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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, 2006

-OR-



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

For the transition period from  to

Commission file number 001-15775



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GLOBAL EPOINT, INC.

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



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

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

(Address of principal executive offices)

(909) 869-1688

(Issuers telephone number)



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

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

As of November 10, 2006, there were 19,383,047 shares of Common Stock ($.03 par value) outstanding.

Transitional
Small Business Disclosure Format.    Yes ̈No x



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##### Table of Contents

LOGO

GLOBAL EPOINT, INC.

QUARTERLY REPORT ON FORM 10-QSB

FOR THE PERIOD ENDED SEPTEMBER 30, 2006

TABLE OF CONTENTS



|                                                                                                                |  |     
|--------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                |  | Page
|Part I. FINANCIAL INFORMATION                                                                                   |  |     
|Item 1. Interim Financial Statements (unaudited):                                                               |  |     
|                                                                                                                | 
|Condensed Consolidated Balance Sheet as of September 30, 2006                                                   |  | 1   
|                                                                                                                | 
|Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2006 and 2005 |  | 2   
|                                                                                                                | 
|Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2006 and 2005           |  | 3   
|                                                                                                                | 
|Condensed Consolidated Statement of Stockholders Equity for the Nine Months Ended September 30, 2006           |  | 4   
|                                                                                                                | 
|Notes to Condensed Consolidated Financial Statements                                                            |  | 5   
|                                                                                                                | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations                   |  | 15  
|                                                                                                                | 
|Item 3. Controls and Procedures                                                                                 |  | 30  
|                                                                                                                | 
|Part II. OTHER INFORMATION                                                                                      |  |     
|Item 1. Legal Proceedings                                                                                       |  | 31  
|                                                                                                                | 
|Item 3. Defaults Upon Senior Securities                                                                         |  | 31  
|                                                                                                                | 
|Item 6. Exhibits                                                                                                |  | 31  
|                                                                                                                | 
|SIGNATURES                                                                                                      |  | 32  



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##### Table of Contents

GLOBAL EPOINT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

(UNAUDITED)

AS OF SEPTEMBER 30, 2006



|                                                                                                                         |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------ |  | - | ------- | -
|(Thousands of dollars, except per share amounts)                                                                         |  |   |        
|ASSETS                                                                                                                   |  |   |         |  
|CURRENT ASSETS:                                                                                                          |  |   |         |  
|Accounts receivable, net                                                                                                 |  | $ | 4,544   |  
|Accounts receivable - related parties                                                                                    |  |   | 4,496   |  
|Inventories                                                                                                              |  |   | 6,453   |  
|Other current assets                                                                                                     |  |   | 1,029   |  
|                                                                                                                         |  |   |         |  
|Total current assets                                                                                                     |  |   | 16,522  |  
|                                                                                                                         |  |   |         |  
|Property, plant and equipment, net                                                                                       |  |   | 813     |  
|Card dispensing equipment and related parts                                                                              |  |   | 885     |  
|Goodwill                                                                                                                 |  |   | 8,104   |  
|Other intangibles                                                                                                        |  |   | 2,344   |  
|Deposits and other assets                                                                                                |  |   | 1,438   |  
|                                                                                                                         |  |   |         |  
|Total other assets                                                                                                       |  |   | 13,584  |  
|                                                                                                                         |  |   |         |  
|Total assets                                                                                                             |  | $ | 30,106  |  
|                                                                                                                         |  |   |         |  
|COMMITMENTS AND CONTINGENCIES (NOTES 10 through 12)                                                                      |  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                     |  |   |         |  
|CURRENT LIABILITIES:                                                                                                     |  |   |         |  
|Accounts payable                                                                                                         |  | $ | 2,415   |  
|Accounts payable - related parties                                                                                       |  |   | 4,143   |  
|Accrued expenses                                                                                                         |  |   | 665     |  
|Customer deposits                                                                                                        |  |   | 407     |  
|Due to related parties                                                                                                   |  |   | 1,019   |  
|Due to stockholder                                                                                                       |  |   | 1,290   |  
|Loans payable                                                                                                            |  |   | 6,922   |  
|                                                                                                                         |  |   |         |  
|Total current liabilities                                                                                                |  |   | 16,861  |  
|                                                                                                                         |  |   |         |  
|NON-CURRENT LIABILITIES                                                                                                  |  |   | 2,000   |  
|                                                                                                                         |  |   |         |  
|Total liabilities                                                                                                        |  |   | 18,861  |  
|                                                                                                                         |  |   |         |  
|STOCKHOLDERS EQUITY:                                                                                                    |  |   |         |  
|Preferred stock, no par value, 2,000,000 aggregate shares authorized                                                     |  |   |         |  
|Series C Preferred stock 1,250,004 shares issued, 501,917 shares outstanding aggregate liquidation preference $1,405,000 |  |   | 379     |  
|Series D Preferred stock 120,000 shares issued, 5,500 shares outstanding aggregate liquidation preference $275,000       |  |   | 182     |  
|Series E Preferred stock 127,977 shares issued, 117,314 shares outstanding aggregate liquidation preference $5,866,000   |  |   | 430     |  
|Common stock, $.03 par value, 50,000,000 shares authorized and 19,413,812 shares issued and outstanding                  |  |   | 581     |  
|Paid-in capital                                                                                                          |  |   | 28,914  |  
|Accumulated deficit                                                                                                      |  |   | (19,241 | )
|                                                                                                                         |  |   |         |  
|Total stockholders equity                                                                                               |  |   | 11,245  |  
|                                                                                                                         |  |   |         |  
|Total liabilities and stockholders equity                                                                               |  | $ | 30,106  |  
|                                                                                                                         |  |   |         |  

See accompanying notes to condensed consolidated financial statements.



1



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##### Table of Contents

GLOBAL EPOINT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

FOR THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 2006 AND 2005



|                                                 |  |                            |        |   |                           |   |        |                   |  |   |                   |   |  |   |        |  
|------------------------------------------------ |  | -------------------------- | ------ | - | ------------------------- | - | ------ | ----------------- |  | - | ----------------- | - |  | - | ------ | -
|(Thousands of dollars, except per share amounts) |  | For the three months ended |        |   | For the nine months ended |  
|                                                 |  | September 30,2006          |        |   | September 30,2005         |   |        | September 30,2006 |  |   | September 30,2005 |  
|Sales                                            |  | $                          | 3,077  |   |                           | $ | 2,783  |                   |  | $ | 11,074            |   |  | $ | 10,629 |  
|Sales-related parties                            |  |                            | 7,060  |   |                           |   | 6,665  |                   |  |   | 14,600            |   |  |   | 9,471  |  
|                                                 |  |                            |        |   |                           |   |        |                   |  |   |                   |   |  |   |        |  
|Total net sales                                  |  |                            | 10,137 |   |                           |   | 9,448  |                   |  |   | 25,674            |   |  |   | 20,100 |  
|                                                 |  |                            |        |   |                           |   |        |                   |  |   |                   |   |  |   |        |  
|Cost of sales                                    |  |                            | 2,639  |   |                           |   | 2,083  |                   |  |   | 9,055             |   |  |   | 8,100  |  
|Cost of sales - related parties                  |  |                            | 6,812  |   |                           |   | 6,378  |                   |  |   | 14,045            |   |  |   | 9,042  |  
|                                                 |  |                            |        |   |                           |   |        |                   |  |   |                   |   |  |   |        |  
|Total cost of sales                              |  |                            | 9,451  |   |                           |   | 8,461  |                   |  |   | 23,100            |   |  |   | 17,142 |  
|                                                 |  |                            |        |   |                           |   |        |                   |  |   |                   |   |  |   |        |  
|Gross profit                                     |  |                            | 686    |   |                           |   | 987    |                   |  |   | 2,574             |   |  |   | 2,958  |  
|                                                 |  |                            |        |   |                           |   |        |                   |  |   |                   |   |  |   |        |  
|Operating expenses:                              |  |                            |        |   |                           |   |        |                   |  |   |                   |   |  |   |        |  
|Selling and marketing                            |  |                            | 804    |   |                           |   | 746    |                   |  |   | 2,173             |   |  |   | 2,377  |  
|General and administrative                       |  |                            | 2,621  |   |                           |   | 1,742  |                   |  |   | 6,648             |   |  |   | 4,696  |  
|Research and development                         |  |                            | 389    |   |                           |   | 290    |                   |  |   | 978               |   |  |   | 970    |  
|Depreciation and amortization                    |  |                            | 128    |   |                           |   | 102    |                   |  |   | 348               |   |  |   | 299    |  
|                                                 |  |                            |        |   |                           |   |        |                   |  |   |                   |   |  |   |        |  
|Total operating expenses                         |  |                            | 3,942  |   |                           |   | 2,880  |                   |  |   | 10,147            |   |  |   | 8,342  |  
|                                                 |  |                            |        |   |                           |   |        |                   |  |   |                   |   |  |   |        |  
|Loss from operations                             |  |                            | (3,256 | ) |                           |   | (1,893 | )                 |  |   | (7,573            | ) |  |   | (5,384 | )
|Other income (expense)                           |  |                            | (27    | ) |                           |   | 19     |                   |  |   | 103               |   |  |   | 21     |  
|                                                 |  |                            |        |   |                           |   |        |                   |  |   |                   |   |  |   |        |  
|Loss before income tax provision                 |  |                            | (3,283 | ) |                           |   | (1,874 | )                 |  |   | (7,470            | ) |  |   | (5,363 | )
|Income tax provision                             |  |                            |       |   |                           |   | 4      |                   |  |   |                  |   |  |   | 17     |  
|                                                 |  |                            |        |   |                           |   |        |                   |  |   |                   |   |  |   |        |  
|Net loss                                         |  |                            | (3,283 | ) |                           |   | (1,878 | )                 |  |   | (7,470            | ) |  |   | (5,380 | )
|Preferred stock dividend                         |  |                            | (159   | ) |                           |   | (590   | )                 |  |   | (5,235            | ) |  |   | (1,962 | )
|                                                 |  |                            |        |   |                           |   |        |                   |  |   |                   |   |  |   |        |  
|Net loss applicable to common stockholders       |  | $                          | (3,442 | ) |                           | $ | (2,468 | )                 |  | $ | (12,705           | ) |  | $ | (7,342 | )
|                                                 |  |                            |        |   |                           |   |        |                   |  |   |                   |   |  |   |        |  
|Loss per share - basic                           |  | $                          | (0.18  | ) |                           | $ | (0.19  | )                 |  | $ | (0.75             | ) |  | $ | (0.58  | )
|                                                 |  |                            |        |   |                           |   |        |                   |  |   |                   |   |  |   |        |  
|Loss per share - fully diluted                   |  | $                          | (0.18  | ) |                           | $ | (0.19  | )                 |  | $ | (0.75             | ) |  | $ | (0.58  | )
|                                                 |  |                            |        |   |                           |   |        |                   |  |   |                   |   |  |   |        |  
|Weighted average shares and share equivalents    |  |                            | 19,199 |   |                           |   | 13,288 |                   |  |   | 17,028            |   |  |   | 12,672 |  
|                                                 |  |                            |        |   |                           |   |        |                   |  |   |                   |   |  |   |        |  

See accompanying notes to condensed consolidated financial statements.



2



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##### Table of Contents

GLOBAL EPOINT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2006 and 2005



|                                                                        |  |      |        |   |      |   |        |  
|----------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|(Thousands of dollars)                                                  |  | 2006 |        |   | 2005 |  
|CASH FLOWS (USED)/PROVIDED BY OPERATING ACTIVITIES:                     |  |      |        |   |      |   |        |  
|Net loss                                                                |  | $    | (7,470 | ) |      | $ | (5,380 | )
|Adjustments to reconcile net loss to net cash flows                     |  |      |        |   |      |   |        |  
|(used)/provided by operating activities:                                |  |      |        |   |      |   |        |  
|Depreciation and amortization                                           |  |      | 348    |   |      |   | 299    |  
|Provision for bad debts                                                 |  |      | 329    |   |      |   | 65     |  
|Stock based compensation                                                |  |      | 721    |   |      |   | 131    |  
|Increase/(decrease) in cash from changes in:                            |  |      |        |   |      |   |        |  
|Accounts receivable                                                     |  |      | 137    |   |      |   | 22     |  
|Accounts receivable - related parties                                   |  |      | (1,930 | ) |      |   | (3,118 | )
|Inventory                                                               |  |      | (879   | ) |      |   | (1,107 | )
|Other current assets                                                    |  |      | 6      |   |      |   | (44    | )
|Accounts payable                                                        |  |      | (981   | ) |      |   | 374    |  
|Accounts payable - related parties                                      |  |      | 1,768  |   |      |   | 3,540  |  
|Accrued expenses                                                        |  |      | (202   | ) |      |   | 24     |  
|Customer deposits                                                       |  |      | 340    |   |      |   | (59    | )
|                                                                        |  |      |        |   |      |   |        |  
|Net cash used by operating activities                                   |  |      | (7,813 | ) |      |   | (5,253 | )
|                                                                        |  |      |        |   |      |   |        |  
|CASH FLOWS PROVIDED/(USED) BY INVESTMENT ACTIVITIES:                    |  |      |        |   |      |   |        |  
|Additions to property and equipment                                     |  |      | (207   | ) |      |   | (179   | )
|Goodwill and other intangibles                                          |  |      | (710   | ) |      |   | (195   | )
|Decrease in /(additions to) other assets                                |  |      | 413    |   |      |   | (1,412 | )
|                                                                        |  |      |        |   |      |   |        |  
|Net cash used by investing activities                                   |  |      | (504   | ) |      |   | (1,786 | )
|                                                                        |  |      |        |   |      |   |        |  
|CASH FLOWS PROVIDED/(USED) BY FINANCING ACTIVITIES:                     |  |      |        |   |      |   |        |  
|Loan payable                                                            |  |      | 1,674  |   |      |   | 1,046  |  
|Net borrowings from related parties                                     |  |      | 167    |   |      |   | (644   | )
|Advances from stockholder                                               |  |      | 53     |   |      |   |       |  
|Proceeds from exercise of stock options                                 |  |      | 731    |   |      |   | 1,083  |  
|Net proceeds from preferred stock offerings                             |  |      | 3,594  |   |      |   | 3,476  |  
|Net proceeds from the exercise of stock warrants                        |  |      | 2,465  |   |      |   | 1,141  |  
|Preferred stock dividend payments                                       |  |      | (304   | ) |      |   |       |  
|Preferred stock redemption                                              |  |      | (843   | ) |      |   |       |  
|                                                                        |  |      |        |   |      |   |        |  
|Net cash provided by financing activities                               |  |      | 7,537  |   |      |   | 6,102  |  
|                                                                        |  |      |        |   |      |   |        |  
|NET DECREASE IN CASH AND CASH EQUIVALENTS                               |  |      | (780   | ) |      |   | (937   | )
|CASH AND CASH EQUIVALENTS, beginning of period                          |  |      | 780    |   |      |   | 937    |  
|                                                                        |  |      |        |   |      |   |        |  
|CASH AND CASH EQUIVALENTS, end of period                                |  | $    |       |   |      | $ |       |  
|                                                                        |  |      |        |   |      |   |        |  
|SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: |  |      |        |   |      |   |        |  
|Beneficial conversion included in preferred stock dividend              |  | $    | 1,828  |   |      | $ | 1,962  |  
|                                                                        |  |      |        |   |      |   |        |  
|Preferred stock dividend                                                |  | $    | 2,991  |   |      | $ |       |  
|                                                                        |  |      |        |   |      |   |        |  
|Increase in preferred stock dividend payable                            |  | $    | 154    |   |      | $ |       |  
|                                                                        |  |      |        |   |      |   |        |  
|Preferred stock reclassified to short term debt                         |  | $    | 5,941  |   |      | $ |       |  
|                                                                        |  |      |        |   |      |   |        |  
|Tops Digital Security, Inc. acquisition                                 |  | $    | 2,003  |   |      | $ |       |  
|                                                                        |  |      |        |   |      |   |        |  
|Compensation on consulting agreement                                    |  | $    | 175    |   |      | $ |       |  
|                                                                        |  |      |        |   |      |   |        |  

See accompanying notes to condensed consolidated financial statements.



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##### Table of Contents

GLOBAL EPOINT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

(UNAUDITED)

FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2006



|                                                                           |  |                 |   |  |              |        |                            |        |        |                                          |   |     |                            |   |        |   |  |   |         |   |  |   |        |  
|-------------------------------------------------------------------------- |  | --------------- | - |  | ------------ | ------ | -------------------------- | ------ | ------ | ---------------------------------------- | - | --- | -------------------------- | - | ------ | - |  | - | ------- | - |  | - | ------ | -
|                                                                           |  | Preferred Stock |   |  | Common Stock |        | Additional Paid in Capital |        |        | Retained Earnings/ (Accumulated
Deficit) |   |     | Total Stockholders Equity |  
|(Thousands of dollars and shares)                                          |  | Shares          |   |  | Amount       |        |                            | Shares |        | Amount                                   |   |     |                           
|Balances - December 31, 2005                                               |  | 976             |   |  | $            | 5,638  |                            |        | 15,327 |                                          | $ | 460 |                            | $ | 21,778 |   |  | $ | (11,770 | ) |  | $ | 16,106 |  
|Common stock issued upon options exercise                                  |  |                |   |  |              |       |                            |        | 586    |                                          |   | 17  |                            |   | 714    |   |  |   |        |   |  |   | 731    |  
|Common stock and option based compensation                                 |  |                |   |  |              |       |                            |        | 100    |                                          |   | 3   |                            |   | 891    |   |  |   |        |   |  |   | 894    |  
|Common stock issued upon warrants exercise                                 |  |                |   |  |              |       |                            |        | 1,096  |                                          |   | 33  |                            |   | 699    |   |  |   |        |   |  |   | 732    |  
|Common stock issued for acquisitions                                       |  |                |   |  |              |       |                            |        | 603    |                                          |   | 18  |                            |   | 1,985  |   |  |   |        |   |  |   | 2,003  |  
|Series E Preferred stock issued May 25, 2006, net of $108 in related costs |  | 128             |   |  |              | 3,561  |                            |        |       |                                          |   |    |                            |   |       |   |  |   | 1,828   |   |  |   | 5,389  |  
|Warrants:                                                                  |  |                 |   |  |              |        |                            |        |        |                                          |   |     |                            |   |        |   |  |   |         |   |  |   |        |  
|Issued with Series E Preferred Stock offering                              |  |                |   |  |              |       |                            |        |       |                                          |   |    |                            |   | 1,114  |   |  |   | 572     |   |  |   | 1,686  |  
|Issued to induce conversion of warrants                                    |  |                |   |  |              |       |                            |        |       |                                          |   |    |                            |   | 1,734  |   |  |   | 1,855   |   |  |   | 3,589  |  
|Preferred stock conversions                                                |  | (406            | ) |  |              | (4,333 | )                          |        | 1,639  |                                          |   | 48  |                            |   | 3,222  |   |  |   | 556     |   |  |   | (507   | )
|Preferred stock redemptions                                                |  | (73             | ) |  |              | (435   | )                          |        |       |                                          |   |    |                            |   | (297   | ) |  |   |        |   |  |   | (732   | )
|Preferred stock reclassified to short term debt                            |  |                 |   |  |              | (3,440 | )                          |        |       |                                          |   |    |                            |   | (2,501 | ) |  |   |        |   |  |   | (5,941 | )
|Net loss                                                                   |  |                |   |  |              |       |                            |        |       |                                          |   |    |                            |   |       |   |  |   | (7,470  | ) |  |   | (7,470 | )
|Preferred stock dividend                                                   |  |                |   |  |              |       |                            |        | 63     |                                          |   | 2   |                            |   | (425   | ) |  |   | (4,812  | ) |  |   | (5,235 | )
|                                                                           |  |                 |   |  |              |        |                            |        |        |                                          |   |     |                            |   |        |   |  |   |         |   |  |   |        |  
|Balances - September 30, 2006                                              |  | 625             |   |  | $            | 991    |                            |        | 19,414 |                                          | $ | 581 |                            | $ | 28,914 |   |  | $ | (19,241 | ) |  | $ | 11,245 |  
|                                                                           |  |                 |   |  |              |        |                            |        |        |                                          |   |     |                            |   |        |   |  |   |         |   |  |   |        |  

See accompanying notes to condensed consolidated financial statements.



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##### Table of Contents

GLOBAL EPOINT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2006



|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, 2006 and for the three and nine months ended September 30, 2006 and 2005 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, 2005 audited financial statements, which are included in the Companys Annual Report on Form 10-KSB for the year ended
December 31, 2005. The results of operations for the nine months ended September 30, 2006 are not necessarily indicative of the results to be expected for the year ending December 31, 2006.



|2. | Summary of significant accounting policies
|-- | ------------------------------------------

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

Principles of consolidation The accompanying
consolidated financial statements include 100% of the accounts of the Company and its wholly-owned subsidiaries, McDigit, Inc., which was incorporated under the laws of the state of California in November 2002, Best Logic LLC (Best
Logic), which was organized in California in November 2000, Global AirWorks, Inc., which was incorporated under the laws of the state of California in May 2003, Tops Digital Security, LLC which was organized in Nevada in April 2006, and Global
Telephony, Inc., which was incorporated under the laws of Nevada in 2001, and are collectively referred to as the Company in these condensed consolidated financial statements. Some of the related parties discussed in Note 7 may be
considered variable interest entities in accordance with FIN 46R Consolidation of Variable Interest Entities, however, the Company is not the primary beneficiary of such entities. Therefore, the related party entities are not included in
the consolidated group. All significant inter-company balances and transactions have been eliminated.

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

Effective January 1, 2006 the Company adopted the
fair value recognition provisions of SFAS 123R using the modified-prospective transition method. Under the modified-prospective transition method prior periods of the Companys financial statements are not restated for comparison purposes. In
addition, the measurement, recognition and attribution provisions of SFAS No. 123R apply to new grants and grants outstanding on the adoption date. Estimated compensation expense for outstanding grants at the adoption date will be recognized
over the remaining vesting period using the compensation expense calculated for the pro forma disclosure purposes under SFAS 123, Accounting for Stock-Based Compensation. The Company recorded expenses for stock based compensation of $643
thousand and $689 thousand for the three and nine months ended September 30, 2006, respectively.

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



5



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##### Table of Contents

The following table illustrates the pro forma effect on net income and earnings per share if the fair
value method had been applied to all outstanding and unvested awards for the three and nine months ended September 30, 2005:



|                                                                                                     |  |                                          |        |   |                                         |   |        |  
|---------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------ | - | --------------------------------------- | - | ------ | -
|                                                                                                     |  | For thethree monthsendedSeptember 302005 |        |   | For thenine monthsendedSeptember 302005 |  
|As reported, net loss applicable to common stockholders                                              |  | $                                        | (2,468 | ) |                                         | $ | (7,342 | )
|Stock-based employee compensation determined under the fair value method, net of related tax effects |  |                                          |       |   |                                         |   |       |  
|                                                                                                     |  |                                          |        |   |                                         |   |        |  
|Pro forma                                                                                            |  | $                                        | (2,468 | ) |                                         | $ | (7,342 | )
|                                                                                                     |  |                                          |        |   |                                         |   |        |  
|Loss per common share, basic and fully diluted:                                                      |  |                                          |        |   |                                         |   |        |  
|As reported                                                                                          |  | $                                        | (0.19  | ) |                                         | $ | (0.58  | )
|Pro forma                                                                                            |  | $                                        | (0.19  | ) |                                         | $ | (0.58  | )

Statement of Financial Accounting Standards No. 128 (SFAS 128), Earnings
Per Share requires presentation of basic earnings per share and dilutive earnings per share. The computation of basic earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of
outstanding common shares during the period. Diluted earnings per share gives the effect to all dilutive potential common shares outstanding during the period. The computation of diluted earnings per share does not assume conversion, exercise or
contingent exercise of securities that would have an anti-dilutive effect on losses. Accordingly shares underlying options, warrants, and preferred stock conversions, aggregating approximately 9.3 million shares, have not been included as they
are anti-dilutive.

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



|                                               |  |                 |         |   |                     |        |                 |   |       |  
|---------------------------------------------- |  | --------------- | ------- | - | ------------------- | ------ | --------------- | - | ----- | -
|                                               |  | Loss(Numerator) |         |   | Shares(Denominator) |        | Per-shareAmount |  
|For the three months ended September 30, 2006: |  |                 |         |   |                     |        |                 |   |       |  
|Basic and fully diluted loss per share         |  |                 |         |   |                     |        |                 |   |       |  
|Loss applicable to common stockholders         |  | $               | (3,442  | ) |                     | 19,199 |                 | $ | (0.18 | )
|For the three months ended September 30, 2005: |  |                 |         |   |                     |        |                 |   |       |  
|Basic and fully diluted loss per share         |  |                 |         |   |                     |        |                 |   |       |  
|Loss applicable to common stockholders         |  | $               | (2,468  | ) |                     | 13,288 |                 | $ | (0.19 | )
|                                               |  |                 |        
|For the nine months ended September 30, 2006:  |  |                 |         |   |                     |        |                 |   |       |  
|Basic and fully diluted loss per share         |  |                 |         |   |                     |        |                 |   |       |  
|Loss applicable to common stockholders         |  | $               | (12,705 | ) |                     | 17,028 |                 | $ | (0.75 | )
|                                               |  |                 |        
|For the nine months ended September 30, 2005:  |  |                 |         |   |                     |        |                 |   |       |  
|Basic and fully diluted income per share       |  |                 |         |   |                     |        |                 |   |       |  
|Loss applicable to common stockholders         |  | $               | (7,342  | ) |                     | 12,672 |                 | $ | (0.58 | )



6



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##### Table of Contents

|3. | Inventories
|-- | -----------

Inventories consisted
of the following as of September 30, 2006 (in thousands):



|                                                                  |  |   |      
|----------------------------------------------------------------- |  | - | -----
|Computer component parts                                          |  | $ | 2,141
|Video and data recording component parts                          |  |   | 2,830
|Cockpit door surveillance system and wire harness component parts |  |   | 1,482
|                                                                  |  |   |      
|Total                                                             |  | $ | 6,453
|                                                                  |  |   |      



|4. | Property and equipment
|-- | ----------------------

Property
and equipment consisted of the following as of September 30, 2006 (in thousands):



|                                |  |   |       |  
|------------------------------- |  | - | ----- | -
|Furniture and equipment         |  | $ | 476   |  
|Computer equipment and software |  |   | 368   |  
|Building improvements           |  |   | 489   |  
|Tooling and demo units          |  |   | 34    |  
|Vehicles                        |  |   | 118   |  
|                                |  |   |       |  
|Totals                          |  |   | 1,485 |  
|Less accumulated depreciation   |  |   | (672  | )
|                                |  |   |       |  
|Property and equipment, net     |  | $ | 813   |  
|                                |  |   |       |  



|5. | Goodwill and Intangible Assets
|-- | ------------------------------

The Company has a
significant amount of goodwill and intangible assets on its balance sheet related to acquisitions. At September 30, 2006 the net amount of $10.4 million of goodwill and intangible assets represented 35% of total assets. Goodwill represents the
excess of costs over fair value of assets of businesses acquired. We adopted the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, as of January 1, 2002. Goodwill and intangible assets acquired in a purchase
combination determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with
estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets.

The Company has accumulated a total of $8.1 million of goodwill; $3.2 million resulted from the reverse acquisition involving McDigit,
Inc., Best Logic LLC, and the Company (the Merger), $2.8 million from the acquisition of assets of Airworks, in April 2004, $300,000 from the acquisition of the assets of Perpetual, in April 2004 and effective April 2006, $1.8 million
from the acquisition of the assets of Tops Digital Security which may be adjusted upon final allocation of the purchase price. Of the total goodwill $3.8 million has been allocated to the digital technology division, $2.8 million to the aviation
division, and $1.5 million to the contract manufacturing division. The goodwill arising from the Merger and the foregoing acquisitions, excluding Tops, was subject to the annual impairment test in August 2006. The goodwill arising from Airworks and
Perpetual acquisitions was subject to the annual impairment test as of June 30, 2006. Application of the discounted cash flow methodology to management assumptions did not identify any impairment to the goodwill. No impairment to goodwill was
identified; therefore, no loss was charged to operations. The Company continually monitors its operations for any potential indicators of impairment of goodwill and intangible assets and has determined that no such indicators have arisen to date.
Any impairment loss could have a material adverse impact on the Companys financial condition and results of operations.



|6. | Business concentrations
|-- | -----------------------

Sales and purchases For the three
months ended September 30, 2006 and 2005, two and three customers accounted for 79% and 84% of the Companys sales, respectively. For the nine months ended September 30, 2006 and 2005 two and three customers, respectively, accounted
for 67% and 66% of the Companys sales, respectively, and 45% of the accounts receivable as of September 30, 2006. For the three months ended September 30, 2006 and 2005, two and four vendors, respectively, accounted for 76% and 78%
of the Companys purchases, respectively. For the nine months ended September 30, 2006 and 2005, two and four vendors, respectively, accounted for 68% and 65% of the Companys purchases, respectively, and 63% of the accounts payable
as of September 30, 2006. A substantial amount of the above sales and purchase transactions are conducted with related parties, as discussed in Note 7.

7. Related party transactions

Rent agreement Mr. John Pan, the Companys Chairman, Chief Financial Officer, and principal
stockholder, leases a facility to the Company and to Avatar Technologies, Inc. (Avatar), a Related Party (as defined below). Facility rental costs, including additional square footage to accommodate more offices for administrative staff,
equipment for production and assembly, and warehouse space, totaled $92,000 and $105,000 for the three months ended September 30, 2006 and 2005, respectively, and $308,000 and $320,000 for the nine months ended September 30, 2006 and 2005,
respectively. Rental costs for manufacturing and assembly equipment were approximately $21,000 for the three months ended September 30, 2006 and 2005, and $64,000 for the nine months ended September 30, 2006 and 2005.



7



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##### Table of Contents

Loans Payable In June 2004, the Company borrowed $1,000,000 from Mr. John Pan, the Companys
Chairman, Chief Financial Officer, and principal stockholder. Interest accrues on the unpaid principal balance of this loan at a rate equal to the prime rate at Bank of the West, plus 0.25%. The aggregate interest rate was 8.25% as of
September 30, 2006. The Company is required to accrue interest payments each month until the principal balance is paid in full, which must occur no later than December 15, 2006. Additionally, Mr. Pan, has other loans totaling $145,000
to the Company. The loans are unsecured and, currently, payable on demand. However, the Company intends to replace these loans with convertible promissory notes, the terms of which will be subject to Board approval.

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

The outstanding
balances due from and to Related Parties as of September 30, 2006 were as follows:



|                                                   |  |                        |      
|-------------------------------------------------- |  | ---------------------- | -----
|(Thousands of dollars)                             |  | As ofSeptember 30,2006
|Balances due from Related Parties were as follows: |  |                        |      
|(B) (100% owned by CFO/Chairman)                   |  | $                      | 3,450
|(C) (100% owned by CFO/Chairman)                   |  |                        | 35   
|(D) (95% owned by CFO/Chairman)                    |  |                        | 1,011
|                                                   |  |                        |      
|Total                                              |  | $                      | 4,496
|                                                   |  |                        |      
|Balances due to Related Parties were as follows:   |  |                        |      
|(B) (100% owned by CFO/Chairman)                   |  | $                      | 736  
|(C) (100% owned by CFO/Chairman)                   |  |                        | 2    
|(D) (95% owned by CFO/Chairman)                    |  |                        | 4,424
|                                                   |  |                        |      
|Total                                              |  | $                      | 5,162
|                                                   |  |                        |      



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##### Table of Contents

|                                                        |  |                                        |       |                                       |   |       |  |      |        |  |   |      
|------------------------------------------------------- |  | -------------------------------------- | ----- | ------------------------------------- | - | ----- |  | ---- | ------ |  | - | -----
|                                                        |  | For the threemonths endedSeptember 30, |       | For the nine monthsendedSeptember 30,
|(Thousands of dollars)                                  |  | 2006                                   |       | 2005                                  |   | 2006  |  | 2005
|Product purchases from Related Parties were as follows: |  |                                        |       |                                       |   |       |  |      |        |  |   |      
|(B) (100% owned by CFO/Chairman)                        |  | $                                      | 5,056 |                                       | $ | 4,779 |  | $    | 10,253 |  | $ | 6,024
|(C) (100% owned by CFO/Chairman)                        |  |                                        |      |                                       |   |      |  |      |       |  |   |     
|(D) (95% owned by CFO/Chairman)                         |  |                                        | 1,507 |                                       |   | 1,442 |  |      | 3,579  |  |   | 2,725
|                                                        |  |                                        |       |                                       |   |       |  |      |        |  |   |      
|Total                                                   |  | $                                      | 6,563 |                                       | $ | 6,221 |  | $    | 13,832 |  | $ | 8,749
|                                                        |  |                                        |       |                                       |   |       |  |      |        |  |   |      



|8. | Pending and Completed Acquisitions
|-- | ----------------------------------

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

On March 31, 2006, the Company entered into an Agreement and Plan of Reorganization (the Purchase Agreement) with Tops Digital Security,
Inc. (Tops) a privately held total solutions provider of large enterprise video surveillance systems that are designed primarily for high quality video capture and central monitoring security operations in the high-end commercial,
industrial, and government electronic security markets. Pursuant to the Purchase Agreement the Company acquired substantially all of the assets and certain liabilities of Tops solely in exchange for shares of its common stock. The shares of common
stock, valued at $4.00 per share, comprising the purchase price are issuable in two installments. The first installment of 603,421 shares was issued at the closing date. The second installment of up to 375,000 shares is based on an earnout formula
and is issuable on the 15 month anniversary of the closing of the acquisition, which will be July 1, 2007. The number of shares issuable pursuant to the Purchase Agreement is subject to adjustment based on (i) the amount of liabilities
assumed by the Company, (ii) the amount by which the net income generated by the Tops assets for the first 12 months following the closing date is less than $2,500,000, and (iii) the amount by which the volume-weighted average trading
price of the Companys common stock exceeds $4.00 per share for the 10 trading days preceding the 15 month anniversary of the closing date

The following table summarizes the estimated fair values of the assets acquired at the date of acquisition. The fair value of the Tops acquisition is $2.1 million as detailed in the table below. The fair value is derived based on 603,421
common shares issued to close the transaction at a market price on March 31, 2006 of $3.32 per share plus $55,000 of acquisition costs. Global ePoint is in the process of obtaining valuations of certain assets and accordingly; the allocation of
the purchase price, particularly as it relates to goodwill and other identifiable intangible assets is subject to refinement.



|                          |  |      |      
|------------------------- |  | ---- | -----
|                          |  | Tops
|Current assets            |  | $    | 510  
|Property and equipment    |  |      | 72   
|Goodwill                  |  |      | 1,776
|                          |  |      |      
|Total assets acquired     |  |      | 2,358
|                          |  |      |      
|Current liabilities       |  |      | 300  
|Long term debt            |  |      |     
|                          |  |      |      
|Total liabilities assumed |  |      | 300  
|                          |  |      |      
|Net assets acquired       |  | $    | 2,058
|                          |  |      |      



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##### Table of Contents

|9. | Segment reporting
|-- | -----------------

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

For the three months ended
September 30, 2006



|                                      |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |        |   |  |   |        |  
|------------------------------------- |  | ----------------- | ------ | - | -------- | - | ----- | --------------------- |  | - | --------- | - |  | ----- | ------ | - |  | - | ------ | -
|                                      |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |       
|($ in thousands)                      |  | DigitalTechnology |        |   | Aviation |   |       | ContractManufacturing |  |   | Corporate |   |  | Total |       
|Net sales                             |  | $                 | 387    |   |          | $ | 1,064 |                       |  | $ | 8,686     |   |  | $     |       |   |  | $ | 10,137 |  
|Cost of sales                         |  |                   | 316    |   |          |   | 1,071 |                       |  |   | 8,064     |   |  |       |       |   |  |   | 9,451  |  
|                                      |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |        |   |  |   |        |  
|Gross profit                          |  |                   | 71     |   |          |   | (7    | )                     |  |   | 622       |   |  |       |       |   |  |   | 686    |  
|Operating expenses                    |  |                   | 1,313  |   |          |   | 653   |                       |  |   | 661       |   |  |       | 1,315  |   |  |   | 3,942  |  
|                                      |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |        |   |  |   |        |  
|Income (loss) from operations         |  |                   | (1,242 | ) |          |   | (660  | )                     |  |   | (39       | ) |  |       | (1,315 | ) |  |   | (3,256 | )
|Other income (expense)                |  |                   | (27    | ) |          |   |      |                       |  |   |          |   |  |       |       |   |  |   | (27    | )
|                                      |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |        |   |  |   |        |  
|Loss before income tax provision      |  | $                 | (1,269 | ) |          | $ | (660  | )                     |  | $ | (39       | ) |  | $     | (1,315 | ) |  | $ | (3,283 | )
|                                      |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |        |   |  |   |        |  
|Total assets as of September 30, 2006 |  | $                 | 7,003  |   |          | $ | 9,933 |                       |  | $ | 7,920     |   |  | $     | 5,250  |   |  | $ | 30,106 |  
|                                      |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |        |   |  |   |        |  

For the three months ended September 30, 2005



|                                      |  |                   |       |   |          |   |       |                       |  |   |           |   |  |       |       |   |  |   |        |  
|------------------------------------- |  | ----------------- | ----- | - | -------- | - | ----- | --------------------- |  | - | --------- | - |  | ----- | ----- | - |  | - | ------ | -
|                                      |  |                   |       |   |          |   |       |                       |  |   |           |   |  |       |      
|($ in thousands)                      |  | DigitalTechnology |       |   | Aviation |   |       | ContractManufacturing |  |   | Corporate |   |  | Total |      
|Net sales                             |  | $                 | 224   |   |          | $ | 707   |                       |  | $ | 8,517     |   |  | $     |      |   |  | $ | 9,448  |  
|Cost of sales                         |  |                   | 154   |   |          |   | 450   |                       |  |   | 7,857     |   |  |       |      |   |  |   | 8,461  |  
|                                      |  |                   |       |   |          |   |       |                       |  |   |           |   |  |       |       |   |  |   |        |  
|Gross profit                          |  |                   | 70    |   |          |   | 257   |                       |  |   | 660       |   |  |       |      |   |  |   | 987    |  
|Operating expenses                    |  |                   | 878   |   |          |   | 561   |                       |  |   | 742       |   |  |       | 699   |   |  |   | 2,880  |  
|                                      |  |                   |       |   |          |   |       |                       |  |   |           |   |  |       |       |   |  |   |        |  
|Income (loss) from operations         |  |                   | (808  | ) |          |   | (304  | )                     |  |   | (82       | ) |  |       | (699  | ) |  |   | (1,893 | )
|Other income (expense)                |  |                   | 1     |   |          |   |      |                       |  |   | 2         |   |  |       | 16    |   |  |   | 19     |  
|                                      |  |                   |       |   |          |   |       |                       |  |   |           |   |  |       |       |   |  |   |        |  
|Loss before income tax provision      |  | $                 | (807  | ) |          | $ | (304  | )                     |  | $ | (80       | ) |  | $     | (683  | ) |  | $ | (1,874 | )
|                                      |  |                   |       |   |          |   |       |                       |  |   |           |   |  |       |       |   |  |   |        |  
|Total assets as of September 30, 2005 |  | $                 | 3,761 |   |          | $ | 6,210 |                       |  | $ | 12,495    |   |  | $     | 5,795 |   |  | $ | 28,261 |  
|                                      |  |                   |       |   |          |   |       |                       |  |   |           |   |  |       |       |   |  |   |        |  



10



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##### Table of Contents

For the nine months ended September 30, 2006



|                                      |  |                   |        |   |          |   |        |                       |  |   |           |   |  |       |        |   |  |   |        |  
|------------------------------------- |  | ----------------- | ------ | - | -------- | - | ------ | --------------------- |  | - | --------- | - |  | ----- | ------ | - |  | - | ------ | -
|($ in thousands)                      |  | DigitalTechnology |        |   | Aviation |   |        | ContractManufacturing |  |   | Corporate |   |  | Total |       
|Net sales                             |  | $                 | 1,013  |   |          | $ | 4,386  |                       |  | $ | 20,275    |   |  | $     |       |   |  | $ | 25,674 |  
|Cost of sales                         |  |                   | 736    |   |          |   | 3,831  |                       |  |   | 18,533    |   |  |       |       |   |  |   | 23,100 |  
|                                      |  |                   |        |   |          |   |        |                       |  |   |           |   |  |       |        |   |  |   |        |  
|Gross profit                          |  |                   | 277    |   |          |   | 555    |                       |  |   | 1,742     |   |  |       |       |   |  |   | 2,574  |  
|Operating expenses                    |  |                   | 3,349  |   |          |   | 2,074  |                       |  |   | 1,924     |   |  |       | 2,800  |   |  |   | 10,147 |  
|                                      |  |                   |        |   |          |   |        |                       |  |   |           |   |  |       |        |   |  |   |        |  
|Income (loss) from operations         |  |                   | (3,072 | ) |          |   | (1,519 | )                     |  |   | (182      | ) |  |       | (2,800 | ) |  |   | (7,573 | )
|Other income (expense)                |  |                   | (55    | ) |          |   |       |                       |  |   | (27       | ) |  |       | 185    |   |  |   | 103    |  
|                                      |  |                   |        |   |          |   |        |                       |  |   |           |   |  |       |        |   |  |   |        |  
|Loss before income tax provision      |  | $                 | (3,127 | ) |          | $ | (1,519 | )                     |  | $ | (209      | ) |  | $     | (2,615 | ) |  | $ | (7,470 | )
|                                      |  |                   |        |   |          |   |        |                       |  |   |           |   |  |       |        |   |  |   |        |  
|Total assets as of September 30, 2006 |  | $                 | 7,003  |   |          | $ | 9,933  |                       |  | $ | 7,920     |   |  | $     | 5,250  |   |  | $ | 30,106 |  
|                                      |  |                   |        |   |          |   |        |                       |  |   |           |   |  |       |        |   |  |   |        |  

For the nine months ended September 30, 2005



|                                          |  |                   |        |   |          |   |        |                       |  |           |        |  |       |        |   |  |   |        |  
|----------------------------------------- |  | ----------------- | ------ | - | -------- | - | ------ | --------------------- |  | --------- | ------ |  | ----- | ------ | - |  | - | ------ | -
|($ in thousands)                          |  | DigitalTechnology |        |   | Aviation |   |        | ContractManufacturing |  | Corporate |        |  | Total |       
|Net sales                                 |  | $                 | 966    |   |          | $ | 1,493  |                       |  | $         | 17,641 |  | $     |       |   |  | $ | 20,100 |  
|Cost of sales                             |  |                   | 649    |   |          |   | 1,060  |                       |  |           | 15,433 |  |       |       |   |  |   | 17,142 |  
|                                          |  |                   |        |   |          |   |        |                       |  |           |        |  |       |        |   |  |   |        |  
|Gross profit                              |  |                   | 317    |   |          |   | 433    |                       |  |           | 2,208  |  |       |       |   |  |   | 2,958  |  
|Operating expenses                        |  |                   | 2,752  |   |          |   | 1,634  |                       |  |           | 2,202  |  |       | 1,754  |   |  |   | 8,342  |  
|                                          |  |                   |        |   |          |   |        |                       |  |           |        |  |       |        |   |  |   |        |  
|Income (loss) from operations             |  |                   | (2,435 | ) |          |   | (1,201 | )                     |  |           | 6      |  |       | (1,754 | ) |  |   | (5,384 | )
|Other income (expense)                    |  |                   | 4      |   |          |   |       |                       |  |           | 1      |  |       | 16     |   |  |   | 21     |  
|                                          |  |                   |        |   |          |   |        |                       |  |           |        |  |       |        |   |  |   |        |  
|Income (loss) before income tax provision |  | $                 | (2,431 | ) |          | $ | (1,201 | )                     |  | $         | 7      |  | $     | (1,738 | ) |  | $ | (5,363 | )
|                                          |  |                   |        |   |          |   |        |                       |  |           |        |  |       |        |   |  |   |        |  
|Total assets as of September 30, 2005     |  | $                 | 3,761  |   |          | $ | 6,210  |                       |  | $         | 12,495 |  | $     | 5,795  |   |  | $ | 28,261 |  
|                                          |  |                   |        |   |          |   |        |                       |  |           |        |  |       |        |   |  |   |        |  



|10. | Preferred Stock and Common Stock Warrants
|--- | -----------------------------------------

Series C Preferred
Stock

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



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Holders of the Series C preferred stock are entitled to receive dividends in the amount of six percent
(6%) per annum, payable semiannually starting December 31, 2005. The dividends may be paid in cash or, at the Companys option, in shares of its common stock. The Company was required to redeem the Series C preferred stock on a
monthly basis beginning in March 2006, at a rate of 1/30th of the outstanding shares per month. The redemption price is equal to the purchase price of the shares being redeemed, plus all related accrued and unpaid dividends and is payable in cash
or, at the Companys option, shares of its common stock. In addition, the Company may choose to redeem the Series C preferred stock at any time at a price equal to 105% of the purchase price, plus all related accrued and unpaid dividends. In
accordance with SFAS No. 150 Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity the Series C preferred stock subject to mandatory redemption ($42 thousand) has been classified as short
term debt as of September 30, 2006, and are included in loans payable on the accompanying consolidated balance sheet.

Pursuant to the
terms of the Certificates of Designations, if the Companys common stock is not listed on the New York Stock Exchange, American Stock Exchange, Nasdaq National Market, Nasdaq Capital Market or the OTC Bulletin Board for a period of seven
consecutive trading days, holders of the outstanding preferred shares may elect that we repurchase their preferred shares. Effective upon the opening of the market on September 19, 2006, the Companys securities were delisted from the
Nasdaq Capital Market. Since that time, the Companys common stock has been trading on the electronic Pink Sheets. There are outstanding 501,917 shares of Series C preferred stock. Beginning September 29, 2006, we have received demands for
redemption on an aggregate 287,508 Series C preferred shares with an aggregate redemption amount of $805,022 plus $12,210 accrued but unpaid dividends . If the holders of all Series C preferred shares outstanding as of September 30, 2006
request redemption, the aggregate redemption amount of all Series C preferred shares outstanding as of September 30, 2006 would be $1.4 million, plus $21 thousand of accrued but unpaid dividends. All demands for redemption payments are due
within sixty (60) days of the date the Company receives written notice from such stockholder of its election. The preferred shares subject to redemption were reclassified as liabilities and are included in loans payable on the accompanying
consolidated balance sheet.

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

Series D Preferred Stock

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

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

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



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

As of September 30, 2006, we had received no demands for the redemption of our Series D preferred shares. If the holders of all Series D preferred shares outstanding as of September 30, 2006 request redemption, the aggregate
redemption amount of all Series D preferred shares outstanding as of September 30, 2006 would be $275,000, plus $4,171 of accrued but unpaid dividends.

Series E Preferred Stock

On May 25, 2006, the Company completed the sale of Series E convertible preferred stock and
warrants to purchase common stock to five institutional investors for gross proceeds to the Company of $3.8 million. Related issuance costs of approximately $188,000 resulted in net proceeds of approximately $3.6 million. At the same time, the
investors agreed to convert into shares of the Companys common stock all 114,000 shares of the Series D preferred stock held by them at the conversion price of $4.16 per share. The Series E preferred stock has an initial conversion price of
$2.76 per share and is initially convertible into a total of 2,318,424 shares of the Companys common stock. In connection with the sale of the Series E preferred stock, the Company issued warrants to purchase an aggregate of 1,159,208 shares
of common stock at an exercise price of $3.58 per share. In addition to standard anti-dilution adjustments for stock splits, combinations and the like, the exercise prices of the warrants and the conversion price of the Series E preferred stock are
subject to adjustment if the Company issues shares of common stock, or securities convertible into shares of common stock, at an effective price less than $3.58 or $2.76, respectively. The Company has the right to redeem the Series E preferred stock
at a price equal to 105% of the stated value of the shares of Series E preferred stock.

The conversion of the Series D preferred stock and
issuance of the Series E preferred stock and warrants was accounted for according to EITF Topic No. D-42 The Effect on the calculation of EPS for the redemption of induced conversion of preferred stock. Consequently, the fair value of
all securities and other consideration transferred in the issuance of the Series E convertible preferred stock over the fair value of securities issuable pursuant to the original conversion terms of the Series D preferred stock was subtracted from
net earnings to arrive at net earnings available to common shareholders. Management used the Black-Scholes model to compute the fair value of the warrants assuming 84.6% volatility and 4.95% risk free rate which resulted in a $1.7 million fair value
for the warrants. The non-cash charge of $3.0 million, of which $1.8 million is considered a beneficial conversion to the holders of the Series E preferred stock, is included in preferred stock dividends in the consolidated statement of operations
for the nine months ended September 30, 2006.

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



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The Company is subject to 1% liquidated damages to the extent the registration statement for the
underlying shares is not declared effective by the SEC as of August 21, 2006. The liquidated damages are payable monthly until such time as the registration statement is declared effective or the shares may be sold without restriction pursuant
to Rule 144(k) under the Securities Act. The SEC has not declared the registration statement effective and the Company may be subject to liquidated damages in the aggregate amount of $46,000 as of September 30, 2006. The rights of the holders
of the Series E preferred stock are senior to the rights of the holders of the Series C and D preferred stock.

There are outstanding
117,314 shares of Series E preferred stock. Beginning September 29, 2006, we have received demands for redemption on an aggregate of 101,878 Series E preferred shares with an aggregate redemption amount of $5,093,900 plus $123,751 accrued but
unpaid dividends. If the holders of all Series E preferred shares outstanding as of September 30, 2006 request redemption, the aggregate redemption amount of all Series E preferred shares outstanding as of September 30, 2006 would be $5.9
million, plus $124 thousand of accrued but unpaid dividends. All demands for redemption payments are due within sixty (60) days of the date the Company receives written notice from such stockholder of its election. The preferred shares subject
to redemption were reclassified as liabilities and are included in loans payable on the accompanying consolidated balance sheet.

Warrants

On May 25, 2006, we instituted a voluntary offer of conversion to certain of our existing warrant holders to exercise all of their
existing warrants issued to them in the Series C and D preferred stock transactions. A total of 685,099 warrants with a strike price of $4.33 and 410,716 warrants with a strike price of $3.50 were exercised resulting in the issuance of 1,095,815
shares of the Companys common stock under the terms of such warrants for gross proceeds of approximately $4.3 million. In exchange for the conversion of the warrants the Company issued warrants (warrant C) to purchase an aggregate
of 1,095,815 shares of the Companys common stock at an exercise price of $2.76 per share and a floating number of shares of common stock at an exercise price of $0.01 per share (warrant B), with the exact aggregate number of shares
to be determined by dividing $1,938,403 by the lowest of (A) $2.76 (as adjusted for stock splits, stock dividends, stock combinations and other similar events), (B) the closing price of our common stock on the trading day prior to the
effective date of a registration statement covering the resale of the shares, (C) the closing price of our common stock on the trading day prior to the day shareholder approval is obtained pursuant to the terms of the Series E preferred stock,
or (D) if the registration statement is not declared effective, the trading day prior to the day any shares of common stock issuable pursuant to such warrant can be sold under Rule 144. The warrants will expire on the fifth anniversary of the
date that a registration statement covering the resale of the shares of our common stock issuable upon exercise of the warrants and conversion of the Series E preferred stock is declared effective. The exercise prices of warrant B and warrant C are
subject to adjustment if the Company issues shares of common stock, or securities convertible into shares of common stock, at an effective price less than the then-current exercise price of such warrants.

The conversion of the warrants and issuance of the warrants B and C was accounted for according to EITF Topic No. D-42 The Effect on the
calculation of EPS for the redemption of induced conversion of preferred stock. Consequently, the fair value of the issuance of the warrants B and C over the fair value of securities issuable pursuant to the original conversion terms of the
converted warrants was subtracted from net earnings to arrive at net earnings available to common shareholders. Management used the Black-Scholes model to compute the fair value of the warrant C assuming 84.6% volatility and 4.95% risk free rate
which resulted in a $1.7 million fair value for the warrants. The warrant B was valued at its fixed dollar amount of $1.9 million. The non-cash charge of $1.8 million is included in preferred stock dividends in the consolidated statement of
operations for the nine months ended September 30, 2006.

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



|11. | Other Financing Transactions
|--- | ----------------------------

Effective
June 15, 2006 the Companys wholly-owned subsidiary, Best Logic, LLC, extended a loan agreement with Far East National Bank pursuant to which the bank has agreed to loan Best Logic up to $1,000,000. Pursuant to a promissory note, dated
March 9, 2005, executed in connection with the loan agreement, interest on the outstanding principal balance of the loan will accrue at a variable rate equal to the lenders prime rate plus 2%. The initial interest rate is 10.25% per
annum, subject to change each time the lenders prime rate changes. Interest is payable monthly with all outstanding principal and accrued and unpaid interest due and payable in full on December 15, 2006. As of September 30, 2006, a
total of $965,000 is outstanding by Best Logic pursuant to the loan agreement.



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



|12. | Subsequent Events
|--- | -----------------

On November 10, 2006, the Company was
served with a complaint naming the Companys directors as co-defendants in a shareholder derivative lawsuit. The complaint alleges that the directors of the Company have committed breaches of their fiduciary duties and engaged in abuse of
control, corporate waste, unjust enrichment, gross mismanagement and violations of applicable Nasdaq marketplace rules in connection with the Companys placement of the Series E preferred stock and associated warrants in May 2006. In addition,
the complaint alleges that the Companys Chairman of the Board, Johnny Pan, engaged in insider trading in July and August of 2005. The complaint also alleges that the defendant directors caused the Company to issue false and misleading
statements of material facts concerning, among other things, the Companys forecasted revenue and earnings. The plaintiffs seek monetary damages for all losses suffered by them as a result of the alleged misconduct and injunctive orders
directing (i) the defendants to disgorge all profits and special benefits obtained by way of their alleged misconduct, including salaries, bonuses, stock options and proceeds from any stock sales, (ii) the Company reform and improve its
corporate governance and internal control procedures to apply with applicable law, and (iii) the implementation of constructive trusts over any proceeds from the defendants wrongful sales of the Companys common shares.

Daryl F. Gates has been appointed to the office of President of Global ePoint, Inc. (the Company), effective November 20, 2006, replacing John Pan.
Mr. Gates is a member of the Companys Board of Directors. As compensation for his services as President of the Company, Mr. Gates will receive options to purchase 120,000 shares of the Companys common stock at an exercise price
of $0.60 per share, vesting at a rate of 10,000 shares per month beginning on November 20, 2006. The options will be issued pursuant to the Companys 2005 Stock Incentive Plan and will expire on November 13, 2011.



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

OVERVIEW

Our operations currently consist of three divisions:



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



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



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

Our business strategy includes developing a full line of high value security products deploying the latest
technologies. We have spent significant resources with our research and development team developing a base platform for our security surveillance product line. Using this platform we hired additional offshore specialty engineers to supplement our
existing core research and development team to enable faster, more cost effective product development programs focused on security application solutions. In 2005, we launched the first phase of our new digital video recorder product line, a four
channel mobile digital video recorder and have begun marketing the product through several channels.

To implement planned technology
advances and new product development, we continue to focus resources on new, proprietary digital compression technology, Internet protocol applications, and database management applications. We believe these elements are keys to developing the
secure network digital video technology that is expected to drive the development of our next generation of digital video surveillance products. High-end software for intelligent management of data transmitted from secure digital video networks is
also planned as a component of our total digital video technology solutions. Our strategy is to use our research and development expertise to create new proprietary technologies for digital video applications, and also seek to create intellectual
properties for contract manufacturing customers, thereby enabling us to engage in both original equipment manufacturing and original design manufacturing. We are also looking for strategic acquisition candidates providing digital video technologies
and systems to expand and or enhance our product offerings and services.



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

RESULTS OF OPERATIONSCOMBINED

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

For the three months ended September 30, 2006



|                                      |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |        |   |  |   |        |  
|------------------------------------- |  | ----------------- | ------ | - | -------- | - | ----- | --------------------- |  | - | --------- | - |  | ----- | ------ | - |  | - | ------ | -
|($ in thousands)                      |  | DigitalTechnology |        |   | Aviation |   |       | ContractManufacturing |  |   | Corporate |   |  | Total |       
|Net sales                             |  | $                 | 387    |   |          | $ | 1,064 |                       |  | $ | 8,686     |   |  | $     |       |   |  | $ | 10,137 |  
|Cost of sales                         |  |                   | 316    |   |          |   | 1,071 |                       |  |   | 8,064     |   |  |       |       |   |  |   | 9,451  |  
|                                      |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |        |   |  |   |        |  
|Gross profit                          |  |                   | 71     |   |          |   | (7    | )                     |  |   | 622       |   |  |       |       |   |  |   | 686    |  
|Operating expenses                    |  |                   | 1,313  |   |          |   | 653   |                       |  |   | 661       |   |  |       | 1,315  |   |  |   | 3,942  |  
|                                      |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |        |   |  |   |        |  
|Income (loss) from operations         |  |                   | (1,242 | ) |          |   | (660  | )                     |  |   | (39       | ) |  |       | (1,315 | ) |  |   | (3,256 | )
|Other income (expense)                |  |                   | (27    | ) |          |   |      |                       |  |   |          |   |  |       |       |   |  |   | (27    | )
|                                      |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |        |   |  |   |        |  
|Loss before income tax provision      |  | $                 | (1,269 | ) |          | $ | (660  | )                     |  | $ | (39       | ) |  | $     | (1,315 | ) |  | $ | (3,283 | )
|                                      |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |        |   |  |   |        |  
|Total assets as of September 30, 2006 |  | $                 | 7,003  |   |          | $ | 9,933 |                       |  | $ | 7,920     |   |  | $     | 5,250  |   |  | $ | 30,106 |  
|                                      |  |                   |        |   |          |   |       |                       |  |   |           |   |  |       |        |   |  |   |        |  

For the three months ended September 30, 2005



|                                      |  |                   |       |   |          |   |       |                       |  |   |           |   |  |       |       |   |  |   |        |  
|------------------------------------- |  | ----------------- | ----- | - | -------- | - | ----- | --------------------- |  | - | --------- | - |  | ----- | ----- | - |  | - | ------ | -
|($ in thousands)                      |  | DigitalTechnology |       |   | Aviation |   |       | ContractManufacturing |  |   | Corporate |   |  | Total |      
|Net sales                             |  | $                 | 224   |   |          | $ | 707   |                       |  | $ | 8,517     |   |  | $     |      |   |  | $ | 9,448  |  
|Cost of sales                         |  |                   | 154   |   |          |   | 450   |                       |  |   | 7,857     |   |  |       |      |   |  |   | 8,461  |  
|                                      |  |                   |       |   |          |   |       |                       |  |   |           |   |  |       |       |   |  |   |        |  
|Gross profit                          |  |                   | 70    |   |          |   | 257   |                       |  |   | 660       |   |  |       |      |   |  |   | 987    |  
|Operating expenses                    |  |                   | 878   |   |          |   | 561   |                       |  |   | 742       |   |  |       | 699   |   |  |   | 2,880  |  
|                                      |  |                   |       |   |          |   |       |                       |  |   |           |   |  |       |       |   |  |   |        |  
|Income (loss) from operations         |  |                   | (808  | ) |          |   | (304  | )                     |  |   | (82       | ) |  |       | (699  | ) |  |   | (1,893 | )
|Other income (expense)                |  |                   | 1     |   |          |   |      |                       |  |   | 2         |   |  |       | 16    |   |  |   | 19     |  
|                                      |  |                   |       |   |          |   |       |                       |  |   |           |   |  |       |       |   |  |   |        |  
|Loss before income tax provision      |  | $                 | (807  | ) |          | $ | (304  | )                     |  | $ | (80       | ) |  | $     | (683  | ) |  | $ | (1,874 | )
|                                      |  |                   |       |   |          |   |       |                       |  |   |           |   |  |       |       |   |  |   |        |  
|Total assets as of September 30, 2005 |  | $                 | 3,761 |   |          | $ | 6,210 |                       |  | $ | 12,495    |   |  | $     | 5,795 |   |  | $ | 28,261 |  
|                                      |  |                   |       |   |          |   |       |                       |  |   |           |   |  |       |       |   |  |   |        |  



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For the nine months ended September 30, 2006



|                                      |  |                   |        |   |          |   |        |                       |  |   |           |   |  |       |        |   |  |   |        |  
|------------------------------------- |  | ----------------- | ------ | - | -------- | - | ------ | --------------------- |  | - | --------- | - |  | ----- | ------ | - |  | - | ------ | -
|                                      |  |                   |        |   |          |   |        |                       |  |   |           |   |  |       |       
|($ in thousands)                      |  | DigitalTechnology |        |   | Aviation |   |        | ContractManufacturing |  |   | Corporate |   |  | Total |       
|Net sales                             |  | $                 | 1,013  |   |          | $ | 4,386  |                       |  | $ | 20,275    |   |  | $     |       |   |  | $ | 25,674 |  
|Cost of sales                         |  |                   | 736    |   |          |   | 3,831  |                       |  |   | 18,533    |   |  |       |       |   |  |   | 23,100 |  
|                                      |  |                   |        |   |          |   |        |                       |  |   |           |   |  |       |        |   |  |   |        |  
|Gross profit                          |  |                   | 277    |   |          |   | 555    |                       |  |   | 1,742     |   |  |       |       |   |  |   | 2,574  |  
|Operating expenses                    |  |                   | 3,349  |   |          |   | 2,074  |                       |  |   | 1,924     |   |  |       | 2,800  |   |  |   | 10,147 |  
|                                      |  |                   |        |   |          |   |        |                       |  |   |           |   |  |       |        |   |  |   |        |  
|Income (loss) from operations         |  |                   | (3,072 | ) |          |   | (1,519 | )                     |  |   | (182      | ) |  |       | (2,800 | ) |  |   | (7,573 | )
|Other income (expense)                |  |                   | (55    | ) |          |   |       |                       |  |   | (27       | ) |  |       | 185    |   |  |   | 103    |  
|                                      |  |                   |        |   |          |   |        |                       |  |   |           |   |  |       |        |   |  |   |        |  
|Loss before income tax provision      |  | $                 | (3,127 | ) |          | $ | (1,519 | )                     |  | $ | (209      | ) |  | $     | (2,615 | ) |  | $ | (7,470 | )
|                                      |  |                   |        |   |          |   |        |                       |  |   |           |   |  |       |        |   |  |   |        |  
|Total assets as of September 30, 2006 |  | $                 | 7,003  |   |          | $ | 9,933  |                       |  | $ | 7,920     |   |  | $     | 5,250  |   |  | $ | 30,106 |  
|                                      |  |                   |        |   |          |   |        |                       |  |   |           |   |  |       |        |   |  |   |        |  

For the nine months ended September 30, 2005



|                                          |  |                   |        |   |          |   |        |                       |  |           |        |  |       |        |   |  |   |        |  
|----------------------------------------- |  | ----------------- | ------ | - | -------- | - | ------ | --------------------- |  | --------- | ------ |  | ----- | ------ | - |  | - | ------ | -
|($ in thousands)                          |  | DigitalTechnology |        |   | Aviation |   |        | ContractManufacturing |  | Corporate |        |  | Total |       
|Net sales                                 |  | $                 | 966    |   |          | $ | 1,493  |                       |  | $         | 17,641 |  | $     |       |   |  | $ | 20,100 |  
|Cost of sales                             |  |                   | 649    |   |          |   | 1,060  |                       |  |           | 15,433 |  |       |       |   |  |   | 17,142 |  
|                                          |  |                   |        |   |          |   |        |                       |  |           |        |  |       |        |   |  |   |        |  
|Gross profit                              |  |                   | 317    |   |          |   | 433    |                       |  |           | 2,208  |  |       |       |   |  |   | 2,958  |  
|Operating expenses                        |  |                   | 2,752  |   |          |   | 1,634  |                       |  |           | 2,202  |  |       | 1,754  |   |  |   | 8,342  |  
|                                          |  |                   |        |   |          |   |        |                       |  |           |        |  |       |        |   |  |   |        |  
|Income (loss) from operations             |  |                   | (2,435 | ) |          |   | (1,201 | )                     |  |           | 6      |  |       | (1,754 | ) |  |   | (5,384 | )
|Other income (expense)                    |  |                   | 4      |   |          |   |       |                       |  |           | 1      |  |       | 16     |   |  |   | 21     |  
|                                          |  |                   |        |   |          |   |        |                       |  |           |        |  |       |        |   |  |   |        |  
|Income (loss) before income tax provision |  | $                 | (2,431 | ) |          | $ | (1,201 | )                     |  | $         | 7      |  | $     | (1,738 | ) |  | $ | (5,363 | )
|                                          |  |                   |        |   |          |   |        |                       |  |           |        |  |       |        |   |  |   |        |  
|Total assets as of September 30, 2005     |  | $                 | 3,761  |   |          | $ | 6,210  |                       |  | $         | 12,495 |  | $     | 5,795  |   |  | $ | 28,261 |  
|                                          |  |                   |        |   |          |   |        |                       |  |           |        |  |       |        |   |  |   |        |  



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RESULTS OF OPERATIONSDIGITAL TECHNOLOGY DIVISION

For the Three Months Ended September 30, 2006 Compared to September 30, 2005

The focus of our digital technology division is on the development of digital products and technologies for law enforcement, commercial and industrial
security applications.

Our mobile digital products are currently targeting law enforcement, commercial/industrial and military
applications. Digital technology offers considerable advantages over the analog tape technology currently in use by some police departments, and we believe our products offer major advantages over competing digital systems. For example, our wireless
technology automatically uploads recordings into the police departments central computer when the officer returns the patrol car to the station. This feature avoids having the officer handle recording disks or devices, thereby preserving the
integrity of valuable trial evidence. Our products have been adopted by several local police departments and are currently being evaluated by a number of other law enforcement customers, but have not generated significant revenues to date. We
believe the same advantages of digital technology, and our products in particular, are relevant in other mobile applications, including but not limited to fire trucks, ambulances, mass transit, on-highway shipping and package delivery. We believe
that the potential for terrorist attacks on subway systems and other forms of public transportation will result in government mandates for the installation of surveillance systems, although such mandates have not yet materialized and these markets
have not yet developed.

We are also developing additional stationary applications for our digital surveillance technology within the
retail and commercial/industrial sectors, and in other markets. We believe that demand in many of these markets will be driven by government mandates to install surveillance systems for anti-terrorism or law enforcement measures, or as a result of
cost savings available to business owners arising out of theft or loss reduction, lower insurance premiums, or other savings. We believe that new markets will be available for our digital surveillance products in support of homeland security
initiatives. Such new markets may include oil refineries, chemical plants, nuclear power plants, electric power transmission lines, oil, gas, chemical and water pipelines, and other critical facilities. We are also developing products for retail
establishments, manufacturing facilities, commercial locations, and small businesses. We believe the commercial and industrial sector to be a multi-billion dollar annual market that may provide us with an excellent growth opportunity.

Our digital technology 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 to target what we believe to be high growth, high margin markets. We acquired substantially all of the assets of Tops Digital Security, Inc. (Tops), as of April 1, 2006, as a means of
continuing our commitment to expand our product offerings. Tops is a solutions provider for large enterprise video surveillance systems that are designed primarily for high quality video capture and central monitoring security operations in the
high-end commercial, industrial, and government electronic security markets. The developmental nature of this division requires that we make regular investments in new products, staff our sales team and infrastructure, establish our distribution
channels, build relationships with customers and potential customers, market our products, and commit other resources to growing this business. Because we have continued to make such investments, our financial results continue to show losses and we
expect that such losses will continue in the short term due to the costs associated with integrating new businesses and products with our existing infrastructure.

Revenues for the digital technology division for the three months ended September 30, 2006 totaled $387,000, which compared to $224,000 for the three months ended September 30, 2005. The increase in revenues
is due to revenues from the acquisition of Tops. Gross margins for the three months ended September 30, 2006 were 18% compared to 31% for the three months ended September 30, 2005. The decrease in gross margins is due to an increase in the
sales mix of our lower margin video surveillance products within our fixed digital video surveillance product offerings.

Operating
expenses increased to $1.3 million for the three months ended September 30, 2006 from $.9 million for the three months ended September 30, 2005. Operating expenses increased $405,000 due to the acquisition of Tops which consisted of
$93,000 selling expenses, $193,000 general and administrative expenses and $118,000 for research and development costs. Continuing our emphasis on product development, we established an R&D facility in Korea to facilitate the development of the
high end Tops product line.

The net result of the foregoing is that the digital technology division incurred a loss from operations of
$1.2 million for the quarter ended September 30, 2006 compared to a loss from operations of $.8 million for the quarter ended September 30, 2005.



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For the Nine Months Ended September 30, 2006 Compared to September 30, 2005

Revenues for the digital technology division for the nine months ended September 30, 2006 and 2005 totaled $1 million. Revenues increased $445,000
of which $318,000 is due to the acquisition of Tops additionally, sales from our mobile digital products increased $127,000. The increase in sales from the Tops line and our mobile digital products was offset by a $398,000 decline in sales of our
fixed digital video surveillance products. Gross margins were 27% for the nine month periods ended September 30, 2006 compared to 33% for the nine months ended September 30, 2005. The decline in gross margin is due to the increase in the
sales mix of our lower margin products within our fixed digital video surveillance product offerings.

Operating expenses increased to $3.3
million for the nine months ended September 30, 2006 from $2.8 million for the nine months ended September 30, 2005. Operating expenses increased $715,000 due to the acquisition of Tops which consisted of $195,000 selling expenses,
$366,000 general and administrative expenses and $154,000 for research and development costs associated with our establishment of an R&D facility in Korea to facilitate the development of the high end Tops product line. Additionally rent
expenses increased $46,000 and insurance expenses increased $40,000. The increases in expenses were offset by a decrease in other research and development costs of $146,000 and $76,000 decrease in other personnel and related selling expenses.

The net result of the foregoing is that the digital technology division incurred a loss from operations of $3.1 million for the nine
months ended September 30, 2006 compared to a loss from operations of $2.4 million for the nine months ended September 30, 2005.

RESULTS OF
OPERATIONSAVIATION DIVISION

For the Three Months Ended September 30, 2006 Compared to September 30, 2005

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

We are
positioned to take advantage of the market opportunities that will be presented by the expected release of mandates from both the Federal Aviation Administration (FAA) and the European aviation regulatory authorities, including the European Aviation
Safety Agency (EASA) and the Joint Aviation Authority (JAA). The FAA has issued a Notice of Proposed Rule Making (NPRM) which, if enacted, would mandate CDSS systems for all commercial passenger aircraft operating in the United States of America.
The comment period on this NPRM closed on November 21, 2005, and we believe a final rule could be adopted in 2006. The FAA estimates that the market for CDSS systems is $185 million in the United States and we believe the international market
to be larger than that for the United States. The FAA identified Global ePoint as one of only five vendors with products currently certified by the FAA. We believe that our product has several key advantages over competing systems, including that it
is the only system to have its display screen in front of the pilot, and we have a rapid installation schedule designed to avoid revenue loss for the airline. We have captured majority market shares in Germany and England, and believe that we are
well positioned to capture a significant share of the United States market when and if the opportunity becomes available.

We have obtained
all FAA Supplemental Type Certificates (STC) for the installation of CDSS on a majority of the Boeing aircraft types and all Airbus aircraft (except the A380, their latest aircraft model). Therefore, any new orders will not require any engineering
or certification work, but simply manufacturing and shipping. We have developed and are marketing digital technology solutions such as our Electronic Flight Bag (EFB) and In Flight Entertainment (IFE) systems. Generally, these systems provide
increased aircraft operating efficiency and significant weight savings by replacing old, heavier technology. Since one of the major costs for the airlines is fuel costs, these new solutions provide a return on investment to the airlines as
significant weight reduction leads to substantial savings by decreasing the fuel burn of the aircraft. Our EFB product provides electronic weather mapping, finds favorable wind patterns, and optimizes the trim of the aircraft to make weight and
balance adjustments, all of which contribute to fuel savings. Our system automates flight information and is easier for pilots to use than paper records and supplemental calculations. In addition to these advantages, our EFB eliminates over 70
pounds of charts and records carried on board, representing a considerable annual fuel savings for a typical jetliner. In addition to commercial passenger and cargo air transport, we believe the EFB is also attractive in private aviation
applications, where pilots generally have less automation available to them and where the ease and speed of accessing electronic records may offer safety advantages.



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We believe that our IFE product is attractive to airlines due to the elimination of hundreds of pounds of
weight in replacing old cathode ray tube monitors with modern flat panel display systems. We believe the payback to the airline in fuel savings alone for the installation of our IFE and EFB systems is less than one year. With the significant rise in
fuel costs for airlines, we believe the cost savings offered by these products will provide an important marketing advantage for these products going forward.

In the fourth quarter of 2005, we expanded our aircraft modification and maintenance services for interior cabin refurbishment and exterior painting. Although these services have a lower profit margin relative to our
other product lines, we commenced providing these maintenance services on the belief that they could provide Global ePoint with an attractive value added sales opportunity for surveillance and/or EFB and IFE products to the customer for installation
while maintenance work is being performed. We also believed improvements in efficiencies and costs for the operations would provide for a profitable business line. These improvements have not materialized, therefore, we expect to complete our
current backlog for maintenance services by the end of 2006 and terminate our maintenance operation at that time.

Our backlog, as of
September 30, 2006, was $7.3 million. To a large extent the backlog relates to modification and retrofit services for a Latin American airline, of which, a significant portion relates to IFE equipment. Installation of the IFE equipment requires
FAA certification which is in the final stages of completion. Current long lead times on certain components required to complete production units have resulted in delays in our installation schedule. Additionally, the approaching holiday season
limits the ability of our customer to take aircraft out of service. We are negotiating a revised installation schedule and do not expect to begin installation until early 2007.

Revenues for the three months ended September 30, 2006 totaled $1.1 million compared to $.7 million for the three month period ended
September 30, 2005. The increase in sales is the result of an increase of $257,000 of wire and harnesses and $63,000 increase in sales of CDSS and components. Cost of goods sold was $1.1 million for the three months ended September 30,
2006 compared to $.5 million for the three months ended September 30, 2005. The increase in cost of goods sold is due to the increase $486,000 increase in costs associated with our maintenance services operations and $87,000 increase in
component costs for CDSS and wire and harnesses commensurate with the increase in sales for these products. Gross margins for the quarter ended September 30, 2006 were 0% compared to 34% for the quarter ended September 30, 2005.
Maintenance services are a new business line begun in the fourth quarter of 2005. Expected improvements in efficiencies and costs for maintenance services have not materialized resulting in the decline in gross margin. We expect to complete our
current backlog for maintenance services by the end of 2006 and terminate our maintenance operation at that time.

Operating expenses
totaled $653,000 for the three months ended September 30, 2006 compared to $561,000 for the three months ended September 30, 2005. The increase in operating expenses is due to a $36,000 increase in administrative personnel to support the
increased sales, $92,000 increase in operating expenses related to our maintenance services operation which was established in the fourth quarter of 2005. Additionally, we moved the aviation corporate operations to a new facility beginning June 2006
which resulted in a $41,000 increase in rent expense due to rent related to our previous facility whose lease was cancelled in August 2006. These increases in operating expenses were offset by $83,000 decrease in advertising and promotion, travel
and entertainment expenses due to cost reductions from participation in trade shows in 2006.

As a result of the foregoing, the aviation
divisions loss from operations was $660,000 for the quarter ended September 30, 2006 compared to $304,000 loss from operations for the quarter ended September 30, 2005.

For the Nine Months Ended September 30, 2006 Compared to September 30, 2005

Revenues for the nine months ended September 30, 2006 totaled $4.4 million compared to $1.5 million for the nine month period ended
September 30, 2005. The increase in sales is the result of an increase in aircraft maintenance services of $2.1 million, $.6 million in sales of modification equipment, and a $.3 million increase in sales of wire and harnesses. Cost of goods
sold was $3.8 million for the nine months ended September 30, 2006 compared to $1.1 million for the nine months ended September 30, 2005. The increase in cost of goods sold is due to maintenance services operations. Gross margins for the
nine months ended September 30, 2006 were 13% compared to 29% for the nine months ended September 30, 2005. The decline in margins was due to the increase in lower margin maintenance services. We believe our overall gross margins will
improve as our mix of business moves to equipment deliveries which have a higher margin.



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Operating expenses totaled $2.1 million for the nine months ended September 30, 2006 compared to
$1.6 million for the nine months ended September 30, 2005. The increase is primarily due to additional costs associated with the maintenance services operation which was established in the fourth quarter of 2005, including $87,000 in insurance
expenses and $326,000 for permanent and temporary labor and labor related costs to support the new operations. Additionally, we moved the aviation corporate operations to a new facility beginning June 2006 which resulted in a $58,000 increase in
rent expense due to rent related to our previous facility whose lease was cancelled in August 2006. These increases in operating expenses were offset by $94,000 decrease in advertising and promotion, travel and entertainment expenses due to cost
reductions from participation in trade shows in 2006.

As a result of the foregoing, the aviation division incurred a loss from operations
of $1.5 million for the nine months ended September 30, 2006 compared to a loss from operations of $1.2 million for the nine months ended September 30, 2005.

RESULTS OF OPERATIONSCONTRACT MANUFACTURING DIVISION

For the Three Months Ended
September 30, 2006 Compared to September 30, 2005

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. The high volume we produce in the contract manufacturing division allows us to obtain discounts on our raw materials, which enables us to lower the manufacturing costs of our other divisions. In addition,
since we control the manufacturing process for many of our branded products, we can offer greater speed and flexibility to our customers than otherwise would be the case.

Net sales for the three months ended September 30, 2006 increased to $8.7 million from $8.5 million in the three months ended September 30, 2005. The increase in net sales was primarily due to the increase
in sales of consumer computer products to $7.2 million in the quarter ended September 30, 2006 from $7.0 million in the quarter ended September 30, 2005. Sales of industrial computer products were $1.5 million in the three months ended
September 30, 2006 and 2005. Cost of sales was $8.1 million for the three months ended September 30, 2006, or 92.8%, of sales compared to $7.9 million, or 92.3%, of sales for the corresponding quarter ended September 30, 2005. As a
result, gross margins were 7.2% for the quarter ended September 30, 2006 compared to 7.7% for the quarter ended September 30, 2005.

Operating expenses for the three months ended September 30, 2006 were $661,000, or 7.6% of sales, compared to $742,000, or 8.7% of sales, for the three months ended September 30, 2005. An improvement in operating efficiencies
resulted in a decline in operating expenses of $40,000 for production labor and $43,000 in administrative and sales personnel expenses in the three months ended September 30, 2006 over 2005.

The net result was a loss from operations for the contract manufacturing division of $39,000 for the three months ended September 30, 2006 compared
to loss from operations of $82,000 for the three months ended September 30, 2005.

For the Nine Months Ended September 30,
2006 Compared to September 30, 2005

Net sales for the nine months ended September 30, 2006 increased to $20.3 million from
$17.6 million in the nine months ended September 30, 2005. The increase in net sales was primarily due to the increase in sales of consumer computer products to $15.1 million in the nine months ended September 30, 2006 from $10.5 million
in the nine months ended September 30, 2005. The increase in sales of consumer computers was offset by a decrease in sales of industrial computer products to $5.1 million in the nine months ended September 30, 2006 compared to $7.0 million
in the nine months ended September 30, 2005. The decline in industrial computer sales is primarily due to the decline in sales from one of our major customers. The customers product line has moved to high end/lower sales volume x-ray
machines and discontinued their low end/higher sales volume x-ray machines, resulting in a decline in sales for our industrial PC. Cost of sales was $18.5 million for the nine months ended September 30, 2006, or 91.4%, of sales compared to
$15.4 million, or 87.5%, of sales for the corresponding nine months ended September 30, 2005. The increase in the cost of sales as a percentage of net sales was due to the increase in sales of lower margin consumer computer products. As a
result, gross margins for the nine months ended September 30, 2006 were 8.6% compared to 12.5% for the nine months ended September 30, 2005.

Operating expenses for the nine months ended September 30, 2006 were $1.9 million, or 9.5% of sales, compared to $2.2 million, or 12.5% of sales, for the nine months ended September 30, 2005. The decline in
operating expenses is due to a decrease in selling expenses of $263,000 primarily due to a reduction of $158,000 in commission expenses as a result of lower sales of industrial computer products in the nine months ended September 30, 2006 over
2005.



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The net result was a loss from operations for the contract manufacturing division was $184,000 for the
nine months ended September 30, 2006 compared to income from operations of $6,000 for the nine months ended September 30, 2005.

RESULTS OF
OPERATIONSCORPORATE

Corporate activities primarily relate to activities associated with income and expense of non-core continuing
business of the pre-merged public entity, as well as general overall corporate expenses. During the three months ended September 30, 2006, corporate general and administrative costs totaled $1.3 million compared to $.7 million for the three
months ended September 30, 2005. The increase in corporate expenses was due to a $687,000 increase in stock based compensation expense primarily from the amortized costs of previously issued employee stock options and $100,000 increase in legal
expenses primarily due to the NASDAQ delisting proceedings. The increase in expenses was offset by a reduction of $93,000 in public relations expenses and $97,000 reduction in corporate personnel and related expenses.

During the nine months ended September 30, 2006, corporate general and administrative costs totaled $2.8 million compared to $1.8 million for the
nine months ended September 30, 2005. The increase in corporate expenses was due to a $687,000 increase in stock based compensation expense primarily from the amortized costs of previously issued employee stock options, $275,000 increase in the
general allowance for doubtful accounts, $100,000 increase in legal expenses primarily due to the NASDAQ delisting proceedings, $25,000 increase in corporate personnel and other related expenses. These expenses were partially offset by a decline of
$74,000 in professional fees and services associated with being a public company.

Other income increased $.2 million due to the receipt of
uncollected funds from the State of Pennsylvania from the pre-merged public entity.

The net result for corporate operations was a loss
from operations of $1.3 and $2.8 million for the three and nine months ended September 30, 2006, respectively, compared to a loss from operations of $.7 and $1.8 million for the three and nine months ended September 30, 2005, respectively.

SUMMARY

As a net result of the
combined operations of our digital technology division, aviation division, contract manufacturing division, and corporate activities, Global ePoint incurred a net loss applicable to common stockholders of $3.3 million for the three months ended
September 30, 2006, or $(.17) per share, compared to a net loss applicable to common stockholders of $2.5 million, or $(.19) per share for the three months ended September 30, 2005.

For the nine months ended September 30, 2006 we incurred a net loss of $7.5 million, or $(.44) per share. The conversion of our Series D Preferred
Stock and warrant exercise and simultaneous private placement sale of our Series E preferred stock generated a non-cash preferred dividend of $4.9 million resulting in a net loss applicable to common stockholders of $12.6 million, or $(.74) per
share for the nine months ended September 30, 2006 compared to non-cash preferred dividends of $2.0 million in the nine months ended September 30, 2005 and a net loss applicable to common stockholders of $7.3 million, or $(.58) per share
for the nine months ended September 30, 2005.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used by operations for the nine months ended September 30, 2006 was $7.8 million as compared to cash used by operations of $5.3 million for
the corresponding period in 2005. In the nine months ended September 30, 2006 and 2005, the primary use of cash was funding the operating loss.

Cash used in investing activities for the nine months ended September 30, 2006 consisted of $.5 million compared to cash used of $1.8 million for the nine months ended September 30, 2005. For the nine months
ended September 30, 2006 the cash was comprised of the collection of $.5 million on the note provided to Astrophysics, Inc. offset by of $1.0 million of cash used for the acquisition of fixed assets and other intangibles. For the nine months
ended September 30, 2005, cash was primarily used for a good faith deposit of $500,000 and other costs of $135,000 related to our intent to purchase Astrophysics, Inc. and an additional $500,000 note provided to Astrophysics as per the terms of
the letter of intent. Additional cash of $390,000 was required for the acquisition of fixed assets and other intangibles.

The
Companys wholly-owned subsidiary, Best Logic, LLC, extended a loan agreement with Far East National Bank pursuant to which the bank has agreed to loan Best Logic up to $1,000,000. Pursuant to a promissory note, dated March 9, 2005,
executed in connection with the loan agreement, interest on the outstanding principal balance of the loan will accrue at a variable rate equal to the lenders prime rate plus 2%. The initial interest rate is 10.25% per annum, subject to
change each time the lenders prime rate changes. Interest is payable monthly with all outstanding principal and accrued and unpaid interest due and payable in full on December 15, 2006. As of September 30, 2006, a total of $965,000
is outstanding by Best Logic pursuant to the loan agreement.



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Net cash provided by financing activities for the nine months ended September 30, 2006 totaled $7.5
million as follows: the issuance of our Series E preferred stock provided $3.6 million, the net proceeds from the exercise of stock warrants provided $2.5 million, and proceeds from the exercise of stock options provided $.7 million, all of which
were offset by $.3 million to pay in full a loan to complete the Tops acquisition, and $1.1 million to pay preferred stock dividends and redemptions. As of September 30, 2006, the total outstanding balance on loans from related parties was $2.3
million. Net cash provided by financing activities for the nine months ended September 30, 2005 totaled $6.1 million. In March 2005 our contract manufacturing division obtained a $1 million bank line of credit to assist in the funding of our
working capital requirements all of which was provided for operations as of September 30, 2005. In the second quarter of 2005, we completed the private placement sale of Series B and Series C preferred stock resulting in net proceeds of $4.6
million. An additional $1.1 million was received through the exercise of previously issued stock options. This was offset by a reduction in borrowings from related parties in the amount of $800,000. As of September 30, 2005, the total
outstanding balance on loans from related parties was $1.0 million.

On March 31, 2006, we entered into an Agreement and Plan of
Reorganization (the Purchase Agreement) with Tops Digital Security, Inc. (Tops) pursuant to which, among other things, we acquired substantially all of the assets and certain liabilities of Tops solely in exchange for shares
of our common stock. The shares of common stock comprising the purchase price are issuable in two installments. The first installment of 603,421 shares was issued at the closing date. The second installment of up to 375,000 shares is based on an
earnout formula and is issuable on the 15 month anniversary of the closing of the acquisition. The number of shares issuable pursuant to the Purchase Agreement is subject to adjustment based on (i) the amount of liabilities assumed by us,
(ii) the amount by which the net income generated by the Tops assets for the first 12 months following the closing date is less than $2,500,000, and (iii) the amount by which the volume-weighted average trading price of our common stock
exceeds $4.00 per share for the 10 trading days preceding the 15 month anniversary of the closing date.

On September 29, 2006, we
received redemption notices from certain holders of our Series C and Series E preferred stock demanding that we repurchase an aggregate of 136,908 shares of their Series C preferred stock, representing 27% of the issued and outstanding Series C
preferred stock, and 95,703 shares of their Series E preferred stock, representing 82% of the issued and outstanding Series E preferred stock. Subsequently, we received redemption notices demanding that we repurchase an additional 150,600 shares of
Series C preferred stock, and 6,175 shares of Series E preferred stock. Currently, the aggregate redemption amount under the notices received is $5,898,922, plus $145,066 accrued and unpaid dividends.

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

There are outstanding 501,917 shares of Series C preferred stock, 5,500 shares of Series D preferred stock and 117,314 shares of Series E preferred
stock. Under the applicable provisions of the Certificates of Designations for the Series C, D and E preferred stock, the redemption payment amounts for the Series C, D, and E preferred stock is $2.80 per share, $50 per share and $50 per share,
respectively, plus accrued but unpaid dividends. In the event holders of all of the Series C, D and E preferred stock are entitled to have their preferred stock redeemed, the aggregate redemption amount would be $7,546,067, plus accrued but unpaid
dividends. All demands for redemption payments are due within sixty (60) days of the date the Company receives written notice from such stockholder of its election.

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

As of September 30, 2006, due to the
reclassification of $5.9 million for redemption demands on our Series C and E preferred stock to short term loans payable, the Company had a $339,000 net working capital deficit and no cash or cash equivalents. Since then, our working capital
position has worsened due to continuing losses from operations. We intend to improve our working capital position by pursuing negotiations with the holders of our Series C and E preferred stock to resolve their redemption demands without



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the need to make the required redemption payments. However, there can be no assurance that we will be successful in resolving their redemption demands. There
can also be no assurance that we will not receive additional redemption demands from other holders of our Series C, D, and E preferred stock. We also intend to improve our working capital position by pursuing various funding alternatives, however at
this time there are no understandings or arrangements on the part of any third party to provide us with additional funding. In this regard, our recent delisting from the Nasdaq Stock Market and the recently filed shareholder derivative lawsuit
against our board of directors is likely to impair our ability to resolve the redemption demands of our preferred shareholders and successfully acquire funding from other sources. In the meantime, we are solely dependent on our existing current
assets to meet our operating expenses, capital expenditures, and other commitments, which we believe will provide sufficient funds only for six months assuming we do not fund the required mandatory redemption payments.

We believe that we require a minimum of $7.9 million of additional funding, which may include the resolution of the $5.9 million in redemption demands of
our preferred shareholders without the need to make the required redemption payments, in order to fund our ongoing and planned operations over the next 12 months. In the event we are unable to acquire the required financing within the next few
months, our companys financial condition will be severely impacted and we may be unable to continue as a going concern. In that event, we may be forced to radically restructure our operations or seek protection under the bankruptcy laws. There
can be no guarantee that the funds we require will be available on commercially reasonable terms, if at all.

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



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



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



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



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



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



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



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



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



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



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



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



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



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

In addition, we may require additional capital to accommodate planned future growth, hiring, infrastructure and facility needs or to consummate acquisitions of other businesses, assets, products, or technologies. We
believe we will be able to obtain the funding required to support our operations and growth, however, there can be no guarantees that such funds will be available on commercially reasonable terms, if at all. If such financing is not available on
satisfactory terms, we may be unable to expand or continue our business as desired and operating results may be adversely affected. Debt financing will increase expenses and must be repaid regardless of operating results. Equity financing could
result in dilution to existing stockholders.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements.



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

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

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

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

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

Under the rules of The Nasdaq Stock Market we are entitled to appeal the decision of
the Panel to the Nasdaq Listing and Hearing Review Council (the Council). We elected to pursue the second appeal and submitted the necessary documents to the Council on October 27, 2006. As of the date of this report we have
received no further communication from the Council. It may take as long as four months to receive the Councils decision. In the interim, we have initiated the process to transfer our common stock to the Over the Counter Bulletin Board.
However, there can be no assurances as to when, or whether, we will be successful in finding an alternate trading market for our common stock. In addition, there can be no assurances that the Councils decision will be favorable to us, or that
we will be able to re-list our common stock on the Nasdaq Capital Market in the future.

The delisting has adversely affected the liquidity
and trading price of our common stock, which is likely to impair our future ability to raise necessary capital through equity or debt financing. Because the market for securities traded on the Pink Sheets is limited, potential investors may
voluntarily refrain, or be prohibited, from purchasing shares of our common stock or may agree to purchase our common stock solely on terms that are not beneficial to our long-term operations. If we are unable to obtain funding on terms favorable to
us, or at all, we may be required to sell our company, cease operations, or declare bankruptcy.

We require additional funding of $7.9 million in the
near term to continue to operate our business, and in the event we are unable to obtain such financing we may be forced to radically restructure our operations or seek protection under the bankruptcy laws. As of September 30, 2006,
due to the reclassification of $5.9 million for redemption demands on our Series C and E



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preferred stock to short term loan payable, we had a net working capital deficit of $339,000 and no cash or cash equivalents. Since then, our working capital
position has worsened due to continuing losses from operations. We intend to improve our working capital position by pursuing negotiations with the holders of our Series C and E preferred stock to resolve their redemption demands without the need to
make the required redemption payments. However, there can be no assurance that we will be successful in resolving their redemption demands. There can also be no assurance that we will not receive additional redemption demands from other holders of
our Series C, D, and E preferred stock. We also intend to improve our working capital position by pursuing various funding alternatives, however at this time there are no understandings or arrangements on the part of any third party to provide us
with additional funding. In this regard, our recent delisting from the Nasdaq Stock Market and the recently filed shareholder derivative lawsuit against our board of directors is likely to impair our ability to resolve the redemption demands of our
preferred shareholders and successfully acquire funding from other sources. In the meantime, we are solely dependent on our existing current assets to meet our operating expenses, capital expenditures, and other commitments, which we believe will
provide sufficient funds only for six months assuming we do not fund the required mandatory redemption payments

We believe that we require
a minimum of $7.9 million of additional funding, which may include the resolution of the $5.9 million in redemption demands of our preferred shareholders without the need to make the required redemption payments, in order to fund our ongoing and
planned operations over the next 12 months. In the event we are unable to acquire the required financing within the next few months, our companys financial condition will be severely impacted and we may be unable to continue as a going
concern. In that event, we may be forced to radically restructure our operations or seek protection under the bankruptcy laws. There can be no guarantee that the funds we require will be available on commercially reasonable terms, if at all.

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



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



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



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

We have received redemption demands from holders of our preferred stock in excess of $5.9 million. On September 29, 2006, we received
redemption notices from certain holders of our Series C and Series E preferred stock demanding that we repurchase an aggregate of 136,908 shares of our Series C preferred stock, representing 27% of the issued and outstanding Series C preferred stock
then outstanding, and 95,703 shares of its Series E preferred stock, representing 82% of the issued and outstanding Series E preferred stock then outstanding. Subsequently, we have received redemption notices demanding that the Company repurchase an
additional 150,600 shares of Series C preferred stock, and 6,175 shares of Series E preferred stock. Currently, the aggregate redemption amount for which our preferred stockholders have provided demand notices is $5,898,922, plus $145,066 accrued
and unpaid dividends. All demands for redemption are payable within sixty (60) days of the date the Company receives written notice from such stockholder of its election.

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

Currently, there are outstanding 501,917 shares of Series C preferred stock, 5,500 shares of Series D preferred stock and 117,314 shares of Series E
preferred stock. Under the applicable provisions of the Certificates of Designations for the Series C, D and E preferred stock, the redemption payment amounts for the Series C, D, and E preferred stock are $2.80 per share, $50 per share and $50 per
share, respectively, plus accrued but unpaid dividends. If holders of all of the Series C, D and E preferred stock are entitled to have their preferred stock redeemed, the aggregate redemption amount would be $7,546,067, plus accrued but unpaid
dividends.

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



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

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

We rely on related parties for a substantial portion of our revenues and as the primary source for our component and subsystem purchases. The loss of business from any of these related parties would adversely affect our
business. In the ordinary course of our business, we purchase from, sell products to and perform contract manufacturing services for a number of related parties that are owned or otherwise controlled by Mr. John Pan, our Chief
Financial Officer, Chairman, and principal stockholder. During 2005 and the first nine months of 2006 we purchased approximately $15.3 and $13.8 million, respectively, worth of products from these related parties. This represents 53% and 60% of our
overall cost of goods for the year ended December 31, 2005 and nine months ended September 30, 2006, respectively. In addition, during 2005 and the first nine months of 2006, we sold approximately $18 and $14.6 million, respectively, worth
of products and contract manufacturing services to these related parties. This represents 55% and 57% of our overall sales for the year ended December 31, 2005 and first nine months of 2006, respectively. We believe that these related party
relationships provide access to attractively priced components and products and an additional and a substantial amount of sales revenues. However, there are no agreements, written or otherwise, between Global ePoint and these related parties
obligating such parties to transact business with us in the future. As a result, these types of related party transactions could cease at any time. If our transactions with these related parties cease, our business would be adversely affected.

Our current revenues and purchases are dependent on a limited number of customers and suppliers, most of which are related
parties. For the nine months ended September 30, 2006 and 2005, two and three customers accounted for 67% and 66%, respectively, of our sales. One of these customers in 2006 and 2005 was a related party, accounting for 55% and 46%,
respectively, of our sales. During the nine months ended September 30, 2006 and 2005, two and four vendors accounted for 68% and 65%, respectively, of our purchases. Two of these vendors were related parties. Substantially all of our related
party transactions are derived from our contract manufacturing division. If we were to lose one or more of these customers before we are able to secure sales from other customers, our income and financial condition would be adversely affected. If we
are unable to enter into and maintain satisfactory distribution arrangements with leading suppliers and an adequate supply of products, our sales could be adversely affected.

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



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

As of
September 30, 2006, there were 501,917 shares of Series C Preferred Stock outstanding, which are convertible into 501,917 shares of our common stock, 5,500 shares of Series D Preferred Stock outstanding, which are convertible into 66,106 shares
of our common stock, and 117,314 shares of Series E Preferred Stock outstanding, which are currently convertible into 2,125,254 shares of our common stock. The conversion price of the Series C and Series D Preferred Stock is not adjustable except
for standard anti-dilution adjustments relating to stock splits, combinations and similar events. However, the conversion price of our Series E Preferred Stock will be adjusted downward if we issue shares of common stock, or securities convertible
into shares of common stock, at an effective price less than $2.76 per common share. If this occurs, the Series E Preferred Stock can be converted into a larger number of shares than stated above, resulting in even greater dilution to holders of our
common stock. Upon a liquidity event, the holders of our Series C Preferred Stock and Series D Preferred Stock are entitled to be paid out of our assets available for distribution to the stockholders an amount equal to $2.80 per share and $4.16 per
share, respectively, ahead of all shareholders except the holders of our Series E Preferred Stock. Upon a liquidity event, holders of our Series E Preferred Stock are entitled to receive $50.00 per share of Series E Preferred Stock ahead of all of
our other stockholders. Except as required by law, holders of our preferred stock have no voting rights.

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

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

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

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



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



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



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



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

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

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

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

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

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.



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



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

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

An evaluation was performed under the supervision and with the participation of the Companys management, including the Chief Executive Officer
(CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of the Companys disclosure controls and procedures as of September 30, 2006. We are continuing to evaluate our internal controls in accordance with
Section 404(a) of the Sarbanes-Oxley Act of 2002 which become effective in 2007. In the course of our evaluation, we have identified certain deficiencies in our internal controls over financial reporting, which we are addressing. The Merger and
the subsequent acquisitions, described in Footnote 5 in the Notes of the Condensed Consolidated Financial Statements, have resulted in the use of several different financial recordation and reporting systems. Management is aware of the issue and has
initiated the integration of the divisional financial recordation and reporting into a single consolidated financial reporting system. Additionally, there is a lack of segregation of duties due to the small number of employees within the financial
and administrative functions of the Company. Management will continue to evaluate the employees involved and the control procedures in place, the risks associated with such lack of segregation and whether the potential benefits of adding employees
to clearly segregate duties justifies the expense associated with such increases. These matters have been communicated to our Audit Committee and we are taking appropriate steps to make necessary improvements and enhance the reliability of our
internal controls over financial reporting.

Based on our continuing evaluation, the Companys management, including the CEO and CFO,
concluded that the Companys disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and, further, that such controls and procedures were effective at the reasonable assurance level as of
September 30, 2006. The Companys management has concluded that the deficiencies described above do not prevent the controls and procedures from being effective because management has identified the issues and is taking action to resolve
them, other aspects of the Companys business are not negatively



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impacted, and the controls and procedures are subject to continuous review by management. There have been no significant changes in our internal controls or
in other factors that could significantly affect these controls subsequent to the date we completed our evaluation.

PART II. OTHER INFORMATION



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

On November 9, 2006, three holders of
common stock of the Company filed a complaint in the Superior Court of the State of California for the County of Loa Angeles naming our entire board of directors as co-defendants in a shareholder derivative lawsuit. (Steven Geduld at al vs. Arik
Arad et al, (Case No. KC049434)). The complaint alleges that the directors of the Company have committed breaches of their fiduciary duties and engaged in abuse of control, corporate waste, unjust enrichment, gross mismanagement and violations of
applicable Nasdaq marketplace rules in connection with the Companys placement of the Series E preferred stock and associated warrants in May 2006. In addition, the complaint alleges that the Companys Chairman of the Board, Johnny Pan,
engaged in insider trading in July and August of 2005. The complaint also alleges that the defendant directors caused the Company to issue false and misleading statements of material facts concerning, among other things, the Companys
forecasted revenue and earnings. The plaintiffs seek monetary damages for all losses suffered by them as a result of the alleged misconduct and injunctive orders directing (i) the defendants to disgorge all profits and special benefits obtained
by way of their alleged misconduct, including salaries, bonuses, stock options and proceeds from any stock sales, (ii) the Company reform and improve its corporate governance and internal control procedures to apply with applicable law, and
(iii) the implementation of constructive trusts over any proceeds from the defendants wrongful sales of the Companys common shares.



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

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

On September 29, 2006, we received redemption
notices from certain holders of our Series C and Series E preferred stock demanding that we repurchase an aggregate of 136,908 shares of our Series C preferred stock, representing 27% of the issued and outstanding Series C preferred stock then
outstanding, and 95,703 shares of its Series E preferred stock, representing 82% of the issued and outstanding Series E preferred stock then outstanding. Subsequently, we have received redemption notices demanding that the Company repurchase an
additional 150,600 shares of Series C preferred stock, and 6,175 shares of Series E preferred stock. Currently, the aggregate redemption amount for which our preferred stockholders have provided demand notices is $5,898,922, plus $145,066 accrued
and unpaid dividends. All demands for redemption are payable within sixty (60) days of the date the Company receives written notice from such stockholder of its election.

The holders of our outstanding preferred shares are entitled to receive dividends payable semi-annually. As of the date of this report, we are in default of our obligation of pay $3,068 of accrued dividends on our
Series C preferred shares, $513 of accrued dividends on our Series D preferred shares. In addition, we are required to redeem our outstanding preferred shares from time to time. As of the date of this report, we are in default of our obligation of
pay $42,021 upon redemption of our Series C preferred shares, $25,000 upon redemption of our Series D preferred shares.



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



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



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SIGNATURES

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



|                        |  |  |  |                                               
|----------------------- |  |  |  | ----------------------------------------------
|                        |  |  |  | GLOBAL EPOINT, INC.                           
|                        |  | 
|Date: November 20, 2006 |  |  |  | /S/    TORESA
LOU                             
|                        |  |  |  | Toresa Lou, Chief Executive Officer           
|                        |  | 
|Date: November 20, 2006 |  |  |  | /s/    JOHN PAN                               
|                        |  |  |  | John Pan, Chief Financial Officer and Chairman



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