##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-QSB



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



For the quarterly period ended March 31, 2004



-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 0-21738



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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)



---



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



As of May 21, 2004, there were 10,848,454 shares of Common Stock ($.03 par value) outstanding.



Traditional Small Business Disclosure Format.
    Yes  x    No ̈



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##### Table of Contents

LOGO



GLOBAL EPOINT, INC.

QUARTERLY REPORT ON FORM 10-QSB

FOR THE PERIOD ENDED MARCH 31, 2004



TABLE OF CONTENTS



|                              |  |                                                                                               |  |     
|----------------------------- |  | --------------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                               |  | Page
|Part I. FINANCIAL INFORMATION |  |                                                                                              
|                              |  |                                                                                              
|                              |  | Item 1. Interim Financial Statements (unaudited):                                             |  |     
|                              |  |                                                                                              
|                              |  | Condensed Consolidated Balance Sheet March 31, 2004                                           |  | 3   
|                              |  |                                                                                              
|                              |  | Condensed Consolidated Statements of Operations Three Months Ended March 31, 2004 and 2003    |  | 4   
|                              |  |                                                                                              
|                              |  | Condensed Consolidated Statements of Cash Flows Three Months Ended March 31, 2004 and 2003    |  | 5   
|                              |  |                                                                                              
|                              |  | Condensed Consolidated Statement of Stockholders Equity Three Months Ended March 31, 2004    |  | 6   
|                              |  |                                                                                              
|                              |  | Notes to Unaudited Condensed Consolidated Financial Statements                                |  | 7   
|                              |  |                                                                                              
|                              |  | Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 13  
|                              |  |                                                                                              
|                              |  | Item 3.
Controls and Procedures                                                               |  | 23  
|                              | 
|Part II.
OTHER INFORMATION    |  |                                                                                              
|                              |  |                                                                                              
|                              |  | Item 1.
Legal Proceedings                                                                     |  | 24  
|                              |  |                                                                                              
|                              |  | Item 2.
Change in Securities                                                                  |  | 24  
|                              |  |                                                                                              
|                              |  | Item 3.
Defaults Upon Senior Securities                                                       |  | 24  
|                              |  |                                                                                              
|                              |  | Item 4.
Submission of Matters to a Vote of Security Holders                                   |  | 24  
|                              |  |                                                                                              
|                              |  | Item 5.
Other Information                                                                     |  | 24  
|                              |  |                                                                                              
|                              |  | Item 6.
Exhibits and Reports on Form 8-K                                                      |  | 24  
|                              | 
|SIGNATURES                    |  | 25                                                                                           
|                              | 
|EXHIBIT INDEX                 |  | 26                                                                                           



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##### Table of Contents

GLOBAL EPOINT, INC. AND SUBSIDIARIES

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



CONDENSED CONSOLIDATED BALANCE SHEET

(UNAUDITED)



AS OF MARCH 31, 2004



|                                                                                                        |  |   |       
|------------------------------------------------------------------------------------------------------- |  | - | ------
|(Thousands of dollars, except per share amounts)                                                        |  |  
|Current assets:                                                                                         |  |   |       
|Cash and cash equivalents                                                                               |  | $ | 1,449 
|Accounts receivable, net                                                                                |  |   | 3,537 
|Accounts receivableRelated Parties                                                                     |  |   | 5,432 
|Inventories                                                                                             |  |   | 2,512 
|Other current assets                                                                                    |  |   | 299   
|                                                                                                        |  |   |       
|Total current assets                                                                                    |  |   | 13,229
|Property and equipment, net                                                                             |  |   | 453   
|Goodwill                                                                                                |  |   | 3,243 
|Card dispensing equipment and related parts                                                             |  |   | 984   
|Deposits and other assets                                                                               |  |   | 1,598 
|                                                                                                        |  |   |       
|Total assets                                                                                            |  | $ | 19,507
|                                                                                                        |  |   |       
|Liabilities and stockholders equity:                                                                   |  |   |       
|Current liabilities:                                                                                    |  |   |       
|Accounts payable                                                                                        |  | $ | 1,021 
|Accounts payableRelated Parties                                                                        |  |   | 5,693 
|Accounts payable  Stockholder                                                                          |  |   | 34    
|Accrued expenses                                                                                        |  |   | 580   
|Customer deposits                                                                                       |  |   | 51    
|Due to Related Parties                                                                                  |  |   | 3,516 
|Loan from stockholders                                                                                  |  |   | 155   
|                                                                                                        |  |   |       
|Total current liabilities                                                                               |  |   | 11,050
|                                                                                                        |  |   |       
|Non-current liabilities                                                                                 |  |   | 53    
|                                                                                                        |  |   |       
|Commitments and Contingencies                                                                           |  |   |       
|                                                                                                        | 
|Stockholders equity:                                                                                   |  |   |       
|Preferred stock, no par value, 2,000,000 shares authorized, no shares issued or outstanding             |  |   |      
|Common stock, $.03 par value, 50,000,000 shares authorized and 10,848,454 shares issued and outstanding |  |   | 325   
|Additional paid-in capital                                                                              |  |   | 7,945 
|Retained earnings                                                                                       |  |   | 134   
|                                                                                                        |  |   |       
|Total stockholders equity                                                                              |  |   | 8,404 
|                                                                                                        |  |   |       
|Total liabilities and stockholders equity                                                              |  | $ | 19,507
|                                                                                                        |  |   |       



See accompanying notes
to condensed consolidated financial statements.



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##### Table of Contents

GLOBAL EPOINT, INC. AND SUBSIDIARIES

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



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



FOR THE THREE MONTHS ENDED MARCH 31, 2004 and 2003



|                                                 |  |      |        |   |      |   |       |  
|------------------------------------------------ |  | ---- | ------ | - | ---- | - | ----- | -
|(Thousands of dollars, except per share amounts) |  | 2004 |        |   | 2003 |  
|Net sales                                        |  | $    | 4,840  |   |      | $ | 2,459 |  
|Cost of sales                                    |  |      | 3,765  |   |      |   | 1,720 |  
|                                                 |  |      |        |   |      |   |       |  
|Gross profit                                     |  |      | 1,075  |   |      |   | 739   |  
|                                                 |  |      |        |   |      |   |       |  
|Operating expenses:                              |  |      |        |   |      |   |       |  
|Selling                                          |  |      | 420    |   |      |   | 416   |  
|General and administrative                       |  |      | 902    |   |      |   | 245   |  
|New product start-up                             |  |      |       |   |      |   | 93    |  
|Research and development                         |  |      | 251    |   |      |   | 47    |  
|Depreciation and amortization                    |  |      | 16     |   |      |   | 11    |  
|                                                 |  |      |        |   |      |   |       |  
|Total operating expenses                         |  |      | 1,589  |   |      |   | 812   |  
|                                                 |  |      |        |   |      |   |       |  
|Loss from operations                             |  |      | (514   | ) |      |   | (73   | )
|Other income (expense)                           |  |      | 152    |   |      |   |      |  
|                                                 |  |      |        |   |      |   |       |  
|Net Loss                                         |  | $    | (362   | ) |      | $ | (73   | )
|                                                 |  |      |        |   |      |   |       |  
|Loss per shareBasic and Diluted                 |  | $    | (.03   | ) |      | $ | (.01  | )
|                                                 |  |      |        |   |      |   |       |  
|Weighted average shares and share equivalents    |  |      | 10,840 |   |      |   | 5,921 |  
|                                                 |  |      |        |   |      |   |       |  



See accompanying notes
to condensed consolidated financial statements.



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##### Table of Contents

GLOBAL EPOINT, INC. AND SUBSIDIARIES

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



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



FOR THE THREE MONTHS ENDED MARCH 31, 2004 and 2003



|                                                                               |  |      |        |   |      |   |       |  
|------------------------------------------------------------------------------ |  | ---- | ------ | - | ---- | - | ----- | -
|(Thousands of dollars)                                                         |  | 2004 |        |   | 2003 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                          |  |      |        |   |      |   |       |  
|Net Loss                                                                       |  | $    | (362   | ) |      | $ | (73   | )
|Adjustments to reconcile net loss to net cash flows from operating activities: |  |      |        |   |      |   |       |  
|Depreciation and amortization                                                  |  |      | 16     |   |      |   | 11    |  
|Deferred income taxes                                                          |  |      |       |   |      |   | (30   | )
|(Increase) decrease in assets:                                                 |  |      |        |   |      |   |       |  
|Accounts receivable                                                            |  |      | (1,800 | ) |      |   | (647  | )
|Accounts receivableRelated Parties                                            |  |      | 1,028  |   |      |   | (393  | )
|Due from Related Party                                                         |  |      |       |   |      |   | 1,000 |  
|Inventories                                                                    |  |      | 469    |   |      |   | (42   | )
|Other current assets                                                           |  |      | (82    | ) |      |   | (77   | )
|Increase (decrease) in liabilities:                                            |  |      |        |   |      |   |       |  
|Accounts payable                                                               |  |      | 182    |   |      |   | 660   |  
|Accounts payableRelated Parties                                               |  |      | (844   | ) |      |   | (260  | )
|Accounts payable  Stockholder                                                 |  |      | 34     |   |      |   |      |  
|Accrued expenses                                                               |  |      | (171   | ) |      |   | (143  | )
|Customer deposits                                                              |  |      | 51     |   |      |   |      |  
|                                                                               |  |      |        |   |      |   |       |  
|Net cash flows from operating activities                                       |  |      | (1,479 | ) |      |   | 6     |  
|                                                                               |  |      |        |   |      |   |       |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                          |  |      |        |   |      |   |       |  
|Additions to property and equipment                                            |  |      | (93    | ) |      |   | (39   | )
|Additions to other asset                                                       |  |      | (607   | ) |      |   |      |  
|Acquisition of Global ePoint, initial deposit                                  |  |      |       |   |      |   | (300  | )
|                                                                               |  |      |        |   |      |   |       |  
|Net cash flows from investing activities                                       |  |      | (700   | ) |      |   | (339  | )
|                                                                               |  |      |        |   |      |   |       |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                          |  |      |        |   |      |   |       |  
|Proceeds from loans from stockholder                                           |  |      |       |   |      |   | 245   |  
|Borrowings from Related Parties                                                |  |      | 1,941  |   |      |   |      |  
|Payments to Related Parties                                                    |  |      | (9     | ) |      |   |       |  
|Proceeds from exercise of Common Stock options                                 |  |      | 52     |   |      |   |      |  
|                                                                               |  |      |        |   |      |   |       |  
|Net cash flows from financing activities                                       |  |      | 1,984  |   |      |   | 245   |  
|                                                                               |  |      |        |   |      |   |       |  
|Net change in cash and cash equivalents                                        |  |      | (195   | ) |      |   | (88   | )
|Cash and cash equivalents, beginning of period                                 |  |      | 1,644  |   |      |   | 170   |  
|                                                                               |  |      |        |   |      |   |       |  
|Cash and cash equivalents, end of period                                       |  | $    | 1,449  |   |      | $ | 82    |  
|                                                                               |  |      |        |   |      |   |       |  
|SUPPLEMENTAL CASH FLOW INFORMATION:                                            |  |      |        |   |      |   |       |  
|Income taxes paid                                                              |  | $    | 16     |   |      | $ |      |  
|                                                                               |  |      |        |   |      |   |       |  
|Interest paid                                                                  |  | $    |       |   |      | $ | 37    |  
|                                                                               |  |      |        |   |      |   |       |  



See accompanying notes
to condensed consolidated financial statements.



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##### Table of Contents

GLOBAL EPOINT, INC. AND SUBSIDIARIES

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



CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

(UNAUDITED)



FOR THE THREE MONTHS ENDED MARCH 31, 2004



|                                           |  |              |  |                          |     |                  |   |       |                          |   |      |   |  |   |       |  
|------------------------------------------ |  | ------------ |  | ------------------------ | --- | ---------------- | - | ----- | ------------------------ | - | ---- | - |  | - | ----- | -
|                                           |  | Common Stock |  | AdditionalPaid-inCapital |     | RetainedEarnings |   |       | TotalStockholdersEquity |  
|(Thousands of shares/dollars)              |  | Shares       |  | Amount                   |     |                  |  
|Balances, December 31, 2003                |  | 10,822       |  | $                        | 324 |                  | $ | 7,894 |                          | $ | 496  |   |  | $ | 8,714 |  
|Common stock issued upon options exercised |  | 26           |  |                          | 1   |                  |   | 51    |                          |   |     |   |  |   | 52    |  
|Net loss                                   |  |             |  |                          |    |                  |   |      |                          |   | (362 | ) |  |   | (362  | )
|                                           |  |              |  |                          |     |                  |   |       |                          |   |      |   |  |   |       |  
|Balances, March 31, 2004                   |  | 10,848       |  | $                        | 325 |                  | $ | 7,945 |                          | $ | 134  |   |  | $ | 8,404 |  
|                                           |  |              |  |                          |     |                  |   |       |                          |   |      |   |  |   |       |  



See accompanying notes
to condensed consolidated financial statements.



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GLOBAL EPOINT, INC. AND SUBSIDIARIES

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



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



MARCH 31, 2004



1. Basis of presentation



The accounting and reporting
policies of the 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
for the three months ended March 31, 2004 and 2003 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, 2003 audited financial statements, which are included in the Companys Annual Report on Form 10-KSB for the year ended December 31, 2003. The results of operations
for the three months ended March 31, 2004 are not necessarily indicative of the results to be expected for the entire year ending December 31, 2004.



2. Summary of significant accounting policies



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



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



Merger and basis of presentation On August 8, 2003, Global ePoint, McDigit, and Best Logic completed a reverse acquisition (the Merger) where the prior owner of McDigit and Best Logic received approximately
50% ownership interest of Global ePoint in the transaction. Under reverse acquisition accounting, Global ePoint continues as the acquiring legal entity, but the historical financial statements of Global ePoint include only those of McDigit and Best
Logic prior to the Merger date, and those of the combination of all the companies subsequent to the Merger date.



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GLOBAL EPOINT, INC. AND SUBSIDIARIES

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



2. Summary of significant accounting policies (continued)



Accounting for stock options Global ePoint has adopted the disclosure-only provisions for employee stock options under SFAS No. 123. Accordingly, no compensation cost has been recognized for employee stock
option plans under the intrinsic-value method prescribed by APB No. 25. Had compensation for Global ePoints three stock option plans been determined based on the fair value at the grant date for awards, Global ePoints net income (loss)
and income (loss) per share would have been decreased (increased) to the pro forma amounts indicated below for the three months ended March 31 (in thousands, except per share amounts):



|                                                                                                     |  |      |      |   |      |   |      |  
|---------------------------------------------------------------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | -
|                                                                                                     |  | 2004 |      |   | 2003 |  
|As reported, net income (loss)                                                                       |  | $    | (362 | ) |      | $ | (73  | )
|                                                                                                     |  |     
|Stock-based employee compensation determined under the fair value method, net of related tax effects |  |      | (56  | ) |      |   | (6   | )
|                                                                                                     |  |      |      |   |      |   |      |  
|Pro forma                                                                                            |  | $    | (418 | ) |      | $ | (79  | )
|                                                                                                     |  |      |      |   |      |   |      |  
|Earnings (loss) per common share, basic and fully diluted:                                           |  |      |      |   |      |   |      |  
|As reported                                                                                          |  | $    | (.03 | ) |      | $ | (.01 | )
|Pro forma                                                                                            |  | $    | (.04 | ) |      | $ | (.01 | )



3. Inventories



Inventories consisted of the following as of March 31, 2004 (in thousands):



|                                         |  |   |      
|---------------------------------------- |  | - | -----
|Computer component parts                 |  | $ | 2,158
|Video and data recording component parts |  |   | 354  
|                                         |  |   |      
|Total                                    |  | $ | 2,512
|                                         |  |   |      



4. Property and equipment



Property and equipment consisted of the following as of March 31, 2004
(in thousands):



|                                |  |   |    
|------------------------------- |  | - | ---
|Furniture and equipment         |  | $ | 95 
|Computer equipment and software |  |   | 110
|Building improvements           |  |   | 320
|Tooling and demo units          |  |   | 34 
|                                |  |   |    
|Totals                          |  |   | 559
|                                | 
|Less accumulated depreciation   |  |   | 106
|                                |  |   |    
|Property and equipment, net     |  | $ | 453
|                                |  |   |    



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##### Table of Contents

GLOBAL EPOINT, INC. AND SUBSIDIARIES

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



5. Business concentrations



Sales
and purchases For the three months ended March 31, 2004, two customers accounted for 76% of the Companys sales and 84% of the accounts receivable. For the three months ended March 31, 2004, two venders accounted for 46% of the
Companys purchases. A substantial amount of sales and purchase transactions are conducted with related parties, as discussed in Note 6.



6. Related party transactions



Pre-Merger Loans Mr. John Pan, the Companys Chairman, Chief Financial Officer and majority stockholder, made pre-Merger advances to McDigit amounting to
approximately $341,000, of which $187,000 was repaid during 2003. All of the loans relate to pre-Merger activities. As of March 31, 2004, the remaining balance on these loans was $155,000. The loans are unsecured and, currently, payable on demand.
However, the Company intends to replace these loans with convertible promissory notes with an interest rate and other terms subject to Board approval.



Rent agreement Mr. John Pan, the Companys Chairman, Chief Financial Officer and majority stockholder, leases a facility to the Company and to Avatar
Technologies, Inc. (Avatar), a Related Party (as defined below). The Companys monthly rental fee, based on its relative occupancy, was $8,000 per month until October 1, 2003 at which time the fee increased to support the
Companys needs for more space to support higher contract manufacturing production and sales. Facility rental costs, including additional square footage to accommodate more offices for administrative staff, more equipment for production and
assembly, and more warehouse space, totaled $69,000 for the quarter. Rental costs for manufacturing and assembly equipment were approximately $22,000 for the quarter.



Other arrangements The Company had various sales and purchase transactions with companies that are owned or controlled by the
Companys Chairman, Chief Financial Officer and majority stockholder, Mr. John Pan (Related Parties). Those types of transactions occurred with the Related Parties prior to the completion of the Merger and, although there can be no
assurances that these arrangements will continue given that the Related Parties are not obligated to continue dealing with the Company, have continued subsequent to the Merger. One of those transactions, a subcontracted purchase order, allowed the
Company to manufacture computers for distribution into Latin America through one of the Related Parties. Another ongoing transaction allows the Company to use Related Parties to globally source computer components for the Companys
manufacturing business. The Related Parties can generally purchase components in greater quantity than the Company can on its own and thereby can provide the Company with more favorable pricing due to volume discounts. The outstanding balances due
from and to Related Parties as of March 31, 2004 and 2003 were as follows:



|                                                   |  |                 |       |      |   |    
|-------------------------------------------------- |  | --------------- | ----- | ---- | - | ---
|                                                   |  | As of March 31,
|(Thousands of dollars)                             |  | 2004            |       | 2003
|Balances due from Related Parties were as follows: |  |                 |       |      |   |    
|(A) (50% owned by CFO/Chairman)                    |  | $               | 48    |      | $ | 59 
|(B) (100% owned by CFO/Chairman)                   |  |                 | 5,384 |      |   | 236
|(C) (100% owned by CFO/Chairman)                   |  |                 |      |      |   |   
|(D) (50.1% owned by CFO/Chairman)                  |  |                 |      |      |   | 136
|(E) (95% owned by CFO/Chairman)                    |  |                 |      |      |   |   
|                                                   |  |                 |       |      |   |    
|Totals                                             |  | $               | 5,432 |      | $ | 431
|                                                   |  |                 |       |      |   |    
|Product sales to Related Parties were as follows:  |  |                 |       |      |   |    
|(A) (50% owned by CFO/Chairman)                    |  | $               | 39    |      | $ | 51 
|(B) (100% owned by CFO/Chairman)                   |  |                 | 949   |      |   |   
|(C) (100% owned by CFO/Chairman)                   |  |                 |      |      |   |   
|(D) (50.1% owned by CFO/Chairman)                  |  |                 |      |      |   | 71 
|(E) (95% owned by CFO/Chairman)                    |  |                 | 310   |      |   | 47 
|                                                   |  |                 |       |      |   |    
|Totals                                             |  | $               | 1,298 |      | $ | 169
|                                                   |  |                 |       |      |   |    



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##### Table of Contents

GLOBAL EPOINT, INC. AND SUBSIDIARIES

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



6. Related party transactions (continued)



Other arrangements (continued)



|                                                        |  |                 |       |      |   |    
|------------------------------------------------------- |  | --------------- | ----- | ---- | - | ---
|                                                        |  | As of March 31,
|(Thousands of dollars)                                  |  | 2004            |       | 2003
|Balances due to Related Parties were as follows:        |  |                 |       |      |   |    
|(A) (50% owned by CFO/Chairman)                         |  | $               |      |      | $ |   
|(B) (100% owned by CFO/Chairman)                        |  |                 | 2,826 |      |   | 121
|(C) (100% owned by CFO/Chairman)                        |  |                 |      |      |   |   
|(D) (50.1% owned by CFO/Chairman)                       |  |                 |      |      |   |   
|(E) (95% owned by CFO/Chairman)                         |  |                 | 6,383 |      |   | 69 
|(F) (100% owned by CFO/Chairman)                        |  |                 |      |      |   | 8  
|                                                        |  |                 |       |      |   |    
|Totals*                                                 |  | $               | 9,209 |      | $ | 198
|                                                        |  |                 |       |      |   |    
|Product purchases from Related Parties were as follows: |  |                 |       |      |   |    
|(A) (50% owned by CFO/Chairman)                         |  | $               |      |      | $ |   
|(B) (100% owned by CFO/Chairman)                        |  |                 | 205   |      |   | 470
|(C) (100% owned by CFO/Chairman)                        |  |                 |      |      |   | 10 
|(D) (50.1% owned by CFO/Chairman)                       |  |                 |      |      |   |   
|(E) (95% owned by CFO/Chairman)                         |  |                 | 1,498 |      |   | 198
|(F) (100% owned by CFO/Chairman)                        |  |                 |      |      |   |   
|                                                        |  |                 |       |      |   |    
|Totals                                                  |  | $               | 1,703 |      | $ | 678
|                                                        |  |                 |       |      |   |    

---

|* | Balances due to Related Parties include trade payables for purchases of component parts from Related Parties as well as advances for working capital purposes. These balances are
included in Accounts Payable  Related Parties or Due to Related Parties on the accompanying condensed consolidated balance sheet as of March 31, 2004 based on the nature of the related activity.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



7. Basic and fully diluted per share calculation



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



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



Although Global ePoint is the surviving legal entity after the
Merger, the Merger has been treated as an acquisition of Global ePoint by McDigit for accounting and financial reporting purposes. Therefore, the weighted average number of common shares previously reported by McDigit has been adjusted to reflect
the shares issued in the Merger. The weighted average number of common shares reported for 2003 assumes the shares issued in the Merger were outstanding throughout the year.



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GLOBAL EPOINT, INC. AND SUBSIDIARIES

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



7. Basic and fully diluted per share calculation



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



For the three months ended March 31, 2004:



|                                           |  |                   |      |   |                      |        |                 |   |      |  
|------------------------------------------ |  | ----------------- | ---- | - | -------------------- | ------ | --------------- | - | ---- | -
|                                           |  | Loss(Numerator)   |      |   | Shares (Denominator) |        | Per-shareAmount |  
|Basic and fully diluted loss per share     |  |                   |      |   |                      |        |                 |   |      |  
|Loss available to common stockholders      |  | $                 | (362 | ) |                      | 10,840 |                 | $ | (.03 | )
|                                           |  |                   |      |   |                      |        |                 |   |      |  
|For the three months ended March 31, 2003: |  |                   |      |   |                      |        |                 |   |      |  
|                                           |  | Income(Numerator) |      |   | Shares (Denominator) |        | Per-shareAmount |  
|Basic and fully diluted loss per share     |  |                   |      |   |                      |        |                 |   |      |  
|Loss available to common stockholders      |  | $                 | (73  | ) |                      | 5,921  |                 | $ | (.01 | )



8. Segment reporting



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



For the three months ended March 31, 2004:



|                              |  |                   |       |   |                       |   |           |  |   |        |   |  |   |        |  
|----------------------------- |  | ----------------- | ----- | - | --------------------- | - | --------- |  | - | ------ | - |  | - | ------ | -
|                              |  | DigitalTechnology |       |   | ContractManufacturing |   | Corporate |  |   | Totals |  
|Net sales                     |  | $                 | 31    |   |                       | $ | 4,809     |  | $ |       |   |  | $ | 4,840  |  
|Cost of sales                 |  |                   | 26    |   |                       |   | 3,739     |  |   |       |   |  |   | 3,765  |  
|                              |  |                   |       |   |                       |   |           |  |   |        |   |  |   |        |  
|Gross profit                  |  |                   | 5     |   |                       |   | 1,070     |  |   |       |   |  |   | 1,075  |  
|Operating expenses            |  |                   | 494   |   |                       |   | 888       |  |   | 207    |   |  |   | 1,589  |  
|                              |  |                   |       |   |                       |   |           |  |   |        |   |  |   |        |  
|Income (loss) from operations |  |                   | (489  | ) |                       |   | 182       |  |   | (207   | ) |  |   | (514   | )
|Other income (expense)        |  |                   | (2    | ) |                       |   | 47        |  |   | 107    |   |  |   | 152    |  
|                              |  |                   |       |   |                       |   |           |  |   |        |   |  |   |        |  
|Net income (loss)             |  | $                 | (491  | ) |                       | $ | 229       |  | $ | (100   | ) |  | $ | (362   | )
|                              |  |                   |       |   |                       |   |           |  |   |        |   |  |   |        |  
|Total assets                  |  | $                 | 2,412 |   |                       | $ | 10,124    |  | $ | 6,971  |   |  | $ | 19,507 |  
|                              |  |                   |       |   |                       |   |           |  |   |        |   |  |   |        |  



For the three months ended March 31,
2004:



|                              |  |                   |       |   |                       |   |           |  |        |   |  |   |       |  
|----------------------------- |  | ----------------- | ----- | - | --------------------- | - | --------- |  | ------ | - |  | - | ----- | -
|                              |  | DigitalTechnology |       |   | ContractManufacturing |   | Corporate |  | Totals |  
|Net sales                     |  | $                 | 41    |   |                       | $ | 2,418     |  | $      |  |  | $ | 2,459 |  
|Cost of sales                 |  |                   | 26    |   |                       |   | 1,694     |  |        |  |  |   | 1,720 |  
|                              |  |                   |       |   |                       |   |           |  |        |   |  |   |       |  
|Gross profit                  |  |                   | 15    |   |                       |   | 724       |  |        |  |  |   | 739   |  
|Operating expenses            |  |                   | 327   |   |                       |   | 485       |  |        |  |  |   | 812   |  
|                              |  |                   |       |   |                       |   |           |  |        |   |  |   |       |  
|Income (loss) from operations |  |                   | (312  | ) |                       |   | 239       |  |        |  |  |   | (73   | )
|Other income (expense)        |  |                   |      |   |                       |   |          |  |        |  |  |   |      |  
|                              |  |                   |       |   |                       |   |           |  |        |   |  |   |       |  
|Net income (loss)             |  | $                 | (312  | ) |                       | $ | 239       |  | $      |  |  | $ | (73   | )
|                              |  |                   |       |   |                       |   |           |  |        |   |  |   |       |  
|Total assets                  |  | $                 | 1,026 |   |                       | $ | 3,455     |  | $      |  |  | $ | 4,481 |  
|                              |  |                   |       |   |                       |   |           |  |        |   |  |   |       |  



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GLOBAL EPOINT, INC. AND SUBSIDIARIES

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



9. Subsequent Events



On April 5, 2004,
the Company and Next Venture, Inc. d/b/a Sierra Group, a California corporation (Next Venture) executed an Asset Purchase Agreement. Pursuant to that agreement the Company purchased substantially all of the assets used in Next
Ventures Perpetual digital division (Perpetual), including intellectual property and ongoing supply agreements. Perpetual is a systems integrator and supplier of digital video recording systems for commercial and industrial
security surveillance. In consideration for the assets, the Company paid $400,000 in cash and will be required to pay up to $2,750,000 in Common Stock, subject to the acquired operations achieving certain sales targets in the 12-month period
following the closing of the acquisition. In addition to the cash and stock, the Company agreed to defer for one year the collection of (and under certain circumstances, waive altogether the right to collect) an account receivable from Next Venture
in the amount of approximately $150,000. In no event will the purchase price exceed $3,300,000, including any waiver of account receivables. If the acquired operations meet the sales levels required for receipt of the stock by the seller, the
Company would be required to issue the stock approximately one year from the date of the acquisition at the average price of the Companys stock over the 30 trading days prior to the issuance of the stock. If the Company is required to issue
its stock to the seller, the Companys current stockholders would experience dilution of their ownership interests and, potentially, the Companys earnings per share may be diluted. There can be no assurance that this acquisition will be
successfully integrated into the Companys operations.



On April 26,
2004, the Company acquired certain assets from Insolvency Services Group, Inc. (ISG), which had acquired those assets from Greenick, Inc. d/b/a AirWorks, Inc. (AirWorks) pursuant to a general assignment. This assignment by
AirWorks to ISG was part of an assignment for the benefit of creditors of AirWorks. Pursuant to the assignment from ISG, the Company acquired AirWorks flight support business including aircraft electronic and communications assets and
operations, including intellectual property, and contracts and purchase orders from major aircraft manufacturers. In consideration for the assets, the Company is required to pay a total of approximately $3,500,000 in cash, approximately $2,500,000
of which was paid at closing, including $500,000 of which was paid prior to March 31, 2004 and is included in other assets. The remaining $1,000,000 is due prior to June 25, 2004. A contingency payment of up to $3,000,000 in cash is also payable for
the assets. In order to receive any contingency payment, certain financial performance benchmarks must be attained. Upon attaining a certain benchmark, a proportional payment will be made until a second benchmark is attained at which point the
entire $3,000,000 contingency payment is made. The contingency payments, if any, are due the later of December 1, 2004, or the date 30 days after the benchmark is first attained. However, no contingency payments will be required if the benchmarks
are not attained within one year of the closing date. The contingency payments, if any, may be reduced if certain enumerated items materialize or fail to occur following the closing. The Company used funds it obtained through loans from Related
Parties to cover the initial $2,500,000 payment required by the asset purchase agreement. The Company intends to replace these loans with convertible promissory notes, the final terms of which are subject to Board approval. To cover the balance of
payments for the acquisition, the Company intends to use funds obtained through loans from and/or equity investments by unrelated third parties.



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##### Table of Contents

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



OVERVIEW



In August 2003, the Company completed the acquisition of McDigit, Inc. (McDigit) pursuant to a definitive agreement executed on March 31, 2003. The Companys post-merger operations currently consist of two
divisions: contract manufacturing and sales of industrial, business, and consumer computers; and digital technology development and distribution of video, audio, and data transmission systems. The acquisition of McDigit by Global ePoint has been
recorded for accounting purposes as a reverse acquisition whereby McDigit has been treated as the accounting acquirer and Global ePoint, the pre-acquisition public entity, has been treated as the accounting acquiree. Accordingly, in the third
quarter of 2003, the stockholders equity of the Company was recapitalized, and all future historical presentations of the Companys financial statements of the combined companies will be those of McDigit and Best Logic. No adjustments
will be made to McDigits historical carrying values. The following discussion and analysis of results of operations and financial condition relates to the Companys post-merger presentations. For a further discussion about the merger and
its related financial impact, see Companys Definitive Proxy Statement filed on July 1, 2003.



The Corporate category primarily relates to activities associated with continuing, non-core activities related to Globals pre-merger business and ongoing corporate expenses associated with a public company, such
as executive salaries, accounting and audit fees, legal fees, and consulting fees.



RESULTS OF OPERATIONS  COMBINED



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



For the
three months ended March 31, 2004:



|                              |  |                   |       |   |                       |   |           |  |   |        |   |  |   |        |  
|----------------------------- |  | ----------------- | ----- | - | --------------------- | - | --------- |  | - | ------ | - |  | - | ------ | -
|                              |  | DigitalTechnology |       |   | ContractManufacturing |   | Corporate |  |   | Totals |  
|Net sales                     |  | $                 | 31    |   |                       | $ | 4,809     |  | $ |       |   |  | $ | 4,840  |  
|Cost of sales                 |  |                   | 26    |   |                       |   | 3,739     |  |   |       |   |  |   | 3,765  |  
|                              |  |                   |       |   |                       |   |           |  |   |        |   |  |   |        |  
|Gross profit                  |  |                   | 5     |   |                       |   | 1,070     |  |   |       |   |  |   | 1,075  |  
|Operating expenses            |  |                   | 494   |   |                       |   | 888       |  |   | 207    |   |  |   | 1,589  |  
|                              |  |                   |       |   |                       |   |           |  |   |        |   |  |   |        |  
|Income (loss) from operations |  |                   | (489  | ) |                       |   | 182       |  |   | (207   | ) |  |   | (514   | )
|Other income (expense)        |  |                   | (2    | ) |                       |   | 47        |  |   | 107    |   |  |   | 152    |  
|                              |  |                   |       |   |                       |   |           |  |   |        |   |  |   |        |  
|Net income (loss)             |  | $                 | (491  | ) |                       | $ | 229       |  | $ | (100   | ) |  | $ | (362   | )
|                              |  |                   |       |   |                       |   |           |  |   |        |   |  |   |        |  
|Total assets                  |  | $                 | 2,412 |   |                       | $ | 10,124    |  | $ | 6,971  |   |  | $ | 19,507 |  
|                              |  |                   |       |   |                       |   |           |  |   |        |   |  |   |        |  



For the three months ended March 31,
2003:



|                              |  |                   |       |   |                       |   |           |  |        |   |  |   |       |  
|----------------------------- |  | ----------------- | ----- | - | --------------------- | - | --------- |  | ------ | - |  | - | ----- | -
|                              |  | DigitalTechnology |       |   | ContractManufacturing |   | Corporate |  | Totals |  
|Net sales                     |  | $                 | 41    |   |                       | $ | 2,418     |  | $      |  |  | $ | 2,459 |  
|Cost of sales                 |  |                   | 26    |   |                       |   | 1,694     |  |        |  |  |   | 1,720 |  
|                              |  |                   |       |   |                       |   |           |  |        |   |  |   |       |  
|Gross profit                  |  |                   | 15    |   |                       |   | 724       |  |        |  |  |   | 739   |  
|Operating expenses            |  |                   | 327   |   |                       |   | 485       |  |        |  |  |   | 812   |  
|                              |  |                   |       |   |                       |   |           |  |        |   |  |   |       |  
|Income (loss) from operations |  |                   | (312  | ) |                       |   | 239       |  |        |  |  |   | (73   | )
|Other income (expense)        |  |                   |      |   |                       |   |          |  |        |  |  |   |      |  
|                              |  |                   |       |   |                       |   |           |  |        |   |  |   |       |  
|Net income (loss)             |  | $                 | (312  | ) |                       | $ | 239       |  | $      |  |  | $ | (73   | )
|                              |  |                   |       |   |                       |   |           |  |        |   |  |   |       |  
|Total assets                  |  | $                 | 1,026 |   |                       | $ | 3,455     |  | $      |  |  | $ | 4,481 |  
|                              |  |                   |       |   |                       |   |           |  |        |   |  |   |       |  



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RESULTS OF OPERATIONS  DIGITAL TECHNOLOGY DIVISION



Quarter Ended March 31, 2004 Compared to Quarter Ended March 31, 2003



After the acquisition of McDigit, the Company created its digital technology division in
January 2004 to focus on the development of digital products and technologies for the purpose of broadening product lines and enhancing existing mobile digital products. The new division, in its early stages of growth, has concentrated on developing
new products and technologies, and has not yet produced significant revenues. Product development costs increased to $252,000 for the three months ended March 31, 2004 from approximately $94,000 during the same period of 2003. Selling expenses
decreased 26% to $148,000 from $200,000 during the same period of the prior year. This decrease is related to the reduction in non-essential sales personnel. General and administrative expenses totaled $88,000 and $13,000 for the three month periods
ending March 31, 2004 and 2003, respectively. This comparative increase was primarily the result of minimal general and administrative expenses in the first quarter 2003, as office and administrative personnel were added in subsequent periods to
support higher levels of business activities, including those associated with a public company.



Due to the increase in costs associated with the development of new technologies and products, the digital technology division incurred a net loss of $491,000 in the three months ended March 31, 2004 versus a net loss
of $312,000 in three months ended March 31, 2003.



RESULTS OF OPERATIONS
 CONTRACT MANUFACTURING DIVISION



Our contract manufacturing
division manufactures customized computing systems for the industrial, business and consumer markets, with the capability of specialized, custom-manufacture of other electronic products and systems.



Quarter Ended March 31, 2004 Compared to Quarter Ended March 31, 2003



|                       |  |                             |       |   |       |      |   |       |  |      
|---------------------- |  | --------------------------- | ----- | - | ----- | ---- | - | ----- |  | -----
|                       |  | Three Months Ended March 31
|(Thousands of dollars) |  | 2004                        |       | % |       | 2003 |   | %    
|Net sales              |  | $                           | 4,809 |   | 100.0 |      | $ | 2,418 |  | 100.0
|Cost of sales          |  |                             | 3,739 |   | 77.8  |      |   | 1,694 |  | 70.0 
|                       |  |                             |       |   |       |      |   |       |  |      
|Gross profit           |  |                             | 1,070 |   | 22.2  |      |   | 724   |  | 30.0 
|Operating expenses     |  |                             | 888   |   | 18.5  |      |   | 485   |  | 20.0 
|                       |  |                             |       |   |       |      |   |       |  |      
|Operating income       |  |                             | 182   |   | 3.7   |      |   | 239   |  | 10.0 
|Other income           |  |                             | 47    |   | 1.1   |      |   |      |  |     
|                       |  |                             |       |   |       |      |   |       |  |      
|Net income             |  | $                           | 229   |   | 4.8   |      | $ | 239   |  | 10.0 
|                       |  |                             |       |   |       |      |   |       |  |      



Net sales for the quarter ended March
31, 2004 increased to $4.8 million from $2.4 million in the first quarter ended March 2003. The $2.4 million increase in net sales was primarily attributable to increased sales in the consumer PC market. Of the $2.4 million increase in sales $1.8
million resulted from the consumer market which included a sale of $1 million to Avatar, a Related Party, for the manufacture of consumer PCs for a large electronics retailer, and approximately $800,000 of gaming PCs, a new product line, and the
remaining $600,000 increase due to Best Logics continued development of industrial computer products.



Cost of sales for the quarter ended March 31, 2004 was $3.7 million, or 77.8% of sales, versus $1.7 million, or 70.0% of sales, in the first quarter of 2003. The increase in the percentage of cost of sales was due to
the higher costs associated with sales of consumer PCs. Consumer PC sales totaled $1.8 million in the first quarter ended March 31, 2004, with no comparable sales in the first quarter ended March 31, 2003. As a result, the blended gross margin was
22.2%, which consisted of approximately 62% for industrial computer sales and 38% for consumer PC sales, versus a gross margin of 30.0% in the first quarter ended March 31, 2003, which were entirely industrial computer sales. The higher margins for
industrial computer sales are due to the customization required over and above the consumer PC architecture.



Operating expenses for the quarter ended March 31, 2004 were $888,000, or 18.5% of sales, versus $485,000, or 20.0% of sales, in the quarter ended March 31, 2003. The increase in costs was due to additional salaries,
selling and administrative costs, and initial marketing and promotional costs associated with Vicious PC, our new consumer gaming product, rent expense, and other administrative costs. The increase in salaries accounted for the most significant
increase in costs in the first quarter of 2004 compared to the first quarter of 2003. In 2004, salaries, commissions and related payroll tax expense increased by $205,000. This increase was due to additional production and quality control personnel
hired to assist in the production of consumer PCs to meet demands in the fourth quarter of 2003. The consumer PC market has low seasonal revenue in the first quarter, but some expenditures were continued in anticipation of higher seasonal revenues
in the third and fourth quarters. Operating expenses, consisting primarily of salaries, advertising and promotion and professional fees, for Vicious PC totaled $120,000 in the first quarter of 2004. Vicious PC sales were launched during the fourth
quarter of



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##### Table of Contents

2003; therefore, there are no comparable expenses to the first quarter ended 2003. Rent expense increased by $50,000 in
the first quarter of 2004, compared to the first quarter of 2003. The increase was due to additional facility space needed to accommodate increases in office space, production line and warehouse space needs to support higher sales. However, despite
the increases described above, costs as a percentage of sales was reduced, due to economies of scale from higher production levels. We initiated sales into the consumer PC market, which has historically been a low margin market, because we believe
economies of scale would allow the Company to achieve profitability on incremental sales in that market. However, in the first quarter of 2004, a labor charge of approximately $60,000 for rework to reinstall new software for consumer PCs for the
Latin American market and $45,000 in initial marketing and advertising for Vicious PCs impacted margins.



As a result of the above, net income for the contract manufacturing division for the quarter ended March 31, 2004 was $229,000, or 4.8% of sales, versus $239,000 or 10.0% of sales in the quarter ended March 31, 2003.



RESULTS OF OPERATIONS - CORPORATE



As a result of the completion of the Merger with McDigit in August 2003, the historical
results of operations of the Company reflect those of McDigit for the entire period. The pre-merger operations related to Global, the public entity prior to the acquisition, have not been shown in the historical financial statements. However, those
operations subsequent to August 2003 are shown as part of results of operations. During the three months ended March 31, 2004, corporate general and administrative costs totaled $207,000 including approximately $158,000 in professional fees
associated with a public company and $40,000 for Nasdaq registration. Other income was $107,000 of earn-out revenue from contingent payments based on performance of the company that acquired Global ePoints prior business. The net result for
corporate operations was a net loss of $100,000 in three months ended March 31, 2004.



SUMMARY



In August 2003, Global ePoint, McDigit, and Best
Logic completed a Merger whereby Global ePoint continues as the acquiring legal entity, but the historical financial statements of Global ePoint include only those of McDigit and Best Logic prior to the Merger date, and those of the combination of
all the companies subsequent to the Merger date. As a net result of the operations of the contract manufacturing division, the digital technology division and corporate activities, the Company incurred a net loss of $362,000 during the three months
ended March 31, 2004, or $(.03) per share, and net loss of $73,000, or $(.01) per share during the three months ended March 31, 2003.



SUBSEQUENT EVENTS



On April 5, 2004, the Company and Next Venture executed an Asset Purchase Agreement. Pursuant to that agreement the Company purchased substantially all of the assets used in Next Ventures Perpetual digital
division, including intellectual property and ongoing supply agreements. Perpetual is a systems integrator and supplier of digital video recording systems for commercial and industrial security surveillance. In consideration for the assets, the
Company paid $400,000 in cash and will be required to pay up to $2,750,000 of the Companys Common Stock, subject to the acquired operations achieving certain sales targets in the 12-month period following the closing of the acquisition. In
addition to the cash and stock, the Company agreed to defer for one year the collection of (and under certain circumstances, waive altogether the right to collect) an account receivable from Next Venture in the amount of approximately $150,000. In
no event will the purchase price exceed $3,300,000, including any waiver of account receivables. If the acquired operations meet the sales levels required for receipt of the stock by the seller, the Company would be required to issue the stock
approximately one year from the date of the acquisition at the average price of the Companys stock over the 30 trading days prior to the issuance of the stock. If the Company is required to issue its stock to the seller, the Companys
current stockholders would experience dilution of their ownership interests and, potentially, the Companys earnings per share may be diluted. There can be no assurance that this acquisition will be successfully integrated into the
Companys operations.



On April 26, 2004, the Company acquired certain
assets from Insolvency Services Group, Inc., which had acquired those assets from AirWorks, Inc. pursuant to a general assignment. This assignment by AirWorks to ISG was part of an assignment for the benefit of creditors of AirWorks. Pursuant to the
assignment from ISG, the Company acquired AirWorks flight support business including aircraft electronic and communications assets and operations, including intellectual property, and contracts and purchase orders from major aircraft
manufacturers. In consideration for the assets, the Company is required to pay a total of approximately $3,500,000 in cash, approximately $2,500,000 million of which was paid at closing, including $500,000 of which was paid prior to March 31, 2004
and is included in other assets. The remaining $1,000,000 is due prior to June 25, 2004. A contingency payment of up to $3,000,000 in cash is also payable for the assets. In order to receive any contingency payment, certain financial performance
benchmarks must be attained. Upon attaining a certain benchmark, a proportional payment will be made until a second benchmark is attained at which point the entire $3,000,000 contingency payment is made. The contingency payments, if any, are due the
later of December 1, 2004, or the date 30 days after the benchmark is first attained. However, no contingency payments will be required if the benchmarks are not attained within one year of the closing date. The contingency payments, if any, may be
reduced if certain enumerated items materialize or fail to occur following the closing.



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LIQUIDITY AND CAPITAL RESOURCES



As of March 31, 2004, the Company had working capital of $2,133,000 including cash and cash equivalents of $1,449,000. During the three
months ended March 31, 2004, net cash used in operating activities totaled $1,479,000. This cash was primarily used in advances to Next Venture and AirWorks in anticipation of acquiring certain operating assets from those entities. Net cash received
from financing activities totaled $1,984,000. This was primarily due to $1,941,000 in borrowings from Related Parties in this quarter. As of March 31, 2004, the total outstanding balance on loans from Related Parties is $3,516,000. As a result of
the total cash activities, net cash decreased $195,000 from December 31, 2003 to March 31, 2004.



In April 2004, the Company acquired Next Ventures Perpetual digital division and AirWorks flight support business. In consideration for Next Ventures assets, the Company paid $400,000 in cash.
Contingent upon certain performance goals being attained the Company may be required to waive an account receivable of approximately $150,000 and may be required to pay up to $2,750,000 in Common Stock approximately one year after the closing. In
consideration for the assets acquired from AirWorks, the Company paid approximately $2,500,000 in cash prior to closing, and must pay an additional $1,000,000 in cash prior to June 25, 2004. The Company may be required to pay an additional amount of
up to $3,000,000 between December 2004 and May 2005 if certain performance goals are attained.



To cover the initial $2,500,000 cash payment required by the asset purchase agreement with AirWorks, the Company borrowed money from Avatar and Prophecy Technology, LLC d/b/a Maxus Group, both Related Parties. The
Company intends to replace these loans with convertible promissory notes, the terms of which are subject to Board approval. To cover the balance of payments related to the AirWorks acquisition, the Company intends to use funds obtained through loans
from and/or equity investments by unrelated third parties. As of the date of this report, the Company is negotiating with various potential sources of funding.



In addition to our immediate needs for working capital, it is also likely that we will need to raise additional funds to finance our activities beyond the next 12
months or to consummate acquisitions of other businesses, products, or technologies. In the event we need to raise additional financing, there can be no assurance that any such financing will be available on acceptable terms. If such financing is
not available on satisfactory terms, we may be unable to expand or continue our business as desired and operating results may be adversely affected. Debt financing will increase expenses and must be repaid regardless of operating results. Equity
financing could result in dilution to existing stockholders.



Our future
capital requirements may vary materially from those now anticipated. We anticipate that the amount of capital that we will need in the future will depend on many factors, including:



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



| |  | market acceptance of the technology and products from our digital technology division;
| | - | --------------------------------------------------------------------------------------



| |  | 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.
| | - | --------------------------------------------------------------------------------



CASH FLOWS



During the first three months of fiscal 2004, we used cash in operating activities of $1,479,000 as compared to the first quarter of 2003 in which we generated $6,000 in
cash from operating activities. The primary uses of cash for operating activities in the 2004 period resulted from an increase in accounts receivable in the normal course of our sales cycles and from the net change in accounts receivable and payable
with Related Parties. The primary source of net cash provided by operating activities for the three month period ended March 31, 2003 was $1,000,000 from Related Parties offset by increases in accounts receivable and product sales to Related
Parties.



Net cash used for investing activities during the first three months
of fiscal 2004 and 2003 was $700,000 and $339,000, respectively. Payments in 2004 were primarily attributable to additions to property and equipment of $93,000, investments in AirWorks of $500,000, and investments in ComCam International, Inc. of
approximately $100,000. Payments in the first quarter of 2003 were primarily attributable to the initial deposit paid by McDigit to Global prior to the Merger in August 2003.



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Net cash received from financing activities totaled $1,984,000, for the three months ended March 31, 2004. This was
primarily due to $1,941,000 in borrowings from Related Parties in this quarter. As of March 31, 2004, the total outstanding balance on loans from Related Parties is $3,516,000. For the three months ended March 31, 2003, net cash provided by
financing activities was $245,000, which was attributable to borrowings on loans payable to the majority stockholder.



FORWARD-LOOKING STATEMENTS



All statements included or incorporated by reference in this Report, other than statements or characterizations of historical fact, are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on our current expectations, estimates and projections about our industry, managements beliefs, and certain assumptions made
by us, all of which are subject to change. Forward-looking statements can often be identified by words such as anticipates, expects, intends, plans, predicts, believes,
seeks, estimates, may, will, should, would, could, potential, continue, similar expressions, and variations or negatives of these words.
These forward-looking statements are not guarantees of future results and are subject to risks, uncertainties and assumptions.Our actual results could differ materially and adversely from those expressed in any forward-looking
statement.



Important factors that may cause a difference
include, but are not limited to, the items discussed in the Certain Risk Factors discussion below. The Company disclaims any obligation to update information contained in any forward-looking statement.



CERTAIN RISK FACTORS



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 majority stockholder. During 2003 and the first quarter of 2004 we purchased approximately $12.6 and $1.7 million, respectively, worth of products from a number of
these Related Parties. This represents 65% and 46% of our overall cost of goods for the year and quarter, respectively. In addition, during 2003 and the first quarter of 2004, we sold approximately $11.8 and $1.3 million, respectively, worth of
products and contract manufacturing services to a number of these Related Parties. This represents 55% and 27% of our overall sales for the year and quarter, respectively. We believe that these Related Party relationships provided access to
attractively priced components and products and an additional and substantial amount of sales revenues. However, there are no agreements, written or otherwise, between the Company and these Related Parties obligating such parties to transact
business with us in the future. As a result, these types of Related Party transactions could cease at any time. If our transactions with these Related Parties cease, our business would be adversely affected.



Our current revenues and purchases are dependent on a limited number of customers and
suppliers, most of which are Related Parties.



For the years ended
December 31, 2003 and 2002, three and two customers, respectively, accounted for 83% and 86%, respectively, of our sales. For the three months ended March 31, 2004 and 2003, three and two customers, respectively, accounted for 76% and 83%,
respectively, of our sales. One of these customers in 2003 was a Related Party. During the fiscal years 2003 and 2002, two vendors accounted for 65% and 83%, respectively, of our purchases. During the three months ending March 31, 2004 and 2003, two
vendors accounted for 46% and 83%, respectively, of our purchases. One of these vendors was a Related Party. If we were to lose one or more of those customers before we are able to secure sales from more other customers, our income and financial
condition would be materially adversely affected. If we are unable to enter into and maintain satisfactory distribution arrangements with leading suppliers and an adequate supply of products, our sales could be adversely affected.



We are an emerging growth company with limited operating history.



Following the acquisition of McDigit in August 2003, and having essentially ceased
operations of 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.
As a result, we have a limited operating history operating our current businesses and forecasting our sales. The future success of our business will depend on our ability to successfully operate McDigits businesses, both of which are in highly
competitive markets. Moreover, our digital technology division operates in a new and emerging market and has not made any material revenues to date. As a new company, it will be necessary for us to implement additional operational, financial and
other controls and procedures in order to be successful.



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Compliance with the new corporate governance regulations imposed upon public companies by the Sarbanes-Oxley Act,
related regulations and Nasdaq require the use of a significant amount of corporate resources.



The Sarbanes-Oxley Act of 2002 and related regulations promulgated by the Securities Exchange Commission as well as the new rules being adopted by the Nasdaq have increased the costs of operating as a public company.
We are implementing systems, controls, policies, and related procedures to comply with these requirements. Relative to our size, the costs and expenses and time commitments required to comply with these new rules represent significant commitments
for us and our management. Risks of non-compliance with the laws and regulatory requirements of federal and state regulatory authorities may include, among other things, administrative enforcement actions and fines and other legal issues which could
adversely affect our business and financial condition.



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, and have, to date, not realized any material revenues from the sale of these 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.
|- | ---------------------------------------------------------------



The recent global economic slowdown and the decline in information technology spending adversely affected our revenues and any future decline would adversely impact
our markets and revenues. Terrorist Attacks.



We believe that sales of
our products were negatively impacted by the recent worldwide economic slowdown, especially in the information technology markets. Although there are signs of an economic recovery, if general economic and industry conditions fail to improve or again
deteriorate, demand for our products could continue to be adversely affected, as could the financial health of our customers, suppliers and the Related Parties. We believe that reductions in state and federal budgets as a result of current economic
conditions have also adversely affected our potential sales to many customers in the public sector. In addition, war and the related political and economic uncertainties, terrorist attacks, national and international responses to terrorist attacks,
and other acts of war or hostility could materially adversely affect our future operating results and financial condition.



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 (up to six months to more than one year). 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.



During the evaluation period, customers may defer, scale down, or decide not to proceed with proposed orders for various reasons, including:



| | changes in budgets and purchasing priorities;
|- | ---------------------------------------------



| | reduced need to upgrade existing systems;
|- | -----------------------------------------



| | deferral of purchases in anticipation of enhancements or new products;
|- | ----------------------------------------------------------------------



| | introduction of products by our competitors; and
|- | ------------------------------------------------



| | lower prices offered by our competitors.
|- | ----------------------------------------





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Additionally, other factors, many of which are outside of our control, can cause fluctuations in our quarterly operating
results, including:



| | the size, timing, terms and conditions of orders from and shipments to customers;
|- | ---------------------------------------------------------------------------------



| | unanticipated delays or problems in releasing new products;
|- | -----------------------------------------------------------



| | the timing and success of deployment of products and services;
|- | --------------------------------------------------------------



| | unanticipated technological problems with our products;
|- | -------------------------------------------------------



| | our ability to enter into new business transactions under favorable terms; and
|- | ------------------------------------------------------------------------------



| | the amount and timing of investments in research and development activities.
|- | ----------------------------------------------------------------------------



As a result of the long sales cycles for these products and the potential for not consummating a sale due to reasons beyond our control, it is difficult to forecast
sales from one quarter to the next. The deferral or loss of one or more significant sales could materially decrease operating results in any fiscal quarter, particularly if there are significant sales and marketing expenses associated with the
deferred or lost sales. Current and future expense levels are based on internal operating plans and sales forecasts, and therefore our operating costs are, to a large extent, fixed. As a result, we may not be able to sufficiently reduce our costs in
any quarter to compensate for an unexpected near-term shortfall in revenues.



Our future success will depend upon our ability to react to changes in our primary markets and identify new markets for potential expansion.



The markets for our products are characterized by rapidly changing technology, evolving industry standards, changes in customer requirements
and frequent new product introductions and enhancements. The introduction of products embodying new technology and the emergence of new industry standards can render our existing products obsolete and unmarketable and can exert price pressures on
existing products. Additionally, our failure to identify new, viable markets for our products and applications may not allow us to maximize our potential returns. It is critical to our success to be able to anticipate changes in technology or in
industry standards and to successfully develop and introduce new, enhanced, and competitive products on a timely basis. There can be no assurance that we will successfully develop new products, introduce new applications for existing products,
identify new markets, that new products and applications will achieve market acceptance or that the introduction of new products or technological developments by others will not render our products obsolete.



If we are unable to compete successfully, our business, financial condition and
operating results could suffer.



The global market for computers and
digital video, audio and data transmission and recording products is intensely competitive, both in the number and breadth of competing companies and products and the manner in which products are sold. The market for our products is characterized by
aggressive pricing by several large branded and numerous generic competitors, short product life cycles, and price sensitivity by customers. We compete primarily on the basis of price, quality, in-time, scaleable production capabilities and customer
service. To the extent we are unable to compete successfully, our revenues and business prospects would be affected adversely. We expect these competitive pressures to continue into the foreseeable future.



Competitors may be able to develop more quickly or adapt faster to new or emerging
technologies and changes in customer requirements, or devote greater resources to the development, promotion, and sale of their products. Substantially all of our competitors have longer operating histories, larger customer bases, longer standing
relationships with customers, greater name recognition and significantly greater financial, technical, marketing, customer service, public relations, distribution and other resources. New competitors or alliances among competitors could emerge and
rapidly gain significant market share. In addition, some customers may in the future decide to develop internally their own solutions instead of purchasing them from us. Increased competition could force us to lower our prices or take other actions
to differentiate our products, which could result in decreased revenues and increased expenditures.



We are dependent on securing contracts with a number of government agencies for our digital technology products.



During the foreseeable future, a portion of the anticipated growth in our digital technology division will be dependent on the expansion of relationships with
government agencies, including law enforcement agencies. Government contracts are subject to many risks and uncertainties, some of which are not found in contracts with private parties. Some of these risks include:



| | decreases in the levels of government expenditures and authorizations for law enforcement and security related programs;
|- | ------------------------------------------------------------------------------------------------------------------------



| | resource allocation shifts to programs in areas where we do not provide products;
|- | ---------------------------------------------------------------------------------



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| | prevention from entering into new government contracts or extending existing contracts based on violations or suspected violations of procurement laws or regulations;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | failure to receive security clearances required to sell products to governments or revocation of such security clearances;
|- | --------------------------------------------------------------------------------------------------------------------------



| | impairment of our reputation or relationship with government agencies;
|- | ----------------------------------------------------------------------



| | changes in government procurement procedures; and
|- | -------------------------------------------------



| | suspension of our ability to contract with a domestic or foreign government, or any significant law enforcement agency.
|- | -----------------------------------------------------------------------------------------------------------------------



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.



Failure to develop strategic alliances could limit our ability to grow.



As part of our ongoing growth strategy, we intend to pursue new
strategic alliances and transactions with third parties. No assurances can be given that we will be able to effect these alliances and transactions on commercially reasonable terms or at all. Furthermore, no assurances can be given that any benefits
will be realized from such arrangements.



Our products may contain
undetected technological defects, which could impair their market acceptance.



We market and sell products that are technologically complex. Our products may contain undetected defects or errors, particularly when first introduced or as new versions are released. We may incur significant costs to correct undetected
defects or errors in our products and these defects or errors could result in future lost sales. In addition, product defects or errors may result in product liability claims, which could cause adverse publicity and impair market acceptance of our
products. Our digital video surveillance products have not been manufactured in production volumes to date and may contain undetected defects that manifest themselves only after we produce them in production volumes. Technical defects or errors may
not be discovered until after a product has been released and used by the customer. Moreover, our products and technology must interface with the technologies of many other technology and product providers in order to satisfy the end-users
needs. If a third-partys products are not operating properly or contain errors, the timing of shipments of our products could be delayed. For example, in the fourth quarter of 2003, the operating system software that was to be installed on the
consumer PCs that we were shipping to Avatar for sale to Latin America contained errors that had to be corrected by the software vendor. These errors caused a delay in the shipment of orders of our products to this market until the problem was
corrected in the first quarter of 2004.



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, which 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.



Failure to hire and retain qualified personnel could limit our ability to grow.



We depend on the continued services of our executive officers and other key personnel including our current Chief Executive Officer and Chief Financial Officer. If we were to lose the services of one or more of our
key personnel our business would be adversely affected. In addition, in connection with the shifted focus of our business we may need to attract and retain a substantial number of new employees, particularly sales and marketing personnel and
technical personnel who understand and have experience with our emerging products and services. If we are unable to attract and retain qualified employees, our ability to grow could be impaired. Competition for qualified personnel is intense, and we
have experienced difficulty in recruiting qualified personnel due to the market demand for their services.



Reliance on Suppliers.



We
require a high volume of quality products and components for our contract manufacturing operations, substantially all of which we obtain from outside suppliers. Most of our current suppliers are Related Parties. In some circumstances we maintain
single-source supplier relationships. If the supply of a key material product or component is delayed or curtailed, our ability to ship in desired quantities and in a timely and cost-effective manner could be adversely affected. We seek to mitigate
such risks by having dual sources of supply where appropriate and by using reputable and reliable suppliers. However, even where multiple suppliers are available, certain key components are at times subject to industry-wide availability and pricing
pressures. If the cost of our components increases for any reason, our gross margins will be negatively impacted. Moreover, in cases where we need to switch to another supplier and alternative sources of supply are available, qualification of the
sources and establishment of reliable supplies could result in delays and possible reduction in our sales.



Our reliance on third-party suppliers of key products and components also exposes us to potential product quality issues that could affect the reliability and performance of our products. If we are unable to ship our
products and solutions in desired quantities and in a timely manner due to a delay or curtailment of the supply of material products or components, or product quality issues due to faulty products or components manufactured by third-party suppliers,
the market for our products or services could be adversely affected with a resulting reduction in revenues and gross margin.



Risks of Acquisitions, Joint Ventures and Strategic Alliances; Dilution.



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



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legal contingencies. In addition, in the case of acquisitions, we may be unable to smoothly 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. We may be required to assume more debt or issue Common Stock to support our recent purchases of assets from Next Venture and AirWorks assignee.
We will be required to issue Common Stock in consideration for the assets purchased from Next Venture if certain performance goals are attained. Furthermore, we have borrowed money to support the purchase of AirWorks assets and we may be
required to borrow additional funds and/or issue stock to cover additional payments required by the asset purchase agreement with AirWorks. If additional Common Stock is issued, current stockholders ownership percentage and earnings per share
would become diluted.



Additional funding may be required.



It is likely that we will need to raise additional funds to finance
our activities beyond the next 12 months. In the event we need to raise additional financing, there can be no assurance that any such financing will be available on acceptable terms. If such financing is not available on satisfactory terms, we may
be unable to continue or expand our business as desired and operating results may be adversely affected. Debt financing will increase expenses and must be repaid regardless of operating results. Equity financing could result in dilution to existing
stockholders.



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



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



| | 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.
|- | ------------------------------------------------------------------------------------------------------------------------



No assurances can be given that continued expenditures on research and development will
prove beneficial.



The Company intends to continue significant
expenditures on research and development to develop new products and enhance its existing products, especially in its digital technology division. While the Company believes that these current research and development expenditures will be beneficial
in the long-term development of its business, there can be no assurance that the Companys development and enhancement of products will be successful. Research and development expenditures are incurred substantially in advance of related
revenue and in some cases do not result in the generation of revenue.



Orders for our computer products are generally cancelable or may be delayed by our customers without substantial penalties.



Orders for our computer products have been cancelled or delayed by our customers in the past. In general we attempt to work with our customers if there is a need to delay
or cancel an order. There can be no assurance that similar cancellations or delays will not occur in the future. In the event that cancellations or order delays occur, our operating results will be negatively impacted.



We may be obligated to issue more shares of Common Stock to the prior stockholders of
McDigit based on our future financial performance.



Pursuant to the
Reorganization and Stock Purchase Agreement related to the acquisition of McDigit, we may be obligated to issue additional shares of our Common Stock to Mr. John Pan based on the achievement by the Company of specific financial milestones in 2004
and 2005 and on the occurrence of other specific conditions. Accordingly, the final number of shares of our Common Stock that may be issued pursuant to this Agreement may not be known until sometime in 2006; provided, that we know that the aggregate
number of shares of Common Stock that may be issued pursuant to the agreement will not exceed 85% of the then issued and outstanding shares of our Common Stock. If additional shares of Common Stock are issued to Mr. Pan pursuant to the
Reorganization Agreement, then current stockholders ownership percentage and earnings per share may become diluted.



Assertions made by former employees and Directors of the Company.



Following the restructuring of our digital technology division in January 2004, two former employees of this division who were also Directors of the Company, resigned
from the Board. These resignations were reported in our current report on Form 8-K dated January 26, 2004. At the time of their resignation and for several months prior to that time, these individuals had made a number of allegations against the
Company and its Board of improper acts and business practices. In response to these allegations the Audit Committee of the Company, composed of independent Directors, investigated the specific allegations which were brought to the attention of the
officers and Directors of the Company by these gentlemen. The Audit Committee solicited the advice of legal counsel and independent accountants in connection with its investigation. Following its investigation, the Audit



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Committee concluded that there was no basis for the allegations that had been made. Since the date of their resignations,
the Company has not received any further contact from these individuals. However, there can be no assurance that claims will not be brought by these individuals.



ITEM 3. CONTROLS AND PROCEDURES



As of March 31,
2004, the Company carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Companys disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e)). Based upon that evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures are effective at a reasonable level in timely alerting them to material information relating to the Company that is required to be included in the Companys periodic filings with the Securities
and Exchange Commission. There has been no change in the Companys internal control over financial reporting that occurred during the Companys most recent fiscal quarter that has materially affected or is reasonably likely to materially
affect, the Companys internal control over financial reporting.



The
Companys management, including the Chief Executive Officer and Chief Financial Officer, do not expect that the Companys disclosure controls and procedures or internal control over financial reporting will prevent all error and all fraud.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met due to numerous factors, ranging from errors to conscious acts of an individual, or
individuals acting together. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of inherent limitations in a
cost-effective control system, misstatements due to error and/or fraud may occur and not be detected.



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PART II. OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



None.



ITEM 2. CHANGES IN SECURITIES



None.



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



None.



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



None.



ITEM 5. OTHER INFORMATION



None.



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



| | (A) | EXHIBITS:
| | --- | ---------



|              |  |                                                                                                                        
|------------- |  | -----------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Documents                                                                                               
|2.1           |  | Asset Purchase Agreement, dated as of April 5, 2004, by and among Global ePoint and Next Venture, Inc. (A)             
|              | 
|2.2.1         |  | Bill of Sale, dated April 26, 2004, by and among Global ePoint, Inc. and Insolvency Services Group, Inc. (B)           
|              | 
|2.2.2         |  | Asset Agreement, dated April 24, 2004, by and among Global ePoint and Greenick, Inc., effective April 15, 2004 (B)     
|              | 
|2.2.3         |  | Addendum to Asset Agreement, dated as of April 21, 2004, by and among Global ePoint and Greenick, Inc. (B)             
|              | 
|2.2.4         |  | Second Addendum to Asset Agreement, dated as of May 10, 2004, between Global ePoint and Greenick, Inc. (B)             
|              | 
|2.2.5         |  | Agreement dated April 21, 2004, by and among Global ePoint, Inc. and Greenick, Inc. (B)                                
|              | 
|31.1          |  | Certification of CEO  Rule 13a  14(a) or 15d  14(a)*                                                                
|              | 
|31.2          |  | Certification of CFO  Rule 13a  14(a) or 15d  14(a)*                                                                
|              | 
|32            |  | Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002+

| | 
| | 



| | * | Filed herewith
| | - | --------------

| | + | Furnished herewith
| | - | ------------------



CODES FOR DOCUMENTS INCLUDED BY REFERENCE TO PREVIOUS FILINGS:



(A) Incorporated by reference to Registrants Form 8-K, dated April 5, 2004.



(B) Incorporated by reference to Registrants Form 8-K, dated April 26, 2004.



(B) REPORTS ON FORM 8-K:



During the quarter ended March 31, 2004, the Company filed one report on
Form 8-K dated January 26, 2004 for the purpose of reporting under Item 6 thereof the resignations of Daniel Pearlson and Sean Fischer as Board members.



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##### Table of Contents

SIGNATURES



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



|                   |  |                                     
|------------------ |  | ------------------------------------
|                   |  | GLOBAL EPOINT, INC.                 
|                   | 
|Date: May 24, 2004 |  | /s/ Toresa Lou                      
|                   |  | Toresa Lou,                         
|                   |  | Chief Executive Officer             
|                   | 
|Date: May 24, 2004 |  | /s/ John Pan                        
|                   |  | John Pan,                           
|                   |  | Chief Financial Officer and Chairman



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##### Table of Contents

EXHIBIT INDEX



|     |  |                                                                                                                        
|---- |  | -----------------------------------------------------------------------------------------------------------------------
|No.  |  | Description                                                                                                            
|31.1 |  | Certification of CEO  Rule 13a  14(a) or 15d  14(a)*                                                                
|     | 
|31.2 |  | Certification of CFO  Rule 13a  14(a) or 15d  14(a)*                                                                
|     | 
|32.1 |  | Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002+

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|* | Filed herewith
|- | --------------

|+ | Furnished herewith
|- | ------------------



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