**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, 2006
 
 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
        August 30, 2006 there were 65,360,489 shares of the issuer’s common stock, $.001
        par value, outstanding.
 
 Traditional
        Small Business Disclosure Format (check one): Yes [  ] No [X]
 
 
  **INDEX**
  Page**PART
                  I**
              **FINANCIAL
                  INFORMATION**Item
                  1.
              Unaudited
                  Condensed Consolidated Balance Sheet
              
              3Unaudited
                  Condensed Consolidated Statements of Operations and Comprehensive
                  Income
                  (Loss)
              
              4Unaudited
                    Condensed Consolidated Statements of Cash Flows
              
              5Notes
                  to Unaudited Condensed Consolidated Financial Statements
              
              6Item
                  2.
              Management’s
                  Discussion and Analysis of Plan of Operations
              
              11Item
                  3.
              Controls
                  and Procedures
              
              19**PART
                  II**
              **OTHER
                  INFORMATION**Item
                  1.
              Legal
                  Proceedings
              
              20Risk
                  Factors
              
              20Item
                  2
              Unregistered
                  Sales of Equity Securities
              
              27Item
                  3
              Defaults
                  on Senior Securities
              
              27Item
                  4
              Submission
                  of Matters to a Vote of Security Holders
              
              27Item
                  5.
              Other
                  Information
              
              27Item
                  6.
              Exhibits
              
              28Signatures
              
              28
 
 2
 **PART
        I - FINANCIAL INFORMATION**
 
 **Item
        1. Unaudited Condensed Consolidated Financial
        Statements**
 
 **PUREDEPTH,
        INC. AND SUBSIDIARIES**
 **(A
        Development Stage Company)**
 **CONDENSED
        CONSOLIDATED BALANCE SHEET**
 **(unaudited)**
 
 **July
                  31,**
                **2006****Unaudited****ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              7,780,011Accounts
                  receivable
              
              
              69,985Prepaid
                  expenses
              
              
              119,882**Total
                  current assets**
              
              
              **7,969,878****Property
                  & Equipment (net)**
              
              
              **311,918**Other
                  Assets:Intellectual
                  property (net)
              
              
              2,543,308Other
                  assets held for sale
              
              
              796**Total
                  intangible assets**
              
              
              **2,544,104****Total
                  assets**
              
              **$**
              **10,825,900****LIABILITIES
                  AND SHAREHOLDERS' EQUITY**Current
                  liabilities:Current
                  portion - notes payable
              
              
              108,661Accrued
                  interest
              
              
              44,226Accounts
                  payable
              
              
              257,223Accrued
                  expenses
              
              
              440,262Accrued
                  payroll
              
              
              78,934**Total
                  current liabilities**
              
              
              **929,306**Note
                  payable
              
              
              554,726**Total
                  liabilities**
              
              
              **1,484,032**Shareholders'
                  equityCommon
                  stock, $0.001 par value, 190,000,000 shares authorized, 65,474,999
                  shares
                  issued and outstanding
              
              
              65,475Additional
                  paid-in-capital
              
              
              25,912,449Additional
                  paid-in-capital options & warrants
              
              
              5,128,590Accumulated
                  deficit
              
              
              (21,053,745
              )Accumulated
                  other comprehensive loss
              
              
              (710,901
              )**Total
                  shareholders' equity**
              
              
              **9,341,868****Total
                  liabilities and shareholders' equity**
              
              **$**
              **10,825,900**
  The
        accompanying notes are an integral part of these unaudited financial
        statements
 3
 **PUREDEPTH,
        INC. AND SUBSIDIARIES**
 **(A
        Development Stage Company)**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS and COMPREHENSIVE INCOME /
        (LOSS)**
 **(Unaudited)**
  **Three
                  Months Ended July 31,**
              
              **Six
                  Months Ended July 31,**
              
              **Inception
                  to**
                **July
                  31,****2006**
              
              **2005**
              
              **2006**
              
              **2005**
              
              **2006**Net
                  sales
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -Cost
                  of goods sold
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Gross
                  profit
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -**Operating
                  expenses**Depreciation
                  and amortization
              
              
              85,945
              
              
              82,498
              
              
              223,341
              
              
              202,745
              
              
              2,573,423Sales
                  and marketing
              
              
              142,012
              
              
              182,144
              
              
              1,066,769
              
              
              364,395
              
              
              2,082,016Professional
                  fees
              
              
              57,605
              
              
              29,449
              
              
              375,544
              
              
              131,524
              
              
              1,980,496Loss
                  on fixed asset disposal
              
              
              -
              
              
              -
              
              
              -
              
              
              5,444
              
              
              111,194General
                  and administrative
              
              
              1,110,843
              
              
              715,569
              
              
              3,067,793
              
              
              1,045,836
              
              
              13,724,185Research
                  and development
              
              
              469,746
              
              
              327,384
              
              
              1,631,293
              
              
              760,534
              
              
              3,462,904**Total
                  operating expenses**
              
              
              **1,866,151**
              
              
              **1,337,044**
              
              
              **6,364,740**
              
              
              **2,510,478**
              
              
              **23,934,218****Operating
                  loss**
              
              
              **(1,866,151**
              **)**
              
              **(1,337,044**
              **)**
              
              **(6,364,740**
              **)**
              
              **(2,510,478**
              **)**
              
              **(23,934,218**
              **)****Other
                  income (expense)**Interest,
                  net
              
              
              (9,549
              )
              
              (57
              )
              
              10,074
              
              
              (49,885
              )
              
              (942,337
              )Grant
                  receipts
              
              
              -
              
              
              -
              
              
              1,850
              
              
              7,324
              
              
              682,625Foreign
                  exchange gain (loss)
              
              
              24,467
              
              
              (3,592
              )
              
              49,227
              
              
              79,901
              
              
              448,085Other
                  income
              
              
              (5,669
              )
              
              -
              
              
              84,230
              
              
              90,797
              
              
              2,676,821**Total
                  other net income (loss)**
              
              
              **9,249**
              
              
              **(3,649**
              **)**
              
              **145,381**
              
              
              **128,137**
              
              
              **2,865,194****Loss
                  before income tax**
              
              
              **(1,856,902**
              **)**
              
              **(1,340,693**
              **)**
              
              **(6,219,359**
              **)**
              
              **(2,382,341**
              **)**
              
              **(21,069,024**
              **)**Income
                  tax provision
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -**Loss
                  from continuing operations**
              
              
              **(1,856,902**
              **)**
              
              **(1,340,693**
              **)**
              
              **(6,219,359**
              **)**
              
              **(2,382,341**
              **)**
              
              **(21,069,024**
              **)**Income
                  (loss) from discontinued operations, net of income tax
              
              
              (2,368
              )
              
              -
              
              
              15,279
              
              
              -
              
              
              15,279**Net loss**
              
              **$**
              **(1,859,270**
              **)**
              **$**
              **(1,340,693**
              **)**
              **$**
              **(6,204,080**
              **)**
              **$**
              **(2,382,341**
              **)**
              **$**
              **(21,053,745**
              **)**Other
                  comprehensive income gain/lossNet
                  loss per statement of operations
              
              $
              (1,859,270
              )
              $
              (1,340,693
              )
              $
              (6,204,080
              )
              $
              (2,382,341
              )
              $
              (21,053,745
              )Foreign
                  currency gain (loss) adjustments
              
              
              -
              
              
              (41,807
              )
              
              33,132
              
              
              (138,206
              )
              
              (710,901
              )Total
                  comprehensive loss
              
              $
              (1,859,270
              )
              $
              (1,382,500
              )
              $
              (6,170,948
              )
              $
              (2,520,547
              )
              $
              (21,764,646
              )**Basic
                  and diluted loss per share**Loss
                  from continuing operations
              
              $
              (0.04
              )
              $
              (0.04
              )
              $
              (0.14
              )
              $
              (0.07
              )
              $
              (1.32
              )Income
                  from discontinued operations, net of income tax
              
              
              -
              
              
              -
              
              
              0.01
              
              
              -
              
              
              -Net loss
              
              $
              (0.04
              )
              $
              (0.04
              )
              $
              (0.13
              )
              $
              (0.07
              )
              $
              (1.32
              )Weighted
                  average shares outstanding basic & diluted
              
              
              45,975,626
              
              
              36,319,854
              
              
              45,975,626
              
              
              36,319,854
              
              
              15,940,347
  The
        accompanying notes are an integral part of these unaudited financial
        statements
 4
 **PUREDEPTH,
        INC. AND SUBSIDIARIES**
 **(A
        Development Stage Company)**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **(Unaudited)**
  **Six
                  months ended July 31,**
              
              **Inception
                  to****2006**
              
              **2005**
              
              **July
                  31, 2006****Cash
                  flows from operating activities:**Net loss
              
              $
              (6,204,080
              )
              $
              (2,382,341
              )
              $
              (21,053,745
              )Adjustments
                  to reconcile net loss to net cash provided by
                operating
                  activities:Depreciation
                  and amortization
              
              
              209,002
              
              
              202,745
              
              
              2,559,083Non-cash
                  compensation expense
              
              
              3,141,538
              
              
              632,032
              
              
              5,751,994Non-cash
                  interest expense
              
              
              25,692
              
              
              68,978
              
              
              170,782Loss
                  on disposal of fixed assets
              
              
              -
              
              
              5,444
              
              
              111,194Foreign
                  exchange (gain)
              
              
              (34,888
              )
              
              (79,901
              )
              
              (433,746
              )Changes
                  in operating assets and liabilities:(Increase)
                  decrease in accounts receivable, trade
              
              
              2,010
              
              
              35,382
              
              
              (69,985
              )(Increase)
                  decrease in prepayments
              
              
              (66,393
              )
              
              51,667
              
              
              (119,877
              )Increase (decrease)
                  in accounts payable
              
              
              (38,084
              )
              
              (38,063
              )
              
              254,292Increase
                  (decrease) in payable to other creditors & accruals
              
              
              440,126
              
              
              (124,471
              )
              
              554,481Increase (decrease)
                  in accrued interest
              
              
              13,396
              
              
              1,546
              
              
              18,534**Net
                  cash used in operating activities**
              
              
              **(2,511,681**
              **)**
              
              **(1,626,982**
              **)**
              
              **(12,256,993**
              **)****Cash
                  flows from investing activities:**Payments
                  for purchases of fixed assets
              
              
              (234,979
              )
              
              (153,218
              )
              
              (1,255,778
              )Expenditures
                  - intellectual property
              
              
              (132,358
              )
              
              (81,692
              )
              
              (3,019,807
              )**Net
                  cash used in investing activities**
              
              
              **(367,337**
              **)**
              
              **(234,910**
              **)**
              
              **(4,275,585**
              **)****Cash
                  flows from financing activities:**Proceeds
                  from issuance of common stock, net
              
              
              -
              
              
              1,008,038
              
              
              10,010,690Proceeds
                  from issuance of Series A preferred stock and warrants,
                  net
              
              
              4,227,472
              
              
              -
              
              
              4,227,472Proceeds
                  from conversion of B Warrants, net
              
              
              5,558,543
              
              
              
              
              
              5,558,543Issuance
                  of related party note payable
              
              
              -
              
              
              745,212
              
              
              5,221,768Principal
                  payments on note payable
              
              
              -
              
              
              -
              
              
              (594,441
              )**Net
                  cash provided by financing activities**
              
              
              **9,786,015**
              
              
              **1,753,250**
              
              
              **24,424,032**Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              15,016
              
              
              69,255
              
              
              (111,443
              )**Net
                  increase in cash and cash equivalents**
              
              
              **6,922,013**
              
              
              **(39,387**
              **)**
              
              **7,780,011**Cash
                  and cash equivalents at beginning of period
              
              
              857,998
              
              
              114,817
              
              
              -**Cash
                  and cash equivalents at end of period**
              
              **$**
              **7,780,011**
              
              **$**
              **75,430**
              
              **$**
              **7,780,011****Supplemental
                  cash information:**Notes
                  and accrued interest converted to stock
              
              $
              774,330
              
              $
              2,704,784
              
              $
              5,598,620Cash
                  paid for interest
              
              $
              2,491
              
              $
              769
              
              $
              851,071Cash
                  paid for income taxes
              
              $
              -
              
              $
              -
              
              $
              -Purchase
                  of intellectual property via issuance of note
                  payable
              
              $
              -
              
              $
              -
              
              $
              1,257,929
 
 The
        accompanying notes are an integral part of these unaudited financial
        statements
 5
 **PUREDEPTH,
        INC. AND SUBSIDIARIES**
 **(A
        Development Stage Company)**
 **NOTES
        TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
        STATEMENTS**
 
 **Note
        1 - Basis of Presentation**
 
 The
        accompanying unaudited financial statements of PureDepth, Inc. (“the Company")
        are presented in accordance with the requirements for Form 10-QSB and Article
        10
        of Regulation S-X and Regulation S-B. Accordingly, they do not include all
        of
        the disclosures required by generally accepted accounting principles. In
        the
        opinion of management, all adjustments (all of which were of a normal recurring
        nature) considered necessary to fairly present the financial position, results
        of operations, and cash flows of the Company on a consistent basis, have
        been
        made.
 
 These
        results have been determined on the basis of generally accepted accounting
        principles and practices applied consistently with those used in the preparation
        of the Company's Annual Financial Statements for the ten months ended January
        31, 2006 and year ended March 31, 2005. Operating results for the six months
        ended July 31, 2006 are not necessarily indicative of the results that may
        be
        expected for the fiscal year ending January 31, 2007.
 
 The
        accompanying condensed financial statements for the interim period should
        be
        read in conjunction with the audited financial statements contained in the
        Form
        10-KSB for the period ended January 31, 2006 included in the Company's Current
        Report on Form 8-K/A filed with the Commission on June 16, 2006.  Those
        statements contain a summary of significant accounting policies.
 
 **Note
        2 -Description of Business**
 
 *The
        Company - Description of Business*
  PureDepth,
        Inc., along with our wholly owned subsidiaries, PureDepth Limited (PDL) and
        PureDepth Incorporated Limited (PDIL) (collectively, the Company) develops,
        manufactures, markets and supports multi-layer display technology. The Company’s
        technology has gaming, military, automotive and handheld video display
        applications.
 
 The
        Company is deemed a development stage company as defined by Statement of
        Financial Accounting Standards (SFAS) No. 7 *Accounting
        and Reporting by Development Stage Enterprises* due to
        its continuing research and development activities related to making its
        multi-layer display technology economically viable for its targeted
        applications.
 
 **Note
        3 - Reorganization**
 
 On
        March
        31, 2006 and pursuant to an Agreement and Plan of Merger and Reorganization
        dated March 16, 2006, the Company entered into a forward triangular merger
        with
        PureDepth Technologies, Inc., a Delaware corporation and wholly owned subsidiary
        of Diamond One, Inc., a Colorado corporation quoted on the Over the Counter
        Bulletin Board. As a result of the merger, PureDepth Technologies, Inc.
        succeeded to the business of PureDepth, Inc. and survived as a wholly owned
        operating subsidiary of Diamond One, Inc. The merger was effected by the
        filing
        of a certificate of merger with the Delaware Secretary of State on March
        31,
        2006.
  At
        the
        effective time of the merger, the legal existence of the Company ceased and
        all
        of the approximately 23,311,855 shares of the Company’s common stock that were
        outstanding immediately prior to the merger were cancelled. Simultaneously,
        the
        Company’s former shareholders received an aggregate of 233,118.55 shares of
        Diamond One, Inc’s Series "A" Preferred Stock, representing approximately 89% of
        the registrant’s outstanding voting power after the merger. In addition, all
        securities convertible into and exercisable for shares of the Company’s common
        stock (e.g., options and warrants) that were outstanding immediately prior
        to
        the merger were cancelled, and their holders received similar securities
        for the
        purchase of Diamond One, Inc. common stock. In total, immediately following
        the
        merger, former holders of Company securities held approximately 93% of the
        outstanding common stock of Diamond One, Inc. on a fully diluted
        basis.
  6
 Prior
        to
        the merger and pursuant to authority granted to it by the registrant’s articles
        of incorporation, as amended, Diamond One, Inc’s board of directors approved and
        adopted a Certificate of Designation relating to a new class of preferred
        stock
        denominated *“Series
        A Preferred Stock.”* On
        May 9,
        2006, upon the effectiveness of the amended Diamond One, Inc.’s articles of
        incorporation increasing the number of shares of authorized common stock,
        all
        outstanding shares of Series "A" Preferred Stock automatically converted
        into
        shares of common stock on a 229.021-for-1 basis.
  The
        merger represented a change in control of Diamond One, Inc. inasmuch as greater
        than 50% of the issued and outstanding voting stock of the registrant on
        a
        post-merger basis was held by the former holders of the Company‘s capital stock.
        In addition, and simultaneously with the effectiveness of the merger, the
        board
        of directors of Diamond One appointed Messrs. David Hancock, Fred Angelopoulos
        and Mark Kalow to its board of directors, and directors Troy Fullmer and
        Robert
        Chramosta thereupon resigned. Moreover, Messrs. Fullmer and Chramosta resigned
        their positions as officers of Diamond One, Inc. In their place, Fred
        Angelopoulos was appointed as its Chief Executive Officer and President,
        and
        Kristin Bowman was appointed as Chief Operating Officer, Secretary and Acting
        Chief Financial Officer, subsequently replaced as Chief Financial Officer
        by
        Robert O’Callahan on June 30, 2006.
 
 For
        a
        full description of the forward triangular merger transaction refer to the
        Form
        8-K and Form 8-K/A filed with the Securities and Exchange Commission on April
        6,
        2006 and June 16, 2006, respectively.
 
 The
        following is pro-forma condensed operating data which portrays the results
        of
        operations as if the transaction had occurred at the beginning of each period
        presented:
 Six months
                    ended July 31,2006
                
                2005Net
                    Sales
                
                $
                -
                
                $
                -Operating
                    loss
                
                
                (6,204,080
                )
                
                (2,510,478
                )Other
                    income (expense)
                
                
                145,381
                
                
                128,137Income
                    from discontinued operations
                
                
                24,869
                
                
                (26,642
                )Pro-forma
                    net loss
                
                
                (6,033,830
                )
                
                (2,408,983
                )Pro-forma
                    net loss per share *
                
                $
                (0.13
                )
                $
                (0.07
                )Pro-forma
                    weighted average shares outstanding
                
                
                45,975,626
                
                
                36,316,854
 *
              Pro-forma
                  net loss per share is computed as if all preferred shares are converted
                  as
                  of the beginning of the period.
  *Reincorporation
          Merger*
 
 On
          May 5,
          2006, Diamond One, Inc., (the parent of the Company after completion of
          the
          forward triangular merger) held a special meeting of the shareholders to
          consider and act upon the following corporate actions:
 
 (a)
                a
                    proposal to adopt amended and restated articles of incorporation
                    for
                    Diamond One, Inc.; and
 
 (b)
                a
                    proposal to reincorporate Diamond One, Inc. in the State of Delaware
                    by
                    merging Diamond One, Inc. with and into PureDepth Technologies,
                    Inc., the
                    wholly owned subsidiary of Diamond One, Inc. with PureDepth Technologies,
                    Inc. surviving the merger.
 
 On
          May 8,
          2006 the name of PureDepth Technologies, Inc., and (Delaware) was changed
          to
          PureDepth, Inc. On May 9, 2006, Diamond One, Inc. filed its Amended and
          Restated
          Articles of Incorporation with the Secretary of State of Colorado, changing
          its
          name to “PureDepth, Inc.”
 
 The
          short-form merger and reincorporation was consummated on May 30, 2006,
          with
          PureDepth, Inc. (formerly known as PureDepth Technologies, Inc.) surviving
          the
          merger. The charter documents of PureDepth, Inc. (formerly known as PureDepth
          Technologies, Inc.) became the effective charter documents of the Company.
          These
          proposals were both approved at the meeting by approximately 72% of the
          shareholders entitled to vote on the proposals.
 
 *Conversion
          of Preferred Stock*
 
 On
          May 9,
          2006 all 233,118.55 shares of the registrant’s Series A Preferred Stock issued
          in the acquisition of Diamond One were converted into an aggregate of 53,389,045
          shares of common stock, giving the registrant a total of 58,644,445 shares
          of
          common stock and no shares of preferred stock (also taking into account
          a
          transfer to the Company of 1,000,000 shares of its outstanding common stock
          on
          the same date as disclosed below under "Divestiture of Former Business").
 
 7
 The
          conversion was effected pursuant to the terms of the Certificate of Designation
          for the registrant’s Series A Preferred Stock, which provided that each
          outstanding Series A Preferred Share would automatically convert into shares
          of
          common stock, on 1-for 229.021 basis, upon an increase in the number of
          shares
          of common stock authorized for issuance under the registrant’s articles of
          incorporation.
  *Divestiture
          of Former Business*
 
 On
          May 9,
          2006, pursuant to the exercise of an option (the “Option”) pursuant to an Option
          Agreement dated March 16, 2006 by and among Diamond One, Inc. and Robert
          Chramosta and Troy Fullmer, the former officers and directors of the Company,
          the Company transferred all of the outstanding membership interests in
          its
          wholly owned subsidiary, Numismatic Capital Group, LLC (a Colorado limited
          liability company) to Messrs. Chramosta and Fullmer in consideration of
          their
          transfer to the Company of 1,000,000 shares of our common stock held by
          them.
 
 Prior
          to
          the forward triangular merger, Diamond One had assigned all of its assets
          and
          liabilities, specifically including the coin and exchange business owned
          operated by Diamond One, to Numismatic Capital Group. On May 9, 2006 the
          exercise of the Option effectively divested the Company of the entire coin
          and
          exchange business.
 
 **Note
          4 - Stockholder’s Equity**
 
 On
          January 31, 2006, PureDepth, Inc. (CA) had 16,712,769 shares outstanding,
          including 1,071,158 shares issued in a private placement offering. In March
          2006, it issued 31,800 shares pursuant to the exercise of an
          option and 6,567,286 shares as a continuation of the private placement
          offering. PureDepth, Inc. (CA) thus had 23,311,855 common shares outstanding
          immediately prior to the merger on March 31, 2006.
  On
          March
          31, 2006, all then-existing PureDepth, Inc. (CA) shares were converted
          into
          233,118.55 Preferred A shares in PureDepth, Inc. (Delaware).
  Diamond
          One, Inc. had 6,255,400 common shares outstanding immediately prior to
          the
          merger, which became 6,255,400 common shares in the surviving entity PureDepth,
          Inc. (Delaware).
  Following
          the balance sheet date, on May 9, 2006, the 233,118.55 Preferred A shares
          converted into 53,389,045 PureDepth, Inc. (Delaware) common shares. Considering
          the return of 1 million shares pursuant to the divestiture of the coin
          and
          exchange business, the Company then had 58,644,445 shares outstanding.
 
 On
          July
          31, 2006, the Company completed an offering to existing investors to exchange
          outstanding warrants to purchase the Company’s common stock that it issued in a
          private placement earlier in 2006 (the “B Warrants”) for shares of the Company’s
          common stock and warrants to purchase shares of the Company’s common stock (the
“D Warrants”) and to complete an in-process subscription relating to the March
          private placement offering. The company then had outstanding 65,474,999
          common
          shares, 12,450,570 options and 19,288,043 warrants.
  **Note
          5 - Stock Option Plan**
 
 Prior
          to
          the merger, and effective March 31, 2006, the Board of Directors of PureDepth,
          Inc. (California) approved and authorized an amendment and restatement
          of its
          Second Amended and Restated Executive Share Option Plan No. 3 (the “Prior Plan”)
          into the 2006 Stock Incentive Plan (the “Plan”) and entered into agreements with
          each of the existing option holders whereby such option holders agreed
          that the
          Plan would thereafter govern their respective options. The amendment had
          no
          effect upon the number of options or the strike prices.
 
 As
          a
          result of the forward triangular merger, all unvested stock options issued
          under
          the Plan vested upon the effective date of the merger, March 31, 2006.
          The
          option shares are not currently registered under Form S-8 but, when registered,
          they would be available for sale into the market.
 
 Options
          issued under the Company’s Prior Plan, except those issued to David Hancock and
          Keith Phillips, carried certain anti-dilution rights with respect of company
          securities issued prior to the merger transaction. Upon closing of the
          private
          placement offering of PureDepth, Inc. (California) on March 1, 2006, further
          options were deemed to be issued to various holders under the Plan holding
          anti-dilution rights with subsequent vesting of those options occurring
          under
          the accelerated vesting provisions on the reverse acquisition date, being
          March
          31, 2006. These anti-dilution rights terminated at the effective time of
          the
          merger, and were not carried forward under the Plan.
 
 8
 A
          summary
          of option activity under the Prior Plan (on or prior to March 31, 2006)
          and the
          Plan (after March 31, 2006) as of July 31, 2006, and changes during the
          quarter
          then ended is presented below.
  **Options**
                
                **Shares
                    (1)**
                
                **Weighted-**
                  **Average**
                  **Exercise**
                  **Price
                    (1)**
                
                **Weighted-**
                  **Average**
                  **Remaining**
                  **Contractual**
                  **Term
                    (months)**
                
                **Aggregate**
                  **Intrinsic**
                  **Value**
                  **($000)**Outstanding
                    at April 30, 2006
                
                
                12,450,570
                
                $
                0.28
                
                
                12
                
                $
                22,623Granted
                
                
                (
                    -
                )
                $
                -
                
                
                -
                
                $
                -Exercised
                
                
                (
                    -
                )
                $
                -
                
                
                -
                
                $
                -Forfeited
                    or expired
                
                
                (
                    -
                )
                $
                -
                
                
                -
                
                $
                -Outstanding
                    at July 31, 2006
                
                
                12,450,570
                
                $
                0.28
                
                
                9
                
                $
                23,246Exercisable
                    at July 31, 2006
                
                
                12,450,570
                
                $
                0.28
                
                
                9
                
                $
                23,246
  (1)
          Granted exercised forfeited or expired.
  **Note
          6 - Income Taxes**
 
 For
          the
          quarter ended July 31, 2006, the Company incurred net operating losses
          of
          approximately $1.86 million and, accordingly, no provision for income taxes
          has
          been recorded. In addition, no benefit for income taxes has been recorded
          due to
          the uncertainty of the realization of any tax assets.
 
 At
          January 31, 2006, PureDepth, Inc. (California) had both a federal and state
          net
          operating loss carry-forward of $1,016,582. Further, there were foreign
          net
          operating loss carry-forwards of $3,102,917 in respect of PureDepth, Inc’s.
          foreign subsidiaries.
 
 In
          addition, at January 31, 2006, Diamond One, Inc. reported approximately
          $43,000
          of federal and state net operating losses, but has not assessed the current
          status of net operating loss carry-forwards following reorganization.
 
 Net
          operating loss carry-forwards, if not utilized, will begin to expire within
          twenty years for federal purposes and within ten years for California purposes.
          The foreign net operating tax loss carry-forward can be carried forward
          indefinitely unless a change in ultimate control of the loss companies
          results.
 
 For
          financial reporting purposes, the Company has incurred a loss in each period
          since its inception. Based on the available objective evidence, including
          the
          Company's history of losses, management believes it is currently more likely
          than not that the net deferred tax assets will not be fully realizable.
          Accordingly, the Company provided a full valuation allowance against its
          net
          deferred tax assets.
 
 **Note
          7 - Related Party Transactions**
 
 On
          May 9,
          2006, pursuant to the exercise of an option (the “Option”) pursuant to an Option
          Agreement dated March 16, 2006 by and among Diamond One, Inc. and Robert
          Chramosta and Troy Fullmer, the former officers and directors of the Company,
          the Company transferred all of the outstanding membership interests in
          its
          wholly owned subsidiary, Numismatic Capital Group, LLC (a Colorado limited
          liability company) to Messrs. Chramosta and Fullmer in consideration of
          their
          transfer to the Company of 1,000,000 shares of our common stock held by
          them.
 
 During
          the quarter ended July 31, 2006 the Company entered into no other related
          party
          transactions.
 
 9
  **Note
          8 - Subsequent Events**
 
 On
          August
          4, 2006, the Board of Directors of PureDepth, Inc. issued Robert O’Callahan,
          Chief Financial Officer, and Mark Kalow, Director, each the first tranche
          of a
          stock option to purchase shares of PureDepth common stock. The total stock
          options involved represent 500,000 and 167,067 shares for Messrs. O’Callahan and
          Kalow, respectively. The option grants have an exercise price of market
          price as
          of grant date per share with a ten year term and otherwise subject to the
          PureDepth, Inc. stock option plan. The shares subject to the options will
          vest
          with 1/6 of all grants vesting on December 30, 2006, and 1/12 at quarterly
          intervals thereafter over three years concluding June 30, 2009. The grant
          issuance will occur in five tranches with 1/5 (or approximately 1/5) of
          the
          total stock options involved issuing at the closing price on five dates:
          August
          4, September 5, October 5, November 6, and December 5, 2006. Mr. Kalow
          did not
          participate in the Board action regarding his grants. An advisory board
          member
          also received a grant of 200,000 shares on these dates and terms.
 
 On
          September 6, 2006 the Company issued 344,000 “D Warrants” as compensation for
          services rendered.
 
 On
          September 7, 2006 the Board of Directors appointed Mr. John Floisand and
          Mr.
          Thomas L. Marcus as directors to fill vacancies on the Board.
 
 
 
 10
  **Item
          2. Management’s Discussion and Analysis of Financial Condition and Results of
          Operations**
 
 The
          following discussion and analysis of our financial condition and results
          of
          operations should be read in conjunction with the condensed consolidated
          financial statements and related notes contained herein and the information
          included in our financial reports and in our other filings with the Securities
          and Exchange Commission. This discussion includes “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933, as amended
          (the
“Securities Act”) and Section 21E of the Securities and Exchange Act of 1934, as
          amended (the “Exchange Act”).
 
 All
          statements in this Quarterly Report on Form 10-QSB, 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 comparable terminology are forward-looking statements.
 
 All
          forward-looking statements and risk factors included in this document are
          made
          as of the date of this report, based on information available to us as
          of such
          date. We assume no obligation to update any forward-looking statement or
          risk
          factor.
 
 ***Overview
          of business***
  We
          are a
          development stage technology company whose business is the commercialization
          of
          innovative technology incorporating a third dimension of “depth” into a smart,
          compact video display device. Our product builds upon existing Single-Layer
          Display (SLD) technology to potentially redefine the way the user interacts
          with
          his or her screen by providing two or more display layers in a stacked
          arrangement. Each layer is physically separated by real depth (as opposed
          to
          perceived or simulated depth), which allows for distinct new ways in which
          to
          view, monitor and interact with displays. Moreover, the physical separation
          and
          real depth of the display layers results in a perception that natural and
          convincing to the user.
  PureDepth,
          Inc., (a Delaware corporation) along with our wholly owned subsidiaries,
          PureDepth Limited (PDL) and PureDepth Incorporated Limited (PDIL) (collectively,
          the Company) develops, manufactures, markets and supports multi-layer display
          technology. The Company’s technology has gaming, military, automotive and
          handheld video display applications.
 
 Our
          technology was originally invented and developed in New Zealand. As part
          of our
          program to commercialize our technology, PureDepth, Inc. was formed as
          a
          California corporation as the successor-in-interest to a New Zealand
          corporation, Deep Video Imaging Limited (founded in 1999), as part of an
          effort
          to reorganize Deep Video Imaging Limited and its affiliates “PureDepth Limited”
and “PureDepth Incorporated Limited.” Through two merger transactions completed
          on March 31, 2006 and May 30, 2006, respectively, this California company
          and subsidiaries reorganized in a transaction with a Colorado corporation
          formerly known as Diamond One, Inc. The company surviving the merger
          transactions was PureDepth, Inc. (Delaware).
 
 We
          have
          two subsidiaries incorporated in New Zealand. The Company’s direct subsidiary,
          PureDepth Ltd, is the holding entity for the Company's intellectual property
          portfolio, which is subject to an exclusive license with the Company, for
          its
          use, exploitation and future development. The Company’s indirect subsidiary
          (subsidiary of PureDepth, Ltd.) is PureDepth Incorporated Ltd, which undertakes
          the operations in respect of any future research and development of the
          intellectual property portfolio on the Company's behalf.
 
 Company
          Background
 
 On
          March
          31, 2006 and pursuant to an Agreement and Plan of Merger and Reorganization
          dated March 16, 2006, the Company entered into a forward triangular merger
          with
          PureDepth Technologies, Inc., a Delaware corporation and wholly owned subsidiary
          of Diamond One, Inc., a Colorado corporation quoted on the Over the Counter
          (OTC) Bulletin Board. As a result of the merger, PureDepth Technologies,
          Inc.
          succeeded to the business of PureDepth, Inc. and survived as a wholly owned
          operating subsidiary of Diamond One, Inc. The merger was effected by the
          filing
          of a certificate of merger with the Delaware Secretary of State on March
          31,
          2006.
  11
 The
          merger represented a change in control of Diamond One, Inc. inasmuch as
          greater
          than 50% of the issued and outstanding voting stock of the registrant on
          a
          post-merger basis was held by the former holders of the Company‘s capital stock.
          In addition, and simultaneously with the effectiveness of the merger, the
          board
          of directors of Diamond One appointed Messrs. David Hancock, Fred Angelopoulos
          and Mark Kalow to its board of directors, and directors Troy Fullmer and
          Robert
          Chramosta resigned from the Board. In addition, Messrs. Fullmer and Chramosta
          resigned their positions as officers of Diamond One, Inc. Fred Angelopoulos
          was
          appointed as its Chief Executive Officer and President, and Kristin Bowman
          was
          appointed as Chief Operating Officer, Secretary and Acting Chief Financial
          Officer.
 
 For
          a
          full description of the forward triangular merger transaction refer to
          the Form
          8-K and Form 8-K/A filed with the Securities and Exchange Commission on
          April 6,
          2006 and June 16, 2006, respectively.
 
 Divestiture
          of Former Business
 
 On
          May 9,
          2006, pursuant to the exercise of an option (the “Option”) pursuant to an
          Agreement dated March 16, 2006 by and among Diamond One, Inc. and Robert
          Chramosta and Troy Fullmer, the former officers and directors of the Company,
          the Company transferred all of the outstanding membership interests in
          its
          wholly owned subsidiary, Numismatic Capital Group, LLC (a Colorado limited
          liability company) to Messrs. Chramosta and Fullmer in consideration of
          their
          transfer to the Company of 1,000,000 shares of our common stock held by
          them.
  Prior
          to
          the forward triangular merger, Diamond One had assigned all of its assets
          and
          liabilities, specifically including the coin and exchange business owned
          and operated by Diamond One, to Numismatic Capital Group. The exercise of
          the Option effectively divested the Company of the entire coin and exchange
          business.
 
 Summary
          of Capitalization
 
 As
          of
          July 31, 2006 there were 65,474,999 shares of the issuer’s common stock, $.001
          par value, outstanding. The common stock is quoted for trading on the OTC
          Bulletin Board under the symbol “PDEP.” No preferred shares are outstanding. As
          of July 31, 2006 there were outstanding securities convertible into or
          exercisable for an aggregate of 31,738,613 shares of common stock. This
          is
          comprised of 12,450,570 options and 19,288,043 warrants.
 
 Significant
          Shareholder
 
 The
          principal shareholder is K One W One Limited (known as "KIWI") who owns
          34,011,309 shares or approximately 58% of the Company’s outstanding common
          stock. KIWI is a private venture capital investment company wholly owned
          by Mr.
          Stephen Tindall. KIWI is an investor in emerging innovative New Zealand
          technologies. KIWI first invested in PureDepth, Inc.'s predecessor company,
          Deep
          Video Imaging Limited, in 2000 and continued to invest in the technology
          and
          acquired the interests of other shareholders over the next five years.
          The
          Company was wholly owned by both KIWI and its employees through their interests
          in the stock option plan until the private placement of January-March 2006
          and
          the reverse merger which created the public entity. KIWI is still the majority
          shareholder in the Company, with its holdings approximately 36 million
          shares
          (55% of the approximately 65 million shares outstanding) plus 1.8 million
          warrants acquired by conversion of debt within the private placement described
          below.
 
 Private
          Placements
 
 On
          January 27 and March 1, 2006, the Company (then PureDepth, Inc., the California
          corporation) completed a private placement offering of an aggregate of
          3,583,079
          units, each unit consisting of two shares of common stock, one three-year
          warrant to purchase an additional share of common stock at an exercise
          price of
          $2.75 per share (the “A-Warrants”), and one warrant to purchase an additional
          share of common stock at an exercise price of $2.00 per share (the
“B-Warrants”). The offering raised net proceeds to the Company of approximately
          $6,000,000, net of legal, accounting, consulting and finder fees relating
          to the
          offering. Additionally, as part of the offering, we converted approximately
          $770,000 of loans from our majority stockholder, K One W One Limited, on
          the
          same terms and conditions as provided in the offering, thereby issuing
          an
          additional 386,143 units.
 
 On
          June
          30 and July 30, 2006, the Company closed a transaction with existing
          investors who were holders of the B Warrants which raised proceeds of
          approximately $5.6 million. The transaction involved issuance of a D Warrant
          to
          all B Warrant holders who would exercise their outstanding B Warrants to
          purchase PureDepth common stock during the offering period ended July 30,
          2006.  For a description of the transaction see Part II Item 2
          "Unregistered Sales of Equity Securities."
 
 12
 ***Plan
          of Operations***
 
 We
          will
          continue to manage our operations and cash resources in a manner consistent
          with
          our expectation that we should be able to satisfy cash requirements through
          the
          end of fiscal 2007.
 
 Our
          main
          operating costs include compensation for employees; ongoing research and
          development of our technology including patent portfolio; rental for premises
          in
          both Redwood City, CA and Auckland, New Zealand; and potential stock option
          expense.
 
 Our
          research and development plans closely track our business plan, focusing
          on four
          categories of expenses:
 
 ·
                “pure
                    research” such as improved and alternative display backlight
                    solutions
 
 ·
                patent
                    development around its pure research gains, as well as support
                    to existing
                    core patents
 
 ·
                prototype
                    development for partner/customer applications,
                    and
 
 ·
                design
                    development, once again, specifically tailored to
                    partners/customers.
 
 Currently
          we estimate that we will spend up to $2,000,000 on research and development
          activities which includes patent and intellectual property development
          over the
          next 12 months.
 
 Other
          than our research and development expenditures, there are no significant
          capital
          equipment purchases expected during the next 12 months.
 
 We
          currently anticipate increasing the number of employees to approximately
          23.
          This may be increased further but is subject to our cash resources and
          operational requirements at the relevant time.
 
 Although
          we do not believe that we will need to raise cash to operate through fiscal
          year
          2007, we may consider undertaking further capital raising within such period,
          possibly in the form of either debt or equity, or a strategic partnership.
          In
          addition, we may consider utilizing currently outstanding derivative securities,
          such as warrants or options, as a means for providing cost-efficient financing
          in the future.
 
  13
 ***Financial
          Results***
 
 During
          the quarter ended July 31, 2006 we had a net loss of $1,859,270. There
          was no
          revenue recorded for licensing or other exploitation of the intellectual
          property.
 
 For
          the
          quarter ended July 31, 2006, our general and administrative expenses increased
          $395,274 to $1,110,843 from $715,569 recorded in the corresponding period
          of the
          preceding fiscal year. This period contains additional expense from
          reorganization and financing, compared to the prior period but also reflects
          a
          higher level of public company maintenance costs, which are expected to
          continue.
  Research
          and development increased $142,362 from $327,384 for the quarter ended
          July 31,
          2005 to $469,746 for the quarter ended July 31, 2006, due to additional
          salaries
          and contract labor supporting enhancements to our existing products. This
          increase included capital equipment costs and costs associated with delivering
          on our contractual undertakings and support for the expansion of our patent
          and
          intellectual property rights. We expect this expense to increase over
          time.
 
 In
          addition, professional fees increased $28,156 from the quarter ended July
          31,
          2005 to $57,605 for the quarter ended July 31, 2006 as compared to $29,449
          for
          the same period in 2005. This figure does not include expenses relating
          to
          patent work and can be expected to vary considerably as the company requires
          support for its operations.
 
 Sales
          and
          marketing expenses decreased $40,132 from $182,144 in the quarter ended
          July 31,
          2005 to $142,012 in the quarter ended July 31, 2006. We expect this expense
          to
          increase over time with new market plans.
 
 Our
          non-cash compensation costs were nil this quarter but were $360,446 in
          the
          quarter ended July 31, 2005.
  ***Liquidity
          and Capital Resources***
 
 During
          the quarter ended July 31, 2006 our operations used $1,500,687 in cash,
          we spent
          $75,898 on fixed assets, and paid $64,929 on our intellectual property.
          Operating capital was provided by the receipt of $5,558,543 net from the
          exercise of B Warrants and the issuance of common stock and D Warrants
          in
          exchange for such exercise.
 
 During
          the quarter we have continued to develop our technology in support of
          two development and sales contracts executed with Sanyo and DRS Electronic
          Systems, Inc. prior to the end of fiscal year 2006. No additional development
          or
          sales contracts were secured during the quarter ended July 31, 2006.
 
 Our
          cash
          requirements and potential capital raises are discussed above under the
          heading *Plan
          of Operations* **.**
 
 In
          May
          2006, we leased additional premises in Redwood City, California which beginning
          in June requires future minimum lease payments of $4,910 per month from
          June
          2006 through May 2008.
 
 14
 We
          have
          issued options to employees and consultants pursuant to our stock option
          plans.
          At July 2006 we had vested options of 12,450,570 outstanding under the
          current
          Stock Option Plan 2006 (the Plan).
 
 Subject
          to approval of our board of directors, the 2006 Stock Incentive Plan allows
          option holders to exercise options using a “cashless exercise,” whereby the
          Company uses entitled shares as payment for the exercised options. While
          the
          exercise of stock options 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.
 
 Costs
          associated with the grant of stock options are expensed over the projected
          service period of the options, which approximates the vesting period. At
          July
          31, 2006, the Company had no options expense relating to the current
          quarter.  With respect to currently issued stock options, the Company will
          have further option costs to be recognized in fiscal 2007.
  ***Provision
          for State and Federal Income Taxes***
 
 From
          inception through July 31, 2006, we have incurred net losses for federal
          and
          state tax purposes. We have also incurred foreign net losses in respect
          of our
          predecessor entity and two foreign subsidiaries.
 
 We
          have
          not recorded a tax benefit for domestic tax losses because of the uncertainty
          of
          realization. We adhere to SFAS No. 109, Accounting for Income Taxes, which
          requires an asset and liability approach to financial accounting and reporting
          for income taxes. Valuation allowances are established when necessary to
          reduce
          deferred tax assets to the amount expected to be realized. We have recorded
          a
          full valuation allowance as the realize ability of our net operating loss
          carry-forwards is not determinable.
  ***Critical
          Accounting Policies***
 
 In
          accordance with SEC guidance, those material accounting policies that we
          believe
          are the most critical to an investor’s understanding of our financial results
          and condition have been expanded and are discussed below. Certain of these
          policies are particularly important to the portrayal of our financial position
          and results of operations and require the application of significant judgment
          by
          our management to determine the appropriate assumptions to be used in the
          determination of certain estimates.
 
 *Amortization*
  Our
          intellectual property such as patents are classified as a definite-lived
          identifiable intangible assets and amortized over their useful lives. The
          expense shown reflects management’s judgments of the period that the assets will
          generate revenues and the expected residual value, if any. Management must
          also
          periodically evaluate the remaining useful life of an intangible asset
          that is
          being amortized to determine whether events and circumstances warrant a
          revision
          to the remaining period of amortization.
 
 *Stock-Based
          Compensation Expense*
 
 Determining
          the appropriate fair value model and calculating the fair value of share-based
          payment awards require the input of subjective assumptions, including the
          expected life of the share-based payment awards and stock price volatility.
          The
          assumptions used in calculating the fair value of share-based payment awards
          represent management's best estimates, but these estimates involve inherent
          uncertainties and the application of management judgment.
  15
 ***Factors
          Affecting Future Results***
 
 *Development
          & Sales Contracts*
 
 Our
          ability to deliver on our existing customer contracts for the development
          and
          sale of our multi-layered technology, in addition with our ability to negotiate
          and secure additional development and sales contracts at both a domestic
          and
          international level, will materially impact on our future financial position,
          cash flows and results of operations.
 
 *Development
          of New Technology*
 
 If
          we are
          unable to innovate and develop attractive new products, our business will
          likely
          be adversely affected. We expect to derive a substantial portion of our
          estimated revenues from the incorporation of the MLDTM technology into innovative
          new products for sale. The process of developing and marketing new products
          is
          generally complex and uncertain, and involves a number of risks including
          the
          following:
  ·
                We
                    may be unable to obtain adequate funding and resources necessary
                    for
                    investments in new products and technologies;
  ·
                Our
                    investment and commitment of significant resources may not result
                    in
                    successful new products or
                    technologies;
  ·
                We
                    may misunderstand our customers’ perceived product needs and
                    desires;
  ·
                We
                    may not be able to anticipate successfully the new products and
                    technologies which will gain market acceptance, especially since
                    the
                    industry in which we operate is characterized by rapid changes,
                    including
                    technological changes;
 
 ·
                We
                    may not be able to protect the proprietary intellectual-property
                    rights
                    associated with the technologies we may use in any newly developed
                    products;
 
 ·
                Our
                    products 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 us
                    from successfully competing with our
                    rivals.
  If
          we
          fail to develop and market innovative new products, or if any of the risks
          described above materialize, our business may be negatively and adversely
          affected.
 
 *Economic
          Factors & Competition*
 
 We
          operate in a highly competitive environment and we may not be able to sustain
          our current market position. Our ability to compete successfully depends
          on
          factors both within and outside our control, including product pricing,
          performance and reliability, successful and timely investment and product
          development, success or failure of our end-brand customers in marketing
          their
          brands and products, component and raw material supply costs, and general
          economic and industry conditions.
 
 Currently,
          we believe that our MLDTM technology has a number of competitive advantages over
          competing technologies. Nevertheless, 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 manufacture competitive products on a larger scale
          or
          with greater cost efficiencies than us.
 
 16
 Alternatively,
          because innovation in our industry often creates wide scale change in
          technologies and resulting products, our competitors may develop superior
          technologies or even replacement technology and obtain exclusive rights
          to those
          technologies. In sum, we may not be able to sustain any perceived current
          market
          advantages.
 
 *Dependence
          on Manufacturing & Key Supply Contracts*
 
 Our
          customers will be dependent on our/their respective manufacturing arrangements
          and key supply contracts for consumables with both domestic and international
          businesses. To the extent that these contracts are unsuccessful we may
          not be
          able to satisfy the needs of our customers both now and in the future.
          Due to
          the current contracts with Sanyo and DRS Electronic Systems any impairment
          would
          materially impact our future financial position, cash flows and results
          of
          operations.
 
 *Dependence
          on Key Personnel*
 
 We
          are
          heavily dependent on key personnel in engineering, development, sales and
          finance. The ability to recruit and retain qualified personnel is dependent
          on
          our ability to pay competitive salaries and to offer a safe and stable
          work
          environment. To the extent we cannot retain the key personnel currently
          employed
          or any failure by us to attract and retain qualified personnel in the future
          could have a material effect on our financial position, cash flows and
          results
          of operations.
  ***Foreign
          Operations & Foreign Currency***
 
 We
          have
          two subsidiaries incorporated in New Zealand. The Company’s direct subsidiary,
          PureDepth Ltd, is the holding entity for the Group's intellectual property
          portfolio, which is subject to an exclusive license with the Company, for
          its
          use, exploitation and future development.
 
 The
          Company’s indirect subsidiary, PureDepth Incorporated Ltd, undertakes the
          operations in respect of any future research and development of the intellectual
          property portfolio on the Company's behalf. This activity is governed by
          a
          development agreement with the Company, upon which an annual development
          fee of
          $1,000,000, calculated at the end of each quarter, is paid.
  Income
          and expenditure relating to the license and future development of the
          intellectual property is an inter-company transaction eliminated on
          consolidation. Therefore, these amounts are not shown in the financial
          statements.
 
 The
          company and its subsidiaries use the US dollar as their functional currency.
          The
          company determined that the cash flow, sales price, sales market, expense,
          financing and intercompany transaction indicators on balance had this quarter
          reached a significant level where under FAS 52 each of the entities and
          the
          group would be best represented by the US dollar as the functional
          currency.
 
 ***Market
          Risk Disclosure***
 
 We
          record
          the majority of our foreign operating transactions in the US dollar. We
          also
          record all of our US operating transactions, including cash inflows and
          outflows, in the local currency, the US dollar. We expect that international
          activity will continue to represent a significant portion of our operations.
          Transactions with our New Zealand research and development facility and
          with any
          potential contract manufacturers in Asia will be directly affected by
          fluctuations in various currency rates.
 
 The
          New
          Zealand operations makes us vulnerable to future fluctuations in the exchange
          rate.  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.
 
 17
 
 ***Off-Balance-Sheet
          Arrangements***
 
 As
          of
          July 31, 2006, there were no off-balance-sheet arrangements.
 
 ***Recently
          Issued Accounting Pronouncements***
 
 In
          December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
          No.
          123 (R), *Share-Based
          Payment* ,
          which
          replaced SFAS No. 123, *Accounting
          for Stock-Based Compensation* ,
          and
          superseded Accounting Principles Board Opinion No. 25, *Accounting
          for Stock Issued to Employees* .
          The
          Statement requires all share-based payments to employees, including grants
          of
          employee stock options, to be recognized in the financial statements based
          on
          their fair values. Under SFAS No. 123(R), the Company must determine the
          appropriate fair value method to be used for valuing share-based payments
          and
          the amortization method of compensation cost. The financial statements
          presented
          reflect the adoption of SFAS No. 123(R) for all periods.
 
 In
          May
          2005, the FASB issued SFAS No. 154 *Accounting
          Changes and Error Corrections,* which
          requires retrospective application to prior periods’ financial statements of
          changes in accounting principle, unless it is impracticable to determine
          either
          the period-specific effects or the cumulative effect of the change. When
          it is
          impracticable to determine the period-specific effects of an accounting
          change
          on one or more individual prior periods presented, this Statement requires
          that
          the new accounting principle be applied to the balances of assets and
          liabilities as of the beginning of the earliest period for which retrospective
          application is practicable and that a corresponding adjustment be made
          to the
          opening balance of retained earnings for that period rather than being
          reported
          in an income statement. When it is impracticable to determine the cumulative
          effect of applying a change in accounting principle to all prior periods,
          this
          Statement requires that the new accounting principle be applied as if it
          were
          adopted prospectively from the earliest date practicable. All periods are
          presented in accordance with SFAS No. 154. **
 
 In
          June
          2005, the FASB issued FSP FAS 143-1, *“Accounting
          for Electronic Equipment Waste Obligations”* ( *“FSP
          143-1”* ),
          which
          provides guidance on the accounting for certain obligations associated
          with the
          Waste Electrical and Electronic Equipment Directive (the *“Directive”* ),
          adopted by the European Union ( *“EU”* ).
          Under
          the Directive, the waste management obligation for historical equipment
          (products put on the market on or prior to August 13, 2005) remains with
          the
          commercial user until the customer replaces the equipment. FSP 143-1 is
          required
          to be applied to the later of the first reporting period ending after June
          8,
          2005 or the date of the Directive’s adoption into law by the applicable EU
          member countries in which the manufacturers have significant operations.
          To
          date, FSP 143-1 has not had a material impact on its consolidated results
          of
          operations and financial condition.
 
 In
          June
          2006, the FASB issued FIN No. 48, Accounting for Uncertainty in Income
          Taxes -
          an interpretation of FASB Statement No. 109, which clarifies the accounting
          for
          uncertainty in income taxes recognized in an enterprise’s financial statements
          in accordance with FASB Statement No. 109, Accounting for Income Taxes.
          The
          interpretation prescribes a recognition threshold and measurement attribute
          for
          the financial statement recognition and measurement of a tax position taken
          or
          expected to be taken in a tax return. FIN No. 48 requires recognition of
          tax
          benefits that satisfy a greater than 50% probability threshold. FIN No.
          48 also
          provides guidance on derecognition, classification, interest and penalties,
          accounting in interim periods, disclosure, and transition. FIN No. 48 is
          effective for us beginning February 1, 2007. We are assessing the potential
          impact that the adoption of FIN No. 48 will have on our financial
          statements.
 
 
 18
 **Item
          3. Controls and Procedures**
 
 As
          of
          July 31, 2006, we carried out an evaluation, under the supervision and
          with the
          participation of our Chief Executive Officer and Chief Financial Officer,
          of the
          effectiveness of the design and operation of our disclosure controls and
          procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
          Exchange Act of 1934, as amended). Based upon that evaluation, our Chief
          Executive Officer and Chief Financial Officer concluded that our disclosure
          controls and procedures as of that date are effective to ensure that information
          required to be disclosed in the reports we file under the Securities and
          Exchange Act is recorded, processed, summarized and reported on an accurate
          and
          timely basis. Additionally, the Chief Executive Officer and Chief Financial
          Officer concluded that the Company's disclosure controls and procedures
          are
          effective to ensure that information required to be disclosed by the Company
          in
          the reports that it files or submits under the Exchange Act is communicated
          to
          the Chief Executive Officer and Chief Financial Officer, as appropriate
          to allow
          timely decisions regarding disclosure.  During the second quarter of
          fiscal 2006, there were no changes in our internal controls over financial
          reporting that have materially affected or are reasonably likely to materially
          affect our internal controls over financial reporting subsequent to the
          date of
          such evaluation.
   
 19
 **PART
          II**
 **OTHER
          INFORMATION**
 
 
 **Item
          1. Legal Proceedings**
 
 None
 
 
 **Risk
          Factors**
 
 **Risks
          Relating to our Business and Industry**
 
 ***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 substantially in the near future. As a result, we
          will
          need to generate significant revenue in order to achieve and maintain
          profitability. Currently, we have limited sources of revenue. Even if we
          succeed
          in developing and commercializing additional products, we expect that we
          will
          thereafter incur substantial losses for the foreseeable future. In sum,
          we may
          never achieve or maintain profitability. Our failure to achieve or maintain
          profitability will likely negatively impact the value of our
          securities.
  ***We
          have a limited operating history upon which to base an investment decision.*** We
          are an
          early-stage company with a limited operating history upon which to evaluate
          the
          viability of our business and long-term prospects for success. Accordingly,
          potential investors should carefully consider the risk, expenses and unforeseen
          difficulties generally encountered in the operation and development of
          an
          early-stage business, including the risks and uncertainties frequently
          encountered by companies whose business and viability is dependent upon
          new
          technologies.
  ***If
          we are unable to innovate and develop attractive new products, our business
          will
          likely be adversely affected.*** We
          expect to derive a substantial portion of our estimated revenues from the
          incorporation of the MLDTM technology into innovative new products for sale. The
          process of developing and marketing new products is generally complex and
          uncertain, and involves a number of risks including the following:
  ·
                we
                    may be unable to obtain adequate funding and resources necessary
                    for
                    investments in new products and
                    technologies
  ·
                our
                    investment and commitment of significant resources may not result
                    in
                    successful new products or
                    technologies
  ·
                we
                    may misunderstand our customers’ perceived product needs and
                    desires
  ·
                we
                    may not be able to anticipate successfully the new products and
                    technologies which will gain market acceptance, especially since
                    the
                    industry in which we operate is characterized by rapid changes,
                    including
                    technological changes
  ·
                we
                    may not be able to protect the proprietary intellectual-property
                    rights
                    associated with the technologies we may use in any newly developed
                    products
  ·
                our
                    products 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 us
                    from successfully competing with our
                    rivals.
  If
          we
          fail to develop and market innovative new products, or if any of the risks
          described above materialize, our business may be negatively and adversely
          affected.
  20
 ***Even
          with significant capital spending in the future to keep pace with technological
          changes, we may not be able to develop new technologies and products that
          are
          accepted by the market.*** Advances
          in technology typically lead to rapid declines 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 develop or acquire new technologies, including alternative
          display panel technologies that may cause our MLDTM technology to obsolesce.
          Nevertheless, we may not be able to successfully develop new products 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 in pursuit of a particular
          technology. Furthermore, even if we are successful in developing or acquiring
          any particular technology, we may not be able to effectively commercialize
          or
          market the resulting product.
  ***Our
          need to spend significant amounts of capital in developing new technologies
          and
          products may require us to seek additional financing that could dilute
          our
          shareholders or restrict our operations.*** Expenses
          for research and development activities for new products, especially those
          that
          involve innovative technology, are generally extremely difficult to forecast.
          If
          our actual expenditures far exceed our forecasted expenditures, or in the
          event
          of adverse market conditions, we may need to seek additional
          financing.
  Additional
          financing could be sought from a number of sources, including but not limited
          to
          additional sales of equity or debt securities, or loans from banks, other
          financial institutions or affiliates of the Company. We cannot, however,
          be
          certain that any such financing will be available on terms favorable to
          us, if
          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 likely be diluted. If additional funds are raised by
          the
          issuance of debt or other equity instruments, we may become subject to
          certain
          operational limitations, and such securities may have liquidation rights
          senior
          to those of the then existing holders of common stock. Ultimately, if no
          additional financing is obtained as and when needed, we may be required
          to slow
          our growth, abandon certain product candidates (including candidates on
          which we
          have already spent considerable resources), or cease operations
          altogether.
  ***Our
          business may be adversely affected if alternative display panel technologies
          erode future sales of products based on our proprietary MLDTM
technology.*** The
          introduction of alternative display panel technologies, including those
          currently under development by our competitors and us, may erode future
          sales of
          MLDTM panels, which may have a material adverse effect on our
          business.
  ***The
          average selling prices of our MLDTMs may decline over time and negatively affect
          our operating results.*** The
          average selling prices of our MLDTMs are expected to continually decline over
          time as a result of, among other factors, technology advances, cost reductions
          and increased competition. Although we may be able to take advantage of
          the
          higher selling prices typically associated with new products and technologies
          we
          may bring to market, we cannot provide assurance that we can maintain these
          prices in the face of market competition. If we are unable to effectively
          anticipate and counter the price erosion that accompanies our products,
          or if we
          are unable to reduce our manufacturing costs, our profit margins will be
          negatively affected.
  ***If
          we cannot maintain high capacity-utilization rates, our profitability will
          be
          adversely affected.*** The
          production of panels incorporating our MLDTM technology entails high fixed costs
          resulting from considerable expenditures for the construction of complex
          fabrication and assembly facilities and the purchase of costly equipment.
          We aim
          to maintain high capacity-utilization rates so that we can allocate these
          fixed
          costs over a greater number of panels produced, thereby realizing higher
          gross
          margins. Nevertheless, we may not be able to meet or sustain our targeted
          capacity-utilization rates in the future.
 
 21
 ***We
          operate in a highly competitive environment and we may not be able to sustain
          our current market position.*** Our
          ability to compete successfully depends on factors both within and outside
          our
          control, including product pricing, performance and reliability, successful
          and
          timely investment and product development, success or failure of our end-brand
          customers in marketing their brands and products, component and raw material
          supply costs, and general economic and industry conditions. Currently,
          we
          believe that our MLDTM technology has a number of competitive advantages over
          competing technologies. Nevertheless, 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 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. In sum, we may not be able to sustain our perceived
          current
          market advantages.
  ***Governmental
          regulation may limit our activities or increase our costs of
          operations.*** Our
          business and operations are subject to various forms of government regulation
          in
          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. In addition, environment
          and
          recycling laws and regulations relating to the disposal of electronics
          are
          likely to be revised and tightened in the near future. If we cannot comply
          with
          these regulations without great cost, our financial performance may
          suffer.
  ***Our
          MLDTM manufacturing processes are complex and periodic improvements to increase
          efficiency can expose us to potential disruptions in
          operations.*** The
          manufacturing process for MLDTM products is highly complex, requiring
          sophisticated and costly equipment that is periodically modified and updated
          to
          improve manufacturing yields and product performance, and reduce manufacturing
          costs. These updates expose us to the risk that from time to time production
          difficulties will arise that could cause delivery delays, reduced output
          or
          both. Any such delays or reductions would likely adversely affect our operating
          results.
  ***General
          economic conditions may adversely affect our sales and
          profitability.*** For the
          most part, purchases of our products 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 our products
          are
          sold. Similarly, demand for business use products and for components we
          may
          manufacture that go into products of third parties will 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,
          including Australia, North America, Europe and Asia, may thus adversely
          affect
          our sales and operating results.
  ***We
          materially rely on a limited number of third-party suppliers for key raw
          materials, components and manufacturing equipment, and any disruption in
          their
          supply will negatively affect our business.*** Our
          production operations depend 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 MLDTM products from two or three
          suppliers for each key component. 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 MLDTM and competitive industries. Our
          results of operations would be adversely affected if we were unable to
          obtain
          adequate supplies of high quality raw materials or components in a timely
          manner
          or make alternative arrangements for such supplies.
  ***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 we were the first creator
          of
          inventions covered by our pending patent applications, that we or any of
          our
          licensors will be entitled to any rights in purported inventions claimed
          in
          pending or future patent applications, or that we were the first to file
          patent
          applications on such inventions.
 
 22
 ***Failure
          to protect our intellectual property rights could impair our competitiveness
          and
          harm our business and future prospects.*** We
          believe that developing new products and technologies that can be differentiated
          from those of our competitors is critical to the success of our business.
          We
          intend to take active measures to obtain international protection of our
          intellectual property by obtaining patents and undertaking monitoring activities
          in our major markets. Nevertheless, we may not be able to effectively deter
          competitors from improper use of our proprietary technologies. For instance,
          our
          competitors may misappropriate our intellectual property, disputes as to
          ownership of intellectual property may arise, and certain of our intellectual
          property may otherwise become known or independently developed by our
          competitors. 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 resources, and may not prove successful. The
          loss of
          intellectual-property protection or the inability to secure or enforce
          intellectual property protection could materially harm our business and
          ability
          to compete.
  ***If
          we infringe the rights of third parties we could be prevented from selling
          products, forced to pay damages, and defend against litigation.*** 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 trade secrets and
          certain other Company 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 are
          able and may in the future manufacture various products in accordance with
          internationally accepted quality-control standards. We cannot be certain,
          however, that all of our products are defect-free and may 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 ultimately 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.
 
 23
 ***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 such individuals 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 will be conducted
          outside of the United States and New Zealand, including in Asia. There
          are a
          number of risks inherent 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, and
  ·
                social,
                    political or economic turmoil due to terrorism, war, or other
                    factors.
  ***We
          may be unable to successfully manage and sustain our growth, which could
          harm
          our business.*** Since
          the founding of our predecessor in interest (Deep Video Imaging Limited)
          in
          1999, we have experienced, and expect to continue to experience, rapid
          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. In addition, we may experience
          manufacturing difficulties with our partners in starting new production
          lines.
          The materialization of these risks could adversely affect our operating
          results.
  **Risks
          Relating to our Securities**
 
 ***Trading
          of our common stock on an illiquid market may result in lower market
          prices.*** Trading
          of our common stock is conducted on the Over-the-Counter 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 reduction in security
          analysts’
and the media’s coverage of our Company and its 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.
 
 24
 ***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 been very little trading activity in shares of the Company’s
          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 shareholders
          may not always be able to resell shares of our common stock publicly at
          the time
          and prices that they feel are fair or appropriate.
 
 ***When
          additional registrations occur and transfer restrictions lapse, the availability
          of shares may depress the price.***In private placement in
          January and March 2006, w e
          issued
          approximately 18.2 million shares of our common stock, A Warrants to purchase
          approximately 9.1 million shares of our common stock and B Warrants to
          purchase
          approximately 9.1 million shares of our common stock. In July 2006 we cancelled
          B Warrants to purchase approximately 6.7 million shares and issued approximately
          6.7 million shares of our common stock D Warrants to purchase 6.7 million
          shares
          of our common stock. The Company is obligated to register for resale some
          of
          these shares which will significantly increase the shares and shares underlying
          the warrants freely tradable following resale from the current 5.2 million
          freely tradable shares. Holders may also have an ability to sell under
          Rule 144
          as time elapses, regardless of registration rights. Additionally, there
          are
          approximately 12.4 million vested options which may be registered under
          Form S-8
          in the near term. Any one of these factors or the combination will substantially
          increase the number of shares available on the market and may have an effect
          on
          the trading price of the stock.
 
 ***We
          may not succeed in efforts to have our common stock listed on NASDAQ 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.
  ***Because
          it is a “penny stock,” owners may have difficulty selling shares of our common
          stock.*** Our
          common stock is a “penny stock” and is therefore subject to the requirements of
          Rule 15g-9 under the Securities and Exchange Act of 1934. Under this rule,
          broker-dealers who sell penny stocks must provide purchasers of these stocks
          with a standardized risk-disclosure document prepared by the SEC. Under
          applicable regulations, our common stock will generally remain a “penny stock”
until and for such time as its per-share price is $5.00 or more (as determined
          in accordance with SEC regulations), or until we meet certain net asset
          or
          revenue thresholds. These thresholds include the possession of net tangible
          assets (i.e., total assets less intangible assets and liabilities) in excess
          of
          $2,000,000 in the event we have been operating for at least three years
          or
          $5,000,000 in the event we have been operating for fewer than three years,
          and
          the recognition of average revenues equal to at least $6,000,000 for each
          of the
          last three years. We do not anticipate meeting any of the foregoing thresholds
          in the foreseeable future.
  The
          penny-stock rules severely limit the liquidity of securities in the secondary
          market, and many brokers choose not to participate in penny-stock transactions.
          As a result, there is generally less trading in penny stocks. In sum, our
          shareholders may not always be able to resell shares of our common stock
          publicly at the time and prices that they feel are fair or
          appropriate.
  ***Because
          we became public by means of a forward triangular 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
          forward triangular 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 coverage of the Company. 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 likely slow the dissemination of
          awareness and knowledge of our Company. As a result, the trading price
          of our
          common stock may be adversely affected.
  ***Our
          majority stockholder possesses a controlling portion of the voting power
          of our
          common stock, which could adversely affect the market price of our common
          stock.*** As of
          July 31, 2006, K One W One Ltd., our majority stockholder, possessed beneficial
          ownership of approximately 35,780,006 shares of our common stock (plus
          1,768,648
          shares issuable upon exercise of warrants), which together represents
          approximately 57% of our common stock. This represents a significant and
          controlling portion of the voting power of the Company’s stockholders, and
          enables K One W One Ltd. 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 the 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.
 
  25
 ***Our
          certificate of incorporation grants the Company’s board of directors with the
          power to designate and issue additional shares of common and/or preferred
          stock.*** Our
          authorized capital consists of 200,000,000 shares, of which 190,000,000
          shares
          are designated as common stock, par value $.001 per share, and 10,000,000
          shares
          are designated as preferred stock, par value $.001 per share. Pursuant
          to
          authority granted by the Company’s 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 shareholders and may dilute the book value of the Company.
  ***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 and quarterly 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
          become 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
          cause the Company to pay any dividends after the merger, for the foreseeable
          future. Accordingly, any return on an investment in our Company will be
          realized, if at all, only when an investor sells shares of our common
          stock.
 
  26
 **Item
          2. Unregistered Sales of Equity Securities**
 
 On
          June
          30 and July 30, 2006 the Company issued 6.7 million shares of Common Stock
          and
          6.7 million “D Warrants” and as a result cancelled “B Warrants” pursuant to a
          private offering. These transactions were reported on Forms 8-K filed on
          July
          31, 2006 and August 4, 2006.
 
 The
          Company accepted in process subscription relating to the March private
          placement
          on July 11, 2006 and issued 114,510 units to the purchaser.
 
 Pursuant
          to the exercise of an Option Agreement dated March 16, 2006 by and among
          the
          Company, Robert Chramosta and Troy Fullmer, each of whom was a former officer
          and director of the Company prior to the merger with Diamond One, Inc., the
          Company transferred all of the outstanding membership interests in its
          wholly
          owned subsidiary, Numismatic Capital Group, LLC, a Colorado limited liability
          company, to Messrs. Chramosta and Fullmer in consideration of their transfer
          to
          us of 1,000,000 shares of our common stock held by them. Prior to the merger,
          Diamond One had assigned all of its assets and liabilities, specifically
          including the coin and exchange business owned and operated by Diamond
          One prior
          to the merger, to Numismatic Capital Group. The exercise of the Option
          Agreement
          effectively divested the Company of the entire coin and exchange
          business.
  The
          foregoing issuances of unregistered securities were exempt form the registration
          requirements of the Securities Act of 1933 as offers made to accredited
          investors pursuant to Regulation D and Section 4(2) thereof.
 
 **Item
          3. Defaults on Senior Securities**
 
 None
 
 **Item
          4. Submission of Matters to a Vote of Security Holders**
 
 None.
 
 **Item
          5. Other Information**
 
 None.
 
  27
 **Item
          6.**  **Exhibits**
 
 (a)
                    ExhibitsExhibit
                    No.
                Description10.8
                Director
                    Contract - John Floisand (1)10.9
                Director
                    Contract - Thomas Marcus (1)31.1
                Certification
                    of Chief Executive Officer31.2
                Certification
                    of Chief Financial Officer32.1
                Certification
                    of Chief Executive Officer and Chief Financial Officer pursuant
                    to Section
                    906 of the Sarbanes-Oxley Act of
                    2002.
 
 (1)
          Incorporated by reference to Form 8-K filed September 12, 2006
 
  **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, 2006
                By:
                /s/ Fred
                  AngelopoulosFred
                    Angelopoulos
                  *Chief
                    Executive Officer*
 By:
                /s/ Robert
                  O’ CallahanRobert
                    O’ Callahan
                  *Chief
                    Financial Officer*
  
 28
  **Index
          to Exhibits Filed with this Report**
 
 (a)
                    ExhibitsExhibit
                    No.
                Description31.1
                Certification
                    of Chief Executive Officer31.2
                Certification
                    of Chief Financial Officer32.1
                Certification
                    of Chief Executive Officer and Chief Financial Officer pursuant
                    to Section
                    906 of the Sarbanes-Oxley Act of
                    2002.
 29