UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-Q
 
 [X]
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
      1934
 For the
quarterly period ended April 30,
2009
 or
 
 [   ]
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
      1934
 For the
Transition Period from __________ to __________
 
 Commission
      file number: 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.)
  230 Twin
Dolphin Drive, Suite 230D, Redwood City, California 94065
 (Address
      of principal executive offices) (Zip
Code)
 
 (650)
      632-0800
 (Registrant’s
telephone number, including area code)
 
 (Registrant’s
former address, if changed since last report)
  Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X]No [  ]
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted electronically and posted pursuant to Rule 405 of regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes [  ]No
[  ]
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
 [   ]
Large accelerated
filer                                                                                     [   ]
Accelerated filer
 
 [   ]
Non-accelerated filer (Do not check if a smaller reporting
company)            [X] Smaller reporting
company
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 Yes
[  ]            No [X]
 
 As of
June 9, 2009, 68,991,352 shares of Issuer’s common stock, $0.001 par value, were
outstanding.
 
 1
 INDEX
  PagePART I - FINANCIAL
      INFORMATIONItem
      1
                      Financial Statements:
                      
                      3-
      Condensed Consolidated Balance Sheets (Unaudited)-
      Condensed Consolidated Statements of Operations and Comprehensive Loss
      (Unaudited)-
      Condensed Consolidated Statements of Cash Flows
(Unaudited)-
      Notes to Unaudited Condensed Consolidated Financial
    StatementsItem
      2
                      Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                      
                      17Item
      3
                      Quantitative
      and Qualitative Disclosures about Market Risk
                      
                      27Item
      4T
                      Controls
      and Procedures
                      
                      27PART II - OTHER
      INFORMATIONItem
      1
                      Legal
      Proceedings
                      
                      28Item
      1A
                      Risk
      Factors
                      
                      28Item
      2
                      Unregistered
      Sales of Equity Securities and Use of Proceeds
                      
                      38Item
      3.
                      Defaults
      Upon Senior Securities
                      
                      38Item
      4.
                      Submission
      of Matters to a Vote of Security Holders
                      
                      38Item
      5.
                      Other
      Information
                      
                      38Item
      6.
                      Exhibits
                      
                      39Signatures
                      
                      42
 
 
 2
 PART
I – FINANCIAL INFORMATION
 Item
1 - Financial Statements
 
 PUREDEPTH,
INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 April
      30,
                          2009
                        
                        
                        January
      31, 2009ASSETSCurrent AssetsCash and cash equivalents
                        
                        $
                        6,349,766
                        
                        
                        $
                        7,275,435Restricted
      cash
                        
                        
                        15,000
                        
                        
                        
                        15,000Accounts
      receivable, net
                        
                        
                        147,524
                        
                        
                        
                        93,415Inventory
                        
                        
                        127,499
                        
                        
                        
                        118,355Other current assets
                        
                        
                        197,724
                        
                        
                        
                        210,398Total current assets
                        
                        
                        6,837,513
                        
                        
                        
                        7,712,603Property and Equipment, net
                        
                        
                        289,399
                        
                        
                        
                        265,934Other AssetsIntellectual
      property, net
                        
                        
                        2,279,573
                        
                        
                        
                        2,230,313Other
      assets
                        
                        
                        5,949
                        
                        
                        
                        45,949Total
      Assets
                        
                        $
                        9,412,434
                        
                        
                        $
                        10,254,799
 
 LIABILITIES
      AND STOCKHOLDERS’ DEFICITCurrent LiabilitiesAccounts
      payable
                        
                        $
                        674,004
                        
                        
                        $
                        286,369Accrued expenses
                        
                        
                        238,950
                        
                        
                        
                        237,980Accrued interest
                        
                        
                        178,618
                        
                        
                        
                        100,618Deferred revenue – current portion
                        
                        
                        939,757
                        
                        
                        
                        939,757Convertible
      debt, net of discount
                        
                        
                        3,900,000
                        
                        
                        
                        3,897,849Other
      current liabilities
                        
                        
                        129,000
                        
                        
                        
                        13,646Total current liabilities
                        
                        
                        6,060,329
                        
                        
                        
                        5,476,219Long Term LiabilitiesDeferred
      revenue
                        
                        
                        10,785,124
                        
                        
                        
                        11,020,063Other
      long term liabilities
                        
                        
                        
                        
                        
                        
                        15,000Total
      Liabilities
                        
                        
                        16,845,453
                        
                        
                        
                        16,511,282Commitments
      and contingenciesStockholders' DeficitPreferred
      stock, $0.001 par value, 10,000,000 authorized and nooutstanding
      shares
                        
                        
                        -
                        
                        
                        
                        -Common stock, $0.001 par value, 190,000,000 sharesauthorized,
      68,991,352 and 68,991,352 issued and outstanding
                        
                        
                        68,991
                        
                        
                        
                        68,991Additional
      paid in capital
                        
                        
                        35,380,273
                        
                        
                        
                        35,225,671Accumulated
      other comprehensive loss
                        
                        
                        (598,630
                        )
                        
                        
                        (922,600
                        )Accumulated
      deficit
                        
                        
                        (42,283,653
                        )
                        
                        
                        (40,628,545
                        )Total
      stockholders' deficit
                        
                        
                        (7,433,019
                        )
                        
                        
                        (6,256,483
                        )Total
      Liabilities and Stockholders' Deficit
                        
                        $
                        9,412,434
                        
                        
                        $
                        10,254,799
  The
accompanying footnotes are an integral part of these unaudited condensed
consolidated financial statements.
 3
 
 PUREDEPTH,
INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
 (Unaudited)
 
 For
      Three Months EndedApril
      30,2009
                            
                            
                            2008RevenueLicensing
                            
                            $
                            298,939
                            
                            
                            $
                            187,500Services
                            
                            
                            201,158
                            
                            
                            
                            110,052Product
      sales
                            
                            
                            48,800
                            
                            
                            
                            -Total
      revenue
                            
                            
                            548,897
                            
                            
                            
                            297,552Cost
      of licensing
                            
                            
                            35,883
                            
                            
                            
                            79,810Cost
      of services
                            
                            
                            166,736
                            
                            
                            
                            87,475Cost
      of product sales
                            
                            
                            115,968
                            
                            
                            
                            -Total
      cost of revenue
                            
                            
                            318,587
                            
                            
                            
                            167,285Gross
      margin
                            
                            
                            230,310
                            
                            
                            
                            130,267Operating ExpensesDepreciation
                            
                            
                            20,242
                            
                            
                            
                            32,211Research and development
                            
                            
                            549,211
                            
                            
                            
                            466,036Sales and marketing
                            
                            
                            215,863
                            
                            
                            
                            153,373General and administrative
                            
                            
                            980,297
                            
                            
                            
                            955,253Total
      operating expenses
                            
                            
                            1,765,613
                            
                            
                            
                            1,606,873Loss
      from operations
                            
                            
                            (1,535,303
                            )
                            
                            
                            (1,476,606
                            )Other Income (Expense)Interest income
                            
                            
                            55,776
                            
                            
                            
                            6,660Interest expense
                            
                            
                            (80,212
                            )
                            
                            
                            (59,582
                            )Foreign exchange gain (loss)
                            
                            
                            33,631
                            
                            
                            
                            (14,541
                            )Total
      other income (expense)
                            
                            
                            9,195
                            
                            
                            
                            (67,463
                            )Loss
      before income taxes
                            
                            
                            (1,526,108
                            )
                            
                            
                            (1,544,069
                            )Income
      tax provision
                            
                            
                            129,000
                            
                            
                            
                            -Net
      loss
                            
                            $
                            (1,655,108
                            )
                            
                            $
                            (1,544,069
                            )Net
      loss per share, basic and diluted
                            
                            $
                            (0.02
                            )
                            
                            $
                            (0.02
                            )Weighted
      average shares outstanding, basic and diluted
                            
                            
                            68,991,352
                            
                            
                            
                            68,483,979Comprehensive LossNet
      loss, per statement of operations
                            
                            $
                            (1,655,108
                            )
                            
                            $
                            (1,544,069
                            )Foreign
      exchange gain
                            
                            
                            323,970
                            
                            
                            
                            6,835Comprehensive
      net loss
                            
                            $
                            (1,331,138
                            )
                            
                            $
                            (1,537,234
                            )
 
 The
accompanying footnotes are an integral part of these unaudited condensed
consolidated financial statements.
 4
 PUREDEPTH,
INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 
 For
      Three Months EndedApril
      30,
                          2009
                        
                        
                        April
      30,
                          2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                        
                        $
                        (1,655,108
                        )
                        
                        $
                        (1,544,069
                        )Adjustments
      to reconcile net loss to net cash flows from operating
      activities:Depreciation
      and amortization
                        
                        
                        56,213
                        
                        
                        
                        112,021Loss
      on disposal of assets
                        
                        
                        -
                        
                        
                        
                        16,263Stock-based
      compensation expense
                        
                        
                        154,602
                        
                        
                        
                        190,460Amortization
      of debt discount
                        
                        
                        2,150
                        
                        
                        
                        28,195Changes
      in operating assets and liabilities:Accounts
      receivable
                        
                        
                        (54,109
                        )
                        
                        
                        (98,052
                        )Restricted
      cash
                        
                        
                        -
                        
                        
                        
                        (559
                        )Inventory
                        
                        
                        (9,144
                        )
                        
                        
                        (53,330
                        )Other
      assets
                        
                        
                        52,674
                        
                        
                        
                        (11,633
                        )Accounts
      payable
                        
                        
                        387,635
                        
                        
                        
                        (150,124
                        )Deferred
      revenue
                        
                        
                        (234,939
                        )
                        
                        
                        (187,500
                        )Accrued
      expenses
                        
                        
                        970
                        
                        
                        
                        (257,048
                        )Accrued
      interest
                        
                        
                        78,000
                        
                        
                        
                        30,880Other
      liabilities
                        
                        
                        100,355
                        
                        
                        
                        -Net
      cash used in operating activities
                        
                        
                        (1,120,701
                        )
                        
                        
                        (1,924,496
                        )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of fixed assets
                        
                        
                        (43,709
                        )
                        
                        
                        (4,660
                        )Expenditures
      for intellectual property
                        
                        
                        (85,229
                        )
                        
                        
                        (105,368
                        )Net
      cash used in investing activities
                        
                        
                        (128,938
                        )
                        
                        
                        (110,028
                        )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from convertible debt
                        
                        
                        -
                        
                        
                        
                        2,900,000Principal
      payments on notes payable
                        
                        
                        -
                        
                        
                        
                        (12,979
                        )Net
      cash provided by financing activities
                        
                        
                        -
                        
                        
                        
                        2,887,021Effect
      of exchange rate on cash
                        
                        
                        323,970
                        
                        
                        
                        (6,835
                        )Net
      increase (decrease) in cash and cash equivalents
                        
                        
                        (925,669
                        )
                        
                        
                        845,662Cash
      and cash equivalents at beginning of period
                        
                        
                        7,275,435
                        
                        
                        
                        429,726Cash
      and cash equivalents at end of period
                        
                        $
                        6,349,766
                        
                        
                        $
                        1,275,388
 
 
 The accompanying footnotes are an
integral part of these unaudited condensed consolidated financial
statements.
 5
 PUREDEPTH,
INC. AND SUBSIDIARIES
 Notes
to the Unaudited Condensed Consolidated Financial Statements
 
 Note
1 - Summary of Significant Accounting Policies
 
 Basis
of Presentation
 
 The
accompanying unaudited condensed consolidated financial statements of PureDepth,
Inc. and subsidiaries (“the Company") are presented in accordance with the
requirements for Form 10-Q and Article 8 of Regulation
S-X.  Accordingly, they do not include all of the disclosures required
by accounting principles generally accepted in the United States of
America.   The accompanying condensed consolidated balance sheet
as of January 31, 2009, and the accompanying unaudited condensed consolidated
financial statements have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission.  The interim period financial
statements should be read in conjunction with the audited consolidated financial
statements for the year ended January 31, 2009 included in the Company's Annual
Report on Form 10-K filed with the Commission on April 15, 2009.  Those
statements contain a summary of significant accounting policies.
 
 In the
opinion of management, all adjustments (all of which were of a normal recurring
nature) considered necessary to fairly present the financial position, results
of operations, and cash flows of the Company on a consistent basis, have been
made.
 
 These
results have been determined on the basis of accounting principles generally
accepted in the United States and practices applied consistently with those used
in the preparation of the Company's Annual Consolidated Financial Statements for
the years ended January 31, 2009 and 2008.  Operating results for the
three months ended April 30, 2009 are not necessarily indicative of the results
that may be expected for the year ending January 31, 2010.
 
 As a
result of the Company experiencing losses and net cash used in its operating
activities this quarter, and in each of the last two years, and its anticipating
a loss and additional cash to be used in the next twelve months, the Company has
carefully assessed its anticipated cash needs for the next twelve months. The
Company has adopted an operating plan to manage the costs of its capital
expenditures and operating activities along with its revenues in order to meet
its working capital needs. Although the Company believes that it has sufficient
working capital to conduct its operations and meet its current obligations for
the next twelve months, it makes no assurance that it will be able to do so.
Accordingly, the accompanying consolidated financial statements are presented on
the basis that the Company is a going concern.
  Recently
Issued Accounting Pronouncements
 
 In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “ Business Combinations” (SFAS 141(R))
and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements
— an amendment of ARB No. 51” (SFAS 160). SFAS 141(R) will significantly
change current practices regarding business combinations. Among the more
significant changes, SFAS 141(R) expands the definition of a business and a
business combination; requires the acquirer to recognize the assets acquired,
liabilities assumed and noncontrolling interests (including goodwill), measured
at fair value at the acquisition date; requires acquisition-related expenses and
restructuring costs to be recognized separately from the business combination;
and requires in-process research and development to be capitalized at fair value
as an indefinite-lived intangible asset. SFAS 160 will change the accounting and
reporting for minority interests, reporting them as equity separate from the
parent entity’s equity, as well as requiring expanded disclosures. SFAS 141(R)
and SFAS 160 are effective for financial statements issued for fiscal years
beginning after December 15, 2008. The Company adopted this standard effective
February 1, 2009. The implementation of this standard did not have a material
impact on our consolidated financial statements.
 
 6
 In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133(“SFAS 161”) ,which requires additional disclosures about the objectives of using
derivative instruments, the method by which the derivative instruments and
related hedged items are accounted for under FASB Statement No.133 and its
related interpretations, and the effect of derivative instruments and related
hedged items on financial position, financial performance, and cash flows. SFAS
161 also requires disclosure of the fair values of derivative instruments and
their gains and losses in a tabular format. SFAS 161 is effective for financial
statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early adoption encouraged.  The Company
adopted this standard effective February 1, 2009. The implementation of this
standard did not have a material impact on our consolidated financial
statements.
 
 In April
2008, the FASB issued Staff Position No. FAS 142-3, Determination of the Useful Life of
Intangible Assets(“FSP FAS 142-3”). FSP FAS 142-3 amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS
No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). The intent of
FSP FAS 142-3 is to improve the consistency between the useful life of a
recognized intangible asset under SFAS 142 and the period of expected cash flows
used to measure the fair value of the asset under SFAS 141(R) and other
applicable accounting literature. FSP FAS 142-3 is effective for fiscal years
beginning after December 15, 2008. The Company adopted this standard
effective February 1, 2009. The implementation of this standard did not have a
material impact on our consolidated financial statements.
 
 In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles(“SFAS 162”). SFAS 162 identifies the
sources of accounting principles and the framework for selecting the principles
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with generally accepted accounting principles (the
GAAP hierarchy). SFAS 162 is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008. The
Company’s adoption of SFAS 162 did not have a material impact on our
consolidated financial statements.
  In
November 2008, the FASB issued EITF Issue No. 08-7, Accounting for Defensive Intangible
Assets”(EITF 08-7). EITF 08-7 addresses the accounting for
assets acquired in a business combination or asset acquisition that an entity
does not intend to actively use, otherwise referred to as a ‘defensive asset.’
EITF 08-7 requires defensive intangible assets to be initially accounted
for as a separate unit of accounting and not included as part of the cost of the
acquirer’s existing intangible asset(s) because it is separately identifiable.
EITF 08-7 also requires that defensive intangible assets be assigned a
useful life in accordance with paragraph 11 of SFAS 142 and is
effective for financial statements issued for fiscal years beginning after
December 15, 2008. The Company adopted this standard effective February 1,
2009 and the Company’s adoption of this EITF did not have a material impact on
its consolidated financial statements.
  In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. This FSP amends the
other-than-temporary impairment guidance for debt securities to make the
guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments in the financial statements. The most
significant change the FSP brings is a revision to the amount of
other-than-temporary loss of a debt security recorded in earnings. FSP FAS 115-2
and FAS 124-2 is effective for interim and annual reporting periods ending after
June 15, 2009. The Company does not believe that the implementation of this
standard will have a material impact on its consolidated financial
statements.
  In April
2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly. This FSP
provides additional guidance for estimating fair value in accordance with FASB
Statement No. 157, Fair Value
Measurements, when the volume and level of activity for the asset or
liability have significantly decreased. This FSP also includes guidance on
identifying circumstances that indicate a transaction is not orderly. This FSP
emphasizes that even if there has been a significant decrease in the volume and
level of activity for the asset or liability and regardless of the valuation
technique(s) used, the objective of a fair value measurement remains the same.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction (that is, not a forced
liquidation or distressed sale) between market participants at the measurement
date under current market conditions. FSP FAS 157-4 is effective for interim and
annual reporting periods ending after June 15, 2009, and is applied
prospectively. The Company does not believe that the implementation of this
standard will have a material impact on its consolidated financial
statements.
  7
  In April 2009, the FASB issued FSP FAS FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments.This FSP amends FASB Statement No. 107, Disclosures about Fair Value of
Financial Instruments, to require disclosures about fair value of
financial instruments for interim reporting periods of publicly traded companies
as well as in annual financial statements. This FSP also amends APB Opinion No.
28, Interim Financial
Reporting, to require those disclosures in summarized financial
information at interim reporting periods. FSP FAS 107-1 and APB 28-1 is
effective for interim and annual reporting periods ending after June 15, 2009.
The Company does not believe that the implementation of this standard will have
a material impact on its consolidated financial statements.
  On May
28, 2009, FASB issued FASB Statement No. 165, Subsequent Events (FAS 165).
FAS 165 establishes the principles and requirements for the disclosure of
subsequent events. In particular, the Statement sets forth:
  o
              the
      period after the balance sheet date during which management of a reporting
      entity will evaluate events or transactions that may occur for potential
      recognition or disclosure in the financial
  statements
  o
              the
      circumstances under which an entity will recognize events or transactions
      occurring after the balance sheet date in its financial
      statements
  o
              the
      disclosures that an entity will make about events or transactions that
      occurred after the balance sheet
date
  The
Company believes that the implementation of this standard will not have a
material effect on its consolidated financial statements
  Use
of Estimates
  The
preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires the use of management’s estimates. These estimates are subjective in
nature and involve judgments that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements.  Actual results may differ from these
estimates.
  Note
2 - Description of Business
  PureDepth,
Inc., (PDI) along with its wholly owned subsidiaries, PureDepth Limited (PDL),
PureDepth Incorporated Limited (PDIL), PureDepth Japan KK (PDKK), and
predecessor parent entity, Deep Video Imaging Limited (DVIL), (collectively, the
Company) develops, markets, licenses, and supports multi-layer display (MLD)
technology. The Company also sells prototype MLD-enabled display devices and
related components that it manufactures. The Company’s technology has
application in industries and markets where LCD monitors and displays are
utilized including location based entertainment, computer monitors,
telecommunications, mobile phones and other hand held devices.
 
  8
 
 Note
3 - Inventory
 
 The
Company uses a series of subcontractors to manufacture a MLD component part that
is sold to a licensing customer.  The purchases of raw materials, work
in process and finished goods are recorded as inventory until the components are
sold to the licensing customers.  All inventories are located at
subcontractor facilities.   Inventories include materials,
subcontractor expenses and overhead and are stated at the lower of cost or
market.  Cost is determined using the first-in, first out (“FIFO”)
method.  Market is determined based on net realizable
value.  Appropriate consideration is given to obsolescence, excess
quantities, and other factors in evaluation net realizable value.
 
 Inventories:
                    
                    April
      30,
                      2009
                    
                    
                    January
      31,
                      2009Raw
      materials
                    
                    $
                    -
                    
                    
                    $
                    -Work-in-progress
                    
                    
                    115,751
                    
                    
                    
                    117,677Finished
      goods
                    
                    
                    11,748
                    
                    
                    
                    678Total
      inventories
                    
                    $
                    127,499
                    
                    
                    $
                    118,355
 
 Note
4 - Intellectual Property
 
 Intellectual
property consists of the following:
  April
      30,
                    2009
                  
                  
                  January
      31,
                    2009Acquired
      patent rights
                  
                  $
                  2,880,864
                  
                  
                  $
                  2,819,828Software
      development costs
                  
                  
                  70,456
                  
                  
                  
                  70,456Patent
      registration costs
                  
                  
                  333,400
                  
                  
                  
                  333,400Less:
      accumulated amortization
                  
                  
                  (1,005,147
                  )
                  
                  
                  (993,371
                  )Intellectual
      property, net
                  
                  $
                  2,279,573
                  
                  
                  $
                  2,230,313
 
 Amortization
of intellectual property is included in the cost of
licensing.   For the three months ended April 30, 2009 and 2008,
amortization expense totaled $35,883 and $79,810, respectively.
 
 Amortization
expense for the next five years is summarized in the following
table:
  Years
      ending January 31,2010
                    
                    $
                    109,3562011
                    
                    
                    145,2492012
                    
                    
                    145,2492013
                    
                    
                    145,2492014
                    
                    
                    145,249Thereafter
                    
                    
                    1,589,221Total
                    
                    $
                    2,279,573
  Note
5 – Accounts Payable
 
 Accounts
payable consists of amounts payable to trade creditors.  The aging of
trade creditors remained consistent at the quarter ended April 30, 2009 with the
previous quarter end.  The bulk of the increase as of April 30, 2009
was due to professional audit services incurred during the quarter that
pertained to our fiscal year end, outsourcing to expand the scope of our patent
management and outsourcing for prototype and product design development for
items for future delivery.
 
 9
  Note
6 - Convertible Notes
 
 Secured
Convertible Debt and Related Instruments
 
 On
February 4, 2008 and subsequently amended on July 4, 2008 and August 12, 2008,
the Company executed a Convertible Note Purchase Agreement (“Note Purchase
Agreement” or “notes”) with K One W One Ltd., a majority shareholder and
accredited investor, whereby the Company issued $3.9 million in secured
convertible promissory notes (the “Convertible Notes”). These notes bear an
interest rate of 8% per year, which accrues starting on October 4, 2008, and
were originally due to mature on February 4, 2009. On February 4, 2009, an
extension was signed to February 10, 2010. If the Notes are not converted, the
principal and accrued interest will be due on February 10, 2010. This financing
was a private placement with an accredited investor and is exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.
Pursuant to a Security Agreement dated February 4, 2008, as amended on July 4,
2008 and August 12, 2008, by and between the Company and the Purchaser (the
“Security Agreement”); the Convertible Notes are secured by substantially all of
the assets of the Company, including the Company’s intellectual property. The
principal and interest due on the Convertible Notes are payable on the maturity
date, subject to earlier conversion due to a Qualified Financing event, as
defined in the Convertible Notes. At the option of the holder, principal and
interest due on the Convertible Notes is payable either in cash or in common
stock. The price per share of common stock for any such conversion shall be
equal to an amount equal to 95% of the lower of (i) the average of the daily
volume-weighted average price of the Company’s stock over a period of 10 days
prior to the date of the signing of the Agreement (or, in the case of
Convertible Notes issued on or after July 4, 2008, the date of issuance of such
Convertible Notes), as quoted on the OTCBB or (ii) the average of the daily
volume-weighted average price of the Company’s common stock over a period of ten
trading days prior to the maturity date, as quoted on the
OTCBB.  Assuming, solely for the purposes of providing an estimate,
that the maturity date of the Notes was April 30, 2009, then the number of
shares of common stock that would have been issuable upon conversion on such
date is approximately 31,060,000.
 
 The Notes
contain customary negative covenants for loans of this type, including
limitations on the Company’s ability to incur indebtedness, issue securities,
and dispose of assets. As of April 30, 2009, the Company is not in
default.
 
 Additionally,
the Convertible Notes were issued with embedded and potentially detachable
derivatives which included the conversion feature and warrants (contingent upon
the conclusion of a Qualified Event).
 
 The
Company applied the guidance in SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities” (“SFAS No. 133”) and EITF Issue 00-19
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock”, (“EITF 00-19”) in evaluating whether the
debt conversion feature for the secured convertible term note issued to the
holder is an embedded derivative that should be separated from the debt host and
accounted for as a derivative at fair value.  The Company determined
that the Convertible Notes did not meet the definition of conventional
convertible debt in paragraph 4 of EITF 00-19 and EITF 05-02, since the
conversion price is variable.  The Company evaluated the embedded
conversion feature pursuant to paragraphs 12-32 of EITF 00-19, and determined
that conversion feature did not require liability classification. Accordingly,
the value assigned to the embedded conversion feature of the Debentures followed
the guidance of the EITF Issue No. 98-5, “Accounting for Convertible Securities
with Beneficial Conversion Features or Contingently Adjustable Conversion
Ratio”, and EITF Issue No. 00-27, “Application of Issue No. 98-5 to Certain
Convertible Instruments” of the FASB’s Emerging Issues Task
Force.  The debt discount associated with the embedded conversion
feature is amortized to interest expense over the life of the Debenture or upon
earlier conversion of the Debenture using the effective yield
method.
  Contingent
Features
 
 The
Convertible Notes include a provision that results in an automatic conversion in
case the Company concludes a Qualified Financing prior to the Maturity Date.
Pursuant to the terms of the Notes, a “Qualified Financing” shall mean the
Company’s first financing transaction after the Initial Closing in which the
Company issues investment instruments of the Company and receives gross proceeds
of at least $3,000,000 for application to several corporate purposes from an
investor or investors (not including proceeds from the conversion of the
Note(s)); and provided that if the proposed investment instruments offered in
such financing transaction are other than capital stock or other equity
instruments (such as convertible debentures or other debt instruments), the
financing transaction shall require the written consent of K1W1 to be considered
a Qualified Financing for purposes of this Agreement. For the avoidance of
doubt, an investment instrument will not be deemed to be an equity instrument
for the purposes of the preceding sentence if such investment instrument is, by
its terms, convertible into or exchangeable for any type of debt instrument,
whether at the option of the Company or the holder.
 
 10
 The debt
discount associated with the embedded conversion feature was amortized over the
first term of the notes, ending on February 4, 2009. Debt discount amortization
was recorded to interest expense in the amount of $2,150 for the three months
ended April 30, 2009.
 
 Warrant
 
 Pursuant
to the Note Purchase Agreement, the Company granted the note holder a warrant
which would become exercisable for shares of its common stock if and only if a
Qualified Financing takes place prior to termination of the
Warrant.  The Warrant will expire on February 4, 2011 or immediately
prior to a change in control pursuant to the terms of the Warrant.  If
the warrants are exercisable due to a Qualified Financing, the Warrants would
permit the Purchasers to purchase Common Stock at an exercise price of an amount
equal to 95% of the lower of (i) the average of the daily volume-weighted
average price of the Company’s stock over a period of 10 days prior to signing
of the Note Purchase Agreement, as quoted on the OTCBB or (ii) the average of
the daily volume-weighted average price of the Company’s common stock over a
period of ten trading days prior to the maturity date, as quoted on the
OTCBB.
 
 Because a
Qualified Financing has not yet taken place and because the warrants are only
exercisable upon a Qualified Financing, the warrant’s exercise price and number
of shares are not yet determinable. As such, the warrants have not been
measured.  If and when a Qualified Financing does occur, the warrants
will be measured and recognized at that time.
 
 Note
7 - Deferred Revenue
 
 Deferred
revenue represents payments from customers of non-refundable licensing fees that
are ultimately expected to be recognized as revenue, but for which not all
revenue recognition criteria have been met.  As the revenue
recognition criteria is met, deferred revenue is amortized in accordance with
the terms of the license agreement on the greater of the straight line basis
over the life of the agreement or the units of production method.
  Note
8 - Stockholders’ Deficit
 
 Stock
warrants
 
 The
following table summarizes common stock warrant activity for:
  For
      Three Months Ended
                        April
      30, 2009Warrants
                      
                      
                      Weighted
      Average
                        Exercise
      PriceOutstanding
      at beginning of period
                      
                      
                      16,063,876
                      
                      
                      
                      $1.15Issued
                      
                      
                      -
                      
                      
                      
                      -Exercised
                      
                      
                      -
                      
                      
                      
                      -Expired
                      
                      
                      9,003,832
                      
                      
                      
                      $1.11Outstanding
      at end of period
                      
                      
                      7,060,044
                      
                      
                      
                      $1.20Exercisable
      at end of period
                      
                      
                      7,060,044
                      
                      
                      
                      $1.20
  Included
in the total outstanding warrants for the three months ended April 30, 2009 are
D-warrants to purchase 7,060,044 shares of common stock at $1.20 per
share.
 
 The
Company values warrants issued as compensation at the fair value determined on
the date of grant using the Black-Scholes valuation model and the same
assumptions as used for employee stock-based compensation except for expected
terms which are determined by the respective warrant agreement.  See
Stock option plan note for related discussion and assumptions.
  11
 
 Stock
option plan
 
 At April
30, 2009, the Company had reserved a total of 22,241,260 shares of common stock
for issuance under its 2006 Stock Incentive Plan (the Plan). The Plan is an
amendment of the Second Amended and Restated Executive Share Option Plan
No. 3 (Second Plan).  The Second Plan was as an amendment of the
First Amended and Restated Executive Share Option Plan No. 3 (First Plan), which
was assigned by DVIL in connection with the 2005 restructuring. The
First Plan, in turn, was a successor plan to the Executive Share
Option Plan No. 3 of DVIL. The predecessor options were denominated in New
Zealand dollars; options granted following the assignment are exercisable
in U.S. dollars.  Options granted in each successor plan were designed to
replace, without modification of terms, options of the predecessor
plan. Awards under the successor plans which did result in either a
modification or a new award of executive options were assigned a grant date fair
value which is charged to expense over the expected service period of the
recipient.
 
 Option
awards have generally been granted with an exercise price equal to the market
price of the Company’s stock at the date of grant; the option awards generally
vest over three years with 1/6 vesting at 6 months and 1/12 at quarterly
intervals thereafter.  The options expire in seven years from the date
of grant. Certain option awards included anti-dilution provisions resulting in
the original option grants becoming exercisable for an additional 280,445 of
shares of common stock (post merger adjusted additional shares were 642,277) to
existing employees as a result of the increase in shares from the private
placement offering.  On December 19, 2006, the stock option agreements
for certain executive officers and directors were amended  pursuant to
which the optionees are required to exercise shares, if at all, in
pre-determined annual allotments and to sell any such exercised shares on a
pre-determined scheduled.  Any portion of the options that are not
exercised pursuant to the exercise schedule set forth in the amendment will
expire. These modifications made the awards less favorable resulting in no
additional stock-based compensation expense.
  The fair
value of each option award was estimated on the date of grant using a
Black-Scholes option valuation model that uses the assumptions noted in the
following table. Expected volatilities were based on historical volatility of
similar companies considering characteristics such as industry, stage of life
cycle, size, financial leverage, and other factors. Expected forfeiture rates
were determined by considering the Company’s historical data to estimate option
exercise and employee termination.  The expected dividend yield is
based on our history of having never paid dividends and our expectation that we
will not pay dividends in the near future.  The expected term of our
employee option grants in the three months ended April, 30, 2009 is the
simplified approach as defined by SEC Staff Accounting Bulletin No. 107, Share-Based Payment (SAB
107). This approach resulted in expected term of 5.0 years for stock
options.  The risk-free rate for periods within the contractual life
of the option is based on the U.S. Treasury rate in effect at the time of
grant.
 
 Significant
      Assumptions
                        Three
      Months Ended
                          April
      30, 2009Expected
      volatility
                        70%Expected
      forfeiture rate
                        30%Expected
      dividend yield
                        0%Expected
      term (in years)
                        5.0Risk-free
      rate
                        1.65%
      to
1.84%
  The
following table summarizes common stock option activity under the plan
for:
  Three
      Months Ended
                        April
      30, 2009Option
      Shares
                      
                      Shares
                      
                      
                      Weighted
      Average
                        Exercise
      PriceOutstanding
      at beginning of period
                      
                      
                      13,670,681
                      
                      
                      
                      $0.49Granted
                      
                      
                      8,167,280
                      
                      
                      
                      $0.14Exercised
                      
                      
                      -Forfeited
      and cancelled
                      
                      
                      (7,115,585
                      )
                      
                      
                      $0.51Outstanding
      at end of period
                      
                      
                      14,722,376
                      
                      
                      
                      $0.29Exercisable
      at end of period
                      
                      
                      5,076,207
                      
                      
                      
                      $0.39
 
 12
 The
following table summarizes significant ranges of outstanding and exercisable
options as of April 30, 2009:
  Outstanding
                      
                      
                      ExercisableExercise
      Price Range
                      
                      Shares
                      
                      
                      Weighted
                        Average
                        Life*
                      
                      
                      Weighted
      Average
                        Exercise
                        Price
                      
                      
                      Aggregate
                        Intrinsic
                        Value
                      
                      
                      Shares
                      
                      
                      Weighted
                        Average
                        Exercise
                        Price
                      
                      
                      Aggregate
                        Intrinsic
                        Value$0.09
      to $0.18
                      
                      
                      8,117,280
                      
                      
                      
                      6.73
                      
                      
                      
                      $0.14
                      
                      
                      
                      $43,000
                      
                      
                      
                      412,071
                      
                      
                      
                      $0.15
                      
                      
                      
                      $833$0.21
      to $0.29
                      
                      
                      5,333,429
                      
                      
                      
                      4.48
                      
                      
                      
                      $0.27
                      
                      
                      
                      $0.0
                      
                      
                      
                      4,057,885
                      
                      
                      
                      $0.28
                      
                      
                      
                      $0.0$0.41
      to $1.67
                      
                      
                      991,667
                      
                      
                      
                      5.49
                      
                      
                      
                      $0.92
                      
                      
                      
                      $0.0
                      
                      
                      
                      451,251
                      
                      
                      
                      $0.93
                      
                      
                      
                      $0.0$2.07
      to $3.51
                      
                      
                      280,000
                      
                      
                      
                      4.62
                      
                      
                      
                      $2.33
                      
                      
                      
                      $0.0
                      
                      
                      
                      155,000
                      
                      
                      
                      $2.43
                      
                      
                      
                      $0.0Totals
                      
                      
                      14,722,376
                      
                      
                      
                      5.79
                      
                      
                      
                      $0.29
                      
                      
                      
                      $43,000
                      
                      
                      
                      5,076,207
                      
                      
                      
                      $0.39
                      
                      
                      
                      $833
 *Average
contractual remaining life in years
 
 The
aggregate intrinsic value in the preceding table represents the total pretax
intrinsic value based on stock options with an exercise price less than the
Company’s closing stock price of $0.15 as of April 30, 2009, which would have
been received by the option holders had those option holders exercised their
options as of that date.  There were 20,833 in-the-money stock options
exercisable as of April 30, 2009.  At April 30, 2009, 5,076,207
options were exercisable with a weighted-average exercise price of these options
was $0.39. Of the 22,241,260 shares of common stock reserved for issuance under
its 2006 Stock Incentive Plan, 14,722,376 options were outstanding, 2,798,821
options have been exercised, 125,000 have been granted to a third party service
provider and 4,595,063 options are available for grant at April 30,
2009.
 
 The
stock-based compensation cost for options issued in the three months ended April
30, 2009 and 2008 was $154,602 and $190,460, respectively.  The total
income tax benefit recognized in the income statement for stock-based
compensation arrangements was zero, due to the Company's net operating loss
carry-forwards and the associated valuation allowance which results in an
effective tax rate of zero. None of the stock-based compensation cost recognized
for option issuances has been capitalized.  Total unrecorded
stock-based compensation cost at April 30, 2009 associated with employee and
director stock options was approximately $1.2 million and is expected to be
recognized over a weighted-average period of 2.5 years.
 
 Note
9 – Major Customer
 
 One
customer accounted for 80% of the Company’s licensing revenues in the three
months ended April 30, 2009.  The same customer accounted for 100% of
the Company’s licensing revenues in the three months ended April 30, 2008 and
the entire ending balance of deferred revenue at April 30, 2009 and January 31,
2009.
 
 Note
10 – Provision for Income Taxes
 
 During
the three months ended April 30, 2009, the State of California legislature
enacted significant California tax law changes. As a result of the enacted
legislation, the Company expects that, based upon its projected taxable income
for the year,  its tax obligation in the year 2010 will be
approximately $375,000 higher than previously expected due to a change in
treatment of NOL’s and deferred revenue. The Company recorded a $129,000
provision for income taxes related to this expected payment.
 
 13
 
 Note
11 – Net Loss per Share
 
 Basic net
loss per share is calculated on the basis of the weighted-average number of
common shares outstanding during the reporting periods. Diluted net loss per
share is calculated on the basis of the weighted-average number of common shares
outstanding and taking into account the dilutive effect of all potential common
stock equivalents outstanding. Potentially dilutive common stock equivalents
primarily consist of convertible debt, warrants and employee stock options.
Diluted net loss per share for the three months ended April 30, 2009 and 2008 is
equal to basic net loss per share because the effect of all potential common
stock outstanding during the periods, including convertible debt, warrants and
employee stock options is anti-dilutive. The components of basic and diluted net
loss per share were as follows:
 
 For
      Three Months EndedApril
      30,2009
                          
                          
                          2008Numerator:Net
      loss
                          
                          $
                          (1,655,108
                          )
                          
                          $
                          (1,544,069
                          )Denominator:Weighted
      average shares outstanding, basic and diluted
                          
                          
                          68,991,352
                          
                          
                          
                          68,483,979Net
      loss per share, basic and diluted
                          
                          $
                          (0.02
                          )
                          
                          $
                          (0.02
                          )
 
 The
Company excluded the following shares from the denominator of the diluted net
loss per share calculation as the effect of including them would have been
anti-dilutive:
 
 Three
      Months EndedApril
      30,2009
                              
                              
                              2008Convertible
      notes
                              31,060,000
                              
                              
                              9,852,540Warrants
                              7,060,044
                              
                              
                              17,290,468Employee
      stock options
                              5,076,207
                              
                              
                              14,278,263
  Note
12 - Related Party Transactions
  On
February 3, 2009, the Company entered into an Amendment No. 1 to Convertible
Promissory Notes (the “Amendment”), which amends each of
the  Convertible Promissory Notes previously issued by the Company to
K One W One Limited (“K1W1”) on February 4, 2008, March 14, 2008, July 4, 2008
and August 12, 2008, respectively (collectively, the “Notes”), pursuant to
the  Convertible Note Purchase Agreement dated as of February 4, 2008
and Security Agreement dated as of February 4, 2008, in each case as amended by
Amendment No. 1 to Convertible Note Purchase Agreement and Security Agreement
dated July 4, 2008 and Amendment No. 2 to Convertible Note Purchase Agreement
and Security Agreement dated August 12, 2008.  The Amendment restates
and extends the maturity date of each of the Notes to February 4, 2010. All
other terms and conditions of the Notes and the Convertible Note Purchase
Agreement and Security Agreement, as amended, remain the same.
 
 14
 On
February 20, 2009, the Board of Directors approved the cancellation of certain
options previously granted to the executive officers and certain of the
Directors of the Company and, effective February 23, 2009, granted new options
to those executive officers and directors.  The Board took this action
in light of the recent trading prices for the Company’s common stock and in
order to provide adequate performance and retention incentives.  The
executive officers and directors included in this option exchange, together with
the number and exercise prices of shares subject to previously outstanding
options which were cancelled and the respective new option grants which were
issued are as follows:
  Name
                            Title
                            Number
      of Shares Subject to Outstanding Options Cancelled (1)
                            Exercise
      Price of Shares Subject to Options Cancelled
                            Number
      of New Options GrantedAndy
      L. Wood
                            Chief
      Executive Officer and Director
                            3,400,000
                            $0.29
                            3,400,000Jonathan
      J. McCaman
                            Chief
      Financial Officer and Secretary
                            250,000
                            $2.20
                            250,000John
      Blair
                            Director
                            375,000
                            $0.27
                            375,000Kristin
      Bowman
                            Director
                            375,000
                            $0.28
                            375,000Mark
      Kalow
                            Director
                            375,000
                            $0.27
      to $3.51
                            375,000
  (1)
Optionees were required to cancel vested shares subject to outstanding options,
to the extent available.  Any shares subject to an option which were
not cancelled remain outstanding on the initial terms of such
option.
  In
addition, Mr. McCaman was granted on February 23, 2009 an additional option to
purchase 400,000 shares of our common stock.
  All of
the new options granted will vest monthly over three years from the grant date
and have an exercise price of $0.15, which was the closing price of the
Company’s common stock on the grant date as reported by the OTC Bulletin
Board.  The new options are subject to the terms and conditions of the
2006 Stock Incentive Plan and related form of stock option
agreement.
  With
respect to the options granted to Mr. Wood and Mr. McCaman, 100% of the shares
subject to such options will vest in the event the individual’s service is
terminated without cause (which may include a voluntary resignation by Mr. Wood
or Mr. McCaman in certain circumstances following a material adverse change) on
or within twelve months following the effective date of a change in control,
subject to certain release conditions.  Each of Mr. Wood and Mr.
McCaman’s employment agreements were amended on February 20, 2009 to provide
that the new and any future options granted to Mr. Wood and Mr. McCaman will
have acceleration provisions consistent with the foregoing.  For
purposes of the foregoing, the terms “cause,” “material adverse change” and
“change in control” have the meanings set forth in the employment
agreements.
  On April
13, 2009 the Board of Directors approved the cancellation of 375,000 options
previously granted to Director, David Teece at $0.18, and effective April 13,
2009, granted the same number of new options at $0.11. The Board took this
action in light of the recent trading prices for the Company’s common stock and
in order to provide adequate performance and retention incentives.
 
 With
respect to the options granted to the Directors listed above, 100% of the shares
subject to such options will vest if the individual’s service is terminated on
or within twelve months following the effective date of change in
control.  For purposes of the foregoing, the definition of “change in
control” is the same as that used in the employment agreements with Mr. Wood and
Mr. McCaman.
 
 15
 Note
13 - Subsequent Events
 
 On May
13, 2009, the Company signed an agreement with Aurora Design, Inc. to create new
MLD-based casino games for use by IGT.
 
 Effective
May 15, 2009, Jonathan J. McCaman resigned from his position as Chief Financial
Officer of PureDepth, Inc.  following the parties’ mutual decision to
terminate the employment relationship.  In connection with the
separation, the Company will pay Mr. McCaman a cash payment of $70,000
subject to his execution of a release of claims which has been
signed.
 
 In
connection with and effective following Mr. McCaman’s resignation, the Company
has appointed Joe Moran as interim Chief Financial Officer.  Mr. Moran
joins the Company from The Brenner Group, a leading Silicon Valley financial
services firm.  .  The Company will pay The Brenner Group
$4,750 per week for Mr. Moran’s part-time services, and Mr. Moran will not
receive any compensation directly from the Company.
 
 On May
20, 2009, the company formally launched its expansion into the Japanese market
through a press conference that was well attended in Tokyo.
 
 On May
28, 2009, the Company signed a renewal of its contract with Sanyo Electric Co.
Ltd., which changed the agreement to a non-exclusive basis for new customers,
increased royalty rates for new customers, and included providing Sanyo with a
“preferred manufacturer” position for the Pachinko and Pachislot markets in
Japan, among other changes.
 
 
 16
  Item
2 - Management’s Discussion and Analysis of Financial Condition
and Results
of Operations
  Special
Note Regarding Forward-Looking Information
  This Quarterly Report of PureDepth,
Inc. on Form 10-Q contains certain “forward-looking statements” All statements
in this Quarterly Report other than statements of historical fact are
“forward-looking statements” for purposes of these provisions, including any
statements of the plans and objectives for future operations and any statement
of assumptions underlying any of the foregoing. Statements that include the use
of terminology such as “may,” “will,” “expects,” “believes,” “plans,”
“estimates,” “potential,” or “continue,” or the negative thereof or other and
similar expressions are forward-looking statements. Forward-looking statements
in this Quarterly Report include, but are not limited to, statements regarding
expanding the use of our technologies in existing and new markets; demand for
and future revenues from the sale of visual display products incorporating our
technologies; growth opportunities in the visual display market; opportunities
to incorporate our technologies in markets outside the traditional consumer
product markets; the rate of adoption and sales of MLD visual displays;
diversification of sources of licensing revenue; our expected profit margin from
our MLD product sales; the future impact of our critical accounting policies,
including those regarding revenue recognition, allowance for doubtful accounts,
accounting for income taxes, and stock-based compensations; statements regarding
the sufficiency of our cash reserves; and our expected rate of return on
investments. Actual results may differ materially from those discussed in these
forward looking statements due to a number of factors, including: the rate of
growth of the markets for MLD visual displays that include our technologies; the
extent to which our expectations regarding new licensing markets are realized;
whether our competitors are able to develop and sell alternative 3-D or MLD
visual display technologies to our partners; the accuracy of our identification
of critical accounting policies and the accuracy of the assumptions we make in
implementing such policies; the accuracy of our estimates regarding our taxable
income and cash needs for the next twelve months; the accuracy of our
calculations of royalties due to our licensors; and fluctuations in interest
rate and foreign currencies.  These forward-looking statements involve
risks and uncertainties, and it is important to note that our actual results
could differ materially from those projected or assumed in such forward-looking
statements. Among the factors that could cause actual results to differ
materially are the factors detailed under the heading “Risk Factors” as well as
elsewhere in this Quarterly Report on Form 10-Q. 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-K, our Quarterly Reports on Form 10-Q, 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.
  Company
and Fiscal Year
  As used
herein, unless the context otherwise requires, PureDepth, Inc., together with
its New Zealand subsidiaries PureDepth Limited and PureDepth Incorporated
Limited, and Japanese subsidiary, PureDepth Japan KK, are referred to in this
Quarterly Report on Form 10-Q as the “Company,” “we,” “us” and “our.” References
herein to year ending 2010, and years ended 2009 and 2009 mean the fiscal year
ending January 31, 2010, and the fiscal years ended January 31, 2009 and January
31, 2008, respectively.
 
 
 17
 
 Management’s
Discussion and Analysis
 
 The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the unaudited condensed
consolidated financial statements and related notes included under Item 1 of
this Part I entitled “Financial Statements” and the above section entitled
“Special Note Regarding Forward-Looking Statements”.
 
 PureDepth,
Inc. is a technology and licensing company focusing on the visual display
experience by delivering award-winning Multi-Layer Display (MLD)
technology.  We 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 and MLD
components 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 are primarily focused on fulfilling the requirements of and supporting
existing customer agreements with Sanyo Electric Corporation (Sanyo)
and International Game Technology (IGT).  At the same time, we
will continue to seek to diversify our sources of licensing revenue. 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, public information display systems, mobile devices.  Our
existing license agreements pertain to products for the location-based
entertainment devices, mass market display devices and mobile
devices.  Our goal is to expand our business by working with partner
companies to develop MLD-based products and developing demand and a presence for
such devices in our identified target markets.
 
 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 Redwood City, CA, Auckland,
New Zealand and Tokyo, Japan. Other than our research and development expenses,
no significant capital equipment purchases are expected during the year ending
2010.
 
 Our
critical research and development activities include: further enhancing our
existing MLD technology and related software; developing, manufacturing and
testing prototype MLD-enabled electronic 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 and
software.
 
 We
maintain three facilities, our U.S. corporate headquarters in Redwood City,
California, our research and development center in Auckland, New Zealand and our
country office in Tokyo, Japan.  Our facility lease in New Zealand
expires on October 31, 2011.  It has a provision for a second term
which, if exercised, will commence on November 1, 2011 and expire October 31,
2014.  We terminated our lease on our former Redwood City, California
corporate headquarters office in March 2009. The lease termination required that
we forfeit our $40,000 lease deposit and that the landlord enter in to a direct
lease with our subtenant   In May 2008 we signed a new two year
lease in a new location in Redwood City, California and we relocated our U.S.
corporate headquarters to this new location.  Our sales office lease
in Japan expires on April 19, 2010.
 
 During
the three months ended April 30, 2009, we transferred our accounting operations
from corporate headquarters in Redwood City, California to our Auckland
facility. We expect that this move, along with the planned process improvements
will produce a significant cost savings for us.  We believe the
current level of employees is adequate to run our operations and support our
existing customer agreements. We will continue to monitor our staffing levels in
both the U.S. corporate headquarters and our New Zealand research and
development facility and if necessary, will make changes in relation to our
business strategy and customer activity.
  Our
operations have resulted in operating losses to date and are expected to
continue to have operating losses in the year ending 2010.
 
 18
 On
September 10, 2008 we entered into an amendment to the Patent and Technology
License and Technology Transfer Agreement with International Game Technology
(IGT) dated October 13, 2006.  Pursuant to the amendment, we have
agreed to an automatic renewal term of ten years after expiration of the initial
five year term of the original license agreement.  Upon execution of
the amendment, IGT made an advance, non-refundable payment of licensing fees to
us in the amount of $10 million.  Among other additional terms, IGT
agreed to modify the royalty schedule for the extended term and redefined the
existing limited worldwide license rights of the Company’s technology and
patents to develop, manufacture, market, sell, and distribute products for use
in wager-based gaming.  We believe that the advance, non-refundable
payment of licensing fees allows us to effectively address our going concern
issues for the remainder of the year ending January 31, 2009 and into the year
ending January 31, 2010.
 
 In
addition to our receipt of the advance, non-refundable payment of licensing
fees, we raised $3.9 million in 2008 in secured convertible debt from our
majority shareholder.  That debt was originally due February 10, 2009
but was extended to February 10, 2010. We may also continue to consider raising
additional funds from a number of sources, including, but not limited to,
additional sales of equity or convertible debt securities, loans from
banks, other financial institutions or affiliates, or a credit facility. 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
 
 The funds
from the non-refundable payment of licensing fees under the Amendment and the
secured convertible debt will be used to fund our operations, continue our
efforts to fulfill and promote existing customer agreements with Sanyo Electric
Corporation (Sanyo), and International Game Technology (IGT) and expand our
customer base to diversify our sources of licensing revenue.  The
funds may also be used to minimize the Company’s current or future debt
obligations.
 
 Results
of Operations
 
 For the
three months ended April 30, 2009, we reported net losses of $1.7 million which
is consistent when compared to the $1.5 million reported in the three months
ended April 30, 2008.  Our net losses are primarily derived from total
operating expenses and will continue to be so until our licensing revenues
become significant.  Our operations have not generated net income to
date and are not expected to do so in the year ending 2010. In the three months
ended April 30, 2009, the company incurred non-recurring costs and expenses
associated with measures taken to reduce our ongoing cost structure. We expect
total costs and expenses to be lower in future quarters as a
result.
 
 Licensing
Revenue and Cost of Licensing
  For
      Three Months EndedApril
      30
                                      
                                      
                                      Change($
      in thousands)
                                      
                                      2009
                                      
                                      
                                      2008
                                      
                                      
                                      $
                                      
                                      
                                      %Licensing
      revenue
                                      
                                      $
                                      299
                                      
                                      
                                      $
                                      188
                                      
                                      
                                      $
                                      111
                                      
                                      
                                      
                                      59
                                      %Cost
      of licensing
                                      
                                      
                                      36
                                      
                                      
                                      
                                      80
                                      
                                      
                                      
                                      (44
                                      )
                                      
                                      
                                      (55
                                      %)Gross
      margin - $
                                      
                                      $
                                      263
                                      
                                      
                                      $
                                      108
                                      
                                      
                                      $
                                      155
                                      
                                      
                                      
                                      144
                                      %Gross
      margin - %
                                      
                                      
                                      88
                                      %
                                      
                                      
                                      57
                                      %
 
 We are a
party to a patent and technology license and technology transfer agreement (the
“IGT 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. In aggregate, we have received advance,
non-refundable payments of license fees of $13.75 million under the terms of the
agreement.  Our licensing revenue in the three months ended April 30,
2008 consisted entirely of the amortization of the IGT advance non-refundable
payments.  Our licensing revenue in the three months ended April 30,
2009 consisted of the amortization of IGT advance non-refundable payments and
royalty revenues received from SANYO.  The increase in the amount of
licensing revenue for the three months ended April 30, 2009 when compared with
the corresponding prior year  is due to the amortization of an
additional $10.0 million in advance, non-refundable payments of license fees
from IGT and the receipt of royalty revenues from SANYO.  The balance
of the IGT advance on licensing revenues is recorded as deferred revenue and
will continue to be earned through the year ending 2022, the remaining term of
the agreement.
 
 19
 Our
patent and technology licensing agreements provide royalties to us when our
customers sell or ship products incorporating our MLD
technology.   Except for advanced, non-refundable payments, we do
not recognize licensing revenues until our customers sell or ship their products
incorporating MLD technology.  Therefore, a majority of our potential
licensing revenue is dependent upon our customers’ sales and marketing
programs.  We expect to continue to recognize increasing licensing
revenue from SANYO and the continued recognition of IGT deferred revenue in the
year ending 2010; however, we have no control over the timing or success of our
customer’s sales or marketing programs.
 
 Cost of
licensing is primarily the amortization of capitalized costs related to our
patents.  In December 2001, DVIL entered into an agreement with BASS
Group LLC, a Florida limited liability company, whereby John and Robert Bass
assigned the rights and interest to three patents granted in the U.S. These
rights were subsequently assigned to PureDepth Limited.  In
consideration of the assignment, PureDepth Limited was required to pay BASS
Group approximately $175,000 per year through 2010.   On January 29, 2009, we
entered into a new settlement agreement with The Bass Group, pursuant to which
the original settlement agreement between us and The Bass Group dated as of
December 2001, expired on February 27, 2009 and we made a one-time payment to
The Bass Group of approximately $43,000.  Pursuant to the agreement,
we retained ownership of the patents covered by the Initial Settlement until
they expired on February 27, 2009 and no further amounts are or will be due the
BASS Group.The substantial decrease in cost of licensing is the result
of the termination of the payments due for these patents acquired from the BASS
Group LLC.    Cost of licensing is not expected to grow
proportionately with revenues as our costs related to intellectual property
(including legal fees, registration costs and ongoing maintenance costs) are
generally capitalized and amortized on a straight-line basis over the expected
statutory lives of the related patents, of up to 20 years.
 
 Services
Revenue and Cost of Services
  For
      Three Months EndedApril
      30
                                    
                                    
                                    Change($
      in thousands)
                                    
                                    2009
                                    
                                    
                                    2008
                                    
                                    
                                    $
                                    
                                    
                                    %Services
      revenue
                                    
                                    $
                                    201
                                    
                                    
                                    $
                                    110
                                    
                                    
                                    $
                                    91
                                    
                                    
                                    
                                    83
                                    %Cost
      of services
                                    
                                    
                                    167
                                    
                                    
                                    
                                    87
                                    
                                    
                                    
                                    80
                                    
                                    
                                    
                                    92
                                    %Gross
      margin - $
                                    
                                    $
                                    34
                                    
                                    
                                    $
                                    23
                                    
                                    
                                    $
                                    11
                                    
                                    
                                    
                                    48
                                    %Gross
      margin - %
                                    
                                    
                                    17
                                    %
                                    
                                    
                                    21
                                    %
  Our
services revenue in the three months ended April 30, 2009 and 2008 consisted
entirely of billings for technical and professional services provided to
IGT.  We offer professional services to IGT and our other licensees in
order for them to develop, test, and promote MLD applications in their
products.  The increase in revenue in the three months ended April
2009 is the result of services performed on two major design and prototyping
contracts with IGT, compared to one in the same period last year, and of
providing software training. We believe that services revenues will continue as
relationships with new and existing partners evolve, but will continue to
represent a small portion of our total revenues.
 
 Cost of
services provided in the three months ended April 30, 2008 represents direct
labor and overhead costs of providing the respective services.   Cost
of services provided in the three months ended April 30, 2009 primarily
represents outsourcing costs.   We have strengthened our relationships
with outsourcing vendors, reduced the number of employees from the same period
last year, and increased our managed outsourcing.  We expect cost of
services to fluctuate with changes in services revenues and the related gross
margins to improve as the volume of services revenues increase.
 
 20
 Product
Sales Revenue and Cost of Product Sales
  For
      Three Months EndedApril 30,
                                    
                                    
                                    Change($
      in thousands)
                                    
                                    2009
                                    
                                    
                                    2008
                                    
                                    
                                    $
                                    
                                    
                                    %Product
      sales revenue
                                    
                                    $
                                    49
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    49
                                    
                                    
                                    
                                    100
                                    %Cost
      of product sales
                                    
                                    
                                    116
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    116
                                    
                                    
                                    
                                    100
                                    %Gross
      margin - $
                                    
                                    $
                                    (67
                                    )
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    (67
                                    )Gross
      margin - %
                                    
                                    
                                    (137
                                    %)
                                    
                                    
                                    -
 
 Product
sales represent sales of MLD components and prototypes of MLD-enabled display
devices to existing and potential licensing customers. We design and manufacture
MLD components and MLD prototypes specifically for sale to these customers, who
use them in their manufacturing process or to develop, test and promote MLD
applications in their products.  The increase in product sales revenue
from the same period last year is due to an increase in MLD component sales to
an IGT subassembly vendor who manufactured and sold MLD products during the
three months ended April 30, 2009.   We expect product sales
revenue of our MLD component and prototypes of MLD-enabled display devices will
fluctuate and may increase as our customers launch and market their MLD products
and as relationships with new and existing partners evolve, but will continue to
represent a small portion of our overall revenues in the year ending
2010.
 
 Cost of
product sales represents materials, sub-contractor services, direct labor and
overhead costs of assembling the components or prototypes at subcontractor’s
facilities.  We usually have minimal to negative 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 or unique assembly.  In the three months
ended April 30, 2009, a series of issues relative to bringing up a new
manufacturing subcontractor resulted in a net $0.07M inventory write-down and a
negative margin of $0.07M.  We have taken steps to mitigate these
issues in the short term while continuing to move forward on a strategic process
to lower overall per unit costs.  As the engineering and material
standards for form factors are finalized, we expect the cost of materials and
associated labor to decline. As a result of these factors, we still expect to
see our cost of product sales as a percentage of product revenues decline in the
year ending 2010.
 
 Operating
Expenses
  For
      Three Months EndedApril
      30,
                        
                        
                        Change($
      in thousands)
                        
                        2009
                        
                        
                        % of
      Total
                        
                        
                        2008
                        
                        
                        % of
      Total
                        
                        
                        $
                        
                        
                        %Depreciation
                        
                        $
                        20
                        
                        
                        
                        1
                        %
                        
                        $
                        32
                        
                        
                        
                        2
                        %
                        
                        $
                        (12
                        )
                        
                        
                        (38
                        %)Research
      and development
                        
                        
                        549
                        
                        
                        
                        31
                        %
                        
                        
                        466
                        
                        
                        
                        29
                        %
                        
                        
                        83
                        
                        
                        
                        18
                        %Sales
      and marketing
                        
                        
                        216
                        
                        
                        
                        12
                        %
                        
                        
                        153
                        
                        
                        
                        10
                        %
                        
                        
                        63
                        
                        
                        
                        41
                        %General
      and administrative
                        
                        
                        980
                        
                        
                        
                        56
                        %
                        
                        
                        955
                        
                        
                        
                        59
                        %
                        
                        
                        25
                        
                        
                        
                        3
                        %Total
      operating expenses
                        
                        $
                        1,765
                        
                        
                        
                        100
                        %
                        
                        $
                        1606
                        
                        
                        
                        100
                        %
                        
                        $
                        159
                        
                        
                        
                        10
                        %
 
 Included
in our operating expenses are stock-based compensation costs related to the
granting of options to employees and directors.  For the three months
ended April 30, 2009 and 2008, our stock-based compensation totaled $154,602 and
$190,460, respectively.  The decrease of stock-based compensation is
primarily the result of our reduction in staff. 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.  In the three months ended
April 30, 2009, we expensed stock-based compensation of approximately $39,000 in
research and development, and $116,000 in general and administrative operating
expense categories.
 
 Depreciation.Depreciation
represents the depreciation expense on our fixed assets.  The decrease
in depreciation expense from the same period last year is primarily the result
of fully amortizing leasehold improvements in our Auckland, New Zealand location
last year since the three months ended April 30, 2009.  It is unlikely
we will need to make significant purchases of fixed assets in the foreseeable
future and accordingly, the depreciation expense is not expected to change
proportionately with revenue or total operating expenses.
 
 21
 Research and
development.Our research and development activities include;
research, patent development and management, prototype development, product
design development and development of software applications and the development
of content tools. Research and development expenses consist primarily of
personnel salary, benefits and stock-based compensation, consultant and
contractor fees, materials, and travel.  During the three months ended
April 30, 2009, we expanded the scope of our patent management activities beyond
patent issuance, to address patent strategy, patent infringement, and market
opportunities.  We utilize the services of specialized consultants
with in depth knowledge and experience in our industry to manage our
patents.  In the same period last year patent management was handled
in-house and the main focus was on the issuance of new patents.  The
bulk of cost increases are the result of the expansion of the scope of our
patent management, as well as the payment of scheduled
bonuses.  Increases were also attributable to consulting fees and
material costs for prototype and product design development.  These
cost increases were partly offset by a drop in foreign exchange rates during the
three months ended April 30, 2009, compared to the same period last
year.  Our research and development work is conducted in New Zealand
and the costs incurred are primarily in New Zealand dollars.
 
 On
February 8, 2009, the Company implemented a restructuring plan to better align
resources with its strategic plans.  The restructuring resulted in a
realignment and reduction affecting personnel in its Auckland, New Zealand
offices.  During the three months ended April 30, 2009, the Company
incurred, and paid, a restructuring charge of $31,000 that related to employee
severance.  The severance costs were offset by salary reductions achieved
in the quarter.
 
 We do not
expect research and development expenses to change significantly during the year
ending 2010; however, they may be impacted by currency
fluctuations.  Our focus will be working towards the delivery of a
holistic platform of capability that will deliver a new experience of
visualization for MLD’s.  Also, we will continue to proactively
manage, expand and protect our intellectual property assets.
  Sales and
marketing.During the latter part of the fiscal year ended 2009 we
re-evaluated our strategy and shifted our focus to expanding our initial
presence in the Pachinko and Pachislot market in Japan, and developing technical
and commercial approaches for potential licensees in the newly identified public
information display markets in Japan.  We hired a country manager and
formed a Japanese subsidiary, PureDepth Japan K.K., April 2009.  The
increase in sales and marketing costs for the three months ended April 30, 2009,
compared to the same period last year, is directly attributable to the one-time
costs of approximately $110,000 to establish our subsidiary in Japan, offset by
reductions in outside services.  In the same period last year, our
sales and marketing effort was principally United States based.  For
the three months ended April 30, 2008 our sales and marketing expenses consisted
primarily of costs in the United States for personnel salary and benefits,
travel, tradeshows, consultant fees and stock-based compensation.
 
 General and
administrative. General and administrative expenses
consist primarily of personnel salary and benefits, stock-based compensation,
travel, insurance, rent and professional fees related to our public company
filing requirements.  During the three months ended April 30, 2009,our
accounting function was transferred from our Redwood City, California office, to
our Auckland, New Zealand office.  Cost savings from this transfer,
which will be ongoing, were achieved, but were exceeded by one-time severance
and bonus payments pertaining to the transfer, as well as scheduled executive
bonuses, some of which had been restructured to reflect 6 months of objectives
rather than the usual 3 months. The cost increase from severance and bonuses was
reduced in part due to a decrease in consulting costs and the drop in foreign
exchange rates.  The reduction in consulting costs is the result of
equity placement fees incurred for the same period last year that were not
incurred for the three months ended April 30, 2009, and work done initially to
meet the Sarbanes-Oxley requirements.
 
 As a
public company we have certain unavoidable expenses related to our public filing
requirements, legal obligations, insurance needs, and other necessary
expenditures to fulfill our fiduciary and regulatory
requirements.  These unavoidable expenses could increase due to the
reduction of inside legal and technical employees and our reliance of external
professionals.  We may also experience increased legal and capital
raising costs associated with any capital raising activities we may undertake in
the year ending 2010.  We anticipate that the overall cost savings
measures introduced during the years ended 2008 and 2009 will help us maintain
or offset increases in our general and administrative expenses in the year
ending 2010 as we have re-balanced our costs in support of our strategy. A
portion of our general and administrative costs are incurred in New Zealand
dollars and may be impacted by currency fluctuations.
 
 22
 
 Other
Income and Expense
  Three
      Months EndedApril
      30,
                                        
                                        
                                        Change($
      in thousands)
                                        
                                        2009
                                        
                                        
                                        2008
                                        
                                        
                                        $
                                        
                                        
                                        %Interest
      income
                                        
                                        $
                                        56
                                        
                                        
                                        $
                                        7
                                        
                                        
                                        $
                                        49
                                        
                                        
                                        
                                        700
                                        %Interest
      expense
                                        
                                        
                                        (80
                                        )
                                        
                                        
                                        (60
                                        )
                                        
                                        
                                        (20
                                        )
                                        
                                        
                                        33
                                        %Foreign
      exchange gain (loss)
                                        
                                        
                                        33
                                        
                                        
                                        
                                        (15
                                        )
                                        
                                        
                                        48
                                        
                                        
                                        
                                        (320
                                        %)Other
      expense
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Total
      other income(expense), net
                                        
                                        $
                                        9
                                        
                                        
                                        $
                                        (68
                                        )
                                        
                                        $
                                        77
                                        
                                        
                                        
                                        (113
                                        %)
  Other
income and expense consists of interest income, interest expense, foreign
exchange gain or loss and other miscellaneous income or
expense.  Interest income is earned on our cash, and cash equivalent,
balances.  Interest income was higher in the three months ended April
30, 2009, than the same period last year as a result of the investment of
advanced licensing payments receive in the later part of last year, in
certificates of deposit and cash alternatives.  We expect interest
income to fluctuate in the year ending 2010 depending on the amount and timing
of any capital raised, advanced licensing payments received or royalty payments
received and the rate at which we use such funds to pay our ongoing operating
expenses.   Interest expense increased due to the step up of
interest rates on our convertible notes from 2.7% to 8%, which was partly offset
by a reduction due to the settlement of the Bass loan late last
year.   We expect interest expense to increase in the year ending
2010 due to potential additional funding arrangements with interest
requirements.  Our foreign exchange gains and losses result from
transactions with our New Zealand and Japanese subsidiaries, with our overseas
customers and translation of our overseas subsidiaries into U.S.
dollars.   The increase in the foreign exchange gain for the
three months ended April 30, 2009, is due to the an increase in cash balances
held in New Zealand and fluctuations in the international exchange rates with
our subsidiaries in New Zealand.
  Liquidity
and Capital Resources
 
 We have
funded our operations from inception through April 30, 2009 primarily through
the sale and exercise of common stock and warrants, the sale of convertible
notes and the use of advance, non-refundable payments of licensing
fees.  In the three months ended April 30, 2009, net cash used by
operating activities was $1.1million and an additional $129,000 was used for
investment in fixed assets and intellectual property.  Our operating
and asset purchasing activity during the three months ended April 30, 2009, was
primarily funded by available cash of $7.3 million at January 31,
2009.  We expect the cash balance of $6.3 million at April 30, 2009 to
be adequate to fund our operations in the year ending 2010.
 
 We have
issued options to employees and directors pursuant to our 2006 Stock Incentive
Plan. As of April 30, 2009, we had 14,722,376 options outstanding under our 2006
Stock Incentive Plan with a weighted exercise price of $0.29.  We also
had as of April 30, 2009 outstanding warrants to purchase 7,060,044 shares of
common stock at a weighted average exercise price of $1.20.  In March
2009, 9,003,832 warrants with a weighted average exercise price of $1.11
expired.  The remaining 7,060,044 with a weighted average exercise
price of $1.20 have an expiration date in July 2009.
 
 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.
 
 23
 
 Provision
for State and Federal Income Taxes
 
 From
inception through April 30, 2009, 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 New Zealand subsidiaries.
 
 We have
not recorded a tax benefit for domestic tax losses because of the uncertainty of
realization. We adhere to SFAS No. 109 Accounting for Income Taxes(“SFAS 109”), which requires an asset and liability approach to financial
accounting and reporting for income taxes. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be
realized. Under paragraph 17e of SFAS 109, deferred tax assets are reduced by a
valuation allowance if the weight of the available positive and negative
evidence suggests that it is more likely than not some portion or all of the
deferred tax asset will not be realized.
  We have
generated net losses since our inception, and since our current projections are
based upon predictions that cannot ensure sustained profitability in future
years, we have provided a full valuation allowance against the deferred tax
assets at April 30, 2009.
  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, 2009.  In accordance with FIN 48, we recognize
interest and penalties related to unrecognized tax benefits as a component of
income taxes.  At April 30, 2009, 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,
2009.
 
 We are
subject to taxation in the U.S. and California. Our subsidiaries are subject to
taxation in New Zealand and Japan.  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.
 
 Obligations
 
 Our
obligations as of April 30, 2009 consisted of operating leases for facilities
and secured convertible notes.  The convertible notes were originally
due February 4, 2009. On February 4, 2009, an extension was signed to February
10, 2010.  The aggregate principal amount of the secured convertible
notes at April 30, 2009, totaled $3.9 million and is convertible at a discount
of five percent (5%) into investment instruments issued by us pursuant to and
upon a qualified financing.  If such qualified financing does not
occur, upon maturity on February 4, 2010, the secured convertible notes may, at
the holder’s option, convert into our common stock at a five percent (5%)
discount from a formula-derived market price.  The secured convertible
notes accrue interest at the annual rate of 8%, commencing October 4,
2008.  In addition, pursuant to the secured convertible note purchase
agreement, each note holder has received in the form of a warrant the right to
participate in qualified financing, for a period of three years, in an amount
equal to ten percent (10%) of the aggregate principal under the secured
convertible notes, and at a discount of five percent (5%) of the purchase price
of the investment instruments issued in such qualified financing.  The
secured convertible notes are secured by our assets.  At April 30,
2009, minimum lease payments required under the operating leases amounted to
$0.3 million and are payable through 2012.
 
 We intend
to fund our obligations from our ongoing operations, existing cash resources,
subleasing agreements, and other capital raising activities.
 
 We
anticipate that our existing licensing contracts will require limited capital
investment and will be supported by our current staff levels.
 
 Off-Balance
Sheet Arrangements
 
 We
do not have any off-balance sheet arrangements.
 
 24
 Critical
Accounting Policies
 
 There
have been no significant changes in our critical accounting policies included in
our Annual Report on Form 10-K for the year ended 2009.
  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, (“U.S. GAAP”). The preparation of these financial statements in
accordance with U.S. 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. We have described our accounting policies in Note 1 to our condensed
consolidated financial statements included in the Form 10-K under Item 8
of  Part II entitled “Financial Statements and Supplementary
Data”.  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-Q. 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.
  Revenue
Recognition.  We evaluate revenue recognition for transactions
to sell products and services and to license technology, trademarks and know-how
using the criteria set forth by the SEC in Staff Accounting Bulletin 104,
Revenue Recognition (SAB 104). For revenue transactions that involve software or
software-related products, we recognize revenue under the guidance established
by Statement of Position No. 97-2, Software Revenue Recognition (SOP
97-2).  Both SAB 104 and SOP 97-2 state that revenue is recognized
when each of the following criteria is met: persuasive evidence of an
arrangement exists, delivery has occurred or services have been rendered, the
seller’s price to the buyer is fixed or determinable, and collectibility is
reasonably assured.  If we make different judgments or utilize
different evidence in relation to the revenue recognition criteria, the amount
and timing of our revenue could be materially affected.
  Licensing.
Licensing revenue is primarily derived from royalties received from licensees of
our intellectual property rights, including patents, trademarks and know-how.
Royalties are recognized when all revenue recognition criteria have been met.
Judgments are made as to whether collectability can be reasonably assured based
on the licensee’s recent payment history and credit worthiness.
 
 Deferred revenue related to agreements
involving both an exclusive license for a term and a provision for royalty
payments per units beyond a minimum threshold will be recognized as follows: the
initial payment amount will be either (a) recognized equally over the term or
(b) based upon customer license usage, whichever cumulative figure is
higher.
 
 If we
were to make different judgments or utilize different evidence in relation to
licensing revenue agreements, collectability and the amount of deferred revenue
related to the agreements and the terms, the amount and timing of our revenue
could be materially affected.
  Research
and Development Costs.Research and
development costs are recognized in the period incurred in accordance with SFAS
No. 2 Accounting for Research and Development Costs. Research and development
expenses primarily include prototype development costs, contractor fees, and
administrative expenses directly related to research and development
support.  If we make different judgments in relation to the nature of
research and development costs, the amount of research and development costs and
operating expenses could be affected.
 
 Intellectual
Property.  Intangible assets (intellectual property) consist of
acquired technology and patents, and internally developed patents and software
costs.  All of the acquired technology was transferred to the Company
from its predecessor company and are recorded at the predecessor’s original
cost.  Acquired technology is amortized on a straight-line basis over
the life of the original agreement.
 
 The costs
of internally developing intellectual property that are not specifically
identifiable, have indeterminate lives, or are inherent in a continuing business
and related to an entity as a whole have been expensed as incurred pursuant to
the requirements of SFAS No. 142, Goodwill and Other Intangible Assets. Legal
fees, registration costs, and ongoing maintenance costs relating to intellectual
property are capitalized as incurred and are amortized on a straight line basis
over the estimated remaining statutory lives of the patents, ranging from one to
twenty years. We evaluate the recoverability of our intellectual property
periodically and take into account events or circumstances that warrant revised
estimates of useful lives or that indicate that impairment exists. No
impairments of intellectual property have been identified during the periods
presented.
  25
 Our
impairment analysis contains judgments, uncertainties and estimates in order to
estimate future cash flows and fair values, if we were to make different
judgments and estimates, the outcome of the impairment analysis could be
materially affected.
 
 Foreign
Operations and Foreign Currency.  We have two wholly-owned
subsidiaries incorporated in New Zealand. Our direct subsidiary, PureDepth Ltd.,
is the holding entity for the intellectual property portfolio, which is subject
to an exclusive license with us for its use, exploitation and future
development. Our indirect subsidiary, PureDepth Incorporated Ltd., undertakes
the operations in respect of any future research and development of the
intellectual property portfolio on our behalf. This activity is governed by a
development agreement with us pursuant to which an annual development fee of
cost plus 7.5% is calculated at the end of each quarter.  Income and
expenditures relating to the license and future development of the intellectual
property are inter-company transactions and are eliminated on consolidation.
Therefore, these amounts are not shown in the financial statements. We
(including our subsidiaries) use the U.S. dollar as our functional currency. We
determined that the cash flow, sales price, sales market, expense, financing and
intercompany transaction indicators had reached a significant level where under
SFAS 52 each of the entities would be best represented by the U.S. dollar as the
functional currency.  Our currency decisions contain judgments and
uncertainties that if we were to make different judgments, the outcome could
have a material affect to our operating results and fiscal period ending
balances.
 
 Accounting
for Income Taxes.  In preparing our consolidated financial
statements, we are required to make estimates and judgments that affect our
accounting for income taxes. This process includes estimating actual current tax
exposure together with assessing temporary differences resulting from differing
treatment of items for tax and accounting purposes. These differences, including
differences in the timing of recognition of stock-based compensation expense,
result in deferred tax assets and liabilities, which are included in our
consolidated balance sheets. We also assess the likelihood that our deferred tax
assets will be recovered from future taxable income and, to the extent that we
believe that recovery is not likely, we have established a valuation
allowance.
 
 During
year ended 2008, we adopted the provisions of Financial Accounting Standards
Board (“FASB”) Interpretation No. 48, “Accounting for Uncertain Income Taxes –
An Interpretation of FASB Statement No. 109” (“FIN 48”).  FIN 48
clarifies the accounting for uncertainty in income taxes recognized in an
entity’s financial statements in accordance with FASB Statement No. 109,
“Accounting for Income Taxes” (“FAS 109”) and prescribes a recognition threshold
and measurement attributes for financial statement disclosure of tax positions
taken or expected to be taken on a tax return.  There was no impact to
our consolidated financial position, results of operations or cash flows for the
year ended 2008.
  Significant
judgment is required in determining the provision for income taxes, deferred tax
assets and liabilities and the valuation allowance against our deferred tax
assets. Our financial position and results of operations may be materially
affected if actual results significantly differ from these estimates or the
estimates are adjusted in future periods.
  Stock-Based
Compensation.  We follow the provisions of Statement of
Financial Accounting Standards No. 123(R), Share-Based Payment(SFAS
123R). SFAS 123R requires measurement of all employee and non-employee
stock-based compensation awards using a fair-value method and recording of such
expense in the consolidated financial statements over the requisite service
period.  We estimate our stock-based compensation using the
Black-Scholes option-pricing model.  The Black-Scholes option-pricing
model requires judgmental assumptions including expected option life,
volatility, and forfeiture rates.  If we make or utilize different
assumptions used in the Black-Scholes option-pricing model, the amount of
stock-based compensation expense could be materially affected.
 
 26
  Item
3 – Qualitative and Quantitative Disclosures 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, and certificates of deposit.  Since our results of
operations are not dependent on investment performance, we believe that such
risks would not have a significant impact on our results from
operations.
 
 Transactions
with our New Zealand research facility and with suppliers and manufacturers in
Asia are denominated in local currencies and thus, we are subject to foreign
currency exchange fluctuations associated with re-measurement to U.S. 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.
  Item
4T - Controls and Procedures
 
 Evaluation
of Disclosure Controls and Procedures
 
 Under the
supervision and with the participation of our management, including our
principal executive and principal financial officer, we have evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)), as of April 30, 2009.  Disclosure controls and
procedures are designed to ensure that information required to be disclosed in
reports filed or submitted under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in SEC rules and
forms and that such information is accumulated and communicated to management,
including the principal executive and principal financial officer, to allow
timely decisions regarding required disclosures.  Based on that
evaluation, and in light of the previously identified material weaknesses in our
internal control over financial reporting, as of January 31, 2009, relating to
ineffective control environment for inadequate segregation of duties and
information technology access as described in the our Annual Report on Form
10-K, our principal executive officer and our principal financial officer have
concluded that our disclosure controls and procedures were not effective as of
April 30, 2009.
 
 Changes
in Internal Control over Financial Reporting
 
 There has
been no change in our internal control over financial reporting that occurred
during the three months ended  that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
 
 Inherent
Limitations of Any Control System
 
 We do not
expect that our disclosure controls and procedures or our internal control over
financial reporting will prevent all error and all fraud. A control system, no
matter how well designed and operated, can provide only reasonable, not
absolute, assurance that the control system’s objectives will be met. Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within the company have been detected.
 
 
 27
  PART
II – OTHER INFORMATION
 
 Item
1 - Legal Proceedings
  We are not currently involved in any
legal proceedings.
 
 Item
1A - Risk Factors
 
 The Risk
Factors included in our Annual Report on Form 10-K for the year ended 2009 have
not materially changed.
 
 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.
  IF
OUR STRATEGY IS NOT SUCCESSFUL, OR IF EXPANSION OPPORTUNITIES ARISE THAT REQUIRE
CASH INVESTMENT, , WE WILL NEED TO SEEKADDITIONAL FINANCING TO FUND ONGOING
OPERATING LOSSES OR EXPANSION, THAT WILL DILUTE SHAREHOLDINGS, AND OUR FAILURE
TO OBTAIN ADDITIONAL FINANCING AS AND IF NEEDED WILL RESTRICT OUR OPERATIONS AND
MAY CAUSE US TO CEASE OPERATIONS ALTOGETHER.
 
 Our
strategy and related plans have not been sufficiently implemented for us to make
an assessment of their ultimate potential outcome. Should they fail, or if they
do not achieve the desired result, we will likely not attract sufficient sources
of revenues to achieve or maintain profitability. Our failure to achieve or
maintain profitability will require us to seek additional funding to fund these
operating losses.
 
 The
implementation of our strategy is dependent upon having sufficient resources to
make necessary investments and cover operating losses until we can achieve
profitability. We do not believe we have sufficient cash to fully execute our
strategy and achieve profitability if we are required to pay the $3,900,000,
plus interest to K1W1 when it is due in February 2010. We have successfully
negotiated an extension of the Note Purchase Agreement and Security Agreement
with K1W1 to February 2010, and our plans are to negotiate the conversion of the
notes when due, or an extension for at least another year. If K1W1 do not
convert the notes, or agree to an extension of the loan when due, we will likely
need to seek additional funding.
 
 Opportunities
to expand our business through investment, acquisition or merger may arise. We
do not now have, and we do not expect in the near future to have, sufficient
cash to fund such expansion. Should we determine these expansion plans will be
in the best interests of the shareholders we would likely seek to finance these
expansion plans through additional funding.
 
 We expect
that if our strategy is not successful, it will be necessary for us to obtain
additional financing or other funding in order to fund our operations some time
in our year ending 2011, or possibly earlier if the loans due K1W1 are not
extended or converted.  If an expansion opportunity arises we may need
to secure additional financing, irrespective of the success of our strategy. We
cannot, however, be certain that any such financing or funding will be available
on terms favorable to us, or if such financing or funding will be available to
us 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 further 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.
 
 28
 Ultimately,
if no additional financing or funding is obtained as and when needed, we may be
required to significantly reduce our level of operations, including by
slowing our growth, delaying  hiring, abandoning certain product
development including product development on which we may have already spent
considerable resources and otherwise reducing expenses, or eventually, if
necessary, cease operations altogether.  Further, if we do not
enter into a qualified financing resulting in the conversion of the notes issued
to K1W1, or do not satisfy the payment obligations under the notes, K1W1 may
elect to exercise its remedies with respect to its security interest described
below under the heading “We have granted our lender a security interest in our
assets, and a default of our obligations under our outstanding convertible notes
could result in the seizure or forced sale of our assets.”
 
 WE
HAVE GRANTED OUR LENDER A SECURITY INTEREST IN OUR ASSETS, AND A DEFAULT OF OUR
OBLIGATIONS UNDER OUR OUTSTANDING CONVERTIBLE NOTES COULD RESULT IN THE SEIZURE
OR FORCED SALE OF OUR ASSETS.
 
 Our obligations under the note purchase
agreement and security agreement, under which the Company raised $3,900,000, are
secured by a first priority security interest in substantially all of our
assets, including patents and intellectual property.  If there is an
event of default under the loan and/or security agreements, including of the
Company’s fault to meet its payment obligations, is liquidated or becomes
insolvent, K1W1 would be entitled to exercise the remedies available to a
secured lender under applicable law and/or pursuant to the applicable loan and
security agreements, including its ability to exercise its rights associated
with the security interests in the Company’s assets.  See the description
of the Note Purchase Agreement transaction in our Annual report on Form 10K
under Item 13 Part III entitled “Certain Relationships, Related Transactions and
Director Independence”.
 
 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..  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.
  
 29
 IF
OUR PARTNERS ARE UNABLE TO INNOVATE, DEVELOP AND MARKET ATTRACTIVE NEW PRODUCTS
INTO WHICH OUR TECHNOLOGY CAN BE INCORPORATED, OUR BUSINESS MAY BE ADVERSELY
AFFECTED.
  We do not
manufacture, market or sell visual display consumer products, other than
prototypes, and expect to derive a substantial portion of our future revenues
from the licensing of our MLD technology to our partners for their incorporation
into innovative new products for sale.  We expect that these revenues
will generally be based on royalty payments calculated on a per unit sold or
shipped basis.  Accordingly, our licensing revenues depend on the
success of our licensees in launching products in volume that incorporate our
technology. We cannot control these manufacturer’s product development or
commercialization efforts or predict their success. The process of
developing and marketing new products is generally complex and uncertain, and
involves a number of risks including, without limitation, the
following:
  ▪
              our
      partners may be unable to obtain adequate funding and resources necessary
      for investments in new products and
  technologies;
  ▪
              our
      partners’ investments and commitment of significant resources may not
      result in successful new products or
  technologies;
  ▪
              our
      partners may misunderstand their customers’ product needs and
      desires;
  ▪
              our
      partners may not be able to successfully anticipate the new products and
      technologies which will gain market acceptance, especially since the
      industry in which they operate is characterized by rapid changes,
      including technological changes;
 
 ▪
              our
      partners’ technology may become obsolete earlier than expected due to
      rapid advancements in technology and changes in consumer preferences,
      and
  
 ▪
              delays
      in being first to market with new technologies and products may prevent
      our partners from successfully competing with their
  rivals.
  If our
partners fail to develop and market innovative new products, or if any of the
risks described above materialize, our licensing revenues from our arrangements
with these partners will decline and our business may be negatively and
adversely affected.
  OUR
LICENSING ARRANGEMENTS HAVE LENGTHY SALES CYCLES THAT MAKE IT DIFFICULT TO PLAN
OUR EXPENSES AND FORECAST RESULTS.
  Our
technology is generally incorporated in our partners’ products at the design
stage.  However, their decision to use our technology often requires
significant expenditures by us for engineering, prototype manufacturing and
sales consultation without any assurance of success, and often precedes volume
sales of products incorporating our technology, if any, by a year or
more.  If a partner decides at the design stage not to incorporate our
technology into their products, we may not have another opportunity for a design
win with respect to that customer's product for many months or years, if at all.
Our sales cycle can take up to 24 months to complete and because of this
lengthy sales cycle, we may experience a delay between increasing expenses for
research and development and our sales and marketing efforts and the generation
of volume licensing revenues, if any, from these expenditures. Moreover, the
value of any design win will largely depend on the commercial success of our
product and LCD manufacturing partners' products. In addition, our customers may
develop products that require government approval which may delay their time to
market. There can be no assurance that we will continue to achieve licensing
wins or that any licensing win will result in future revenues.
  30
 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 and Sanyo, and expect to
derive a majority of our revenues for the year ending 2010 in the form of the
recognition of deferred revenue resulting from prepaid royalties under our
licensing agreement with IGT and royalties from Sanyo unit sales under our
agreement with them.  If for any reason our partners do not ship
products incorporating our technology, we will not receive additional licensing
revenues and our operating results will suffer.
  At any
given time, the majority of our accounts receivable will be comprised of amounts
due from a small number of these partners.  Generally, we do not
require collateral from our partners.   If any of our partners do
not pay us, our operating results will be harmed.
 
 EVEN
WITH SIGNIFICANT CAPITAL SPENDING IN THE FUTURE TO KEEP PACE WITH TECHNOLOGICAL
CHANGES, WE MAY NOT BE ABLE TO DEVELOP NEW TECHNOLOGIES THAT ARE ACCEPTED BY THE
MARKET.
  Advances
in technology typically lead to a decline in sales volumes for products made
with older technologies and may even lead to those products becoming obsolete.
As a result, we will likely be required to make significant expenditures to
enhance our existing technology or to develop or acquire new technologies to be
incorporated into our partners’ products, including technologies that may cause
our MLD technology to obsolesce. We may not be able to successfully enhance our
technology or develop new technologies that keep pace with technological changes
through our own research and development efforts or through our acquisition of
technology licenses. This may be true even after we have spent significant
amounts of capital. Furthermore, even if we are successful in enhancing,
developing or acquiring any particular technology, we may not be able to
effectively market and license our technology to our partners, or our partners
may not be able to effectively commercialize or market the resulting MLD based
products into which our technology has been incorporated.
 
 THE
AVERAGE SELLING PRICES OF DISPLAYS USING OUR TECHNOLOGY MAY DECLINE OVER TIME
AND NEGATIVELY AFFECT OUR OPERATING RESULTS.
  The
average selling prices of displaysusing
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.
 
 31
 WE
OPERATE IN A HIGHLY COMPETITIVE ENVIRONMENT AND OUR OPERATING RESULTS MAY BE
ADVERSELY AFFECTED IF WE CANNOT COMPETE EFFECTIVELY.
  Our
ability to compete successfully depends on factors both within and outside our
control, including: the end-product pricing of our partners and its impact on
our licensing royalty rates, the performance and reliability of our technology
and the products of our partners which incorporate our technology, our
successful and timely investment in technology development, the success or
failure of our partners in marketing their brands and the products into which
our technology is incorporated, component and raw material supply costs for our
prototypes and our partners’ products, market acceptance of alternative
technologies and general economic and industry conditions. Some prospective
customers for our partners’ products may perceive the quality of certain
products utilizing our competitors’ technologies to be equivalent or superior to
MLD-based products. Our competitors from time to time may have greater
financial, sales and marketing, manufacturing, research and development or
technological resources than us. In particular, competitors with greater
resources may be able to license or manufacture competitive products on a larger
scale or with greater cost efficiencies than us. Alternatively, because
innovation in our industry often creates wide scale change in technologies and
resulting products, our competitors may develop superior technologies and obtain
exclusive rights to those technologies. The number of our competitors may
increase in the future. If any technology that is competing with ours is or
becomes more reliable, higher performing, less expensive or has other advantages
over our technology, then the demand for our technology and related products and
services would decrease.  Any of the foregoing factors could harm our
business
 
 OUR
BUSINESS MAY BE ADVERSELY AFFECTED IF ALTERNATIVE VISUAL DISPLAY PANEL
TECHNOLOGIES ERODE FUTURE SALES OF PRODUCTS BASED ON OUR MLD TECHNOLOGY.
  The
successful marketing and sale of currently available alternative visual display
panel technologies, or the introduction of new alternative visual display panel
technologies, including those that may be currently under development by our
competitors and us, may erode future sales of MLD technology and may have a
material adverse effect on our business.
 
 GOVERNMENTAL REGULATION MAY LIMIT OUR
ACTIVITIES OR INCREASE OUR COST OF OPERATIONS.
  Our
business and operations are subject to various forms of government regulation in
the various countries in which we do business, including required
business/investment approvals, export regulations based on national security or
other reasons, and other export/import regulations such as tariffs. Currently,
we design our technology and products to meet rigid governmental requirements.
However, because the final product will generally be produced and manufactured
by our partners, the actual approval process is the responsibility of the
partner for the specific market. Many of the products manufactured by our
licensees and the prototypes we manufacture are subject to certain environmental
and recycling laws and regulations relating to the disposal of electronics.
These laws are constantly subject to revision and amendment. If we or our
partners cannot comply with these regulations without great cost, our financial
performance may suffer.
 
 GENERAL ECONOMIC CONDITIONS MAY
ADVERSELY AFFECT OUR SALES AND PROFITABILITY.
  For the
most part, purchases of the products into which our technology is incorporated
are discretionary. As a result, demand for consumer electronics products, which
we believe will account for a significant proportion of our worldwide operating
revenue will likely be affected by general economic trends in the countries or
regions in which the products into which our technology is incorporated are
sold. Similarly, demand for business use products and for components we may
manufacture that go into products of third parties will also likely be affected
by general economic trends in the various markets in which we sell our products.
In sum, economic downturns and resulting declines of demand in our major markets
and those of our product and LCD manufacturing partners, including North
America, Asia, and Europe, may adversely affect our sales and operating
results.
  
 32
 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, which are in many
cases with non-standard or customized specifications, on a timely basis.
Similarly, our third party licensees also depend on adequate supplies of quality
raw materials and components to manufacture MLD products, including without
limitation, polarized and/or laminated film.  In general, most of the
raw materials as well as key components of these MLD products are sourced from
two or three suppliers for each key component. The high volume, lower cost
manufacturers of these materials generally will not sell in smaller quantities,
nor will they generally build non-standard or customized materials. We, and our
third-party licensors, 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 or our
third-party licensors 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, patent applications in various countries publish at different
times,  it is difficult to monitor patent applications that may be
filed in other countries by third parties, and the publication of discoveries in
scientific or patent literature often lags behind actual discoveries, we
generally cannot be certain that we were the first creator of inventions covered
by our pending patent applications,  that we or any of our licensors
will be entitled to any rights in purported inventions claimed in pending or
future patent applications, or that we were the first to file patent
applications on such inventions.
 
 FAILURE
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.
 
 
 33
  IF
WE INFRINGE THE RIGHTS OF THIRD PARTIES, WE COULD BE PREVENTED FROM SELLING
PRODUCTS, FORCED TO PAY DAMAGES, OR FORCED TO DEFEND AGAINST LITIGATION, WHICH
WOULD ADVERSELY AFFECT OUR BUSINESS.
  If our
products, methods, processes or other technologies infringe the proprietary
rights of other parties, we could incur substantial costs and we may have
to:
  ▪
              obtain
      licenses, which may not be available on commercially reasonable terms, if
      at all;
  ▪
              abandon
      an infringing implementation or
product;
 
 ▪
              redesign
      our products or processes to avoid
infringement;
  ▪
              stop
      using the subject matter claimed in the patents held by
      others;
  ▪
              pay
      damages; or
  ▪
              defend
      litigation or administrative proceedings which may be costly whether we
      win or lose, and which could result in a substantial diversion of our
      valuable management resources.
  WE RELY UPON TRADE SECRETS AND OTHER
UNPATENTED PROPRIETARY KNOW-HOW TO MAINTAIN OUR COMPETITIVE POSITION IN OUR
INDUSTRY, AND ANY LOSS OF OUR RIGHTS TO, OR UNAUTHORIZED DISCLOSURE OF, OUR
TRADE SECRETS OR OTHER UNPATENTED PROPRIETARY KNOW-HOW COULD NEGATIVELY AFFECT
OUR BUSINESS.
  We also
rely upon trade secrets, unpatented proprietary know-how and continuing
technological innovation in our business. We typically enter into
confidentiality agreements with each of our employees and consultants upon the
commencement of an employment or consulting relationship, whereby each employee
or consultant agrees to maintain the confidentiality of our trade secrets and
certain other proprietary information on a perpetual basis. However, these
agreements may be breached and in certain circumstances we may not be able to
enforce them. Moreover, even if we can enforce such an agreement, we may not
have an adequate remedy for any such breach. The mere disclosure of our trade
secrets or other know-how as a result of such a breach could adversely and
irreparably affect our business.
  OUR
BUSINESS WILL SUBJECT US TO POTENTIAL PRODUCT-LIABILITY CLAIMS THAT COULD
ADVERSELY AFFECT OUR OPERATING RESULTS, FINANCIAL CONDITION AND BUSINESS
REPUTATION.
  We
currently manufacture only prototype MLD visual display products for sale to and
use by our partners.We may in the future
manufacture various products or components for incorporation into our partners’
products. We cannot be certain, however, that our prototypes, components we may
manufacture and products incorporating our technology will be defect-free and
will not be recalled at some later date. Furthermore, although we maintain
insurance against product-liability claims, we cannot be certain that such
insurance can adequately satisfy the liabilities that may ultimately be
incurred. In addition, insurance may not continue to be available on terms
acceptable to us. A large-scale product recall or a successful product-liability
claim against us could result in significant costs or have a negative impact on
our reputation, which may in turn lead to a decrease in sales, adversely
affecting our results of operations.
 
 34
 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.  The current cash position of the Company, and our publicly
identified need for funding, may increase the risk of loss of employees,
including without limitation, loss resulting from employee concerns about their
job security or loss resulting from other companies identifying the employees as
suitable and susceptible hire candidates.
  IF
WE ARE UNABLE TO HIRE ADDITIONAL QUALIFIED PERSONNEL, OUR ABILITY TO GROW OUR
BUSINESS MAY BE HARMED.
  As we
attempt to grow our business, we will need to hire additional qualified
personnel with expertise in software development, testing, research, technology
development and manufacturing, as well as sales and marketing. We believe that
attracting and retaining qualified personnel will be critical to our success. In
this regard, we compete for qualified individuals with numerous other
enterprises. Competition for individuals with the expertise we require in
Redwood City, California and in Auckland, New Zealand is intense, and we may not
be able to attract and retain qualified personnel.
  WE
EXPECT TO HAVE SIGNIFICANT INTERNATIONAL OPERATIONS, WHICH WILL POSE UNIQUE
RISKS TO OUR BUSINESS.
  We expect
that a substantial portion of our operational activity and the operational
activity of our partners will be conducted outside of the United States and
particularly in Asia. There are a number of risks inherent for us and our LCD
product and LCD manufacturing partners in doing business in overseas markets,
including the following:
  ▪
              unexpected
      legal or regulatory changes;
  ▪
              unfavorable
      political or economic factors;
  ▪
              difficulties
      in recruiting and retaining personnel;▪
              labor
      disputes, including strikes;▪
              less
      developed technological infrastructure, which can affect our production or
      other activities or result in lower customer acceptance of our products
      and services;
  ▪
              potentially
      adverse tax consequences; or
  ▪
              social,
      political or economic turmoil due to terrorism, war, or other
      factors.
  Our
failure to adequately address these risks may harm our business.
 
 WE
MAY BE UNABLE TO SUCCESSFULLY MANAGE AND SUSTAIN OUR GROWTH, WHICH COULD HARM
OUR BUSINESS.
  Since the
founding of DVIL, we have experienced, and expect to continue to experience,
growth in the scope and complexity of our operations. This growth may strain our
managerial, financial, manufacturing and other resources, impairing our ability
to effectively execute our business plans. The materialization of these risks
could adversely affect our operating results.
  35
 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, 2009, K1W1, our majority stockholder, possessed beneficial
ownership of 35,780,006 shares of our common stock, or approximately 52% of our
outstanding common stock.  This represents a significant and controlling
portion of the outstanding voting power of our securities, and enables K1W1 to
control our management and affairs through the election and removal of our
entire Board of Directors, and all other matters requiring stockholder approval,
including any future merger, consolidation or sale of all or substantially all
of our assets. This concentrated control could discourage others from initiating
any potential merger, takeover or other change-of-control transaction that may
otherwise be beneficial to our stockholders. As a result, the return on an
investment in our common stock through the market price of our common stock or
ultimate sale of our business could be adversely affected.
 
 SINCE
TRANSFER RESTRICTIONS HAVE ELAPSED ON CERTAIN SHARES OF OUR OUTSTANDING COMMON
STOCK, AND AS OUR SECURITY REGISTRATIONS HAVE BECOME EFFECTIVE, THE AVAILABILITY
OF SHARES MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
 
 Pursuant to and in accordance with the
limitations of Rule 144 of the Securities Act, all of the shares of our common
stock that were issued pursuant to our private placements are eligible for
resale on the OTC Bulletin Board. Certain of these shares, as well as additional
shares underlying certain outstanding warrants to purchase our common stock,
were also registered for resale under our currently effective registration
statement on Form S-1/A.   Additionally, we have
registered on Form S-8 approximately 22 million shares of our common stock for
issuance upon exercise of options granted under our 2006 Stock Incentive Plan,
including most recently 8.5 million shares pursuant to a Form S-8 filed in
September, 2007. The 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 our common stock.
 
 LIMITEDTRADING
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.  Our
common stock is not listed on any national exchange, and we have no current
plans to seek listing on a national securities exchange.  Accordingly,
there is a limited public market for our common stock.  These factors
have 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.  In general, there has not been substantial trading activity in
shares of our common stock.  Low trading volumes generally depress
market prices and could also result in a larger spread between the bid and asked
prices for our common stock.  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.
 
 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.
 
 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.
 
 36
 BECAUSE
WE BECAME PUBLIC BY MEANS OF A REVERSE MERGER, WE MAY NOT BE ABLE TO ATTRACT THE
ATTENTION OF MAJOR BROKERAGE FIRMS.
  Additional
risks may exist as a result of our becoming a public reporting company through a
reverse merger transaction, as opposed to a traditional initial public offering.
Because we did not engage in a more traditional and publicized initial public
offering, security analysts of major brokerage firms may not provide us research
coverage. In addition, there is no incentive to brokerage firms to recommend the
purchase of our common stock. The failure of brokerage firms to provide analyst
coverage will be likely to slow the dissemination of awareness and knowledge of
our business. As a result, the trading price of our common stock may be
adversely affected.
  OUR
CERTIFICATE OF INCORPORATION GRANTS OUR BOARD OF DIRECTORS WITH THE POWER TO
DESIGNATE AND ISSUE ADDITIONAL SHARES OF COMMON AND/OR PREFERRED
STOCK.
  Our
authorized capital consists of 200,000,000 shares, of which 190,000,000 shares
are designated as common stock, par value $0.001 per share, and 10,000,000
shares are designated as preferred stock, par value $0.001 per share. Pursuant
to authority granted by our certificate of incorporation, our Board of
Directors, without any action by the stockholders, may designate and issue
shares in such classes or series (including classes or series of common stock
and/or preferred stock) as it deems appropriate and establish the rights,
preferences, and privileges of such shares, including dividends, liquidation and
voting rights. The rights of holders of classes or series of common stock or
preferred stock that may be issued could be superior to the rights of the common
stock offered hereby. Our Board of Directors’ ability to designate and issue
shares could impede or deter an unsolicited tender offer or takeover proposal.
Further, the issuance of additional shares having preferential rights could
adversely affect other rights appurtenant to the shares of common stock offered
hereby. Any such issuances will dilute the percentage of ownership interest of
our stockholders and may dilute our book value.
  WE
ARE SUBJECT TO THE SARBANES-OXLEY ACT AND THE REPORTING REQUIREMENTS OF FEDERAL
SECURITIES LAWS, WHICH CAN BE EXPENSIVE.
  As a
public reporting company, we are subject to the Sarbanes-Oxley Act of 2002, as
well as the information and reporting requirements of the Securities Exchange
Act of 1934 and other federal securities laws. The costs of compliance with the
Sarbanes-Oxley Act and of preparing and filing annual, quarterly and current
reports and other information with the SEC, cause our expenses to be higher than
they would be had we remained privately held.  We estimate the current
annual cost for compliance with Sarbanes-Oxley is approximately $100,000,
including internal resources to maintain documentation and testing of our
financial controls, but excluding other costs of being a public
company.
 
 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.
 
 
 37
  Item
2 - Unregistered Sales of Equity Securities and Use of Proceeds
 
 None
 
 Item
3 - Defaults upon Senior Securities
 
 None
 
 Item
4 - Submission of Matters to a Vote of Security Holders
 
 None
 
 Item
5 - Other Information
  On May
29, 2008,  we entered into
an  Amendment  No.
2 to the Exclusive Sales and Distribution License (  the"Amendment")with SANYO Sales
and Marketing Corporation and SANYO Electric System Solutions Co., LTD. (collectively,
"SANYO"), dated December 15, 2005.
  Pursuant
to the Amendment, the term of the contract has been modified. In addition, the
markets in which SANYO has authority to sell has been modified to make them
non-exclusive and the royalty rates have been amended. Except as set forth
above, all other material terms and conditions of the Exclusive Sales
and Distribution License shall remain in full force and effect
  We are
filing a copy of the Amendment as an exhibit to this Quarterly Report. 
Portions of the Amendment are omitted in accordance with a request for
confidential treatment that we have submitted to the Securities and Exchange
Commission.
  38
 Item
6 - Exhibits
  EXHIBIT
INDEX
  Exhibit
      No.
                        
                        Description
                        
                        Filed
      with this
                          Quarterly
      Report2.1
                        
                        Agreement
      and Plan of Merger dated March 16, 2006 by and among PureDepth, Inc.,
      PureDepth Technologies, Inc. and Diamond One, Inc.*(1)3.1
                        
                        Certificate
      of Incorporation*(1)3.2
                        
                        Certificate
      of Merger relating to the merger of PureDepth, Inc. (California) with and
      into PureDepth Technologies, Inc. *(1)3.3
                        
                        Certificate
      of Merger relating to short-form merger of PureDepth, Inc. (f/k/a Diamond
      One, Inc.) with and into PureDepth, Inc. (f/k/a PureDepth Technologies,
      Inc.)*(1)3.4
                        
                        Certificate
      of Designation of Series A Convertible Preferred Stock *(1)3.5
                        
                        Bylaws
      of the Company *(1)4.1
                        
                        Form
      of A-Warrant *(1)4.2
                        
                        Form
      of B-Warrant *(1)4.3
                        
                        Form
      of Agent/C-Warrant*(1)4.4
                        
                        Form
      of D-Warrant *(2)10.1
                        
                        Employment
      Agreement with Fred Angelopoulos dated March 31, 2005 *(1)10.2
                        
                        Employment
      Agreement with Kristin Bowman dated March 31, 2005*(1)10.3
                        
                        Letter
      Offer Agreement with David Hancock dated May 30, 2006*(1)10.4
                        
                        Master
      License Agreement between PureDepth Limited and PureDepth, Inc. *(1)10.5
                        
                        Agreement
      dated May 16, 2005 by and among the Company, DRS Electronic Systems, Inc.
      and DRS Laurel Technologies (++)*(1)10.6
                        
                        Exclusive
      Sales and Distribution License Agreement by and among the Company, Sanyo
      Sales and Marketing Corporation and SANYO Electric System Solutions Co.,
      Ltd. (++)*(1)10.7
                        
                        2006
      Stock Option Plan (as amended) (13)10.8
                        
                        Form
      of Stock Option Agreement *(4)10.9
                        
                        Director
      Contract - John Floisand *(4)10.10
                        
                        Director
      Contract - Tom Marcus *(4)
  10.11
                  
                  Executive
      Employment Agreement - O’Callahan *(5)10.12
                  
                  Executive
      Employment Agreement - Angelopoulos *(6)10.13
                  
                  Form
      of Directors and Officers Indemnity Agreement*(7)10.14
                  
                  Amendment
      of Stock Option Agreement – David Hancock *(7)10.15
                  
                  Amendment
      of Stock Option Agreement – Fred Angelopoulos *(7)10.16
                  
                  Amendment
      of Stock Option Agreement – Mark Yahiro *(7)10.17
                  
                  Patent
      and Technology License and Technology Transfer Agreement (++) *(8)
  39
 10.18
                  
                  Executive
      Employment Agreement – McCaman *(9)10.19
                  
                  Separation
      Agreement – Angelopoulos *(10)10.20
                  
                  Waiver
      Agreement with K1W1 *(11)10.21
                  
                  Executive
      Employment Agreement – Credelle *(13)10.22
                  
                  Executive
      Employment Agreement – Marcus *(14)10.23
                  
                  Samsung
      License Agreement (++)*(15)10.24
                  
                  Office
      Lease – Twin Dolphin Drive, California*(16)10.25
                  
                  Amendment
      No. 2 of Stock Option Agreement – Yahiro *(17)10.27
                  
                  Secured
      Note Purchase Agreement*(18)10.28
                  
                  Security
      Agreement*(18)10.29
                  
                  IGT
      Patent and Technology License and Technology Transfer Agreement(++)*(19)10.30
                  
                  Amendment
      to Executive Employment Agreement – McCaman*(18)10.31
                  
                  Sublease
      Agreement – Twin Dolphin Drive, California*(18)10.32
                  
                  Office
      Lease – 230 D Twin Dolphin Drive, Redwood City, California*(20)10.33
                  
                  Variation
      to Employment Agreement – Bowman *(21)10.34
                  
                  Consultancy
      Agreement - Bowman*(21)10.35
                  
                  Amendment
      no. 1 to Convertible Note Purchase Agreement and Security Agreement*(22)10.36
                  
                  Amendment
      no. 2 to Convertible Note Purchase Agreement and Security Agreement*(23)10.37
                  
                  Amendment
      no 1. to Exclusive Sales and Distribution License Agreement by and among
      the Company, Sanyo Sales and Marketing Corporation and SANYO Electric
      System Solutions Co., Ltd. (++) *(26)10.38
                  
                  Executive
      Employment Agreement – Andrew L. Wood *(24)10.39
                  
                  Amendment
      No. 2 to Executive Employment Agreement – Jonathan J. McCaman *(24)10.40
                  
                  Amendment
      No 1. to the IGT Patent and Technology License Transfer Agreement
      (++)10.41
                  
                  Deed
      of Variation of Leases and Rent Reviews dated November 10, 2008 (amending
      Deeds of Lease dated May 31, 2006) *(25)10.42
                  
                  Amendment
      no 2. to Exclusive Sales and Distribution License Agreement by and among
      the Company, Sanyo Sales and Marketing Corporation and SANYO Electric
      System Solutions Co., Ltd. (++)14.1
                  
                  Code
      of Business Conduct and Ethics *(18)16.1
                  
                  Letter
      of Comiskey & Company P.C. dated April 13, 2006 *(3)16.2
                  
                  Letter
      of Mark Bailey & Company *(12)31.1
                  
                  Section
      302 Certification of Chief Executive Officer
                  
                  X31.2
                  
                  Section
      302 Certification of Chief Financial Officer
                  
                  X32.1
                  
                  Section
      906 Certification of Chief Executive Officer and Chief Financial
      Officer
                  
                  X
  40
  (++)
                    Confidential
      treatment has been obtained as to certain portions of this exhibit
      pursuant to Rule 406 of the Securities Exchange Act of 1933, as
      amended.*(1)
                    Previously
      filed with the Commission in the Company’s SB-2 filed on May 30,
      2006*(2)
                    Previously
      filed with the Commission in the Company’s Current Report on Form 8-K
      filed on August 3, 2006*(3)
                    Previously
      filed with the Commission in the Company’s Current Report on Form 8-K
      filed on April 14, 2006*(4)
                    Previously
      filed with the Commission in the Company’s Current Report on Form 8-K
      filed on September 12, 2006*(5)
                    Previously
      filed with the Commission in the Company’s Current Report on Form 8-K
      filed on November 7, 2006*(6)
                    Previously
      filed with the Commission in the Company’s Current Report on Form 8-K
      filed on November 16, 2006*(7)
                    Previously
      filed with the Commission in the Company’s Annual Report on Form 10-KSB
      filed on May 31, 2007*(8)
                    Previously
      filed with the Commission in the Company’s Quarterly Report on Form 10-QSB
      filed on December 15, 2006*(9)
                    Previously
      filed with the Commission in the Company’s Quarterly Report on Form 10-QSB
      filed on June 14, 2007*(10)
                    Previously
      filed with the Commission in the Company’s Current Report on Form 8-K
      filed on October 26, 2007*(11)
                    Previously
      filed with the Commission in the Company’s Current Report on Form 8-K
      filed on August 8, 2007*(12)
                    Previously
      filed with the Commission in the Company’s Current Report on Form 8-K/A
      filed on June 20, 2007*(13)
                    Previously
      filed with the Commission in the Company’s SB-2/A filed on August 28,
      2007*(14)
                    Previously
      filed with the Commission in the Company’s Current Report on Form 8-K/A
      filed on September 19, 2007*(15)
                    Previously
      filed with the Commission in the Company’s Current Report on Form 8-K/A
      filed on October 15, 2007*(16)
                    Previously
      filed with the Commission in the Company’s Quarterly Report on Form 10-QSB
      filed on December 14, 2007*(17)
                    Previously
      filed with the Commission in the Company’s Current Report on Form 8-K
      filed on December 27, 2007*(18)
                    Previously
      filed with the Commission in the Company’s Annual Report on Form 10-KSB
      filed on April 30, 2008*(19)
                    Previously
      filed with the Commission in the Company’s Quarterly Report on Form
      10-QSB/A filed on December 5, 2007*(20)
                    Previously
      filed with the Commission in the Company’s Current Report on Form 8-K
      filed on May 27, 2008*(21)
                    Previously
      filed with the Commission in the Company’s Current Report on Form 8-K
      filed on June 11, 2008*(22)
                    Previously
      filed with the Commission in the Company’s Current Report on Form 8-K
      filed on October 7, 2008*(23)
                    Previously
      filed with the Commission in the Company’s Current Report on Form 8-K
      filed on August 15, 2008*(24)
                    Previously
      filed with the Commission in the Company’s Current Report on Form 8-K
      filed on September 15, 2008*(25)
                    Previously
      filed with the Commission in the Company’s Current Report on Form 8-K
      filed on November 10, 2008*(26)
                    Previously
      filed with the Commission in the Company’s Quarterly Report on Form 10-Q
      filed on September 15,
2008
 
 
 41
  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
      12, 2009
                By:
                /s/ Andrew
      L. WoodMr.
      Andrew L. Wood
                  Chief
      Executive Officer and
Director
 
 
 
 By:
                  /s/ Joseph
      A. MoranMr.
      Joseph A. Moran
                    Chief
      Financial Officer
                    (Principal
      Accounting and Financial Officer)
   42