**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 April 30, 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 May
      31, 2007 there were 66,687,584 shares of the issuer’s common stock, $.001 par
      value, outstanding.





Traditional
      Small Business Disclosure Format (check one): Yes [  ] No [X]





1





**INDEX**




Page**PART
                I**-**FINANCIAL
                INFORMATION**Item
                1.
            Financial
                Statements:-
                Unaudited Condensed Consolidated Balance Sheet
            3-
                Unaudited Condensed Consolidated Statements of Operations
            4-
                Unaudited Condensed Consolidated Statements of Cash Flows
            5-
                Notes to Unaudited Condensed Consolidated Financial
                Statements
            7Item
                2.
            Management’s
                Discussion and Analysis or Plan of Operation
            12Item
                3.
            Controls
                and Procedures:3(a)
                - Evaluation of Disclosure Controls and Procedures
            183(b)
                - Changes in Internal Control over Financial Reporting
            18**PART
                II**-**OTHER
                INFORMATION**Item
                1.
            Legal
                Proceedings
            19Item
                1A
            Risk
                Factors
            19Item
                2
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            27Item
                3
            Defaults
                Upon Senior Securities
            27Item
                4
            Submission
                of Matters to a Vote of Security Holders
            27Item
                5.
            Other
                Information
            27Item
                6.
            Exhibits
            28Signatures
            29




2


**PART
      I - FINANCIAL INFORMATION**





**Item
      1. Financial Statements**





**PUREDEPTH,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEET**





**April
                30, 2007****Unaudited****ASSETS****Current
                Assets**Cash
                and cash equivalents
            
            $
            5,776,652Restricted
                cash
            
            
            76,366Marketable
                securities
            
            
            1,000,196Accounts
                receivable, net
            
            
            23,955Other
                current assets
            
            
            211,238Total
                current assets
            
            
            7,088,407**Property
                & Equipment (net)**
            
            
            327,138**Other
                Assets**Intellectual
                property (net)
            
            
            2,573,620**Total
                Assets**
            
            $
            9,989,165**LIABILITIES
                AND STOCKHOLDERS' EQUITY****Current
                Liabilities**Accounts
                payable
            
            $
            355,823Accrued
                expenses
            
            
            394,330Accrued
                payroll and related expenses
            
            
            130,227Accrued
                interest
            
            
            23,115Deferred
                revenue - current portion
            
            
            750,000Notes
                payable - current portion
            
            
            119,527Total
                current liabilities
            
            
            1,773,022**Long
                Term Liabilities**Deferred
                revenue
            
            
            2,596,154Note
                payable
            
            
            435,197**Total
                Liabilities**
            
            
            4,804,373**Commitments
                and Contingencies****Stockholders'
                Equity**Preferred
                stock, $0.01 par value, 10,000,000 shares authorized and no outstanding
                sharesCommon
                stock, $0.001 par value 190,000,000 shares authorized, 66,587,584
                shares
                issued and outstanding
            
            
            66,587Additional
                paid-in-capital
            
            
            32,886,575Accumulated
                deficit
            
            
            (27,057,469
            )Accumulated
                other comprehensive income (loss)
            
            
            (710,901
            )Total
                stockholders' equity
            
            
            5,184,792**Total
                Liabilities and Stockholders' Equity**
            
            $
            9,989,165





*The
      accompanying notes are an integral part of these unaudited financial
      statements*


3


**PUREDEPTH,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**




**For
                Three-Months Ended****April
                30, 2007**
              **Unaudited**
            
            **April
                30, 2006**
              **Unaudited****Revenue**Licensing
            
            $
            187,500
            
            $Product
                sales
            
            
            44,098Total
                revenue
            
            
            231,598Cost
                of licensing
            
            
            76,371Cost
                of product sales
            
            
            38,323Total
                cost of revenue
            
            
            114,694Gross
                margin
            
            
            116,904**Operating
                Expenses**Depreciation
                and amortization
            
            
            17,621
            
            
            72,030Research
                and development
            
            
            516,230
            
            
            1,078,903Sales
                and marketing
            
            
            375,235
            
            
            853,237Professional
                fees
            
            
            271,188
            
            
            317,939General
                and administrative
            
            
            979,649
            
            
            1,509,221Total
                operating expenses
            
            
            2,159,923
            
            
            3,831,330Loss
                from operations
            
            
            (2,043,019
            )
            
            (3,831,330
            )**Other
                Income (Expense)**Interest
                income
            
            
            92,809
            
            
            44,772Interest
                expense
            
            
            (12,945
            )
            
            (25,148
            )Foreign
                exchange gain/(loss)
            
            
            (15,029
            )
            
            24,760Grant
                receipts
            
            
            
            
            
            1,850Other
                income (expense)
            
            
            (59
            )
            
            89,899Total
                other income
            
            
            64,776
            
            
            136,133Loss
                before income taxes
            
            
            (1,978,243
            )
            
            (3,695,197
            )Income
                tax provisionLoss
                from continuing operations
            
            
            (1,978,243
            )
            
            (3,695,197
            )Discontinued
                operations, net of income taxes
            
            
            
            
            
            17,647Net
                loss
            
            $
            (1,978,243
            )
            $
            (3,677,550
            )Net
                loss per share, basic and diluted
            
            $
            (0.03
            )
            $
            (0.08
            )Weighted
                average shares outstanding
            
            
            66,296,747
            
            
            46,194,409**Comprehensive
                Loss**Net
                loss, per statement of operations
            
            $
            (1,978,243
            )
            $
            (3,677,550
            )Foreign
                exchange gain
            
            
            
            
            
            33,132Comprehensive
                net loss
            
            $
            (1,978,243
            )
            $
            (3,644,418
            )





**Basic
                and Diluted Earnings (Loss) per Share**Net
                loss from continuing operations
            
            $
            (0.03
            )
            $
            (0.08
            )Income
                from discontinued operations, net of income taxComprehensive
                net (loss)
            
            $
            (0.03
            )
            $
            (0.08
            )Weighted
                average shares outstanding
            
            
            66,296,747
            
            
            46,194,409





*The
      accompanying footnotes are an integral part of these unaudited financial
      statements.*


4


**PUREDEPTH,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**




**For
                Three-Months Ended****April
                30, 2007**
              **Unaudited**
            
            **April
                30, 2006**
              **Unaudited****CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                loss
            
            $
            (1,978,243
            )
            $
            (3,677,550
            )Adjustments
                to reconcile net loss to net cash flows from operating
                activities:Depreciation
                and amortization
            
            
            93,993
            
            
            72,030Stock-based
                compensation expense
            
            
            196,783
            
            
            2,539,644Foreign
                exchange (gain) / loss
            
            
            
            
            
            (24,760
            )Unearned
                interest discount
            
            
            
            
            
            3,579Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (14,746
            )
            
            46,436Marketable
                securities
            
            
            (31,265
            )Restricted
                cash
            
            
            (15,544
            )Prepaid
                expenses
            
            
            (65,618
            )
            
            (43,894
            )Other
                assets
            
            
            6,571Accounts
                payable
            
            
            124,185
            
            
            204,328Deferred
                revenue
            
            
            (187,500
            )Accrued
                expenses
            
            
            256,238
            
            
            (36,066
            )Accrued
                interest
            
            
            13,869
            
            
            5,441Net
                cash used in operating activities
            
            
            (1,601,277
            )
            
            (910,812
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES**Purchases
                of securities
            
            
            (999,631
            )Proceeds
                from sales of securities
            
            
            3,000,000Purchases
                of fixed assets
            
            
            (29,636
            )
            
            (159,081
            )Expenditures
                for intellectual property
            
            
            (114,584
            )
            
            (67,429
            )Net
                cash used in investing activities
            
            
            1,856,149
            
            
            (226,510
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Issuance
                of common stock (net)
            
            
            241,902
            
            
            4,227,472Principal
                payments on related party notes
            
            
            
            
            
            (23,136
            )Stock
                subscriptions
            
            
            
            
            
            50,000Net
                cash provided by financing activities
            
            
            241,902
            
            
            4,254,336Effect
                of exchange rate on cash
            
            
            
            
            
            27,193Net
                increase in cash and cash equivalents
            
            
            496,774
            
            
            3,144,207Cash
                and cash equivalents at beginning of period
            
            
            5,279,878
            
            
            857,998Cash
                and cash equivalents at end of period
            
            $
            5,776,652
            
            $
            4,002,205





*The
      accompanying footnotes are an integral part of these unaudited financial
      statements.*


5


**PUREDEPTH,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**






**For
                Three-Months Ended****April
                30, 2007**
              **Unaudited**
            
            **April
                30, 2006**
              **Unaudited****SUPPLEMENTAL
                CASH FLOWS INFORMATION:**Cash
                and cash equivalents
            
            $
            5,776,652
            
            $
            4,002,205Restricted
                cash
            
            
            76,366Cash,
                cash equivalents and restricted cash at end of period
            
            $
            5,853,018
            
            $
            4,002,205Cash
                paid for income taxes
            
            $
            800
            
            $Cash
                paid for interest
            
            $
            
            
            $
            1,169**NON
                CASH DISCLOSURES:**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 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 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 generally accepted accounting principles. 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 Financial Statements for the year ended January 31,
      2007
      and ten-months ended January 31, 2006. Operating results for the three months
      ended April 30, 2007 are not necessarily indicative of the results that may
      be
      expected for the fiscal year ending January 31, 2008.





The
      accompanying condensed financial statements for the interim period should be
      read in conjunction with the audited financial statements for the year ended
      January 31, 2007 included in the Company's Annual Report on Form 10KSB filed
      with the Commission on May 31, 2007.  Those statements contain a summary of
      significant accounting policies.





***Recently
      issued Accounting Pronouncements***





On
      February 1, 2007, the Company adopted the provision 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. 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 three months ended
      April 30, 2007. ****





**Note
      2 -Description of Business**





PureDepth,
      Inc., (PDI) along with its wholly owned subsidiaries, PureDepth Limited (PDL)
      and PureDepth Incorporated Limited (PDIL), and predecessor parent entity, Deep
      Video Imaging Limited (DVIL), (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 application 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, 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.





7


The
      consolidated financial statements include all of the accounts of PureDepth,
      Inc., a US corporation based in California, and its wholly-owned subsidiaries,
      based in Auckland, New Zealand.





**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. 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, restricted cash and marketable securities at April 30,
      2007 consisted of the following:




**April
                30, 2007**Cash
                and cash equivalents:Cash
            
            $
            794,301Money
                market funds
            
            
            488,572Taxable
                bonds (maturities 90 days or less)
            
            
            4,493,779Total
                cash and cash equivalents
            
            
            5,776,652Restricted
                cash:Certificate
                of deposits
            
            
            76,366Marketable
                securities:Taxable
                bonds (maturities greater than 90 days)
            
            
            1,000,196Total
                cash, cash equivalents, restricted cash and marketable
                securities
            
            $
            6,853,214




**Note
      5 - Intellectual Property**





Intellectual
      property consists of the following:




**April
                30, 2007**Patent
                registration costs
            
            $
            2,177,464Software
                development costs
            
            
            70,456Acquired
                patent rights
            
            
            2,299,509Less:
                accumulated amortization
            
            
            (1,973,809
            )$
            2,573,620





Amortization
      for quarter ended April 30, 2007 was $76,371. Amortization expense for the
      next
      five years and thereafter is summarized
      in the following table:




**Year
                ended January 31**,2008
            
            $
            229,1132009
            
            
            305,4842010
            
            
            305,4842011
            
            
            305,4842012
            
            
            141,642Thereafter
            
            
            1,286,413




8




**Note
      6 - Stockholders' Equity**





On
      April
      5, 2007, the Board of Directors approved an increase in the number of shares
      of
      common stock available under the 2006 Stock Incentive Plan (Plan) by the amount
      of 8.5 million shares, subject to shareholder approval.





On
      April
      5, 2007, the Board of Directors authorized the issuance of options to purchase
      875,000 shares of common stock to employees and directors upon the availability
      of shares in the option plan, to be granted at the closing price the day the
      increase in the number of shares of common stock available under the Plan is
      approved by the shareholders.





***Stock
      transactions***





On
      March
      26, 2007, the Company issued 205,202 shares of common stock 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. The Company subsequently cancelled the 205,202
      B-warrants pursuant to the transaction.





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
      April
      16, 2007, the Company granted to an employee a warrant to purchase 300,000
      shares of common stock at an exercise price of $1.35, pursuant to our 2006
      Stock
      Incentive 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.





***Stock
      warrants***





The
      following table summarizes common stock warrant activity for the quarter ended
      April 30, 2007:





**Warrants**
            
            **Weighted
                Avg.**
              **Exercise
                Price**Outstanding
                at beginning of period
            
            
            19,404,660
            
            
            $1.12Exercised
            
            
            (205,202
            )
            
            $0.87Expired
            
            
            (1,908,990
            )
            
            $0.87Outstanding
                at April 30, 2007
            
            
            17,290,468
            
            
            $1.15Exercisable
                at April 30, 2007
            
            
            17,290,468
            
            
            $1.15




No
      warrants were issued in the quarter ended April 30, 2007. Included in the total
      outstanding warrants at April 30, 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.





9


***Stock
      option plan***





A
      summary
      of option activity under the Plan as of April 30, 2007 is presented
      below:




**Option
                Shares**
            
            **Shares**
            
            **Weighted
                Avg.**
              **Exercise
                Price**Outstanding
                at beginning of period
            
            
            12,815,411
            
            
            $0.68Granted
            
            
            300,000
            
            
            $1.35Exercised
            
            
            (225,000
            )
            
            $0.28Outstanding
                at April 30, 2007
            
            
            12,890,411
            
            
            $0.70Exercisable
                at April 30, 2007
            
            
            10,984,277
            
            
            $0.37




At
      April
      30, 2007, the Company had reserved a total of 13,741,260 shares of common stock
      for issuance under the Plan. Options available for grant were 36,679 at April
      30, 2007.




The
      following table summarizes significant ranges of outstanding and exercisable
      options as of April 30, 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
            
            
            10,668,344
            
            
            4.3
            
            
            $0.29
            
            
            $12,764,744
            
            
            10,668,344
            
            
            $0.29
            
            
            $12,764,744$1.35
                - $2.07
            
            
            473,400
            
            
            6.7
            
            
            1.69
            
            
            39,000
            
            
            43,350
            
            
            2.07$2.20
                - $2.95
            
            
            713,400
            
            
            6.9
            
            
            2.46
            
            
            
            
            
            50,016
            
            
            2.93$3.03
                - $3.50
            
            
            1,035,267
            
            
            6.7
            
            
            3.38
            
            
            
            
            
            222,567
            
            
            3.38Total
            
            
            12,890,411
            
            
            4.7
            
            
            $0.70
            
            
            $12,803,744
            
            
            10,984,277
            
            
            $0.36
            
            
            $12,764,744


*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 $1.48 as of April 30, 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 April 30, 2007 was 10,668,344.





The
      stock-based compensation cost for the quarter ended April 30, 2007 was $196,783.
      Total unrecorded stock-based compensation cost at April 30, 2007 associated
      with
      employee and director stock options was approximately $2.1 million and is
      expected to be recognized over a weighted-average period of 2
      years.




**Note
      7 - Major Customer**





One
      customer accounted for 100% of the Company’s licensing revenues in the quarter
      ended April 30, 2007. The same customer accounted for the entire ending balance
      of deferred revenue at April 30, 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 or based
      on
      units shipped, whichever is greater.





10


**Note
      8 - 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
      three months ended April 30, 2007. In accordance with FIN 48, the Company
      recognizes interest and penalties related to unrecognized tax benefits as a
      component of income taxes. At April 30, 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 three months ended April 30,
      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. will be open to examination by the federal and California tax
      authorities because the statute of limitations are open and due to 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
      9 - Going Concern**




The
      report of our independent auditors on the Company’s 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. Management has developed a plan to address these issues that allows
      the
      Company to continue as a going concern through at least the end of the fiscal
      year ending January 31, 2008. Based upon our cash position at April 30, 2007
      and
      our current expectations regarding revenues and operating costs, we believe
      we
      can meet the cash requirements of our current plan for the fiscal year ending
      January 31, 2008 without raising additional funds.





This
      plan
      anticipates that cash and cash equivalents at April 30, 2007 in the amount
      of
      $5,776,652 and cash to be provided by the maturity of marketable securities
      in
      the amount of $1,000,196 held at April 30, 2007, will be sufficient to fund
      the
      cash expected to be used in operations and for other obligations for the fiscal
      year ending 2008. The Company expects revenues from existing and new licensing
      arrangements as a result of continued sales and marketing activities in the
      fiscal year ending 2008, and it also anticipates cost increases to fund
      continued development of its technology and to support operations and
      administrative activities resulting in a net loss for the year. Should there
      be
      a shortfall in our expected cash flow from operations, we have  contingency
      plans to delay hiring and reduce spending as necessary to satisfy our cash
      needs
      for the fiscal year ending 2008. While the Company believes its plans ultimately
      will resolve the going concern issue, there is no assurance that the intended
      results will occur.





We
      may
      also consider undertaking further capital raising within the period, possibly
      in
      the form of either convertible debt or equity securities 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.
      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.





**Note
      10 - Subsequent Events**





On
      May
      16, 2007, the Board of Directors appointed Mr. Thomas Marcus Chairman of the
      Board of Directors.





On
      May
      16, 2007, the Board of Directors authorized the issuance of options to purchase
      800,000 shares of common stock to employees and directors upon the availability
      of shares in the option plan, to be granted at the closing price the day such
      shares are approved by the shareholders.





11





**Item
      2. Management’s Discussion and Analysis 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 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 on Form 10-QSB. 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.
      You
      should consider the factors affecting results and risk factors listed from
      time
      to time 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.











12


**Management’s
      Discussion and Analysis or Plan of Operation**





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 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 LCD-based products, which
      include location-based entertainment devices, computer monitors, flat panel
      televisions, mobile devices 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 DRS Electronic Systems, Inc.
      and DRS Laurel Technologies (DRS). 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 and specialized defense computer monitor markets. 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.





13


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 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.




To
      continue to grow the business, we expect to increase the number of employees
      worldwide from 37 to approximately 57 during the fiscal year ending 2008. Plans
      currently provide for approximately half of the new employees to be located
      in
      Auckland, New Zealand and Asia, and the other half in Redwood City, California.
      As a result, we expect we will relocate our US headquarters offices in Redwood
      City to a larger facility during the fiscal year ending 2008.





Based
      upon our cash position at the quarter ended April 30, 2007 and our current
      expectations, we believe we can meet the cash requirements of our current plan
      for the fiscal year ending 2008 without raising additional funds. We may
      consider undertaking further capital raising within such period, possibly in
      the
      form of either convertible debt or equity securities or a credit facility.
      The
      sale of additional equity or debt securities would likely result in additional
      dilution to our stockholders. Should there be a shortfall in our expected cash
      flow from operations, we have  contingency
      plans to delay hiring and reduce spending as necessary to satisfy our cash
      needs
      for the fiscal year ending 2008.





**Results
      of Operations**





For
      the
      quarters ended April 30, 2007 and 2006, we reported net losses of $2.0 million
      and $3.7 million, respectively. The decrease of $1.7 million from the
      corresponding period in the prior year is primarily due to a decrease in
      stock-based compensation of $2.3 million offset by a net increase in operating
      expenses of $0.6 million, a decrease in other income of $0.1 million and a
      net
      increase in our gross margin of $0.1 million.





*Licensing
      Revenue*





Revenue
      from technology licensing was $0.2 million for the quarter ended April 30,
      2007
      and none in the corresponding quarter ended April 30, 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 2007, of which $0.2
      million was recognized as licensing revenue during quarter ended April 30,
      2007.
      This represents 100% of our licensing revenue for the quarter. 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 or based on
      units
      shipped, whichever is greater.





The
      costs
      associated with licensing revenues are primarily related to amortization of
      intellectual properties for the respective period. In the corresponding quarter
      of the prior year, because we were a development stage enterprise, the
      amortization of intellectual properties was reported under operating expenses.
      Amortization is not expected to grow proportionately with revenues as our costs
      related to intellectual properties (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.




14


*Product
      Sales Revenue*





We
      reported product sales revenue of $0.04 million in the quarter ended April
      30,
      2007 and none in the corresponding quarter ended April 30, 2006. 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 year.





The
      cost
      of product sales in quarter ended April 30, 2007 was $0.04 million and
      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 $1.6 million from $3.8 million reported in quarter
      ended April 30, 2006 and to $2.2 million reported in quarter ended April 30,
      2007. The decrease of $1.6 million from the corresponding period in the prior
      year is primarily due to a decrease in stock-based compensation of $2.3 million
      offset by net increases in other operating expenses of $0.7 million.





Stock-based
      compensation costs relate to the granting of options to employees and directors.
      Stock-based compensation totaled $0.2 million and $2.5 million for the quarters
      ended April 30, 2007 and 2006, respectively. The decrease is attributable to
      recognizing an additional $2.3 million in stock-based compensation in the
      quarter ended April 30, 2006 related to acceleration and anti-dilution
      provisions that resulted in option grants becoming fully vested and exercisable
      for additional shares of common stock. After adjusting for the acceleration
      and
      anti-dilution provisions, the stock-based compensation amount from ongoing
      vesting options are consistent between quarters ended April 30, 2007 and 2006.
      We intend to continue to offer stock options as part of compensation packages
      to
      motivate and retain employees. As a result, stock-based compensation on existing
      and new grants will continue to be recognized.





Total
      depreciation and amortization expense is approximately $0.09 million for the
      quarter ended April 30, 2007 and is materially consistent with corresponding
      quarter ended April 30, 2006. A portion of amortization expense is related
      to
      the intellectual property being licensed and has been included in our cost
      of
      licensing for the quarter ended April 30, 2007. Because we did not have
      licensing revenue in quarter ended April 30, 2006, all amortization was included
      in operating expenses.





Total
      research and development expenses decreased $0.6 million from $1.1 million
      reported in quarter ended April 30, 2006 to $0.5 million reported in quarter
      ended April 30, 2007. The decrease of $0.6 million from the corresponding period
      in the prior year is primarily due to a decrease in stock-based compensation
      of
      $0.5 million as discussed above, a decrease of $0.2 million in project,
      consultant and materials cost savings offset by an increase in travel and staff
      costs of $0.1 million. We expect research and development costs to increase
      as
      new employees are added in 2008 and we continue to intensify our research and
      technology enhancement activities.





Total
      sales and marketing expenses decreased $0.5 million from $0.9 million reported
      in quarter ended April 30, 2006 to $0.4 million reported in quarter ended April
      30, 2007. The decrease of $0.5 million from the corresponding period in the
      prior year is primarily due to a decrease in stock-based compensation of $0.6
      million discussed above offset by an increase in travel and other staff costs
      of
      $0.1 million. 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 from $1.5 million
      reported in quarter ended April 30, 2006 to $1.0 million reported in quarter
      ended April 30, 2007. The decrease of $0.5 million from the corresponding period
      in the prior year is primarily due to a decrease in stock-based compensation
      of
      $1.2 million discussed above, offset by increases in staff and director’s
      compensation of $0.3 million and increases in legal, accounting and consultant
      expenses of $0.4 million related to public reporting and filing expenses. We
      expect these expenses to increase in absolute dollars as we expand operations
      and also engage in Sarbanes-Oxley compliance.





15


*Other
      Income and Expense*





Total
      other income and expense decreased $0.08 million from $0.14 million reported
      in
      quarter ended April 30, 2006 to $0.06 million reported in quarter ended April
      30, 2007. The decrease is primarily due to the decrease in MLD component sales
      from the corresponding period in the prior year. Other income and expense
      primarily consist of interest income from investments, interest expense on
      an
      assignment agreement obligation accounted for as a note payable, foreign
      exchange gain and losses, government research grants and sales of MLD
      components. Although we had an increase in interest income from the
      corresponding quarter in the prior 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 grants or MLD component sales in the future.





***Liquidity
      and Capital Resources***





As
      of
      April 30, 2007, we had cash and cash equivalents of $5.8 million, which
      represents an increase of $0.5 million from year ended January 31, 2007. The
      net
      increase of $0.5 million results from the $2.0 million received from the
      maturity of marketable securities and $0.2 million from the exercise of stock
      options and warrants, offset by the use of $1.6 million cash in operating
      activities for the quarter ended April 30, 2007 and $0.1 million for fixed
      asset
      and intellectual property purchases.





In
      addition to the $5.8 million in cash and cash equivalents, we also have $1.0
      million in marketable securities (taxable bonds) which we intend to hold through
      maturity and $0.08 million in restricted cash at April 30, 2007.





We
      have
      issued options to employees and directors pursuant to our stock option plans.
      As
      of April 30, 2007 we had 12,890,411 options outstanding under our 2006 Stock
      Incentive Plan with a weighted exercise price of $0.70. We also have outstanding
      warrants to purchase 17,290,468 shares of common stock at a weighted average
      exercise price of $1.15.





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* ,
      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 FAS109, 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 January 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.





16


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 three months
      ended April 30, 2007. In accordance with FIN 48, we recognizes interest and
      penalties related to unrecognized tax benefits as a component of income taxes.
      At April 30, 2007 no interest or penalties related to unrecognized tax benefits
      had been recorded. There was no change to our unrecognized tax benefits for
      the
      three months ended April 30, 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. As of April 30, 2007, our investments were in money market funds,
      certificates of deposit and US government agency securities.





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.




***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 quarter ended April 30, 2007 we adopted the provision 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
      three month period ended April 30, 2007.





17


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.




**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 are 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.








18


**PART
      II**




**OTHER
      INFORMATION**





**Item
      1. Legal Proceedings**





We
      are
      not involved in any pending legal proceedings that require disclosure.





**Item
      1A. Risk Factors**





**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
      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.





**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;




19


·
            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 precede 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.




**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
      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.





20


**OUR
      NEED TO SPEND SIGNIFICANT AMOUNTS OF CAPITAL IN DEVELOPING NEW TECHNOLOGIES
      AND
      PRODUCTS MAY REQUIRE US TO SEEK ADDITIONAL FINANCING THAT COULD DILUTE
      SHAREHOLDINGS OR RESTRICT OUR OPERATIONS** ***.***




Expenses
      for research and development activities for new technologies and related
      products are extremely difficult to forecast. If our actual expenditures exceed
      our forecasted expenditures, or if our forecasted revenues are less than
      expected due to adverse market conditions or other reasons, we may need to
      seek
      additional financing.




Additional
      financing could be sought from a number of sources, including, but not limited
      to, additional sales of equity or debt securities, or loans from banks, other
      financial institutions or our affiliates. 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 slow our growth,
      delay hiring, abandon certain product development including product development
      on which we may have already spent considerable resources and otherwise reduce
      expenses, or cease operations altogether.





**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.





**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





21


**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.





**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.





22


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.




**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.




23


**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.





**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.




24


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.




**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.**




Shares
      of
      our outstanding common stock totaling 55,309,655 are eligible for resale without
      registration under Rule 144 of the Securities Act, subject to the limitations
      of
      that rule. Additionally, there are options to purchase 12,815,411 shares of
      our
      common stock which have been registered under Form S-8, and we expect to file
      another Form S-8 to cover options to purchase an additional 8,500,000 shares
      in
      the near future. As a result of these events, the number of shares available
      for
      resale on the OTC Bulletin Board has increased and may continue to increase.
      In
      addition, in connection with our prior private placements and other arrangements
      with certain of our security holders, we have filed a registration statement
      on
      Form SB-2/A to register 44,713,945 shares of our outstanding common stock (all
      of which are also eligible for resale under Rule 144, subject to the limitations
      of that rule), and 19,722,043 shares underlying outstanding warrants to purchase
      our common stock. Since the latest amendment to this registration statement
      was
      filed, warrants to purchase 2,431,575 shares of our common stock have been
      exercised or expired and subsequently cancelled and, upon the further amendment
      of the registration statement, will no longer be included in the registration.
      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.





25


**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
      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
      April 30, 2007, K1W1, our majority stockholder, possessed beneficial ownership
      of 35,780,006 shares of our common stock, or approximately 54% of our
      outstanding common stock, plus an additional 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.





**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 $.001 per share, and 10,000,000 shares
      are designated as preferred stock, par value $.01 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.




26


**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.




**Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds**





During
      the quarter ended April 30, 2007, we sold the following securities in
      transactions not registered under the Securities Act of 1933:





·
            On
                March 1, 2007, we issued 114,510 shares of common stock pursuant
                to the
                exercise of B-warrants at an exercise price of $0.87 per share for
                cash
                totaling $100,001.





·
            On
                March 6, 2007, we issued 90,692 shares of common stock pursuant to
                the
                exercise of B-warrants at an exercise price of $0.87 per share for
                cash
                totaling $78,902.





The
      sales
      of the securities identified above were made pursuant to privately negotiated
      transactions that did not involve a public offering of securities, and which
      we
      believe were exempt from the registration requirements of the Securities Act
      pursuant to Section 4(2) thereof and/or Rule 506 promulgated thereunder.





**Item
      3. Defaults Upon Senior Securities**





None





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





On
      March
      16, 2007, our 2006
      Stock Incentive Plan was ratified and approved pursuant to a written consent
      executed by the holder(s) of 35,780,006 shares of our outstanding common stock.





**Item
      5. Other Information**


During
        the quarter ended April 30, 2007 we appointed Mr. Tom Credelle as our Senior
        Vice President of Worldwide Engineering and Development. The material terms
        of
        his offer letter provide that Mr. Credelle will be responsible for managing
        the
        Company’s engineering and research and development efforts, and will earn an
        annual salary of $185,000, be eligible to earn a bonus of up to fifty (50%)
        of
        his salary, and will be granted an option to purchase 500,000 shares of common
        stock on the date on which our stockholders approve an increase in the number
        of
        shares available under our 2006 stock option plan. We anticipate that Mr.
        Credelle’s offer letter will be replaced with a formal employment agreement
        which will include the material terms described above.




27


**Item
      6.**  **Exhibits**





**Incorporated
                by Reference**
            **Filed****#**
            **Exhibit
                Description**
            **Form**
            **Date**
            **Ref**
            **Herewith****10.1**
            Executive
                Employment Agreement - Jon McCaman
            
            
            
            X**31.1**
            Section
                302 Certification of Chief Executive Officer
            
            
            
            X**31.2**
            Section
                302 Certification of Chief Financial Officer
            
            
            
            X**32.1**
            Section
                906 Certification of Chief Executive Officer and Chief Financial
                Officer
            
            
            
            X






28


**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: June
                14, 2007
            By:
            /s/ Fred
                AngelopoulosFred
                Angelopoulos
              *Chief
                Executive Officer*





By:
            /s/ Jon
                McCamanJon
                McCaman
              *Chief
                Financial Officer*






29