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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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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, 2007

-OR-



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

For the transition period from  to

Commission file number 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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Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  x

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

As of
May 17, 2007, there were 19,513,812 shares of Common Stock ($.03 par value) outstanding.



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##### Table of Contents

LOGO

GLOBAL EPOINT, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED March 31, 2007

TABLE OF CONTENTS



|                                                                                                   |  |     
|-------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                   |  | Page
|                                                                                                   | 
|Part I. FINANCIAL INFORMATION                                                                      |  |     
|                                                                                                   | 
|Item 1. Interim Financial Statements (unaudited):                                                  |  |     
|                                                                                                   | 
|Condensed Consolidated Balance Sheet as of March 31, 2007 and December 31, 2006                    |  | 1   
|                                                                                                   | 
|Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2007 and 2006 |  | 2   
|                                                                                                   | 
|Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2007 and 2006 |  | 3   
|                                                                                                   | 
|Condensed Consolidated Statement of Stockholders Equity for the Three Months Ended March 31, 2007 |  | 4   
|                                                                                                   | 
|Notes to Condensed Consolidated Financial Statements                                               |  | 5   
|                                                                                                   | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations      |  | 14  
|                                                                                                   | 
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                                 |  | 19  
|                                                                                                   | 
|Item 4. Controls and Procedures                                                                    |  | 24  
|                                                                                                   | 
|Part II. OTHER INFORMATION                                                                         |  |     
|                                                                                                   | 
|Item 1. Legal Proceedings                                                                          |  | 25  
|                                                                                                   | 
|Item 6. Exhibits                                                                                   |  | 25  
|                                                                                                   | 
|SIGNATURES                                                                                         |  | 26  



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##### Table of Contents

GLOBAL EPOINT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Thousands of dollars, except per share amounts)



|                                                                                                                                     |  |               |         |   |                  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                     |  | March 31,2007 |         |   | December 31,2006 |  
|                                                                                                                                     |  | (Unaudited)   |         |   |                  |  
|ASSETS                                                                                                                               |  |               |         |   |                  |   |         |  
|CURRENT ASSETS:                                                                                                                      |  |               |         |   |                  |   |         |  
|Accounts receivable, net                                                                                                             |  | $             | 2,374   |   |                  | $ | 2,692   |  
|Accounts receivablerelated parties                                                                                                  |  |               | 217     |   |                  |   | 139     |  
|Inventories                                                                                                                          |  |               | 5,306   |   |                  |   | 5,362   |  
|Other current assets                                                                                                                 |  |               | 1,386   |   |                  |   | 776     |  
|                                                                                                                                     |  |               |         |   |                  |   |         |  
|Total current assets                                                                                                                 |  |               | 9,283   |   |                  |   | 8,969   |  
|                                                                                                                                     |  |               |         |   |                  |   |         |  
|Property, plant and equipment, net                                                                                                   |  |               | 729     |   |                  |   | 789     |  
|Card dispensing equipment and related parts                                                                                          |  |               | 885     |   |                  |   | 885     |  
|Goodwill                                                                                                                             |  |               | 6,592   |   |                  |   | 8,104   |  
|Other intangibles                                                                                                                    |  |               | 2,626   |   |                  |   | 2,571   |  
|Deposits and other assets                                                                                                            |  |               | 961     |   |                  |   | 1,215   |  
|                                                                                                                                     |  |               |         |   |                  |   |         |  
|Total other assets                                                                                                                   |  |               | 11,793  |   |                  |   | 13,564  |  
|                                                                                                                                     |  |               |         |   |                  |   |         |  
|Total assets                                                                                                                         |  | $             | 21,076  |   |                  | $ | 22,533  |  
|                                                                                                                                     |  |               |         |   |                  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                 |  |               |         |   |                  |   |         |  
|CURRENT LIABILITIES:                                                                                                                 |  |               |         |   |                  |   |         |  
|Accounts payable                                                                                                                     |  | $             | 4,728   |   |                  | $ | 3,420   |  
|Accounts payablerelated parties                                                                                                     |  |               | 89      |   |                  |   | 7       |  
|Accrued expenses                                                                                                                     |  |               | 1,204   |   |                  |   | 1,054   |  
|Customer deposits                                                                                                                    |  |               | 108     |   |                  |   | 103     |  
|Due to related parties                                                                                                               |  |               | 62      |   |                  |   | 38      |  
|Due to stockholder                                                                                                                   |  |               | 1,332   |   |                  |   | 1,311   |  
|Loans payable                                                                                                                        |  |               | 1,921   |   |                  |   | 981     |  
|Mandatorily redeemable preferred stock                                                                                               |  |               | 7,485   |   |                  |   | 7,485   |  
|                                                                                                                                     |  |               |         |   |                  |   |         |  
|Total current liabilities                                                                                                            |  |               | 16,929  |   |                  |   | 14,399  |  
|                                                                                                                                     |  |               |         |   |                  |   |         |  
|NON-CURRENT LIABILITIES                                                                                                              |  |               | 1,993   |   |                  |   | 1,997   |  
|                                                                                                                                     |  |               |         |   |                  |   |         |  
|Total liabilities                                                                                                                    |  |               | 18,922  |   |                  |   | 16,396  |  
|                                                                                                                                     |  |               |         |   |                  |   |         |  
|Commitments and Contingencies (Note 10)                                                                                              |  |               |         |   |                  |   |         |  
|STOCKHOLDERS EQUITY:                                                                                                                |  |               |         |   |                  |   |         |  
|Common stock, $.03 par value, 50,000,000 shares authorized and 19,413,812 and 19,513,812 shares issued and outstanding,
respectively |  |               | 584     |   |                  |   | 581     |  
|Paid-in capital                                                                                                                      |  |               | 28,762  |   |                  |   | 28,596  |  
|Accumulated other comprehensive loss                                                                                                 |  |               | (56     | ) |                  |   | (56     | )
|Accumulated deficit                                                                                                                  |  |               | (27,136 | ) |                  |   | (22,984 | )
|                                                                                                                                     |  |               |         |   |                  |   |         |  
|Total stockholders equity                                                                                                           |  |               | 2,154   |   |                  |   | 6,137   |  
|                                                                                                                                     |  |               |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                           |  | $             | 21,076  |   |                  | $ | 22,533  |  
|                                                                                                                                     |  |               |         |   |                  |   |         |  

See accompanying notes to unaudited condensed consolidated financial statements.



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##### Table of Contents

GLOBAL EPOINT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(Thousands of dollars,
except per share amounts)



|                                              |  |                            |        |   |               |   |        |  
|--------------------------------------------- |  | -------------------------- | ------ | - | ------------- | - | ------ | -
|                                              |  | For the three months ended |       
|                                              |  | March 31, 2007             |        |   | March 31,2006 |  
|Sales                                         |  | $                          | 1,262  |   |               | $ | 4,229  |  
|Sales-related parties                         |  |                            | 225    |   |               |   | 3,090  |  
|                                              |  |                            |        |   |               |   |        |  
|Total net sales                               |  |                            | 1,487  |   |               |   | 7,319  |  
|                                              |  |                            |        |   |               |   |        |  
|Cost of sales                                 |  |                            | 1,032  |   |               |   | 3,565  |  
|Cost of sales-related parties                 |  |                            | 223    |   |               |   | 2,952  |  
|                                              |  |                            |        |   |               |   |        |  
|Total cost of sales                           |  |                            | 1,255  |   |               |   | 6,517  |  
|                                              |  |                            |        |   |               |   |        |  
|Gross profit                                  |  |                            | 232    |   |               |   | 802    |  
|                                              |  |                            |        |   |               |   |        |  
|Operating expenses:                           |  |                            |        |   |               |   |        |  
|Selling and marketing                         |  |                            | 513    |   |               |   | 657    |  
|General and administrative                    |  |                            | 1,907  |   |               |   | 1,807  |  
|Research and development                      |  |                            | 319    |   |               |   | 296    |  
|Goodwill impairment                           |  |                            | 1,481  |   |               |   |       |  
|Depreciation and amortization                 |  |                            | 124    |   |               |   | 108    |  
|                                              |  |                            |        |   |               |   |        |  
|Total operating expenses                      |  |                            | 4,344  |   |               |   | 2,868  |  
|                                              |  |                            |        |   |               |   |        |  
|Loss from operations                          |  |                            | (4,112 | ) |               |   | (2,066 | )
|Other income (expense)                        |  |                            | (40    | ) |               |   | (10    | )
|                                              |  |                            |        |   |               |   |        |  
|Loss before income tax provision              |  |                            | (4,152 | ) |               |   | (2,076 | )
|Income tax provision                          |  |                            |       |   |               |   |       |  
|                                              |  |                            |        |   |               |   |        |  
|Net loss                                      |  |                            | (4,152 | ) |               |   | (2,076 | )
|Preferred stock dividend                      |  |                            |       |   |               |   | (136   | )
|                                              |  |                            |        |   |               |   |        |  
|Net loss applicable to common stockholders    |  | $                          | (4,152 | ) |               | $ | (2,212 | )
|                                              |  |                            |        |   |               |   |        |  
|Loss per sharebasic                          |  | $                          | (0.21  | ) |               | $ | (0.14  | )
|                                              |  |                            |        |   |               |   |        |  
|Loss per sharefully diluted                  |  | $                          | (0.21  | ) |               | $ | (0.14  | )
|                                              |  |                            |        |   |               |   |        |  
|Weighted average shares and share equivalents |  |                            | 19,383 |   |               |   | 15,358 |  
|                                              |  |                            |        |   |               |   |        |  

See accompanying notes to unaudited condensed consolidated financial statements.



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GLOBAL EPOINT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(Thousands of dollars)



|                                                                                  |  |                            |        |   |               |   |        |  
|--------------------------------------------------------------------------------- |  | -------------------------- | ------ | - | ------------- | - | ------ | -
|                                                                                  |  | For the three months ended |       
|                                                                                  |  | March 31,2007              |        |   | March 31,2006 |  
|CASH FLOWS USED IN OPERATING ACTIVITIES:                                          |  |                            |        |   |               |   |        |  
|                                                                                  |  |                           
|Net loss                                                                          |  | $                          | (4,152 | ) |               | $ | (2,076 | )
|Adjustments to reconcile net loss to net cash flows used in operating activities: |  |                            |        |   |               |   |        |  
|Depreciation and amortization                                                     |  |                            | 124    |   |               |   | 108    |  
|Goodwill impairment                                                               |  |                            | 1,481  |   |               |   |       |  
|Provision for bad debts                                                           |  |                            | 12     |   |               |   | 19     |  
|Stock based compensation                                                          |  |                            | 144    |   |               |   | 22     |  
|Increase/(decrease) in cash and cash equivalents from changes in:                 |  |                            |        |   |               |   |        |  
|                                                                                  |  |                           
|Accounts receivable                                                               |  |                            | (47    | ) |               |   | (1,351 | )
|                                                                                  |  |                           
|Accounts receivablerelated parties                                               |  |                            | (78    | ) |               |   | (2,498 | )
|                                                                                  |  |                           
|Inventory                                                                         |  |                            | 56     |   |               |   | (625   | )
|                                                                                  |  |                           
|Other current assets                                                              |  |                            | 292    |   |               |   | (103   | )
|Accounts payable                                                                  |  |                            | 1,309  |   |               |   | 2,267  |  
|Accounts payablerelated parties                                                  |  |                            | 82     |   |               |   | 3,403  |  
|Accrued expenses                                                                  |  |                            | 140    |   |               |   | 28     |  
|                                                                                  |  |                           
|Customer deposits                                                                 |  |                            | 5      |   |               |   | (2     | )
|                                                                                  |  |                            |        |   |               |   |        |  
|Net cash used in operating activities                                             |  |                            | (632   | ) |               |   | (808   | )
|                                                                                  |  |                            |        |   |               |   |        |  
|CASH FLOWS (USED IN)/PROVIDED BY INVESTING ACTIVITIES:                            |  |                            |        |   |               |   |        |  
|                                                                                  |  |                           
|Additions to property and equipment                                               |  |                            | (24    | ) |               |   | (14    | )
|                                                                                  |  |                           
|Additions to goodwill and other intangibles                                       |  |                            | (65    | ) |               |   | (378   | )
|(Increase)/decrease in other assets                                               |  |                            | (260   | ) |               |   | 448    |  
|                                                                                  |  |                            |        |   |               |   |        |  
|Net cash (used in)/provided by investing activities                               |  |                            | (349   | ) |               |   | 56     |  
|                                                                                  |  |                            |        |   |               |   |        |  
|                                                                                  |  |                           
|CASH FLOWS PROVIDED BY/(USED IN) FINANCING ACTIVITIES:                            |  |                            |        |   |               |   |        |  
|                                                                                  |  |                           
|Proceeds from (repayment of) loan payable                                         |  |                            | 936    |   |               |   | (42    | )
|                                                                                  |  |                           
|Net borrowings from related parties                                               |  |                            | 24     |   |               |   | (5     | )
|Proceeds from advances from stockholder                                           |  |                            | 21     |   |               |   | 19     |  
|                                                                                  |  |                            |        |   |               |   |        |  
|Net cash provided by/(used in) financing activities                               |  |                            | 981    |   |               |   | (28    | )
|                                                                                  |  |                            |        |   |               |   |        |  
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                         |  |                            |       |   |               |   | (780   | )
|CASH AND CASH EQUIVALENTS, beginning of period                                    |  |                            |       |   |               |   | 780    |  
|                                                                                  |  |                            |        |   |               |   |        |  
|CASH AND CASH EQUIVALENTS, end of period                                          |  | $                          |       |   |               | $ |       |  
|                                                                                  |  |                            |        |   |               |   |        |  
|                                                                                  |  |                           
|SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:           |  |                            |        |   |               |   |        |  
|                                                                                  |  |                           
|Increase in preferred stock dividend payable                                      |  | $                          |       |   |               | $ | 136    |  
|                                                                                  |  |                            |        |   |               |   |        |  
|Preferred stock reclassified to short term debt                                   |  | $                          |       |   |               | $ | 62     |  
|                                                                                  |  |                            |        |   |               |   |        |  
|Compensation on consulting agreement                                              |  | $                          | 32     |   |               | $ |       |  
|                                                                                  |  |                            |        |   |               |   |        |  
|Income taxes paid                                                                 |  | $                          |       |   |               | $ | 17     |  
|                                                                                  |  |                            |        |   |               |   |        |  

See accompanying notes to unaudited condensed consolidated financial statements.



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GLOBAL EPOINT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

(Thousands of dollars and shares)

MARCH 31, 2007



|                                           |  |                 |  |              |   |            |        |               |   |         |              |      |        |               |          |     |   |        |   |         |   |  |   |        |  
|------------------------------------------ |  | --------------- |  | ------------ | - | ---------- | ------ | ------------- | - | ------- | ------------ | ---- | ------ | ------------- | -------- | --- | - | ------ | - | ------- | - |  | - | ------ | -
|                                           |  |                 |  |              |   |            |        | Accumulated   |   |         | Retained     |      |        |               |         
|                                           |  |                 |  |              |   | Additional |        | Other         |   |         | Earnings/    |      |        | Total         |         
|                                           |  | Preferred Stock |  | Common Stock |   | Paid in    |        | Comprehensive |   |         | (Accumulated |      |        | Stockholders |         
|                                           |  | Shares          |  | Amount       |   | Shares     |        | Amount        |   | Capital |              | Loss |        |               | Deficit) |     |   | Equity |  
|BalancesDecember 31, 2006                 |  | 625             |  | $            |  |            | 19,414 |               | $ | 581     |              | $    | 28,596 |               | $        | (56 | ) |        | $ | (22,984 | ) |  | $ | 6,137  |  
|                                           |  |                 |  |              |   |            |        |              
|Common stock and option based compensation |  |                |  |              |  |            | 100    |               |   | 3       |              |      | 166    |               |          |    |   |        |   |        |   |  |   | 169    |  
|                                           |  |                 |  |              |   |            |        |              
|Net loss from operations                   |  |                |  |              |  |            |       |               |   |        |              |      |       |               |          |    |   |        |   | (4,152  | ) |  |   | (4,152 | )
|                                           |  |                 |  |              |   |            |        |               |   |         |              |      |        |               |          |     |   |        |   |         |   |  |   |        |  
|BalancesMarch 31, 2007 (Unaudited)        |  | 625             |  | $            |  |            | 19,514 |               |   | 584     |              | $    | 28,762 |               | $        | (56 | ) |        | $ | (27,136 | ) |  | $ | 2,154  |  
|                                           |  |                 |  |              |   |            |        |               |   |         |              |      |        |               |          |     |   |        |   |         |   |  |   |        |  

See accompanying notes to unaudited condensed consolidated financial statements.



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GLOBAL EPOINT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

MARCH 31, 2007

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, 2007 and for the three months ended March 31, 2007 and 2006 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, 2006 audited financial statements, which are included in the Companys Annual Report on Form 10-KSB for the year ended
December 31, 2006. The results of operations for the three months ended March 31, 2007 are not necessarily indicative of the results to be expected for the year ending December 31, 2007. The financial statements were prepared assuming
that the Company is a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result
from the outcome of this uncertainty.

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 headquartered in the
City of Industry, California. The primary areas of our business are operated from three divisions: our contract manufacturing division, aviation division and our digital technology division. Our contract manufacturing division manufactures
customized computing systems for industrial, business and consumer markets, and has the capability to produce other specialized, custom-manufactured electronic products and systems. Our aviation division provides digital technology and other
electrical applications to the airline industry. Our digital technology division designs and markets digital video technology primarily for surveillance systems.

Principles of consolidation The accompanying consolidated financial statements include 100% of the accounts of the Company and its wholly-owned subsidiaries, McDigit, Inc., 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, Global AirWorks, Inc., which was incorporated under the laws of the state of California in May
2003, Tops Digital Security, LLC which was organized in Nevada in April 2006, and Global Telephony, Inc., which was incorporated under the laws of Nevada in 2001, and are collectively referred to as the Company in these condensed
consolidated financial statements. Some of the related parties discussed in Note 7 may be considered variable interest entities in accordance with FIN 46R Consolidation of Variable Interest Entities, however, the Company is not the
primary beneficiary of such entities. Therefore, the related party entities are not included in the consolidated group. All significant inter-company balances and transactions have been eliminated.

Accounting for stock options In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) 123R, Share-Based Payment which addresses the accounting for employee stock options. SFAS No. 123R requires that the cost of all employee stock options, as well as other equity-based compensation
arrangements, be reflected in the financial statements based on the estimated fair value of the awards. The Company uses the Black Scholes model, including an estimated 3% forfeiture rate, to calculate the estimated cost of the employee stock
options at the time of the award. That cost will be recognized over the period during which an employee is required to provide service in exchange for the award-the requisite service period (usually the vesting period).

Effective January 1, 2006 the Company adopted the fair value recognition provisions of SFAS 123R using the modified-prospective transition method.
Under the modified-prospective transition method prior periods of the Companys financial statements are not restated for comparison purposes. In addition, the measurement, recognition and attribution provisions of SFAS No. 123R apply to
new grants and grants outstanding on the adoption date. Estimated compensation expense for outstanding grants at the adoption date will be recognized over the remaining vesting period using the compensation expense calculated for the pro forma
disclosure purposes under SFAS 123, Accounting for Stock-Based Compensation. The Company recorded expenses for stock based compensation of $144 thousand and $22 thousand for the three months ended March 31, 2007 and 2006,
respectively.



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##### Table of Contents

Prior to the adoption of SFAS No. 123(R), the Company elected to follow Accounting Principles Board
Opinion No. (APB) 25, Accounting for Stock Issued to Employees and related interpretations in accounting for its employee stock options. No stock-based employee compensation cost for stock options is reflected in net income prior to 2006
as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant.

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. Accordingly shares underlying options, warrants, and preferred stock conversions,
aggregating approximately 9.5 million shares, have not been included as they are anti-dilutive.

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, 2007: |  |                 |        |   |                     |        |                 |   |       |  
|Basic and fully diluted loss per share     |  |                 |        |   |                     |        |                 |   |       |  
|Loss applicable to common stockholders     |  | $               | (4,152 | ) |                     | 19,383 |                 | $ | (0.21 | )
|                                           |  |                 |       
|For the three months ended March 31, 2006: |  |                 |        |   |                     |        |                 |   |       |  
|Basic and fully diluted income per share   |  |                 |        |   |                     |        |                 |   |       |  
|Loss applicable to common stockholders     |  | $               | (2,212 | ) |                     | 15,358 |                 | $ | (0.14 | )

3. Inventories

Inventories consisted of the following as of March 31, 2007 (in thousands):



|                                                                  |  |   |       |   |      
|----------------------------------------------------------------- |  | - | ----- | - | -----
|Computer component parts                                          |  | $ | 1,176
|Video and data recording component parts                          |  |   | 2,628
|Cockpit door surveillance system and wire harness component parts |  |   | 1,502
|                                                                  |  |   |       |   |      
|Total                                                             |  |   |       | $ | 5,306
|                                                                  |  |   |       |   |      

4. Property and equipment

Property and equipment consisted of the following as of March 31, 2007 (in thousands):



|                                |  |   |       |  
|------------------------------- |  | - | ----- | -
|Furniture and equipment         |  | $ | 569   |  
|Computer equipment and software |  |   | 355   |  
|Building improvements           |  |   | 499   |  
|Tooling and demo units          |  |   | 34    |  
|Vehicles                        |  |   | 118   |  
|                                |  |   |       |  
|Totals                          |  |   | 1,575 |  
|Less accumulated depreciation   |  |   | (846  | )
|                                |  |   |       |  
|Property and equipment, net     |  | $ | 729   |  
|                                |  |   |       |  



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5. Goodwill and Intangible Assets

The Company has a significant amount of goodwill and intangible assets on its balance sheet related to acquisitions. At March 31, 2007 the net amount of $9.2 million of goodwill and intangible assets represented
44% 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 $8.1 million of goodwill; $3.2 million resulted from the
reverse acquisition involving McDigit, Inc., Best Logic LLC, and the Company (the Merger), $2.8 million from the acquisition of assets of Airworks, in April 2004, $300,000 from the acquisition of the assets of Perpetual, in April 2004
and effective April 2006, $1.8 million from the acquisition of the assets of Tops Digital Security which may be adjusted upon final allocation of the purchase price. Of the total goodwill $3.8 million has been allocated to the digital technology
division, $2.8 million to the aviation division, and $1.5 million to the contract manufacturing division. The goodwill arising from the Merger and the foregoing acquisitions, excluding Tops, was subject to the annual impairment test in August 2006.
The goodwill arising from Airworks and Perpetual acquisitions was subject to the annual impairment test as of June 30, 2006. Application of the discounted cash flow methodology to management assumptions did not identify any impairment to the
goodwill. No impairment to goodwill was identified; therefore, no loss was charged to operations.

During the quarter ended March 31,
2007, upon review of the contract manufacturing division operations and expectations, the Company recognized non-cash goodwill impairment charges of $1.5 million.

The Company continually monitors its operations for any potential indicators of impairment of goodwill and intangible assets and has determined that no additional indicators have arisen to date. Any impairment loss
could have a material adverse impact on the Companys financial condition and results of operations.

6. Business concentrations

Sales and purchases For the three months ended March 31, 2007 and 2006, two customers accounted for 27% and 61% of the Companys sales, respectively, and
10% of the accounts receivable as of March 31, 2007. For the three months ended March 31, 2007 and 2006, two and four vendors, respectively, accounted for 51% and 67% of the Companys purchases, respectively, and 5% of the accounts
payable as of March 31, 2007. A substantial amount of the above sales and purchase transactions are conducted with related parties, as discussed in Note 7.

7. Related party transactions

Rent agreement Mr. John Pan, the Companys Chairman, Chief Financial Officer, and principal
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,
equipment for production and assembly, and warehouse space, totaled $49,000 and $108,000 for the three months ended March 31, 2007 and 2006, respectively. Rental costs for manufacturing and assembly equipment were approximately $11,000 and
$21,000 for the three months ended March 31, 2007 and 2006, respectively.

Loans Payable In June 2004, the Company borrowed $1,000,000
from John Pan, the Companys Chairman, Chief Financial Officer and President. Interest accrues on the unpaid principal balance of this loan at a rate equal to the prime rate at Bank of the West, plus 0.25%. The aggregate interest rate was 8.50%
as of December 31, 2006. The Company is required to accrue interest payments each month until the principal balance is paid in full, which was to occur no later than December 15, 2006. The Company is negotiating with Mr. Pan to extend
the term of the loan.

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 principal stockholder, Mr. John Pan (Related Parties). 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 through 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. These subcontracted purchase orders were substantially completed as of the end of 2006 and these transactions have been terminated. 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 therefore, can provide the
Company with more favorable pricing due to volume discounts.



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##### Table of Contents

The outstanding balances due from and to Related Parties as of March 31, 2007 were as follows:



|                                                   |  |                    |     |  
|-------------------------------------------------- |  | ------------------ | --- | -
|(Thousands of dollars)                             |  | As ofMarch 31,2007 |    
|Balances due from Related Parties were as follows: |  |                    |     |  
|(B) (100% owned by CFO/Chairman)                   |  | $                  | 211 |  
|(C) (100% owned by CFO/Chairman)                   |  |                    | 6   |  
|                                                   |  |                    |     |  
|Total                                              |  | $                  | 217 |  
|                                                   |  |                    |     |  
|Balances due to Related Parties were as follows:   |  |                    |     |  
|(B) (100% owned by CFO/Chairman)                   |  | $                  | 184 |  
|(C) (100% owned by CFO/Chairman)                   |  |                    | (33 | )
|                                                   |  |                    |     |  
|Total                                              |  | $                  | 151 |  
|                                                   |  |                    |     |  



|                                                        |  |                              |     |      |   |      
|------------------------------------------------------- |  | ---------------------------- | --- | ---- | - | -----
|                                                        |  | For the year ended March 31,
|(Thousands of dollars)                                  |  | 2007                         |     | 2006
|Product purchases from Related Parties were as follows: |  |                              |     |      |   |      
|(B) (100% owned by CFO/Chairman)                        |  | $                            | 34  |      | $ | 3,145
|(C) (100% owned by CFO/Chairman)                        |  |                              |    |      |   |     
|                                                        |  |                              |     |      |   |      
|Total                                                   |  | $                            | 34  |      | $ | 3,145
|                                                        |  |                              |     |      |   |      
|Product sales to Related Parties were as follows:       |  |                              |     |      |   |      
|(B) (100% owned by CFO/Chairman)                        |  | $                            | 225 |      | $ | 3,090
|(C) (100% owned by CFO/Chairman)                        |  |                              |    |      |   |     
|                                                        |  |                              |     |      |   |      
|Total                                                   |  | $                            | 225 |      | $ | 3,090
|                                                        |  |                              |     |      |   |      



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8. Pending and Completed Acquisitions

On May 27, 2005, the Company entered into a non-binding letter of intent to acquire Astrophysics, Inc. (Astrophysics), a leading designer
and manufacturer of X-ray scanning security systems. Pursuant to the letter of intent, the Company proposed to acquire all of the assets, subject to all of the liabilities, of Astrophysics in exchange for $10 million of cash and issuance of a
controlling block of the Companys common stock. Upon the execution of the letter of intent, the Company paid Astrophysics a non-refundable deposit of $500,000 and loaned Astrophysics $500,000. The letter of intent expired on June 30,
2005. The loan to Astrophysics has matured and in February 2006 the principal balance was returned to the Company. The non-refundable deposit is included in other assets of the accompanying consolidated balance sheet. Notwithstanding the termination
of the letter of intent, the parties continue to engage in discussions in the hope of reaching a definitive agreement for the acquisition. At this time, there can be no assurance the parties will enter into another letter of intent or reach a
definitive agreement concerning the Companys acquisition of Astrophysics.

9. 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 loss before income tax provision and total assets. All inter-company transactions between segments have been eliminated. Information with respect to the Companys loss before income tax provision by segment is as follows:



|                                          |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |       |   |  |   |        |  
|----------------------------------------- |  | ----------------- | ------ | - | -------- | - | ----- | --------------------- |  | - | --------- | - |  | ----- | ----- | - |  | - | ------ | -
|For the three months ended March 31, 2007 |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |      
|                                          |  |                   |        |   |         
|($ in thousands)                          |  | DigitalTechnology |        |   | Aviation |   |       | ContractManufacturing |  |   | Corporate |   |  | Total |      
|Net sales                                 |  | $                 | 373    |   |          | $ | 431   |                       |  | $ | 683       |   |  | $     |      |   |  | $ | 1,487  |  
|Cost of sales                             |  |                   | 336    |   |          |   | 382   |                       |  |   | 537       |   |  |       |      |   |  |   | 1,255  |  
|                                          |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |       |   |  |   |        |  
|Gross profit                              |  |                   | 37     |   |          |   | 49    |                       |  |   | 146       |   |  |       |      |   |  |   | 232    |  
|Operating expenses                        |  |                   | 1,100  |   |          |   | 509   |                       |  |   | 1,810     |   |  |       | 925   |   |  |   | 4,344  |  
|                                          |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |       |   |  |   |        |  
|Income (loss) from operations             |  |                   | (1,063 | ) |          |   | (460  | )                     |  |   | (1,664    | ) |  |       | (925  | ) |  |   | (4,112 | )
|Other income (expense)                    |  |                   | (20    | ) |          |   | (17   | )                     |  |   | (3        | ) |  |       |      |   |  |   | (40    | )
|                                          |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |       |   |  |   |        |  
|Loss before income tax provision          |  | $                 | (1,083 | ) |          | $ | (477  | )                     |  | $ | (1,667    | ) |  | $     | (925  | ) |  | $ | (4,152 | )
|                                          |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |       |   |  |   |        |  
|Total assets as of March 31, 2007         |  | $                 | 6,475  |   |          | $ | 8,474 |                       |  | $ | 2,329     |   |  | $     | 3,798 |   |  | $ | 21,076 |  
|                                          |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |       |   |  |   |        |  



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|                                          |  |                   |       |   |          |   |        |                       |  |   |           |   |  |       |       |   |  |   |        |  
|----------------------------------------- |  | ----------------- | ----- | - | -------- | - | ------ | --------------------- |  | - | --------- | - |  | ----- | ----- | - |  | - | ------ | -
|For the three months ended March 31, 2006 |  |                   |       |   |          |   |        |                       |  |   |           |   |  |       |      
|                                          |  |                   |       |   |         
|($ in thousands)                          |  | DigitalTechnology |       |   | Aviation |   |        | ContractManufacturing |  |   | Corporate |   |  | Total |      
|Net sales                                 |  | $                 | 205   |   |          | $ | 1,701  |                       |  | $ | 5,413     |   |  | $     |      |   |  | $ | 7,319  |  
|Cost of sales                             |  |                   | 182   |   |          |   | 1,516  |                       |  |   | 4,819     |   |  |       |      |   |  |   | 6,517  |  
|                                          |  |                   |       |   |          |   |        |                       |  |   |           |   |  |       |       |   |  |   |        |  
|Gross profit                              |  |                   | 23    |   |          |   | 185    |                       |  |   | 594       |   |  |       |      |   |  |   | 802    |  
|Operating expenses                        |  |                   | 806   |   |          |   | 718    |                       |  |   | 662       |   |  |       | 682   |   |  |   | 2,868  |  
|                                          |  |                   |       |   |          |   |        |                       |  |   |           |   |  |       |       |   |  |   |        |  
|Income (loss) from operations             |  |                   | (783  | ) |          |   | (533   | )                     |  |   | (68       | ) |  |       | (682  | ) |  |   | (2,066 | )
|Other income (expense)                    |  |                   | (15   | ) |          |   |       |                       |  |   |          |   |  |       | 5     |   |  |   | (10    | )
|                                          |  |                   |       |   |          |   |        |                       |  |   |           |   |  |       |       |   |  |   |        |  
|Loss before income tax provision          |  | $                 | (798  | ) |          | $ | (533   | )                     |  | $ | (68       | ) |  | $     | (677  | ) |  | $ | (2,076 | )
|                                          |  |                   |       |   |          |   |        |                       |  |   |           |   |  |       |       |   |  |   |        |  
|Total assets as of March 31, 2006         |  | $                 | 4,102 |   |          | $ | 10,435 |                       |  | $ | 9,398     |   |  | $     | 5,335 |   |  | $ | 29,270 |  
|                                          |  |                   |       |   |          |   |        |                       |  |   |           |   |  |       |       |   |  |   |        |  

10. Preferred Stock and Common Stock Warrants

Series C Preferred Stock

On June 8, 2005, the Company completed the private placement sale to
ten institutional investors of units consisting of shares of Series C Convertible Preferred Stock and warrants to purchase shares of common stock for aggregate gross proceeds of $3.5 million. Related issuance costs of approximately $237,000 resulted
in net proceeds of approximately $3.3 million. Pursuant to the Securities Purchase Agreement, the Company collectively issued to the investors 1,250,004 shares of Series C preferred stock at a price of $2.80 per share of which 748,087 shares have
been converted into common stock or redeemed since issuance. The Series C preferred stock is convertible into shares of common stock at $2.80 per share. The Company also granted to the investors warrants to purchase 625,004 shares of common stock
over a three year period at an exercise price of $3.50 per share. The $3.50 per share purchase price, the conversion ratio of the Series C preferred stock, and the exercise price of the warrants are not subject to adjustment, except for standard
anti-dilution relating to stock splits, combinations and the like. In accordance with applicable accounting guidelines, management allocated the net proceeds based on the relative fair values of the equity instruments. Management used the
Black-Scholes model to compute the fair value of the warrants assuming 85.6% volatility and 3.60% risk free rate which resulted in an $869,000 fair value for the 687,504 warrants issued. The warrants have an exercise price $3.50 per share. The
remaining $2.4 million was allocated to the Series C preferred stock resulting in an effective conversion price for the embedded options contained within the Series C preferred stock of $2.10 per share. The effective conversion price resulted in the
embedded options being in-the-money at issuance creating a $575,000 beneficial conversion to the holders of the Series C preferred stock. The beneficial conversion was treated as a non-cash preferred stock dividend.

Holders of the Series C preferred stock are entitled to receive dividends in the amount of six percent (6%) per annum, payable semiannually starting
December 31, 2005. The dividends may be paid in cash or, at the Companys option, in shares of its common stock. The Company was required to redeem the Series C preferred stock on a monthly basis beginning in March 2006, at a rate of
1/30th of the outstanding shares per month. The redemption price is equal to the purchase price of the shares being redeemed, plus all related accrued and unpaid dividends and is payable in cash or, at the Companys option, shares of its common
stock. In addition, the Company may choose to redeem the Series C preferred stock at any time at a price equal to 105% of the purchase price, plus all related accrued and unpaid dividends.

Pursuant to the terms of the Certificates of Designations, if the Companys common stock is not listed on the New York Stock Exchange, American
Stock Exchange, Nasdaq National Market, Nasdaq Capital Market or the OTC Bulletin Board for a period of seven consecutive trading days, holders of the outstanding preferred shares may elect that we repurchase their preferred shares. Effective upon
the opening of the market on September 19, 2006, the Companys securities were delisted from the Nasdaq Capital Market. Since that time, the Companys common stock has been trading on the electronic Pink Sheets. There are outstanding
501,917 shares of Series C preferred stock. Beginning September 29, 2006, the Company has received demands for redemption on an aggregate 287,508 Series C preferred shares with an aggregate redemption amount of $805,022 plus $12,210 accrued but
unpaid dividends . If the holders of all Series C preferred shares outstanding as of March 31, 2007 request redemption, the aggregate redemption amount of all Series C preferred shares outstanding as of March 31, 2007 would be $1.4
million, plus $55 thousand of accrued but unpaid dividends. All demands for redemption payments are due within sixty (60) days of the date the Company receives written notice from such stockholder of its election and to date the redemption
demands have not been paid. The preferred shares were reclassified as liabilities resulting in a beneficial conversion of $0.4 million which was recorded as a non cash preferred dividend. The preferred stock is included in current liabilities on the
accompanying condensed consolidated balance sheets.



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H.C. Wainwright & Co., a NASD registered broker dealer, acted as placement agent in connection
with the private placement. The Company agreed to pay H.C. Wainwright placement agent fees consisting of $175,000 in cash, plus warrants to purchase up to 62,500 shares of its common stock over a three year period at an exercise price of $3.50 per
share.

Series D Preferred Stock

On
November 7, 2005 the Company completed the sale of its Series D convertible preferred stock and warrants to purchase common stock to five institutional investors for gross proceeds to the Company of $6 million. Related issuance costs of
approximately $258,000 resulted in net proceeds of approximately $5.7 million. The Company issued 120,000 shares of Series D Preferred Stock convertible into shares of the Companys common stock at the rate of $4.16 per share of which 114,500
shares have been converted to common stock. The Company also issued warrants (A warrants) to purchase 721,157 shares of the Companys common stock at $4.33 per share. The Company also granted the investors the right to purchase,
during the 90 business days following the registration of the common shares underlying the Series D Preferred Stock, 1,442,311 additional shares of common stock (B warrants) at the purchase price of $5.25 per share along with warrants
(C warrants) to purchase 721,157 shares of the Companys common stock at $6.00 per share. The C warrants were only exercisable upon the exercise of the B warrants. The B and C warrants have expired unexercised. Neither the $4.16 per
share conversion price in the Series D Preferred Stock nor the exercise price of the warrants are subject to adjustment, except for standard anti-dilution relating stock splits, combinations and the like.

Holders of the Series D Preferred Stock are entitled to receive dividends, payable semi-annually, in the amount of six percent (6%) per year. The
dividends may be paid in cash or, at the Companys option, in shares of its common stock. The Company must redeem the Series D preferred stock, on a quarterly basis, which began August 2006, at a rate of 8.333% of the preferred shares
originally issued per quarter. The redemption price is equal to the purchase price of the shares being redeemed, plus all related accrued and unpaid dividends and is payable in cash or, at the Companys option, shares of its common stock. In
addition, the Company may choose to redeem the Series D preferred stock at any time at a price equal to 105% of the purchase price, plus all related accrued and unpaid dividends.

Pursuant to the terms of the Certificates of Designations, if the Companys common stock is not listed on the New York Stock Exchange, American
Stock Exchange, Nasdaq National Market, Nasdaq Capital Market or the OTC Bulletin Board for a period of seven consecutive trading days, holders of the outstanding preferred shares may elect that the Company repurchase their preferred shares.
Effective upon the opening of the market on September 19, 2006, the Companys securities were delisted from the Nasdaq Capital Market. Since that time, the Companys common stock has been trading on the electronic Pink Sheets. There
are outstanding 5,500 shares of Series D preferred stock for which the Company has received redemption demands. The aggregate redemption amount is $275 thousand plus $13 thousand accrued but unpaid dividends. All demands for redemption payments are
due within sixty (60) days of the date the Company receives written notice from such stockholder of its election and to date the redemption demand has not been paid. The preferred shares were reclassified as liabilities resulting in a
beneficial conversion of $0.1 million which was recorded as a non-cash preferred dividend. The preferred stock is included in current liabilities on the accompanying condensed consolidated balance sheets.

In accordance with SFAS No. 150 Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity the
Series D preferred stock has been classified as equity. Additionally, in accordance with SFAS No. 150, at the time the related mandatory redemption requirements have been met, the shares will be reclassified as liabilities. Management used the
Black-Scholes model to compute the fair value of the warrants assuming 94.5% volatility and 4.46% risk free rate which resulted in an $1.8 million fair value for the warrants and options issued. No value was assigned to the C warrants given the
contingent nature of such warrants. The remaining $3.9 million was allocated to the Series D preferred stock resulting in an effective conversion price for the embedded options contained within the Series D preferred stock of $2.85 per share. The
effective conversion price resulted in the embedded options being in-the-money at issuance creating a $692,000 beneficial conversion to the holders of the Series D preferred stock. The beneficial conversion was treated as a non-cash preferred stock
dividend.

The rights of the holders of the Series D preferred stock are pari passu to the rights of the holders of the Series C preferred
stock. H.C. Wainwright & Co., a NASD registered broker dealer, acted as placement agent in connection with the private placement. The Company agreed to pay H.C. Wainwright placement agent fees consisting of $150,000 in cash, plus warrants
to purchase up to 36,058 shares of our common stock over a three year period at an exercise price of $4.33 per share.

Series E Preferred Stock

On May 25, 2006, the Company completed the sale of Series E convertible preferred stock and warrants to purchase common stock to
five institutional investors for gross proceeds to the Company of $3.8 million. Related issuance costs of approximately $188,000 resulted in net proceeds of approximately $3.6 million. At the same time, the investors agreed to



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convert into shares of the Companys common stock all 114,000 shares of the Series D preferred stock held by them at the conversion price of $4.16 per
share. The Series E preferred stock has an initial conversion price of $2.76 per share and is initially convertible into a total of 2,318,424 shares of the Companys common stock. In connection with the sale of the Series E preferred stock, the
Company issued warrants to purchase an aggregate of 1,159,208 shares of common stock at an exercise price of $3.58 per share. In addition to standard anti-dilution adjustments for stock splits, combinations and the like, the exercise prices of the
warrants and the conversion price of the Series E preferred stock are subject to adjustment if the Company issues shares of common stock, or securities convertible into shares of common stock, at an effective price less than $3.58 or $2.76,
respectively. The Company has the right to redeem the Series E preferred stock at a price equal to 105% of the stated value of the shares of Series E preferred stock.

The conversion of the Series D preferred stock and issuance of the Series E preferred stock and warrants was accounted for according to EITF Topic No. D-42 The Effect on the calculation of EPS for the redemption
of induced conversion of preferred stock. Consequently, the fair value of all securities and other consideration transferred in the issuance of the Series E convertible preferred stock over the fair value of securities issuable pursuant to the
original conversion terms of the Series D preferred stock was subtracted from net earnings to arrive at net earnings available to common shareholders. Management used the Black-Scholes model to compute the fair value of the warrants assuming 84.6%
volatility and 4.95% risk free rate which resulted in a $1.7 million fair value for the warrants.

Holders of the Series E preferred stock
are entitled to receive dividends payable semi-annually, beginning June 30, 2006. The dividends are calculated on a floating rate of London Interbank Offer Rate (Libor) plus 3.00% such rate to be set two business days prior to the
beginning of the applicable dividend period. The initial dividend rate was established at 8.0813%. The dividends may be paid in cash or, at the Companys option, in shares of its common stock. In addition, the Company began redeeming the Series
E preferred stock on a quarterly basis in September 2006 at a rate of 8.333% of the preferred shares originally issued per quarter. The redemption price may be paid in cash, or, at the Companys option, in shares of its common stock, and is
equal to the purchase price of the shares being redeemed, plus all related accrued and unpaid dividends. In accordance with SFAS No. 150 Accounting for Certain Financial Instruments with Characteristics of both Liabilities and
Equity the Series E preferred stock has been classified as equity. Additionally, in accordance with SFAS No. 150, at the time the related mandatory redemption requirements have been met, the shares will be reclassified as liabilities.
Additionally, in accordance with the guidelines from the SECs Current Accounting and Disclosure Issues in the Division of Corporate Finance on December 1, 2005, the warrants have been classified as equity in the accompanying condensed
consolidated balance sheets.

The Company is subject to 1% liquidated damages to the extent the registration statement for the underlying
shares was not declared effective by the SEC as of August 21, 2006. The liquidated damages are payable monthly until such time as the registration statement is declared effective or the shares may be sold without restriction pursuant to Rule
144(k) under the Securities Act. The SEC has not declared the registration statement effective and the Company may be subject to liquidated damages in the aggregate amount of $117 thousand as of March 31, 2007. The rights of the holders of the
Series E preferred stock are senior to the rights of the holders of the Series C and D preferred stock.

There are outstanding 117,314
shares of Series E preferred stock. Beginning September 29, 2006, the Company has received demands for redemption on an aggregate of 101,878 Series E preferred shares with an aggregate redemption amount of $5,093,900 plus $123,751 accrued but
unpaid dividends. If the holders of all Series E preferred shares outstanding as of September 30, 2006 request redemption, the aggregate redemption amount of all Series E preferred shares outstanding as of September 30, 2006 would be $5.9
million, plus $142 thousand of accrued but unpaid dividends. All demands for redemption payments are due within sixty (60) days of the date the Company receives written notice from such stockholder of its election and to date the redemption
demands have not been paid. The preferred shares were reclassified as current liabilities resulting in a beneficial conversion of $2.8 million which was recorded as a non-cash preferred dividend. The preferred stock is included in current
liabilities on the accompanying condensed consolidated balance sheets.

Warrants

On May 25, 2006, we instituted a voluntary offer of conversion to certain of our existing warrant holders to exercise all of their existing warrants
issued to them in the Series C and D preferred stock transactions. A total of 685,099 warrants with a strike price of $4.33 and 410,716 warrants with a strike price of $3.50 were exercised resulting in the issuance of 1,095,815 shares of the
Companys common stock under the terms of such warrants for gross proceeds of approximately $4.3 million. In exchange for the conversion of the warrants the Company issued warrants (warrant C) to purchase an aggregate of 1,095,815
shares of the Companys common stock at an exercise price of $2.76 per share and a floating number of shares of common stock at an exercise price of $0.01 per share (warrant B), with the exact aggregate number of shares to be



12



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##### Table of Contents

determined by dividing $1,938,403 by the lowest of (A) $2.76 (as adjusted for stock splits, stock dividends, stock combinations and other similar
events), (B) the closing price of our common stock on the trading day prior to the effective date of a registration statement covering the resale of the shares, (C) the closing price of our common stock on the trading day prior to the day
shareholder approval is obtained pursuant to the terms of the Series E preferred stock, or (D) if the registration statement is not declared effective, the trading day prior to the day any shares of common stock issuable pursuant to such
warrant can be sold under Rule 144. The warrants will expire on the fifth anniversary of the date that a registration statement covering the resale of the shares of our common stock issuable upon exercise of the warrants and conversion of the Series
E preferred stock is declared effective. The exercise prices of warrant B and warrant C are subject to adjustment if the Company issues shares of common stock, or securities convertible into shares of common stock, at an effective price less than
the then-current exercise price of such warrants.

The conversion of the warrants and issuance of the warrants B and C was accounted for
according to EITF Topic No. D-42 The Effect on the calculation of EPS for the redemption of induced conversion of preferred stock. Consequently, the fair value of the issuance of the warrants B and C over the fair value of securities
issuable pursuant to the original conversion terms of the converted warrants was subtracted from net earnings to arrive at net earnings available to common shareholders. Management used the Black-Scholes model to compute the fair value of the
warrant C assuming 84.6% volatility and 4.95% risk free rate which resulted in a $1.7 million fair value for the warrants.

Additionally in
accordance with the guidelines from the SECs Current Accounting and Disclosure Issues in the Division of Corporate Finance on December 1, 2005 and SFAS No. 150 Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity the warrant B has been classified as long term debt and the warrant C has been classified as equity in the condensed consolidated balance sheets.

11. 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 2%. As of December 31, 2006 the interest rate is 10.25% 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, 2007. The Company is currently in default on the loan agreement and is
negotiating a forbearance agreement with Far East National Bank. As of March 31, 2007, a total of $965,000 has been advanced to Best Logic pursuant to the loan agreement and $17 thousand of accrued but unpaid interest.

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.

On January 15, 2007, the Companys wholly-owned subsidiary, Global Airworks, Inc., entered into a loan agreement with
Hu Cheng-Lien, an individual, to loan Global Airworks, Inc. up to $1,500,000. Pursuant to a promissory note, dated January 15, 2007, executed in connection with the loan agreement, interest on the outstanding principal balance of an advance
will accrue at an interest rate equal to 10%. Interest is payable at the maturity date of each advance which is 180 days from the date of each advance. As of March 31, 2007, a total of $1,470,000 has been advanced to Global Airworks, Inc.
pursuant to the loan agreement.

In connection with the loan agreement, and as collateral for the loan, Global Airworks, Inc executed a
security agreement granting Hu Cheng-Lien a security interest in certain assets of Global Airworks, Inc. including all inventory, accounts, equipment, and general intangibles. In addition, the loan is secured by a guaranty executed by Global ePoint,
Inc. and Tops Digital Security, LLC.

12. Subsequent Events

None



13



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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 technology, which focuses 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, which primarily provides surveillance and safety products and aircraft modification products and services to the commercial airline industry; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Contract manufacturing,which focuses on the manufacturing and sale of digital video recorders and customized computing systems for the commercial,
industrial, and consumer sectors.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We have continued to have difficulty financing our operations. We entered into our
Series E preferred stock financing in order to continue with our product development, acquisitions and sales and marketing strategies. As a result of the transaction, we were delisted from the Nasdaq Capital Market due to shareholder approval issues
arising from the Nasdaqs determination to aggregate our Series C, D, and E financings and our failure to file listing of additional share forms for these financings on a timely basis. Although we appealed the determination our
appeals were denied and we were delisted from the Nasdaq Capital Market. Our common stock is currently quoted in the Pink Sheets under the trading symbol GEPT.PK. As a result of the delisting substantially all of our preferred
stockholders have submitted redemption demands which has resulted in a working capital deficit. We intend to improve our working capital position by negotiating with the holders of our Series C, D and E preferred stock to resolve their redemption
demands without the need to make the required redemption payments.

Our working capital deficiency and continued operating loss, requires
us to restructure our operations. Our goal is to focus our resources in the areas we believe will lead us to the fastest opportunity to reach profitability and long term growth. In the initial step to achieve our goal we have begun to trim our
operating costs by reducing our contract manufacturing division operations and our research and development efforts. Additionally, we are exploring opportunities to sell various assets and product offerings to achieve our objective. Upon completion
of the restructuring we expect to significantly reduce overhead. We believe the streamlining of our operations and reduction of overhead will provide us with additional opportunity to obtain the working capital required to move forward. There can be
no assurance, however that we will be successful in our restructuring efforts, resolve the preferred stockholders redemption demands without the need to make the required redemption payments or obtain additional working capital.

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-merged public entity, as well as general overall corporate expenses.



|                                          |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |       |   |  |   |        |  
|----------------------------------------- |  | ----------------- | ------ | - | -------- | - | ----- | --------------------- |  | - | --------- | - |  | ----- | ----- | - |  | - | ------ | -
|For the three months ended March 31, 2007 |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |       |   |  |   |        |  
|                                          |  |                   |        |   |         
|($ in thousands)                          |  | DigitalTechnology |        |   | Aviation |   |       | ContractManufacturing |  |   | Corporate |   |  | Total |      
|Net sales                                 |  | $                 | 373    |   |          | $ | 431   |                       |  | $ | 683       |   |  | $     |      |   |  | $ | 1,487  |  
|Cost of sales                             |  |                   | 336    |   |          |   | 382   |                       |  |   | 537       |   |  |       |      |   |  |   | 1,255  |  
|                                          |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |       |   |  |   |        |  
|Gross profit                              |  |                   | 37     |   |          |   | 49    |                       |  |   | 146       |   |  |       |      |   |  |   | 232    |  
|Operating expenses                        |  |                   | 1,100  |   |          |   | 509   |                       |  |   | 1,810     |   |  |       | 925   |   |  |   | 4,344  |  
|                                          |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |       |   |  |   |        |  
|Income (loss) from operations             |  |                   | (1,063 | ) |          |   | (460  | )                     |  |   | (1,664    | ) |  |       | (925  | ) |  |   | (4,112 | )
|Other income (expense)                    |  |                   | (20    | ) |          |   | (17   | )                     |  |   | (3        | ) |  |       |      |   |  |   | (40    | )
|                                          |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |       |   |  |   |        |  
|Loss before income tax provision          |  | $                 | (1,083 | ) |          | $ | (477  | )                     |  | $ | (1,667    | ) |  | $     | (925  | ) |  | $ | (4,152 | )
|                                          |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |       |   |  |   |        |  
|Total assets as of March 31, 2007         |  | $                 | 6,475  |   |          | $ | 8,474 |                       |  | $ | 2,329     |   |  | $     | 3,798 |   |  | $ | 21,076 |  
|                                          |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |       |   |  |   |        |  



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|                                          |  |                   |       |   |          |   |        |                       |  |   |           |   |  |       |       |   |  |   |        |  
|----------------------------------------- |  | ----------------- | ----- | - | -------- | - | ------ | --------------------- |  | - | --------- | - |  | ----- | ----- | - |  | - | ------ | -
|                                          |  |                   |       |   |         
|For the three months ended March 31, 2006 |  |                   |       |   |          |   |        |                       |  |   |           |   |  |       |       |   |  |   |        |  
|                                          |  |                   |       |   |         
|($ in thousands)                          |  | DigitalTechnology |       |   | Aviation |   |        | ContractManufacturing |  |   | Corporate |   |  | Total |      
|Net sales                                 |  | $                 | 205   |   |          | $ | 1,701  |                       |  | $ | 5,413     |   |  | $     |      |   |  | $ | 7,319  |  
|Cost of sales                             |  |                   | 182   |   |          |   | 1,516  |                       |  |   | 4,819     |   |  |       |      |   |  |   | 6,517  |  
|                                          |  |                   |       |   |          |   |        |                       |  |   |           |   |  |       |       |   |  |   |        |  
|Gross profit                              |  |                   | 23    |   |          |   | 185    |                       |  |   | 594       |   |  |       |      |   |  |   | 802    |  
|Operating expenses                        |  |                   | 806   |   |          |   | 718    |                       |  |   | 662       |   |  |       | 682   |   |  |   | 2,868  |  
|                                          |  |                   |       |   |          |   |        |                       |  |   |           |   |  |       |       |   |  |   |        |  
|Income (loss) from operations             |  |                   | (783  | ) |          |   | (533   | )                     |  |   | (68       | ) |  |       | (682  | ) |  |   | (2,066 | )
|Other income (expense)                    |  |                   | (15   | ) |          |   |       |                       |  |   |          |   |  |       | 5     |   |  |   | (10    | )
|                                          |  |                   |       |   |          |   |        |                       |  |   |           |   |  |       |       |   |  |   |        |  
|Loss before income tax provision          |  | $                 | (798  | ) |          | $ | (533   | )                     |  | $ | (68       | ) |  | $     | (677  | ) |  | $ | (2,076 | )
|                                          |  |                   |       |   |          |   |        |                       |  |   |           |   |  |       |       |   |  |   |        |  
|Total assets as of March 31, 2006         |  | $                 | 4,102 |   |          | $ | 10,435 |                       |  | $ | 9,398     |   |  | $     | 5,335 |   |  | $ | 29,270 |  
|                                          |  |                   |       |   |          |   |        |                       |  |   |           |   |  |       |       |   |  |   |        |  

RESULTS OF OPERATIONSDIGITAL TECHNOLOGY DIVISION

For the Three Months Ended March 31, 2007 Compared to March 31, 2006

Revenues for the digital technology division increased to $373 thousand for the three months ended March 31, 2007 compared to $205 thousand for the
three months ended March 31, 2006. The increase in revenues is due to our Tops division which was acquired beginning in April 2006. Gross margins were 10% for the three months ended March 31, 2007 compared to 11% for the three months ended
March 31, 2006.

Operating expenses increased to $1.1 million for the three months ended March 31, 2007 from $0.8 million for the
three months ended March 31, 2006. The increase in operating expenses is due to the acquisition of Tops which consisted of $74,000 selling expenses, $214,000 general and administrative expenses and $123,000 for research and development costs
associated with our establishment of an R&D facility in Korea to facilitate the development of the high end Tops product line. The increases in expenses were offset by a decrease in other research and development costs of $103,000.

The net result of the foregoing is that the digital technology division incurred a loss from operations of $1.1 million for the three months ended
March 31, 2007 compared to a loss from operations of $0.8 million for the three months ended March 31, 2006.

RESULTS OF
OPERATIONSAVIATION DIVISION

For the Three Months Ended March 31, 2007 Compared to March 31, 2006

Revenues for the three months ended March 31, 2007 totaled $0.4 million compared to $1.7 million for the three months ended March 31, 2006. The
decrease in sales is the result of a decrease in aircraft maintenance services of $0.8 million, and $0.4 million decrease in sales of other modification equipment and services. Cost of goods sold was $0.4 million for the three months ended
March 31, 2007 compared to $1.5 million for the three months ended March 31, 2006. The decrease in cost of goods sold is due to the decrease in maintenance services operations. We established a maintenance operation in Tulsa, Oklahoma, in
September 2005, to service a contract we obtained from a large Latin American airlines. The operation did not meet our expected profitability, therefore, we no longer offer the services and closed the maintenance facility in Tulsa Oklahoma at the
end of 2006 upon completion of the contract. Gross margins were 11% for the three months ended March 31, 2007 and 2006. We believe our overall gross margins will improve as our mix of business moves to equipment deliveries which have a higher
margin. We have experienced delays in obtaining FAA certifications for our IFE retrofit program causing delays in the shipment of the IFE equipment to a large Latin American airline. In early 2007 we completed the certification process for the
programs and began deliveries of equipment in the second quarter of 2007.



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##### Table of Contents

Operating expenses totaled $0.5 million for the three months ended March 31, 2007 compared to $0.7
million for the three months ended March 31, 2006. The decrease is primarily due to costs associated with the maintenance services operation.

As a result of the foregoing, the aviation division incurred a loss from operations of $0.5 million for the three months ended March 31, 2007 and 2006.

RESULTS OF OPERATIONSCONTRACT MANUFACTURING DIVISION

For the Three Months Ended
March 31, 2007 Compared to March 31, 2006

Net sales for the three months ended March 31, 2007 decreased to $0.7 million
from $5.4 million in the three months ended March 31, 2006. We have ceased production of the lower margin basic level consumer PCs which was subcontracted to us by the Related Parties resulting in a $3.1 million decrease in sales in the three
months ended March 31, 2007 from the three months ended March 31, 2006. Additionally, sales of industrial computer products decreased to $0.7 million in the three months ended March 31, 2007 compared to $1.9 million in the three
months ended March 31, 2006. The decline in industrial computer sales is primarily due to the decline in sales from two of our major customers. One of our customers contract expired in early 2007 and has not been renewed. Another major
customers product line has moved to high end/lower sales volume x-ray machines and discontinued their low end/higher sales volume x-ray machines, resulting in a decline in sales for our industrial PC. Cost of sales was $0.5 million for the
three months ended March 31, 2007, or 78.6%, of sales compared to $4.8 million, or 89.0%, of sales for the corresponding three months ended March 31, 2006. The decrease in the cost of sales as a percentage of net sales was due to the
decrease in sales of lower margin consumer computer products. As a result, gross margins for the three months ended March 31, 2007 were 21.4% compared to 11.0% for the three months ended March 31, 2006.

Operating expenses for the three months ended March 31, 2007 were $1.8 million compared to $0.7 million, for the three months ended March 31,
2006. The increase in operating expenses is due to a $1.5 million non-cash goodwill impairment charge after a review of the divisions operations and expectations resulting from the streamlining of our overall operations to reduce overhead
expenses. The non-cash goodwill impairment charge was partially offset by a $177,000 decrease in manufacturing overhead and a decrease in selling expenses of $91,000 primarily due to a reduction in commission expenses as a result of lower sales of
computer products in the three months ended March 31, 2007 over 2006.

The net result was a loss from operations for the contract
manufacturing division was $1.7 million for the three months ended March 31, 2007 compared to loss from operations of $68,000 for the three months ended March 31, 2006.

RESULTS OF OPERATIONSCORPORATE

Corporate activities primarily relate to activities associated
with income and expense of non-core continuing business of the pre-merged public entity, as well as general overall corporate expenses. During the three months ended March 31, 2007, corporate general and administrative costs totaled $.9 million
compared to $0.7 million for the three months ended March 31, 2006. The increase in corporate expenses was due to $0.2 million increase for damages and penalties related to defaults associated with our preferred stock.

The net result for corporate operations was a loss from operations of $.9 million for the three months ended March 31, 2007 compared to a loss from
operations of $0.7 million for the three months ended March 31, 2006.

SUMMARY

As a net result of the combined operations of our digital technology division, aviation division, contract manufacturing division, and corporate
activities, we incurred a net loss of $4.2 million, or $(0.21) per share for the three months ended March 31, 2007 compared to a net loss of $2.1 million, or $(0.14) per share for the three months ended March 31, 2006.

LIQUIDITY AND CAPITAL RESOURCES

As
of March 31, 2007, due to the reclassification of $7.5 million of our Series C, D and E preferred stock to short term loans payable, the Company had a $7.6 million net working capital deficit and no cash or cash equivalents. Since then, our
working capital position has worsened due to continuing losses from operations. We intend to improve our working capital position by pursuing negotiations with the holders of our Series C, D and E preferred stock to resolve their redemption



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demands without the need to make the required redemption payments. However, there can be no assurance that we will be successful in resolving their
redemption demands. There can also be no assurance that we will not receive additional redemption demands from other holders of our Series C and E preferred stock. We also intend to improve our working capital position by restructuring our
operations through reducing our contract manufacturing division and our research and development efforts. Additionally, we are exploring opportunities to sell various assets and product offerings while pursuing various funding alternatives, however
at this time there are no understandings or arrangements on the part of any third party to provide us with additional funding. In this regard, our delisting from the Nasdaq Stock Market and the shareholder derivative lawsuit against our board of
directors is likely to impair our ability to resolve the redemption demands of our preferred shareholders and successfully acquire funding from other sources. In the meantime, we are solely dependent on our existing current assets to meet our
operating expenses, capital expenditures, and other commitments, which we believe will provide sufficient funds only for three months from the date of this report assuming we do not fund the required mandatory redemption payments.

We believe that we will require a minimum of $5 million of additional funding, in addition to any funding required to resolve the $6.3 million in
redemption demands of our preferred shareholders, in order to fund our ongoing and planned operations over the next 12 months. If we are not successful in resolving their redemption demands without a cash payment, we will need a minimum of $11.4
million of additional funding over the next 12 months. In the event we are unable to acquire the required financing within the next few months, our companys financial condition will be severely impacted and we may be unable to continue as a
going concern. In that event, we may be forced to seek protection under the bankruptcy laws. There can be no guarantee that the funds we require will be available on commercially reasonable terms, if at all. The report of our independent registered
public accounting firm for the fiscal year ended December 31, 2006 states that due to recurring losses, reclassification of all preferred stock as current liability because of mandatory redemption and working capital deficiency there is
substantial doubt about our ability to continue as a going concern.

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 additional 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;
| | - |  | -------------------------------------------



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



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

Net cash used by operations for the three months ended March 31, 2007 was $0.6 million as compared to cash used by operations of $0.8 million for
the corresponding period in 2006. In the three months ended March 31, 2007 and 2006, the primary use of cash was funding the operating loss.

Cash used in investing activities for the three months ended March 31, 2007 consisted of $0.3 million compared to cash provided by investing activities of $0.1 million for the three months ended March 31, 2006. For the quarter
ended March 31, 2007 the cash was used for deposits to vendors for inventory needs. For the quarter ended March 31, 2006 the cash was comprised of the collection of $0.5 million on the note provided to Astrophysics, Inc. offset by of $0.4
million of cash used for the acquisition of fixed assets and other intangibles.



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The Companys wholly-owned subsidiary, Best Logic, LLC, extended a loan agreement with Far East
National Bank pursuant to which the bank has agreed to loan Best Logic up to $1 million. 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 2%. The initial interest rate was 10.25% 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, 2007. As of March 31, 2007, a total of $965,000 is outstanding by Best Logic pursuant to the loan agreement. Best Logic is currently in default
under the loan agreement. The Company is attempting to negotiate a work-out or extension of the loan, however there can be no assurance it will be able to do so.

On January 15, 2007, the Companys wholly-owned subsidiary, Global Airworks, Inc., entered into a loan agreement with Hu Cheng-Lien, an individual, to loan Global Airworks, Inc. up to $1,500,000. Pursuant to
a promissory note, dated January 15, 2007, executed in connection with the loan agreement, interest on the outstanding principal balance of an advance will accrue at an interest rate equal to 10%. Interest is payable at the maturity date of
each advance which is 180 days from the date of each advance. As of May 15, 2007, a total of $1,470,000 has been advanced to Global Airworks, Inc. pursuant to the loan agreement. In connection with the loan agreement, and as collateral for the
loan, Global Airworks, Inc executed a security agreement granting Hu Cheng-Lien a security interest in certain assets of Global Airworks, Inc. including all inventory, accounts, equipment, and general intangibles. In addition, the loan is secured by
a guaranty executed by Global ePoint, Inc. and Tops Digital Security, LLC.

Net cash provided by financing activities for the three months
ended March 31, 2007 totaled $1.0 million primarily from advances on the loan agreement from our Global Airworks, Inc. As of March 31, 2007, the total outstanding balance on loans from related parties was $1.4 million.

Net cash used in financing activities for the three months ended March 31, 2006 totaled $28,000 and was primarily provided by borrowings from
related parties. As of March 31, 2006, the total outstanding balance on loans from related parties was $3.1 million.

Pursuant to the
terms of the Certificates of Designations for the Series C, D and E preferred stock, if our common stock is not listed on the New York Stock Exchange, American Stock Exchange, Nasdaq National Market, Nasdaq Capital Market or the OTC Bulletin Board
for a period of seven consecutive trading days, holders of the outstanding preferred shares may elect that we repurchase their preferred shares. Effective upon the opening of the market on September 19, 2006, our securities were delisted from
the Nasdaq Capital Market. Since that time, our common stock has been trading on the electronic Pink Sheets.

On September 29, 2006,
we received redemption notices from certain holders of our Series C and Series E preferred stock demanding that we repurchase an aggregate of 136,908 shares of their Series C preferred stock, representing 27% of the issued and outstanding Series C
preferred stock, and 95,703 shares of their Series E preferred stock, representing 82% of the issued and outstanding Series E preferred stock. Subsequently, we received redemption notices demanding that we repurchase an additional 150,600 shares of
Series C preferred stock, 5,500 remaining shares of the Series D preferred stock and 6,175 shares of Series E preferred stock. As of March 31, 2007, the aggregate redemption amount under the notices received is $6,454,699 plus $497,026 accrued
and unpaid dividends and interest.

There are outstanding 501,917 shares of Series C preferred stock, 5,500 shares of Series D preferred
stock and 117,314 shares of Series E preferred stock. Under the applicable provisions of the Certificates of Designations for the Series C, D and E preferred stock, the redemption payment amounts for the Series C, D, and E preferred stock is $2.80
per share, $50 per share and $50 per share, respectively, plus accrued but unpaid dividends. In the event holders of all of the Series C, D and E preferred stock are entitled to have their preferred stock redeemed, the aggregate redemption amount
would be $7,484,851, plus accrued but unpaid dividends. All demands for redemption payments are due within sixty (60) days of the date the Company receives written notice from such stockholder of its election.

We are currently working to get our common stock listed on the OTC Bulletin Board and we are pursuing negotiations with the holders of its Series C, D
and E preferred stock to resolve their redemption demands without the need for us to make the required redemption payment in cash. There can be no assurance that we will be successful in resolving the redemption demands on terms satisfactory to us.
There can also be no assurance that we will not receive additional redemption demands from other holders of its Series C, D, and E preferred stock.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements.



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##### Table of Contents

|ITEM 3. | QUANTITATIVE AND QUALITATIVE DESCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

We are exposed to a variety of market risks, including changes in interest rates primarily as a result of our borrowings, commodity price risk and electronic and computer component price fluctuations. The Company has established procedures
to manage its fluctuations in interest rates.

Our borrowings are in fixed and variable rate instruments, with interest rates tied to
either the Prime Rate or the LIBOR. A 100 basis point change in these rates would have an impact of approximately $15,000 on our annual interest expense, assuming consistent levels of floating rate debt with those held at March 31, 2007.

Commodity price movements create a market risk by affecting the price we must pay for certain component parts used to assemble our
products as certain commodities are embedded in components we purchase from major suppliers. Our suppliers generally pass on significant commodity price changes to us in the form of revised prices on future purchases. The Company has not used
commodity forward or option contracts to manage this market risk.

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 of $5 million in the near term to continue to operate our business, and in the event we are unable to obtain such financing we may
be forced to radically restructure our operations or seek protection under the bankruptcy laws. As of March 31, 2007, due to the reclassification of $7.5 million for redemption demands on our Series C, D and E preferred stock to
short term loan payable, we had a net working capital deficit of $7.6 million and no cash or cash equivalents. Since then, our working capital position has worsened due to continuing losses from operations. We intend to improve our working capital
position by pursuing negotiations with the holders of our Series C, D and E preferred stock to resolve their redemption demands without the need to make the required redemption payments without cash payment. However, there can be no assurance that
we will be successful in resolving their redemption demands. There can also be no assurance that we will not receive additional redemption demands from other holders of our Series C and E preferred stock. We also intend to improve our working
capital position by restructuring our operations through discontinuing our contract manufacturing division and reducing our research and development efforts. Additionally, we are exploring opportunities to



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sell various assets and product offerings while pursuing various funding alternatives, however at this time there are no understandings or arrangements on
the part of any third party to provide us with additional funding. In this regard, our recent delisting from the Nasdaq Stock Market and the recently filed shareholder derivative lawsuit against our board of directors is likely to impair our ability
to resolve the redemption demands of our preferred shareholders and successfully acquire funding from other sources. In the meantime, we are solely dependent on our existing current assets to meet our operating expenses, capital expenditures, and
other commitments, which we believe will provide sufficient funds only for six months assuming we do not fund the required mandatory redemption payments

We believe that we require a minimum of $5 million of additional funding, in addition to any funds needed to resolve the $6.3 million in redemption demands of our preferred, in order to fund our ongoing and planned
operations over the next 12 months. In the event we are unable to acquire the required financing within the next few months, our companys financial condition will be severely impacted and we may be unable to continue as a going concern. In
that event, we may be forced to seek protection under the bankruptcy laws. There can be no guarantee that the funds we require will be available on commercially reasonable terms, if at all.

The report of our independent registered public accounting firm for the fiscal year ended December 31, 2006 states that due to recurring losses,
reclassification of all preferred stock as current liability because of mandatory redemption and working capital deficiency, there is substantial doubt about our ability to continue as a going concern

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;
| | - |  | ----------------------------------------------------------------------



| |  |  | 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 have received redemption demands from holders of our preferred stock in excess of $6.3 million. On September 29, 2006, we received
redemption notices from certain holders of our Series C and Series E preferred stock demanding that we repurchase an aggregate of 136,908 shares of their Series C preferred stock, representing 27% of the issued and outstanding Series C preferred
stock, and 95,703 shares of their Series E preferred stock, representing 82% of the issued and outstanding Series E preferred stock. Subsequently, we received redemption notices demanding that we repurchase an additional 150,600 shares of Series C
preferred stock, 5,500 remaining shares of the Series D preferred stock and 6,175 shares of Series E preferred stock. Currently, the aggregate redemption amount under the notices received is $6,283,183 plus $163,972 accrued and unpaid dividends. All
demands for redemption were payable within sixty (60) days of the date the Company receives written notice from such stockholder of its election.

The Certificates of Designations for the Series C, D and E preferred stock provide that if our common stock is not listed on the New York Stock Exchange, American Stock Exchange, Nasdaq National Market, Nasdaq Capital
Market or the OTC Bulletin Board for a period of seven consecutive trading days, holders of the outstanding preferred shares may elect that we repurchase their preferred shares. Effective upon the opening of the market on September 19, 2006,
our securities were delisted from the Nasdaq Capital Market. Since that time, our common stock has been trading on the electronic Pink Sheets.

Currently, there are outstanding 501,917 shares of Series C preferred stock, 5,500 shares of Series D preferred stock and 117,314 shares of Series E preferred stock. Under the applicable provisions of the Certificates of Designations for
the Series C, D and E preferred stock, the redemption payment amounts for the Series C, D, and E preferred stock is $2.80 per share, $50 per share and $50 per share, respectively, plus accrued but unpaid dividends. In the event holders of all of the
Series C, D and E preferred stock are entitled to have their preferred stock redeemed, the aggregate redemption amount would be $7,484,851, plus accrued but unpaid dividends.

At this time, we have not redeemed any of the preferred stock pursuant to the demand notices. We intend to pursue negotiations with the holders of our
Series C, D and E preferred stock to resolve their redemption demands without the need to make the required redemption payments. However, there can be no assurance that we will be successful in resolving the redemption demands. There can also be no
assurance that we will not receive additional redemption demands from other holders of our Series C, D, and E preferred stock.

Our
directors have been named as co-defendants in a shareholder derivative lawsuit, and we may in the future be named in additional litigation, which may result in substantial costs and divert managements attention and resources. In
November 2006, the Company was served with a complaint naming our entire board of directors as co-defendants in a



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shareholder derivative lawsuit. The complaint alleges that the directors of the Company have committed breaches of their fiduciary duties and engaged in
abuse of control, corporate waste, unjust enrichment, gross mismanagement and violations of applicable Nasdaq marketplace rules in connection with the Companys placement of the Series E preferred stock and associated warrants in May 2006. In
addition, the complaint alleges that the Companys Chairman of the Board, Johnny Pan, engaged in insider trading in July and August of 2005. The complaint also alleges that the defendant directors caused the Company to issue false and
misleading statements of material facts concerning, among other things, the Companys forecasted revenue and earnings. The plaintiffs seek monetary damages for all losses suffered by them as a result of the alleged misconduct and injunctive
orders directing (i) the defendants to disgorge all profits and special benefits obtained by way of their alleged misconduct, including salaries, bonuses, stock options and proceeds from any stock sales, (ii) the Company reform and improve
its corporate governance and internal control procedures to apply with applicable law, and (iii) the implementation of constructive trusts over any proceeds from the defendants wrongful sales of the Companys common shares. There is no
assurance of when, or on what terms, if any, we will be able to resolve this matter.

Should this lawsuit linger for a long period of time,
whether ultimately resolved in our favor or not, or further lawsuits be filed against us, coverage limits of our insurance or our ability to pay such amounts may not be adequate to cover the fees and expenses and any ultimate resolution associated
with such litigation. The size of these payments, if any, individually or in the aggregate, could seriously impair our cash reserves and financial condition. The continued defense of these lawsuits also could result in continued diversion of our
managements time and attention away from business operations, which could cause our financial results to decline. A failure to resolve definitively current or future material litigation in which we are involved or in which we may become
involved, regardless of the merits of the respective cases, could also cast doubt as to our prospects in the eyes of customers, potential customers and investors, which could cause our revenue and stock price to decline.

Our common stock has been delisted from the Nasdaq Capital Market and currently trades on the Pink Sheets.On July 19, 2006, we
received a notice from the Listing Qualifications Staff of The Nasdaq Stock Market, Inc. that our common stock was subject to potential delisting from the Nasdaq Capital Market. The Staffs determination to pursue the delisting of our common
stock was based upon three factors: (1) shareholder approval issues arising from the Staffs determination to aggregate our Series C, D, and E financings; (2) our failure to file listing of additional share forms for these
financings on a timely basis; and (3) public interest concerns related to the foregoing violations. We requested a hearing before the Nasdaq Listing Qualifications Panel (the Panel) to appeal the Staffs delisting
determination and request continued listing on the Nasdaq Capital Market. The hearing was held on September 7, 2006. On September 15, 2006, we received the decision of the Panel denying our request for continued listing on the grounds that
we violated the Nasdaq shareholder approval rules. As a result, our securities were delisted from the Nasdaq Capital Market effective with the open of business on Tuesday, September 19, 2006. Our common stock is currently quoted in the Pink
Sheets under the trading symbol GEPT.PK.

Under the rules of The Nasdaq Stock Market we are entitled to appeal the decision of
the Panel to the Nasdaq Listing and Hearing Review Council (the Council). We elected to pursue the second appeal and submitted the necessary documents to the Council on October 27, 2006. The Council denied our appeal. We have
initiated the process to transfer our common stock to the Over the Counter Bulletin Board. However, there can be no assurances as to when, or whether, we will be successful in finding an alternate trading market for our common stock. The delisting
has adversely affected the liquidity and trading price of our common stock, which is likely to impair our future ability to raise necessary capital through equity or debt financing. Because the market for securities traded on the Pink Sheets is
limited, potential investors may voluntarily refrain, or be prohibited, from purchasing shares of our common stock or may agree to purchase our common stock solely on terms that are not beneficial to our long-term operations. If we are unable to
obtain funding on terms favorable to us, or at all, we may be required to sell our company, cease operations, or declare bankruptcy.

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 principal stockholder. For the three months ended March 31, 2007 and 2006, we purchased approximately $0.03 and $3.1 million, respectively, worth of products from these related parties. This represents 3% and
48% of our overall cost of goods for the three months ended March 31, 2007 and 2006, respectively. In addition, during the period, we sold approximately $0.2 and $3.1million, respectively, worth of products and contract manufacturing services
to these related parties. This represents 15% and 42% of our overall sales for the three months ended March 31, 2007 and 2006, respectively. We believe that these related party relationships can 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.



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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, 2007 and 2006, two customers accounted for 27% and 61% of the Companys sales, respectively. One of these customers in 2007 and 2006 was a related party.
For the three months ended March 31, 2007 and 2006, two and four vendors accounted for 51% and 67% of the Companys purchases, respectively. None and one of these vendors were related parties for the three months ended March 31, 2007
and 2006, respectively. Substantially all of our related party transactions are derived from our contract manufacturing division. 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.

Our issuance of preferred stock is dilutive to holders of our common stock, and could adversely affect holders of our common stock. Our
board of directors is authorized to issue series of shares of preferred stock without any action on the part of our stockholders, subject to the rules of the applicable stock market. Our board of directors also has the power, without stockholder
approval, to set the terms of any such series of shares of preferred stock that may be issued, including voting rights, dividend rights and preferences over our common stock with respect to dividends or if we liquidate, dissolve or wind up our
business and other terms. One of the principal allegations in the shareholders derivative lawsuit described above is that our board of directors breached its fiduciary duty in approving our sale of the Series E preferred shares.

Currently, we have three series of preferred stock outstanding, C, D, and E, all of which may be converted into shares of our common stock at any time at
the option of the holders, which will result in dilution to holders of our common stock. In addition, all of the preferred shareholders are entitled to receive dividends on their shares of preferred stock, and upon a liquidity event all classes of
preferred stock are entitled to receive payment out of our assets before holders of our common stock. We are also required to redeem a portion of each series of our preferred stock periodically. The dividend and redemption payments may be made, at
our option, in shares of our common stock or in cash.

As of March 31, 2007, there were 501,917 shares of Series C Preferred Stock
outstanding, which are convertible into 501,917 shares of our common stock, 5,500 shares of Series D Preferred Stock outstanding, which are convertible into 66,106 shares of our common stock, and 117,314 shares of Series E Preferred Stock
outstanding, which are currently convertible into 2,125,254 shares of our common stock. The conversion price of the Series C and Series D Preferred Stock is not adjustable except for standard anti-dilution adjustments relating to stock splits,
combinations and similar events. However, the conversion price of our Series E Preferred Stock will be adjusted downward if we issue shares of common stock, or securities convertible into shares of common stock, at an effective price less than $2.76
per common share. If this occurs, the Series E Preferred Stock can be converted into a larger number of shares than stated above, resulting in even greater dilution to holders of our common stock. Upon a liquidity event, the holders of our Series C
Preferred Stock and Series D Preferred Stock are entitled to be paid out of our assets available for distribution to the stockholders an amount equal to $2.80 per share and $4.16 per share, respectively, ahead of all shareholders except the holders
of our Series E Preferred Stock. Upon a liquidity event, holders of our Series E Preferred Stock are entitled to receive $50.00 per share of Series E Preferred Stock ahead of all of our other stockholders. Except as required by law, holders of our
preferred stock have no voting rights.

At this time we have no plans to issue additional shares or series of preferred stock. However,
except to the extent required by applicable market rules, we may do so at any time without stockholder approval. If we issue preferred stock in the future that has preference over our common stock with respect to the payment of dividends or upon our
liquidation, dissolution or winding up of our affairs, or if we issue preferred stock that is convertible into shares of our common stock, or has voting rights that dilute the voting power of our common stock, the rights of holders of our common
stock or the market price of our common stock could be adversely affected.

We have also issued a warrant that allows for the
issuance of a floating number of common shares and may be further dilutive to holders of our common stock, and could adversely affect holders of our common stock. In connection with the Series E preferred share financing, we issued a warrant
that allows the holders to purchase a floating number of shares of common stock at an exercise price of $0.01 per share, with the exact aggregate number of shares to be determined by dividing $1,938,403 by the lowest of (A) $2.76 (as adjusted
for stock splits, stock dividends, stock combinations and other similar events), (B) the closing price of our common stock on the trading day prior to the effective date of a registration statement covering the resale of the shares,
(C) the closing price of our common stock on the trading day prior to the day shareholder approval is obtained pursuant to the terms of the Series E preferred stock, or (D) if the registration statement is not declared effective, the
trading day prior to the day any shares of common stock issuable pursuant to such warrant can be sold under Rule 144. Since the number of shares of common stock issuable upon exercise of the warrant will move with the market price of our common
stock, we are unable to state the number of shares that may be issued upon exercise of the warrant. One of the allegations in the shareholder derivative lawsuit described above is that our board of directors breached its fiduciary duties in
approving the issuance of this warrant.



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Our business strategy includes acquiring businesses from time to time in exchange for shares of our
common stock, which results in dilution to our shareholders. Our business strategy involves engaging in strategic acquisitions from time to time to grow our business and expand our product offerings. We have traditionally issued shares
of our common stock as consideration in past acquisitions, and we expect to do so in the future. Accordingly, our acquisition strategy is generally dilutive to holders of our common and preferred stock.

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 an emerging 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.

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.



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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., AirWorks, Inc. in April 2004. We recently completed the acquisition of substantially all of the assets of Tops Digital Security, Inc., and are engaged in continuing negotiations involving the proposed
acquisition of Astrophysics. We may also 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. We are in the process of integrating the Tops assets
with our own, and we may encounter unforeseen costs and other difficulties related to that process. 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 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.



|ITEM 4. | 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.



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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, 2007. We are continuing to
evaluate our internal controls in accordance with Section 404(a) of the Sarbanes-Oxley Act of 2002 which become effective in 2007. In the course of our evaluation, we have identified certain deficiencies in our internal controls over financial
reporting, which we are addressing. The Merger and the subsequent acquisitions, described in Footnote 5 in the Notes of the Condensed 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 are designed to provide reasonable assurance of achieving their objectives, and, further, that such controls
and procedures were effective at the reasonable assurance level as of March 31, 2007. The Companys management has concluded that the deficiencies described above do not prevent the controls and procedures from being effective because
management has identified the issues and is taking action to resolve them, other aspects of the Companys business are not negatively impacted, and the controls and procedures are subject to continuous review by management. 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.

PART II. OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

none



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



|     |  |                                                                                                                                                                
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                       
|     | 
|31.2 |  | Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                      
|     | 
|32   |  | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)



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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 21, 2007 |  | /s/ TORESA LOU                                
|                   |  | Toresa Lou, Chief Executive Officer           
|                   | 
|Date: May 21, 2007 |  | /s/ JOHN PAN                                  
|                   |  | John Pan, Chief Financial Officer and Chairman



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