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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-QSB



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|x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------



For the quarterly period ended March 31, 2005



-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 001-15775



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GLOBAL EPOINT, INC.

(Name of small business issuer as specified in its charter)



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|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|NEVADA                                                         |  | 33-0423037                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer identification No.)



339 S. Cheryl Lane,
City of Industry, California 91789

(Address of principal executive offices)



(909) 869-1688

(Issuers telephone number)



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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding twelve months, and (2) has been subject to such filing requirements for the past 90 days. Yes  x No ̈



As of May 20, 2005, there were 12,465,885 shares of Common Stock ($.03 par value) outstanding.



Traditional Small Business Disclosure Format. Yes  x No ̈



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##### Table of Contents

GLOBAL EPOINT, INC.

QUARTERLY REPORT ON FORM 10-QSB

FOR THE PERIOD ENDED MARCH 31, 2005



TABLE OF CONTENTS



|                                                                                              |  |                                                                                                    |  |     
|--------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------- |  | ----
|                                                                                              |  |                                                                                                    |  | Page
|Part I. FINANCIAL INFORMATION                                                                 |  |                                                                                                   
|                                                                                              | 
|Item 1. Interim Financial Statements (unaudited):                                             |  |                                                                                                   
|                                                                                              |  |                                                                                                   
|                                                                                              |  | Condensed Consolidated Balance Sheet as of March 31, 2005                                          |  | 2   
|                                                                                              |  |                                                                                                   
|                                                                                              |  | Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2005 and 2004 |  | 3   
|                                                                                              |  |                                                                                                   
|                                                                                              |  | Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004 |  | 4   
|                                                                                              |  |                                                                                                   
|                                                                                              |  | Condensed Consolidated Statement of Stockholders Equity for the Three Months Ended March 31, 2005 |  | 5   
|                                                                                              |  |                                                                                                   
|                                                                                              |  | Notes to Unaudited Condensed Consolidated Financial Statements                                     |  | 6   
|                                                                                              | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 15                                                                                                
|                                                                                              | 
|Item 3. Controls and Procedures                                                               |  | 23                                                                                                
|                                                                                              | 
|Part II. OTHER INFORMATION                                                                    |  | 24                                                                                                
|                                                                                              | 
|Item 6. Exhibits                                                                              |  | 24                                                                                                
|                                                                                              |  |                                                                                                   
|SIGNATURES                                                                                    |  |                                                                                                    |  | 25  





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GLOBAL EPOINT, INC. AND SUBSIDIARIES

(Formerly McDigit, Inc. and Best Logic, LLC)



CONDENSED CONSOLIDATED BALANCE SHEET

(UNAUDITED)



AS OF MARCH 31, 2005



|                                                                                                                                                        |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ------ | -
|(Thousands of dollars, except per share amounts)                                                                                                        |  |   |       
|ASSETS                                                                                                                                                  |  |   |        |  
|CURRENT ASSETS:                                                                                                                                         |  |   |        |  
|Accounts receivable, net                                                                                                                                |  | $ | 2,728  |  
|Accounts receivable - related parties                                                                                                                   |  |   | 4,303  |  
|Inventory                                                                                                                                               |  |   | 3,589  |  
|Other current assets                                                                                                                                    |  |   | 386    |  
|                                                                                                                                                        |  |   |        |  
|Total current assets                                                                                                                                    |  |   | 11,006 |  
|                                                                                                                                                        |  |   |        |  
|Property, plant and equipment, net                                                                                                                      |  |   | 828    |  
|Card dispensing equipment and related parts                                                                                                             |  |   | 885    |  
|Goodwill                                                                                                                                                |  |   | 6,328  |  
|Other intangibles                                                                                                                                       |  |   | 1,341  |  
|Deposits and other assets                                                                                                                               |  |   | 868    |  
|                                                                                                                                                        |  |   |        |  
|Total other assets                                                                                                                                      |  |   | 10,250 |  
|                                                                                                                                                        |  |   |        |  
|Total assets                                                                                                                                            |  | $ | 21,256 |  
|                                                                                                                                                        |  |   |        |  
|Liabilities and Stockholders equity                                                                                                                    |  |   |        |  
|                                                                                                                                                        | 
|Current Liabilities:                                                                                                                                    |  |   |        |  
|Bank Overdraft                                                                                                                                          |  | $ | 259    |  
|Accounts payable                                                                                                                                        |  |   | 2,321  |  
|Accounts payable - related parties                                                                                                                      |  |   | 6,883  |  
|Accrued expenses                                                                                                                                        |  |   | 594    |  
|Customer deposits                                                                                                                                       |  |   | 101    |  
|Due to stockholder                                                                                                                                      |  |   | 145    |  
|Loan payable                                                                                                                                            |  |   | 1,442  |  
|                                                                                                                                                        |  |   |        |  
|Total current liabilities                                                                                                                               |  |   | 11,745 |  
|                                                                                                                                                        |  |   |        |  
|STOCKHOLDERS EQUITY:                                                                                                                                   |  |   |        |  
|                                                                                                                                                        | 
|Preferred stock, no par value, 2,000,000 shares authorized, 55,000 shares issued, 24,000 shares outstanding aggregate liquidation preference
$2,400,000 |  |   | 1,886  |  
|Common stock, $.03 par value, 50,000,000 shares authorized and 12,465,885 shares issued and outstanding                                                 |  |   | 374    |  
|Paid-in capital                                                                                                                                         |  |   | 13,427 |  
|Accumulated deficit                                                                                                                                     |  |   | (6,176 | )
|                                                                                                                                                        |  |   |        |  
|Total stockholders equity                                                                                                                              |  |   | 9,511  |  
|                                                                                                                                                        |  |   |        |  
|Total liabilities and stockholders equity                                                                                                              |  | $ | 21,256 |  
|                                                                                                                                                        |  |   |        |  



See accompanying notes
to condensed consolidated financial statements.



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GLOBAL EPOINT, INC. AND SUBSIDIARIES

(Formerly McDigit, Inc. and Best Logic, LLC)



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004



|                                                 |               |                           |        |               |  |   |        |  
|------------------------------------------------ | ------------- | ------------------------- | ------ | ------------- |  | - | ------ | -
|(Thousands of dollars, except per share amounts) |               | For the three monthsended |       
|                                                 | March 31,2005 |                           |        | March 31,2004 | 
|Net sales                                        |               | $                         | 5,476  |               |  | $ | 4,430  |  
|Cost of sales                                    |               |                           | 4,312  |               |  |   | 3,355  |  
|                                                 |               |                           |        |               |  |   |        |  
|Gross profit                                     |               |                           | 1,164  |               |  |   | 1,075  |  
|                                                 |               |                           |        |               |  |   |        |  
|Operating Expenses:                              |               |                           |        |               |  |   |        |  
|Selling and marketing                            |               |                           | 874    |               |  |   | 420    |  
|General and administrative                       |               |                           | 1,566  |               |  |   | 902    |  
|Research and development                         |               |                           | 278    |               |  |   | 251    |  
|Depreciation and amortization                    |               |                           | 97     |               |  |   | 16     |  
|                                                 |               |                           |        |               |  |   |        |  
|Total operating expenses                         |               |                           | 2,815  |               |  |   | 1,589  |  
|                                                 |               |                           |        |               |  |   |        |  
|Loss from operations                             |               |                           | (1,651 | )             |  |   | (514   | )
|Other income (expense)                           |               |                           | (8     | )             |  |   | 152    |  
|                                                 |               |                           |        |               |  |   |        |  
|Loss before income tax provision                 |               |                           | (1,659 | )             |  |   | (362   | )
|Income tax provision                             |               |                           |       |               |  |   |       |  
|                                                 |               |                           |        |               |  |   |        |  
|Net Loss                                         |               |                           | (1,659 | )             |  |   | (362   | )
|Preferred stock dividend                         |               |                           | (492   | )             |  |   |       |  
|                                                 |               |                           |        |               |  |   |        |  
|Net Loss applicable to common stockholders       |               | $                         | (2,151 | )             |  | $ | (362   | )
|                                                 |               |                           |        |               |  |   |        |  
|Loss per share - basic                           |               | $                         | (0.17  | )             |  | $ | (0.03  | )
|                                                 |               |                           |        |               |  |   |        |  
|Loss per share - fully diluted                   |               | $                         | (0.17  | )             |  | $ | (0.03  | )
|                                                 |               |                           |        |               |  |   |        |  
|Weighted average shares and share equivalents    |               |                           | 12,234 |               |  |   | 10,840 |  
|                                                 |               |                           |        |               |  |   |        |  



See accompanying notes
to condensed consolidated financial statements.



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GLOBAL EPOINT, INC. AND SUBSIDIARIES

(Formerly McDigit, Inc. and Best Logic, LLC)



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



FOR THE THREE MONTHS ENDED MARCH 31, 2005 and 2004



|                                                                                             |  |      |        |   |      |   |        |  
|-------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|(Thousands of dollars)                                                                       |  | 2005 |        |   | 2004 |  
|CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:                                          |  |      |        |   |      |   |        |  
|Net loss                                                                                     |  | $    | (1,659 | ) |      | $ | (362   | )
|Adjustments to reconcile net loss to net cash flows provided (used) by operating activities: |  |      |        |   |      |   |        |  
|Depreciation and amortization                                                                |  |      | 97     |   |      |   | 16     |  
|Provision for bad debt                                                                       |  |      | 25     |   |      |   |       |  
|Increase/(decrease) from changes in:                                                         |  |      |        |   |      |   |        |  
|Accounts receivable                                                                          |  |      | 171    |   |      |   | (1,800 | )
|Accounts receivable - related parties                                                        |  |      | 3,240  |   |      |   | 1,028  |  
|Inventory                                                                                    |  |      | 226    |   |      |   | 469    |  
|Other current assets                                                                         |  |      | (153   | ) |      |   | (82    | )
|Bank overdraft                                                                               |  |      | 259    |   |      |   |       |  
|Accounts payable                                                                             |  |      | (25    | ) |      |   | 182    |  
|Accounts payable - related parties                                                           |  |      | (235   | ) |      |   | (844   | )
|Accrued expenses                                                                             |  |      | (78    | ) |      |   | (171   | )
|Customer deposits                                                                            |  |      | (24    | ) |      |   | 51     |  
|                                                                                             |  |      |        |   |      |   |        |  
|Net cash provided (used) by operating activities                                             |  |      | 1,844  |   |      |   | (1,513 | )
|                                                                                             |  |      |        |   |      |   |        |  
|CASH FLOWS USED BY INVESTMENT ACTIVITIES:                                                    |  |      |        |   |      |   |        |  
|Additions to property and equipment                                                          |  |      | (55    | ) |      |   | (93    | )
|Intangibles                                                                                  |  |      | (23    | ) |      |   |       |  
|Additions to other assets                                                                    |  |      | (24    | ) |      |   | (607   | )
|                                                                                             |  |      |        |   |      |   |        |  
|Net cash used in investing activities                                                        |  |      | (102   | ) |      |   | (700   | )
|                                                                                             |  |      |        |   |      |   |        |  
|CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:                                          |  |      |        |   |      |   |        |  
|Loan payable                                                                                 |  |      | 415    |   |      |   |       |  
|Borrowings from related parties                                                              |  |      | (3,111 | ) |      |   | 1,932  |  
|Advances from stockholder                                                                    |  |      |       |   |      |   | 34     |  
|Proceeds from exercise of stock options                                                      |  |      | 17     |   |      |   | 52     |  
|                                                                                             |  |      |        |   |      |   |        |  
|Net cash provided (used) by financing activities                                             |  |      | (2,679 | ) |      |   | 2,018  |  
|                                                                                             |  |      |        |   |      |   |        |  
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                                    |  |      | (937   | ) |      |   | (195   | )
|CASH AND CASH EQUIVALENTS, beginning of period                                               |  |      | 937    |   |      |   | 1,644  |  
|                                                                                             |  |      |        |   |      |   |        |  
|CASH AND CASH EQUIVALENTS, end of period                                                     |  | $    | 0      |   |      | $ | 1,449  |  
|                                                                                             |  |      |        |   |      |   |        |  



See accompanying notes
to condensed consolidated financial statements.



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GLOBAL EPOINT, INC. AND SUBSIDIARIES

(Formerly McDigit, Inc. and Best Logic, LLC)



CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

(UNAUDITED)



FOR THE THREE MONTHS ENDED MARCH 31, 2005



|                                          |        |                 |   |        |              |       |                            |  |                                         |  |   |                            |  |   |        |  |   |        |   |  |   |        |  
|----------------------------------------- | ------ | --------------- | - | ------ | ------------ | ----- | -------------------------- |  | --------------------------------------- |  | - | -------------------------- |  | - | ------ |  | - | ------ | - |  | - | ------ | -
|(Thousands of dollars and shares)         |        | Preferred Stock |   |        | Common Stock |       | Additional Paid in Capital |  | RetainedEarnings/ (Accumulated Deficit) |  |   | Total Stockholders Equity | 
|                                          | Shares |                 |   | Amount |              |       | Shares                     |  | Amount                                  |  |   |                           
|Balances, December 31, 2004               |        | 34              |   |        | $            | 2,672 |                            |  | 12,123                                  |  | $ | 363                        |  | $ | 12,635 |  | $ | (4,517 | ) |  | $ | 11,153 |  
|Common stock issued upon options exercise |        |                |   |        |              |      |                            |  | 10                                      |  |   | 1                          |  |   | 16     |  |   |       |   |  |   | 17     |  
|Preferred Stock Conversion                |        | (10             | ) |        |              | (786  | )                          |  | 333                                     |  |   | 10                         |  |   | 776    |  |   |       |   |  |   |       |  
|Net loss from operations                  |        |                |   |        |              |      |                            |  |                                        |  |   |                           |  |   |       |  |   | (1,659 | ) |  |   | (1,659 | )
|                                          |        |                 |   |        |              |       |                            |  |                                         |  |   |                            |  |   |        |  |   |        |   |  |   |        |  
|Balances, March 31, 2005                  |        | 24              |   |        | $            | 1,886 |                            |  | 12,466                                  |  | $ | 374                        |  | $ | 13,427 |  | $ | (6,176 | ) |  | $ | 9,511  |  
|                                          |        |                 |   |        |              |       |                            |  |                                         |  |   |                            |  |   |        |  |   |        |   |  |   |        |  



See accompanying notes
to condensed consolidated financial statements.



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GLOBAL EPOINT, INC. AND SUBSIDIARIES

(Formerly McDigit, Inc. and Best Logic, LLC)



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



MARCH 31, 2005



1. Basis of presentation



The accounting and reporting
policies of Global ePoint, Inc. (Global, or Global ePoint or the Company) conform to accounting principles generally accepted in the United States of America. The condensed consolidated financial statements as of
March 31, 2005 and for the three months ended March 31, 2005 and 2004 are unaudited and do not include all information or footnotes necessary for a complete presentation of financial condition, results of operations and cash flows. The interim
financial statements include all adjustments, consisting only of normal recurring accruals, which in the opinion of management are necessary in order to make the condensed consolidated financial statements not misleading. These condensed
consolidated financial statements should be read in conjunction with the Companys December 31, 2004 audited financial statements, which are included in the Companys Annual Report on Form 10-KSB for the year ended December 31, 2004. The
results of operations for the three months ended March 31, 2005 are not necessarily indicative of the results to be expected for the entire year ending December 31, 2005.



2. Summary of significant accounting policies



Nature of business Global ePoint, Inc. was incorporated under the laws of the state of Nevada in March 1990 and is now headquartered
in the City of Industry, California. The primary areas of our business are operated from three divisions: our digital technology division, aviation division and our contract manufacturing division. Our digital technology division designs and markets
digital video technology primarily for surveillance systems. Our aviation division provides surveillance and safety products and other electrical applications to the airline industry. Our contract manufacturing division manufactures customized
computing systems and digital video recorders for industrial, business and consumer markets, with the capability of specialized, custom-manufacture of other electronic products and systems.



Principles of consolidation The accompanying condensed consolidated financial
statements include 100% of the accounts of the Company and its wholly-owned subsidiaries, McDigit, which was incorporated under the laws of the state of California in November 2002, Best Logic LLC (Best Logic), which was organized in
California in November 2000, and Global Telephony, which was incorporated under the laws of Nevada in 2001, and are collectively referred to as the Company in these condensed consolidated financial statements. All significant
inter-company balances and transactions have been eliminated.



Merger and
basis of presentation On August 8, 2003, Global ePoint, McDigit, and Best Logic completed a reverse acquisition (the Merger) where the prior owner of McDigit and Best Logic received approximately 50.1% ownership interest
of Global ePoint in the transaction. Under reverse acquisition accounting, Global ePoint continues as the acquiring legal entity, but the historical financial statements of Global ePoint include only those of McDigit and Best Logic prior to the
Merger date, and those of the combination of all the companies subsequent to the Merger date. Additionally, the assets of the Perpetual division of Next Venture, Inc. d/b/a Sierra Group and the flight support business of Greenick, Inc. d/b/a
AirWorks, Inc. were acquired in April 2004 (see footnote 9).



Accounting for
stock options Global ePoint has adopted the disclosure-only provisions for employee stock options under SFAS No. 123. Accordingly, no compensation cost has been recognized for employee stock option plans under the intrinsic-value method



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prescribed by APB No. 25. Had compensation for Global ePoints other three stock option plans been determined based on the fair value at the grant date
for awards, Global ePoints net income (loss) and income (loss) per share would have been decreased (increased) to the pro forma amounts indicated below for the three months ended March 31 (in thousands, except per share amounts):



|                                                                                                     |  |                                          |        |   |      |   |       |  
|---------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------ | - | ---- | - | ----- | -
|                                                                                                     |  | For the three months endedended March 31 |       
|                                                                                                     |  | 2005                                     |        |   | 2004 |  
|As reported, net loss applicable to common stockholders                                              |  | $                                        | (2,151 | ) |      | $ | (362  | )
|Stock-based employee compensation determined under the fair value method, net of related tax effects |  |                                          | (247   | ) |      |   | (56   | )
|                                                                                                     |  |                                          |        |   |      |   |       |  
|Pro forma                                                                                            |  | $                                        | (2,398 | ) |      | $ | (418  | )
|                                                                                                     |  |                                          |        |   |      |   |       |  
|Loss per common share, basic and fully diluted:                                                      |  |                                          |        |   |      |   |       |  
|As reported                                                                                          |  | $                                        | (0.17  | ) |      | $ | (0.03 | )
|Pro forma                                                                                            |  | $                                        | (0.19  | ) |      | $ | (0.04 | )



3. Inventories



Inventories consisted of the following as of March 31, 2005 (in thousands):



|                                                                  |  |   |      
|----------------------------------------------------------------- |  | - | -----
|Computer component parts                                          |  | $ | 1,732
|Video and data recording component parts                          |  |   | 1,267
|Cockpit door surveillance system and wire harness component parts |  |   | 590  
|                                                                  |  |   |      
|Total                                                             |  | $ | 3,589
|                                                                  |  |   |      



4. Property and equipment



Property and equipment consisted of the following as of March 31, 2005
(in thousands):



|                                |  |   |       |  
|------------------------------- |  | - | ----- | -
|Furniture and equipment         |  | $ | 338   |  
|Computer equipment and software |  |   | 278   |  
|Building improvements           |  |   | 407   |  
|Tooling and demo units          |  |   | 34    |  
|Vehicles                        |  |   | 29    |  
|                                |  |   |       |  
|Totals                          |  | $ | 1,086 |  
|Less accumulated depreciation   |  |   | (258  | )
|                                |  |   |       |  
|Property and equipment, net     |  | $ | 828   |  
|                                |  |   |       |  



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5. Goodwill



We have a significant amount of goodwill and intangible assets on our balance sheet related to acquisitions. At March 31, 2005 the net amount of $7.6 million of goodwill
and intangible assets represented 36% of total assets. Goodwill represents the excess of costs over fair value of assets of businesses acquired. We adopted the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, as of January 1,
2002. Goodwill and intangible assets acquired in a purchase combination determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No.
142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, Accounting for
Impairment or Disposal of Long-Lived Assets.



The Company has
accumulated a total of $6.3 million of goodwill; $3.2 million resulted from the Merger, $2.8 million from the asset acquisition of Airworks and $300,000 from the asset purchase of Perpetual. The goodwill arising from the Merger has been subject to
its annual impairment test. Application of the discounted cash flow methodology to Management assumptions did not identify any impairment to the Merger goodwill. Management has reviewed the remaining accumulated goodwill. No impairment to goodwill
was identified therefore there was no loss charged to operations for 2005 or 2004. We continually monitor for any potential indicators of impairment of goodwill and intangible assets and we have determined that no such indicators have arisen to
date. Any impairment loss could have a material adverse impact on our financial condition and results of operations.



6. Business concentrations



Sales and purchases For the three months ended March 31, 2005 and 2004 , three and two customers, respectively, accounted for 67% and 76% of the Companys
sales, respectively, and 57% and 84% of the accounts receivable as of March 31, 2005 and 2004 , respectively. For the three months ended March 31, 2005 and 2004, three and two vendors accounted for 33% and 46% of the Companys purchases,
respectively and 68% and 85% of the accounts payable as of March 31, 2005 and 2004, respectively. A substantial amount of sales and purchase transactions are conducted with related parties, as discussed in Note 7.



7. Related party transactions



Pre-Merger Loans Mr. John Pan, the Companys Chairman, Chief Financial Officer
and majority stockholder, made pre-Merger advances to McDigit amounting to approximately $341,000, of which $196,000 was repaid during 2003. All of the loans relate to pre-Merger activities. As of March 31, 2005, the remaining balance on these loans
was $145,000. The loans are unsecured and, currently, payable on demand. However, the Company intends to replace these loans with convertible promissory notes with an interest rate and other terms subject to Board approval.



Rent agreement Mr. John Pan, the Companys Chairman, Chief Financial Officer and
majority stockholder, leases a facility to the Company and to Avatar Technologies, Inc. (Avatar), a Related Party (as defined below). Facility rental costs, including additional square footage to accommodate more offices for
administrative staff, more equipment for production and assembly, and more warehouse space, totaled $107,000 and $69,000 for the three months ended March 31, 2005 and 2004, respectively. Rental costs for manufacturing and assembly equipment were
approximately $21,450 and $22,000 for the three months ended March 31, 2005 and 2004, respectively.



Other arrangements The Company had various sales and purchase transactions with companies that are owned or controlled by the Companys Chairman, Chief Financial Officer and majority stockholder, Mr. John
Pan (Related Parties). Those types of transactions occurred with the Related Parties prior to the completion of the Merger and have continued subsequent to the Merger, although there can be no assurances that these arrangements will
continue given that the Related Parties are not obligated to continue dealing with the Company. Substantially all of our related party transactions are with our contract manufacturing division. One of those transactions, a subcontracted purchase
order, allowed the Company to manufacture computers for distribution into Latin America through one of the Related Parties. Another ongoing transaction allows the Company to use Related Parties to globally source computer components for the
Companys manufacturing business. The Related Parties can generally purchase components in greater quantity than the Company can on its own and thereby can provide the Company with more favorable pricing due to volume discounts.



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The outstanding balances due from and to Related Parties as of March 31, 2005 were as follows:



|                                                   |  |                 |      
|-------------------------------------------------- |  | --------------- | -----
|                                                   |  | As of March 31,
|(Thousands of dollars)                             |  | 2005           
|Balances due from Related Parties were as follows: |  |                 |      
|(A) (50% owned by CFO/Chairman)                    |  | $               |     
|(B) (100% owned by CFO/Chairman)                   |  |                 | 2,808
|(C) (100% owned by CFO/Chairman)                   |  |                 |     
|(D) (95% owned by CFO/Chairman)                    |  |                 | 620  
|                                                   |  |                 |      
|Totals                                             |  | $               | 3,428
|                                                   |  |                 |      
|Balances due to Related Parties were as follows:   |  |                 |      
|(A) (50% owned by CFO/Chairman)                    |  | $               |     
|(B) (100% owned by CFO/Chairman)                   |  |                 |     
|(C) (100% owned by CFO/Chairman)                   |  |                 |     
|(D) (95% owned by CFO/Chairman)                    |  |                 | 6,648
|                                                   |  |                 |      
|Totals*                                            |  | $               | 6,648
|                                                   |  |                 |      



|* | Balances due to Related Parties include trade payables for purchases of component parts from Related Parties as well as advances for working capital purposes. These balances are
included in Accounts Payable  Related Parties or Due to Related Parties on the accompanying condensed consolidated balance sheet as of March 31, 2005 based on the nature of the related activity.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|                                                        |  |                                     |       |      |   |      
|------------------------------------------------------- |  | ----------------------------------- | ----- | ---- | - | -----
|                                                        |  | For the three months ended March 31
|(Thousands of dollars)                                  |  | 2005                                |       | 2004
|Product purchases from Related Parties were as follows: |  |                                     |       |      |   |      
|(A) (50% owned by CFO/Chairman)                         |  | $                                   |      |      | $ |     
|(B) (100% owned by CFO/Chairman)                        |  |                                     | 491   |      |   | 205  
|(C) (100% owned by CFO/Chairman)                        |  |                                     |      |      |   |     
|(D) (95% owned by CFO/Chairman)                         |  |                                     | 448   |      |   | 1,498
|                                                        |  |                                     |       |      |   |      
|Totals                                                  |  | $                                   | 939   |      | $ | 1,703
|                                                        |  |                                     |       |      |   |      
|Product sales to Related Parties were as follows:       |  |                                     |       |      |   |      
|(A) (50% owned by CFO/Chairman)                         |  | $                                   |      |      | $ | 39   
|(B) (100% owned by CFO/Chairman)                        |  |                                     | 1,054 |      |   | 949  
|(C) (100% owned by CFO/Chairman)                        |  |                                     |      |      |   |     
|(D) (95% owned by CFO/Chairman)                         |  |                                     | 12    |      |   | 310  
|                                                        |  |                                     |       |      |   |      
|Totals                                                  |  | $                                   | 1,066 |      | $ | 1,298
|                                                        |  |                                     |       |      |   |      

---



8. Basic and fully diluted per share calculation



Statement of Financial Accounting Standards No. 128 (SFAS 128), Earnings Per Share requires presentation of basic earnings per share and dilutive earnings per share.



The computation of basic earnings per share is computed by dividing earnings available to
common stockholders by the weighted average number of outstanding common shares during the period. Diluted earnings per share gives the effect to all dilutive potential common shares outstanding during the period. The computation of diluted earnings
per share does not assume conversion, exercise or contingent exercise of securities that would have an anti-dilutive effect on losses.



10



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##### Table of Contents

The computations for basic and fully diluted loss per share are as follows (in thousands, except per
share amounts):



|                                           |  |                 |        |   |                     |        |                 |   |       |  
|------------------------------------------ |  | --------------- | ------ | - | ------------------- | ------ | --------------- | - | ----- | -
|                                           |  | Loss(Numerator) |        |   | Shares(Denominator) |        | Per-shareAmount |  
|For the three months ended March 31, 2005: |  |                 |        |   |                     |        |                 |   |       |  
|Basic and fully diluted loss per share     |  |                 |        |   |                     |        |                 |   |       |  
|Loss applicable to common stockholders     |  | $               | (2,151 | ) |                     | 12,234 |                 | $ | (0.17 | )
|For the three months ended March 31, 2004: |  |                 |        |   |                     |        |                 |   |       |  
|Basic and fully diluted income per share   |  |                 |        |   |                     |        |                 |   |       |  
|Loss applicable to common stockholders     |  | $               | (362   | ) |                     | 10,840 |                 | $ | (0.03 | )



9. Acquisitions



On April 5, 2004, the Company and Next Venture, Inc. d/b/a Sierra Group, a California
corporation (Next Venture) executed an Asset Purchase Agreement. Pursuant to that agreement the Company purchased substantially all of the assets used in Next Ventures Perpetual digital division (Perpetual), including
intellectual property and ongoing supply agreements. Perpetual is a systems integrator and supplier of digital video recording systems for commercial and industrial security surveillance. In consideration for the assets, the Company paid $353,000 in
cash. In addition to the cash, the Company agreed to forgive the collection of an account receivable from Next Venture in the amount of approximately $152,000. The Company will be required to pay up to $2,750,000 in Common Stock, subject to the
acquired operations achieving certain sales targets in the 12-month period following the closing of the acquisition. No liabilities have been recorded for the contingent payment as the sales targets have not been met to date.



In no event will the purchase price exceed $3,300,000. If the acquired operations meet the
sales levels required for receipt of the stock by the seller, the Company would be required to issue the stock approximately one year from the date of the acquisition at the average price of the Companys stock over the 30 trading days prior to
the issuance of the stock. If the Company is required to issue its stock to the seller, the Companys current stockholders would experience dilution of their ownership interests and, potentially, the Companys earnings per share may be
diluted. There can be no assurance that this acquisition will be successfully integrated into the Companys operations.



On April 26, 2004, the Company acquired certain assets from Insolvency Services Group, Inc. (ISG), which had acquired those assets from Greenick, Inc. d/b/a
AirWorks, Inc. (AirWorks) pursuant to a general assignment. This assignment by AirWorks to ISG was part of an assignment for the benefit of creditors of AirWorks. Pursuant to the assignment from ISG, the Company acquired AirWorks
flight support business including aircraft electronic and communications assets and operations, including intellectual property, and contracts and purchase orders from major aircraft manufacturers. In consideration for the assets, the Company paid a
total of approximately $3.3 million in cash, approximately $2.3 million of which was paid at closing and an additional $1 million was paid in June 2004. In addition to the purchase price the Company paid approximately $200,000 in acquisition costs
and $346,000 relating to subsequent amendments to the asset purchase agreement. A contingency payment of up to $3,000,000 in cash may also be payable for the assets. In order to receive any contingency payment, certain financial performance
benchmarks must be attained. Upon attaining a certain benchmark, a proportional payment will be made until a second benchmark is attained at which point any remaining contingency payments up to an aggregate of $3,000,000 will be made. The
contingency payments, if any, are due the later of December 1, 2004, or the date 30 days after the benchmark is first attained. However, no contingency payments will be required if the benchmarks are not attained within one year of the closing date.
The contingency payments, if any, may be reduced if certain enumerated items materialize or fail to occur following the closing. No liabilities have been recorded for the contingent payment as the minimum benchmarks have not been met to date.



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##### Table of Contents

The following table summarizes the estimated fair values of the assets acquired at the date of acquisition (dollars in
thousands). Global ePoint is in the process of obtaining valuations of certain assets; thus, the allocation of the purchase price is subject to refinement.



|                          |  |          |       |           |   |       |  |   |      
|------------------------- |  | -------- | ----- | --------- | - | ----- |  | - | -----
|                          |  | Airworks |       | Perpetual |   | Total
|Current assets            |  | $        | 194   |           | $ | 221   |  | $ | 415  
|Plant and equipment       |  |          | 206   |           |   |      |  |   | 206  
|Intangible assets         |  |          | 550   |           |   |      |  |   | 550  
|Goodwill                  |  |          | 2,896 |           |   | 284   |  |   | 3,180
|                          |  |          |       |           |   |       |  |   |      
|Total assets acquired     |  |          | 3,846 |           |   | 505   |  |   | 4,351
|Current liabilities       |  |          |      |           |   |      |  |   |     
|Long term debt            |  |          |      |           |   |      |  |   |     
|                          |  |          |       |           |   |       |  |   |      
|Total liabilities assumed |  |          |      |           |   |      |  |   |     
|                          |  |          |       |           |   |       |  |   |      
|Net assets acquired       |  | $        | 3,846 |           | $ | 505   |  | $ | 4,351
|                          |  |          |       |           |   |       |  |   |      



The $550,000 of acquired intangible
assets was assigned to the Supplemental Type Certificates (STC) with a useful life of approximately five years. These certificates are required by the FAA to install equipment into aircraft. The goodwill was assigned to the aviation and digital
technology segments in the amounts of $2.896 million and $284,000, respectively and may include other intangible assets which have not yet been identified.



The following selected financial data reflects consolidated pro forma information as if the acquisition of Airworks had occurred January 1, 2004.



|                                                 |      |                            |        |      |  |   |       |  
|------------------------------------------------ | ---- | -------------------------- | ------ | ---- |  | - | ----- | -
|(Thousands of dollars, except per share amounts) |      | Three months endedMarch 31 |       
|                                                 | 2005 |                            |        | 2004 | 
|Pro Forma Consolidated Net Sales                 |      | $                          | 5,476  |      |  | $ | 5,438 |  
|Pro Forma Net (Loss) Income                      |      |                            | (2,151 | )    |  |   | (720  | )
|Loss per share:                                  |      |                            |        |      |  |   |       |  
|Basic and diluted, pro forma                     |      | $                          | (0.17  | )    |  | $ | (0.07 | )



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##### Table of Contents

10. Segment reporting



The Company operates in three business segments; marketing, developing and distributing advanced digital technology products related to digital video, audio and data
transmission and recording products (digital technology), flight support business including aircraft electronics and communications systems (aviation) and the assembly and distribution of computer systems, digital video recorders and computer
related components (contract manufacturing). The Corporate category primarily relates to activities associated with income and expense of non-core continuing business of the pre-merged public entity. The Company evaluates segment performance based
on income from operations and total assets. All inter-company transactions between segments have been eliminated. Information with respect to the Companys operating (loss) income by segment is as follows:



For the three months ended March 31, 2005



|                                          |  |                   |       |   |          |   |       |                       |  |           |        |  |       |       |   |  |   |        |  
|----------------------------------------- |  | ----------------- | ----- | - | -------- | - | ----- | --------------------- |  | --------- | ------ |  | ----- | ----- | - |  | - | ------ | -
|($ in thousands)                          |  | DigitalTechnology |       |   | Aviation |   |       | ContractManufacturing |  | Corporate |        |  | Total |      
|Net Sales                                 |  | $                 | 370   |   |          | $ | 442   |                       |  | $         | 4,664  |  | $     |      |   |  | $ | 5,476  |  
|Cost of sales                             |  |                   | 243   |   |          |   | 308   |                       |  |           | 3,761  |  |       |      |   |  |   | 4,312  |  
|                                          |  |                   |       |   |          |   |       |                       |  |           |        |  |       |       |   |  |   |        |  
|Gross profit                              |  |                   | 127   |   |          |   | 134   |                       |  |           | 903    |  |       |      |   |  |   | 1,164  |  
|Operating Expenses                        |  |                   | 918   |   |          |   | 555   |                       |  |           | 763    |  |       | 579   |   |  |   | 2,815  |  
|                                          |  |                   |       |   |          |   |       |                       |  |           |        |  |       |       |   |  |   |        |  
|Income (loss) from operations             |  |                   | (791  | ) |          |   | (421  | )                     |  |           | 140    |  |       | (579  | ) |  |   | (1,651 | )
|Other income (expense)                    |  |                   | (8    | ) |          |   |      |                       |  |           |       |  |       |      |   |  |   | (8     | )
|                                          |  |                   |       |   |          |   |       |                       |  |           |        |  |       |       |   |  |   |        |  
|Income/(Loss) from operations             |  | $                 | (799  | ) |          | $ | (421  | )                     |  | $         | 140    |  | $     | (579  | ) |  | $ | (1,659 | )
|                                          |  |                   |       |   |          |   |       |                       |  |           |        |  |       |       |   |  |   |        |  
|Total assets as of March 31, 2005         |  | $                 | 3,778 |   |          | $ | 5,073 |                       |  | $         | 7,785  |  | $     | 4,620 |   |  | $ | 21,256 |  
|                                          |  |                   |       |   |          |   |       |                       |  |           |        |  |       |       |   |  |   |        |  
|For the three months ended March 31, 2004 |  |                   |       |   |          |   |       |                       |  |           |        |  |       |       |   |  |   |        |  
|                                          |  |                   |       |   |         
|                                          |  | DigitalTechnology |       |   | Aviation |   |       | ContractManufacturing |  | Corporate |        |  | Total |      
|Net Sales                                 |  | $                 | 31    |   |          | $ |      |                       |  | $         | 4,399  |  | $     |      |   |  | $ | 4,430  |  
|Cost of sales                             |  |                   | 26    |   |          |   |      |                       |  |           | 3,329  |  |       |      |   |  |   | 3,355  |  
|                                          |  |                   |       |   |          |   |       |                       |  |           |        |  |       |       |   |  |   |        |  
|Gross profit                              |  |                   | 5     |   |          |   |      |                       |  |           | 1,070  |  |       |      |   |  |   | 1,075  |  
|Operating Expenses                        |  |                   | 494   |   |          |   |      |                       |  |           | 888    |  |       | 207   |   |  |   | 1,589  |  
|                                          |  |                   |       |   |          |   |       |                       |  |           |        |  |       |       |   |  |   |        |  
|Income (loss) from operations             |  |                   | (489  | ) |          |   |      |                       |  |           | 182    |  |       | (207  | ) |  |   | (514   | )
|Other income (expense)                    |  |                   | (2    | ) |          |   |      |                       |  |           | 47     |  |       | 107   |   |  |   | 152    |  
|                                          |  |                   |       |   |          |   |       |                       |  |           |        |  |       |       |   |  |   |        |  
|Income/(Loss) from operations             |  | $                 | (491  | ) |          | $ |      |                       |  | $         | 229    |  | $     | (100  | ) |  | $ | (362   | )
|                                          |  |                   |       |   |          |   |       |                       |  |           |        |  |       |       |   |  |   |        |  
|Total assets as of March 31, 2004         |  | $                 | 2,412 |   |          | $ |      |                       |  | $         | 10,124 |  | $     | 6,971 |   |  | $ | 19,507 |  
|                                          |  |                   |       |   |          |   |       |                       |  |           |        |  |       |       |   |  |   |        |  



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##### Table of Contents

11. Series A Preferred Stock and Common Stock Warrants



On August 5, 2004, Global ePoint, Inc. completed the private placement sale of convertible
preferred stock and common stock purchase warrants to three equity funds managed by Mercator Advisory Group, LLC, of Los Angeles, California. The gross proceeds from the transaction were $5.5 million. Related issuance costs of $.6 million resulted
in net proceeds of $4.89 million. The preferred stock is initially convertible into common shares at $4.55 per share. In the event of any conversions of the preferred stock after the 120thday from the closing date, if the market price of the Companys common stock is less than $4.76 per share, then the conversion price applicable to that
particular conversion shall be adjusted to a price that shall equal eighty-five percent (85%) of the market price on such conversion date; provided, that, in no event shall the adjusted conversion price be less than $3.00 per share. The Series A
preferred stock had a $5.5 million liquidation preference at issuance. The holders of the Series A preferred stock elected to convert 21,000 preferred shares into common shares on December 5, 2004 an additional 10,000 preferred shares were converted
into common shares on March 5, 2005. As per the conversion calculations the Series A preferred stock was converted using $3.00 per common share resulting in a beneficial conversion of $1 million for the 21,000 converted preferred shares and $.5
million for the 10,000 converted preferred shares. The beneficial conversion is treated as a non-cash preferred stock dividend.



12. Other Financing Transactions



On March 9, 2005, the Companys wholly-owned subsidiary, Best Logic, LLC, entered into a loan agreement with Far East National Bank pursuant to which the bank has
agreed to loan Best Logic up to $1,000,000. Pursuant to a promissory note, dated March 9, 2005, executed in connection with the loan agreement, interest on the outstanding principal balance of the loan will accrue at a variable rate equal to the
lenders prime rate plus 1%. The initial interest rate is 6.5% per annum, subject to change each time the lenders prime rate changes. Interest is payable monthly with all outstanding principal and accrued and unpaid interest due and
payable in full on March 15, 2006. As of May 2005, a total of $700,000 has been advanced to Best Logic pursuant to the loan agreement.



In connection with the loan agreement, and as collateral for the loan, Best Logic executed a security agreement granting Far East National Bank a security interest in
certain assets of Best Logic, including all inventory, accounts, equipment and general intangibles. In addition, the loan is secured by a personal guaranty executed by John Pan, the Companys Chairman and Chief Financial Officer.



13. Subsequent Events



Series B Financing



On May 20, 2005, the Company completed the private placement sale of convertible preferred stock and common stock purchase warrants to three equity funds managed by MAG
Capital, LLC, of Los Angeles, California. The gross proceeds from the transaction were $1.5 million. Related issuance costs of approximately $150,000 resulted in net proceeds of approximately $1.35 million. The preferred stock is convertible into
common shares at $2.80 per share. The Company also sold to the investors warrants to purchase an aggregate of 267,857 common shares at an exercise price of $3.50 per share over a three year period.



14



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##### Table of Contents

|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------



OVERVIEW



Our operations currently consist of three divisions:



| |  |  | digital technologyfocusing on designing, developing, manufacturing, and distributing complete secure network digital video systems and total solutions for law enforcement,
military, homeland security, commercial, industrial, and consumer markets;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | aviation primarily providing surveillance and safety products to the commercial airline industry; and
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | contract manufacturing and sales of digital video recorders and customized computing systems and for the commercial, industrial, and consumer sectors.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



In August 2003, we completed a reverse acquisition
transaction with McDigit, Inc. and Best Logic, LLC in which the prior owner of McDigit and Best Logic received approximately 50.1% of the then outstanding shares of Global ePoint. Under reverse acquisition accounting, Global ePoint continues as the
acquiring legal entity, but the historical presentations of Global ePoints consolidated financial statements include only those of McDigit and Best Logic prior to the merger date, and those of all of the companies combined after the merger
date. No adjustments were made to McDigits and Best Logics historical carrying values at the time of merger.



We acquired the assets of the Perpetual division of Next Venture, Inc. d/b/a Sierra Group and the flight support business of Greenick, Inc. d/b/a AirWorks, Inc in April
2004. The Perpetual business is a systems integrator and supplier of digital video recording systems for commercial and industrial security surveillance and is part of our digital technology division. The Airworks business provides digital video
surveillance solutions to the aircraft industry as well as other electronic solutions and is part of our aviation division. The goal of these acquisitions is to enhance our digital technology based product lines to expand our presence within the
homeland security marketplace.



Our business strategy includes developing a
full line of high value security products deploying the latest technologies. We have spent significant resources with our research and development team developing a base platform for our security surveillance product line. We anticipate launching
the first phase of our new digital video recorder product line in mid 2005. Using this platform we plan to hire additional offshore specialty engineers to supplement our existing core research and development team to enable faster, cost effective
product development focused on security application solutions. Our strategy is to use our research and development expertise to create new proprietary technologies for digital video applications, and also seek to create intellectual properties for
contract manufacturing customers, thereby enabling us to engage in both original equipment manufacturing and original design manufacturing.



To implement planned technology advances and new product development, we continue to focus resources on new, proprietary digital compression technology, Internet protocol
applications, and database management applications. We believe these elements are keys to developing the secure network digital video technology that is expected to drive the development of our next generation of digital video surveillance products.
High-end software for intelligent management of data transmitted from secure digital video networks is also planned as a component of our total digital video technology solutions.



We believe our competitive advantages in parts and components pricing, quality control, just-in-time production capabilities, customer
service, and scalable production processes will support a planned extension of the operations of our contract manufacturing divisionprimarily the manufacture of specialized, custom-designed computers for industrial and commercial useto
include designing and manufacturing a broad range of products and systems, including digital video technology products. We intend to leverage our current contract manufacturing facilities to generate production-cost efficiencies for our digital
video technology division.



On May 20, 2005, we completed the private placement
sale of convertible preferred stock and common stock purchase warrants to three equity funds managed by MAG Capital, LLC, of Los Angeles, California. The gross proceeds from the transaction were $1.5 million. Related issuance costs of approximately
$150,000 resulted in net proceeds of approximately $1.35 million. The preferred stock is convertible into common shares at $2.80 per share. The Company also sold to the investors warrants to purchase an aggregate of 267,857 common shares at an
exercise price of $3.50 per share over a three year period.



RESULTS OF
OPERATIONS  COMBINED



The following is a schedule showing the
combined operations for our digital technology, aviation and contract manufacturing divisions, with a corporate category primarily relating to activities associated with income and expense of non-core continuing business of the
pre-reverse-acquisition company, as well as general overall corporate expenses.



For the three months ended March 31, 2005



|                                  |  |                    |       |   |          |   |       |                        |  |           |       |  |       |       |   |  |   |        |  
|--------------------------------- |  | ------------------ | ----- | - | -------- | - | ----- | ---------------------- |  | --------- | ----- |  | ----- | ----- | - |  | - | ------ | -
|($ in thousands)                  |  | Digital Technology |       |   | Aviation |   |       | Contract Manufacturing |  | Corporate |       |  | Total |      
|Net Sales                         |  | $                  | 370   |   |          | $ | 442   |                        |  | $         | 4,664 |  | $     |      |   |  | $ | 5,476  |  
|Cost of sales                     |  |                    | 243   |   |          |   | 308   |                        |  |           | 3,761 |  |       |      |   |  |   | 4,312  |  
|                                  |  |                    |       |   |          |   |       |                        |  |           |       |  |       |       |   |  |   |        |  
|Gross profit                      |  |                    | 127   |   |          |   | 134   |                        |  |           | 903   |  |       |      |   |  |   | 1,164  |  
|Operating Expenses                |  |                    | 918   |   |          |   | 555   |                        |  |           | 763   |  |       | 579   |   |  |   | 2,815  |  
|                                  |  |                    |       |   |          |   |       |                        |  |           |       |  |       |       |   |  |   |        |  
|Income (loss) from operations     |  |                    | (791  | ) |          |   | (421  | )                      |  |           | 140   |  |       | (579  | ) |  |   | (1,651 | )
|Other income (expense)            |  |                    | (8    | ) |          |   |      |                        |  |           |      |  |       |      |   |  |   | (8     | )
|                                  |  |                    |       |   |          |   |       |                        |  |           |       |  |       |       |   |  |   |        |  
|Income/(Loss) from operations     |  | $                  | (799  | ) |          | $ | (421  | )                      |  | $         | 140   |  | $     | (579  | ) |  | $ | (1,659 | )
|                                  |  |                    |       |   |          |   |       |                        |  |           |       |  |       |       |   |  |   |        |  
|Total assets as of March 31, 2005 |  | $                  | 3,778 |   |          | $ | 5,073 |                        |  | $         | 7,785 |  | $     | 4,620 |   |  | $ | 21,256 |  
|                                  |  |                    |       |   |          |   |       |                        |  |           |       |  |       |       |   |  |   |        |  



15



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##### Table of Contents

For the three months ended March 31, 2004



|                                  |  |                    |       |   |          |   |                        |  |           |        |  |       |       |   |  |   |        |  
|--------------------------------- |  | ------------------ | ----- | - | -------- | - | ---------------------- |  | --------- | ------ |  | ----- | ----- | - |  | - | ------ | -
|                                  |  | Digital Technology |       |   | Aviation |   | Contract Manufacturing |  | Corporate |        |  | Total |      
|Net Sales                         |  | $                  | 31    |   |          | $ |                       |  | $         | 4,399  |  | $     |      |   |  | $ | 4,430  |  
|Cost of sales                     |  |                    | 26    |   |          |   |                       |  |           | 3,329  |  |       |      |   |  |   | 3,355  |  
|                                  |  |                    |       |   |          |   |                        |  |           |        |  |       |       |   |  |   |        |  
|Gross profit                      |  |                    | 5     |   |          |   |                       |  |           | 1,070  |  |       |      |   |  |   | 1,075  |  
|Operating Expenses                |  |                    | 494   |   |          |   |                       |  |           | 888    |  |       | 207   |   |  |   | 1,589  |  
|                                  |  |                    |       |   |          |   |                        |  |           |        |  |       |       |   |  |   |        |  
|Income (loss) from operations     |  |                    | (489  | ) |          |   |                       |  |           | 182    |  |       | (207  | ) |  |   | (514   | )
|Other income (expense)            |  |                    | (2    | ) |          |   |                       |  |           | 47     |  |       | 107   |   |  |   | 152    |  
|                                  |  |                    |       |   |          |   |                        |  |           |        |  |       |       |   |  |   |        |  
|Income/(Loss) from operations     |  | $                  | (491  | ) |          | $ |                       |  | $         | 229    |  | $     | (100  | ) |  | $ | (362   | )
|                                  |  |                    |       |   |          |   |                        |  |           |        |  |       |       |   |  |   |        |  
|Total assets as of March 31, 2004 |  | $                  | 2,412 |   |          | $ |                       |  | $         | 10,124 |  | $     | 6,971 |   |  | $ | 19,507 |  
|                                  |  |                    |       |   |          |   |                        |  |           |        |  |       |       |   |  |   |        |  



RESULTS OF OPERATIONS 
DIGITAL TECHNOLOGY DIVISION



For the Three Months Ended March 31, 2005
Compared to March 31, 2004



We formed our digital technology division to
focus on the development of digital products and technologies for law enforcement, commercial and industrial security applications. In April 2004, we acquired the assets of the Perpetual division of Next Venture, Inc. to continue the build out of
product offerings within the commercial and industrial security marketplace.



In the fourth quarter of 2004 we launched the Perpetual Digital product line of digital video surveillance security products to be marketed through wholesale distribution. At the same time, we added four sales people to cover the North
American distribution channel. Our sales team has successfully established relationships with 16 distributors with the potential to distribute our products in 109 locations across North America. Additionally, we initiated an advertising campaign to
generate brand awareness for our Perpetual Digital products. We intend to expand our advertising and initiate promotional campaigns to continue the development of the Perpetual Digital brand and gain market acceptance for our product line.



Our mobile digital products are currently targeting law enforcement and
military applications. The products are currently being evaluated by several law enforcement customers but have not generated significant revenues to date. We are developing additional applications within the commercial and industrial sectors for
potential sales opportunities for our mobile security product offerings.



The
division is in its early stages of growth, and continues to concentrate on developing and acquiring new products and technologies with an emphasis on security applications.



Revenues for the three months ended March 31, 2005 totaled $370,000 compared to $31,000 for the three months ended March 31, 2004. The
increase in revenues is the result of the addition of the Perpetual product line to the digital technology division. Gross margins for the quarter ended March 2005 were 34.3% compared to 16.1% in the quarter ended March 2004.



Research and development costs increased to $278,000 for the three months ended March 30,
2005 from approximately $252,000 for the same three month period of 2004. The increase is the result of an increase in material costs of $41,000 offset by a reduction in personnel costs.



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Selling expenses increased $246,000 for the three months ended March 31, 2005 to $394,000 from $148,000 for the same
period of the prior year. The increase is due to the launch of the Perpetual Digital product line which required the addition of sales personnel comprising $207,000 of the increase and $31,000 for advertising and promotion expenses incurred for the
initial launch of the Perpetual Digital product line.



General and
administrative expenses totaled $219,000 compared to $88,000 for the three month period ended March 31, 2004. This increase was due to $83,000 of additional personnel, rent and other expenses resulting from the Perpetual business as there were no
comparable expenses in 2004 and $49,000 increase in medical, workers compensation, and general liability and other insurance expenses as no comparable expenses were allocated to the division in the first quarter of 2004.



The Perpetual digital product launch and expansion of our salesforce along with our continued
investment in research and development resulted in a loss of $799,000 for the digital technology division for the quarter ended March 2005 compared to a net loss of $491,000 for the quarter ended March 2004. The Perpetual Digital product launch is
in its early stage of development and has not generated significant revenues to date. We expect our continued investment in sales and marketing will result in substantive sales growth for our Perpetual Digital products.



RESULTS OF OPERATIONS  AVIATION DIVISION



Our aviation division, known as Global Airworks, is an aviation service company specializing
in commercial aircraft surveillance systems and interior modification, serving both domestic and international carriers as well as original equipment manufacturers and suppliers. Our products and services primarily relate to airline surveillance and
security systems, new or upgraded communication systems, in flight entertainment systems, and comfort and convenience systems. Our current products include Cockpit Door Surveillance Systems (CDSS) which uses digital video technology to allow the
pilot to view activity behind the secured cockpit door from the cockpit. We have also developed an Electronic Flight Bag that uses digital technology to store and retrieve flight manuals and procedures. In addition, we provide smoke detection and
fire suppression systems and wire and harness solutions for various electrical applications within an aircraft.



Revenues for the quarter ended March 31, 2005 totaled $442,000 comprised of sales of CDSS, wire and harness, and installation services. Cost of goods sold for the quarter
ended March 31, 2005 was $308,000. Gross margins were 30.3% for the first quarter ended March, 2005.



Operating expenses totaled $555,000 for the first quarter ended March 31, 2005. Significant expenses included salaries and related payroll taxes totaling $311,000 of which $50,000 was accrued in the first quarter
relating to a noncompete agreement within the employment agreement of a key employee, rent expense of $49,000, amortization expense for our STCs totaled $41,000 and travel expenses of $37,000. As a result, the aviation division incurred a net loss
of $421,000 in the first quarter ended March 31, 2005.



We are positioned to
take advantage of the market opportunities that will be presented by the expected release of mandates from both the Federal Aviation Administration (FAA) and the European aviation regulatory authorities, the European Aviation Safety Agency (EASA)
and the Joint Aviation Authority (JAA). We have obtained all FAA Supplemental Type Certificates (STC) for the installation of CDSS on all Boeing aircraft types and all Airbus aircraft (except the A380, their latest aircraft model). Therefore, any
new orders will not require any engineering or certification work, but simply manufacturing and shipping. We currently have $2.8 million in contracts with a Scandinavian airline pending the EASA/JAA mandate for flight deck door monitoring systems.



RESULTS OF OPERATIONS  CONTRACT MANUFACTURING DIVISION



Our contract manufacturing division manufactures digital video recorders
and customized computing systems for the industrial, business and consumer markets, with the capability of specialized, custom-manufacture of other electronic products and systems. In addition to custom manufacturing the division also sources and
distributes electronic components and parts.



For the Three Months Ended
March 31, 2005 Compared to March 31, 2004



Net sales for the first quarter
ended March 31, 2005 increased to $4.7 million from $4.4 million in the first quarter ended March 2004. The increase in net sales was due to the increase in sales of industrial computer products to $3.1 million from $2.8 million in the first



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quarter 2004. In the first quarter of 2005 and 2004, net sales of lower margin consumer computer products were $1.6 million. Cost of sales was $3.7 million
for the quarter ended March 31, 2005, or 80.6% of sales compared to $3.3 million or 75.7% of sales for the corresponding quarter of 2004. The increase in the cost of sales as a percentage of net sales was due to a decrease in margins on our consumer
PC products and inventory count discrepancies which led to an adjustment to inventory in the first quarter of 2004 resulting in a 2.5% reduction in the cost of sales as percent of net sales. As a result, gross margins for the first quarter of 2005
were 19.4% compared to 24.3% in the first quarter 2004.



Operating expenses for
the quarter ended March 31, 2005 were $763,000, or 16.4% of sales, compared to $888,000, or 20.1% of sales, in the quarter ended March 31, 2004. Improvements in manufacturing efficiency resulted in a $60,000 reduction in manufacturing direct labor
in the first quarter of 2005 from the first quarter of 2004. Rent expense decreased $35,000 for the quarter ended March 31, 2005 compared to the quarter ended March 31, 2004 due to the subleasing of excess warehouse and office space beginning the
fourth quarter of 2004.



As a result, net income for the contract manufacturing
division was $140,000 for the three months ended March 31, 2005 compared to $229,000 for the three months ended March 31, 2004.



RESULTS OF OPERATIONS - CORPORATE



Corporate activities primarily relate to activities associated with income and expense of non-core continuing business of the pre-reverse-acquisition company, as well as
general overall corporate expenses. During the three months ended March 31, 2005, corporate general and administrative costs totaled $579,000 compared to $207,000 for the three months ended March 31, 2004. Payroll expenses increased $162,000 to
$212,000 in the first quarter of 2005 compared to $49,000 in the first quarter of 2004. The increase is primarily due to the adjustment of management compensation to a competitive market based compensation structure beginning in the second quarter
of 2004. Professional fees associated with a public company were $337,000 for the three months ended March 31, 2005 compared to $158,000 for the three months ended March 31, 2004. The increase was due to an increase in costs related to public
relations and promotion.



There was no other income in the first quarter of
2005 compared to $107,000 of other income in the first quarter of 2004 which primarily related to earn-out revenue from contingent payments based on performance of the company that acquired Global ePoints prior business.



The net result for corporate operations was a net loss of $579,000 in the three months ended
March 31, 2005 compared to a net loss of $100,000 for the three months ended March 31, 2004.



SUMMARY



As a net result of the
combined operations of our digital technology division, aviation division, contract manufacturing division, and corporate activities, Global ePoint incurred a net loss from operations of $1.7 million for the three months ended March 31, 2005. The
conversion of a portion of our Series A preferred stock generated a non-cash preferred dividend of $492,000 resulting in a net loss applicable to common stockholders of $2.1 million, or $(.17) per share for the three months ended March 31, 2005,
compared to net loss of $362,000, or $(.03) per share for the three months ended March 31, 2004.



LIQUIDITY AND CAPITAL RESOURCES



Net
cash provided by operations for the three months ended March 31, 2005 was $1.8 million as compared to cash used by operations of $1.5 million for the corresponding period of 2004. The primary sources of cash were $2.0 million decrease in accounts
receivable in the normal course of our sales cycles and $2.2 reduction in related party accounts receivable which was offset primarily by $1.3 million increase in the operating loss.



As of March 31, 2005, we had net working capital deficit totaling $739,000 including a cash overdraft of $259,000. Net cash provided by
operating activities totaled $1.8 million for the three months ended March 31, 2005 as compared to cash used by operating



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activities of $1.5 million for the three months ended March 31, 2004. This cash was primarily provided through the reduction of related party accounts
receivable which was used to partially offset borrowings from related parties.



Cash used in investing activities for the first quarter of 2005 consisted of $102,000 compared to $700,000 for the first quarter of 2004. The cash was used for the purchase of equipment and other assets.



Net cash used by financing activities for the three months ended March 31, 2005 totaled $2.7
million. In March 2005 our contract manufacturing division obtained a $1 million bank line of credit to assist in the funding of our working capital requirements of which $400,000 was provided for operations as of March 31, 2005. Additionally, the
reduction of related party accounts receivable was used to offset borrowings from related parties in the amount of $3.1 million. As of March 31, 2005, the total outstanding balance on loans from related parties was $1.0 million. Cash provided by
financing activities for the three months ended March 31, 2004 was $2.0 million which was primarily from related parties. As a result of the total cash activities, net cash decreased $.9 million from December 31, 2004 to March 31, 2005.



As of March 31, 2005, we had net working capital deficit totaling $739,000 including a
cash overdraft of $259,000. Our working capital has continued to deteriorate due to ongoing losses. In May 2005, we completed a private placement sale of Series B preferred stock and warrants. The gross proceeds on the transaction were $1.5 million
with net proceeds of approximately $1.35 million (see Subsequent Events). We have prepared an analysis of our working capital requirements and we believe that we will need an additional $5 million of capital, in addition to the proceeds of the
Series B financing, our existing cash and cash equivalents and cash generated by operations, in order to meet our working capital needs, capital expenditures, and commitments for the next 12 months. We are in discussions to acquire a Southern
California based company, if successful, the terms of the transaction will require an initial deposit of $500,000 and a loan for an additional $500,000. We will endeavor to raise additional required funds through various financing sources, including
additional sales of our equity and debt securities and the procurement of commercial debt financing. However, there can be no guarantees that such funds will be available on commercially reasonable terms, if at all. If such financing is not
available on satisfactory terms, we may be unable to expand or continue our business as desired and operating results may be adversely affected. Debt financing will increase expenses and must be repaid regardless of operating results. Equity
financing could result in dilution to existing stockholders. Our future capital requirements may vary materially from those now planned. We anticipate that the amount of capital that we will need in the future will depend on many factors, including:



| |  |  | the overall levels of sales of our products and gross profit margins;
| | - |  | ---------------------------------------------------------------------



| |  |  | market acceptance of the technology and products;
| | - |  | -------------------------------------------------



| |  |  | our business, product, capital expenditure and research and development plans, and product and technology roadmaps;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | the overall levels of sales of our products and gross profit margins;
| | - |  | ---------------------------------------------------------------------



| |  |  | the levels of promotion and advertising that will be required to launch our new products and achieve and maintain a competitive position in the marketplace;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | volume price discounts and customer rebates;
| | - |  | --------------------------------------------



| |  |  | the levels of inventory and accounts receivable that we maintain;
| | - |  | -----------------------------------------------------------------



| |  |  | acquisition opportunities;
| | - |  | --------------------------



| |  |  | capital improvements to new and existing facilities;
| | - |  | ----------------------------------------------------



| |  |  | technological advances;
| | - |  | -----------------------



| |  |  | our competitors responses to our products;
| | - |  | -------------------------------------------



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| |  |  | our relationships with suppliers and customers; and
| | - |  | ---------------------------------------------------



| |  |  | the effectiveness of our expense and product cost control and reduction efforts.
| | - |  | --------------------------------------------------------------------------------



In addition, we may require additional capital to accommodate planned future growth, hiring, infrastructure and facility needs or to
consummate acquisitions of other businesses, assets, products, or technologies.



CAUTIONARY STATEMENT REGARDING FUTURE RESULTS, FORWARD-LOOKING INFORMATION AND CERTAIN IMPORTANT FACTORS



In this report we make, and from time to time we otherwise make, written and oral statements regarding our business and prospects, such as projections of
future performance, statements of managements plans and objectives, forecasts of market trends, and other matters that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Statements containing the words or phrases will likely result, are expected to, will continue, is anticipated, estimates, projects,
believes, expects, anticipates, intends, target, goal, plans, objective, should or similar expressions identify forward-looking statements,
which may appear in documents, reports, filings with the Securities and Exchange Commission, news releases, written or oral presentations made by officers or other representatives made by us to analysts, stockholders, investors, news organizations
and others, and discussions with management and other of our representatives. For such statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.



Our future results, including results related to
forward-looking statements, involve a number of risks and uncertainties. No assurance can be given that the results reflected in any forward-looking statements will be achieved. Any forward-looking statement speaks only as of the date on which such
statement is made. Our forward-looking statements are based upon assumptions that are sometimes based upon estimates, data, communications and other information from suppliers, government agencies and other sources that may be subject to revision.
Except as required by law, we do not undertake any obligation to update or keep current either (i) any forward-looking statement to reflect events or circumstances arising after the date of such statement, or (ii) the important factors that could
cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or which are reflected from time to time in any forward-looking statement.



In addition to other matters identified or described by us from time to time
in filings with the SEC, there are several important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or results that are reflected from time to time in any
forward-looking statement. Some of these important factors, but not necessarily all important factors, include the following:



We require additional funding in the future to continue to operate our business. As of March 31, 2005, we had net working capital deficit
totaling $739,000 including a cash overdraft of $259,000. Our working capital has continued to deteriorate due to ongoing losses. We completed the private placement sale of our Series B Preferred Stock in May 2005 for the gross proceeds of $1.5
million. However, we have prepared an analysis of our working capital requirements and we believe that we will need an additional $5 million of capital, in addition to the proceeds of the Series B financing, our existing cash and cash equivalents
and cash generated by operations, in order to meet our working capital needs, capital expenditures, and commitments for at the next 12 months. We will endeavor to raise additional required funds through various financing sources, including the sale
of our equity and debt securities and the procurement of commercial debt financing. However, there can be no guarantees that such funds will be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory
terms, we may be unable to expand or continue our business as desired and operating results may be adversely affected. Debt financing will increase expenses and must be repaid regardless of operating results. Equity financing could result in
dilution to existing stockholders.



In addition, any financing
arrangement may have potentially adverse effects on us or our stockholders. Debt financing (if available and undertaken) may involve restrictions limiting our operating flexibility. Moreover, if we issue equity securities to raise additional funds,
the following results may occur:



| |  |  | the percentage ownership of our existing stockholders will be reduced;
| | - |  | ----------------------------------------------------------------------



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| |  |  | our stockholders may experience additional dilution in net book value per share; or
| | - |  | -----------------------------------------------------------------------------------



| |  |  | the new equity securities may have rights, preferences or privileges senior to those of the holders of our Common Stock.
| | - |  | ------------------------------------------------------------------------------------------------------------------------



We rely on related parties for a substantial portion of our revenues
and as the primary source for our component and subsystem purchases. The loss of business from any of these related parties would adversely affect our business. In the ordinary course of our business, we purchase from, sell products to and
perform contract manufacturing services for a number of related parties that are owned or otherwise controlled by Mr. John Pan, our chief financial officer, chairman, and largest stockholder. During 2004 and the first quarter of 2005 we purchased
approximately $5.7 and $.9 million, respectively, worth of products from these related parties. This represents 35% and 22% of our overall cost of goods for the year ended December 31, 2004 and three months ended March 31, 2005, respectively. In
addition, during 2004 and the first quarter of 2005, we sold approximately $7.8 and $1.1 million, respectively, worth of products and contract manufacturing services to these related parties. This represents 37% and 19% of our overall sales for the
year ended December 31, 2004 and first quarter of 2005, respectively. We believe that these related party relationships provide access to attractively priced components and products and an additional and a substantial amount of sales revenues.
However, there are no agreements, written or otherwise, between Global ePoint and these related parties obligating such parties to transact business with us in the future. As a result, these types of related party transactions could cease at any
time. If our transactions with these related parties cease, our business would be adversely affected.



Our current revenues and purchases are dependent on a limited number of customers and suppliers, most of which are related parties. For the
three months ended March 31, 2005 and 2004, three and two customers, respectively, accounted for 67% and 76%, respectively, of our sales. One of these customers in 2005 and 2004 was a related party. During the three months ended March 31, 2005 and
2004, three and two vendors, respectively, accounted for 33% and 46%, respectively, of our purchases. Two of these vendors were related parties. If we were to lose one or more of these customers before we are able to secure sales from other
customers, our income and financial condition would be adversely affected. If we are unable to enter into and maintain satisfactory distribution arrangements with leading suppliers and an adequate supply of products, our sales could be adversely
affected.



We are an emerging growth company with limited
operating history. Following our acquisition of McDigit, Inc. in August 2003, and having essentially ceased operations of our prior businesses, we recommenced operations as a new business engaged in designing and selling industrial, business
and consumer computers and computing solutions; and digital video, audio and data transmission and recording products. In 2004, we acquired substantial operating assets included in our digital technology division and aviation division. As a result,
we have a limited history operating our current businesses and forecasting our sales. The future success of our business will depend on our ability to successfully operate our recently acquired businesses, all of which are in highly competitive
markets. Moreover, our digital technology division operates in a new and emerging market. As a new company, it will be necessary for us to implement additional operational, financial and other controls and procedures in order to be successful.



Our digital technology business is new and based on
emerging technologies. Market demand for digital technologies is uncertain. We have a limited history of marketing and selling our digital video products. We continue to assess internal and external feedback relating to these products but
cannot guarantee that we will be able to successfully sell products based on those technologies. We initially focused on law enforcement and the military as potential markets for our digital video products and recently began to focus on other
potential market segments, including industrial, commercial and homeland security. Demand for our digital video, audio and data transmission and recording products is uncertain as, among other reasons, our customers and potential customers may:



| |  |  | not accept our emerging technologies or shift to other technologies;
| | - |  | --------------------------------------------------------------------



| |  |  | experience technical difficulty in installing or utilizing our products; or
| | - |  | ---------------------------------------------------------------------------



| |  |  | use alternative solutions to achieve their business objectives.
| | - |  | ---------------------------------------------------------------



In addition, the lengthy and variable sales cycle for products sold by our digital technology division makes it difficult to predict sales and may result
in fluctuations in quarterly operating results. Because customers often require a significant amount of time to evaluate products sold by our digital technology division before purchasing, the sales cycle associated with these products can be
lengthy (exceeding one year in some cases). The sales cycles for these products also varies from customer to customer and are subject to a number of significant risks over which we have little or no control.



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Government regulation of communications monitoring could cause a decline in the use of our digital
video surveillance products, result in increased expenses, or subject us and our customers to regulation or liability. As the communications industry continues to evolve, governments may increasingly regulate products that monitor and record
voice, video, and data transmissions over public communications networks. For example, the products we sell to law enforcement agencies, which interface with a variety of wireline, wireless, and Internet protocol networks must comply in the United
States with the technical standards established by the Federal Communications Commission pursuant to the Communications Assistance for Law Enforcement Act and in Europe by the European Telecommunications Standard Institute. The adoption of new laws
governing the use of our products or changes made to existing laws could cause a decline in the use of our products and could result in increased costs, particularly if we are required to modify or redesign products to accommodate these new or
changing laws.



Our intellectual property rights may not
be adequate to protect our business. We currently do not hold any patents for our products. To date, we have filed one patent application relating to certain elements of the technology underlying our digital video surveillance products.
Although we expect to continue filing, where applicable, patent applications related to our technology, no assurances can be given that any patent will be issued on our patent application or any other application that we may file in the future or
that, if such patents are issued, they will be sufficiently broad to adequately protect our technology. In addition, we cannot assure you that any patents that may be issued to us will not be challenged, invalidated, or circumvented.



Even if we are issued patents, they may not stop a competitor from illegally
using our patented applications and materials. In such event, we would incur substantial costs and expenses, including lost time of management in addressing and litigating, if necessary, such matters. Additionally, we rely upon a combination of
copyright, trademark and trade secret laws, license agreements and nondisclosure agreements with third parties and employees having access to confidential information or receiving unpatented proprietary know-how, trade secrets and technology to
protect our proprietary rights and technology. These laws and agreements provide only limited protection. We can give no assurance that these measures will adequately protect us from misappropriation of proprietary information.



Our products may infringe on the intellectual property rights of
others, which could lead to costly disputes or disruptions. The information technology industry is characterized by frequent allegations of intellectual property infringement. In the past, third parties have asserted that certain of our
digital video surveillance products infringe their intellectual property and they may do so in the future. Any allegation of infringement could be time consuming and expensive to defend or resolve, result in substantial diversion of management
resources, cause product shipment delays or force us to enter into royalty, license, or other agreements rather than dispute the merits of such allegation. If patent holders or other holders of intellectual property initiate legal proceedings, we
may be forced into protracted and costly litigation. We may not be successful in defending such litigation and may not be able to procure any required royalty or license agreements on acceptable terms or at all.



If our products infringe on the intellectual property rights of others,
we may be required to indemnify customers for any damages they suffer. We generally indemnify our customers with respect to infringement by our products of the proprietary rights of third parties in the event any third party asserts
infringement claims directly against our customers. These claims may require us to initiate or defend protracted and costly litigation on behalf of our customers, regardless of the merits of these claims. If any of these claims succeed, we may be
forced to pay damages on behalf of our customers or may be required to obtain licenses for the products they use. If we cannot obtain all necessary licenses on commercially reasonable terms, our customers may be forced to stop using, or in the case
of value added resellers, selling our products.



Our
business strategy includes acquiring certain businesses and entering into joint ventures and strategic alliances. Failure to successfully integrate such businesses, joint ventures, or strategic alliances into our operations could adversely affect
our business. In the past, we have acquired companies and assets and entered into certain strategic alliances, including the purchase of assets from Next Venture, Inc. and AirWorks, Inc. in April 2004. We may make additional acquisitions and
enter into joint ventures in the future. While we believe we will effectively integrate such businesses, joint ventures, or strategic alliances with our own, we may be unable to successfully do so and may be unable to realize expected cost savings
and/or sales growth. Regarding the assets purchased from Next Venture and AirWorks, the acquired businesses are in emerging markets and their performance is subject to the inherent volatility of such markets. Furthermore, AirWorks assets were
purchased from an assignee for the benefit of creditors, which means that the business was not successful in the past. Acquisitions, joint ventures and strategic alliances may involve significant other risks and uncertainties, including distraction
of managements attention away from normal business operations, insufficient revenue generation to offset liabilities assumed and expenses associated with the transaction, and unidentified issues not discovered in our due diligence process,
such as product quality and technology issues and legal contingencies. In addition, in the case of acquisitions, we may be unable to effectively integrate the acquired companies marketing, technology, production, development, distribution and
management systems. Our operating results



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could be adversely affected by any problems arising during or from acquisitions or from modifications or termination of joint ventures and strategic
alliances or the inability to effectively integrate any future acquisitions.



We may be obligated to issue more shares of common stock as a result of our recent acquisitions, and your ownership interest in Global ePoint may be diluted as a result. Pursuant to the reorganization
and stock purchase agreement related to the acquisition of McDigit, we may be obligated to issue additional shares of our common stock to Mr. John Pan based on the achievement by us of specific financial milestones in 2005 and on the occurrence of
other specific conditions. Accordingly, the final number of shares of our common stock that may be issued pursuant to this agreement may not be known until sometime in 2006; provided, that we know that the aggregate number of shares of common stock
that may be issued pursuant to the agreement will not exceed 85% of the then issued and outstanding shares of our common stock. In addition, we may be required to assume more debt or issue common stock to support our recent purchases of assets from
Next Venture and AirWorks assignee. We will be required to issue common stock in consideration for the assets purchased from Next Venture if certain performance goals are attained. Furthermore, we have borrowed money to support the purchase of
AirWorks assets and we may be required to borrow additional funds and/or issue stock to cover additional payments required by the asset purchase agreement with AirWorks. If additional common stock is issued, current stockholders
ownership percentage and earnings per share would become diluted.



|ITEM 3. | CONTROLS AND PROCEDURES
|------- | -----------------------



Our Chief Executive Officer and Chief Financial Officer have reviewed and continue to evaluate the effectiveness of Global ePoints controls and
procedures over financial reporting and disclosure (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report. The term disclosure controls and procedures is defined in
Rules13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the Exchange Act. This term refers to the controls and procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports
that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commissions rules and forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the Companys controls and procedures over financial reporting
and disclosure, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and our management necessarily was required to
apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.



An evaluation was performed under the supervision and with the participation of the Companys management, including the Chief Executive Officer (CEO)
and Chief Financial Officer (CFO), of the effectiveness of the design and operation of the Companys disclosure controls and procedures as of March 31, 2005.



We are continuing to evaluate our internal controls as required by Sections 404(a) of the Sarbanes-Oxley Act of 2002. In the
course of our evaluation, we have identified certain deficiencies, which we are addressing. The Merger and additional acquisitions, as summarized in Footnote 9 in the Notes of the Consolidated Financial Statements, have resulted in the use of
several different financial recordation and reporting systems. Management is aware of the issue and has initiated the integration of the divisional financial recordation and reporting into a single consolidated financial reporting system.
Additionally, there is a lack of segregation of duties due to the small number of employees within the financial and administrative functions of the Company. Management will continue to evaluate the employees involved and the control procedures in
place, the risks associated with such lack of segregation and whether the potential benefits of adding employees to clearly segregate duties justifies the expense associated with such increases. These matters have been communicated to our Audit
Committee and we are taking appropriate steps to make necessary improvements and enhance the reliability of our internal controls over financial reporting.



Based on our continuing evaluation, the Companys management, including the CEO and CFO, concluded that the Companys disclosure controls and
procedures were effective as of March 31, 2005. There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date we completed our evaluation.



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Table of Contents



|PART II. | OTHER INFORMATION
|-------- | -----------------



|ITEM 6. | EXHIBITS
|------- | --------



|     |  |                                                                                                                       |  |               
|---- |  | --------------------------------------------------------------------------------------------------------------------- |  | --------------
|4.1  |  | Certificate of Designations of Series B Convertible Preferred Stock                                                   |  | Filed herewith
|     |  |                                                                                                                      
|10.1 |  | Subscription Agreement by and among Global ePoint, Inc. and Purchasers of Series B Convertible Preferred Stock        |  | Filed herewith
|     |  |                                                                                                                      
|10.2 |  | Registration Rights Agreement by and among Global ePoint, Inc. and Purchasers of Series B Convertible Preferred Stock |  | Filed herewith
|     |  |                                                                                                                      
|10.3 |  | Warrant to Purchase Common Stock granted to and Purchasers of Series B Convertible Preferred Stock.                   |  | Filed herewith
|     |  |                                                                                                                      
|10.4 |  | Promissory Note executed between Best Logic, LLC and Far East National Bank                                           |  | Filed herewith
|     |  |                                                                                                                      
|     |  | Business Loan Agreement executed between Best Logic, LLC and Far East National Bank                                   |  | Filed herewith
|     |  |                                                                                                                      
|     |  | Commercial Security Agreement executed between Best Logic, LLC and Far East National Bank                             |  | Filed herewith
|     |  |                                                                                                                      
|     |  | Commercial Guaranty executed between Best Logic, LLC and Far East National Bank                                       |  | Filed herewith
|     |  |                                                                                                                      
|31.1 |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.           |  | Filed herewith
|     |  |                                                                                                                      
|31.2 |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.           |  | Filed herewith
|     |  |                                                                                                                      
|32   |  | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C Section 1350.               |  | Filed herewith



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##### Table of Contents

SIGNATURES



In accordance with the requirements of
the exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereto duly authorized.



|                   |  |  |  |                                     
|------------------ |  |  |  | ------------------------------------
|                   |  |  |  | GLOBAL EPOINT, INC.                 
|                   |  | 
|Date: May 23, 2005 |  |  |  | /s/ Toresa Lou                      
|                   |  |  |  | Toresa Lou,                         
|                   |  |  |  | Chief Executive Officer             
|                   |  | 
|Date: May 23, 2005 |  |  |  | /s/ John Pan                        
|                   |  |  |  | John Pan,                           
|                   |  |  |  | Chief Financial Officer and Chairman



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