the same terms as
were in effect either (A) at the date of such termination, or (B) if such plans
and programs in effect prior to the Change of Control of Company are, considered
together as a whole, materially more generous to the officers of Company, then
at the date of the Change of Control. Any equity based incentive compensation
(including but not limited to stock options, SARs, etc.) shall fully vest and be
immediately exercisable in full upon a Change in Control, not withstanding any
provision in any applicable plan. Any such benefits shall be paid by the Company
to the same extent as they were so paid prior to the termination or the Change
of Control of Company.

            "Good Reason" shall mean the occurrence of any of the following
events without the Employee's express written consent:

                  (i) the assignment to the Employee of duties inconsistent with
            the position and status of the Employee with the Company immediately
            prior to the Change of Control;

                  (ii) a reduction by the Company in the Employee's pay grade or
            base salary as then in effect, or the exclusion of Employee from
            participation in Company's benefit plans in which he previously
            participated as in effect at the date hereof or as the same may be
            increased from time to time during the Term, or Company's failure to
            increase (within twelve (12) months of the Employee's last increase
            in base salary) the Employee's base salary in an amount which at
            least equals, on a percentage basis, the average percentage increase
            in base salary for all executives entitled to participate in
            Company's executive incentive plans for which Employee was eligible
            in the preceding 12 months; or

                  (iii) an involuntary relocation of the Employee more than 50
            miles from the location where the Employee worked immediately prior
            to the Change in Control or the breach by the Company of any
            material provision of this Agreement; or

                  (iv) any purported termination of the employment of Employee
            by Company which is not effected in accordance with this Agreement.

                                       3

<PAGE>

            A "Change of Control" shall be deemed to have occurred if (i) any
person or group of persons (as defined in Section 13(d) and 14(d) of the
Securities Exchange Act of 1934) together with its affiliates, excluding
employee benefit plans of Company, becomes, directly or indirectly, the
"beneficial owner" (as defined in Rule l3d-3 promulgated under the Securities
Exchange Act of 1934) of securities of Company representing 20% or more of the
combined voting power of Company's then outstanding securities; or (ii) during
the then existing term of the Agreement, as a result of a tender offer or
exchange offer for the purchase of securities of Company (other than such an
offer by the Company for its own securities), or as a result of a proxy contest,
merger, consolidation or sale of assets, or as a result of any combination of
the foregoing, individuals who at the beginning of any year period during such
term constitute the Company's Board of Directors, plus new directors whose
election by Company's shareholders is approved by a vote of at least two thirds
of the outstanding voting shares of the Company, cease for any reason during
such year period to constitute at least two-thirds of the members of such Board
of Directors; or (iii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation or entity regardless of
which entity is the survivor, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or being
converted into voting securities of the surviving entity) at least 60% of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation; or (iv) the
shareholders of the Company approve a plan of complete liquidation or winding-up
of the Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets; or (v) any event which the
Company's Board of Directors determines should constitute a Change of Control.

            (e) Employee's Right to Payment. In receiving any payments pursuant
to this Section 7, Employee shall not be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to the
Employee hereunder, and such amounts shall not be reduced or terminated whether
or not the Employee obtains other employment.

            (f) Reduction in Agreement Payment. Notwithstanding anything in this
Agreement to the contrary, if any of the payments provided for under this
Agreement (the "Agreement Payments"), together with any other payments that the
Employee has the right to receive (such other payments together with the
Agreement Payments are referred to as the "Total Payments"), would constitute a
"parachute payment" as defined in Section 28OG(b)(2) of the Internal Revenue
Code of 1986, as amended (the "Code") (a "Parachute Payment"), the Agreement
Payments shall be reduced by the smallest amount necessary so that no portion of
such Total Payments would be Parachute Payments. In the event the Company shall
make an Agreement Payment to the Employee that would constitute a Parachute
Payment, the Employee shall return such payment to the Company (together with
interest at the rate set forth in Section 1274(b)(2)(B) of the Code). For
purposes of determining whether and the extent to which the Total Payments
constitute Parachute Payments, no portion of the Total Payments the receipt of
which Employee has effectively waived in writing shall be taken into account.

      8. Covenant Not to Compete. Employee agrees that during his employment
with the Company and for a period of one (1) year following the termination of
his employment with the Company, for whatever reason:

            (a) Employee shall not, directly or indirectly, own any interest in,
manage, operate, control, be employed by, render advisory services to, or
participate in the management or control of any business that operates in the
same business as the Company, which Employee and the Company specifically agree
as the business of fabricating (wafering, preforming and faceting), marketing
and 


                                       4

<PAGE>

distributing moissanite gemstones or other diamond simulants to the gem and
jewelry industry (the "Business"), unless Employee's duties, responsibilities
and activities for and on behalf of such other business are not related in any
way to such other business's products which are in competition with the
Company's products. For purposes of this section, "competition with the Company"
shall mean competition for customers in the United States and in any country in
which the Company is selling the Company's products at the time of termination.
Employee's ownership of less than one percent of the issued and outstanding
stock of a corporation engaged in the Business shall not by itself be deemed to
be a violation of this Agreement. Employee recognizes that the possible
restriction on his activities which may occur as a result of his performance of
his obligations under Paragraph 8(a) are substantial, but that such restriction
is require for the reasonable protection of the Company.

            (b) Employee shall not, directly or indirectly, influence or attempt
to influence any customer of the Company to discontinue its purchase of any
product of the Company which is manufactured or sold by the Company at the time
of termination of Employee's employment or to divert such purchases to any other
person, firm or employer.

            (c) Employee shall not, directly or indirectly, interfere with,
disrupt or attempt to disrupt the relationship, contractual or otherwise,
between the Company and any of its suppliers.

            (d) Employee shall not, directly or indirectly, solicit any employee
of the Company to work for any other person, firm or employer.

       9. Confidentiality. In the course of his employment with the Company,
Employee will have access to confidential information, records, data, customer
lists, lists of product sources, specifications, trade secrets and other
information which is not generally available to the public and which the Company
and Employee hereby agree is proprietary information of the Company
("Confidential Information"). During and after his employment by the Company,
Employee shall not, directly or indirectly, disclose the Confidential
Information to any person or use any Confidential Information, except as is
required in the course of his employment under this Agreement. All Confidential
Information as well as records, files, memoranda, reports, plans, drawings,
documents, models, equipment and the like, including copies thereof, relating to
the Company's business, which Employee shall prepare or use or come into contact
with during the course of his employment, shall be and remain the Company's sole
property, and upon termination of Employee's employment with the Company,
Employee shall return all such materials to the Company.

      10. Proprietary Information. Employee shall assign to the Company, its
successors or assigns, all of Employee's rights to copyrightable works and
inventions which, during the period of Employee's employment by the Company or
its successors in business, Employee makes or conceives, either solely or
jointly with others, relating to any subject matter with which Employee's work
for the Company is or may be concerned ("Proprietary Information"). Employee
shall promptly disclose in writing to the Company such copyrightable works and
inventions and, without charge to the Company, to execute, acknowledge and
deliver all such further papers, including applications for copyrights and
patents for such copyrightable works and inventions, if any, in all countries
and to vest title thereto in the Company, its successors, assigns or nominees.
Upon termination of Employee's employment hereunder, Employee shall return to
the Company or its successors or assigns, as the case may be, any Proprietary
Information. The obligation of Employee to assign the rights to such
copyrightable works and inventions shall survive the discontinuance or
termination of this Agreement for any reason.

                                       5

<PAGE>

      11. Entire Agreement. This Agreement contains the entire agreement of the
parties with respect to Employee's employment by the Company and supersedes any
prior agreements between them, whether written or oral.

      12. Waiver. The failure of either party to insist in any one or more
instance, upon performance of the terms and conditions of this Agreement, shall
not be construed as a waiver or a relinquishment of any right granted hereunder
or of the future performance of any such term or condition.

       13. Notices. Any notice to be given under this Agreement shall be deemed
sufficient if addressed in writing and delivered personally, by telefax with
receipt acknowledged, or by registered or certified U.S. mail to the address
first above appearing, or to such other address as a party may designate by
notice from time to time.

       14. Severability. In the event that any provision of any paragraph of
this Agreement shall be deemed to be invalid or unenforceable for any reason
whatsoever, it is agreed such invalidity or unenforceability shall not affect
any other provision of such paragraph or of this Agreement, and the remaining
terms, covenants, restrictions or provisions in such paragraph and in this
Agreement shall remain in full force and effect and any court of competent
jurisdiction may so modify the objectionable provision as to make it valid,
reasonable and enforceable.

      15. Amendment. This Agreement may be amended only by an agreement in
writing signed by each of the parties hereto.

       16. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or breach thereof, shall be settled by arbitration in Raleigh,
North Carolina in accordance with the expedited procedures of the Rules of the
American Arbitration Association, and judgment upon the award may be rendered by
the arbitrator and may be entered in any court having jurisdiction thereof.

       17. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of North Carolina. Each of the parties
hereto irrevocably submits to the exclusive jurisdiction of the courts located
in North Carolina for the purposes of any suit, action or other proceeding
contemplated hereby or any transaction contemplated hereby.

       18. Benefit. This Agreement shall be binding upon and inure to the
benefit of and shall be enforceable by and against the Company, its successors
and assigns, and Employee, his heirs, beneficiaries and legal representatives.
It is agreed that the rights and obligations of Employee may not be delegated or
assigned except as may be specifically agreed to by the parties hereto.

      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.

                                                C3, Inc.

                                                By:  /s/ Jeff N. Hunter
                                                   -----------------------------
                                                   Jeff N. Hunter, President


                                                     /s/ Mark Kellam
                                                   -----------------------------
                                                         Mark Kellam



                                       6

<PAGE>

Position Description
Mark Kellam - Director of Technology                                   Exhibit A

Purpose:


The Director of Technology is responsible for all research and product
development activities at the Company including, but not limited to, interfacing
with Cree Research on moissanite development programs, developing methods to
maximize gemstone yields and identifying effective test instrument technologies.
This position reports to the President.

Responsibilities:

1. Lead the research and product development activities for the Company,
   including planning, budgeting and policy setting.

2. Interface with Cree Research on silicon carbide development programs working
   closely with the Director of Manufacturing at the Company.

3. Identify and implement solutions, working closely with the Director of
   Manufacturing, to maximize gemstone yields and improve the efficiency and
   effectiveness of manufacturing processes.

4. Develop effective test instrument technologies for distinguishing gemstones
   from diamond and similar gemstones.

5. Serve on company-wide project teams and perform such other responsibilities
   as may be assigned by the President or Board of Directors from time to time.

                                       7

<PAGE>

Incentive Compensation Plans                                           Exhibit B
Mark Kellam

                                   Background

Each member of the management team can have a significant impact on the
Company's ability to meet and exceed its goals. The Company has established an
Annual Incentive Compensation Plan and a Long-term Incentive Compensation Plan
to provide management and key employees with incentives to not only achieve the
performance goals outlined in the business plan, but to exceed those goals.

New goals and targets will be established each year for the Annual Incentive
Compensation Plan and goals and targets for the Long-term Incentive Plan will be
established from time-to-time.

                     1998 Annual Incentive Compensation Plan

The 1998 Annual Incentive Compensation Plan (Annual Plan) provides for a "target
bonus" which is based on a percentage of base compensation. Your specific
"target bonus" is outlined below. Each person that participates in the Annual
Plan has the ability to earn far in excess of their "target bonus" if the
Company exceeds its performance goals.

I. Your "Target Bonus". Your 1998 "target bonus" is 35% of your base
compensation, or $36,400.

2. Performance Goals. The Annual Plan performance goals for 1998 have been
separated into several categories based on the Company's performance relative to
net revenue and pre-tax income. Based upon the Company achieving different
performance levels, as outlined in the chart below, the participating employee
can earn different percentages of their "target bonus".


                                          Net Revenue
                          ------------------------------------------------------
                              Target       Target +       Optimum    Outstanding
      Pre-tax Income        > $31.7 M      >$35.6 M      >$42.2 M     >$48.5 M
                          ------------------------------------------------------
      --------------------------------------------------------------------------
      Target  > $12.4 M        100%          110%          120%         130%
      --------------------------------------------------------------------------
      Target + > $16.3 M       150%          165%          180%         195%
      --------------------------------------------------------------------------
      Optimum > $22.9 M        225%          245%          270%         290%
      --------------------------------------------------------------------------
      Outstanding > $29.2 M    325%          360%          390%         425%
      --------------------------------------------------------------------------


The actual net revenue and pre-tax income from the Company's 1998 audited
financial statements will be used to determine the appropriate percentage in the
table above. For example, net revenue of $34 million with pre-tax income of $14
million would lead to a bonus equal to 100% of the participant's "target bonus";
net revenue of $35.6 million with pre-tax income of $16.3 million would lead to
a bonus equal to 165% of the participants "target bonus", etc.

                                       1

<PAGE>


If the performance of the Company exceeds the criteria above, the percentages
will increase on a similar basis to those used above. If however, the Company
does not meet the criteria above, the bonus structure will be modified as
follows:

(a) As long as the $12.4 million pre-tax income target is met the bonuses will
    be awarded at the 100% level.

(b) If pre-tax income is below $12.4 million, so long as the Company achieves a
    positive pre-tax income, the percentage of the "target bonus" bonus would be
    reduced on a linear basis. Therefore, the percentage will be calculated by
    dividing the actual pre-tax net income by the $12.4 million target. No
    bonuses will be earned or paid if the Company does not achieve positive
    pre-tax net income.

                                       2


                                                                   EXHIBIT 10.28


THE REGISTRANT HAS REQUESTED THAT CERTAIN PORTIONS OF THIS EXHIBIT BE GIVEN
CONFIDENTIAL TREATMENT.  AN UNREDACTED VERSION OF THIS EXHIBIT HAS BEEN FILED
WITH THE COMMISSION.




                          FIRST AMENDMENT TO AGREEMENT
                              DATED MARCH 23, 1998
                   BETWEEN C3, INC. AND JOHN M. BACHMAN, INC.


<PAGE>
REDACTED - - OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND
IS DENOTED HEREIN BY ********


                          FIRST AMENDMENT TO AGREEMENT



      THIS FIRST AMENDMENT TO AGREEMENT (this "Amendment") is entered into as of
March 23, 1998 by and among C3, INC., a North Carolina corporation ("C3"), JOHN
M. BACHMAN, INC. ("JMB").

                              Statement of Purpose

      C3 and JMB entered into an Agreement dated September 24, 1997 (the
"Agreement") to formalize the terms upon which JMB will cut moissanite gemstones
for C3. C3 and JMB now desire to amend the Agreement to provide additional
expansion funds to JMB, to extend the term of the Agreement, and to provide C3
certain rights as to additional capacity and equity investments as set forth
below.

      Therefore, in consideration of the foregoing, the mutual covenants and
agreements contained herein, and other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:


      1. Additional Expansion Funds. Within 3 business days after the date of
this Amendment, C3 will advance to JMB by certified check delivered to the
address set forth in Section 7 of the Agreement, additional expansion funds in
the amount of *******, which will make the total expansion funds advances by C3
equal ******* (the "Expansion Funds"), which funds will be utilized by JMB
solely to expand its affiliate's production facility and procure additional
equipment and labor as needed to enable JMB and its affiliate to satisfy the
production volumes contemplated by the Agreement. The entire amount of the
Expansion Funds will be an advance against production charges payable by C3
pursuant to Section 2, below, and C3 will be credited against production charges
for the entire amount of the Expansion Funds pursuant to Section 2, below.

      2. Cutting Charges. C3 will pay JMB for Moissanite Gemstone cutting
services the prices set out in the Agreement. Beginning with the invoice
reflecting cutting services provided by JMB from and after May 1, 1998, the
amount payable to JMB by C3 reflected on each invoice will be reduced by 25%
until the aggregate amount of such reductions equals ******* and C3 has received
full credit against production charges for the amount of the Expansion Funds.

      3. Extension of Term. The initial term of the Agreement will be extended
from the date first set forth in the Agreement through December 31, 1999. In all
other aspects the term and termination provisions in the Agreement are hereby
confirmed.

                                       1

<PAGE>
REDACTED - - OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND
IS DENOTED HEREIN BY ********

      4. Production Procedures: Standards The volume of Moissanite Gemstones to
be cut by JMB from January 1999 to December 1999 will be ******* pieces per
month. JMB agrees to return to C3 any residual pieces of material from the
cutting process. In all other respects the production procedures and standards
in the Agreement are hereby confirmed.

      5. Rights of First Refusal

            a. Additional Capacity at the Affiliate. In the event JMB's
      affiliate has additional capacity to cut gemstones, whether moissanite or
      otherwise, C3 shall be offered in writing a right of first refusal to
      utilize such capacity, on the same terms as otherwise provided in the
      Agreement, as amended by this Amendment, prior to any gemstone cutting
      services being offered to any third party.

            b. Additional Equity. In the event JMB or its affiliate enter into
      negotiations for equity investments by any third party, JMB and its
      affiliate agree to provide a copy of any bona fide offer for such equity
      investment to C3. From the date of receipt of such bona fide offer, C3
      shall have 30 days to exercise its right of first refusal to make such
      equity investment in JMB or its affiliate on the same terms as provided in
      such bona fide offer.

      6. Confirmation of Agreement. In all other respects the parties hereto
confirm the terms of the Agreement. JMB will obtain in writing, and provide to
C3, the consent of its affiliate to be bound by the terms of this Amendment.

      IN WITNESS WHEREOF, each of the parties has executed and delivered this
Amendment by its duly authorized officer, as of the date first above written.


                                    C3, INC.

                                    By:   /s/ Mark W. Hahn                  
                                       --------------------------
                                    Name:     Mark W. Hahn                  
                                       --------------------------
                                    Title:    CFO                          

                                    JOHN M. BACHMAN, INC.

                                    By:   /s/ John M. Bachman              
                                       --------------------------
                                    Name:     John M. Bachman               
                                       --------------------------
                                    Title:    President             
                                       --------------------------


                                                                   EXHIBIT 10.29




THE REGISTRANT HAS REQUESTED THAT CERTAIN PORTIONS OF THIS EXHIBIT BE GIVEN
CONFIDENTIAL TREATMENT.  AN UNREDACTED VERSION OF THIS EXHIBIT HAS BEEN FILED
WITH THE COMMISSION





                          SECOND AMENDMENT TO AGREEMENT
                            DATED SEPTEMBER 24, 1998
                   BETWEEN C3, INC. AND JOHN M. BACHMAN, INC.





<PAGE>
REDACTED - - OMITTED MATERIAL HAS BEEN FILED SEPARATELY  WITH THE COMMISSION AND
IS DENOTED HEREIN BY ********


                          SECOND AMENDMENT TO AGREEMENT



      THIS SECOND AMENDMENT TO AGREEMENT (this "Amendment") is entered into as
of September 28, 1998 by and among C3, INC., a North Carolina corporation
("C3"), JOHN M. BACHMAN, INC. ("JMB").

                              Statement of Purpose

      C3 and JMB entered into an Agreement dated September 24, 1997 (the
"Agreement") to formalize the terms upon which JMB will cut moissanite gemstones
for C3 and a First Amendment to the Agreement dated March 23, 1998 (the "First
Amendment"). C3 and JMB now desire to amend the Agreement to provide additional
expansion funds to JMB, to provide for JMB to perform certain preform
identification and finished gemstone grading services, to extend the term of the
Agreement and to adjust the per piece cutting charges as set forth below.

      Therefore, in consideration of the foregoing, the mutual covenants and
agreements contained
 herein, and other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:

      1. Additional Expansion Funds. Within 3 business days after the date of
this Amendment, C3 will advance to JMB by certified check delivered to the
address set forth in Section 7 of the Agreement, additional expansion funds in
the amount of *******, which will make the total expansion funds advances by C3
equal ******* (the "Expansion Funds"), which funds will be utilized by JMB
solely to expand its affiliate's production facility and procure additional
equipment and labor as needed to enable JMB and its affiliate to satisfy the
production volumes contemplated by the Agreement. The entire amount of the
Expansion Funds will be an advance against production charges payable by C3
pursuant to Section 2, below, and C3 will be credited against production charges
for the entire amount of the Expansion Funds pursuant to Section 2, below.

      2. Cutting Charges. Beginning with the invoice reflecting cutting services
provided by JMB from and after C3 PO # 10730, C3 will pay JMB for Moissanite
Gemstone cutting services at rates as set forth on Exhibit A hereto and the
amount payable to JMB by C3 reflected on each invoice will be reduced by 25%
until the aggregate amount of such reductions prior to and after this Amendment
equals ******* and C3 has received full credit against production charges for
the amount of the Expansion Funds. In all other respects the cutting charges and
payment procedures in the Agreement and the First Amendment are hereby
confirmed.


                                       1

<PAGE>
REDACTED - - OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND
IS DENOTED HEREIN BY ********

      3. Extension of Term. The initial term of the Agreement will be extended
      from the date first set forth in the Agreement through December 31, 2000,
      however, C3 may terminate the Agreement at any time after January 1, 2000
      with 90 days prior written notice.

      4. Production Procedures: Standards

         a.    JMB or its affiliate will determine the proper table orientation
      for each gemstone based on the shape of the gemstone preform provided by
      C3. C3 will have the right to deduct from the payment of each invoice the
      cutting charges related to any gemstones that are not cut with the
      appropriate table orientation.

         b.    Based on the current and anticipated requirement for the
      production of a higher percentage of gemstones larger than *** mm in size
      than contemplated in the Agreement, the monthly production volumes (in
      finished pieces) will be as follows:

                  Sep 1998          ********
                  Oct 1998          ********
                  Nov 1998          ********
                  Dec 1998          ********
                  Jan 1999          ********
                  Feb 1999          ********
                  Mar-Dec 2000      ********

         c.    JMB or its affiliate will separate the finished gemstones by
      millimeter size of the girdle of the gemstone and will further separate
      the gemstones by the clarity grade using the master stone set and written
      instructions previously provided.

         d.    In all other respects the production procedures and standards in
      the Agreement and the First Amendment are hereby confirmed.


      5. Confirmation of Agreement. In all other respects the parties hereto
confirm the terms of the Agreement and the First Amendment. JMB will obtain in
writing, and provide to C3, the consent of its affiliate to be bound by the
terms of this Amendment.

                                       2

<PAGE>
REDACTED - - OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND
IS DENOTED HEREIN BY ********

      IN WITNESS WHEREOF, each of the parties has executed and delivered this
Amendment by its duly authorized officer, as of the date first above written.

                                    C3, INC.

                                    By:  /s/ Robert S. Thomas                
                                       --------------------------
                                    Name:    Robert S. Thomas                
                                       --------------------------
                                    Title:   President                      
                                       --------------------------

                                    JOHN M. BACHMAN, INC.

                                    By:  /s/ John M. Bachman               
                                       --------------------------
                                    Name:    John M. Bachman               
                                       --------------------------
                                    Title:   President             
                                       --------------------------


                                       3

<PAGE>
REDACTED - - OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION AND
IS DENOTED HEREIN BY ********

                                    EXHIBIT A

                      [On John M. Bachman, Inc. Letterhead]



September 23, 1998

Attention:  Earl Hines c/o C3, Inc.
Fax         919-468-0486

Dear Earl,

      I communicated with Robits and Chris, and we have agreed to revise the
rates. Please call when you have looked over them so I can finalize the
proposal.

Best regards,



For Rounds and Squares:

- ----------------------------
Size in mm       Per Price
- ----------------------------
********          *******
- ----------------------------
********          *******
- ----------------------------
********          *******
- ----------------------------
********          *******
- ----------------------------
********          *******
- ----------------------------
********          *******
- ----------------------------
********          *******
- ----------------------------
********          *******
- ----------------------------
********          *******
- ----------------------------
********          *******
- ----------------------------
********          *******
- ----------------------------


<PAGE>

REDACTED - - OMITTED MATERIAL HAS BEEN FILED SEPARATELY  WITH THE COMMISSION AND
IS DENOTED HEREIN BY ********

For average dimensions of ******** mm and under.

- --------------------------------------------------------------------------------
Shape                                    Add to Above Rates:
- --------------------------------------------------------------------------------
Oval and Baguette                        ********
- --------------------------------------------------------------------------------
Marquise, Pear and Princess              ********
- --------------------------------------------------------------------------------
Trillion                                 ********
- --------------------------------------------------------------------------------
Heart and Tapered Baguette               ********
- --------------------------------------------------------------------------------


For average dimensions over ******** mm:

- --------------------------------------------------------------------------------
Shape                                          Total Charge
- --------------------------------------------------------------------------------
Round and Square                               ********
- --------------------------------------------------------------------------------
Oval, Baguette, Marquise, Pear, Princess and                                    
Trillion                                       ********
- --------------------------------------------------------------------------------
Heart and Tapered Baguette                     ********
- --------------------------------------------------------------------------------



<TABLE> <S> <C>


<ARTICLE>                     5
<LEGEND>
This Schedule Contains Summary Financial Information Extracted From The
Condensed Balance Sheet As Of September 30, 1998 And The Condensed Statement Of
Operations For The Nine Months Ended September 30, 1998 And Is Qualified In Its
Entirety By Reference To Such Financial Statements.
</LEGEND>
            
<S>                             <C>
<PERIOD-TYPE>                   9-MOS
<FISCAL-YEAR-END>                             DEC-31-1998
<PERIOD-START>                                JAN-01-1998
<PERIOD-END>                                  SEP-30-1998
<CASH>                                         34,401,501
<SECURITIES>                                            0
<RECEIVABLES>                                     524,086
<ALLOWANCES>                                            0
<INVENTORY>                                     1,812,887
<CURRENT-ASSETS>                               37,199,125
<PP&E>                                          3,774,061
<DEPRECIATION>                                    119,033
<TOTAL-ASSETS>                                 41,061,541
<CURRENT-LIABILITIES>                           2,138,994
<BONDS>                                                 0
<PREFERRED-MANDATORY>                                   0
<PREFERRED>                                             0 
<COMMON>                                       47,821,538 
<OTHER-SE>                                     (8,898,991)
<TOTAL-LIABILITY-AND-EQUITY>                   41,061,541
<SALES>                                         1,778,938
<TOTAL-REVENUES>                                1,778,938
<CGS>                                           1,380,200
<TOTAL-COSTS>                                   1,380,200
<OTHER-EXPENSES>                                        0 
<LOSS-PROVISION>                                        0 
<INTEREST-EXPENSE>                                      0 
<INCOME-PRETAX>                                (5,424,076)
<INCOME-TAX>                                            0 
<INCOME-CONTINUING>                            (5,424,076)
<DISCONTINUED>                                          0 
<EXTRAORDINARY>                                         0 
<CHANGES>                                               0 
<NET-INCOME>                                   (5,424,076)
<EPS-PRIMARY>                                        (.78)
<EPS-DILUTED>                                        (.78)
                                               

</TABLE>