**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-QSB**








[X]
            QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934


**For
      the quarterly period ended July 31, 2007**





OR





[ 
                ]
            TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934


For
      the
      transition period from _______ to _______








Commission
      file number: None





**PureDepth,
      Inc.**


(Exact
      Name of Registrant as Specified in Its Charter)





Delaware
              (State
                or other jurisdiction of
              incorporation
                or organization)
            20-4831825
              (I.R.S.
                Employer Identification No.)




255
      Shoreline Drive, Suite 610, Redwood City, California 94065


(Address
      of principal executive offices)





(650)
      632-0800


(Issuer’s
      telephone number)




(Former
      name, former address and former fiscal year, if changed since last
      report)








Check
      whether the issuer: (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
      (or
      for such shorter period that the issuer was required to file such reports),
      and
      (2) has been subject to such filing requirements for the past 90 days. Yes
      [X]
      No [  ]





Indicate
      by check mark whether the registrant is a shell company (as defined by Rule
      12b-2 of the Exchange Act). Yes [  ] No [X]





As
      of
      September 12, 2007 there were 67,187,584 shares of the issuer’s common stock,
      $0.001 par value, outstanding.





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





1


**INDEX**




Page**PART
                I** -
                **FINANCIAL
                INFORMATION****Item
                1.**
            Financial
                Statements:
            
            3-
                Unaudited Condensed Consolidated Balance Sheet-
                Unaudited Condensed Consolidated Statements of Operations-
                Unaudited Condensed Consolidated Statements of Cash Flows-
                Notes to Unaudited Condensed Consolidated Financial
                Statements**Item
                2.**
            Management’s
                Discussion and Analysis of Financial Condition or Plan or
                Operation
            
            15**Item
                3.**
            Controls
                and Procedures
            
            23**PART
                II** -
                **OTHER
                INFORMATION****Item
                1.**
            Legal
                Proceedings
            
            24Risk
                Factors
            
            24**Item
                2.**
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            33**Item
                3.**
            Defaults
                Upon Senior Securities
            
            33**Item
                4.**
            Submission
                of Matters to a Vote of Security Holders
            
            33**Item
                5.**
            Other
                Information
            
            33**Item
                6.**
            Exhibits
            
            34Signatures
            
            36






2


**PART
      I - FINANCIAL INFORMATION**





**Item
      1. Financial Statements**





**PUREDEPTH,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEET**





**July
                31, 2007****Unaudited****ASSETS****Current
                Assets**Cash
                and cash equivalents
            
            $
            3,227,962Restricted
                cash
            
            
            77,056Marketable
                securities
            
            
            1,013,178Accounts
                receivable
            
            
            22,250Other
                current assets
            
            
            139,537Total
                current assets
            
            
            4,479,983**Property
                & Equipment (net)**
            
            
            363,731**Other
                Assets**Intellectual
                property (net)
            
            
            2,545,086**Total
                Assets**
            
            $
            7,388,800**LIABILITIES
                AND STOCKHOLDERS' EQUITY****Current
                Liabilities**Accounts
                payable
            
            $
            280,421Accrued
                expenses
            
            
            622,413Accrued
                interest
            
            
            36,982Deferred
                revenue - current portion
            
            
            750,000Note
                payable - current portion
            
            
            119,527Total
                current liabilities
            
            
            1,809,343**Long
                Term Liabilities**Deferred
                revenue
            
            
            2,408,654Note
                payable
            
            
            435,199**Total
                Liabilities**
            
            
            4,653,196**Commitments
                and Contingencies****Stockholders'
                Equity**Preferred
                stock, $0.001 par value, 10,000,000 shares authorized and no outstanding
                shares
            
            
            -Common
                stock, $0.001 par value 190,000,000 shares authorized, 67,187,584
                shares
                issued and outstanding
            
            
            67,187Additional
                paid-in-capital
            
            
            33,243,865Accumulated
                other comprehensive loss
            
            
            (710,901
            )Accumulated
                deficit
            
            
            (29,864,547
            )Total
                stockholders' equity
            
            
            2,735,604**Total
                Liabilities and Stockholders' Equity**
            
            $
            7,388,800





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


3


**PUREDEPTH,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**





**Three
                Months Ended**
            
            
            **Six
                Months Ended****July
                31,**
            
            
            **July
                31,****2007**
              **Unaudited**
            
            
            **2006**
              **Unaudited**
            
            
            **2007**
              **Unaudited**
            
            
            **2006**
              **Unaudited****Revenue**Licensing
            
            $
            187,500
            
            
            $
            -
            
            
            $
            375,000
            
            
            $
            -Services
            
            
            35,000
            
            
            
            -
            
            
            
            35,000
            
            
            
            -Product
                sales
            
            
            86,219
            
            
            
            -
            
            
            
            130,317
            
            
            
            -Total
                revenue
            
            
            308,719
            
            
            
            -
            
            
            
            540,317
            
            
            
            -Cost
                of licensing
            
            
            77,598
            
            
            
            -
            
            
            
            153,969
            
            
            
            -Cost
                of services
            
            
            25,520
            
            
            
            -
            
            
            
            25,520
            
            
            
            -Cost
                of product sales
            
            
            81,219
            
            
            
            -
            
            
            
            119,542
            
            
            
            -Total
                cost of revenue
            
            
            184,337
            
            
            
            -
            
            
            
            299,031
            
            
            
            -Gross
                margin
            
            
            124,382
            
            
            
            -
            
            
            
            241,286
            
            
            
            -**Operating
                Expenses**Depreciation
                and amortization
            
            
            20,841
            
            
            
            80,979
            
            
            
            38,462
            
            
            
            153,009Research
                and development
            
            
            653,147
            
            
            
            469,746
            
            
            
            1,169,377
            
            
            
            1,548,649Sales
                and marketing
            
            
            520,853
            
            
            
            142,012
            
            
            
            896,088
            
            
            
            995,249General
                and administrative
            
            
            1,725,368
            
            
            
            1,168,448
            
            
            
            2,976,205
            
            
            
            2,995,607Total
                operating expenses
            
            
            2,920,209
            
            
            
            1,861,185
            
            
            
            5,080,132
            
            
            
            5,692,514Loss
                from operations
            
            
            (2,795,827
            )
            
            
            (1,861,185
            )
            
            
            (4,838,846
            )
            
            
            (5,692,514
            )**Other
                Income (Expense)**Interest
                income
            
            
            55,360
            
            
            
            13,886
            
            
            
            148,170
            
            
            
            58,658Interest
                expense
            
            
            (14,818
            )
            
            
            (23,435
            )
            
            
            (27,763
            )
            
            
            (48,584
            )Foreign
                exchange gain/(loss)
            
            
            (51,744
            )
            
            
            24,467
            
            
            
            (66,773
            )
            
            
            49,227Other
                income (expense)
            
            
            (47
            )
            
            
            (5,669
            )
            
            
            (108
            )
            
            
            86,080Total
                other income (expense)
            
            
            (11,249
            )
            
            
            9,249
            
            
            
            53,526
            
            
            
            145,381Loss
                from continuing operations
            
            
            (2,807,076
            )
            
            
            (1,851,936
            )
            
            
            (4,785,320
            )
            
            
            (5,547,133
            )Discontinued
                operations – Numismatic
              Capital
                Group,  net of income taxes
            
            
            -
            
            
            
            (2,368
            )
            
            
            -
            
            
            
            15,279Net
                loss
            
            $
            (2,807,076
            )
            
            $
            (1,854,304
            )
            
            $
            (4,785,320
            )
            
            $
            (5,531,854
            )Net
                loss per share, basic and diluted
            
            $
            (0.04
            )
            
            $
            (0.04
            )
            
            $
            (0.07
            )
            
            $
            (0.12
            )Weighted
                average shares outstanding
            
            
            66,799,672
            
            
            
            45,975,626
            
            
            
            66,551,205
            
            
            
            45,975,626**Comprehensive
                Loss**Net
                loss, per statement of operations
            
            $
            (2,807,076
            )
            
            $
            (1,854,304
            )
            
            $
            (4,785,320
            )
            
            $
            (5,531,854
            )Foreign
                exchange gain
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            33,132Comprehensive
                net loss
            
            $
            (2,807,076
            )
            
            $
            (1,854,304
            )
            
            $
            (4,785,320
            )
            
            $
            (5,498,722
            )


**Basic
                and Diluted Loss per Share**Net
                loss from continuing operations
            
            $
            (0.04
            )
            
            $
            (0.04
            )
            
            $
            (0.07
            )
            
            $
            (0.12
            )Income
                (loss) from discontinued operations, netof
                income tax
            
            
            -
            
            
            
            0.00
            
            
            
            -
            
            
            
            0.00Foreign
                exchange gain
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            0.00Comprehensive
                net loss
            
            $
            (0.04
            )
            
            $
            (0.04
            )
            
            $
            (0.07
            )
            
            $
            (0.12
            )Weighted
                average shares outstanding
            
            
            66,799,672
            
            
            
            45,975,626
            
            
            
            66,551,205
            
            
            
            45,975,626





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




4


**PUREDEPTH,
      PUREDEPTH, INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**





**For
                Six-Months Ended****July
                31, 2007**
              **Unaudited**
            
            
            **July
                31, 2006**
              **Unaudited****CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                loss
            
            $
            (4,785,320
            )
            
            $
            (5,531,854
            )Adjustments
                to reconcile net loss to net cash flows from operating
                activities:Depreciation
                and amortization
            
            
            192,431
            
            
            
            153,009Stock-based
                compensation expense
            
            
            386,673
            
            
            
            2,539,644Foreign
                exchange gain
            
            
            -
            
            
            
            (34,888
            )Non-cash
                interest expense
            
            
            -
            
            
            
            25,692Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (13,040
            )
            
            
            2,010Marketable
                securities
            
            
            (44,247
            )
            
            
            -Restricted
                cash
            
            
            (16,234
            )
            
            
            -Prepaid
                expenses and other current assets
            
            
            12,654
            
            
            
            (66,393
            )Accounts
                payable
            
            
            48,783
            
            
            
            (38,084
            )Deferred
                revenue
            
            
            (375,000
            )
            
            
            -Accrued
                expenses
            
            
            354,093
            
            
            
            440,126Accrued
                interest
            
            
            27,736
            
            
            
            13,396Net
                cash used for operating activities
            
            
            (4,211,471
            )
            
            
            (2,497,342
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES**Purchases
                of securities
            
            
            (999,631
            )
            
            
            -Proceeds
                from maturity of securities
            
            
            3,000,000
            
            
            
            -Purchases
                of property and equipment
            
            
            (87,069
            )
            
            
            (234,979
            )Expenditures
                for intellectual property
            
            
            (163,648
            )
            
            
            (132,358
            )Net
                cash provided by (used for) investing activities
            
            
            1,749,652
            
            
            
            (367,337
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Issuance
                of preferred stock (net)
            
            
            -
            
            
            
            4,227,472Issuance
                of common stock (net)
            
            
            409,903
            
            
            
            5,558,543Principal
                payments on related party notes
            
            
            -
            
            
            
            (23,136
            )Net
                cash provided by financing activities
            
            
            409,903
            
            
            
            9,762,879Effect
                of exchange rate on cash
            
            
            -
            
            
            
            23,813Net
                (decrease) increase in cash and cash equivalents
            
            
            (2,051,916
            )
            
            
            6,922,013Cash
                and cash equivalents at beginning of period
            
            
            5,279,878
            
            
            
            857,998Cash
                and cash equivalents at end of period
            
            $
            3,227,962
            
            
            $
            7,780,011





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


5


**PUREDEPTH,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**








**For
                Six-Months Ended****July
                31, 2007**
              **Unaudited**
            
            
            **July
                31, 2006**
              **Unaudited****SUPPLEMENTAL
                CASH FLOWS INFORMATION:**Cash
                and cash equivalents
            
            $
            3,227,962
            
            
            $
            7,780,011Restricted
                cash
            
            
            77,056
            
            
            
            -Cash,
                cash equivalents and restricted cash at end of period
            
            $
            3,305,018
            
            
            $
            7,780,011Cash
                paid for income taxes
            
            $
            800
            
            
            $
            -Cash
                paid for interest
            
            $
            -
            
            
            $
            2,491**NON
                CASH DISCLOSURES:**Warrants
                issued for stock issuance costs
            
            $
            -
            
            
            $
            1,840,779Notes
                and accrued interest converted to stock
            
            $
            -
            
            
            $
            774,330





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





6




**PUREDEPTH,
      INC. AND SUBSIDIARIES**


**NOTES
      TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
      STATEMENTS**








**Note
      1 - Summary of Significant Accounting Policies**





***Basis
      of Presentation***





The
      accompanying unaudited condensed consolidated financial statements of PureDepth,
      Inc. (“the Company") are presented in accordance with the requirements for Form
      10-QSB and Article 10 of Regulation S-X and Regulation S-B. Accordingly, they
      do
      not include all of the disclosures required by accounting principles generally
      accepted in the United States of America.   The accompanying
      condensed consolidated financial statements for the interim period should be
      read in conjunction with the audited consolidated financial statements for
      the
      fiscal year ended January 31, 2007 included in the Company's Annual Report
      on
      Form 10KSB filed with the Commission on May 31, 2007.  Those statements
      contain a summary of significant accounting policies.





In
      the
      opinion of management, all adjustments (all of which were of a normal recurring
      nature) considered necessary to fairly present the financial position, results
      of operations, and cash flows of the Company on a consistent basis, have been
      made.





These
      results have been determined on the basis of generally accepted accounting
      principles and practices applied consistently with those used in the preparation
      of the Company's Annual Consolidated Financial Statements for the year ended
      January 31, 2007 and ten-months ended January 31, 2006. Operating results for
      the six months ended July 31, 2007 are not necessarily indicative of the results
      that may be expected for the fiscal year ending January 31, 2008.





Certain
      balances in the prior periods have been reclassified to conform to the
      presentation adopted in the current period.





***Going
      Concern***




The
      report of our independent auditors on the Company’s consolidated financial
      statements for the fiscal year ended January 31, 2007 includes an explanatory
      paragraph indicating there is substantial doubt about the Company's ability
      to
      continue as a going concern.  The Company has continued to operate on
      a negative cash basis and incurred additional losses through the six
      months ended July 31, 2007.




Management
      has developed an operating plan that it believes will allow the
      Company to continue as a going concern through the end of the fiscal year ending
      January 31, 2008.  Based upon the Company’s cash position at July 31,
      2007 of $3,227,962, together with the cash to be provided by the maturity of
      marketable securities held at July 31, 2007 in the amount of $1,013,178, as
      well
      as current expectations regarding revenues and operating costs, the Company
      believes it can meet the cash requirements of the current plan for the fiscal
      year ending January 31, 2008 without raising additional
      funds.




The
      Company expects it will continue to incur losses during the remainder of the
      fiscal year ending January 31, 2008 and beyond January 31,
      2008.  Accordingly, the Company expects to undertake further capital
      raising within the current fiscal year, in the form of either convertible debt
      or equity securities, loans from banks, other financial institutions or our
      affiliates, or a credit facility.





In
      the
      event the Company is unsuccessful in its plans to finance operations through
      the
      above means it could be forced to significantly reduce its level of
      operations, including by slowing our growth, delaying hiring, abandoning
      certain product development including product development on which we may have
      already spent considerable resources and otherwise reducing expenses and
      eventually, if necessary, cease operations altogether.  If the
      Company is successful in its plans to finance operations through the above
      means, these plans ultimately may not resolve the going concern issue and
      additional financings may also be necessary thereafter until the Company is
      able to attain and sustain profitable operations. These uncertainties raise
      substantial doubt about the Company’s ability to continue as a going
      concern.





7




The
      accompanying financial statements do not include any adjustments to reflect
      the
      possible future effects on the recoverability and classification of assets
      or
      the amounts and classification of liabilities that may result from the outcome
      of this uncertainty.





***Recently
      issued Accounting Pronouncements***





In
      February 2007, the Company adopted the provision of Financial Accounting
      Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”), “Accounting for
      Uncertain Income Taxes – An Interpretation of FASB Statement of Financial
      Accounting Standards No. 109”.  FIN 48 clarifies the accounting for
      uncertainty in income taxes recognized in an entity’s financial statements in
      accordance with FASB Statement of Financial Accounting Standards No. 109,
“Accounting for Income Taxes” (“SFAS 109”) and prescribes a recognition
      threshold and measurement attributes for financial statement disclosure of
      tax
      positions taken or expected to be taken on a tax return.  Under FIN
      48, the impact of an uncertain income tax position on the income tax return
      must
      be recognized at the largest amount that is more-likely-than-not to be sustained
      upon audit by the relevant taxing authority.  An uncertain income tax
      position will not be recognized if it has less than a 50% likelihood of being
      sustained.  Additionally, FIN 48 provides guidance on de-recognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure and transition. There was no impact to the Company’s consolidated
      financial position, results of operations or cash flows for the six months
      ended
      July 31, 2007.




In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      No. 159 (“SFAS 159”), *The Fair Value Option for Financial Assets and
      Financial Liabilities, including an amendment of FASB Statement
      No. 115*.  Under SFAS 159, companies are permitted to choose
      to measure many financial instruments and certain other items at fair value
      and
      establish presentation and disclosure requirements designed to facilitate
      comparisons between measurement attributes for similar types of assets and
      liabilities.  SFAS 159 is effective as of the beginning of our fiscal
      year ending January 31, 2009. We are currently evaluating the potential impact
      that SFAS 159 will have on our financial statements.





***Use
      of Estimates***





The
      financial statements and notes are representations of the Company’s management,
      which is responsible for their integrity and objectivity. The preparation of
      financial statements requires management to make estimates and assumptions
      that
      affect the reported amounts of assets, liabilities revenues and expenses and
      disclosures of contingent assets and liabilities at the date of the financial
      statements. Actual results could differ from those estimates.





**Note
      2 -Description of Business**





PureDepth,
      Inc., (PDI) along with its wholly owned subsidiaries, PureDepth Limited (PDL)
      and PureDepth Incorporated Limited (PDIL), and predecessor parent entity, Deep
      Video Imaging Limited (DVIL), (collectively, the Company) develops, markets,
      licenses, and supports multi-layer display technology. The Company also sells
      prototype MLD-enabled display devices that it manufactures.





The
      Company’s technology has applications in industries and markets where flat panel
      monitors and displays are utilized and its goal is to have MLD technology become
      a standard technology for incorporation into these LCD-based products, which
      include location-based entertainment devices, computer monitors, public
      information display systems, flat panel televisions, mobile devices and other
      mass market display devices.





Pursuant
      to an Agreement and Plan of Merger and Reorganization discussed in Note 3,
      PureDepth, Inc. survived as the newly formed and named parent entity of PDI
      and
      PDIL and the name of the predecessor entity, Diamond One, Inc. is no longer
      used.





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





8




**Note
      3 - Merger**





On
      March
      31, 2006 and pursuant to an Agreement and Plan of Merger and Reorganization
      dated March 16, 2006, PureDepth, Inc., a California corporation (PDI-CA) entered
      into a merger with PureDepth Technologies, Inc., a Delaware corporation and
      wholly owned subsidiary of Diamond One, Inc., a Colorado corporation quoted
      on
      the OTC Bulletin Board. As a result of the merger, PureDepth Technologies,
      Inc.
      succeeded to the business of PDI-CA, and survived as a wholly owned operating
      subsidiary of Diamond One, Inc.  PureDepth Technologies, Inc. was
      renamed PureDepth, Inc.  The merger was effected by the filing of a
      certificate of merger with the Delaware Secretary of State on March 31,
      2006.





**Note
      4 - Cash, Cash Equivalents, Restricted Cash and Marketable
      Securities**




Cash,
      cash equivalents, restricted cash and marketable securities at July 31, 2007
      consisted of the following:





**July
                31, 2007**Cash
                and cash equivalents:Cash
            
            $
            2,735,329Money
                market funds
            
            
            406,730Mutual
                funds
            
            
            85,903Total
                cash and cash equivalents
            
            
            3,227,962Restricted
                cash:Certificate
                of deposits
            
            
            77,056Marketable
                securities:Taxable
                bonds (maturities greater than 90 days)
            
            
            1,013,178Total
                cash, cash equivalents, restricted cash and marketable
                securities
            
            $
            4,318,196





**Note
      5 - Intellectual Property**





Intellectual
      property consists of acquired patents and capitalized initial patent
      registration costs related to internally developed
      technology.  Capitalized costs related to internally developed
      technology are amortized on a straight-line basis over their useful lives,
      generally 10 to 20 years.  The acquired patents were initially
      acquired by our predecessor entity from an unrelated party for the exclusive
      rights for the use of the underlying technology.  The acquired patents
      and related liability were valued at the present value of the expected future
      cash flows by our predecessor entity.  These patents and related
      liability were transferred to the Company at our predecessor entity’s carrying
      value as part of the reorganization described in Note 3. The acquired patents
      are amortized on a straight-line basis over the ten year life of the related
      acquisition agreement.





The
      costs
      of internally developing intellectual property that are not specifically
      identifiable, that have indeterminate lives, or that are inherent in a
      continuing business and related to an entity as a whole have been expensed
      as
      incurred pursuant to the requirements of SFAS No. 142, *Goodwill and Other
      Intangible Assets.*





The
      Company evaluates the recoverability of its intellectual property under the
      requirements of  SFAS No. 144, *Accounting for the Impairment or
      Disposal of Long-Lived Assets*.  Whenever events or changes in the
      circumstances indicate the potential for impairment of the intellectual
      property, the Company reviews the recoverability by comparison of its carrying
      amount to the expected future value.  No impairments of intellectual
      property have been identified as of July 31, 2007.





Intellectual
      property consists of the following:




**July
                31, 2007**Patent
                registration costs
            
            $
            2,226,528Software
                development costs
            
            
            70,456Acquired
                patent rights
            
            
            2,299,509Less:
                accumulated amortization
            
            
            (2,051,407
            )Total
            
            $
            2,545,086




9


Amortization
      for the three months ended July 31, 2007 was $77,598.  Amortization
      expense for the next five years and thereafter is summarized in the following
      table:




**Year
                ended January 31**,2008
            
            $
            153,9692009
            
            
            307,9372010
            
            
            307,9372011
            
            
            307,9372012
            
            
            144,095Thereafter
            
            
            1,323,211








**Note
      6 – Stockholders’ Equity**





On
      April
      5, 2007, the Board of Directors approved an amendment (the “Amendment”) to the
      2006 Stock Incentive Plan (the “Plan”) to increase the number of shares of
      common stock available for issuance thereunder by 8.5 million shares, subject
      to
      shareholder approval.  Shareholder approval of the Amendment was
      obtained on August 3, 2007.





On
      April
      5, 2007, the Board of Directors approved the grant of options to employees
      to
      purchase 575,000 shares of common stock under the Plan upon the availability
      of
      shares with an exercise price equal to the closing price of the Company’s common
      stock on such date as reported by the OTC Bulletin Board.





On
      April
      5, 2007, the Board of Directors approved the grant of options to directors
      to
      purchase 300,000 shares of common stock under the Plan, upon the date which
      the
      Company’s stockholders approve an increase in the number of shares of common
      stock available under the Plan with an exercise price equal to the closing
      price
      of the Company’s common stock on such date as reported by the OTC Bulletin
      Board.





On
      May
      16, 2007, the Board of Directors approved the grant of options to employees
      to
      purchase 800,000 shares of common stock under the Plan, upon the availability
      of
      shares with an exercise price equal to the closing price of the Company’s common
      stock on such date as reported by the OTC Bulletin Board.





***Equity
      Transactions***





On
      March
      26, 2007, 205,202 shares of common stock were issued pursuant to the exercise
      of
      B-warrants on March 1, 2007 at an exercise price of $0.87 per share for cash
      totaling $178,902.





On
      March
      1, 2007 the remaining unexercised B-warrants to purchase 1,908,990 shares of
      common stock expired and the Company cancelled the respective
      warrants.





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





On
      April
      25, 2007, 150,000 shares of common stock were issued pursuant to the exercise
      of
      options granted at an exercise price of $0.28 per share for cash totaling
      $42,000.





On
      April
      30, 2007, 75,000 shares of common stock were issued pursuant to the exercise
      of
      options granted at an exercise price of $0.28 per share for cash totaling
      $21,000.





On
      May
      04, 2007, 100,000 shares of common stock were issued pursuant to the exercise
      of
      options granted at an exercise price of $0.28 per share for cash totaling
      $28,000.





On
      June
      19, 2007, 100,000 shares of common stock were issued pursuant to the exercise
      of
      options granted at an exercise price of $0.28 per share for cash totaling
      $28,000.





On
      June
      19, 2007, the Company granted to employees options to purchase 578,346 shares
      of
      common stock at an exercise price of $1.67, pursuant to our 2006 Stock Incentive
      Plan.





On
      July
      15, 2007, 400,000 shares of common stock were issued pursuant to the exercise
      of
      options granted at an exercise price of $0.28 per share for cash totaling
      $112,000.




10


***Stock
      Warrants***





The
      following table summarizes common stock warrant activity for the three months
      ended July 31, 2007:





**Warrants**
            
            
            **Weighted
                Avg.**
              **Exercise
                Price**Outstanding
                at beginning of the period
            
            
            17,290,468
            
            
            
            $1.15Outstanding
                at July 31, 2007
            
            
            17,290,468
            
            
            
            $1.15Exercisable
                at July 31, 2007
            
            
            17,290,468
            
            
            
            $1.15





No
      warrants were issued in the three months ended July 31,
      2007.  Included in the total outstanding warrants at July 31, 2007 are
      A-warrants to purchase 9,147,613 shares of common stock at $1.20 per share,
      C-warrants to purchase 1,082,811 shares of common stock at $0.44 per share,
      and
      D-warrants to purchase 7,060,044 shares of common stock at $1.20 per
      share.





***Stock
      Option Plan***





The
      Company maintains and accounts for the Plan, in accordance with FASB Statement
      of Financial Accounting Standards No. 123(R) (“SFAS 123(R)”).





The
      following table summarizes common stock option activity for the three months
      ended July 31, 2007:




**Option
                Shares**
            
            **Shares**
            
            
            **Weighted
                Avg.**
              **Exercise
                Price**Outstanding
                at beginning of the period
            
            
            12,890,411
            
            
            
            $0.70Granted
            
            
            578,346
            
            
            
            $1.67Exercised
            
            
            (600,000
            )
            
            
            $0.28Cancelled
            
            
            (696,667
            )
            
            
            $3.06Outstanding
                at July 31, 2007
            
            
            12,172,090
            
            
            
            $0.63Exercisable
                at July 31, 2007
            
            
            10,393,616
            
            
            
            $0.37





At
      July
      31, 2007, the Company had reserved a total of 13,741,260 shares of common stock
      for issuance under the Plan. Options available for grant were 155,000 at July
      31, 2007.





The
      following table summarizes significant ranges of outstanding and exercisable
      options as of July 31, 2007:





Outstanding
            Exercisable**Exercise
                Price**
              **Range**
            **Shares**
            **Weighted**
              **Average**
              **Life***
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            **Aggregate**
              **Intrinsic**
              **Value**
            **Shares**
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            **Aggregate**
              **Intrinsic**
              **Value**$0.28
                - $0.44
            10,068,344
            3.8
            $0.29
            $12,648,844
            10,068,344
            $0.29
            $12,648,844$1.35
                - $2.07
            921,746
            6.8
            1.61
            57,000
            21,133
            2.07$2.20
                - $2.95
            583,400
            6.5
            2.32
            
            114,467
            2.43$3.03
                - $3.50
            598,600
            6.2
            3.38
            
            189,672
            3.38Total
            12,172,090
            4.3
            $0.63
            $12,705,844
            10,393,616
            $0.37
            $12,648,844


*Average
      contractual remaining life in years





The
      aggregate intrinsic value in the preceding table represents the total pretax
      intrinsic value based on stock options with an exercise price less than the
      Company’s closing stock price of $1.54 as of July 31, 2007, which would have
      been received by the option holders had those option holders exercised their
      options as of that date.  The total of in-the-money stock options
      exercisable as of July 31, 2007 was 10,068,344.





11


The
      stock-based compensation cost for the three months ended July 31, 2007 was
      $189,890.  Under FAS 123(R), we determined the appropriate fair value
      model to be used for valuing share based payments and the amortization method
      for compensation cost.Total unrecorded
      stock-based compensation cost at July 31, 2007 associated with employee and
      director stock options was approximately $2.5 million and is expected to be
      recognized over a weighted-average period of 2.5 years.





The
      fair
      value of each option award was estimated on the date of grant using a
      Black-Scholes option valuation model that used the weighted-average assumptions
      noted in the following table:





**Significant
                Assumptions for Three Months Ended July 31, 2007:**Expected
                term (in years)
            5.0Expected
                volatility
            70.0%Risk-free
                rate
            4.91%Expected
                forfeiture rate
            6.0%Expected
                dividend yield
            -








**Note
      7 - Loss per Share**




The
      Company's loss per share of common stock is based on the weighted average number
      of common shares outstanding at the financial statement date.





Stock
      options to purchase 12,172,090 shares of common stock and warrants to purchase
      17,290,468 shares of common stock at July 31, 2007, and stock options to
      purchase 12,450,570 shares of common stock and warrants to purchase 19,378,037
      shares of common stock at July 31, 2006 were antidilutive and therefore excluded
      from the fully diluted loss per share calculation.




**Note
      8 – Major Customer**





One
      customer accounted for 100% of the Company’s licensing revenues for the three
      and six month period ended July 31, 2007.  The same customer accounted
      for the entire ending balance of deferred revenue at July 31, 2007 which is
      derived from a licensing agreement that required a $3.75 million advance,
      non-refundable payment.  The balance of the advance on licensing
      revenues represents the deferred revenue and will continue to be earned over
      the
      remaining term of the agreement.





**Note
      9 - Income Taxes**





The
      Company has no unrecognized tax benefits as of February 1, 2007; consequently,
      the application of FIN 48 had no impact on retained earnings.





As
      a
      result of the adoption of FIN 48, there was no impact to the Company’s
      consolidated financial position, results of operations or cash flows for the
      six
      months ended July 31, 2007. In accordance with FIN 48, the Company recognizes
      interest and penalties related to unrecognized tax benefits as a component
      of
      income taxes. At July 31, 2007 no interest or penalties related to unrecognized
      tax benefits had been recorded.  There was no change to the Company’s
      unrecognized tax benefits for the six months ended July 31, 2007.





The
      Company is subject to taxation in the U.S. and California. The Company's
      subsidiaries are subject to taxation in New Zealand.  All the
      Company’s tax years in the U.S. will be open to examination by the federal and
      California tax authorities because the statute of limitations are open and
      due
      to the Company’s overall net operating loss carryforward
      position.  The Company's subsidiaries are subject to examination by
      foreign tax authorities for all tax years.





12




**Note
      10 – Related Party Transactions**




In
      April
      2007, the Board of Directors agreed to grant David Hancock, as a director and
      Chairman of the Board of Directors of the Company, an option to acquire 100,000
      shares of the Company's common stock under the Plan, to be effective upon the
      date on which the Company’s stockholders approved of an increase in the number
      of shares of common stock available under the Plan.  However, Mr.
      Hancock resigned from the Board on June 26, 2007 prior to the date on which
      such
      stockholder approval was obtained.




In
      April
      2007, the Company agreed with Mr. Floisand and Mr. Marcus, each a member of
      the
      Board of Directors, to terminate the offer letters we entered into with them
      in
      September 2006.  The Board of Directors also approved the grant to
      each  of them an additional option to acquire 100,000 shares of the
      Company's common stock as contemplated by each such director's original offer
      letter and, except as otherwise described herein, on the terms and conditions
      described in such offer letter and related Board of Directors actions. The
      grant
      date for these options was August 3, 2007, the date on which the Company’s
      stockholders approved an increase in the number of shares of common stock
      available under the Plan




In
      July 2007, the Company
      entered into an agreement with Mr. Angelopoulos relating to his separation
      from
      the Company. The terms of the Separation Agreement superseded any relevant
      terms
      of Mr. Angelopoulos’s employment agreement and call for Mr. Angelopoulos to
      provide consulting services to the Company for a period of three months
      following his resignation. During such three month period, Mr. Angelopoulos
      will
      earn a monthly consulting fee equivalent to his monthly salary at the time
      of
      his departure (“Base Salary Rate”); thereafter he will continue to receive, as
      severance payment, semi-monthly payments in a monthly amount equal to his Base
      Salary Rate for a period of twelve months. Under the Separation Agreement,
      the
      Company will pay for two years of Mr. Angelopoulos’ COBRA health insurance
      premiums. In addition, Mr. Angelopoulos’ stock option agreement was amended to
      provide that it may be exercised in two tranches in 2007 and 2008, respectively,
      and to accelerate the selling schedule applicable to shares of the Company’s
      common stock acquired upon any such exercise, so that the following shares
      may
      be sold in the following years:600,000 shares in calendar
      year 2007, 870,000 shares in calendar year 2008, and 1,430,000 shares in
      calendar year 2009.





In
      June
      2007, Mr. Marcus was appointed as our Chief Executive Officer on an interim
      basis after the resignation of Mr. Angelopoulos as our Chief Executive
      Officer.  In his capacity as a consultant, Mr. Marcus receives an
      hourly fee of $150 per hour, limited to $1,500 per day.  On September
      11, 2007, Mr. Marcus was formally appointed Chief Executive Officer of the
      Company.





**Note
      11 - Subsequent Events**





On
      August
      2, 2007, the Company and K One W One Limited (“K1W1”), entered into a waiver
      agreement, whereby K1W1 agreed to waive its existing registration rights
      previously granted to K1W1 by the Company under various agreements (the “Waiver
      Agreement”).  K1W1 is the Company’s largest stockholder and as of July
      31, 2007, was the beneficial owner of approximately 54% of the Company’s
      outstanding stock.  As a result of the Waiver Agreement, in Amendment
      No. 2 to the Company’s Registration Statement on Form SB-2/A filed on August 28,
      2007 (the “Amended Registration Statement”), 18,774,352 shares of outstanding
      Common Stock held by K1W1 and 1,768,698 shares of Common Stock issuable upon
      exercise of outstanding warrants held by K1W1 were no longer included for
      registration under the Amended Registration Statement.





On
      August
      3, 2007, the Plan was amended to increase the maximum number of shares of Common
      Stock of the Company available for issuance upon exercise of options and other
      equity-based awards under the Plan from 13,741,260 to 22,241,260, pursuant
      to
      approval by the required consent of the Company’s Board of Directors and
      stockholders.





On
      August
      3, 2007, Mr. Floisand and Mr. Marcus, each a member of the Board of Directors,
      were each granted an option to purchase 100,000 shares of the Company’s common
      stock pursuant to the Plan, at an exercise price of $1.50 (an amount equal
      to
      the closing price of such common stock on such date as reported by the OTC
      Bulletin Board).





13


On
      August
      3, 2007, employees of the Company were granted options to purchase an aggregate
      of 796,654 shares of the Company’s common stock pursuant to the Plan, each at an
      exercise price of $1.50 (an amount equal to the closing price of such common
      stock on such date as reported by the OTC Bulletin Board).




On
      August
      28, 2007 the Company filed the Amended Registration Statement in response to
      comments received from the Staff of the Securities Exchange Commission (the
      “SEC”) with respect to the Company’s Amendment No. 1 of the Registration
      Statement filed December 1, 2006.  The Amended Registration Statement
      provides for the registration and resale by selling stockholders of 39,991,745
      shares of our common stock, including 16,406,119 shares issuable upon the
      exercise of outstanding warrants.  The Company will not receive any
      proceeds from the sale of these shares by the selling stockholders, provided,
      however, it would receive gross proceeds up to $18,864,406 if all the warrants
      were exercised.  The Amended Registration Statement is not yet
      effective and is subject to further review and comment by the SEC.





On
      September 5, 2007 the Company filed a Registration Statement on Form S-8
      providing for the registration of an additional 8.5 million shares, for a total
      of 22,241,260 shares of the Company’s common stock available for issuance under
      the Plan.





On
      September 11, 2007, The Board of Directors of the Company unanimously voted
      to
      formally appoint Mr. Marcus as the Chief Executive Officer of the Company,
      effective immediately.  The final terms of Mr. Marcus’s employment
      agreement as Chief Executive Officer remain subject to completion.








14




**Item
      2. Management’s Discussion and Analysis of Financial Condition or Plan of
      Operation**








**CAUTIONARY
      NOTICE REGARDING FORWARD-LOOKING STATEMENTS**





This
      Quarterly Report of PureDepth, Inc. on Form 10-QSB contains certain
“forward-looking statements.” All statements in this Quarterly Report other than
      statements of historical fact are “forward-looking statements” for purposes of
      these provisions, including any statements of the plans and objectives for
      future operations and any statement of assumptions underlying any of the
      foregoing.  Statements that include the use of terminology such as
“may,” “will,” “expects,” “believes,” “plans,” “estimates,” “potential,” or
“continue,” or the negative thereof or other and similar expressions are
      forward-looking statements. Forward-looking statements in this Quarterly Report
      include, but are not limited to, statements regarding expanding the use of
      our
      technologies in existing and new markets; demand for and future revenues from
      the sale of visual display products incorporating our technologies; growth
      opportunities in the visual display market; opportunities to incorporate our
      technologies in markets outside the traditional consumer product markets; the
      rate of adoption and sales of MLD visual displays; diversification of sources
      of
      licensing revenue; our expected profit margin from our MLD product sales; the
      future impact of our critical accounting policies, including those regarding
      revenue recognition, allowance for doubtful accounts, accounting for income
      taxes, and stock-based compensations; statements regarding the sufficiency
      of
      our cash reserves; and our expected rate of return on investments. Actual
      results may differ materially from those discussed in these forward looking
      statements due to a number of factors, including: the rate of growth of the
      markets for MLD visual displays that include our technologies; the extent to
      which our expectations regarding new licensing markets are realized; whether
      our
      competitors are able to develop and sell alternative 3-D or MLD visual display
      technologies to our partners; the accuracy of our identification of critical
      accounting policies and the accuracy of the assumptions we make in implementing
      such policies; the accuracy of our estimates regarding our taxable income and
      cash needs for the next twelve months; the accuracy of our calculations of
      royalties due to our licensors; and fluctuations in interest rate and foreign
      currencies.  These forward-looking statements involve risks and
      uncertainties, and it is important to note that our actual results could differ
      materially from those projected or assumed in such forward-looking statements.
      Among the factors that could cause actual results to differ materially are
      the
      factors detailed under the heading “Risk Factors” as well as elsewhere in this
      Quarterly Report. All forward-looking statements and risk factors included
      in
      this document are made as of the date hereof, based on information available
      to
      us as of the date hereof, and we assume no obligation to update any
      forward-looking statement or risk factor except as may be required under the
      federal securities laws.  You are advised, however, to read any further
      disclosures we make on related subjects in our filings with the Securities
      and
      Exchange Commission (SEC), including our Annual Report on Form 10-KSB, our
      Quarterly Reports on Form 10-QSB, our Current Reports on Form 8-K and amendments
      to such reports.  Such filings are available on our website, free of
      charge, at www.puredepth.com, but the information on our website does not
      constitute part of this Quarterly Report.










15




**Management’s
      Discussion and Analysis**





The
      following discussion and analysis of our financial condition and results of
      operations should be read in conjunction with the unaudited condensed
      consolidated financial statements and related notes included under Item 1 of
      this Part I entitled “Financial Statements” and the above section entitled
“Cautionary Notice Regarding Forward-Looking Statements”.





**Overview**





We
      are a
      technology and licensing company focused on the visual display experience.
      Our
      business is the development,
      marketing, licensing and support of our proprietary Multi-Layer Display (MLDTM)
      technology and related products and services. Unlike other display-based
      technologies, our MLD technology was created and designed based on how humans
      visualize the world. Depth is a key component of everyday visualization and
      interaction, yet in the world today most of our information is displayed on
      technology that can, at best, only provide the visual perception of depth.
      Unlike standard two-dimensional (2D) display technologies that utilize only
      a
      single-layer liquid crystal display (LCD), our MLD technology utilizes two
      or
      more LCD panels that are stacked and separated by actual depth. We believe
      that
      when our MLD technology is incorporated into display products, this actual
      depth
      provides for distinct new ways in which to view, monitor and interact with
      visual information.





Our
      technology has application in industries and markets where flat panel monitors
      and displays are utilized. Our goal is to have our MLD technology become a
      standard technology for incorporation into these LCD-based products, which
      include location-based entertainment devices, computer monitors, public
      information display systems, mobile devices, flat panel televisions, and other
      mass market display devices.





*Subsidiaries*





PureDepth,
      Inc. has a wholly-owned
      subsidiary named PureDepth Limited, which in turn has a wholly-owned subsidiary
      named PureDepth Incorporated Limited.  Both PureDepth Limited and
      PureDepth Incorporated Limited are New Zealand corporations. PureDepth Limited
      owns our intellectual property portfolio, which is licensed to PureDepth, Inc.
      pursuant to an exclusive, perpetual license agreement. PureDepth Incorporated
      Limited provides operations and other support for us, including regional
      finance, administration, research and development, and intellectual property
      (including legal) management operations on behalf of its parent entities. All
      financial items included in this report are denominated in US dollars unless
      specifically identified as New Zealand dollars.





**Plan
      of Operations**





We
      derive, and expect to continue to derive, revenues primarily from the licensing
      of our technology to our product partners and LCD manufacturing partners and,
      to
      a lesser extent, from sales of prototype MLD-enabled display devices that we
      manufacture. Licensees are and will be responsible for the manufacture and
      sale
      of display-based products incorporating our technology and related
      software.  In connection with our licensing arrangements, we may also
      derive revenues from the sale of software tools and drivers for market-specific
      applications and from various support services, including engineering consulting
      services, technical services for implementation and optimization of our
      technology and software support and training.





Our
      efforts in the immediate future are focused on fulfilling the requirements
      of
      and supporting existing customer agreements with Sanyo Electric Corporation
      (Sanyo), and International Game Technology (IGT).  At the same time,
      we will continue to seek to diversify our sources of licensing revenue. We
      intend to increase our sales and marketing efforts to identify, contact and
      negotiate licensing agreements with potential partner companies.  We
      have identified the following target markets in North America, Asia and Europe
      that we believe are appropriate for our MLD technology: location-based
      entertainment devices, computer monitors, flat-panel televisions, mobile devices
      and other mass market display devices. Our existing license agreements pertain
      to products for the location-based entertainment devices.  Our goal is
      to expand our business by working with partner companies to develop MLD-based
      products and developing demand and a presence for such devices in our identified
      target markets.





16


Our
      primary operating costs relate to compensation for employees, including stock
      options and other incentives; ongoing research and development of our
      technology; legal services including patent applications and defense of
      currently-held patents; and rental of premises in both Redwood City, CA and
      Auckland, New Zealand. Other than our research and development expenses no
      significant capital equipment purchases are expected during the fiscal year
      ending January 31, 2008.




Our
      critical research and development activities include: further enhancing our
      existing MLD technology and related software; developing, manufacturing and
      testing prototype MLD-enabled display devices for our existing licensee partners
      and potential licensee partners; designing and customizing features to the
      specification of potential licensee partners; and patent defense and application
      for our existing and new technology developments. Our goal is to enhance our
      existing technology based upon research and development in optics, LCD
      technology, backlighting, and component technologies. We anticipate that our
      research and development expenses will increase significantly in absolute
      dollars in future periods, primarily because of the enhancement of our core
      technology, and, to a lesser extent, the design and development of prototypes
      for future customers.





To
      continue to grow the business, we expect to increase the number of employees
      worldwide from 35 to between 40 and 50 employees during the fiscal year ending
      January 31, 2008.  Plans currently provide for approximately half of
      the new employees to be located in Auckland, New Zealand and Asia, and the
      other
      half in Redwood City, California. As a result, we expect we will relocate our
      US
      headquarters offices in Redwood City to a larger facility during the fiscal
      year
      ending 2008.





The
      report of our independent auditors on the Company’s consolidated financial
      statements for the fiscal year ended January 31, 2007 includes an explanatory
      paragraph indicating there is substantial doubt about the Company's ability
      to
      continue as a going concern.  The Company has continued to operate on
      a negative cash basis and incurred additional losses through the six
      months ended July 31, 2007.




Management
      has developed an operating plan that it believes will allow the
      Company to continue as a going concern through the end of the fiscal year ending
      January 31, 2008.    Based upon the Company’s cash position at
      July 31, 2007 of $3.2 million, together with the cash to be provided by the
      maturity of marketable securities held at July 31, 2007 in the amount of $1.0
      million, as well as current expectations regarding revenues and operating costs,
      the Company believes it can meet the cash requirements of the current plan
      for
      the fiscal year ending January 31, 2008 without raising additional
      funds.




The
      Company expects it will continue to incur losses during the remainder of the
      fiscal year ending January 31, 2008 and beyond January 31,
      2008.  Accordingly, the Company expects to undertake further capital
      raising within the current fiscal year, in the form of either convertible debt
      or equity securities, loans from banks, other financial institutions or our
      affiliates, or a credit facility.





In
      the
      event the Company is unsuccessful in its plans to finance operations through
      the
      above means it could be forced to significantly reduce its level of
      operations, including by slowing our growth, delaying hiring, abandoning
      certain product development including product development on which we may have
      already spent considerable resources and otherwise reducing expenses and
      eventually, if necessary, cease operations altogether.  If the
      Company is successful in its plans to finance operations through the above
      means, these plans ultimately may not resolve the going concern issue and
      additional financings may also be necessary thereafter until the Company is
      able to attain and sustain profitable operations. These uncertainties raise
      substantial doubt about the Company’s ability to continue as a going
      concern.




The
      accompanying financial statements do not include any adjustments to reflect
      the
      possible future effects on the recoverability and classification of assets
      or
      the amounts and classification of liabilities that may result from the outcome
      of this uncertainty.





**Results
      of Operations**





For
      the
      three months ended July 31, 2007 and 2006, we reported net losses of $2.8
      million and $1.9 million, respectively, representing an increase in our net
      loss
      of $0.9 million from the corresponding period in the prior
      year.   For the six months ended July 31, 2007 and 2006, we
      reported net losses of $4.8 million and $5.5 million, respectively, representing
      a decrease in our net loss of $0.7 million from the corresponding period in
      the
      prior year.





17




*Licensing
      Revenue and Cost of Licensing*





Revenue
      from technology licensing was $0.2 million and $0.4 million for the three and
      six months ended July 31, 2007, respectively.  We did not report any
      technology licensing revenue for the corresponding three and six months ended
      July 31, 2006. We are a party to a patent and technology license and technology
      transfer agreement with International Game Technology (IGT) that involves the
      manufacture and distribution of products by IGT, incorporating MLD technology
      for sale in the wagering-based gaming segment of the location-based
      entertainment display device market. This agreement grants IGT certain rights
      of
      exclusivity for the development and sale of MLD-based products in the
      wagering-based gaming market. We received an advance, non-refundable payment
      of
      license fees of $3.75 million under the terms of the agreement during the year
      ended January 31, 2007, of which $0.2 million and $0.4 million was recognized
      as
      licensing revenue during the three and six months ended July 31, 2007. This
      represents 100% of our licensing revenue for the periods.  The balance
      of the advance on licensing revenues is recorded as deferred revenue and will
      continue to be earned over the remaining term of the
      agreement.





Cost
      of
      licensing was $0.08 million and $0.15 million for the three and six months
      ended
      July 31, 2007, respectively.  We did not report any cost of licensing
      for the corresponding three and six months ended July 31, 2006. The costs
      associated with licensing revenues are primarily related to amortization of
      intellectual property for the respective periods.  In the
      corresponding periods of the prior year, because we were a development stage
      enterprise and because we had no licensing revenue, the amortization of
      intellectual property was reported under operating
      expenses.  Amortization is not expected to grow proportionately with
      revenues as our costs related to intellectual property (including legal fees,
      registration costs and ongoing maintenance costs) are generally capitalized
      and
      amortized on a straight-line basis over the expected statutory lives of the
      related patents, up to 20 years, which will result in higher gross profit as
      revenues increase.





*Service
      Revenue and Cost of Services*





Revenue
      from services was $0.04 million for the three and six months ended July 31,
      2007.  We did not report any service revenue for the corresponding
      three and six months ended July 31, 2006.  Service revenues represent
      billings for technical and professional services provided to existing customers
      related to our MLD technology.  We provide professional services to
      our customers in order for them to develop, test, and promote MLD applications
      in their products.  We believe that service revenues will continue as
      relationships with new and existing partners evolve, but will continue to
      represent a small portion of our overall revenues in the remainder of the fiscal
      year.





The
      cost
      of services for the three and six months ended July 31, 2007 was $0.03
      million.  We did not report any cost of services for the corresponding
      three and six months ended July 31, 2006.  Cost of services represents
      direct labor and overhead costs of providing the respective
      services.  We expect cost of services to increase in relation to
      service revenues.





*Product
      Sales Revenue and Cost of Product Sales*





Revenue
      from product sales was $0.09 million and $0.13 million for the three and six
      months ended July 31, 2007, respectively.  We did not report any
      product sales revenue for the corresponding three and six months ended July
      31,
      2006.  Product sales represent sales of prototype MLD-enabled display
      devices to several existing and potential customers. We design and manufacture
      these prototypes specifically for sale to our partners, who use them to develop,
      test and promote MLD applications in their products. We believe that product
      sales of our prototype MLD-enabled display devices will continue as
      relationships with new and existing partners evolve, but will continue to
      represent a small portion of our overall revenues in the remainder of the fiscal
      year.





The
      cost
      of product sales for the three and six months ended July 31, 2007 was $0.08
      million and $0.12 million, respectively.  We did not report any cost
      of product sales for the corresponding three and six months ended July 31,
      2006.  Cost of product sales represents material, overhead and labor
      costs of assembling the prototypes at our research and development
      facility.  We have minimal margins on our product sales as we acquire
      small quantities of materials at higher costs than we would have paid had we
      been able to buy in bulk and because the engineering for prototype MLD-enabled
      display devices has, to date, required the use of non-standard parts and manual
      assembly.  As the engineering and material standards for form factors
      are finalized, we expect the cost of materials and associated labor to decline.
      In addition, we intend to outsource the assembly of many prototypes with the
      expectation of further reducing our costs. As a result of these factors, we
      expect to see our cost of product sales as a percentage of product revenues
      decline in the future related to increases in quantities.




18


*Operating
      Expenses*





Total
      operating expenses increased $1.0 million, or 57% from $1.9 million reported
      for
      the three months ended July 31, 2006 to $2.9 million reported for the three
      months ended July 31, 2007.  The increase of $1.0 million from the
      corresponding period for the prior fiscal year is primarily due to a $0.2
      million increase in stock-based compensation and a $0.8 million increase in
      personnel and personnel related expenses, professional fees related to our
      public company filing requirements, travel expenses and increased sales and
      marketing activities.  For the six months ended July 31, 2007, total
      operating expenses decreased $0.6 million, or 11%, from $5.7 million reported
      for the six months ended July 31, 2006 to $5.1 million reported for the six
      months ended July 31, 2007.  The decrease of $0.6 million from the
      corresponding period for the prior fiscal year is primarily due to a $2.1
      million decrease in stock based compensation offset by a $1.5 million increase
      in operating expenses for personnel and personnel related expenses, professional
      fees related to our public company filing requirements, travel expenses and
      increased sales and marketing activities.





Total
      depreciation and amortization expense decreased $0.06 million, or 74% from
      $0.08
      million for the three months ended July 31, 2006 to $0.02 million for the three
      months ended July 31, 2007.  The decrease is the result of reporting
      amortization of intellectual property in our cost of licensing for the current
      period.  In the corresponding prior fiscal year period, we were a
      development stage enterprise and as such we did not have licensing revenue
      and
      therefore, amortization of intellectual property was reported under operating
      expenses.  In total, depreciation and amortization expense is
      consistent with the amounts in the corresponding three months ended July 31,
      2006.   For the six months ended July 31, 2007, total
      depreciation and amortization expense decreased $0.11 million, or 75% from
      $0.15
      million for the six months ended July 31, 2006 to $0.04 million for the six
      months ended July 31, 2007.  The decrease is due to the same reasons
      discussed above with respect to the three months ended July 31,
      2007.  Depreciation expense is not expected to increase
      proportionately with revenue or total operating expenses as it is not necessary
      for us to significantly increase our purchases of fixed assets.





Total
      research and development expenses increased $0.2 million, or 39%, from $0.5
      million reported for the three months ended July 31, 2006 to $0.7 million
      reported for the three months ended July 31, 2007.  The increase of
      $0.2 million from the corresponding period in the prior fiscal year is primarily
      due to increases in stock-based compensation, travel and personnel and personnel
      related expenses.  For the six months ended July 31, 2007, total
      research and development expenses decreased $0.4 million or 24% from $1.6
      million reported at six month ended July 31, 2006 to $1.2 million reported
      in
      the six months ended July 31, 2007.  The decrease of $0.4 million from
      the corresponding period in the prior fiscal year is primarily due to $0.4
      million decrease in stock based compensations offset by approximately $0.1
      million increase in operating expenses for travel and personnel and personnel
      related expenses.  We expect research and development costs to
      increase as new employees are added and we continue to intensify our research
      and technology enhancement activities.





Total
      sales and marketing expenses increased $0.4 million, or 267%, from $0.1 million
      reported for the three months ended July 31, 2006 to $0.5 million reported
      for
      the three months ended July 31, 2007.  The increase of $0.4 million
      from the corresponding period in the prior fiscal year is primarily due to
      increases in stock-based compensation, travel expenses, personnel and personnel
      related expenses and increased sales and marketing activities.  For
      the six months ended July 31, 2007, total sales and marketing expenses decreased
      $0.1 million or 10% from $1.0 million reported for the six months ended July
      31,
      2006 to $0.9 million reported for the six months ended July 31,
      2007.  The decrease of $0.1 million from the corresponding period in
      the prior fiscal year is primarily due to $0.6 million decrease in stock based
      compensation, offset by $0.5 million increase in operating expenses for travel
      expenses, personnel and personnel related expenses and increased sales and
      marketing activities.  We expect sales and marketing expenses to
      increase in absolute dollars as we hire additional staff and attempt to secure
      additional licensees for our technology.








19




Total
      general and administrative expenses increased $0.5 million, or 48%, from $1.2
      million reported for the three months ended July 31, 2006 to $1.7 million
      reported for the three months ended July 31, 2007.  The increase of
      $0.5 million from the corresponding period in the prior fiscal year is primarily
      due to increases in stock-based compensation, personnel and personnel related
      expenses, director fees and professional fees related to our public company
      filing requirements.  For the six months ended July 31, 2007, total
      general and administrative expenses decreased $0.02 million, or 1%, from $3.0
      million reported for the six month ended July 31, 2006 to $2.98 million reported
      for the six months ended July 31, 2007.  The decrease of $0.02 million
      from the corresponding period in the prior fiscal year is primarily due to
      $1.15
      million decrease in stock based compensation, offset by an aggregate $1.13
      million increase in operating expenses for personnel and personnel related
      expenses, director fees, and professional fees related to our public company
      filing requirements.  We expect general and administrative expenses to
      increase in absolute dollars as we expand operations and also engage in
      Sarbanes-Oxley compliance.





*Other
      Income and Expense*





Other
      income and expense primarily consists of interest income earned on cash and
      marketable securities offset by interest expense on outstanding notes
      payable.  Also included in other income and expense are foreign
      exchange gains and losses as well as miscellaneous income and expense
      transactions.  The net decrease in other income and expense of $0.02
      million and $0.09 million for the three and six months ending July 31, 2007
      respectively, was primarily due to increases in losses of foreign currency
      exchange transactions, offset by increases in interest
      income.  Although we had increases in interest income from the
      corresponding periods in the prior fiscal year, we anticipate that interest
      income will decline in future periods as a result of our continued funding
      of
      operations reducing cash available for investments.  We do not expect
      significant income from any of these other income categories in the
      future.





***Liquidity
      and Capital Resources***





As
      of
      July 31, 2007, we had cash and cash equivalents of $3.2 million, which
      represents a decrease of $2.1 million from year ended January 31,
      2007.  The net decrease of $2.0 million results from the use of $4.2
      million in operating activities for the six months ended July 31, 2007 offset
      by
      $1.7 million and $0.4 million provided by investing and financing activities,
      respectively.   Investing activities includes the use of $0.2
      million for fixed asset and intellectual property purchases and $2.0 million
      provided by the maturity of marketable securities.  Financing
      activities were $0.4 million provided by the exercise of stock options and
      warrants.





In
      addition to the $3.2 million in cash and cash equivalents, we also have $1.0
      million in marketable securities (taxable bonds) which we intend to hold through
      maturity and $0.08 million in restricted cash at July 31, 2007.





We
      have
      issued options to employees and directors pursuant to our 2006 Stock Incentive
      Plan. As of July 31, 2007, we had 12,172,090 options outstanding under our
      2006
      Stock Incentive Plan with a weighted exercise price of $0.63.  We also
      have outstanding warrants to purchase 17,290,468 shares of common stock at
      a
      weighted average exercise price of $1.15.





Subject
      to approval of our Board of Directors, the 2006 Stock Incentive Plan allows
      option holders to exercise options using a “cashless exercise,” whereby vested
      shares would be used as payment for the exercise of options.  While
      the exercise of stock options for cash will generally increase immediate working
      capital, the approval of a cashless exercise by our Board of Directors would
      impact directly on the extent of this working capital and our ability to use
      existing options as a capital resource.








20





***Provision
      for State and Federal Income Taxes***





From
      inception through January 31, 2007, we have incurred net losses for federal
      and
      state tax purposes. We have also incurred foreign net losses in respect of
      our
      predecessor entity and two foreign subsidiaries.





We
      have
      not recorded a tax benefit for domestic tax losses because of the uncertainty
      of
      realization. We adhere to SFAS No. 109 *Accounting for Income Taxes*(“SFAS 109”), which requires an asset and liability approach to financial
      accounting and reporting for income taxes. Valuation allowances are established
      when necessary to reduce deferred tax assets to the amount expected to be
      realized. Under paragraph 17e of SFAS 109, deferred tax assets are reduced
      by a
      valuation allowance if the weight of the available positive and negative
      evidence suggests that it is more likely than not some portion or all of the
      deferred tax asset will not be realized.




We
      have
      generated net losses since our inception, and since our current projections
      are
      based upon predictions that cannot ensure sustained profitability in future
      years, we have provided a full valuation allowance against the deferred tax
      assets at July 31, 2007 and 2006.




We
      have
      no unrecognized tax benefits as of February 1, 2007; consequently, the
      application of FIN 48 had no impact on retained earnings.  As a result
      of the adoption of FIN 48, there was no impact to our consolidated financial
      position, results of operations or cash flows for the six months ended July
      31,
      2007. In accordance with FIN 48, we recognize interest and penalties related
      to
      unrecognized tax benefits as a component of income taxes. At July 31, 2007
      no
      interest or penalties related to unrecognized tax benefits had been
      recorded.  There was no change to our unrecognized tax benefits for
      the six months ended July 31, 2007.





We
      are
      subject to taxation in the U.S. and California. Our subsidiaries are subject
      to
      taxation in New Zealand.  All of our tax years in the U.S. will be
      open to examination by the federal and California tax authorities because the
      statute of limitations are open and due to our overall net operating loss
      carryforward position.  Our subsidiaries are subject to examination by
      foreign tax authorities for all tax years.





***Qualitative
      and Quantitative Disclosure about Market Risk***





The
      primary objectives of our investment activity are to preserve principal, provide
      liquidity and maximize income without significantly increasing the risk. Some
      of
      the securities we invest in are subject to market risk. To minimize this risk,
      we maintain our portfolio of cash equivalents and short term investments in
      money market funds, certificates of deposit and US government agency securities.
      Since our results of operations are not dependent on investment performance,
      we
      believe that such risks would not have a significant impact on our results
      from
      operations. As of July 31, 2007, our investments were in money market funds,
      certificates of deposit and US government agency securities.





Transactions
      with our New Zealand research facility and with suppliers and manufacturers
      in
      Asia are denominated in local currencies and thus, we are subject to foreign
      currency exchange fluctuations associated with re-measurement to US dollars.
      Such fluctuations have not been significant historically. We are prepared to
      hedge against any fluctuations in foreign currencies should such fluctuations
      have a material economic impact on us, although we have not engaged in hedging
      activities to date.





***Off-Balance
      Sheet Arrangements***





We
      do not have any off-balance sheet arrangements.







21





***Critical
      Accounting Policies***




The
      discussion and analysis of our financial condition and results of operations
      are
      based on our consolidated financial statements, which have been prepared in
      accordance with accounting principles generally accepted in the United States
      of
      America, or US GAAP. The preparation of these financial statements in accordance
      with US GAAP requires us to utilize accounting policies and make certain
      estimates and assumptions that affect the reported amounts of assets and
      liabilities, the disclosure of contingencies as of the date of the financial
      statements and the reported amounts of revenue and expenses during a fiscal
      period. The SEC considers an accounting policy to be critical if it is both
      important to a company’s financial condition and results of operations and it
      requires significant judgment and estimates on the part of management in its
      application.




We
      have
      discussed the selection and development of the critical accounting policies
      with
      the audit committee of our board of directors, and the audit committee has
      reviewed our related disclosures in this Quarterly Report on Form 10-QSB.
      Although we believe that our judgments and estimates are appropriate and
      correct, actual results may differ from those estimates.  See also the
      section entitled “Risk Factors” for certain matters which may affect our future
      results of operations.





During
      the six months ended July 31, 2007 we adopted the provisions of Financial
      Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for
      Uncertain Income Taxes – An Interpretation of FASB Statement No. 109” (“FIN
      48”).  FIN 48 clarifies the accounting for uncertainty in income taxes
      recognized in an entity’s financial statements in accordance with FASB Statement
      No. 109, “Accounting for Income Taxes” (“FAS 109”) and prescribes a recognition
      threshold and measurement attributes for financial statement disclosure of
      tax
      positions taken or expected to be taken on a tax return.  There was no
      impact to our consolidated financial position, results of operations or cash
      flows for the six months ended July 31, 2007.





For
      further information about our other critical accounting policies, see the
      discussion of critical accounting policies in the section entitled “Management's
      Discussion and Analysis or Plan of Operation” under Item 6 of Part II of our
      Annual Report on Form 10-KSB for the fiscal year ended January 31,
      2007.











22




**Item
      3. Controls and Procedures**





**(a)
      Evaluation of Disclosure Controls and Procedures:** Under the supervision
      and with the participation of our management, including our Chief Executive
      Officer and our Chief Financial Officer, we have performed an evaluation of
      the
      effectiveness of the Company’s “disclosure controls and procedures” (as defined
      in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as
      amended).  Based upon that evaluation, our management, including our Chief
      Executive Officer and Chief Financial Officer, has concluded that our disclosure
      controls and procedures were effective as of the end of the period covered
      by
      this quarterly report.





**(b)
      Changes in Internal Control over Financial Reporting:** There were no
      changes in our internal control over financial reporting that occurred during
      our last fiscal quarter that have materially affected, or are reasonably likely
      to materially affect, our internal control over financial
      reporting.











23




**PART
      II**


**OTHER
      INFORMATION**








**Item
      1. Legal Proceedings**





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





**RISK
      FACTORS**





You
      should carefully consider the risks described below before making an investment
      decision. If any of the following risks actually occur, our business, financial
      condition or results of operations could be materially and adversely affected.
      In such case, the trading price of our common stock could decline, and you
      may
      lose all or part of your investment.





**WE
      ARE NOT CURRENTLY PROFITABLE AND MAY NEVER BECOME
      PROFITABLE.**





We
      have a
      history of losses and expect to incur substantial losses and negative operating
      cash flow for the foreseeable future. In fact, we expect that our expenses will
      increase significantly in absolute dollars in future periods.  As a
      result, we will need to generate significant revenue in order to achieve and
      maintain profitability. Currently, we have limited sources of revenue. Even
      if
      we succeed in developing and commercializing our current and additional
      products, we expect that we will continue to incur substantial losses for the
      foreseeable future. In sum, we may never achieve or maintain profitability.
      Our
      failure to achieve or maintain profitability will likely negatively impact
      the
      value of our securities.





**WE
      EXPECT TO SEEK ADDITIONAL FINANCING THAT COULD DILUTE SHAREHOLDINGS OR RESTRICT
      OUR OPERATIONS*.***




Because
      our cash flow is not likely to be sufficient to fund our future operating
      expenses and the growth of our business, we expect that we will finance our
      future losses through additional financings within the current fiscal
      year.  Additional financing could be sought from a number of sources,
      including, but not limited to, additional sales of equity
      or  convertible debt securities, loans from banks, other
      financial institutions or our affiliates, or a credit facility. We cannot,
      however, be certain that any such financing will be available on terms favorable
      to us, if available at all. If additional funds are raised by the issuance
      of
      our equity securities, such as through the issuance of stock, convertible
      securities, or the issuance and exercise of warrants, then the ownership
      interest of our existing stockholders would be diluted. If additional funds
      are
      raised by the issuance of debt or other equity instruments, we may become
      subject to certain operational limitations, and such securities may have
      liquidation rights senior to those of the then existing holders of common stock.
      Ultimately, if no additional financing is obtained as and when needed, we may
      be
      required to significantly reduce our level of operations, including by
      slowing  our growth, delaying  hiring, abandoning  certain
      product development including product development on which we may have already
      spent considerable resources and otherwise reducing expenses,
      or  eventually, if necessary, cease operations
      altogether.





**WE
      HAVE A LIMITED OPERATING HISTORY UPON WHICH TO BASE AN INVESTMENT
      DECISION.**




We
      are an
      early-stage company with a limited operating history upon which to evaluate
      the
      viability of our business and long-term prospects for success. Accordingly,
      potential investors should carefully consider the risks, expenses and unforeseen
      difficulties generally encountered in the operation and development of an
      early-stage business, including the risks and uncertainties frequently
      encountered by companies whose business and viability is dependent upon new
      technologies.





24




**IF
      OUR PARTNERS ARE UNABLE TO INNOVATE, DEVELOP AND MARKET ATTRACTIVE NEW PRODUCTS
      INTO WHICH OUR TECHNOLOGY CAN BE INCORPORATED, OUR BUSINESS MAY BE ADVERSELY
      AFFECTED.**




We
      do not
      manufacture, market or sell visual display consumer products, other than
      prototypes, and expect to derive a substantial portion of our future revenues
      from the licensing of our MLD technology to our partners for their incorporation
      into innovative new products for sale.  We expect that these revenues
      will generally be based on royalty payments calculated on a per unit sold or
      shipped basis.  Accordingly, our licensing revenues depend on the
      success of our licensees in launching products in volume that incorporate our
      technology. We cannot control these manufacturer’s product development or
      commercialization efforts or predict their success. The process of
      developing and marketing new products is generally complex and uncertain, and
      involves a number of risks including, without limitation, the
      following:





·
            our
                partners may be unable to obtain adequate funding and resources necessary
                for investments in new products and
                technologies;




·
            our
                partners’ investments and commitment of significant resources may not
                result in successful new products or
                technologies;




·
            our
                partners may misunderstand their customers’ product needs and
                desires;




·
            our
                partners may not be able to successfully anticipate the new products
                and
                technologies which will gain market acceptance, especially since
                the
                industry in which they operate is characterized by rapid changes,
                including technological changes;





·
            our
                partners’ technology may become obsolete earlier than expected due to
                rapid advancements in technology and changes in consumer preferences,
                and




·
            delays
                in being first to market with new technologies and products may prevent
                our partners from successfully competing with their
                rivals.




If
      our
      partners fail to develop and market innovative new products, or if any of the
      risks described above materialize, our licensing revenues from our arrangements
      with these partners will decline and our business may be negatively and
      adversely affected.




**OUR
      LICENSING ARRANGEMENTS HAVE LENGTHY SALES CYCLES THAT MAKE IT DIFFICULT TO
      PLAN
      OUR EXPENSES AND FORECAST RESULTS.**




Our
      technology is generally incorporated in our partners’ products at the design
      stage.  However, their decision to use our technology often requires
      significant expenditures by us for engineering, prototype manufacturing and
      sales consultation without any assurance of success, and often precedes volume
      sales of products incorporating our technology, if any, by a year or
      more.  If a partner decides at the design stage not to incorporate our
      technology into their products, we may not have another opportunity for a design
      win with respect to that customer's product for many months or years, if at
      all.
      Our sales cycle can take up to 24 months to complete and because of this
      lengthy sales cycle, we may experience a delay between increasing expenses
      for
      research and development and our sales and marketing efforts and the generation
      of volume licensing revenues, if any, from these expenditures. Moreover, the
      value of any design win will largely depend on the commercial success of our
      product and LCD manufacturing partners' products. There can be no assurance
      that
      we will continue to achieve licensing wins or that any licensing win will result
      in future revenues.




25




**A
      SMALL NUMBER OF PARTNERS ACCOUNT FOR A SIGNIFICANT PORTION OF OUR REVENUES
      AND
      ACCOUNTS RECEIVABLE IN ANY PERIOD, AND IF ANY ONE OF THEM FAILS TO SHIP PRODUCTS
      INCORPORATING OUR TECHNOLOGY OR FAILS TO PAY US, OUR OPERATING RESULTS WILL
      SUFFER.**




We
      currently have licensing arrangements only with IGT, Sanyo and DRS, and expect
      to derive a significant portion of our revenues for the fiscal year ending
      January 31, 2008 from prepaid royalties under our licensing agreement with
      IGT
      included in deferred revenue.  We are not expecting significant
      additional revenue from IGT as we cannot control IGT or our other partner’s
      product development or commercialization efforts.  If for any reason
      our partners do not ship products incorporating our technology, we will not
      receive additional licensing revenues and our operating results will
      suffer.




At
      any
      given time, the majority of our accounts receivable will be comprised of amounts
      due from a small number of these partners.  Generally, we do not
      require collateral from our partners.   If any of our partners do
      not pay us, our operating results will be harmed.





**EVEN
      WITH SIGNIFICANT CAPITAL SPENDING IN THE FUTURE TO KEEP PACE WITH TECHNOLOGICAL
      CHANGES, WE MAY NOT BE ABLE TO DEVELOP NEW TECHNOLOGIES THAT ARE ACCEPTED BY
      THE
      MARKET.**




Advances
      in technology typically lead to a decline in sales volumes for products made
      with older technologies and may even lead to those products becoming obsolete.
      As a result, we will likely be required to make significant expenditures to
      enhance our existing technology or to develop or acquire new technologies to
      be
      incorporated into our partners’ products, including technologies that may cause
      our MLD technology to obsolesce. We may not be able to successfully enhance
      our
      technology or develop new technologies that keep pace with technological changes
      through our own research and development efforts or through our acquisition
      of
      technology licenses. This may be true even after we have spent significant
      amounts of capital. Furthermore, even if we are successful in enhancing,
      developing or acquiring any particular technology, we may not be able to
      effectively market and license our technology to our partners, or our partners
      may not be able to effectively commercialize or market the resulting MLD based
      products into which our technology has been incorporated.




**THE
      AVERAGE SELLING PRICES OF DISPLAYS USING OUR TECHNOLOGY MAY DECLINE OVER TIME
      AND NEGATIVELY AFFECT OUR OPERATING RESULTS.**




The
      average selling prices of displays******using our
      technology are expected to continually decline over time as a result of, among
      other factors, technology advances, cost reductions and increased competition.
      Although we may initially be able to take advantage of higher selling prices
      that may be associated with the new MLD-based products that our partners may
      bring to market, we cannot provide assurance that we will be able to maintain
      licensing royalty rates with our partners in the face of market competition
      for
      these products. If we are unable to effectively anticipate and counter the
      price
      erosion that accompanies our partners’ products and may affect our licensing
      royalty rates, our profit margins will be negatively affected.








26




**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.








27




**AS
      WE MATERIALLY RELY ON A LIMITED NUMBER OF THIRD-PARTY SUPPLIERS FOR KEY RAW
      MATERIALS AND COMPONENTS, AND ANY DISRUPTION IN THEIR SUPPLY WILL NEGATIVELY
      AFFECT OUR BUSINESS*.***




Our
      development and sale of MLD prototype products depend in part on obtaining
      adequate supplies of quality raw materials and components on a timely basis.
      In
      general, we source most of our raw materials as well as key components of these
      prototype MLD products from two or three suppliers for each key component.
      This
      is a result of our need to buy small quantities of raw materials and in many
      cases with non-standard or customized specifications. The high volume, lower
      cost manufacturers of these materials generally will not sell in small
      quantities, nor will they generally build non-standard or customized materials.
      We may experience shortages in the supply of these and other components or
      raw
      materials as a result of, among other things, anticipated capacity expansion in
      the MLD and competitive industries. If we are unable to obtain adequate supplies
      of high quality raw materials or components at a reasonable cost or in a timely
      manner, or are unable to make alternative arrangements for such supplies, our
      operating results could be negatively impacted.





**OUR
      BUSINESS MATERIALLY RELIES ON PATENT RIGHTS THAT MAY BE NARROWED IN SCOPE OR
      FOUND TO BE INVALID OR OTHERWISE UNENFORCEABLE.**




**Our
      success will materially depend on our ability to obtain, defend and enforce
      our
      patent rights worldwide. The coverage claimed in a patent application can be
      significantly reduced before a patent is issued. Consequently, our pending
      or
      future patent applications may not result in the issuance of patents. Patents
      issued to us may be subjected to further proceedings limiting their scope and
      may not provide significant proprietary protection or a competitive advantage.
      Our patents also may be challenged, circumvented, invalidated or deemed
      unenforceable. In addition, because (i) patent applications in various countries
      publish at different times, (ii) it is difficult to monitor patent applications
      that may be filed in other countries by third parties, and (iii) the publication
      of discoveries in scientific or patent literature often lags behind actual
      discoveries, we generally cannot be certain that (i) we were the first creator
      of inventions covered by our pending patent applications, (ii) that we or any
      of
      our licensors will be entitled to any rights in purported inventions claimed
      in
      pending or future patent applications, or (iii) that we were the first to file
      patent applications on such inventions.





F**AILURE
      TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD IMPAIR OUR COMPETITIVENESS
      AND
      HARM OUR BUSINESS AND FUTURE PROSPECTS***.*




We
      believe that developing new products and technologies that can be differentiated
      from those of our competitors is critical to the success of our business. We
      intend to take active measures to obtain international protection of our
      intellectual property by obtaining patents and undertaking monitoring activities
      in our major markets. Nevertheless, we may not be able to effectively deter
      competitors from improper use of our proprietary technologies. For instance,
      our
      competitors may misappropriate our intellectual property, disputes as to
      ownership of intellectual property may arise, and our intellectual property
      may
      otherwise become known or independently developed by our competitors. Our
      technology may be accessible in markets, such as Asia, where the practical
      legal
      protections for intellectual property may be considerably less than in North
      America or Europe. As a result, we may have to litigate to enforce and protect
      our intellectual-property rights to determine their scope, validity or
      enforceability. Intellectual property litigation is particularly expensive,
      could cause a diversion of financial resources and the time and attention of
      our
      management, and may not prove successful. The loss of intellectual property
      protection, or the inability to secure or enforce intellectual property
      protection, could materially harm our business and ability to
      compete.







28




**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.





29




**WE
      RELY ON KEY ENGINEERS, SENIOR MANAGEMENT AND OTHER PERSONNEL, AND THE LOSS
      OF
      THE SERVICES OF ANY SUCH PERSONNEL OR THE INABILITY TO ATTRACT AND RETAIN
      SUITABLE REPLACEMENTS MAY NEGATIVELY AFFECT OUR BUSINESS.**




Our
      success depends to a significant extent upon the continued service of our
      research and development and engineering personnel, and on our ability to
      continue to attract, retain and motivate qualified researchers and engineers,
      especially during periods of rapid growth. The loss of the services of any
      of
      our key research and development and engineering personnel or senior management,
      without adequate and timely replacement, could result in delays in product
      development, loss of customers, partners and sales, and a diversion of
      management resources, each of which could have a material adverse effect on
      our
      business.




**IF
      WE ARE UNABLE TO HIRE ADDITIONAL QUALIFIED PERSONNEL, OUR ABILITY TO GROW OUR
      BUSINESS MAY BE HARMED.**




As
      we
      attempt to grow our business, we will need to hire additional qualified
      personnel with expertise in software development, testing, research, technology
      development and manufacturing, as well as sales and marketing. We believe that
      attracting and retaining qualified personnel will be critical to our success.
      In
      this regard, we compete for qualified individuals with numerous other
      enterprises. Competition for individuals with the expertise we require in
      Redwood City, California and in Auckland, New Zealand is intense, and we may
      not
      be able to attract and retain qualified personnel




**WE
      EXPECT TO HAVE SIGNIFICANT INTERNATIONAL OPERATIONS, WHICH WILL POSE UNIQUE
      RISKS TO OUR BUSINESS.**




We
      expect
      that a substantial portion of our operational activity and the operational
      activity of our partners will be conducted outside of the United States and
      particularly in Asia. There are a number of risks inherent for us and our LCD
      product and LCD manufacturing partners in doing business in overseas markets,
      including the following:




·
            unexpected
                legal or regulatory changes;




·
            unfavorable
                political or economic factors;




·
            difficulties
                in recruiting and retaining personnel;·
            labor
                disputes, including strikes;·
            less
                developed technological infrastructure, which can affect our production
                or
                other activities or result in lower customer acceptance of our products
                and services;




·
            potentially
                adverse tax consequences; or




·
            social,
                political or economic turmoil due to terrorism, war, or other
                factors.




Our
      failure to adequately address these risks may harm our business.





**WE
      MAY BE UNABLE TO SUCCESSFULLY MANAGE AND SUSTAIN OUR GROWTH, WHICH COULD HARM
      OUR BUSINESS.**




Since
      the
      founding of DVIL, we have experienced, and expect to continue to experience,
      growth in the scope and complexity of our operations. This growth may strain
      our
      managerial, financial, manufacturing and other resources, impairing our ability
      to effectively execute our business plans. The materialization of these risks
      could adversely affect our operating results.




30


**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
      September 12, 2007, K1W1, our majority stockholder, possessed beneficial
      ownership of 36,664,355 shares of our common stock, or approximately 54% of
      our
      outstanding common stock, including 884,349 shares of common stock issuable
      upon exercise of warrants.  This represents a significant and controlling
      portion of the outstanding voting power of our securities, and enables K1W1
      to
      control our management and affairs through the election and removal of our
      entire Board of Directors, and all other matters requiring stockholder approval,
      including any future merger, consolidation or sale of all or substantially
      all
      of our assets. This concentrated control could discourage others from initiating
      any potential merger, takeover or other change-of-control transaction that
      may
      otherwise be beneficial to our stockholders. As a result, the return on an
      investment in our common stock through the market price of our common stock
      or
      ultimate sale of our business could be adversely affected.





**SINCE
      TRANSFER RESTRICTIONS HAVE ELAPSED ON CERTAIN SHARES OF OUR OUTSTANDING COMMON
      STOCK, AND AS SECURITY REGISTRATIONS BECOME EFFECTIVE, THE AVAILABILITY OF
      SHARES MAY DEPRESS THE MARKET PRICE OF OUR COMMON
      STOCK.**




In
      2007, the number of shares
      available for resale on the OTC Bulletin Board has increased and may continue
      to
      increase.  Shares of our outstanding common stock totaling 66,816,341
      are now eligible for resale without registration under Rule 144 of the
      Securities Act, subject to the limitations of that
      rule.  Additionally, we have registered on Form S-8 22,241,260 shares
      of our common stock for issuance upon exercise of options granted under our
      2006
      Stock Incentive Plan, including most recently 8.5 million shares pursuant to
      a
      Form S-8 filed on September 5, 2007.  In addition, in connection with
      our prior private placements and other arrangements with certain of our security
      holders, we have most recently filed an Amendment No. 2 to our registration
      statement on Form SB-2/A to register 23,585,626 shares of our outstanding common
      stock (all but 371,243 of which are eligible for resale under Rule 144, subject
      to the limitations of that rule), and 16,406,119 shares underlying outstanding
      warrants to purchase our common stock.  Once the registration is
      effective, there may be a significant increase in the number of shares sold
      and
      available for resale on the OTC Bulletin Board.  Any increase in the
      number of shares available on the market resulting from the above factors may
      have an adverse effect on the trading price of the stock.





**TRADING
      OF OUR COMMON STOCK ON AN ILLIQUID MARKET MAY RESULT IN LOWER MARKET
      PRICES.**




Trading
      of our common stock is conducted on the OTC Bulletin Board. This has an adverse
      effect on the liquidity of our common stock, not only in terms of the number
      of
      shares that can be bought and sold at a given price, but also through delays
      in
      the timing of transactions and reductions in security analysts’ and the media’s
      coverage of our operations and our common stock. This may result in lower prices
      for our common stock than might otherwise be obtained and could also result
      in a
      larger spread between the bid and asked prices for our common
      stock.





**THERE
      IS CURRENTLY LITTLE TRADING VOLUME IN OUR COMMON STOCK, WHICH WILL MAKE IT
      DIFFICULT TO SELL SHARES OF OUR COMMON STOCK.**




**In
      general, there has not been substantial trading activity in shares of our common
      stock. The small trading volume will likely make it difficult for our
      stockholders to sell their shares as and when they choose. Furthermore, small
      trading volumes generally depress market prices. As a result, our stockholders
      may not always be able to resell shares of our common stock publicly at times
      and prices that they feel are fair or appropriate.





**WE
      MAY NOT SUCCEED IN EFFORTS TO HAVE OUR COMMON STOCK LISTED ON THE NASDAQ GLOBAL
      MARKET OR A SECURITIES EXCHANGE.**




We
      plan
      to seek listing of our common stock on a national securities exchange. However,
      we cannot assure you that we will be able to meet the initial listing standards
      of any stock exchange.








31


**THERE
      HAS BEEN ONLY A LIMITED PUBLIC MARKET FOR OUR COMMON STOCK TO
      DATE.**




To
      date,
      there has been only a limited public market for our common stock on the OTC
      Bulletin Board. Our common stock is currently not listed on any national
      exchange. If an active trading market for our common stock does not develop,
      the
      market price and liquidity of our common stock will be materially and adversely
      affected.





**BECAUSE
      WE BECAME PUBLIC BY MEANS OF A REVERSE MERGER, WE MAY NOT BE ABLE TO ATTRACT
      THE
      ATTENTION OF MAJOR BROKERAGE FIRMS*.***




Additional
      risks may exist as a result of our becoming a public reporting company through
      a
      reverse merger transaction, as opposed to a traditional initial public offering.
      Because we did not engage in a more traditional and publicized initial public
      offering, security analysts of major brokerage firms may not provide us research
      coverage. In addition, there is no incentive to brokerage firms to recommend
      the
      purchase of our common stock. The failure of brokerage firms to provide analyst
      coverage will be likely to slow the dissemination of awareness and knowledge
      of
      our business. As a result, the trading price of our common stock may be
      adversely affected.





**OUR
      CERTIFICATE OF INCORPORATION GRANTS THE COMPANY’S BOARD OF DIRECTORS WITH THE
      POWER TO DESIGNATE AND ISSUE ADDITIONAL SHARES OF COMMON AND/OR PREFERRED
      STOCK.**




Our
      authorized capital consists of 200,000,000 shares, of which 190,000,000 shares
      are designated as common stock, par value $0.001 per share, and 10,000,000
      shares are designated as preferred stock, par value $0.001 per share. Pursuant
      to authority granted by our certificate of incorporation, our Board of
      Directors, without any action by the stockholders, may designate and issue
      shares in such classes or series (including classes or series of common stock
      and/or preferred stock) as it deems appropriate and establish the rights,
      preferences, and privileges of such shares, including dividends, liquidation
      and
      voting rights. The rights of holders of classes or series of common stock or
      preferred stock that may be issued could be superior to the rights of the common
      stock offered hereby. Our Board of Directors’ ability to designate and issue
      shares could impede or deter an unsolicited tender offer or takeover proposal.
      Further, the issuance of additional shares having preferential rights could
      adversely affect other rights appurtenant to the shares of common stock offered
      hereby. Any such issuances will dilute the percentage of ownership interest
      of
      our stockholders and may dilute our book value.




**WE
      ARE SUBJECT TO THE SARBANES-OXLEY ACT AND THE REPORTING REQUIREMENTS OF FEDERAL
      SECURITIES LAWS, WHICH CAN BE EXPENSIVE.**




As
      a
      public reporting company, we are subject to the Sarbanes-Oxley Act of 2002,
      as
      well as the information and reporting requirements of the Securities Exchange
      Act of 1934 and other federal securities laws. The costs of compliance with
      the
      Sarbanes-Oxley Act and of preparing and filing annual, quarterly and current
      reports and other information with the SEC, will cause our expenses to be higher
      than they would be had we remained privately held. In addition, because we
      only
      recently became subject to these laws and regulations, we cannot accurately
      estimate their cost to us from a general and administrative
      standpoint.




**WE
      HAVE NEVER PAID DIVIDENDS ON OUR CAPITAL STOCK AND DO NOT INTEND TO DO SO FOR
      THE FORESEEABLE FUTURE**.




We
      have
      never paid dividends on our capital stock and we do not anticipate that we
      will
      pay any dividends for the foreseeable future. Accordingly, any return on an
      investment in us will be realized, if at all, only when an investor sells shares
      of our common stock.








32





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





None





**Item
      3. Defaults Upon Senior Securities**





None





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





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





On
      August
      3, 2007, our Plan was amended to increase the number of shares available for
      issuance upon exercise of options and other equity-based awards by 8,500,000
      shares, pursuant to a written consent executed by the holder(s) of 35,780,006
      shares of our outstanding common stock.





**Item
      5. Other Information**





None







33


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





**EXHIBIT
      INDEX**




**Exhibit
                No.**
            
            **Description**
            **Filed
                with this**
              **Quarterly
                Report**2.1
            
            Agreement
                and Plan of Merger dated March 16, 2006 by and among PureDepth, Inc.,
                PureDepth Technologies, Inc. and Diamond One, Inc.*(1)3.1
            
            Certificate
                of Incorporation*(1)3.2
            
            Certificate
                of Merger relating to the merger of PureDepth, Inc. (California)
                with and
                into PureDepth Technologies, Inc. *(1)3.3
            
            Certificate
                of Merger relating to short-form merger of PureDepth, Inc. (f/k/a
                Diamond
                One, Inc.) with and into PureDepth, Inc. (f/k/a PureDepth Technologies,
                Inc.)*(1)3.4
            
            Certificate
                of Designation of Series A Convertible Preferred Stock *(1)3.5
            
            Bylaws
                of the Company *(1)4.1
            
            Form
                of A-Warrant *(1)4.2
            
            Form
                of B-Warrant *(1)4.3
            
            Form
                of Agent/C-Warrant*(1)4.4
            
            Form
                of D-Warrant *(2)10.1
            
            Employment
                Agreement with Fred Angelopoulos dated March 31, 2005 *(1)10.2
            
            Employment
                Agreement with Kristin Bowman dated March 31, 2005*(1)10.3
            
            Letter
                Offer Agreement with David Hancock dated May 30, 2006*(1)10.4
            
            Master
                License Agreement between PureDepth Limited and PureDepth, Inc. *(1)10.5
            
            Agreement
                dated May 16, 2005 by and among the Company, DRS Electronic Systems,
                Inc.
                and DRS Laurel Technologies (++)*(1)10.6
            
            Exclusive
                Sales and Distribution License Agreement by and among the Company,
                Sanyo
                Sales and Marketing Corporation and SANYO Electric System Solutions
                Co.,
                Ltd. (++)*(1)10.7
            
            2006
                Stock Option Plan (as amended) (12)10.8
            
            Form
                of Stock Option Agreement *(4)10.9
            
            Director
                Contract - John Floisand *(4)10.10
            
            Director
                Contract - Tom Marcus *(4)




34


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)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 *(12)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







++
            Confidential
                treatment has been requested as to certain portions of this exhibit
                pursuant to Rule 406 of the Securities Exchange Act of 1933, as
                amended.*(1)
            Previously
                filed with the Commission in the Company’s SB-2 filed on May 30,
                2006*(2)
            Previously
                filed with the Commission in the Company’s Current Reports on Form 8-K
                filed on August 3, 2006*(3)
            Previously
                filed with the Commission in the Company’s Current Report on Form 8-K
                filed on April 14, 2006*(4)
            Previously
                filed with the Commission in the Company’s Current Report on Form 8-K
                filed on September 2, 2006*(5)
            Previously
                filed with the Commission in the Company’s Current Report on Form 8-K
                filed on November 7, 2006*(6)
            Previously
                filed with the Commission in the Company’s Current Report on Form 8-K
                filed on November 16, 2006*(7)
            Previously
                filed with the Commission in the Company’s Annual Report on Form 10-KSB
                filed on May 31, 2007*(8)
            Previously
                filed with the Commission in the Company’s Quarterly Report on Form 10-QSB
                filed on December 15, 2006*(9)
            Previously
                filed with the Commission in the Company’s Quarterly Report on Form 10-QSB
                filed on June 14, 2007*(10)
            Previously
                filed with the Commission in the Company’s Current Report on Form 8-K
                filed on July 26, 2007*(11)
            Previously
                filed with the Commission in the Company’s Current Report on Form 8-K
                filed on August 8, 2007*(12)
            Previously
                filed with the Commission in the Company’s SB-2/A filed on August 28,
                2007










35




**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: September
                14, 2007
            By:
            /s/
                Thomas L. MarcusThomas
                L. Marcus
              *Chief
                Executive Officer*





By:
            /s/ Jonathan
                J. McCamanJonathan
                J.  McCaman
              *Chief
                Financial Officer and Chief Accounting
                Officer*








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