##### 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 September 30, 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 001-15775



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GLOBAL EPOINT, INC.

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



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



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

(Address of principal executive offices)



(909) 869-1688

(Issuers telephone number)



---



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 November 15, there were 10,881,788 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 SEPTEMBER 30, 2004



TABLE OF CONTENTS



|                              |  |                                                                                               |  |                                                                                                                 |  |     
|----------------------------- |  | --------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                               |  |                                                                                                                 |  | Page
|Part I. FINANCIAL INFORMATION |  |                                                                                              
|                              |  |                                                                                              
|                              |  | Item 1. Interim Financial Statements (unaudited):                                             |  |                                                                                                                
|                              |  |                                                                                               | 
|                              |  |                                                                                               |  | Condensed Consolidated Balance Sheet as of September 30, 2004                                                   |  | 3   
|                              |  |                                                                                               | 
|                              |  |                                                                                               |  | Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2004 and 2003 |  | 4   
|                              |  |                                                                                               | 
|                              |  |                                                                                               |  | Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2004 and 2003           |  | 5   
|                              |  |                                                                                               | 
|                              |  |                                                                                               |  | Condensed Consolidated Statement of Stockholders Equity for the Nine Months Ended September 30, 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.
Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 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                                                                              |  | 24                                                                                                             
|                              | 
|SIGNATURES                    |  | 25                                                                                           
|                              | 
|EXHIBIT INDEX                 |  |                                                                                              



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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 SEPTEMBER 30, 2004



|                                                                                                                                             |  |   |        |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ------ | -
|(Thousands of dollars, except per share amounts)                                                                                             |  |   |       
|ASSETS                                                                                                                                       |  |   |        |  
|CURRENT ASSETS:                                                                                                                              |  |   |        |  
|Cash and cash equivalents                                                                                                                    |  | $ | 25     |  
|Accounts receivable, net                                                                                                                     |  |   | 3,949  |  
|Accounts receivable - related parties                                                                                                        |  |   | 2,046  |  
|Inventory                                                                                                                                    |  |   | 2,925  |  
|Other current assets                                                                                                                         |  |   | 402    |  
|                                                                                                                                             |  |   |        |  
|Total current assets                                                                                                                         |  |   | 9,347  |  
|                                                                                                                                             |  |   |        |  
|Property, plant and equipment, net                                                                                                           |  |   | 814    |  
|Card dispensing equipment and related parts                                                                                                  |  |   | 984    |  
|Goodwill                                                                                                                                     |  |   | 6,454  |  
|Other intangibles                                                                                                                            |  |   | 1,244  |  
|Deposits and other assets                                                                                                                    |  |   | 521    |  
|                                                                                                                                             |  |   |        |  
|Total other assets                                                                                                                           |  |   | 10,017 |  
|                                                                                                                                             |  |   |        |  
|Total assets                                                                                                                                 |  | $ | 19,364 |  
|                                                                                                                                             |  |   |        |  
|Liabilities and Stockholders equity                                                                                                         |  |   |        |  
|Current Liabilities:                                                                                                                         |  |   |        |  
|Accounts payable                                                                                                                             |  | $ | 970    |  
|Accounts payable - related parties                                                                                                           |  |   | 4,933  |  
|Accrued expenses                                                                                                                             |  |   | 741    |  
|Customer deposits                                                                                                                            |  |   | 93     |  
|Due to related parties                                                                                                                       |  |   | 839    |  
|Due to stockholder                                                                                                                           |  |   | 145    |  
|                                                                                                                                             |  |   |        |  
|Total current liabilities                                                                                                                    |  |   | 7,721  |  
|                                                                                                                                             |  |   |        |  
|Loan payable                                                                                                                                 |  |   | 1,014  |  
|                                                                                                                                             |  |   |        |  
|STOCKHOLDERS EQUITY:                                                                                                                        |  |   |        |  
|Preferred stock, no par value, 2,000,000 shares authorized, 55,000 shares issued and outstanding aggregate liquidation preference
$5,500,000 |  |   | 4,322  |  
|Common stock, $.03 par value, 50,000,000 shares authorized and 10,881,788 shares issued and outstanding                                      |  |   | 326    |  
|Paid-in capital                                                                                                                              |  |   | 8,537  |  
|Accumulated deficit                                                                                                                          |  |   | (2,556 | )
|                                                                                                                                             |  |   |        |  
|Total stockholders equity                                                                                                                   |  |   | 10,629 |  
|                                                                                                                                             |  |   |        |  
|Total liabilities and stockholders equity                                                                                                   |  | $ | 19,364 |  
|                                                                                                                                             |  |   |        |  



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 AND NINE MONTHS ENDED SEPTEMBER 30, 2004 and 2003



|                                                    |  |                            |        |   |                           |   |       |                   |  |   |                   |   |  |   |       |  
|--------------------------------------------------- |  | -------------------------- | ------ | - | ------------------------- | - | ----- | ----------------- |  | - | ----------------- | - |  | - | ----- | -
|                                                    |  | For the three months ended |        |   | For the nine months ended |  
|(Thousands of dollars, except per share amounts)    |  | September 30,2004          |        |   | September 30,2003         |   |       | September 30,2004 |  |   | September 30,2003 |  
|Net sales                                           |  | $                          | 4,999  |   |                           | $ | 3,859 |                   |  | $ | 13,981            |   |  | $ | 8,256 |  
|                                                    |  |                            |        |  
|Cost of sales                                       |  |                            | 3,865  |   |                           |   | 3,030 |                   |  |   | 10,805            |   |  |   | 5,904 |  
|                                                    |  |                            |        |   |                           |   |       |                   |  |   |                   |   |  |   |       |  
|Gross profit                                        |  |                            | 1,134  |   |                           |   | 829   |                   |  |   | 3,176             |   |  |   | 2,352 |  
|                                                    |  |                            |        |   |                           |   |       |                   |  |   |                   |   |  |   |       |  
|Operating Expenses:                                 |  |                            |        |   |                           |   |       |                   |  |   |                   |   |  |   |       |  
|Selling and marketing                               |  |                            | 669    |   |                           |   | 370   |                   |  |   | 1,757             |   |  |   | 1,412 |  
|General and administrative                          |  |                            | 1,344  |   |                           |   | 408   |                   |  |   | 3,687             |   |  |   | 1,106 |  
|Research and development                            |  |                            | 275    |   |                           |   | 196   |                   |  |   | 781               |   |  |   | 483   |  
|Depreciation and amortization                       |  |                            | 62     |   |                           |   | 16    |                   |  |   | 126               |   |  |   | 39    |  
|                                                    |  |                            |        |   |                           |   |       |                   |  |   |                   |   |  |   |       |  
|Total operating expenses                            |  |                            | 2,350  |   |                           |   | 990   |                   |  |   | 6,351             |   |  |   | 3,040 |  
|                                                    |  |                            |        |   |                           |   |       |                   |  |   |                   |   |  |   |       |  
|Loss from operations                                |  |                            | (1,216 | ) |                           |   | (161  | )                 |  |   | (3,175            | ) |  |   | (688  | )
|                                                    |  |                            |        |  
|Other income (expense)                              |  |                            | (16    | ) |                           |   | 163   |                   |  |   | 122               |   |  |   | 143   |  
|                                                    |  |                            |        |   |                           |   |       |                   |  |   |                   |   |  |   |       |  
|Income/(Loss) before income tax provision           |  |                            | (1,232 | ) |                           |   | 2     |                   |  |   | (3,053            | ) |  |   | (545  | )
|                                                    |  |                            |        |  
|Income tax provision                                |  |                            |       |   |                           |   |      |                   |  |   |                  |   |  |   | 13    |  
|                                                    |  |                            |        |   |                           |   |       |                   |  |   |                   |   |  |   |       |  
|Net Income/(Loss)                                   |  |                            | (1,232 | ) |                           |   | 2     |                   |  |   | (3,053            | ) |  |   | (558  | )
|                                                    |  |                            |        |  
|Preferred stock dividend                            |  |                            | (658   | ) |                           |   |      |                   |  |   | (658              | ) |  |   |      |  
|                                                    |  |                            |        |   |                           |   |       |                   |  |   |                   |   |  |   |       |  
|Net Income/(Loss) applicable to common stockholders |  | $                          | (1,890 | ) |                           | $ | 2     |                   |  | $ | (3,711            | ) |  | $ | (558  | )
|                                                    |  |                            |        |   |                           |   |       |                   |  |   |                   |   |  |   |       |  
|Income/(loss) per share - basic                     |  | $                          | (0.17  | ) |                           | $ | 0.00  |                   |  | $ | (0.34             | ) |  | $ | (0.09 | )
|                                                    |  |                            |        |   |                           |   |       |                   |  |   |                   |   |  |   |       |  
|Income/(loss) per share- fully diluted              |  | $                          | (0.17  | ) |                           | $ | 0.00  |                   |  | $ | (0.34             | ) |  | $ | (0.09 | )
|                                                    |  |                            |        |   |                           |   |       |                   |  |   |                   |   |  |   |       |  
|Weighted average shares and share equivalents       |  |                            | 10,882 |   |                           |   | 8,236 |                   |  |   | 10,857            |   |  |   | 5,976 |  
|                                                    |  |                            |        |   |                           |   |       |                   |  |   |                   |   |  |   |       |  



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 NINE MONTHS ENDED SEPTEMBER 30, 2004 and 2003



|                                                                                             |  |      |        |   |      |   |        |  
|-------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|(Thousands of dollars)                                                                       |  | 2004 |        |   | 2003 |  
|CASH FLOWS PROVIDED/(USED) BY OPERATING ACTIVITIES:                                          |  |      |        |   |      |   |        |  
|Net loss                                                                                     |  | $    | (3,053 | ) |      | $ | (558   | )
|Adjustments to reconcile net loss to net cash flows provided/(used) by operating activities: |  |      |        |   |      |   |        |  
|Depreciation and amortization                                                                |  |      | 126    |   |      |   | 39     |  
|Provision for bad debt                                                                       |  |      | 63     |   |      |   | 20     |  
|Increase/(decrease) from changes in:                                                         |  |      |        |   |      |   |        |  
|Accounts receivable                                                                          |  |      | (2,275 | ) |      |   | (1,389 | )
|Accounts receivable - related parties                                                        |  |      | 1,820  |   |      |   | (628   | )
|Inventory                                                                                    |  |      | 56     |   |      |   | (1,069 | )
|Other current assets                                                                         |  |      | (52    | ) |      |   | (174   | )
|Accounts payable                                                                             |  |      | 132    |   |      |   | 1,261  |  
|Accounts payable - related parties                                                           |  |      | (604   | ) |      |   | 3,183  |  
|Accrued expenses                                                                             |  |      | 53     |   |      |   | (133   | )
|Customer deposits                                                                            |  |      | 30     |   |      |   |       |  
|                                                                                             |  |      |        |   |      |   |        |  
|Net cash provided/(used) by operating activities                                             |  |      | (3,704 | ) |      |   | 552    |  
|                                                                                             |  |      |        |   |      |   |        |  
|CASH FLOWS PROVIDED/(USED) BY INVESTMENT ACTIVITIES:                                         |  |      |        |   |      |   |        |  
|Additions to property and equipment                                                          |  |      | (564   | ) |      |   | (57    | )
|Acquisition of Global ePoint                                                                 |  |      |        |   |      |   | 3,463  |  
|Goodwill and other intangibles                                                               |  |      | (3,875 | ) |      |   |       |  
|Additions to other assets                                                                    |  |      | (243   | ) |      |   | (586   | )
|                                                                                             |  |      |        |   |      |   |        |  
|Net cash provided/(used) in investing activities                                             |  |      | (4,682 | ) |      |   | 2,820  |  
|                                                                                             |  |      |        |   |      |   |        |  
|CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:                                                 |  |      |        |   |      |   |        |  
|Loan payable                                                                                 |  |      | 960    |   |      |   |       |  
|Borrowings from related parties                                                              |  |      | 850    |   |      |   |       |  
|Advances from stockholder                                                                    |  |      | (9     | ) |      |   | 245    |  
|Proceeds from exercise of stock options                                                      |  |      | 96     |   |      |   |       |  
|Net proceeds from preferred stock offering                                                   |  |      | 4,321  |   |      |   |        |  
|Net proceeds from stock warrants                                                             |  |      | 591    |   |      |   |        |  
|Preferred stock dividend payments                                                            |  |      | (42    | ) |      |   |        |  
|                                                                                             |  |      |        |   |      |   |        |  
|Net cash provided by financing activities                                                    |  |      | 6,767  |   |      |   | 245    |  
|                                                                                             |  |      |        |   |      |   |        |  
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                                    |  |      | (1,619 | ) |      |   | 3,617  |  
|CASH AND CASH EQUIVALENTS, beginning of period                                               |  |      | 1,644  |   |      |   | 169    |  
|                                                                                             |  |      |        |   |      |   |        |  
|CASH AND CASH EQUIVALENTS, end of period                                                     |  | $    | 25     |   |      | $ | 3,786  |  
|                                                                                             |  |      |        |   |      |   |        |  
|SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:                      |  |      |        |   |      |   |        |  
|Beneficial conversion included in preferred stock dividend                                   |  | $    | 616    |   |      | $ |       |  
|                                                                                             |  |      |        |   |      |   |        |  



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 NINE MONTHS ENDED SEPTEMBER 30, 2004



|                                                                            |  |                 |  |              |       |                          |        |                                       |   |     |                          |   |       |  |   |        |   |  |   |        |  
|--------------------------------------------------------------------------- |  | --------------- |  | ------------ | ----- | ------------------------ | ------ | ------------------------------------- | - | --- | ------------------------ | - | ----- |  | - | ------ | - |  | - | ------ | -
|(Thousands of dollars and shares)                                           |  | Preferred Stock |  | Common Stock |       | AdditionalPaid inCapital |        | RetainedEarnings/(AccumulatedDeficit) |   |     | TotalStockholdersEquity |  
|                                                                            |  | Shares          |  | Amount       |       | Shares                   |        | Amount                                |   |     |                         
|Balances, December 31, 2003                                                 |  |                |  | $            |      |                          | 10,822 |                                       | $ | 324 |                          | $ | 7,894 |  | $ | 497    |   |  | $ | 8,715  |  
|Common stock issued upon options exercised                                  |  |                 |  |              |       |                          | 60     |                                       |   | 2   |                          |   | 95    |  |   |        |   |  |   | 97     |  
|Series A Preferred stock issued August 5, 2004 net of $630 in related costs |  | 55              |  |              | 4,322 |                          |        |                                       |   |     |                          |   | 548   |  |   |        |   |  |   | 4,870  |  
|Net loss                                                                    |  |                 |  |              |       |                          |        |                                       |   |     |                          |   |       |  |   | (3,053 | ) |  |   | (3,053 | )
|                                                                            |  |                 |  |              |       |                          |        |                                       |   |     |                          |   |       |  |   |        |   |  |   |        |  
|Balances, September 30, 2004                                                |  | 55              |  | $            | 4,322 |                          | 10,882 |                                       | $ | 326 |                          | $ | 8,537 |  | $ | (2,556 | ) |  | $ | 10,629 |  
|                                                                            |  |                 |  |              |       |                          |        |                                       |   |     |                          |   |       |  |   |        |   |  |   |        |  



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)



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



SEPTEMBER 30, 2004



1. Basis of presentation



The accounting and reporting
policies of Global ePoint, Inc. (Global, or Global ePoint or the Company) conform to accounting principles generally accepted in the United States of America. The condensed consolidated financial statements as of
September 30, 2004 and for the three and nine months ended September 30, 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 and nine months ended September 30, 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 three divisions: our contract manufacturing division, aviation division and our digital technology division. Our contract manufacturing division manufactures
customized computing systems for industrial, business and consumer markets, with the capability of specialized, custom-manufacture of other electronic products and systems. Our recently acquired aviation division provides digital technology and
other electrical applications to the airline industry. Our digital technology division designs and markets digital video technology primarily for surveillance systems.



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



Merger and basis of presentation On August 8, 2003, Global ePoint,
McDigit, and Best Logic completed a reverse acquisition (the Merger) where the prior owner of McDigit and Best Logic received approximately 50.1% ownership interest of Global ePoint in the transaction. Under reverse
acquisition accounting, Global ePoint continues as the acquiring legal entity, but the historical financial statements of Global ePoint include only those of McDigit and Best Logic prior to the Merger date, and those of the combination of all the
companies subsequent to the Merger date. Additionally, the assets of the Perpetual division of Next Venture, Inc. d/b/a Sierra Group and the flight support business of Greenick, Inc. d/b/a AirWorks, Inc. were acquired in April 2004 (see footnote
10).



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##### Table of Contents

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. On July 23, 2004, Global ePoints Board of Directors adopted a 2004 Stock Incentive Plan (2004 Plan) subject to approval by stockholders. Two officers and two directors
have been granted stock options in accordance with the 2004 Plan. The 2004 Plan is pending stockholder approval; therefore, the pro forma amounts indicated below do not reflect the stock based employee compensation for the stock option grants under
the 2004 Plan. Had compensation for Global ePoints other three stock option plans been determined based on the fair value at the grant date for awards, Global ePoints net income (loss) and income (loss) per share would have been
decreased (increased) to the pro forma amounts indicated below for the three and nine months ended September 30 (in thousands, except per share amounts):



|                                                                                                     |  |                                        |        |   |                                       |   |      |      |  |   |        |   |  |   |       |  
|---------------------------------------------------------------------------------------------------- |  | -------------------------------------- | ------ | - | ------------------------------------- | - | ---- | ---- |  | - | ------ | - |  | - | ----- | -
|                                                                                                     |  | For the three monthsended September 30 |        |   | For the nine monthsended September 30 |  
|                                                                                                     |  | 2004                                   |        |   | 2003                                  |   |      | 2004 |  |   | 2003   |  
|As reported, net income (loss) attributable to common stockholders                                   |  | $                                      | (1,890 | ) |                                       | $ | 2    |      |  | $ | (3,711 | ) |  | $ | (558  | )
|                                                                                                     |  |                                        |        |  
|Stock-based employee compensation determined under the fair value method, net of related tax effects |  |                                        | 0      |   |                                       |   | (38  | )    |  |   | (112   | ) |  |   | (38   | )
|                                                                                                     |  |                                        |        |   |                                       |   |      |      |  |   |        |   |  |   |       |  
|Pro forma                                                                                            |  | $                                      | (1,890 | ) |                                       | $ | (36  | )    |  | $ | (3,823 | ) |  | $ | (596  | )
|                                                                                                     |  |                                        |        |   |                                       |   |      |      |  |   |        |   |  |   |       |  
|Earnings (loss) per common share, basic and fully diluted:                                           |  |                                        |        |   |                                       |   |      |      |  |   |        |   |  |   |       |  
|As reported                                                                                          |  | $                                      | (0.17  | ) |                                       | $ | 0.00 |      |  | $ | (0.34  | ) |  | $ | (0.09 | )
|Pro forma                                                                                            |  | $                                      | (0.17  | ) |                                       | $ | 0.00 |      |  | $ | (0.34  | ) |  | $ | (0.09 | )



3. Inventories



Inventories consisted of the following as of September 30, 2004 (in thousands):



|                                                                  |  |   |      
|----------------------------------------------------------------- |  | - | -----
|Computer component parts                                          |  | $ | 1,598
|Video and data recording component parts                          |  |   | 991  
|Cockpit door surveillance system and wire harness component parts |  |   | 336  
|                                                                  |  |   |      
|Total                                                             |  | $ | 2,925
|                                                                  |  |   |      



4. Property and equipment



Property and equipment consisted of the following as of September 30,
2004 (in thousands):



|                                |  |   |      |  
|------------------------------- |  | - | ---- | -
|Furniture and equipment         |  | $ | 392  |  
|Computer equipment and software |  |   | 133  |  
|Building improvements           |  |   | 396  |  
|Tooling and demo units          |  |   | 34   |  
|Vehicles                        |  |   | 29   |  
|                                |  |   |      |  
|Totals                          |  | $ | 984  |  
|Less accumulated depreciation   |  |   | (170 | )
|                                |  |   |      |  
|Property and equipment, net     |  | $ | 814  |  
|                                |  |   |      |  



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##### Table of Contents

GLOBAL EPOINT, INC. AND SUBSIDIARIES

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



5. Goodwill



Goodwill represents the
excess of the cost of companies acquired over the fair value of their net assets at dates of acquisition. Goodwill is not being amortized but is subject to periodic tests of impairment of value. We have accumulated a total of $6.4 million of
goodwill; $3.2 million resulted from the Merger, $2.9 million from the asset acquisition of Airworks and $300,000 from the asset purchase of Perpetual. The goodwill arising from the Merger has been subject to its annual impairment test. Application
of the discounted cash flow methodology to Management assumptions did not identify any impairment to the Merger goodwill. Management has reviewed the remaining accumulated goodwill. No impairment to goodwill was identified therefore there was no
loss charged to operations for 2004 or 2003.



6. Business concentrations



Sales and purchases For the three and nine months ended September
30, 2004, three customers accounted for 61% and 68% of the Companys sales, respectively, and 77% of the accounts receivable as of September 30, 2004. For the three and nine months ended September 30, 2004, four vendors accounted for 42% and
47% of the Companys purchases, respectively, and 85% of the accounts payable as of September 30, 2004. A substantial amount of sales and purchase transactions are conducted with related parties, as discussed in Note 7.



7. Related party transactions



Pre-Merger Loans Mr. John Pan, the Companys Chairman, Chief Financial Officer
and majority stockholder, made pre-Merger advances to McDigit amounting to approximately $341,000, of which $196,000 was repaid during 2003. All of the loans relate to pre-Merger activities. As of September 30, 2004, the remaining balance on these
loans was $145,000. The loans are unsecured and, currently, payable on demand. However, the Company intends to replace these loans with convertible promissory notes with an interest rate and other terms subject to Board approval.



Rent agreement Mr. John Pan, the Companys Chairman, Chief Financial Officer and
majority stockholder, leases a facility to the Company and to Avatar Technologies, Inc. (Avatar), a Related Party (as defined below). Facility rental costs, including additional square footage to accommodate more offices for
administrative staff, more equipment for production and assembly, and more warehouse space, totaled $130,000 and $355,000 for the three and nine months ended September 30, 2004, respectively. Rental costs for manufacturing and assembly equipment
were approximately $21,000 and $64,000 for the three and nine months ended September 30, 2004, respectively.



Other arrangements The Company had various sales and purchase transactions with companies that are owned or controlled by the Companys Chairman, Chief Financial Officer and majority stockholder, Mr. John
Pan (Related Parties). Those types of transactions occurred with the Related Parties prior to the completion of the Merger and have continued subsequent to the Merger, although there can be no assurances that these arrangements will
continue given that the Related Parties are not obligated to continue dealing with the Company. 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.



Vicious PC our retail gaming PC entity has sourced computer component parts on a pass through basis to a related party through out 2004. There is no earnings process that
occurs when Vicious resells the component parts to the Related Party. The goods are purchased and resold at a zero mark-up strictly to provide favorable pricing and build vendor relationships. These transactions do not constitute the entitys
major operations. The goods are not held and made available as needed in a typical distributor operation. Previously, we recorded these transactions as sales. Financial Accounting Standards Board (FASB) Statement of Concepts No 6. states
revenues are inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entitys
ongoing major or central operations.. Due to the nature of these related party transactions and in accordance with FASB Statement of Concepts No. 6, we have eliminated these related party transactions from the results of operations. The
transactions totaled $939,000 in the third quarter and $2.4 million for the year to date 2004. The accompanying consolidated financial statements have been adjusted to reflect this change in accounting treatment.



The outstanding balances due from and to Related Parties as of September 30, 2004 and 2003
were as follows:



|                                                   |  |                     |       |      |   |      
|-------------------------------------------------- |  | ------------------- | ----- | ---- | - | -----
|                                                   |  | As of September 30,
|(Thousands of dollars)                             |  | 2004                |       | 2003
|Balances due from Related Parties were as follows: |  |                     |       |      |   |      
|(A) (50% owned by CFO/Chairman)                    |  | $                   | 174   |      | $ | 277  
|                                                   |  |                    
|(B) (100% owned by CFO/Chairman)                   |  |                     | 1,479 |      |   | 1,214
|                                                   |  |                    
|(C) (100% owned by CFO/Chairman)                   |  |                     |      |      |   | 1    
|                                                   |  |                    
|(D) (95% owned by CFO/Chairman)                    |  |                     | 1,494 |      |   | 169  
|                                                   |  |                     |       |      |   |      
|Totals                                             |  | $                   | 3,147 |      | $ | 1,661
|                                                   |  |                     |       |      |   |      
|Balances due to Related Parties were as follows:   |  |                     |       |      |   |      
|(A) (50% owned by CFO/Chairman)                    |  | $                   |      |      | $ |     
|                                                   |  |                    
|(B) (100% owned by CFO/Chairman)                   |  |                     | 356   |      |   | 1,581
|                                                   |  |                    
|(C) (100% owned by CFO/Chairman)                   |  |                     |      |      |   | 3    
|                                                   |  |                    
|(D) (95% owned by CFO/Chairman)                    |  |                     | 5,621 |      |   | 2,051
|                                                   |  |                     |       |      |   |      
|Totals*                                            |  | $                   | 5,977 |      | $ | 3,635
|                                                   |  |                     |       |      |   |      

---

|* | 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 September 30, 2004 based on the nature of the related activity.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

GLOBAL EPOINT, INC. AND SUBSIDIARIES

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



7. Related party transactions (continued)



Other arrangements (continued)



|                                                        |  |                                        |       |                                       |   |      |  |      |       |  |   |      
|------------------------------------------------------- |  | -------------------------------------- | ----- | ------------------------------------- | - | ---- |  | ---- | ----- |  | - | -----
|                                                        |  | For the three months endedSeptember 30 |       | For the nine months endedSeptember 30
|(Thousands of dollars)                                  |  | 2004                                   |       | 2003                                  |   | 2004 |  | 2003
|Product purchases from Related Parties were as follows: |  |                                        |       |                                       |   |      |  |      |       |  |   |      
|(A) (50% owned by CFO/Chairman)                         |  | $                                      |      |                                       | $ |     |  | $    |      |  | $ |     
|                                                        |  |                                        |       |                                      
|(B) (100% owned by CFO/Chairman)                        |  |                                        | 160   |                                       |   | 551  |  |      | 548   |  |   | 1,847
|                                                        |  |                                        |       |                                      
|(C) (100% owned by CFO/Chairman)                        |  |                                        | 1     |                                       |   | 3    |  |      | 5     |  |   | 17   
|                                                        |  |                                        |       |                                      
|(D) (95% owned by CFO/Chairman)                         |  |                                        | 720   |                                       |   | 363  |  |      | 2,765 |  |   | 1,347
|                                                        |  |                                        |       |                                       |   |      |  |      |       |  |   |      
|Totals                                                  |  | $                                      | 881   |                                       | $ | 917  |  | $    | 3,318 |  | $ | 3,211
|                                                        |  |                                        |       |                                       |   |      |  |      |       |  |   |      
|Product sales to Related Parties were as follows:       |  |                                        |       |                                       |   |      |  |      |       |  |   |      
|(A) (50% owned by CFO/Chairman)                         |  | $                                      | 94    |                                       | $ | 121  |  | $    | 169   |  | $ | 302  
|                                                        |  |                                        |       |                                      
|(B) (100% owned by CFO/Chairman)                        |  |                                        | 1,479 |                                       |   | 206  |  |      | 4,027 |  |   | 206  
|                                                        |  |                                        |       |                                      
|(C) (100% owned by CFO/Chairman)                        |  |                                        | 9     |                                       |   |     |  |      | 18    |  |   | 4    
|                                                        |  |                                        |       |                                      
|(D) (95% owned by CFO/Chairman)                         |  |                                        | 45    |                                       |   | 41   |  |      | 312   |  |   | 494  
|                                                        |  |                                        |       |                                       |   |      |  |      |       |  |   |      
|Totals                                                  |  | $                                      | 1,627 |                                       | $ | 368  |  | $    | 4,526 |  | $ | 1,006
|                                                        |  |                                        |       |                                       |   |      |  |      |       |  |   |      





8. Basic and fully diluted per share calculation



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



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



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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##### Table of Contents

GLOBAL EPOINT, INC. AND SUBSIDIARIES

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



9. 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):



|                                               |  |                  |        |   |                     |        |                 |   |       |  
|---------------------------------------------- |  | ---------------- | ------ | - | ------------------- | ------ | --------------- | - | ----- | -
|                                               |  | Loss (Numerator) |        |   | Shares(Denominator) |        | Per-shareAmount |  
|For the three months ended September 30, 2004: |  |                  |        |   |                     |        |                 |   |       |  
|Basic and fully diluted loss per share         |  |                  |        |   |                     |        |                 |   |       |  
|Loss available to common stockholders          |  | $                | (1,890 | ) |                     | 10,882 |                 | $ | (0.17 | )
|                                               |  |                  |       
|For the nine months ended September 30, 2004:  |  |                  |        |   |                     |        |                 |   |       |  
|Basic and fully diluted loss per share         |  |                  |        |   |                     |        |                 |   |       |  
|Loss available to common stockholders          |  | $                | (3,711 | ) |                     | 10,857 |                 | $ | (0.34 | )
|                                               |  |                  |       
|For the three months ended September 30, 2003: |  |                  |        |   |                     |        |                 |   |       |  
|Basic and fully diluted income per share       |  |                  |        |   |                     |        |                 |   |       |  
|Income available to common stockholders        |  | $                | 2      |   |                     | 8,236  |                 | $ | 0.00  |  
|                                               |  |                  |       
|For the nine months ended September 30, 2003:  |  |                  |        |   |                     |        |                 |   |       |  
|Basic and fully diluted loss per share         |  |                  |        |   |                     |        |                 |   |       |  
|Loss available to common stockholders          |  | $                | (558   | ) |                     | 5,976  |                 | $ | (0.09 | )



10. Acquisitions



On April 5, 2004, the Company and Next Venture, Inc. d/b/a Sierra Group, a California
corporation (Next Venture) executed an Asset Purchase Agreement. Pursuant to that agreement the Company purchased substantially all of the assets used in Next Ventures Perpetual digital division (Perpetual), including
intellectual property and ongoing supply agreements. Perpetual is a systems integrator and supplier of digital video recording systems for commercial and industrial security surveillance. In consideration for the assets, the Company paid $353,000 in
cash. In addition to the cash, the Company agreed to forgive the collection of an account receivable from Next Venture in the amount of approximately $152,000. The Company will be required to pay up to $2,750,000 in Common Stock, subject to the
acquired operations achieving certain sales targets in the 12-month period following the closing of the acquisition. In no event will the purchase price exceed $3,300,000. If the acquired operations meet the sales levels required for receipt of the
stock by the seller, the Company would be required to issue the stock approximately one year from the date of the acquisition at the average price of the Companys stock over the 30 trading days prior to the issuance of the stock. If the
Company is required to issue its stock to the seller, the Companys current stockholders would experience dilution of their ownership interests and, potentially, the Companys earnings per share may be diluted. There can be no assurance
that this acquisition will be successfully integrated into the Companys operations.



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



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



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



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



The following selected financial data reflects consolidated pro forma information as if the acquisition of Airworks had occurred January 1, 2004 and January 1, 2003,
respectively.



|                                                 |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|------------------------------------------------ |  | ------------------------------- | ------ | - | ------------------------------ | - | ----- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                 |  | Three Months Ended September 30 |        |   | Nine Months Ended September 30 |  
|(Thousands of dollars, except per share amounts) |  | 2004                            |        |   | 2003                           |   |       | 2004 |  |   | 2003   |  
|Pro Forma Consolidated Net Sales                 |  | $                               | 4,999  |   |                                | $ | 4,800 |      |  | $ | 14,612 |   |  | $ | 12,975 |  
|Pro Forma Net (Loss) Income                      |  |                                 | (1,890 | ) |                                |   | (85   | )    |  |   | (4,078 | ) |  |   | (974   | )
|Loss per share:                                  |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  
|Basic and diluted, pro forma                     |  | $                               | (0.17  | ) |                                | $ | (0.01 | )    |  | $ | (0.38  | ) |  | $ | (0.16  | )
|                                                 |  |                                 |        |   |                                |   |       |      |  |   |        |   |  |   |        |  



11. Segment reporting



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



For the three months ended September
30, 2004



|                                      |  |                   |       |   |          |   |       |                       |  |           |       |  |       |       |   |  |   |        |  
|------------------------------------- |  | ----------------- | ----- | - | -------- | - | ----- | --------------------- |  | --------- | ----- |  | ----- | ----- | - |  | - | ------ | -
|                                      |  | DigitalTechnology |       |   | Aviation |   |       | ContractManufacturing |  | Corporate |       |  | Total |      
|Net Sales                             |  | $                 | 447   |   |          | $ | 946   |                       |  | $         | 3,606 |  | $     |      |   |  | $ | 4,999  |  
|Cost of sales                         |  |                   | 280   |   |          |   | 627   |                       |  |           | 2,958 |  |       |      |   |  |   | 3,865  |  
|                                      |  |                   |       |   |          |   |       |                       |  |           |       |  |       |       |   |  |   |        |  
|Gross profit                          |  |                   | 167   |   |          |   | 319   |                       |  |           | 648   |  |       |      |   |  |   | 1,134  |  
|Operating Expenses                    |  |                   | 768   |   |          |   | 627   |                       |  |           | 584   |  |       | 371   |   |  |   | 2,350  |  
|                                      |  |                   |       |   |          |   |       |                       |  |           |       |  |       |       |   |  |   |        |  
|Income (loss) from operations         |  |                   | (601  | ) |          |   | (308  | )                     |  |           | 64    |  |       | (371  | ) |  |   | (1,216 | )
|Other income (expense)                |  |                   | (18   | ) |          |   |      |                       |  |           | 2     |  |       |      |   |  |   | (16    | )
|                                      |  |                   |       |   |          |   |       |                       |  |           |       |  |       |       |   |  |   |        |  
|Income/(Loss) from operations         |  | $                 | (619  | ) |          | $ | (308  | )                     |  | $         | 66    |  | $     | (371  | ) |  | $ | (1,232 | )
|                                      |  |                   |       |   |          |   |       |                       |  |           |       |  |       |       |   |  |   |        |  
|Total assets as of September 30, 2004 |  | $                 | 2,699 |   |          | $ | 5,197 |                       |  | $         | 6,726 |  | $     | 4,742 |   |  | $ | 19,364 |  
|                                      |  |                   |       |   |          |   |       |                       |  |           |       |  |       |       |   |  |   |        |  



For the three months ended September
30, 2003



|                                      |  |                   |       |   |          |   |                       |  |           |       |  |       |       |   |  |   |        |  
|------------------------------------- |  | ----------------- | ----- | - | -------- | - | --------------------- |  | --------- | ----- |  | ----- | ----- | - |  | - | ------ | -
|                                      |  | DigitalTechnology |       |   | Aviation |   | ContractManufacturing |  | Corporate |       |  | Total |      
|Net Sales                             |  | $                 | 42    |   |          | $ |                      |  | $         | 3,817 |  | $     |      |   |  | $ | 3,859  |  
|Cost of sales                         |  |                   | 15    |   |          |   |                      |  |           | 3,015 |  |       |      |   |  |   | 3,030  |  
|                                      |  |                   |       |   |          |   |                       |  |           |       |  |       |       |   |  |   |        |  
|Gross profit                          |  |                   | 27    |   |          |   |                      |  |           | 802   |  |       |      |   |  |   | 829    |  
|Operating Expenses                    |  |                   | 547   |   |          |   |                      |  |           | 395   |  |       | 48    |   |  |   | 990    |  
|                                      |  |                   |       |   |          |   |                       |  |           |       |  |       |       |   |  |   |        |  
|Income (loss) from operations         |  |                   | (520  | ) |          |   |                      |  |           | 407   |  |       | (48   | ) |  |   | (161   | )
|Other income (expense)                |  |                   | (2    | ) |          |   |                      |  |           | 1     |  |       | 164   |   |  |   | 163    |  
|                                      |  |                   |       |   |          |   |                       |  |           |       |  |       |       |   |  |   |        |  
|Income/(Loss) from operations         |  | $                 | (522  | ) |          | $ |                      |  | $         | 408   |  | $     | 116   |   |  | $ | 2      |  
|                                      |  |                   |       |   |          |   |                       |  |           |       |  |       |       |   |  |   |        |  
|Total assets as of September 30, 2003 |  | $                 | 1,348 |   |          | $ |                      |  | $         | 5,749 |  | $     | 7,988 |   |  | $ | 15,085 |  
|                                      |  |                   |       |   |          |   |                       |  |           |       |  |       |       |   |  |   |        |  



For the nine months ended September
30, 2004



|                                      |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |        |   |  |   |        |  
|------------------------------------- |  | ----------------- | ------ | - | -------- | - | ----- | --------------------- |  | - | --------- | - |  | ----- | ------ | - |  | - | ------ | -
|                                      |  | DigitalTechnology |        |   | Aviation |   |       | ContractManufacturing |  |   | Corporate |   |  | Total |       
|Net Sales                             |  | $                 | 727    |   |          | $ | 1,605 |                       |  | $ | 11,649    |   |  | $     |       |   |  | $ | 13,981 |  
|Cost of sales                         |  |                   | 459    |   |          |   | 1,029 |                       |  |   | 9,317     |   |  |       |       |   |  |   | 10,805 |  
|                                      |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |        |   |  |   |        |  
|Gross profit                          |  |                   | 268    |   |          |   | 576   |                       |  |   | 2,332     |   |  |       |       |   |  |   | 3,176  |  
|Operating Expenses                    |  |                   | 1,935  |   |          |   | 1,155 |                       |  |   | 2,198     |   |  |       | 1,063  |   |  |   | 6,351  |  
|                                      |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |        |   |  |   |        |  
|Income (loss) from operations         |  |                   | (1,667 | ) |          |   | (579  | )                     |  |   | 134       |   |  |       | (1,063 | ) |  |   | (3,175 | )
|Other income (expense)                |  |                   | (20    | ) |          |   |      |                       |  |   | (3        | ) |  |       | 145    |   |  |   | 122    |  
|                                      |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |        |   |  |   |        |  
|Income/(Loss) from operations         |  | $                 | (1,687 | ) |          | $ | (579  | )                     |  | $ | 131       |   |  | $     | (918   | ) |  | $ | (3,053 | )
|                                      |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |        |   |  |   |        |  
|Total assets as of September 30, 2004 |  | $                 | 2,699  |   |          | $ | 5,197 |                       |  | $ | 6,726     |   |  | $     | 4,742  |   |  | $ | 19,364 |  
|                                      |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |        |   |  |   |        |  



For the nine months ended September
30, 2003



|                                      |  |                   |        |   |          |   |                       |  |           |       |  |       |       |   |  |   |        |  
|------------------------------------- |  | ----------------- | ------ | - | -------- | - | --------------------- |  | --------- | ----- |  | ----- | ----- | - |  | - | ------ | -
|                                      |  | DigitalTechnology |        |   | Aviation |   | ContractManufacturing |  | Corporate |       |  | Total |      
|Net Sales                             |  | $                 | 83     |   |          | $ |                      |  | $         | 8,173 |  | $     |      |   |  | $ | 8,256  |  
|Cost of sales                         |  |                   | 41     |   |          |   |                      |  |           | 5,863 |  |       |      |   |  |   | 5,904  |  
|                                      |  |                   |        |   |          |   |                       |  |           |       |  |       |       |   |  |   |        |  
|Gross profit                          |  |                   | 42     |   |          |   |                      |  |           | 2,310 |  |       |      |   |  |   | 2,352  |  
|Operating Expenses                    |  |                   | 1,509  |   |          |   |                      |  |           | 1,483 |  |       | 48    |   |  |   | 3,040  |  
|                                      |  |                   |        |   |          |   |                       |  |           |       |  |       |       |   |  |   |        |  
|Income (loss) from operations         |  |                   | (1,467 | ) |          |   |                      |  |           | 827   |  |       | (48   | ) |  |   | (688   | )
|Other income (expense)                |  |                   | (21    | ) |          |   |                      |  |           |      |  |       | 164   |   |  |   | 143    |  
|                                      |  |                   |        |   |          |   |                       |  |           |       |  |       |       |   |  |   |        |  
|Income/(Loss) from operations         |  | $                 | (1,488 | ) |          | $ |                      |  | $         | 827   |  | $     | 116   |   |  | $ | (545   | )
|                                      |  |                   |        |   |          |   |                       |  |           |       |  |       |       |   |  |   |        |  
|Total assets as of September 30, 2003 |  | $                 | 1,348  |   |          | $ |                      |  | $         | 5,749 |  | $     | 7,988 |   |  | $ | 15,085 |  
|                                      |  |                   |        |   |          |   |                       |  |           |       |  |       |       |   |  |   |        |  



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##### Table of Contents

12. Series A Preferred Stock and Common Stock Warrants



On August 5, 2004, Global ePoint, Inc. completed the private placement sale of convertible
preferred stock and common stock purchase warrants to three equity funds managed by Mercator Advisory Group, LLC, of Los Angeles, California. The gross proceeds from the transaction were $5.5 million. Related issuance costs of $610,000 resulted in
net proceeds of $4.89 million. The preferred stock is initially convertible into common shares at $4.55 per share. In the event of any conversions of the preferred stock after the 120thday from the closing date, if the market price of the Companys common stock is less than $4.76 per share, then the conversion price applicable to that
particular conversion shall be adjusted to a price that shall equal eighty-five percent (85%) of the market price on such conversion date; provided, that, in no event shall the adjusted conversion price be less than $3.00 per share. In accordance
with applicable accounting guidelines, Management allocated the net proceeds based on the relative fair values of the equity instruments. We used the Black Scholes model to compute the fair value of the warrants assuming 65.8% market sector
volatility and 2.75% risk free rate which resulted in a $591,000 fair value for the 340,000 warrants issued. The warrants have an exercise price $4.76 per share. The remaining $4.3 million was allocated to the Series A preferred stock resulting in
an effective conversion price for the embedded options contained within the Series A preferred stock of $3.82 per share. The effective conversion price resulted in the embedded options being in-the-money at issuance creating a $616,000 beneficial
conversion to the holders of the Series A preferred stock. The beneficial conversion is treated as a non-cash preferred stock dividend. We paid monthly dividends of 5% per annum with respect to the Series A preferred stock on the gross proceeds from
the August 5, 2004 closing date through the October 20, 2004 effective date of the Form S-3 Registration Statement declared effective by the Securities Exchange Commission. No additional dividend payments with respect to the Series A preferred stock
will be paid subsequent to October 20, 2004. The Series A preferred stock has a $5.5 million liquidation preference. The exercise price of the warrants is not subject to adjustment other than customary anti-dilution adjustments.



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##### Table of Contents

GLOBAL EPOINT, INC. AND SUBSIDIARIES

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



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



OVERVIEW



In August 2003, we completed a reverse acquisition transaction with McDigit,
Inc. and Best Logic, LLC in which the prior owner of McDigit and Best Logic received approximately 50.1% of the then outstanding shares of Global ePoint. Under reverse acquisition accounting, Global ePoint continues as the acquiring legal entity,
but the historical presentations of Global ePoints consolidated financial statements include only those of McDigit and Best Logic prior to the merger date, and those of all of the companies combined after the merger date. No adjustments have
been made to McDigits and Best Logics historical carrying values. We acquired the assets of the Perpetual division of Next Venture, Inc. d/b/a Sierra Group and the flight support business of Greenick, Inc. d/b/a AirWorks, Inc in April
2004. The Perpetual business is a systems integrator and supplier of digital video recording systems for commercial and industrial security surveillance and is part of our digital technology division. The Airworks business provides digital video
surveillance solutions to the aircraft industry as well as other electronic solutions and is part of our aviation division. The goal of these acquisitions is to enhance our digital technology based product lines to expand our presence within the
homeland security marketplace. Our operations currently consist of three divisions: contract manufacturing and sales of digital video recorders and personal computers for the governmental, industrial, business, and consumer sectors; digital
technology development concentrating on systems to record and distribute video, audio, and data transmissions primarily for security and surveillance applications and flight support business including aircraft electronics and communications.



The following discussion and analysis of results of operations and financial
condition relates to our financial statements after giving effect to the reverse acquisition accounting discussed above. For a further discussion about the merger and its related financial impact, see our definitive proxy statement filed on July 1,
2003.



RESULTS OF OPERATIONS  COMBINED



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



For the three months ended September 30, 2004



|                                      |  |                   |       |   |          |   |       |                       |  |           |       |  |       |       |   |  |   |        |  
|------------------------------------- |  | ----------------- | ----- | - | -------- | - | ----- | --------------------- |  | --------- | ----- |  | ----- | ----- | - |  | - | ------ | -
|                                      |  | DigitalTechnology |       |   | Aviation |   |       | ContractManufacturing |  | Corporate |       |  | Total |      
|Net Sales                             |  | $                 | 447   |   |          | $ | 946   |                       |  | $         | 3,606 |  | $     |      |   |  | $ | 4,999  |  
|Cost of sales                         |  |                   | 280   |   |          |   | 627   |                       |  |           | 2,958 |  |       |      |   |  |   | 3,865  |  
|                                      |  |                   |       |   |          |   |       |                       |  |           |       |  |       |       |   |  |   |        |  
|Gross profit                          |  |                   | 167   |   |          |   | 319   |                       |  |           | 648   |  |       |      |   |  |   | 1,134  |  
|Operating Expenses                    |  |                   | 768   |   |          |   | 627   |                       |  |           | 584   |  |       | 371   |   |  |   | 2,350  |  
|                                      |  |                   |       |   |          |   |       |                       |  |           |       |  |       |       |   |  |   |        |  
|Income (loss) from operations         |  |                   | (601  | ) |          |   | (308  | )                     |  |           | 64    |  |       | (371  | ) |  |   | (1,216 | )
|Other income (expense)                |  |                   | (18   | ) |          |   |      |                       |  |           | 2     |  |       |      |   |  |   | (16    | )
|                                      |  |                   |       |   |          |   |       |                       |  |           |       |  |       |       |   |  |   |        |  
|Income/(Loss) from operations         |  | $                 | (619  | ) |          | $ | (308  | )                     |  | $         | 66    |  | $     | (371  | ) |  | $ | (1,232 | )
|                                      |  |                   |       |   |          |   |       |                       |  |           |       |  |       |       |   |  |   |        |  
|Total assets as of September 30, 2004 |  | $                 | 2,699 |   |          | $ | 5,197 |                       |  | $         | 6,726 |  | $     | 4,742 |   |  | $ | 19,364 |  
|                                      |  |                   |       |   |          |   |       |                       |  |           |       |  |       |       |   |  |   |        |  



For the three months ended September
30, 2003



|                                      |  |                   |       |   |          |   |                       |  |           |       |  |       |       |   |  |   |        |  
|------------------------------------- |  | ----------------- | ----- | - | -------- | - | --------------------- |  | --------- | ----- |  | ----- | ----- | - |  | - | ------ | -
|                                      |  | DigitalTechnology |       |   | Aviation |   | ContractManufacturing |  | Corporate |       |  | Total |      
|Net Sales                             |  | $                 | 42    |   |          | $ |                      |  | $         | 3,817 |  | $     |      |   |  | $ | 3,859  |  
|Cost of sales                         |  |                   | 15    |   |          |   |                      |  |           | 3,015 |  |       |      |   |  |   | 3,030  |  
|                                      |  |                   |       |   |          |   |                       |  |           |       |  |       |       |   |  |   |        |  
|Gross profit                          |  |                   | 27    |   |          |   |                      |  |           | 802   |  |       |      |   |  |   | 829    |  
|Operating Expenses                    |  |                   | 547   |   |          |   |                      |  |           | 395   |  |       | 48    |   |  |   | 990    |  
|                                      |  |                   |       |   |          |   |                       |  |           |       |  |       |       |   |  |   |        |  
|Income (loss) from operations         |  |                   | (520  | ) |          |   |                      |  |           | 407   |  |       | (48   | ) |  |   | (161   | )
|Other income (expense)                |  |                   | (2    | ) |          |   |                      |  |           | 1     |  |       | 164   |   |  |   | 163    |  
|                                      |  |                   |       |   |          |   |                       |  |           |       |  |       |       |   |  |   |        |  
|Income/(Loss) from operations         |  | $                 | (522  | ) |          | $ |                      |  | $         | 408   |  | $     | 116   |   |  | $ | 2      |  
|                                      |  |                   |       |   |          |   |                       |  |           |       |  |       |       |   |  |   |        |  
|Total assets as of September 30, 2003 |  | $                 | 1,348 |   |          | $ |                      |  | $         | 5,749 |  | $     | 7,988 |   |  | $ | 15,085 |  
|                                      |  |                   |       |   |          |   |                       |  |           |       |  |       |       |   |  |   |        |  



For the nine months ended September
30, 2004



|                                      |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |        |   |  |   |        |  
|------------------------------------- |  | ----------------- | ------ | - | -------- | - | ----- | --------------------- |  | - | --------- | - |  | ----- | ------ | - |  | - | ------ | -
|                                      |  | DigitalTechnology |        |   | Aviation |   |       | ContractManufacturing |  |   | Corporate |   |  | Total |       
|Net Sales                             |  | $                 | 727    |   |          | $ | 1,605 |                       |  | $ | 11,649    |   |  | $     |       |   |  | $ | 13,981 |  
|Cost of sales                         |  |                   | 459    |   |          |   | 1,029 |                       |  |   | 9,317     |   |  |       |       |   |  |   | 10,805 |  
|                                      |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |        |   |  |   |        |  
|Gross profit                          |  |                   | 268    |   |          |   | 576   |                       |  |   | 2,332     |   |  |       |       |   |  |   | 3,176  |  
|Operating Expenses                    |  |                   | 1,935  |   |          |   | 1,155 |                       |  |   | 2,198     |   |  |       | 1,063  |   |  |   | 6,351  |  
|                                      |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |        |   |  |   |        |  
|Income (loss) from operations         |  |                   | (1,667 | ) |          |   | (579  | )                     |  |   | 134       |   |  |       | (1,063 | ) |  |   | (3,175 | )
|Other income (expense)                |  |                   | (20    | ) |          |   |      |                       |  |   | (3        | ) |  |       | 145    |   |  |   | 122    |  
|                                      |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |        |   |  |   |        |  
|Income/(Loss) from operations         |  | $                 | (1,687 | ) |          | $ | (579  | )                     |  | $ | 131       |   |  | $     | (918   | ) |  | $ | (3,053 | )
|                                      |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |        |   |  |   |        |  
|Total assets as of September 30, 2004 |  | $                 | 2,699  |   |          | $ | 5,197 |                       |  | $ | 6,726     |   |  | $     | 4,742  |   |  | $ | 19,364 |  
|                                      |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |        |   |  |   |        |  



For the nine months ended September
30, 2003



|                                      |  |                   |        |   |          |   |                       |  |           |       |  |       |       |   |  |   |        |  
|------------------------------------- |  | ----------------- | ------ | - | -------- | - | --------------------- |  | --------- | ----- |  | ----- | ----- | - |  | - | ------ | -
|                                      |  | DigitalTechnology |        |   | Aviation |   | ContractManufacturing |  | Corporate |       |  | Total |      
|Net Sales                             |  | $                 | 83     |   |          | $ |                      |  | $         | 8,173 |  | $     |      |   |  | $ | 8,256  |  
|Cost of sales                         |  |                   | 41     |   |          |   |                      |  |           | 5,863 |  |       |      |   |  |   | 5,904  |  
|                                      |  |                   |        |   |          |   |                       |  |           |       |  |       |       |   |  |   |        |  
|Gross profit                          |  |                   | 42     |   |          |   |                      |  |           | 2,310 |  |       |      |   |  |   | 2,352  |  
|Operating Expenses                    |  |                   | 1,509  |   |          |   |                      |  |           | 1,483 |  |       | 48    |   |  |   | 3,040  |  
|                                      |  |                   |        |   |          |   |                       |  |           |       |  |       |       |   |  |   |        |  
|Income (loss) from operations         |  |                   | (1,467 | ) |          |   |                      |  |           | 827   |  |       | (48   | ) |  |   | (688   | )
|Other income (expense)                |  |                   | (21    | ) |          |   |                      |  |           |      |  |       | 164   |   |  |   | 143    |  
|                                      |  |                   |        |   |          |   |                       |  |           |       |  |       |       |   |  |   |        |  
|Income/(Loss) from operations         |  | $                 | (1,488 | ) |          | $ |                      |  | $         | 827   |  | $     | 116   |   |  | $ | (545   | )
|                                      |  |                   |        |   |          |   |                       |  |           |       |  |       |       |   |  |   |        |  
|Total assets as of September 30, 2003 |  | $                 | 1,348  |   |          | $ |                      |  | $         | 5,749 |  | $     | 7,988 |   |  | $ | 15,085 |  
|                                      |  |                   |        |   |          |   |                       |  |           |       |  |       |       |   |  |   |        |  



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##### Table of Contents

RESULTS OF OPERATIONS  DIGITAL TECHNOLOGY DIVISION



For the Three Months Ended September 30, 2004 Compared to September 30, 2003



We formed our digital technology division to focus on the development of
digital products and technologies for law enforcement, commercial and industrial security applications. In April 2004, we acquired the assets of the Perpetual division of Next Venture, Inc. to continue the build out of product offerings within the
commercial and industrial security marketplace. We are continuing the development of the corporate structure, marketing and product lines of our mobile digital products. The products are being evaluated by several law enforcement and military
customers but have not generated significant revenues to date. The division is in its early stages of growth, and continues to concentrate on developing and acquiring new products and technologies with an emphasis on security applications.



Revenues for the three months ended September 30, 2004 totaled $447,000
compared to $42,000 for the three months ended September 30, 2003. The increase in revenues is the result of the addition of the Perpetual product line to the digital technology division. Gross margins for the quarter ended September 2004 were 37.4%
compared to 64.3% in the quarter ended September 2003.



Product development
costs increased to $275,000 for the three months ended September 30, 2004 from approximately $196,000 for the same three month period of 2003. The increase is the result of the divisions investment in additional personnel for research and
development.



Selling expenses increased 18% for the three months ended
September 30, 2004 to $225,000 from $190,000 for the same period of the prior year. The increase is the result of $43,000 for sales personnel for the Perpetual product line which includes Mr. Joe Cappelletti, our new Vice President of Sales and
Marketing for the digital division, $33,000 in travel and trade show expenses to promote our Perpetual Digital products and $30,000 consulting fees for former Los Angeles Chief of Police Daryl Gates. Mr. Gates was engaged in the fourth quarter of
2003 to provide technical and marketing support for our mobile digital video surveillance products. These increases were offset by a $70,000 reduction in non-essential sales personnel from the third quarter of 2003.



General and administrative expenses totaled $259,000 compared to $158,000 for the three month
period ended September 30, 2003. This increase was due to $115,000 of additional personnel, rent and other expenses resulting from the acquisition of the Perpetual business, $25,000 in recruiting expenses incurred through the hiring of our Vice
President of Sales and Marketing offset by a $25,000 reduction in various comparative expenses to the third quarter 2003.



For the quarter ended September 2004, the Perpetual digital products produced a net profit of $10,000 for the digital technology division. The Perpetual digital products
are primarily sourced and manufactured by the contract manufacturing division. An additional $23,000 in gross margin on final sales related to the Perpetual product line was recognized in the contract manufacturing division resulting in a total
corporate net profit for the Perpetual products of $33,000 for the third quarter of 2004.



For the Nine Months Ended September 30, 2004 Compared to September 30, 2003



Revenues for the nine months ended September 30, 2004 totaled $728,000 compared to $83,000 for the nine months ended September 30, 2003. . Gross margins for the nine
months ended September 2004 were 36.9% compared to 50.1% for the nine months ended September 2003. The increase in revenues and gross margin is the result of the addition of the Perpetual product line to the digital technology division.



Product development costs increased to $781,000 for the nine months ended September 30,
2004 from approximately $710,000 for the same nine month period of 2003. The increase is the result of the divisions investment in additional personnel for research and development.



Selling expenses decreased 23% for the nine months ended September 30, 2004 to $547,000 from $710,000 for the same period of the prior year.
The decrease is due to a $330,000 reduction in non-essential sales personnel from the third quarter of 2003 offset by $60,000 for sales personnel for the Perpetual product line which includes Mr. Joe Cappelletti, our new Vice President of Sales and
Marketing for the digital division, $27,000 in travel and trade show expenses promoting our Perpetual Digital products and $90,000 consulting fees for former Los Angeles Chief of Police Daryl Gates. Mr. Gates was engaged in the fourth quarter of
2003 to provide technical and marketing support for our mobile digital video surveillance products.



General and administrative expenses totaled $585,000 compared to $309,000 for the nine month period ended September 30, 2004. This increase was due to $242,000 of additional personnel, rent and other expenses
resulting from the acquisition of the Perpetual business and the remaining 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.



For the year to date,
the addition of the Perpetual digital products has resulted in a net loss of $81,000 for the digital technology division. The Perpetual digital products are primarily sourced and manufactured by the contract manufacturing division. An additional
$62,000 in gross margin on final sales was recognized on the Perpetual product line in the contract manufacturing division resulting in a total corporate net loss for the Perpetual products of only $19,000 for the year to date September 30, 2004.



The addition of sales personnel and continued development of brand awareness
have provided a solid platform for the expansion of the Perpetual products for the digital technology division. Our continued investment in research and development of new digital technologies and products and marketing and operation expenses to
support our mobile digital video surveillance products resulted in a net loss for the digital technology division of $619,000 and $1.69 million for the three and nine months ended September 30, 2004 compared to a net loss of $522,000 and $1.49
million for the three and nine months ended September 30, 2003.



RESULTS OF
OPERATIONS  AVIATION DIVISION



The aviation division is comprised of
our recently acquired flight support business, which we refer to as Global Airworks. The divisions current products include Cockpit Door Surveillance Systems (CDSS) which uses digital video technology to allow the pilot to view
activity behind the secured cockpit door from the cockpit. The division has also developed an Electronic Flight Bag that uses digital technology to store and retrieve flight manuals and procedures. The division also provides smoke detection and fire
suppression systems and wire and harness solutions for various electrical applications within an aircraft. We acquired the assets comprising our Global Airworks business on April 26, 2004. Accordingly, the following discussion of this
divisions results of operations relates to results from April 26, 2004 through September 30, 2004.



Revenues for the quarter ended and year to date (158 days) ended September 30, 2004 totaled $946,000 and $1.6 million, respectively. On going (core) operations revenues were $892,000 and $1.3 million for the third
quarter and year to date 2004, respectively. Non core operations, which will not be part of the future operations, were $54,000 and $274,000 for the third quarter and year to date 2004, respectively. The non core operations resulted from an interim
operating agreement to complete a refurbishment project.



Cost of goods sold
for the quarter ended and year to date (158 days) ended September 30, 2004 were $583,000 and $811,000, respectively, for core operations and $44,000 and $218,000 for non core operations, respectively. Gross margins for core operations were 34.6% and
37.6% for the third quarter and year to date 2004. The decline in core operations margin was the result of delays in shipments of $378,000 of CDSS. The delay was due to a product configuration change for the aircraft requiring amendments to the
Supplemental Type Certificates (STC). Although the CDSS kits were assembled, they could not be shipped without a conformity inspection and flight test based on the new configuration and an aircraft was not available for the test until October. Non
core operations gross margins were 18.5% and 20.4% for the quarter ended and year to date September 30, 2004, respectively. The third quarter and year to date 2004 blended gross margin was 33.7% and 35.8%, respectively.



Operating expenses totaled $627,000 and $1.2 million for the third quarter and year to date
(158 days) ended September 30, 2004, respectively. Significant expenses included salaries totaling $395,000 and $721,000 for the third quarter and year to date 2004, respectively of which $171,000 was accrued and partially paid for the year to date
relating to a noncompete agreement within the employment agreement of a key employee. Rent expense totaled $49,000 and $116,000 for the three months and year to date 2004, respectively. We moved our aviation division to a new facility and entered
into a new lease agreement effective June 1, 2004. The terms of the new lease are expected to result in a reduction in rent expense of $8,500 per month through the term of the lease which expires May 31, 2007. The relocation required FAA
certification of the new manufacturing facility. The certification process and relocation resulted in a six week period of minimal production and $21,000 in integration expenses to consolidate operations. Additionally, amortization expense for our
STCs totaled $45,000 and $76,000 for the third quarter and year to date 2004, respectively. For the year to date 2004, trade show expenses totaled $47,000. The division participated in two major trade shows for the airline industry to market its
products and establish brand recognition. The customer awareness generated by the participation in these shows has established a solid base for continued expansion of its product lines.



The consolidation, certification and integration of the newly acquired division and delay in order shipments resulted in a $308,000 and
$579,000 net loss for the aviation division in the third quarter and year to date 2004 (158 days), respectively.



RESULTS OF OPERATIONS  CONTRACT MANUFACTURING DIVISION



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



For the Three Months Ended September 30, 2004 Compared to September 30, 2003



Net sales for the third quarter ended September 30, 2004 totaled $3.6
million compared to $3.8 million in the third quarter ended September 2003. Net sales for industrial computer products comprised 50% of sales in the third quarter 2004 compared to 73% in the comparable quarter of 2003. As a result of the change in
sales mix, cost of sales was $3.0 million, or 82.0% of sales compared to $3.0 million or 79% of sales for the corresponding quarter of 2003. The increase in the cost of sales as a percentage of net sales was due to lower margin products, such as
consumer PCs and electronic and computer component parts, constituting a greater proportion of our overall sales mix in the third quarter of 2004 compared to the same period in 2003. Consumer PC and computer component parts sales totaled $1.5
million in the third quarter ended September 30, 2004 compared to $1.0 million in sales of these products in the third quarter of September 2003. The increase in cost of sales resulted in gross margins of 18.0% for the third quarter of 2004 compared
to 21% in the third quarter 2003.



Operating expenses for the quarter ended
September 30, 2004 were $584,000, or 16.2% of sales, compared to $396,000, or 10.4% of sales, in the quarter ended September 30, 2003. The increase in costs was due to additional salaries, selling and administrative costs, and marketing and
promotional costs associated with Vicious PC, our new consumer gaming product, rent expense, and other administrative costs. Selling and administrative costs associated with Vicious PC totaled $102,000 for the third quarter of 2004 compared to
$7,000 in the corresponding third quarter of 2003. The Vicious PC products were launched during the fourth quarter of 2003; therefore, there were minimal comparable expenses in 2003. An additional 16 employees were added to the production facility
due to an increase in unit sales volume in 2004 resulting in an increase in salaries of $74,000 in the third quarter of 2004 over the third quarter of 2003. Rent expense increased $37,000 for the third quarter of 2004 compared to the third quarter
of 2003. The contract manufacturing division leased additional facility space beginning in January 2004 to accommodate increases in office space, production line and warehouse space needs to support higher sales.



As a result the net income for the contract manufacturing division was $66,000 for the three
months ended September 30, 2004 compared to $408,000 for the three months ended September 30, 2003.



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For the Nine Months Ended September 30, 2004 Compared to September 30, 2003



Net sales increased $3.5 million to $11.7 million for the nine months September 30, 2004
compared to the nine months ended September 30, 2003 representing an increase of 42.5%. The year over year increase in net sales was primarily attributed to the increase in sales in the consumer PC market and sales of computer and electronic
component parts. Of the $3.5 million increase in net sales year over year, $4.0 million resulted from an increase in sales in the consumer PC market to Avatar Technologies Inc, a related party, for the manufacture of consumer PCs for a large
electronics retailer and approximately $1.0 million of consumer gaming PCs, a new product line offset by a $1.5 million reduction in sales of industrial PCs.



Cost of sales for the nine months ended September 30, 2004 totaled $9.3 million compared to $5.9 million for the comparable period of 2003. The increase in cost of sales
is attributable to the change in sales mix which resulted in an increase in lower margin consumer PC sales.



Operating expenses for the nine months of 2004 increased to $2.2 million, or 18.9% of sales, compared to $1.5 million, or 18.8% of sales for the nine months of 2003. The increase in expenses are due to an increase in
salaries, and related payroll tax expense of $310,000 due to additional production and quality control personnel hired for additional sales volume offset by a $100,000 reduction in selling and administrative salaries, commissions and related payroll
tax expense. Vicious PC salaries, advertising and promotion and professional fees increased $324,000. Vicious PC sales were launched during the fourth quarter of 2003; therefore, there were minimal comparable expenses in 2003. Rent expense increased
by $120,000 in the nine months of 2004, compared to the nine months of 2003. We initiated sales into the consumer PC market, which has historically been a low margin market, to improve production capacity utilization. We believe the use of excess
capacity for consumer PCs will result in incremental profitability for the division. However, delays in orders for higher margin industrial PCs caused a heavier weighted product mix for consumer PCs resulting in a reduction of year to date net
income.



As a result of the above, net income for the contract manufacturing
division for the nine months ended September 30, 2004 was $131,000, compared to net income of $816,000 for the nine months ended September 30, 2003.



RESULTS OF OPERATIONS - CORPORATE



As a result of the completion of the reverse acquisition transaction with McDigit and Best Logic in August 2003, the historical results of operations of Global ePoint
reflect those of McDigit and Best Logic for the entire period. The pre-merger operations related to Global ePoint, 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 the results of operations. During the nine months ended September 30, 2004, corporate general and administrative costs totaled $1,063,000 including approximately $592,000 in professional fees and
expenses associated with a public company and $404,000 in salaries and compensation. Other income was $146,000 of which $107,000 is 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 $917,000 in the nine months ended September 30, 2004.



SUMMARY



As a net result of the combined operations of our contract manufacturing division, aviation division, digital technology division, and corporate and financing activities, Global ePoint incurred a net loss of $1.9
million, or $(.17) per share for the three months ended September 30, 2004, and a net loss of $3.7 million, or $(.34) per share, for the nine months ended September 30, 2004, compared to net income of $2,000, or $.00 per share and a net loss of
$558,000, or $(.09) per share, during the three and nine months ended September 30, 2003.



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LIQUIDITY AND CAPITAL RESOURCES



As of September 30, 2004 we had net working capital totaling $1.6 million including cash of $25,000. Net cash used by operating activities
totaled $3.7 million for the nine months ended September 30, 2004 as compared to $34,000 for the corresponding period of 2003. This cash was primarily used to fund working capital requirements and operating losses. Net cash received from financing
activities, for the nine months ended September 30, 2004, totaled $6.7 million. On August 5, 2004, we completed the private placement sale of convertible preferred stock and common stock purchase warrants resulting in net proceeds to us of $4.9
million. The proceeds from the offering were used to fund working capital requirements. The remaining $1.8 million of cash received from financing activities was borrowed from related parties. As of September 30, 2004, the total outstanding balance
on loans from related parties was $1.8 million. As a result of the total cash activities, net cash decreased $1.6 million from December 31, 2003 to September 30, 2004. 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



Net cash used by operations for the nine months ended September 30, 2004 was $3.7 million as compared to $552,000 for the corresponding period of 2003 due primarily to an
increase in the operating loss and an increase in accounts receivables in the normal course of our sales cycles. The primary sources of cash were from the net change in related party accounts receivable and payable.



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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. We disclaim 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 nine months of 2004 we purchased approximately $12.6 and $3.3 million, respectively, worth of products from a number of
these Related Parties. This represents 65% and 31% of our overall cost of goods for the year ended December 31, 2003 and the nine months ended September 30, 2004, respectively. In addition, during 2003 and the first nine months of 2004, we sold
approximately $11.8 and $4.5 million, respectively, worth of products and contract manufacturing services to a number of these Related Parties. This represents 55% and 32% of our overall sales for the year ended December 31, 2003 and the nine months
ended September 30, 2004, 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 Global ePoint and these Related Parties obligating such parties to transact business with us in the future. As a result, these types of Related Party transactions could cease at any time. If our transactions with these
Related Parties cease, our business would be adversely affected.



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



For the years ended December 31, 2003 and 2002, three and two customers, respectively, accounted for 83% and 86%, respectively, of our sales. For the nine months ended
September 30, 2004 and 2003, three customers, respectively, accounted for 68% and 80%, respectively, of our sales. One of these customers in 2004 was a Related Party. During the fiscal years 2003 and 2002, two vendors accounted for 65% and 83%,
respectively, of our purchases. During the nine months ending September 30, 2004 four vendors accounted for 47% of our purchases. Two of these vendors were Related Parties. If we were to lose one or more of those customers before we are able to
secure sales from 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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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 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 a customer in 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.



We intend to continue significant expenditures on
research and development to develop new products and enhance its existing products, especially in its digital technology division. While we believe that these current research and development expenditures will be beneficial in the long-term
development of its business, there can be no assurance that our 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.



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ITEM 3. CONTROLS AND PROCEDURES



As of September
30, 2004, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the our 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 our periodic filings with the Securities and Exchange Commission. There has been no change in our internal control over
financial reporting that occurred during our most recent fiscal quarter that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.



Our management, including our Chief Executive Officer and Chief Financial Officer, do not
expect that our 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. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS



On August 5, 2004, we filed with the Secretary of State of Nevada, a certificate of designations which designates 55,000 shares of our preferred stock as
Series A Convertible Preferred Stock. All 55,000 of these shares were issued on August 5, 2004 in connection with the equity private placement discussed elsewhere in this report. Our Series A Convertible Preferred Stock has certain dividend rights
and liquidation preferences that rank senior to our common stock, but does not have voting rights. The certificate of designations for the Series A Convertible Preferred Stock is included as Exhibit 3.1 to our Current Report on Form 8-K filed on
August 11, 2004.



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



None.



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



None.



ITEM 5. OTHER INFORMATION



As
previously reported in our Current Report on Form 8-K filed on October 22, 2004, our board of directors has appointed four new directors to fill the four vacancies remaining on our board, which now brings the total number of directors to eleven.
Following the increase in the number of directors, our board changed the composition of its committees. In addition, the board created a new Corporate Governance and Nominating Committee while eliminating the Related Party Transactions Committee and
assigning the responsibilities of that committee to the Audit Committee. The committees of the board and their respective members are as follows:



|                  |  |                        |  |                                    
|----------------- |  | ---------------------- |  | -----------------------------------
|Audit Committee   |  | Compensation Committee |  | Governance and Nominating
Committee
|Owen Lee Barnett  |  | William W. Dolph       |  | Lawrence S. Leong                  
|Richard J. Bartol |  | Jongil Kim             |  | James D. Smith                     
|Lawrence S. Leong |  | James D. Smith         |  | John Yuan                          



ITEM 6. EXHIBITS



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



|         |  |                                                                                                             |  |                                   
|-------- |  | ----------------------------------------------------------------------------------------------------------- |  | ----------------------------------
|Item No. |  | Description                                                                                                 |  | Method of Filing                  
|31.1     |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. |  | Filed electronically herewith.    
|         |  |                                                                                                            
|31.2     |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934. |  | Filed electronically herewith.    
|         |  |                                                                                                            
|32.      |  | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C Section 1350.     |  | Furnished electronically herewith.



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##### Table of Contents

SIGNATURES



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



|                        |  |                                     
|----------------------- |  | ------------------------------------
|                        |  | GLOBAL EPOINT, INC.                 
|Date: November 19, 2004 |  | /s/ Toresa Lou                      
|                        |  | Toresa Lou,                         
|                        |  | Chief Executive Officer             
|Date: November 19, 2004 |  | /s/ John Pan                        
|                        |  | John Pan,                           
|                        |  | Chief Financial Officer and Chairman



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