**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        DC 20549**
 
 **FORM
        10-QSB**
 
 [X]
              QUARTERLY
                  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                  OF
                  1934
 **For
        the quarterly period ended October 31, 2007**
 
 OR
 
 [ 
                  ]
              TRANSITION
                  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                  OF
                  1934
 For
        the
        transition period from _______ to _______
 
 Commission
        file number: None
 
 **PureDepth,
        Inc.**
 (Exact
        Name of Registrant as Specified in Its Charter)
 
 Delaware
                (State
                  or other jurisdiction of
                incorporation
                  or organization)
              20-4831825
                (I.R.S.
                  Employer Identification No.)
  255
        Shoreline Drive, Suite 610, Redwood City, California 94065
 (Address
        of principal executive offices)
 
 (650)
        632-0800
 (Issuer’s
        telephone number)
  (Former
        name, former address and former fiscal year, if changed since last
        report)
 
 
 Check
        whether the issuer: (1) 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 issuer was required to file such reports),
        and
        (2) has been subject to such filing requirements for the past 90 days. Yes
        [X]
        No [  ]
 
 Indicate
        by check mark whether the registrant is a shell company (as defined by Rule
        12b-2 of the Exchange Act). Yes [  ] No [X]
 
 As
        of
        December 14, 2007 there were 68,373,631 shares of the issuer’s common stock,
        $0.001 par value, outstanding.
 
 Transitional
        Small Business Disclosure Format (check one): Yes [  ] No [X]
 
 1
 **INDEX**
  Page**PART
                  I** -
                  **FINANCIAL
                  INFORMATION****Item
                  1.**
              Financial
                  Statements:
              
              3-
                  Unaudited Condensed Consolidated Balance Sheet-
                  Unaudited Condensed Consolidated Statements of Operations-
                  Unaudited Condensed Consolidated Statements of Cash Flows-
                  Notes to Unaudited Condensed Consolidated Financial
                  Statements**Item
                  2.**
              Management’s
                  Discussion and Analysis of Financial Condition or Plan or
                  Operation
              
              16**Item
                  3.**
              Controls
                  and Procedures
              
              24**PART
                  II** -
                  **OTHER
                  INFORMATION****Item
                  1.**
              Legal
                  Proceedings
              
              25Risk
                  Factors
              
              25**Item
                  2.**
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              
              34**Item
                  3.**
              Defaults
                  Upon Senior Securities
              
              34**Item
                  4.**
              Submission
                  of Matters to a Vote of Security Holders
              
              34**Item
                  5.**
              Other
                  Information
              
              34**Item
                  6.**
              Exhibits
              
              35Signatures
              
              37
   2
 **PART
        I - FINANCIAL INFORMATION**
 
 **Item
        1. Financial Statements**
 
 **PUREDEPTH,
        INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED BALANCE SHEET**
 
 **October
                  31, 2007****Unaudited****ASSETS****Current
                  Assets**Cash
                  and cash equivalents
              
              $
              2,281,069Restricted
                  cash
              
              
              77,774Accounts
                  receivable
              
              
              106,222Other
                  current assets
              
              
              198,341Total
                  current assets
              
              
              2,663,406**Property
                  & Equipment (net)**
              
              
              399,310**Other
                  Assets**Intellectual
                  property (net)
              
              
              2,561,790**Total
                  Assets**
              
              $
              5,624,506**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****Current
                  Liabilities**Accounts
                  payable
              
              $
              305,925Accrued
                  expenses
              
              
              600,668Accrued
                  interest
              
              
              50,850Deferred
                  revenue - current portion
              
              
              750,000Notes
                  payable - current portion
              
              
              124,480Total
                  current liabilities
              
              
              1,831,923**Long
                  Term Liabilities**Deferred
                  revenue
              
              
              2,221,154Notes
                  payable
              
              
              444,279**Total
                  Liabilities**
              
              
              4,497,356**Commitments
                  and Contingencies**
              
              
              -**Stockholders'
                  Equity**Preferred
                  stock, $0.001 par value, 10,000,000 shares authorized and no outstanding
                  sharesCommon
                  stock, $0.001 par value 190,000,000 shares authorized, 68,202,584
                  shares
                  issued and outstanding
              
              
              68,203Additional
                  paid-in-capital
              
              
              33,903,666Accumulated
                  other comprehensive loss
              
              
              (648,778
              )Accumulated
                  deficit
              
              
              (32,195,941
              )Total
                  stockholders' equity
              
              
              1,127,150**Total
                  Liabilities and Stockholders' Equity**
              
              $
              5,624,506
 
 *The
        accompanying footnotes are an integral part of these unaudited condensed
        consolidated financial statements.*
 3
 **PUREDEPTH,
        INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**
 
 **Three
                  Months Ended**
              
              
              **Nine
                  Months Ended****October
                  31,**
              
              
              **October
                  31,****2007**
                **Unaudited**
              
              
              **2006**
                **Unaudited**
              
              
              **2007**
                **Unaudited**
              
              
              **2006**
                **Unaudited****Revenue**Licensing
              
              $
              187,500
              
              
              $
              28,846
              
              
              $
              562,500
              
              
              $
              28,846Services
              
              
              32,088
              
              
              
              -
              
              
              
              67,087
              
              
              
              -Product
                  sales
              
              
              77,000
              
              
              
              52,650
              
              
              
              207,317
              
              
              
              52,650Total
                  revenue
              
              
              296,588
              
              
              
              81,496
              
              
              
              836,904
              
              
              
              81,496Cost
                  of licensing
              
              
              80,634
              
              
              
              11,289
              
              
              
              234,603
              
              
              
              11,289Cost
                  of services
              
              
              32,256
              
              
              
              -
              
              
              
              57,776
              
              
              
              -Cost
                  of product sales
              
              
              65,023
              
              
              
              55,178
              
              
              
              184,565
              
              
              
              55,178Total
                  cost of revenue
              
              
              177,913
              
              
              
              66,467
              
              
              
              476,944
              
              
              
              66,467Gross
                  margin
              
              
              118,675
              
              
              
              15,029
              
              
              
              359,960
              
              
              
              15,029**Operating
                  Expenses**Depreciation and amortization
              
              
              30,348
              
              
              
              72,253
              
              
              
              68,810
              
              
              
              225,262Research and development
              
              
              701,284
              
              
              
              306,642
              
              
              
              1,870,661
              
              
              
              1,855,291Sales and marketing
              
              
              504,625
              
              
              
              484,863
              
              
              
              1,400,713
              
              
              
              1,480,112General and administrative
              
              
              1,150,831
              
              
              
              1,679,642
              
              
              
              4,127,035
              
              
              
              4,675,249Total
                  operating expenses
              
              
              2,387,088
              
              
              
              2,543,400
              
              
              
              7,467,219
              
              
              
              8,235,914Loss
                  from operations
              
              
              (2,268,413
              )
              
              
              (2,528,371
              )
              
              
              (7,107,259
              )
              
              
              (8,220,885
              )**Other
                  Income (Expense)**Interest income
              
              
              29,122
              
              
              
              59,827
              
              
              
              177,292
              
              
              
              118,485Interest expense
              
              
              (14,041
              )
              
              
              (16,721
              )
              
              
              (41,804
              )
              
              
              (65,305
              )Foreign exchange gain/(loss)
              
              
              (78,532
              )
              
              
              (14,305
              )
              
              
              (145,305
              )
              
              
              34,922Other income
              
              
              470
              
              
              
              2,039
              
              
              
              363
              
              
              
              88,119Total
                  other income (expense)
              
              
              (62,981
              )
              
              
              30,840
              
              
              
              (9,454
              )
              
              
              176,221Loss
                  from continuing operations
              
              
              (2,331,394
              )
              
              
              (2,497,531
              )
              
              
              (7,116,714
              )
              
              
              (8,044,664
              )Discontinued
                  operations – Numismatic
                Capital
                  Group,  net of income taxes
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              15,279Net
                  loss
              
              $
              (2,331,394
              )
              
              $
              (2,497,531
              )
              
              $
              (7,116,714
              )
              
              $
              (8,029,385
              )Net
                  loss per share, basic and diluted
              
              $
              (0.03
              )
              
              $
              (0.04
              )
              
              $
              (0.11
              )
              
              $
              (0.14
              )Weighted
                  average shares outstanding
              
              
              67,424,122
              
              
              
              57,261,454
              
              
              
              66,953,379
              
              
              
              57,182,066**Comprehensive
                  Loss**Net
                  loss, per statement of operations
              
              $
              (2,331,394
              )
              
              $
              (2,497,531
              )
              
              $
              (7,116,714
              )
              
              $
              (8,029,385
              )Foreign
                  exchange gain
              
              
              62,122
              
              
              
              -
              
              
              
              62,122
              
              
              
              33,132Comprehensive
                  net loss
              
              $
              (2,269,272
              )
              
              $
              (2,497,531
              )
              
              $
              (7,054,592
              )
              
              $
              (7,996,253
              )
 
 **Basic
                  and Diluted Loss per Share**Net
                  loss from continuing operations
              
              $
              (0.03
              )
              
              $
              (0.04
              )
              
              $
              (0.11
              )
              
              $
              (0.14
              )Income
                  (loss) from discontinued operations, netof
                  income tax
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Foreign
                  exchange gain
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Comprehensive
                  net loss
              
              $
              (0.03
              )
              
              $
              (0.04
              )
              
              $
              (0.11
              )
              
              $
              (0.14
              )Weighted
                  average shares outstanding
              
              
              67,424,122
              
              
              
              57,261,454
              
              
              
              66,953,379
              
              
              
              57,182,066
 
 *The
        accompanying footnotes are an integral part of these unaudited condensed
        consolidated financial statements.*
 4
 **PUREDEPTH,
        PUREDEPTH, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 
 **For
                  Nine Months Ended****October
                  31, 2007**
                **Unaudited**
              
              
              **October
                  31, 2006**
                **Unaudited****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  loss
              
              $
              (7,116,714
              )
              
              $
              (8,029,385
              )Adjustments
                  to reconcile net loss to net cash flows from operating
                  activities:Depreciation
                  and amortization
              
              
              303,413
              
              
              
              236,551Stock-based
                  compensation expense
              
              
              763,290
              
              
              
              3,368,809Loss
                  on disposal of fixed assets
              
              
              -
              
              
              
              18,092Foreign
                  exchange (gain) loss
              
              
              62,122
              
              
              
              (34,922
              )Non-cash
                  interest expense
              
              
              (2,822
              )
              
              
              -Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (97,013
              )
              
              
              19,295Marketable
                  securities
              
              
              (44,247
              )
              
              
              -Restricted
                  cash
              
              
              (16,952
              )
              
              
              -Prepaid
                  expenses and other current assets
              
              
              (46,149
              )
              
              
              (155,572
              )Accounts
                  payable
              
              
              74,288
              
              
              
              (90,686
              )Deferred
                  revenue
              
              
              (562,500
              )
              
              
              3,721,154Accrued
                  expenses
              
              
              332,348
              
              
              
              323,399Accrued
                  interest
              
              
              41,604
              
              
              
              55,674Net
                  cash used for operating activities
              
              
              (6,309,332
              )
              
              
              (567,591
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Purchases
                  of securities
              
              
              (999,631
              )
              
              
              -Proceeds
                  from maturity of securities
              
              
              4,016,000
              
              
              
              -Purchases
                  of property and equipment
              
              
              (152,997
              )
              
              
              (270,613
              )Expenditures
                  for intellectual property
              
              
              (260,986
              )
              
              
              (223,260
              )Net
                  cash provided by (used for) investing activities
              
              
              2,602,386
              
              
              
              (493,873
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Issuance
                  of common stock (net)
              
              
              694,104
              
              
              
              10,123,845Borrowings
                  on capital lease and short term financing
              
              
              14,859
              
              
              
              (29,585
              )Principal
                  payments on capital lease obligations
              
              
              (826
              )
              
              
              -Net
                  cash provided by financing activities
              
              
              708,137
              
              
              
              10,094,260Effect
                  of exchange rate on cash
              
              
              -
              
              
              
              46,980Net
                  (decrease) increase in cash and cash equivalents
              
              
              (2,998,809
              )
              
              
              9,079,776Cash
                  and cash equivalents at beginning of period
              
              
              5,279,878
              
              
              
              857,998Cash
                  and cash equivalents at end of period
              
              $
              2,281,069
              
              
              $
              9,937,774
 
 *The
        accompanying footnotes are an integral part of these unaudited condensed
        consolidated financial statements.*
 5
 **PUREDEPTH,
        INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
  
 **For
                  Nine Months Ended****October
                  31, 2007**
                **Unaudited**
              
              
              **October
                  31, 2006**
                **Unaudited****SUPPLEMENTAL
                  CASH FLOWS INFORMATION:**Cash
                  and cash equivalents
              
              $
              2,281,069
              
              
              $
              9,877,476Restricted
                  cash
              
              
              77,774
              
              
              
              60,298Cash,
                  cash equivalents and restricted cash at end of period
              
              $
              2,358,843
              
              
              $
              9,937,774Cash
                  paid for income taxes
              
              $
              800
              
              
              $
              -Cash
                  paid for interest
              
              $
              -
              
              
              $
              19,215**NON
                  CASH DISCLOSURES:**Notes
                  payable to purchase fixed assets
              
              $
              14,859
              
              
              $
              -Warrants
                  issued for stock issuance costs
              
              $
              -
              
              
              $
              1,840,779Notes
                  and accrued interest converted to stock
              
              $
              -
              
              
              $
              774,330
 
 *The
        accompanying footnotes are an integral part of these unaudited condensed
        consolidated financial statements.*
 
 
 6
 **PUREDEPTH,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
        STATEMENTS**
  **Note
        1 - Summary of Significant Accounting Policies**
 
 ***Basis
        of Presentation***
 
 The
        accompanying unaudited condensed consolidated financial statements of PureDepth,
        Inc. (“the Company") are presented in accordance with the requirements for Form
        10-QSB and Article 10 of Regulation S-X and Regulation S-B. Accordingly,
        they do
        not include all of the disclosures required by accounting principles generally
        accepted in the United States of America.   The accompanying
        condensed consolidated financial statements for the interim period should
        be
        read in conjunction with the audited consolidated financial statements for
        the
        fiscal year ended January 31, 2007 included in the Company's Annual Report
        on
        Form 10-KSB filed with the Commission on May 31, 2007, as amended by Form
        10-KSB/As filed on June 1, 2007 and December 5, 2007.  Those statements
        contain a summary of significant accounting policies.
 
 In
        the
        opinion of management, all adjustments (all of which were of a normal recurring
        nature) considered necessary to fairly present the financial position, results
        of operations, and cash flows of the Company on a consistent basis, have
        been
        made.
 
 These
        results have been determined on the basis of generally accepted accounting
        principles and practices applied consistently with those used in the preparation
        of the Company's Annual Consolidated Financial Statements for the year ended
        January 31, 2007 and ten months ended January 31, 2006. Operating results
        for
        the nine months ended October 31, 2007 are not necessarily indicative of
        the
        results that may be expected for the fiscal year ending January 31,
        2008.
 
 Certain
        balances in the prior periods have been reclassified to conform to the
        presentation adopted in the current period.
 
 ***Going
        Concern***
  The
        report of our independent auditors on the Company’s consolidated financial
        statements for the fiscal year ended January 31, 2007 includes an explanatory
        paragraph indicating there is substantial doubt about the Company's ability
        to
        continue as a going concern.  The Company has continued to operate on
        a negative cash basis and incurred additional losses through the nine
        months ended October 31, 2007.
  Management
        has developed an operating plan that it believes will allow the
        Company to continue as a going concern through the end of the fiscal year
        ending
        January 31, 2008.  Based upon the Company’s cash position at October
        31, 2007 of $2,281,069 as well as current expectations regarding revenues
        and
        operating costs, the Company believes it can meet the cash requirements of
        the
        current plan for the fiscal year ending January 31, 2008 without raising
        additional funds.
  The
        Company expects it will continue to incur losses during the remainder of
        the
        fiscal year ending January 31, 2008 and beyond January 31,
        2008.  Accordingly, the Company is undertaking efforts to raise
        additional capital within the current fiscal year, in the form of either
        convertible debt or equity securities, loans from banks, other
        financial institutions or our affiliates, or a credit
        facility.
 
 In
        the
        event the Company is unsuccessful in its plans to finance operations through
        the
        above means it could be forced to significantly reduce its level of
        operations, including by slowing our growth, delaying hiring, abandoning
        certain product development including product development on which we may
        have
        already spent considerable resources and otherwise reducing expenses and
        eventually, if necessary, cease operations altogether.  If the
        Company is successful in its plans to finance operations through the above
        means, these plans ultimately may not resolve the going concern issue and
        additional financings may also be necessary thereafter until the Company is
        able to attain and sustain profitable operations.  These uncertainties
        raise substantial doubt about the Company’s ability to continue as a going
        concern.
 
 7
  The
        accompanying financial statements do not include any adjustments to reflect
        the
        possible future effects on the recoverability and classification of assets
        or
        the amounts and classification of liabilities that may result from the outcome
        of this uncertainty.
 
 ***Recently
        issued Accounting Pronouncements***
 
 In
        February 2007, the Company adopted the provision of Financial Accounting
        Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”), “Accounting for
        Uncertain Income Taxes – An Interpretation of FASB Statement of Financial
        Accounting Standards No. 109”.  FIN 48 clarifies the accounting for
        uncertainty in income taxes recognized in an entity’s financial statements in
        accordance with FASB Statement of Financial Accounting Standards No. 109,
        “Accounting for Income Taxes” (“SFAS 109”) and prescribes a recognition
        threshold and measurement attributes for financial statement disclosure of
        tax
        positions taken or expected to be taken on a tax return.  Under FIN
        48, the impact of an uncertain income tax position on the income tax return
        must
        be recognized at the largest amount that is more-likely-than-not to be sustained
        upon audit by the relevant taxing authority.  An uncertain income tax
        position will not be recognized if it has less than a 50% likelihood of being
        sustained.  Additionally, FIN 48 provides guidance on de-recognition,
        classification, interest and penalties, accounting in interim periods,
        disclosure and transition. There was no impact to the Company’s consolidated
        financial position, results of operations or cash flows for the nine months
        ended October 31, 2007.
  In
        February 2007, the FASB issued Statement of Financial Accounting Standards
        No. 159 (“SFAS 159”), *The Fair Value Option for Financial Assets and
        Financial Liabilities, including an amendment of FASB Statement
        No. 115*.  Under SFAS 159, companies are permitted to choose
        to measure many financial instruments and certain other items at fair value
        and
        establish presentation and disclosure requirements designed to facilitate
        comparisons between measurement attributes for similar types of assets and
        liabilities.  SFAS 159 is effective as of the beginning of our fiscal
        year ending January 31, 2009. We are currently evaluating the potential impact
        that SFAS 159 will have on our financial statements.
 
 ***Use
        of Estimates***
 
 The
        financial statements and notes are representations of the Company’s management,
        which is responsible for their integrity and objectivity. The preparation
        of
        financial statements requires management to make estimates and assumptions
        that
        affect the reported amounts of assets, liabilities, revenues and expenses
        and
        disclosures of contingent assets and liabilities at the date of the financial
        statements. Actual results could differ from those estimates.
 
 **Note
        2 -Description of Business**
 
 PureDepth,
        Inc., (PDI) along with its wholly owned subsidiaries, PureDepth Limited (PDL)
        and PureDepth Incorporated Limited (PDIL), (collectively, the Company) develops,
        markets, licenses, and supports multi-layer display technology. The Company
        also
        sells prototype MLD-enabled display devices that it manufactures.
 
 The
        Company’s technology has applications in industries and markets where flat panel
        monitors and displays are utilized and its goal is to have MLD technology
        become
        a standard technology for incorporation into these LCD-based products, which
        include location-based entertainment devices, computer monitors, public
        information display systems, flat panel televisions, mobile devices and other
        mass market display devices.
 
 Pursuant
        to an Agreement and Plan of Merger and Reorganization discussed in Note 3,
        PureDepth, Inc. survived as the newly formed and named parent entity of PDI
        and
        PDIL and the name of the predecessor entity, Diamond One, Inc. is no longer
        used.
 
 The
        consolidated financial statements include all of the accounts of PureDepth,
        Inc., a US corporation based in California, and its wholly-owned New Zealand
        subsidiaries, based in Auckland, New Zealand.
 
 8
  **Note
        3 - Merger**
 
 On
        March
        31, 2006 and pursuant to an Agreement and Plan of Merger and Reorganization
        dated March 16, 2006, PureDepth, Inc., a California corporation (PDI-CA)
        entered
        into a merger with PureDepth Technologies, Inc., a Delaware corporation and
        wholly owned subsidiary of Diamond One, Inc., a Colorado corporation quoted
        on
        the OTC Bulletin Board. As a result of the merger, PureDepth Technologies,
        Inc.
        succeeded to the business of PDI-CA, and survived as a wholly owned operating
        subsidiary of Diamond One, Inc.  PureDepth Technologies, Inc. was
        renamed PureDepth, Inc.  The merger was effected by the filing of a
        certificate of merger with the Delaware Secretary of State on March 31,
        2006.
 
 **Note
        4 - Cash, Cash Equivalents, Restricted Cash and Marketable
        Securities**
  Cash,
        cash equivalents and restricted cash at October 31, 2007 consisted of the
        following:
 
 **October
                  31, 2007**Cash
                  and cash equivalents:Cash
              
              $
              525,017Money
                  market funds
              
              
              1,756,052Total
                  cash and cash equivalents
              
              
              2,281,069Restricted
                  cash:Certificate
                  of deposit
              
              
              77,774Total
                  cash, cash equivalents, and restricted cash
              
              $
              2,358,843
  **Note
        5 - Intellectual Property**
 
 Intellectual
        property consists of acquired patents and capitalized initial patent
        registration costs related to internally developed
        technology.  Capitalized costs related to internally developed
        technology are amortized on a straight-line basis over their useful lives,
        generally 10 to 20 years.  The acquired patents were initially
        acquired by our predecessor entity from an unrelated party for the exclusive
        rights for the use of the underlying technology.  The acquired patents
        and related liability were valued at the present value of the expected future
        cash flows by our predecessor entity.  These patents and related
        liability were transferred to the Company at our predecessor entity’s carrying
        value as part of the reorganization described in Note 3. The acquired patents
        are amortized on a straight-line basis over the ten year life of the related
        acquisition agreement.
 
 The
        costs
        of internally developing intellectual property that are not specifically
        identifiable, that have indeterminate lives, or that are inherent in a
        continuing business and related to an entity as a whole have been expensed
        as
        incurred pursuant to the requirements of SFAS No. 142, *Goodwill and Other
        Intangible Assets.*
 
 The
        Company evaluates the recoverability of its intellectual property under the
        requirements of  SFAS No. 144, *Accounting for the Impairment or
        Disposal of Long-Lived Assets*.  Whenever events or changes in the
        circumstances indicate the potential for impairment of the intellectual
        property, the Company reviews the recoverability by comparison of its carrying
        amount to the expected future value.  No impairments of intellectual
        property have been identified as of October 31, 2007.
 
 Intellectual
        property consists of the following:
  **October
                  31, 2007**Patent
                  registration costs
              
              $
              2,323,879Software
                  development costs
              
              
              70,456Acquired
                  patent rights
              
              
              2,299,509Less:
                  accumulated amortization
              
              
              (2,132,054
              )Total
              
              $
              2,561,790
   9
 Amortization
        for the three months ended October 31, 2007 was $80,634.  Amortization
        expense for the next five years and thereafter is summarized in the following
        table:
  **Year
                  ended January 31**,2008
              
              $
              78,2012009
              
              
              312,8052010
              
              
              312,8052011
              
              
              312,8052012
              
              
              148,962Thereafter
              
              
              1,396,225
  **Note
        6 – Stockholders’ Equity**
 
 On
        April
        5, 2007, the Board of Directors approved an amendment (the “Amendment”) to the
        2006 Stock Incentive Plan (the “Plan”) to increase the maximum number of shares
        of common stock available for issuance of options and other equity based
        awards
        thereunder by 8,500,000 shares to 22,241,260 shares, subject to shareholder
        approval.  Shareholder approval of the Amendment was obtained on
        August 3, 2007.
 
 On
        April
        5, 2007, the Board of Directors approved the grant of options to employees
        to
        purchase 575,000 shares of common stock under the Plan upon the availability
        of
        shares with an exercise price equal to the closing price of the Company’s common
        stock on such date as reported by the OTC Bulletin Board.
 
 On
        April
        5, 2007, the Board of Directors approved the grant of options to directors
        to
        purchase 300,000 shares of common stock under the Plan, upon the date which
        the
        Company’s stockholders approve an increase in the number of shares of common
        stock available under the Plan with an exercise price equal to the closing
        price
        of the Company’s common stock on such date as reported by the OTC Bulletin
        Board.
 
 On
        May
        16, 2007, the Board of Directors approved the grant of options to employees
        to
        purchase 800,000 shares of common stock under the Plan, upon the availability
        of
        shares with an exercise price equal to the closing price of the Company’s common
        stock on such date as reported by the OTC Bulletin Board.
 
 On
        September 5, 2007, the Company filed a Registration Statement on Form S-8
        providing for the registration of an additional 8,500,000 shares, for a total
        of
        22,241,260 shares of the Company’s common stock available for issuance under the
        Plan.
 
 ***Equity
        Transactions***
 
 On
        March
        1, 2007, the remaining unexercised B-warrants to purchase 1,908,990 shares
        of
        common stock expired and the Company cancelled the respective
        warrants.
 
 On
        March
        26, 2007, 205,202 shares of common stock were issued pursuant to the exercise
        of
        B-warrants on March 1, 2007 at an exercise price of $0.87 per share for cash
        totaling $178,902.
 
 On
        April
        16, 2007, the Company granted to an employee options to purchase 300,000
        shares
        of common stock at an exercise price of $1.35, pursuant to the
        Plan.
 
 On
        April
        25, 2007, 150,000 shares of common stock were issued pursuant to the exercise
        of
        options granted at an exercise price of $0.28 per share for cash totaling
        $42,000.
 
 On
        April
        30, 2007, 75,000 shares of common stock were issued pursuant to the exercise
        of
        options granted at an exercise price of $0.28 per share for cash totaling
        $21,000.
 
 On
        May
        04, 2007, 100,000 shares of common stock were issued pursuant to the exercise
        of
        options granted at an exercise price of $0.28 per share for cash totaling
        $28,000.
 
 On
        June
        19, 2007, 100,000 shares of common stock were issued pursuant to the exercise
        of
        options granted at an exercise price of $0.28 per share for cash totaling
        $28,000.
 
 10
 On
        June
        19, 2007, the Company granted to employees options to purchase 578,347 shares
        of
        common stock at an exercise price of $1.67, pursuant to the Plan.
 
 On
        July
        15, 2007, 400,000 shares of common stock were issued pursuant to the exercise
        of
        options granted at an exercise price of $0.28 per share for cash totaling
        $112,000.
 
 On
        August
        3, 2007, the Company granted to employees and directors options to purchase
        1,046,655 shares of common stock at an exercise price of $1.50, pursuant
        to the
        Plan.
 
 On
        September 17, 2007, 250,000 shares of common stock were issued pursuant to
        the
        exercise of options granted at an exercise price of $0.28 per share for cash
        totaling $70,000.
 
 On
        September 20, 2007, 200,000 shares of common stock were issued pursuant to
        the
        exercise of options granted at an exercise price of $0.28 per share for cash
        totaling $56,000.
 
 On
        October 4, 2007, the Company granted to employees options to purchase 732,500
        shares of common stock at an exercise price of $0.95, pursuant to the
        Plan.
 
 On
        October 26, 2007, 465,000 shares of common stock were issued pursuant to
        the
        exercise of options granted at an exercise price of $0.28 per share for cash
        totaling $130,200.
 
 On
        October 30, 2007, the Company granted to a director options to purchase 100,000
        shares of common stock at an exercise price of $0.85, pursuant to the
        Plan.
 
 On
        October 31, 2007, 100,000 shares of common stock were issued pursuant to
        the
        exercise of options granted at an exercise price of $0.28 per share for cash
        totaling $28,000.
 
 ***Stock
        Warrants***
 
 The
        following table summarizes common stock warrant activity for the nine months
        ended October 31, 2007:
 
 **Warrants**
              
              
              **Weighted
                  Avg.**
                **Exercise
                  Price**Outstanding
                  at February 1, 2007
              
              
              19,404,660
              
              
              
              $1.15Exercised
              
              
              (205,202
              )
              
              
              $0.87Expired
              
              
              (1,908,990
              )
              
              
              $0.87Outstanding
                  at October 31, 2007
              
              
              17,290,468
              
              
              
              $1.15Exercisable
                  at October 31, 2007
              
              
              17,290,468
              
              
              
              $1.15
 
 No
        warrants were issued in the nine months ended October 31,
        2007.  Included in the total outstanding warrants at October 31, 2007
        are A-warrants to purchase 9,147,613 shares of common stock at $1.20 per
        share,
        C-warrants to purchase 1,082,811 shares of common stock at $0.44 per share,
        and
        D-warrants to purchase 7,060,044 shares of common stock at $1.20 per
        share.
 
 
 11
  ***Stock
        Option Plan***
 
 The
        Company maintains and accounts for the Plan in accordance with FASB Statement
        of Financial Accounting Standards No. 123(R) (“SFAS 123(R)”).
 
 The
        following table summarizes common stock option activity for the nine months
        ended October 31, 2007:
  **Option
                  Shares**
              
              **Shares**
              
              
              **Weighted
                  Avg.**
                **Exercise
                  Price**Outstanding
                  at February 1, 2007
              
              
              12,815,411
              
              
              
              $0.68Granted
              
              
              2,757,501
              
              
              
              $1.35Exercised
              
              
              (1,840,000
              )
              
              
              $0.28Cancelled
              
              
              (750,000
              )
              
              
              $3.06Outstanding
                  at October 31, 2007
              
              
              12,982,912
              
              
              
              $0.74Exercisable
                  at October 31, 2007
              
              
              9,618,789
              
              
              
              $0.41
 
 At
        October 31, 2007, the Company had reserved a total of 22,241,260 shares of
        common stock for issuance under the Plan. Options available for grant were
        6,829,178 at October 31, 2007.
 
 The
        following table summarizes significant ranges of outstanding and exercisable
        options as of October 31, 2007:
 
 **Outstanding**
              **Exercisable****Exercise
                  Price**
                **Range**
              **Shares**
              **Weighted**
                **Average**
                **Life***
              **Weighted**
                **Average**
                **Exercise**
                **Price**
              **Aggregate**
                **Intrinsic**
                **Value**
              **Shares**
              **Weighted**
                **Average**
                **Exercise**
                **Price**
              **Aggregate**
                **Intrinsic**
                **Value**$0.28
                  - $0.44
              9,053,344
              5.0
              $0.28
              $6,028,471
              9,053,344
              $0.28
              $6,028,471$0.85
                  - $2.07
              2,790,902
              6.6
              1.36
              10,000
              209,750
              1.40$2.20
                  - $2.95
              573,400
              6.1
              2.29
              
              152,250
              2.32$3.03
                  - $3.51
              565,267
              5.9
              3.37
              
              203,445
              3.37Total
              12,982,913
              5.4
              $0.74
              $6,038,471
              9,618,789
              $0.41
              $6,028,471
 *Average
        contractual remaining life in years
 
 The
        aggregate intrinsic value in the preceding table represents the total pretax
        intrinsic value based on stock options with an exercise price less than the
        Company’s closing stock price of $0.95 as of October 31, 2007, which would have
        been received by the option holders had those option holders exercised their
        options as of that date.  The total of in-the-money stock options
        exercisable as of October 31, 2007 was 9,053,344.
 
 The
        stock-based compensation cost for the three and nine months ended October
        31,
        2007 was $376,617 and $763,290, respectively.  Under FAS 123(R), we
        determined the appropriate fair value model to be used for valuing share
        based
        payments and the amortization method for compensation cost.Total unrecorded
        stock-based compensation cost at October 31, 2007 associated with employee
        and
        director stock options was approximately $3.1 million and is expected to
        be
        recognized over a weighted-average period of 2.5 years.
 
 The
        fair
        value of each option award was estimated on the date of grant using a
        Black-Scholes option valuation model that used the weighted-average assumptions
        noted in the following table:
 
 **Significant
                  Assumptions:**Expected
                  term (in years)
              
              
              3.5
                  - 5.0Expected
                  volatility
              
              
              70.0%Risk-free
                  rate
              
              4.20%
                  to 5.03%Expected
                  forfeiture rate
              
              
              6.0%Expected
                  dividend yield
              
              
              -
 
 12
  **Note
        7 - Loss per Share**
  The
        Company's loss per share of common stock is based on the weighted average
        number
        of common shares outstanding at the financial statement date.
 
 Stock
        options to purchase 12,982,912 shares of common stock and warrants to purchase
        17,290,468 shares of common stock at October 31, 2007, and stock options
        to
        purchase 12,813,676 shares of common stock and warrants to purchase 19,722,037
        shares of common stock at October 31, 2006 were antidilutive and therefore
        excluded from the fully diluted loss per share calculation.
  **Note
        8 – Major Customer**
 
 One
        customer accounted for 100% of the Company’s licensing revenues for the three
        and nine month period ended October 31, 2007.  The same customer
        accounted for the entire ending balance of deferred revenue at October 31,
        2007
        which is derived from a licensing agreement that required a $3.75 million
        advance, non-refundable payment.  The balance of the advance on
        licensing revenues represents the deferred revenue and will continue to be
        earned over the remaining term of the agreement.
  **Note
        9 - Income Taxes**
 
 The
        Company has no unrecognized tax benefits as of February 1, 2007; consequently,
        the application of FIN 48 had no impact on retained earnings.
 
 As
        a
        result of the adoption of FIN 48, there was no impact to the Company’s
        consolidated financial position, results of operations or cash flows for
        the
        nine months ended October 31, 2007. In accordance with FIN 48, the Company
        recognizes interest and penalties related to unrecognized tax benefits as
        a
        component of income taxes. At October 31, 2007 no interest or penalties related
        to unrecognized tax benefits had been recorded.  There was no change
        to the Company’s unrecognized tax benefits for the nine months ended October 31,
        2007.
 
 The
        Company is subject to taxation in the U.S. and California. The Company's
        subsidiaries are subject to taxation in New Zealand.  All the
        Company’s tax years in the U.S. are open to examination by the Federal and
        California tax authorities as a result of the Company’s overall net operating
        loss carryforward position.  The Company's subsidiaries are subject to
        examination by foreign tax authorities for all tax years.
 
 **Note
        10 – Related Party Transactions**
  On
        April
        5, 2007, the Board of Directors agreed to grant David Hancock, as a director
        and
        Chairman of the Board of Directors of the Company, an option to acquire 100,000
        shares of the Company's common stock under the Plan, to be effective upon
        the
        date on which the Company’s stockholders approved of an increase in the number
        of shares of common stock available under the Plan.  However, Mr.
        Hancock resigned from the Board on June 26, 2007 prior to the date on which
        such
        stockholder approval was obtained and thus the grant was not
        issued.
  On
        April
        5, 2007, the Company agreed with Mr. Floisand and Mr. Marcus, each a member
        of
        the Board of Directors, to terminate the offer letters we entered into with
        them
        in September 2006.  The Board of Directors also approved the grant to
        each  of them an additional option to acquire 100,000 shares of the
        Company's common stock as contemplated by each such director's original offer
        letter and, except as otherwise described herein, on the terms and conditions
        described in such offer letter and related Board of Directors actions. The
        grant
        date for these options was August 3, 2007, the date on which the Company’s
        stockholders approved an increase in the number of shares of common stock
        available under the Plan.
  On
        June
        26, 2007, Mr. Marcus was appointed as our Chief Executive Officer on an interim
        basis after the resignation of Mr. Angelopoulos as our Chief Executive
        Officer.  In his capacity as a consultant, Mr. Marcus received an
        hourly fee of $150 per hour, limited to $1,500 per day.  Mr. Marcus
        was subsequently appointed full-time Chief Executive Officer of the Company
        pursuant to the terms of an executive employment agreement in September,
        2007,
        as described below.
 
 13
 
 On
        July 20, 2007,
        theCompany
        enteredinto an
        agreement with Mr. Angelopoulos relating to his separation from
        the
        Company. The
        terms of the Separation Agreement superseded any relevant terms of Mr.Angelopoulos’employment
        agreement and call for Mr. Angelopoulos to provide consulting services to
        the
        Company for a period of three months following his resignation. During such
        three month period, Mr. Angelopoulos will earn a monthly consulting fee
        equivalent to his monthly salary at the time of his departure (“Base Salary
        Rate”); thereafter he will continue to receive, as severance payment,
        semi-monthly payments in a monthly amount equal to his Base Salary Rate for
        a
        period of twelve months. Under the SeparationAgreement,
        the Company will
        pay for two years of Mr. Angelopoulos’ COBRA health insurance premiums.
        Remaining unpaid severance costs of approximately $264,200 are included in
        accrued expenses at October 31, 2007.  In addition, Mr. Angelopoulos’
stock option agreement was amended to provide that it may be exercised in
        two
        tranchesin 2007
        and 2008, respectively, and to accelerate the selling schedule applicable
        to
        shares of the Company’s common stock acquired upon any such exercise, so that
        the following shares may be sold in the following
        years:600,000 shares in calendar year 2007, 870,000 shares in
        calendar year 2008, and 1,430,000 shares in calendar year 2009.
 
 On
        August
        2, 2007, the Company and K One W One Limited (“K1W1”), entered into a waiver
        agreement, whereby K1W1 agreed to waive its existing registration rights
        previously granted to K1W1 by the Company under various agreements (the “Waiver
        Agreement”).  K1W1 is the Company’s largest stockholder and as of
        October 31, 2007, was the beneficial owner of approximately 53% of the Company’s
        outstanding stock.   As a result of the Waiver Agreement, in
        Amendment No. 2 to the Company’s Registration Statement on Form SB-2/A filed on
        August 28, 2007 (the “Second Amended Registration Statement”), 18,774,352 shares
        of outstanding Common Stock held by K1W1 and 1,768,698 shares of Common Stock
        issuable upon exercise of outstanding warrants held by K1W1 are no longer
        included for registration under the Second Amended Registration Statement
        or any
        subsequent amendment thereto.
 
 On
        August
        3, 2007, Mr. Floisand and Mr. Marcus, each a member of the Board of Directors,
        were each granted an option to purchase 100,000 shares of the Company’s common
        stock pursuant to the Plan, at an exercise price of $1.50 (an amount equal
        to
        the closing price of such common stock on such date as reported by the OTC
        Bulletin Board).
  On
        September 14, 2007, the Company entered into an executive employment agreement
        with Mr. Marcus relating to his change of status from interim to full-time
        Chief
        Executive Officer of the Company and providing for the elements of his future
        compensation.  Mr. Marcus will earn an annual salary of $276,000 (the
        "Base Salary"), and he may earn two performance bonuses of up to $50,000
        each
        after ninety and one hundred and eighty days, respectively, upon the achievement
        of certain goals to be established by the Board of Director's Compensation
        Committee (the "Performance Goals").  In addition, on October 4, 2007,
        the board granted Mr. Marcus an option (the "October Option"), to purchase
        150,000 shares of Company common stock pursuant to the Plan.  The
        October Option had an exercise price of $0.95 which was equal to the closing
        price of the Company’s common stock on October 4, 2007 as reported by the OTC
        Bulletin Board and vests on a monthly basis over the three (3) month period
        following September 11, 2007.  In addition, the Board also granted Mr.
        Marcus a second option (the "December Option"), to purchase 150,000 shares
        of
        Company common stock pursuant to the Plan.  The December Option had an
        exercise price of $0.96 which was equal to the closing price of the Company’s
        common stock on December 3, 2007 as reported by the OTC Bulletin Board and
        vests
        on a monthly basis over the three (3) month period following September 11,
        2007,  At the discretion of the Board, Mr. Marcus may also receive two
        additional option grants, each to purchase a number of shares of Company
        common
        stock up to but not in excess of 37,500 shares, after ninety and one hundred
        and
        eighty days, respectively, upon the achievement of the Performance Goals.
        The
        exercise price of each of the foregoing options that have not yet been granted
        will be equal to the closing price of the Company's common stock on the option
        grant date as reported by the OTC Bulletin Board. Each of the foregoing options
        has or will also be subject to the terms and conditions of the Plan and form
        of
        stock option agreement, which Mr. Marcus has and will be required to sign
        as a
        condition of receiving the option.  The agreement also provides for a
        severance payment, in the event of a Termination without Cause or a Resignation
        with Good Reason, as such terms are defined in the agreement, in an amount
        equal
        to four and one-half (4.5) months of Base Salary, plus the payment of COBRA
        benefits for the same period, and full acceleration of vesting of the September
        and December Options. The agreement contains other terms that are standard
        for
        such an employment arrangement, including without limitation, provisions
        relating to confidentiality, arbitration and non-solicitation.
  14
  On
        October 30, 2007, Mr. John R. Stringer was appointed by the Board of Directors
        of the Company to fill a vacancy on the Board. Mr. Stringer was also appointed
        to the Compensation Committee of the Board of Directors. Mr. Stringer will
        receive cash compensation for his services as a member of the Board pursuant
        to
        the Company's Board Compensation Policy previously adopted by the Board.
        In
        addition, the Board granted Mr. Stringer an option (the "Initial Option")
        to
        purchase an aggregate of 100,000 shares of the Company's common stock pursuant
        to the Plan. The Initial Option had an exercise price of $0.85, which was
        equal
        to the closing price of the Company's common stock on October 30, 2007, the
        grant date of the option, as reported by the OTC Bulletin Board. Vested shares
        subject to the Initial Option may be exercised within seven years from the
        effective date of the director's appointment and are subject to the terms
        and
        conditions of the Plan and associated stock option agreement. The shares
        subject
        to the Initial Option vest over three years, with one-sixth of the shares
        subject to the Initial Option vesting six months from the date of appointment,
        and one-twelfth of the shares subject to the Initial Option vesting each
        quarter
        thereafter. Mr. Stringer will also be granted an option to purchase an
        additional 100,000 shares of the Company's common stock on the date which
        is six
        months from the date of appointment, which option will have the same vesting
        schedule and terms and conditions as the Initial Option and shall have an
        exercise price equal to the closing price of the Company's common stock on
        the
        date of grant as reported by the OTC Bulletin Board.
 
 **Note
        11 - Subsequent Events**
 
 On
        December 6, 2007 the Company filed Amendment No. 4 to the Company’s Registration
        Statement on Form SB-2/A (the “Fourth Amended Registration Statement”) in
        response to comments received from the Staff of the Securities Exchange
        Commission (the “SEC”) with respect to the Company’s Amendment No. 3 of the
        Registration Statement filed October 2, 2007.  The Amended
        Registration Statement provides for the registration and resale by selling
        stockholders of 37,869,542 shares of our common stock, including 16,406,119
        shares issuable upon the exercise of outstanding warrants.  The
        Company will not receive any proceeds from the sale of these shares by the
        selling stockholders, provided, however, it would receive gross proceeds
        up to
        $18,864,406 if all the warrants were exercised.  The Fourth Amended
        Registration Statement is not yet effective and is subject to further review
        and
        comment by the SEC.
  On
        November 5, 2007, the Company signed a prototype and evaluation agreement
        with
        Samsung Electronics Corporation ("Samsung"), under which the Samsung LCD
        Business is granted access to PureDepth's Multi-Layer Display (“MLD”) technology
        in order to incorporate the MLD technology into Samsung's mobile and handheld
        platforms for prototype and evaluation purposes.
 
 On
        November 07, 2007 the Company entered into a new office lease agreement for
        its
        Corporate Headquarters in Redwood City.  The new office lease is a 4
        year term, commencing on a date to be determined based upon substantial
        completion of tenant improvements, and covers approximately 4,626 square
        feet at
        a rate of $12,952 per month.    The Company plans to
        relocate its entire Corporate Headquarters to the new location and not renew
        its
        existing lease agreement.
 
 On
        November 28, 2007, employees of the Company were granted options to purchase
        an
        aggregate of 1,170,000 shares of the Company’s common stock pursuant to the
        Plan, each at an exercise price of $0.98 (an amount equal to the closing
        price
        of such common stock on such date as reported by the OTC Bulletin
        Board).
 
 On
        December 3, 2007, Mr. Marcus, the Company’s Chief Executive Officer, received an
        option grant to purchase an aggregate of 150,000 shares of the Company’s common
        stock at an exercise price of $0.96 (an amount equal to the closing price
        of
        such common stock on December 3, 2007 as reported by the OTC Bulletin
        Board).  The grant was made pursuant to his executive employment
        agreement and pursuant to the Plan.
 
 15
  **Item
        2. Management’s Discussion and Analysis of Financial Condition or Plan of
        Operation**
 
 **CAUTIONARY
        NOTICE REGARDING FORWARD-LOOKING STATEMENTS**
 
 This
        Quarterly Report of PureDepth, Inc. on Form 10-QSB contains certain
“forward-looking statements.” All statements in this Quarterly Report other than
        statements of historical fact are “forward-looking statements” for purposes of
        these provisions, including any statements of the plans and objectives for
        future operations and any statement of assumptions underlying any of the
        foregoing.  Statements that include the use of terminology such as
“may,” “will,” “expects,” “believes,” “plans,” “estimates,” “potential,” or
“continue,” or the negative thereof or other and similar expressions are
        forward-looking statements. Forward-looking statements in this Quarterly
        Report
        include, but are not limited to, statements regarding expanding the use of
        our
        technologies in existing and new markets; demand for and future revenues
        from
        the sale of visual display products incorporating our technologies; growth
        opportunities in the visual display market; opportunities to incorporate
        our
        technologies in markets outside the traditional consumer product markets;
        the
        rate of adoption and sales of MLD visual displays; diversification of sources
        of
        licensing revenue; our expected profit margin from our MLD product sales;
        the
        future impact of our critical accounting policies, including those regarding
        revenue recognition, allowance for doubtful accounts, accounting for income
        taxes, and stock-based compensations; statements regarding the sufficiency
        of
        our cash reserves; and our expected rate of return on investments. Actual
        results may differ materially from those discussed in these forward looking
        statements due to a number of factors, including: the rate of growth of the
        markets for MLD visual displays that include our technologies; the extent
        to
        which our expectations regarding new licensing markets are realized; whether
        our
        competitors are able to develop and sell alternative 3-D or MLD visual display
        technologies to our partners; the accuracy of our identification of critical
        accounting policies and the accuracy of the assumptions we make in implementing
        such policies; the accuracy of our estimates regarding our taxable income
        and
        cash needs for the next twelve months; the accuracy of our calculations of
        royalties due to our licensors; and fluctuations in interest rate and foreign
        currencies.  These forward-looking statements involve risks and
        uncertainties, and it is important to note that our actual results could
        differ
        materially from those projected or assumed in such forward-looking statements.
        Among the factors that could cause actual results to differ materially are
        the
        factors detailed under the heading “Risk Factors” as well as elsewhere in this
        Quarterly Report. All forward-looking statements and risk factors included
        in
        this document are made as of the date hereof, based on information available
        to
        us as of the date hereof, and we assume no obligation to update any
        forward-looking statement or risk factor except as may be required under
        the
        federal securities laws.  You are advised, however, to read any further
        disclosures we make on related subjects in our filings with the Securities
        and
        Exchange Commission (SEC), including our Annual Report on Form 10-KSB, our
        Quarterly Reports on Form 10-QSB, our Current Reports on Form 8-K and amendments
        to such reports.  Such filings are available on our website, free of
        charge, at www.puredepth.com, but the information on our website does not
        constitute part of this Quarterly Report.
 
  
 16
  **Management’s
        Discussion and Analysis**
 
 The
        following discussion and analysis of our financial condition and results
        of
        operations should be read in conjunction with the unaudited condensed
        consolidated financial statements and related notes included under Item 1
        of
        this Part I entitled “Financial Statements” and the above section entitled
“Cautionary Notice Regarding Forward-Looking Statements”.
 
 **Overview**
 
 We
        are a
        technology and licensing company focused on the visual display experience.
        Our
        business is the development,
        marketing, licensing and support of our proprietary Multi-Layer Display (MLDTM)
        technology and related products and services. Unlike other display-based
        technologies, our MLD technology was created and designed based on how humans
        visualize the world. Depth is a key component of everyday visualization and
        interaction, yet in the world today most of our information is displayed
        on
        technology that can, at best, only provide the visual perception of depth.
        Unlike standard two-dimensional (2D) display technologies that utilize only
        a
        single-layer liquid crystal display (LCD), our MLD technology utilizes two
        or
        more LCD panels that are stacked and separated by actual depth. We believe
        that
        when our MLD technology is incorporated into display products, this actual
        depth
        provides for distinct new ways in which to view, monitor and interact with
        visual information.
 
 Our
        technology has application in industries and markets where flat panel monitors
        and displays are utilized. Our goal is to have our MLD technology become
        a
        standard technology for incorporation into these display products, which
        include
        location-based entertainment devices, computer monitors, public information
        display systems, mobile devices, flat panel televisions, and other mass market
        display devices.
 
 *Subsidiaries*
 
 PureDepth,
        Inc. has a wholly-owned
        subsidiary named PureDepth Limited, which in turn has a wholly-owned subsidiary
        named PureDepth Incorporated Limited.  Both PureDepth Limited and
        PureDepth Incorporated Limited are New Zealand corporations. PureDepth Limited
        owns our intellectual property portfolio, which is licensed to PureDepth,
        Inc.
        pursuant to an exclusive, perpetual license agreement. PureDepth Incorporated
        Limited provides operations and other support for us, including regional
        finance, administration, research and development, and intellectual property
        (including legal) management operations on behalf of its parent entities.
        All
        financial items included in this report are denominated in US dollars unless
        specifically identified as New Zealand dollars.
 
 **Plan
        of Operations**
 
 We
        derive, and expect to continue to derive, revenues primarily from the licensing
        of our technology to our product partners and LCD manufacturing partners
        and, to
        a lesser extent, from sales of prototype MLD-enabled display devices that
        we
        manufacture. Licensees are and will be responsible for the manufacture and
        sale
        of display-based products incorporating our technology and related
        software.  In connection with our licensing arrangements, we may also
        derive revenues from the sale of software tools and drivers for market-specific
        applications and from various support services, including engineering consulting
        services, technical services for implementation and optimization of our
        technology and software support and training.
 
 Our
        efforts in the immediate future are focused on fulfilling the requirements
        of
        and supporting existing customer agreements with Sanyo Electric Corporation
        (Sanyo),  International Game Technology (IGT) and Samsung Electronics
        Company, Ltd (Samsung).  At the same time, we will continue to seek to
        diversify our sources of licensing revenue. We intend to increase our sales
        and
        marketing efforts to identify, contact and negotiate licensing agreements
        with
        potential partner companies.  We have identified the following target
        markets in North America, Asia and Europe that we believe are appropriate
        for
        our MLD technology: location-based entertainment devices, computer monitors,
        flat-panel televisions, mobile devices and other mass market display devices.
        Our existing license agreements pertain to products for the location-based
        entertainment devices.  Our goal is to expand our business by working
        with partner companies to develop MLD-based products and developing demand
        and a
        presence for such devices in our identified target markets.
 
 17
  Our
        primary operating costs relate to compensation for employees, including stock
        options and other incentives; ongoing research and development of our
        technology; legal services including patent applications and defense of
        currently-held patents; and rental of premises in both Redwood City, CA and
        Auckland, New Zealand. Other than our research and development expenses no
        significant capital equipment purchases are expected during the fiscal year
        ending January 31, 2008.
 
 Our
        critical research and development activities include: further enhancing our
        existing MLD technology and related software; developing, manufacturing and
        testing prototype MLD-enabled display devices for our existing licensee partners
        and potential licensee partners; designing and customizing features to the
        specification of potential licensee partners; and patent defense and application
        for our existing and new technology developments. Our goal is to enhance
        our
        existing technology based upon research and development in optics, LCD
        technology, backlighting, and component technologies. We anticipate that
        our
        research and development expenses will increase significantly in absolute
        dollars in future periods, primarily because of the enhancement of our core
        technology, and, to a lesser extent, the design and development of prototypes
        for future customers.
 
 The
        number of employees worldwide for the Company is 37 and the Company expects
        the
        headcount to remain approximately the same through the fiscal year ending
        January 31, 2008.
 
 The
        report of our independent auditors on the Company’s consolidated financial
        statements for the fiscal year ended January 31, 2007 includes an explanatory
        paragraph indicating there is substantial doubt about the Company's ability
        to
        continue as a going concern.  The Company has continued to operate on
        a negative cash basis and incurred additional losses through the nine
        months ended October 31, 2007.
  Management
        has developed an operating plan that it believes will allow the
        Company to continue as a going concern through the end of the fiscal year
        ending
        January 31, 2008.  Based upon the Company’s cash position at October
        31, 2007 of $2.3 million as well as current expectations regarding revenues
        and
        operating costs, the Company believes it can meet the cash requirements of
        the
        current plan for the fiscal year ending January 31, 2008 without raising
        additional funds.
  The
        Company expects it will continue to incur losses during the remainder of
        the
        fiscal year ending January 31, 2008 and beyond January 31,
        2008.  Accordingly, the Company is undertaking efforts to raise
        additional capital within the current fiscal year, in the form of convertible
        debt or equity securities, loans from banks, other financial institutions
        or our affiliates, or a credit facility.
 
 In
        the
        event the Company is unsuccessful in its plans to finance operations through
        the
        above means, or in amounts sufficient to maintain current operations, it
        will be
        forced to reduce, or significantly reduce, its level of
        operations, including by slowing our growth, delaying hiring, abandoning
        certain product development including product development on which we may
        have
        already spent considerable resources and otherwise reducing expenses and
        eventually, if necessary, cease operations altogether.  If the
        Company is successful in its plans to finance operations through the above
        means, these plans ultimately may not resolve the going concern issue and
        additional financings may also be necessary thereafter until the Company is
        able to attain and sustain profitable operations. These uncertainties raise
        substantial doubt about the Company’s ability to continue as a going
        concern.
  The
        accompanying financial statements do not include any adjustments to reflect
        the
        possible future effects on the recoverability and classification of assets
        or
        the amounts and classification of liabilities that may result from the outcome
        of this uncertainty.
 
 18
  **Results
        of Operations**
 
 For
        the
        three months ended October 31, 2007 and 2006, we reported net losses of $2.3
        million and $2.5 million, respectively.  For the nine months ended
        October 31, 2007 and 2006, we reported net losses of $7.1 million and $8.0
        million, respectively.
 
 *Licensing
        Revenue and Cost of Licensing*
 
 Revenue
        from technology licensing was $0.2 million and $0.6 million for the three
        and
        nine months ended October 31, 2007, respectively.  Technology
        licensing revenues increased $0.16 million and $0.5 million from the
        corresponding three and nine month periods ended October 31, 2006, respectively,
        as our first technology licensing ] revenues were recorded in the three months
        ended October 31, 2006.  We are a party to a patent and technology
        license and technology transfer agreement with International Game Technology
        (IGT) that involves the manufacture and distribution of products by IGT,
        incorporating MLD technology for sale in the wagering-based gaming segment
        of
        the location-based entertainment display device market. This agreement grants
        IGT certain rights of exclusivity for the development and sale of MLD-based
        products in the wagering-based gaming market. We received an advance,
        non-refundable payment of license fees of $3.75 million under the terms of
        the
        agreement during the year ended January 31, 2007, of which $0.2 million and
        $0.6
        million was recognized as licensing revenue during the three and nine months
        ended October 31, 2007 and $0.03 million was recognized as licensing revenue
        in
        the three month period ended October 31, 2006.  This represents 100%
        of our licensing revenue for each of the periods described.  The
        balance of the advance on licensing revenues is recorded as deferred revenue
        and
        will continue to be earned over the remaining term of the
        agreement.
 
 Cost
        of
        licensing was $0.08 million and $0.2 million for the three and nine months
        ended
        October 31, 2007, respectively.  Cost of licensing increased $0.07
        million and $0.2 million  from the prior year corresponding three and
        nine months periods ended October 31, 2006 as our first technology licensing
        contract was recorded in the prior year three month period and only a pro-rata
        portion of licensing costs were recognized in relation to the commencement
        date
        of the licensing contract.  The costs associated with licensing
        revenues are primarily related to amortization of intellectual property for
        the
        respective periods.  In the corresponding periods of the prior year
        and before the commencement date of the licensing contract, the amortization
        of
        intellectual property was reported under operating
        expenses.  Amortization is not expected to grow proportionately with
        revenues as our costs related to intellectual property (including legal fees,
        registration costs and ongoing maintenance costs) are generally capitalized
        and
        amortized on a straight-line basis over the expected statutory lives of the
        related patents, up to 20 years, which will result in higher gross profit
        as
        revenues increase.
 
 *Service
        Revenue and Cost of Services*
 
 Revenue
        from services was $0.03 million and $0.7 million for the three and nine months
        ended October 31, 2007.  We did not report any service revenue for the
        corresponding three and nine months ended October 31, 2006.  Service
        revenues represent billings for technical and professional services provided
        to
        existing customers related to our MLD technology.  We provide
        professional services to our customers in order for them to develop, test,
        and
        promote MLD applications in their products.  We believe that service
        revenues will continue as relationships with new and existing partners evolve,
        but will continue to represent a small portion of our overall revenues in
        the
        remainder of the fiscal year.
 
 The
        cost
        of services for the three and nine months ended October 31, 2007 was $0.03
        million and $0.06 million.  We did not report any cost of services for
        the corresponding three and nine months ended October 31, 2006.  Cost
        of services represents direct labor and overhead costs of providing the
        respective services.  We expect cost of services to increase in
        relation to service revenues.
 
 *Product
        Sales Revenue and Cost of Product Sales*
 
 Revenue
        from product sales was $0.08 million and $0.2 million for the three and nine
        months ended October 31, 2007, respectively.  Product sales revenues
        increased from the corresponding three and nine months periods ended October
        31,
        2006 as we recorded our first product sales in the three month period ended
        October 31, 2006.
 
 19
  Product
        sales represent sales of prototype MLD-enabled display devices to several
        existing and potential customers. We design and manufacture these prototypes
        specifically for sale to our partners, who use them to develop, test and
        promote
        MLD applications in their products. We believe that product sales of our
        prototype MLD-enabled display devices will continue as relationships with
        new
        and existing partners evolve, but will continue to represent a small portion
        of
        our overall revenues in the remainder of the fiscal year.
 
 The
        cost
        of product sales for the three and nine months ended October 31, 2007 was
        $0.07
        million and $0.2 million, respectively. Cost of product sales increased from
        the
        prior year corresponding three and nine months periods ended October 31,
        2006 as
        we recorded our first product sales in the prior year three month
        period.  Cost of product sales represents material, overhead and labor
        costs of assembling the prototypes at our research and development
        facility.  We have minimal margins on our product sales as we acquire
        small quantities of materials at higher costs than we would have paid had
        we
        been able to buy in bulk and because the engineering for prototype MLD-enabled
        display devices has, to date, required the use of non-standard parts and
        manual
        assembly.  As the engineering and material standards for form factors
        are finalized, we expect the cost of materials and associated labor to decline.
        In addition, we intend to outsource the assembly of many prototypes with
        the
        expectation of further reducing our costs. As a result of these factors,
        we
        expect to see our cost of product sales as a percentage of product revenues
        decline in the future related to increases in quantities.
 
 *Operating
        Expenses*
 
 Total
        operating expenses decreased $0.1 million, or 6% from $2.5 million reported
        for
        the three months ended October 31, 2006 to $2.4 million reported for the
        three
        months ended October 31, 2007.  The decrease of $0.1 million from the
        corresponding period for the prior fiscal year is primarily due to a $0.2
        million decrease in stock-based compensation and a $0.1 million increase
        in
        personnel and personnel related expenses, professional fees related to our
        public company filing requirements, travel expenses and increased sales and
        marketing activities.  For the nine months ended October 31, 2007,
        total operating expenses decreased $0.7 million, or 9%, from $8.2 million
        reported for the nine months ended October 31, 2006 to $7.5 million reported
        for
        the nine months ended October 31, 2007.  The decrease of $0.7 million
        from the corresponding period for the prior fiscal year is primarily due
        to a
        $2.1 million decrease in stock based compensation offset by a $1.4 million
        increase in operating expenses for personnel and personnel related expenses,
        professional fees related to our public company filing requirements, travel
        expenses and increased sales and marketing activities.
 
 Total
        depreciation and amortization expense decreased $0.04 million, or 58% from
        $0.07
        million for the three months ended October 31, 2006 to $0.03 million for
        the
        three months ended October 31, 2007.  The decrease is primarily the
        result of reporting amortization of intellectual property in our cost of
        licensing for the current period.  In the corresponding prior fiscal
        year period, we reported a pro rata amount of amortization expense based
        on the
        commencement date of a licensing agreement and the remainder of amortization
        expense was reported under operating expenses.  In total, depreciation
        and amortization expense is consistent with the amounts in the corresponding
        three months ended October 31, 2006.   For the nine months ended
        October 31, 2007, total depreciation and amortization expense decreased $0.13
        million, or 70% from $0.2 million for the nine months ended October 31, 2006
        to
        $0.07 million for the nine months ended October 31, 2007.  The
        decrease is primarily due to the same reasons discussed above with respect
        to
        the three months ended October 31, 2007.  Depreciation expense is not
        expected to increase proportionately with revenue or total operating expenses
        as
        it is not necessary for us to significantly increase our purchases of fixed
        assets.
 
 Total
        research and development expenses increased $0.4 million, or 129%, from $0.3
        million reported for the three months ended October 31, 2006 to $0.7 million
        reported for the three months ended October 31, 2007.  The increase of
        $0.4 million from the corresponding period in the prior fiscal year is primarily
        due to increases in stock-based compensation, travel and personnel and personnel
        related expenses.  For the nine months ended October 31, 2007, total
        research and development expenses increased $0.02 million or 1% from $1.85
        million reported at nine month ended October 31, 2006 to $1.87 million reported
        in the nine months ended October 31, 2007.  The increase of $0.02
        million from the corresponding period in the prior fiscal year is primarily
        due
        to $0.36 million decrease in stock based compensation offset by $0.38 million
        increase in operating expenses for travel and personnel and personnel related
        expenses.  We expect research and development costs to increase as new
        employees are added and we continue to intensify our research and technology
        enhancement activities.
 
 20
  Total
        sales and marketing expenses increased $0.02 million, or 4%, from $0.48 million
        reported for the three months ended October 31, 2006 to $0.5 million reported
        for the three months ended October 31, 2007.  The increase of $0.02
        million from the corresponding period in the prior fiscal year is primarily
        due
        to increases in stock-based compensation, travel expenses, personnel and
        personnel related expenses and increased sales and marketing
        activities.  For the nine months ended October 31, 2007, total sales
        and marketing expenses decreased $0.08 million or 5% from $1.48 million reported
        for the nine months ended October 31, 2006 to $1.4 million reported for the
        nine
        months ended October 31, 2007.  The decrease of $0.08 million from the
        corresponding period in the prior fiscal year is primarily due to $0.56 million
        decrease in stock based compensation, offset by $0.48 million increase in
        operating expenses for travel expenses, personnel and personnel related expenses
        and increased sales and marketing activities.  We expect sales and
        marketing expenses to increase in absolute dollars as we hire additional
        staff
        and attempt to secure additional licensees for our technology.
 
 Total
        general and administrative expenses decreased $0.5 million, or 32%, from
        $1.7
        million reported for the three months ended October 31, 2006 to $1.2 million
        reported for the three months ended October 31, 2007.  The decrease of
        $0.5 million from the corresponding period in the prior fiscal year is primarily
        due to $0.7 million decrease in stock based compensation, offset by $0.2
        million
        increase in operating expenses for personnel and personnel related expenses,
        director fees, and professional fees related to our public company filing
        requirements.    For the nine months ended October 31, 2007,
        total general and administrative expenses decreased $0.5 million, or 12%,
        from
        $4.6 million reported for the nine month ended October 31, 2006 to $4.1 million
        reported for the nine months ended October 31, 2007.  The decrease of
        $0.5 million from the corresponding period in the prior fiscal year is primarily
        due to $1.7 million decrease in stock based compensation, offset by $1.2
        million
        increase in operating expenses for personnel and personnel related expenses,
        director fees, and professional fees related to our public company filing
        requirements.  We expect general and administrative expenses to
        increase in absolute dollars as we expand operations and also engage in
        Sarbanes-Oxley compliance.
 
 *Other
        Income and Expense*
 
 Other
        income and expense primarily consists of interest income earned on cash and
        marketable securities offset by interest expense on outstanding notes
        payable.  Also included in other income and expense are foreign
        exchange gains and losses as well as miscellaneous income and expense
        transactions.  For the three months ended October 31, 2007, net other
        income and expense decreased $0.09 million from the corresponding period
        in the
        prior year.  The decrease was primarily due to a $0.06 million
        decrease in foreign exchange gains and losses and a $0.03 million decrease
        in
        interest income.  For the nine months ended October 31, 2007, net
        other income and expense decreased $0.19 million from the corresponding period
        in the prior year.  The decrease is primarily due to a $0.18 million
        decrease in foreign exchange gains and losses and a $0.09 million decrease
        in
        miscellaneous other income offset by an increase in net interest
        income.  Although we had increases in interest income from the
        corresponding periods in the prior fiscal year, we anticipate that interest
        income will decline in future periods as a result of our continued funding
        of
        operations reducing cash available for investments.  We do not expect
        significant income from any of these other income categories in the
        future.
 
 ***Liquidity
        and Capital Resources***
 
 As
        of
        October 31, 2007, we had cash and cash equivalents of $2.3 million, which
        represents a decrease of $3.0 million from year ended January 31,
        2007.  The net decrease of $3.0 million results from the use of $6.3
        million in operating activities for the nine months ended October 31, 2007
        offset by $2.6 million and $0.7 million provided by investing and financing
        activities, respectively.   Investing activities includes the use
        of $0.4 million for fixed asset and intellectual property purchases and $3.0
        million provided by the maturity of marketable securities.  Financing
        activities includes $0.7 million provided by the exercise of stock options
        and
        warrants.
 
 We
        have
        issued options to employees and directors pursuant to our 2006 Stock Incentive
        Plan. As of October 31, 2007, we had 12,982,912 options outstanding under
        our
        2006 Stock Incentive Plan with a weighted exercise price of $0.74.  We
        also have outstanding warrants to purchase 17,290,468 shares of common stock
        at
        a weighted average exercise price of $1.15.
 
 21
  Subject
        to approval of our Board of Directors, the 2006 Stock Incentive Plan allows
        option holders to exercise options using a “cashless exercise,” whereby vested
        shares would be used as payment for the exercise of options.  While
        the exercise of stock options for cash will generally increase immediate
        working
        capital, the approval of a cashless exercise by our Board of Directors would
        impact directly on the extent of this working capital and our ability to
        use
        existing options as a capital resource.
 
 ***Provision
        for State and Federal Income Taxes***
 
 From
        inception through January 31, 2007, we have incurred net losses for federal
        and
        state tax purposes. We have also incurred foreign net losses in respect of
        our
        predecessor entity and two foreign subsidiaries.
 
 We
        have
        not recorded a tax benefit for domestic tax losses because of the uncertainty
        of
        realization. We adhere to SFAS No. 109 *Accounting for Income Taxes*(“SFAS 109”), which requires an asset and liability approach to financial
        accounting and reporting for income taxes. Valuation allowances are established
        when necessary to reduce deferred tax assets to the amount expected to be
        realized. Under paragraph 17e of SFAS 109, deferred tax assets are reduced
        by a
        valuation allowance if the weight of the available positive and negative
        evidence suggests that it is more likely than not some portion or all of
        the
        deferred tax asset will not be realized.
  We
        have
        generated net losses since our inception, and since our current projections
        are
        based upon predictions that cannot ensure sustained profitability in future
        years, we have provided a full valuation allowance against the deferred tax
        assets at October 31, 2007 and 2006.
  We
        have
        no unrecognized tax benefits as of February 1, 2007; consequently, the
        application of FIN 48 had no impact on retained earnings.  As a result
        of the adoption of FIN 48, there was no impact to our consolidated financial
        position, results of operations or cash flows for the nine months ended October
        31, 2007. In accordance with FIN 48, we recognize interest and penalties
        related
        to unrecognized tax benefits as a component of income taxes. At October 31,
        2007
        no interest or penalties related to unrecognized tax benefits had been
        recorded.  There was no change to our unrecognized tax benefits for
        the nine months ended October 31, 2007.
 
 We
        are
        subject to taxation in the U.S. and California. Our subsidiaries are subject
        to
        taxation in New Zealand.  All of our tax years in the U.S. will be
        open to examination by the federal and California tax authorities because
        the
        statute of limitations are open and due to our overall net operating loss
        carryforward position.  Our subsidiaries are subject to examination by
        foreign tax authorities for all tax years.
 
 ***Qualitative
        and Quantitative Disclosure about Market Risk***
 
 The
        primary objectives of our investment activity are to preserve principal,
        provide
        liquidity and maximize income without significantly increasing the risk.
        Some of
        the securities we invest in are subject to market risk. To minimize this
        risk,
        we maintain our portfolio of cash equivalents and short term investments
        in
        money market funds, certificates of deposit and US government agency securities.
        Since our results of operations are not dependent on investment performance,
        we
        believe that such risks would not have a significant impact on our results
        from
        operations.
 
 Transactions
        with our New Zealand research facility and with suppliers and manufacturers
        in
        Asia are denominated in local currencies and thus, we are subject to foreign
        currency exchange fluctuations associated with re-measurement to US dollars.
        Such fluctuations have not been significant historically. We are prepared
        to
        hedge against any fluctuations in foreign currencies should such fluctuations
        have a material economic impact on us, although we have not engaged in hedging
        activities to date.
 
 ***Off-Balance
        Sheet Arrangements***
 
 We
        do not have any off-balance sheet arrangements.
 
 22
  ***Critical
        Accounting Policies***
  The
        discussion and analysis of our financial condition and results of operations
        are
        based on our consolidated financial statements, which have been prepared
        in
        accordance with accounting principles generally accepted in the United States
        of
        America, or US GAAP. The preparation of these financial statements in accordance
        with US GAAP requires us to utilize accounting policies and make certain
        estimates and assumptions that affect the reported amounts of assets and
        liabilities, the disclosure of contingencies as of the date of the financial
        statements and the reported amounts of revenue and expenses during a fiscal
        period. The SEC considers an accounting policy to be critical if it is both
        important to a company’s financial condition and results of operations and it
        requires significant judgment and estimates on the part of management in
        its
        application.
  We
        have
        discussed the selection and development of the critical accounting policies
        with
        the audit committee of our board of directors, and the audit committee has
        reviewed our related disclosures in this Quarterly Report on Form 10-QSB.
        Although we believe that our judgments and estimates are appropriate and
        correct, actual results may differ from those estimates.  See also the
        section entitled “Risk Factors” for certain matters which may affect our future
        results of operations.
 
 During
        the nine months ended October 31, 2007 we adopted the provisions of Financial
        Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for
        Uncertain Income Taxes – An Interpretation of FASB Statement No. 109” (“FIN
        48”).  FIN 48 clarifies the accounting for uncertainty in income taxes
        recognized in an entity’s financial statements in accordance with FASB Statement
        No. 109, “Accounting for Income Taxes” (“FAS 109”) and prescribes a recognition
        threshold and measurement attributes for financial statement disclosure of
        tax
        positions taken or expected to be taken on a tax return.  There was no
        impact to our consolidated financial position, results of operations or cash
        flows for the nine months ended October 31, 2007.
 
 For
        further information about our other critical accounting policies, see the
        discussion of critical accounting policies in the section entitled “Management's
        Discussion and Analysis or Plan of Operation” under Item 6 of Part II of our
        Annual Report on Form 10-KSB for the fiscal year ended January 31,
        2007.
 
 
 23
  **Item
        3. Controls and Procedures**
 
 **(a)
        Evaluation of Disclosure Controls and Procedures:** Under the supervision
        and with the participation of our management, including our Chief Executive
        Officer and our Chief Financial Officer, we have performed an evaluation
        of the
        effectiveness of the Company’s “disclosure controls and procedures” (as defined
        in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as
        amended).  Based upon that evaluation, our management, including our Chief
        Executive Officer and Chief Financial Officer, has concluded that our disclosure
        controls and procedures were effective as of the end of the period covered
        by
        this quarterly report.
 
 **(b)
        Changes in Internal Control over Financial Reporting:** There were no
        changes in our internal control over financial reporting that occurred during
        our last fiscal quarter that have materially affected, or are reasonably
        likely
        to materially affect, our internal control over financial
        reporting.
 
 
 
 24
  **PART
        II**
 **OTHER
        INFORMATION**
 
 **Item
        1. Legal Proceedings**
 
 We
        are
        not involved in any pending legal proceedings that require
        disclosure.
 
 **RISK
        FACTORS**
 
 You
        should carefully consider the risks described below before making an investment
        decision. If any of the following risks actually occur, our business, financial
        condition or results of operations could be materially and adversely affected.
        In such case, the trading price of our common stock could decline, and you
        may
        lose all or part of your investment.
 
 **WE
        EXPECT ADDITIONAL FINANCING THAT WILL DILUTE SHAREHOLDINGS OR RESTRICT OUR
        OPERATIONS*.***
  Because
        our cash flow is not likely to be sufficient to fund our future operating
        expenses and the growth of our business, we are undertaking efforts to obtain
        additional financing and we expect that we will finance our future losses
        through additional financings within the current fiscal year. 
Additional financing could be sought from a number of sources, including,
        but
        not limited to, additional sales of equity or  convertible debt
        securities, loans from banks, other financial institutions or our affiliates,
        or
        a credit facility. We cannot, however, be certain that any such financing
        will
        be available on terms favorable to us, if available at all. If additional
        funds
        are raised by the issuance of our equity securities, such as through the
        issuance of stock, convertible securities, or the issuance and exercise of
        warrants, then the ownership interest of our existing stockholders would
        be
        diluted. If additional funds are raised by the issuance of debt or other
        equity
        instruments, we may become subject to certain operational limitations, and
        such
        securities may have liquidation rights senior to those of the then existing
        holders of common stock. Ultimately, if no additional financing is obtained
        as
        and when needed, we may be required to significantly reduce our level of
        operations, including by slowing  our growth, delaying  hiring,
        abandoning  certain product development including product development on
        which we may have already spent considerable resources and otherwise reducing
        expenses, or  eventually, if necessary, cease operations
        altogether.
 
 **WE
        ARE NOT CURRENTLY PROFITABLE AND MAY NEVER BECOME
        PROFITABLE.**
 
 We
        have a
        history of losses and expect to incur substantial losses and negative operating
        cash flow for the foreseeable future. In fact, we expect that our expenses
        will
        increase significantly in absolute dollars in future periods.  As a
        result, we will need to generate significant revenue in order to achieve
        and
        maintain profitability. Currently, we have limited sources of revenue. Even
        if
        we succeed in developing and commercializing our current and additional
        products, we expect that we will continue to incur substantial losses for
        the
        foreseeable future. In sum, we may never achieve or maintain profitability.
        Our
        failure to achieve or maintain profitability will likely negatively impact
        the
        value of our securities.
 
 **WE
        HAVE A LIMITED OPERATING HISTORY UPON WHICH TO BASE AN INVESTMENT
        DECISION.**
  We
        are an
        early-stage company with a limited operating history upon which to evaluate
        the
        viability of our business and long-term prospects for success. Accordingly,
        potential investors should carefully consider the risks, expenses and unforeseen
        difficulties generally encountered in the operation and development of an
        early-stage business, including the risks and uncertainties frequently
        encountered by companies whose business and viability is dependent upon new
        technologies.
 
 
 25
  **IF
        OUR PARTNERS ARE UNABLE TO INNOVATE, DEVELOP AND MARKET ATTRACTIVE NEW PRODUCTS
        INTO WHICH OUR TECHNOLOGY CAN BE INCORPORATED, OUR BUSINESS MAY BE ADVERSELY
        AFFECTED.**
  We
        do not
        manufacture, market or sell visual display consumer products, other than
        prototypes, and expect to derive a substantial portion of our future revenues
        from the licensing of our MLD technology to our partners for their incorporation
        into innovative new products for sale.  We expect that these revenues
        will generally be based on royalty payments calculated on a per unit sold
        or
        shipped basis.  Accordingly, our licensing revenues depend on the
        success of our licensees in launching products in volume that incorporate
        our
        technology. We cannot control these manufacturer’s product development or
        commercialization efforts or predict their success. The process of
        developing and marketing new products is generally complex and uncertain,
        and
        involves a number of risks including, without limitation, the
        following:
 
 ·
              our
                  partners may be unable to obtain adequate funding and resources
                  necessary
                  for investments in new products and
                  technologies;
  ·
              our
                  partners’ investments and commitment of significant resources may not
                  result in successful new products or
                  technologies;
  ·
              our
                  partners may misunderstand their customers’ product needs and
                  desires;
  ·
              our
                  partners may not be able to successfully anticipate the new products
                  and
                  technologies which will gain market acceptance, especially since
                  the
                  industry in which they operate is characterized by rapid changes,
                  including technological changes;
 
 ·
              our
                  partners’ technology may become obsolete earlier than expected due to
                  rapid advancements in technology and changes in consumer preferences,
                  and
  ·
              delays
                  in being first to market with new technologies and products may
                  prevent
                  our partners from successfully competing with their
                  rivals.
  If
        our
        partners fail to develop and market innovative new products, or if any of
        the
        risks described above materialize, our licensing revenues from our arrangements
        with these partners will decline and our business may be negatively and
        adversely affected.
  **OUR
        LICENSING ARRANGEMENTS HAVE LENGTHY SALES CYCLES THAT MAKE IT DIFFICULT TO
        PLAN
        OUR EXPENSES AND FORECAST RESULTS.**
  Our
        technology is generally incorporated in our partners’ products at the design
        stage.  However, their decision to use our technology often requires
        significant expenditures by us for engineering, prototype manufacturing and
        sales consultation without any assurance of success, and often precedes volume
        sales of products incorporating our technology, if any, by a year or
        more.  If a partner decides at the design stage not to incorporate our
        technology into their products, we may not have another opportunity for a
        design
        win with respect to that customer's product for many months or years, if
        at all.
        Our sales cycle can take up to 24 months to complete and because of this
        lengthy sales cycle, we may experience a delay between increasing expenses
        for
        research and development and our sales and marketing efforts and the generation
        of volume licensing revenues, if any, from these expenditures. Moreover,
        the
        value of any design win will largely depend on the commercial success of
        our
        product and LCD manufacturing partners' products. There can be no assurance
        that
        we will continue to achieve licensing wins or that any licensing win will
        result
        in future revenues.
  
 26
  **A
        SMALL NUMBER OF PARTNERS ACCOUNT FOR A SIGNIFICANT PORTION OF OUR REVENUES
        AND
        ACCOUNTS RECEIVABLE IN ANY PERIOD, AND IF ANY ONE OF THEM FAILS TO SHIP PRODUCTS
        INCORPORATING OUR TECHNOLOGY OR FAILS TO PAY US, OUR OPERATING RESULTS WILL
        SUFFER.**
  We
        currently have licensing arrangements only with IGT, Sanyo and DRS, and expect
        to derive a significant portion of our revenues for the fiscal year ending
        January 31, 2008 from prepaid royalties under our licensing agreement with
        IGT
        included in deferred revenue.  We are not expecting significant
        additional revenue from IGT as we cannot control IGT or our other partner’s
        product development or commercialization efforts.  If for any reason
        our partners do not ship products incorporating our technology, we will not
        receive additional licensing revenues and our operating results will
        suffer.
  At
        any
        given time, the majority of our accounts receivable will be comprised of
        amounts
        due from a small number of these partners.  Generally, we do not
        require collateral from our partners.   If any of our partners do
        not pay us, our operating results will be harmed.
 
 **EVEN
        WITH SIGNIFICANT CAPITAL SPENDING IN THE FUTURE TO KEEP PACE WITH TECHNOLOGICAL
        CHANGES, WE MAY NOT BE ABLE TO DEVELOP NEW TECHNOLOGIES THAT ARE ACCEPTED
        BY THE
        MARKET.**
  Advances
        in technology typically lead to a decline in sales volumes for products made
        with older technologies and may even lead to those products becoming obsolete.
        As a result, we will likely be required to make significant expenditures
        to
        enhance our existing technology or to develop or acquire new technologies
        to be
        incorporated into our partners’ products, including technologies that may cause
        our MLD technology to obsolesce. We may not be able to successfully enhance
        our
        technology or develop new technologies that keep pace with technological
        changes
        through our own research and development efforts or through our acquisition
        of
        technology licenses. This may be true even after we have spent significant
        amounts of capital. Furthermore, even if we are successful in enhancing,
        developing or acquiring any particular technology, we may not be able to
        effectively market and license our technology to our partners, or our partners
        may not be able to effectively commercialize or market the resulting MLD
        based
        products into which our technology has been incorporated.
  **THE
        AVERAGE SELLING PRICES OF DISPLAYS USING OUR TECHNOLOGY MAY DECLINE OVER
        TIME
        AND NEGATIVELY AFFECT OUR OPERATING RESULTS.**
  The
        average selling prices of displays******using our
        technology are expected to continually decline over time as a result of,
        among
        other factors, technology advances, cost reductions and increased competition.
        Although we may initially be able to take advantage of higher selling prices
        that may be associated with the new MLD-based products that our partners
        may
        bring to market, we cannot provide assurance that we will be able to maintain
        licensing royalty rates with our partners in the face of market competition
        for
        these products. If we are unable to effectively anticipate and counter the
        price
        erosion that accompanies our partners’ products and may affect our licensing
        royalty rates, our profit margins will be negatively affected.
 
 
 27
  **WE
        OPERATE IN A HIGHLY COMPETITIVE ENVIRONMENT AND OUR OPERATING RESULTS MAY
        BE
        ADVERSELY AFFECTED IF WE CANNOT COMPETE EFFECTIVELY.**
  Our
        ability to compete successfully depends on factors both within and outside
        our
        control, including: the end-product pricing of our partners and its impact
        on
        our licensing royalty rates, the performance and reliability of our technology
        and the products of our partners which incorporate our technology, our
        successful and timely investment in technology development, the success or
        failure of our partners in marketing their brands and the products into which
        our technology is incorporated, component and raw material supply costs for
        our
        prototypes and our partners’ products, market acceptance of alternative
        technologies and general economic and industry conditions. Some prospective
        customers for our partners’ products may perceive the quality of certain
        products utilizing our competitors’ technologies to be equivalent or superior to
        MLD-based products. Our competitors from time to time may have greater
        financial, sales and marketing, manufacturing, research and development or
        technological resources than us. In particular, competitors with greater
        resources may be able to license or manufacture competitive products on a
        larger
        scale or with greater cost efficiencies than us. Alternatively, because
        innovation in our industry often creates wide scale change in technologies
        and
        resulting products, our competitors may develop superior technologies and
        obtain
        exclusive rights to those technologies. The number of our competitors may
        increase in the future. If any technology that is competing with ours is
        or
        becomes more reliable, higher performing, less expensive or has other advantages
        over our technology, then the demand for our technology and related products
        and
        services would decrease.  Any of the foregoing factors could harm our
        business
 
 **OUR
        BUSINESS MAY BE ADVERSELY AFFECTED IF ALTERNATIVE VISUAL DISPLAY PANEL
        TECHNOLOGIES ERODE FUTURE SALES OF PRODUCTS BASED ON OUR MLD
        TECHNOLOGY*.***
  The
        successful marketing and sale of currently available alternative visual display
        panel technologies, or the introduction of new alternative visual display
        panel
        technologies, including those that may be currently under development by
        our
        competitors and us, may erode future sales of MLD technology and may have
        a
        material adverse effect on our business.
 
 **GOVERNMENTAL
        REGULATION MAY LIMIT OUR ACTIVITIES OR INCREASE OUR COST OF
        OPERATIONS**.
  Our
        business and operations are subject to various forms of government regulation
        in
        the various countries in which we do business, including required
        business/investment approvals, export regulations based on national security
        or
        other reasons, and other export/import regulations such as tariffs. Currently,
        we design our technology and products to meet rigid governmental requirements.
        However, because the final product will generally be produced and manufactured
        by our partners, the actual approval process is the responsibility of the
        partner for the specific market. Many of the products manufactured by our
        licensees and the prototypes we manufacture are subject to certain environmental
        and recycling laws and regulations relating to the disposal of electronics.
        These laws are constantly subject to revision and amendment. If we or our
        partners cannot comply with these regulations without great cost, our financial
        performance may suffer.
 
 **GENERAL
        ECONOMIC CONDITIONS MAY ADVERSELY AFFECT OUR SALES AND
        PROFITABILITY***.*
  For
        the
        most part, purchases of the products into which our technology is incorporated
        are discretionary. As a result, demand for consumer electronics products,
        which
        we believe will account for a significant proportion of our worldwide operating
        revenue will likely be affected by general economic trends in the countries
        or
        regions in which the products into which our technology is incorporated are
        sold. Similarly, demand for business use products and for components we may
        manufacture that go into products of third parties will also likely be affected
        by general economic trends in the various markets in which we sell our products.
        In sum, economic downturns and resulting declines of demand in our major
        markets
        and those of our product and LCD manufacturing partners, including North
        America, Asia, and Europe, may adversely affect our sales and operating
        results.
 
 28
 
 **AS
        WE MATERIALLY RELY ON A LIMITED NUMBER OF THIRD-PARTY SUPPLIERS FOR KEY RAW
        MATERIALS AND COMPONENTS, AND ANY DISRUPTION IN THEIR SUPPLY WILL NEGATIVELY
        AFFECT OUR BUSINESS*.***
  Our
        development and sale of MLD prototype products depend in part on obtaining
        adequate supplies of quality raw materials and components on a timely basis.
        In
        general, we source most of our raw materials as well as key components of
        these
        prototype MLD products from two or three suppliers for each key component.
        This
        is a result of our need to buy small quantities of raw materials and in many
        cases with non-standard or customized specifications. The high volume, lower
        cost manufacturers of these materials generally will not sell in small
        quantities, nor will they generally build non-standard or customized materials.
        We may experience shortages in the supply of these and other components or
        raw
        materials as a result of, among other things, anticipated capacity expansion
        in
        the MLD and competitive industries. If we are unable to obtain adequate supplies
        of high quality raw materials or components at a reasonable cost or in a
        timely
        manner, or are unable to make alternative arrangements for such supplies,
        our
        operating results could be negatively impacted.
 
 **OUR
        BUSINESS MATERIALLY RELIES ON PATENT RIGHTS THAT MAY BE NARROWED IN SCOPE
        OR
        FOUND TO BE INVALID OR OTHERWISE UNENFORCEABLE.**
  **Our
        success will materially depend on our ability to obtain, defend and enforce
        our
        patent rights worldwide. The coverage claimed in a patent application can
        be
        significantly reduced before a patent is issued. Consequently, our pending
        or
        future patent applications may not result in the issuance of patents. Patents
        issued to us may be subjected to further proceedings limiting their scope
        and
        may not provide significant proprietary protection or a competitive advantage.
        Our patents also may be challenged, circumvented, invalidated or deemed
        unenforceable. In addition, because (i) patent applications in various countries
        publish at different times, (ii) it is difficult to monitor patent applications
        that may be filed in other countries by third parties, and (iii) the publication
        of discoveries in scientific or patent literature often lags behind actual
        discoveries, we generally cannot be certain that (i) we were the first creator
        of inventions covered by our pending patent applications, (ii) that we or
        any of
        our licensors will be entitled to any rights in purported inventions claimed
        in
        pending or future patent applications, or (iii) that we were the first to
        file
        patent applications on such inventions.
 
 F**AILURE
        TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD IMPAIR OUR COMPETITIVENESS
        AND
        HARM OUR BUSINESS AND FUTURE PROSPECTS***.*
  We
        believe that developing new products and technologies that can be differentiated
        from those of our competitors is critical to the success of our business.
        We
        intend to take active measures to obtain international protection of our
        intellectual property by obtaining patents and undertaking monitoring activities
        in our major markets. Nevertheless, we may not be able to effectively deter
        competitors from improper use of our proprietary technologies. For instance,
        our
        competitors may misappropriate our intellectual property, disputes as to
        ownership of intellectual property may arise, and our intellectual property
        may
        otherwise become known or independently developed by our competitors. Our
        technology may be accessible in markets, such as Asia, where the practical
        legal
        protections for intellectual property may be considerably less than in North
        America or Europe. As a result, we may have to litigate to enforce and protect
        our intellectual-property rights to determine their scope, validity or
        enforceability. Intellectual property litigation is particularly expensive,
        could cause a diversion of financial resources and the time and attention
        of our
        management, and may not prove successful. The loss of intellectual property
        protection, or the inability to secure or enforce intellectual property
        protection, could materially harm our business and ability to
        compete.
  
 29
  **IF
        WE INFRINGE THE RIGHTS OF THIRD PARTIES, WE COULD BE PREVENTED FROM SELLING
        PRODUCTS, FORCED TO PAY DAMAGES, OR FORCED TO DEFEND AGAINST LITIGATION,
        WHICH
        WOULD ADVERSELY AFFECT OUR BUSINESS.**
  If
        our
        products, methods, processes or other technologies infringe the proprietary
        rights of other parties, we could incur substantial costs and we may have
        to:
  ·
              obtain
                  licenses, which may not be available on commercially reasonable
                  terms, if
                  at all;
  ·
              abandon
                  an infringing implementation or
                  product;
 
 ·
              redesign
                  our products or processes to avoid
                  infringement;
  ·
              stop
                  using the subject matter claimed in the patents held by
                  others;
  ·
              pay
                  damages; or
  ·
              defend
                  litigation or administrative proceedings which may be costly whether
                  we
                  win or lose, and which could result in a substantial diversion
                  of our
                  valuable management resources.
  **WE
        RELY UPON TRADE SECRETS AND OTHER UNPATENTED PROPRIETARY KNOW-HOW TO MAINTAIN
        OUR COMPETITIVE POSITION IN OUR INDUSTRY, AND ANY LOSS OF OUR RIGHTS TO,
        OR
        UNAUTHORIZED DISCLOSURE OF, OUR TRADE SECRETS OR OTHER UNPATENTED PROPRIETARY
        KNOW-HOW COULD NEGATIVELY AFFECT OUR BUSINESS***.*
  We
        also
        rely upon trade secrets, unpatented proprietary know-how and continuing
        technological innovation in our business. We typically enter into
        confidentiality agreements with each of our employees and consultants upon
        the
        commencement of an employment or consulting relationship, whereby each employee
        or consultant agrees to maintain the confidentiality of our trade secrets
        and
        certain other proprietary information on a perpetual basis. However, these
        agreements may be breached and in certain circumstances we may not be able
        to
        enforce them. Moreover, even if we can enforce such an agreement, we may
        not
        have an adequate remedy for any such breach. The mere disclosure of our trade
        secrets or other know-how as a result of such a breach could adversely and
        irreparably affect our business.
  **OUR
        BUSINESS WILL SUBJECT US TO POTENTIAL PRODUCT-LIABILITY CLAIMS THAT COULD
        ADVERSELY AFFECT OUR OPERATING RESULTS, FINANCIAL CONDITION AND BUSINESS
        REPUTATION.**
  We
        currently manufacture only prototype MLD visual display products for sale
        to and
        use by our partners.****We may in the future manufacture
        various products or components for incorporation into our partners’ products. We
        cannot be certain, however, that our prototypes, components we may manufacture
        and products incorporating our technology will be defect-free and will not
        be
        recalled at some later date. Furthermore, although we maintain insurance
        against
        product-liability claims, we cannot be certain that such insurance can
        adequately satisfy the liabilities that may ultimately be incurred. In addition,
        insurance may not continue to be available on terms acceptable to us. A
        large-scale product recall or a successful product-liability claim against
        us
        could result in significant costs or have a negative impact on our reputation,
        which may in turn lead to a decrease in sales, adversely affecting our results
        of operations.
 
 30
  **WE
        RELY ON KEY ENGINEERS, SENIOR MANAGEMENT AND OTHER PERSONNEL, AND THE LOSS
        OF
        THE SERVICES OF ANY SUCH PERSONNEL OR THE INABILITY TO ATTRACT AND RETAIN
        SUITABLE REPLACEMENTS MAY NEGATIVELY AFFECT OUR BUSINESS.**
  Our
        success depends to a significant extent upon the continued service of our
        research and development and engineering personnel, and on our ability to
        continue to attract, retain and motivate qualified researchers and engineers,
        especially during periods of rapid growth. The loss of the services of any
        of
        our key research and development and engineering personnel or senior management,
        without adequate and timely replacement, could result in delays in product
        development, loss of customers, partners and sales, and a diversion of
        management resources, each of which could have a material adverse effect
        on our
        business.
  **IF
        WE ARE UNABLE TO HIRE ADDITIONAL QUALIFIED PERSONNEL, OUR ABILITY TO GROW
        OUR
        BUSINESS MAY BE HARMED.**
  As
        we
        attempt to grow our business, we will need to hire additional qualified
        personnel with expertise in software development, testing, research, technology
        development and manufacturing, as well as sales and marketing. We believe
        that
        attracting and retaining qualified personnel will be critical to our success.
        In
        this regard, we compete for qualified individuals with numerous other
        enterprises. Competition for individuals with the expertise we require in
        Redwood City, California and in Auckland, New Zealand is intense, and we
        may not
        be able to attract and retain qualified personnel
  **WE
        EXPECT TO HAVE SIGNIFICANT INTERNATIONAL OPERATIONS, WHICH WILL POSE UNIQUE
        RISKS TO OUR BUSINESS.**
  We
        expect
        that a substantial portion of our operational activity and the operational
        activity of our partners will be conducted outside of the United States and
        particularly in Asia. There are a number of risks inherent for us and our
        LCD
        product and LCD manufacturing partners in doing business in overseas markets,
        including the following:
  ·
              unexpected
                  legal or regulatory changes;
  ·
              unfavorable
                  political or economic factors;
  ·
              difficulties
                  in recruiting and retaining personnel;·
              labor
                  disputes, including strikes;·
              less
                  developed technological infrastructure, which can affect our production
                  or
                  other activities or result in lower customer acceptance of our
                  products
                  and services;
  ·
              potentially
                  adverse tax consequences; or
  ·
              social,
                  political or economic turmoil due to terrorism, war, or other
                  factors.
  Our
        failure to adequately address these risks may harm our business.
 
 **WE
        MAY BE UNABLE TO SUCCESSFULLY MANAGE AND SUSTAIN OUR GROWTH, WHICH COULD
        HARM
        OUR BUSINESS.**
  Since
        the
        founding of DVIL, we have experienced, and expect to continue to experience,
        growth in the scope and complexity of our operations. This growth may strain
        our
        managerial, financial, manufacturing and other resources, impairing our ability
        to effectively execute our business plans. The materialization of these risks
        could adversely affect our operating results.
  31
 **OUR
        MAJORITY STOCKHOLDER POSSESSES A CONTROLLING PORTION OF THE VOTING POWER
        OF OUR
        COMMON STOCK, WHICH COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON
        STOCK.**
  As
        of
        October 31, 2007, K1W1, our majority stockholder, possessed beneficial ownership
        of 36,664,355 shares of our common stock, or approximately 53% of our
        outstanding common stock, including 884,349 shares of common stock issuable
        upon exercise of warrants.  This represents a significant and controlling
        portion of the outstanding voting power of our securities, and enables K1W1
        to
        control our management and affairs through the election and removal of our
        entire Board of Directors, and all other matters requiring stockholder approval,
        including any future merger, consolidation or sale of all or substantially
        all
        of our assets. This concentrated control could discourage others from initiating
        any potential merger, takeover or other change-of-control transaction that
        may
        otherwise be beneficial to our stockholders. As a result, the return on an
        investment in our common stock through the market price of our common stock
        or
        ultimate sale of our business could be adversely affected.
 
 **SINCE
        TRANSFER RESTRICTIONS HAVE ELAPSED ON CERTAIN SHARES OF OUR OUTSTANDING COMMON
        STOCK, AND AS SECURITY REGISTRATIONS BECOME EFFECTIVE, THE AVAILABILITY OF
        SHARES MAY DEPRESS THE MARKET PRICE OF OUR COMMON
        STOCK.**
  In
        2007, the number of shares
        available for resale on the OTC Bulletin Board has increased and may continue
        to
        increase.  Shares of our outstanding common stock totaling 67,831,341
        are now eligible for resale without registration under Rule 144 of the
        Securities Act, subject to the limitations of that
        rule.  Additionally, we have registered on Form S-8 22,241,260 shares
        of our common stock for issuance upon exercise of options granted under our
        2006
        Stock Incentive Plan, including most recently 8.5 million shares pursuant
        to a
        Form S-8 filed on September 5, 2007.  In addition, in connection with
        our prior private placements and other arrangements with certain of our security
        holders, we have most recently filed an Amendment No. 4 to our registration
        statement on Form SB-2/A to register 21,463,423 shares of our outstanding
        common
        stock (all but 371,243 of which are eligible for resale under Rule 144, subject
        to the limitations of that rule), and 16,406,119 shares underlying outstanding
        warrants to purchase our common stock.  Once the registration is
        effective, there may be a significant increase in the number of shares sold
        and
        available for resale on the OTC Bulletin Board.  Any increase in the
        number of shares available on the market resulting from the above factors
        may
        have an adverse effect on the trading price of the stock.
 
 **TRADING
        OF OUR COMMON STOCK ON AN ILLIQUID MARKET MAY RESULT IN LOWER MARKET
        PRICES.**
  Trading
        of our common stock is conducted on the OTC Bulletin Board. This has an adverse
        effect on the liquidity of our common stock, not only in terms of the number
        of
        shares that can be bought and sold at a given price, but also through delays
        in
        the timing of transactions and reductions in security analysts’ and the media’s
        coverage of our operations and our common stock. This may result in lower
        prices
        for our common stock than might otherwise be obtained and could also result
        in a
        larger spread between the bid and asked prices for our common
        stock.
 
 **THERE
        IS CURRENTLY LITTLE TRADING VOLUME IN OUR COMMON STOCK, WHICH WILL MAKE IT
        DIFFICULT TO SELL SHARES OF OUR COMMON STOCK.**
  **In
        general, there has not been substantial trading activity in shares of our
        common
        stock. The small trading volume will likely make it difficult for our
        stockholders to sell their shares as and when they choose. Furthermore, small
        trading volumes generally depress market prices. As a result, our stockholders
        may not always be able to resell shares of our common stock publicly at times
        and prices that they feel are fair or appropriate.
 
 **WE
        MAY NOT SUCCEED IN EFFORTS TO HAVE OUR COMMON STOCK LISTED ON THE NASDAQ
        GLOBAL
        MARKET OR A SECURITIES EXCHANGE.**
  We
        plan
        to seek listing of our common stock on a national securities exchange. However,
        we cannot assure you that we will be able to meet the initial listing standards
        of any stock exchange.
 
 
 32
 **THERE
        HAS BEEN ONLY A LIMITED PUBLIC MARKET FOR OUR COMMON STOCK TO
        DATE.**
  To
        date,
        there has been only a limited public market for our common stock on the OTC
        Bulletin Board. Our common stock is currently not listed on any national
        exchange. If an active trading market for our common stock does not develop,
        the
        market price and liquidity of our common stock will be materially and adversely
        affected.
 
 **BECAUSE
        WE BECAME PUBLIC BY MEANS OF A REVERSE MERGER, WE MAY NOT BE ABLE TO ATTRACT
        THE
        ATTENTION OF MAJOR BROKERAGE FIRMS*.***
  Additional
        risks may exist as a result of our becoming a public reporting company through
        a
        reverse merger transaction, as opposed to a traditional initial public offering.
        Because we did not engage in a more traditional and publicized initial public
        offering, security analysts of major brokerage firms may not provide us research
        coverage. In addition, there is no incentive to brokerage firms to recommend
        the
        purchase of our common stock. The failure of brokerage firms to provide analyst
        coverage will be likely to slow the dissemination of awareness and knowledge
        of
        our business. As a result, the trading price of our common stock may be
        adversely affected.
 
 **OUR
        CERTIFICATE OF INCORPORATION GRANTS THE COMPANY’S BOARD OF DIRECTORS WITH THE
        POWER TO DESIGNATE AND ISSUE ADDITIONAL SHARES OF COMMON AND/OR PREFERRED
        STOCK.**
  Our
        authorized capital consists of 200,000,000 shares, of which 190,000,000 shares
        are designated as common stock, par value $0.001 per share, and 10,000,000
        shares are designated as preferred stock, par value $0.001 per share. Pursuant
        to authority granted by our certificate of incorporation, our Board of
        Directors, without any action by the stockholders, may designate and issue
        shares in such classes or series (including classes or series of common stock
        and/or preferred stock) as it deems appropriate and establish the rights,
        preferences, and privileges of such shares, including dividends, liquidation
        and
        voting rights. The rights of holders of classes or series of common stock
        or
        preferred stock that may be issued could be superior to the rights of the
        common
        stock offered hereby. Our Board of Directors’ ability to designate and issue
        shares could impede or deter an unsolicited tender offer or takeover proposal.
        Further, the issuance of additional shares having preferential rights could
        adversely affect other rights appurtenant to the shares of common stock offered
        hereby. Any such issuances will dilute the percentage of ownership interest
        of
        our stockholders and may dilute our book value.
  **WE
        ARE SUBJECT TO THE SARBANES-OXLEY ACT AND THE REPORTING REQUIREMENTS OF FEDERAL
        SECURITIES LAWS, WHICH CAN BE EXPENSIVE.**
  As
        a
        public reporting company, we are subject to the Sarbanes-Oxley Act of 2002,
        as
        well as the information and reporting requirements of the Securities Exchange
        Act of 1934 and other federal securities laws. The costs of compliance with
        the
        Sarbanes-Oxley Act and of preparing and filing annual, quarterly and current
        reports and other information with the SEC, will cause our expenses to be
        higher
        than they would be had we remained privately held. In addition, because we
        only
        recently became subject to these laws and regulations, we cannot accurately
        estimate their cost to us from a general and administrative
        standpoint.
  **WE
        HAVE NEVER PAID DIVIDENDS ON OUR CAPITAL STOCK AND DO NOT INTEND TO DO SO
        FOR
        THE FORESEEABLE FUTURE**.
  We
        have
        never paid dividends on our capital stock and we do not anticipate that we
        will
        pay any dividends for the foreseeable future. Accordingly, any return on
        an
        investment in us will be realized, if at all, only when an investor sells
        shares
        of our common stock.
 
 
 33
  **Item
        2. Unregistered Sales of Equity Securities and Use of
        Proceeds**
 
 None
 
 **Item
        3. Defaults Upon Senior Securities**
 
 None
 
 **Item
        4. Submission of Matters to a Vote of Security Holders**
 
 On
        August
        3, 2007, the Plan was amended to increase the number of shares available
        for
        issuance upon exercise of options and other equity-based awards by 8,500,000
        shares, pursuant to a written consent executed by the holder(s) of 35,780,006
        shares of our outstanding common stock.
 
 **Item
        5. Other Information**
 
 None
  
 34
 **Item
        6.** **Exhibits**
 
 **EXHIBIT
        INDEX**
  **Exhibit
                  No.**
              
              **Description**
              
              **Filed
                  with this**
                **Quarterly
                  Report**2.1
              
              Agreement
                  and Plan of Merger dated March 16, 2006 by and among PureDepth,
                  Inc.,
                  PureDepth Technologies, Inc. and Diamond One, Inc.*(1)3.1
              
              Certificate
                  of Incorporation*(1)3.2
              
              Certificate
                  of Merger relating to the merger of PureDepth, Inc. (California)
                  with and
                  into PureDepth Technologies, Inc. *(1)3.3
              
              Certificate
                  of Merger relating to short-form merger of PureDepth, Inc. (f/k/a
                  Diamond
                  One, Inc.) with and into PureDepth, Inc. (f/k/a PureDepth Technologies,
                  Inc.)*(1)3.4
              
              Certificate
                  of Designation of Series A Convertible Preferred Stock *(1)3.5
              
              Bylaws
                  of the Company *(1)4.1
              
              Form
                  of A-Warrant *(1)4.2
              
              Form
                  of B-Warrant *(1)4.3
              
              Form
                  of Agent/C-Warrant*(1)4.4
              
              Form
                  of D-Warrant *(2)10.1
              
              Employment
                  Agreement with Fred Angelopoulos dated March 31, 2005 *(1)10.2
              
              Employment
                  Agreement with Kristin Bowman dated March 31, 2005*(1)10.3
              
              Letter
                  Offer Agreement with David Hancock dated May 30, 2006*(1)10.4
              
              Master
                  License Agreement between PureDepth Limited and PureDepth, Inc.
                  *(1)10.5
              
              Agreement
                  dated May 16, 2005 by and among the Company, DRS Electronic Systems,
                  Inc.
                  and DRS Laurel Technologies (++)*(1)10.6
              
              Exclusive
                  Sales and Distribution License Agreement by and among the Company,
                  Sanyo
                  Sales and Marketing Corporation and SANYO Electric System Solutions
                  Co.,
                  Ltd. (++)*(1)10.7
              
              2006
                  Stock Option Plan (as amended) (12)10.8
              
              Form
                  of Stock Option Agreement *(4)10.9
              
              Director
                  Contract - John Floisand *(4)10.10
              
              Director
                  Contract - Tom Marcus *(4)
  10.11
              
              Executive
                  Employment Agreement - O’Callahan *(5)10.12
              
              Executive
                  Employment Agreement - Angelopoulos *(6)10.13
              
              Form
                  of Directors and Officers Indemnity Agreement*(7)10.14
              
              Amendment
                  of Stock Option Agreement – David Hancock *(7)10.15
              
              Amendment
                  of Stock Option Agreement – Fred Angelopoulos *(7)
 35
 10.16
              
              Amendment
                  of Stock Option Agreement – Mark Yahiro *(7)10.17
              
              Patent
                  and Technology License and Technology Transfer Agreement (++) *(8)
  10.18
              
              Executive
                  Employment Agreement – McCaman *(9)10.19
              
              Separation
                  Agreement – Angelopoulos *(10)10.20
              
              Waiver
                  Agreement with K1W1 *(11)10.21
              
              Executive
                  Employment Agreement – Credelle *(13)10.22
              
              Executive
                  Employment Agreement – Marcus *(14)10.23
              
              [Samsung
                  License Agreement (++)*(15)10.24
              
              Office
                  Lease – Twin Dolphin Drive, California
              
              X16.1
              
              Letter
                  of Comiskey & Company P.C. dated April 13, 2006 *(3)16.2
              
              Letter
                  of Mark Bailey & Company *(12)31.1
              
              Section
                  302 Certification of Chief Executive Officer
              
              X31.2
              
              Section
                  302 Certification of Chief Financial Officer
              
              X32.1
              
              Section
                  906 Certification of Chief Executive Officer and Chief Financial
                  Officer
              
              X
  
 ++
              Confidential
                  treatment has been requested as to certain portions of this exhibit
                  pursuant to Rule 406 of the Securities Exchange Act of 1933, as
                  amended.*(1)
              Previously
                  filed with the Commission in the Company’s SB-2 filed on May 30,
                  2006*(2)
              Previously
                  filed with the Commission in the Company’s Current Reports on Form 8-K
                  filed on August 3, 2006*(3)
              Previously
                  filed with the Commission in the Company’s Current Report on Form 8-K
                  filed on April 14, 2006*(4)
              Previously
                  filed with the Commission in the Company’s Current Report on Form 8-K
                  filed on September 2, 2006*(5)
              Previously
                  filed with the Commission in the Company’s Current Report on Form 8-K
                  filed on November 7, 2006*(6)
              Previously
                  filed with the Commission in the Company’s Current Report on Form 8-K
                  filed on November 16, 2006*(7)
              Previously
                  filed with the Commission in the Company’s Annual Report on Form 10-KSB
                  filed on May 31, 2007*(8)
              Previously
                  filed with the Commission in the Company’s Quarterly Report on Form 10-QSB
                  filed on December 15, 2006*(9)
              Previously
                  filed with the Commission in the Company’s Quarterly Report on Form 10-QSB
                  filed on June 14, 2007*(10)
              Previously
                  filed with the Commission in the Company’s Current Report on Form 8-K
                  filed on July 26, 2007*(11)
              Previously
                  filed with the Commission in the Company’s Current Report on Form 8-K
                  filed on August 8, 2007*(12)
              Previously
                  filed with the Commission in the Company’s Current Report on Form 8-K/A
                  filed on June 20, 2007*(13)
              Previously
                  filed with the Commission in the Company’s SB-2/A filed on August 28,
                  2007*(14)
              Previously
                  filed with the Commission in the Company’s Current Report on Form 8-K/A
                  filed on September 19?, 2007*(15)
              Previously
                  filed with the Commission in the Company’s Current Report on Form 8-K/A
                  filed on October 15, 2007
  36
  **SIGNATURES**
 
 In
        accordance with the requirements of the Exchange Act of 1934, the registrant
        caused this report to be signed on its behalf by the undersigned, thereunto
        duly
        authorized.
  PUREDEPTH,
                  INC.Date: December
                  14, 2007
              By:
              /s/
                  Thomas L. MarcusThomas
                  L. Marcus
                *Chief
                  Executive Officer*
 
 By:
              /s/ Jonathan
                  J. McCamanJonathan
                  J.  McCaman
                *Chief
                  Financial Officer and Chief Accounting
                  Officer*
 
  37